Regulatory Update – Energy and Utility Developments

Rate Increases and Decreases

• The Ohio PUC approved an agreement that allows Columbia Gas of Ohio to increase its natural gas distribution rates by $47 M annually. The PUC also approved Columbia's proposal to implement a new "levelized" residential distribution rate structure that reflects the fixed cost nature of delivering natural gas. Also approved: $7.1 M for the "WarmChoice" weatherization program; a DSM rider; an infrastructure replacement program rider; and an overall return of 8.12%. (12/08)
• The Ohio PUC approved a settlement agreement calling for a $14.8 M (3.8%) base gas rate increase for Vectren Energy Delivery of Ohio. Among other things, the approved settlement includes a levelized fixed cost rate structure, a $5 M energy efficiency program, a distribution replacement rider (for the recovery of accelerated main replacement costs and service rider costs), and an overall rate of return of 8.89%. (01/09)
• NIPSCO reduced its requested Indiana electric rate increase, from 11.7% to 9.8%, due to contract revisions that allow the company to start using power from the recently-purchased Sugar Creek Generating Station immediately. (12/08)
• Georgia Power is seeking legislative and regulatory support for its proposal to recover nuclear construction and financing costs from customer rates as nuclear units are built. The Georgia PSC is expected to rule on Georgia Power's request in Spring 2009; Georgia Power is also considering seeking state legislation that would authorize such CWIP rate treatment. (01/09)
• The Michigan PSC approved a $83.6 M rate increase for Detroit Edison, with an 11.0 ROE, compared to the utility's requested increase of $284 M (and an 11.25% ROE). The Comm'n also ordered the utility to begin reducing the industrial customer subsidy provided to residential classes. (12/08)
• The Oregon Comm'n approved a $121 M (7.6%) rate increase for Portland General Electric, with a 10.1% ROE. Portland General had requested a $147 M rate increase. (12/08)
• The Kentucky PSC has allowed LG&E and KU to set up separate accounts to track and defer power restoration costs related to Hurricane Ike, for possible recovery in a future rate case. (01/09)
• The Michigan PSC has authorized Michigan Consolidated Gas to implement an uncollectibles expense true-up mechanism, and to recover $34 M in uncollectibles for 2007. (01/09)

New Generation and Environmental Compliance                   

• The Florida PSC authorized both Progress Energy Florida and Florida Power & Light to recover hundreds of millions of dollars associated with nuclear plant construction, including preconstruction costs, via rate adjustment riders. (In 2006, the Florida legislature passed a law to encourage investment in nuclear generation by creating an alternative cost recovery mechanism for preconstruction costs, construction costs, and site selection costs.) (12/08)
• The Indiana Utility Regulatory Commission approved Duke Energy Indiana's updated cost estimate for its Edwardsport IGCC Project. In its order, the IURC also approved deferred cost recovery for a carbon capture study. (01/09)
• After determining that the EPA's CAIR rule was fatally flawed and voting to vacate the rule earlier in the year, the D.C. federal appeals court decided in December to keep the CAIR rule in place while the EPA works to repair or replace the rule. (The CAIR rule called for more stringent SO2 and NOx reduction requirements applicable to 28 states; many utilities have already spent hundreds of millions of dollars to comply with the rules, and many states were already implementing and relying on the SO2 and NOx reductions required by CAIR.) It is not yet known whether the repair or replacement of CAIR will come from Congressional or EPA action. (12/08)
• The form and timing of mercury regulation remains up in the air as well. The U.S. Supreme Court could hear the federal court appeals' decision overturning EPA's CAMR rule's cap and trade approach to regulating mercury, or the EPA under President Obama could institute a MACT approach to mercury reductions – or both.
• Although EPA decided in 2000 that coal ash should not be regulated as a hazardous waste, coal utilities should expect increased federal and state focus on ash disposal practices in the wake of the TVA ash spill. (In late December, a coal ash spill at TVA's Kingston Fossil Plant in Tennessee flooded 300 acres and local rivers.)

Energy Efficiency, Renewables and Climate Change

• The North Carolina Utilities Comm'n rejected a proposal for independent third party DSM administrator, in part because the Comm'n concluded it did not have legal authority to take such action. (12/08)
• The FERC has issued a report ("2008 Assessment of Demand Response and Advanced Metering") showing that utility implementation of, and customer participation in, demand response and advanced metering programs is growing across the country. The report indicates that 8% of U.S. energy consumers participate in some kind of demand response program. Continuing obstacles, according to the FERC, include the limited number of customers on time-based rates, restrictions on customer access to meter data and the scale of financial investment necessary to deploy enabling technologies during an economic downturn. (12/08)
• The Idaho PUC has opened a docket to review Idaho Power Co.'s proposal to retire its renewable energy credits (RECs) rather than sell them. (12/08)
• The California Air Resources Board has approved a proposed plan to reduce greenhouse gas emissions as required by state law. The most prominent feature of the plan is a cap-and-trade program covering 85% of the state's emissions.
• NIPSCO submitted a proposed energy efficiency plan to the Indiana Utility Regulatory Commission, designed to reduce the company's peak demand by 1.7% through 7 energy efficiency programs. (12/08)
• The Florida PSC Staff is recommending a 20% RPS requirement by 2041; FP&L counters that nuclear should be included. The Florida legislature will take up the RPS issue later this year. (12/08)
• The Wisconsin PSC has approved Wisconsin Public Service Corp.'s proposed pilot test of electric rates that "decouple" profits from sales. (12/08)
• The Wisconsin PSC approved Wisconsin Power & Light's request to offer enhanced experimental buyback rates to customers who generate electricity from renewable resources and sell it back to the utility. (12/08)
• The Wisconsin Comm'n also signaled its intention to explore expanding the availability of renewable tariffs across the state and to consider launching a statewide solar collaborative that will explore how utilities could dramatically accelerate the cost-effective deployment of distributed solar PV panels across the state. (12/08)

Smart Grids

• See summary of FERC's "2008 Assessment of Demand Response and Advanced Metering" under "Energy Efficiency and Climate Change" above. The FERC's report indicates that the ratio of advanced meters to all installed meters has reached 4.7% in the U.S. (from less than 1% in 2006).

Energy Assistance

• The Ohio Public Utilities Comm'n has approved a request by Columbia Gas of Ohio (an LDC) to use a $2.1 M interstate pipeline profit refund to aid low-income customers this winter heating season. (12/08)

Mergers and Acquisitions

• The Washington Utilities Comm'n approved the merger of Puget Sound Energy's parent company with a consortium of international investors. In so doing, the Comm'n imposed 78 merger conditions and commitments, including a requirement for $10 M in annual rate credits for 10 years, ringfencing conditions, customer service, safety, reliability, resource adequacy, energy efficiency, low-income customer and environmental stewardship conditions. (12/08)

Regional Transmission Organizations

• The FERC issued a series of orders that authorize the start-up of the Midwest ISO's ancillary services market on January 6, 2009, conditionally accepting necessary revisions to the Midwest ISO's open access transmission service tariffs. (12/08)
• The Midwest ISO announced that John Bear (MISO President and COO) will succeed Graham Edwards as CEO of the MISO, effective January 16, 2009. (12/08)

Retail Restructuring

• The Maryland PSC issued a final report to the state legislature regarding options for reregulating the state's electric industry. The report concludes that while reregulation might be cost-effective for Potomac Electric Power Co., a return to full state-wide regulation is not the best option for the state as a whole.
• The Texas PUC issued proposed amendments to existing rules for electric provider of last resort (POLR) service.
• The Ohio PUC rejected FirstEnergy's proposed market rate offer, finding that the company did not demonstrate that its competitive selection process would result in an open, fair and transparent process. Deficiencies noted by the PUC included bidding problems, rate design deficiencies, market power issues and a lack of time-differentiated and dynamic retail pricing options.
• The Arizona Corporation Comm'n has authorized Tucson Electric Power Co. to increase rates by $47.1 M (6%) and to return to a traditional rate base/rate of return form of regulation, including a fuel adjustment clause and a purchased power adjustment clause.

Other Developments

• Fitch Ratings outlook for the power sector is worse than it was a year ago, but concludes that the power sector is better positioned than most of the rest of corporate America. Fitch notes that jurisdictional regulatory practices will be a key of creditworthiness in the sector. (01/09)
• The Indiana Utility Regulatory Commission rejected a request by Wabash Valley Power Assn. to decline to exercise its jurisdiction over transfers of assets between WVPA and its member companies. (12/08)
• Xcel Energy has filed a proposal with the Colorado PUC seeking funding through rates for an "Innovative Clean Technology" program.  Funds collected for this program would be used for small demonstration projects that could eventually support Colorado's future clean energy needs. In its filing, Xcel requested that $6 million be raised in each year from 2010 to 2013 to help deploy and test promising clean energy technologies in Colorado. The first project proposed under this new program is the development of a concentrating solar power demonstration at the company's Cameo Generating Station near Grand Junction.  (01/09)