Regulatory Update – Energy and Utility Developments 3_31_09

Rate Increases and Decreases

• The Texas PUC has approved a base rate increase for Entergy Texas that will increase rates by about $47 million (about 4 percent). The utility had initially requested a $107.5 million increase. The company reached a settlement with several, but not all parties, last May, which called for a $59.5 million increase The PUC said in November it would not accept a non-unanimous settlement, and all parties agreed to the $47 million increase in early January. (02/09)

• Oklahoma Gas & Electric has agreed to a settlement in its pending Arkansas rate case. The settlement would increase OGE's rates by about $13.6 million, compared to the $26 million initially requested. OGE has noted that, if approved, the rate increase would go into effect at about the same time as a proposed fuel reduction of $12 million, thus offsetting the rate increase for 2009. (03/09)

• Alliant Energy's Interstate Power & Light utility has asked the Iowa Utilities Board to approve a $171 million (17 percent) rate increase to recover repair costs resulting from 2007 ice storms and 2008 severe flooding, as well as for environmental and reliability investments. (03/09)

• Progress Energy Florida has asked Florida's PSC to approve a $499 million (30+ percent) base rate increase, reflecting a requested 12.54 percent ROE. (03/09)

• Florida Power & Light proposed a 2-step $1.3 billion (30+ percent) increase in its base rates, reflecting a proposed 12.5 percent ROE. FP&L proposed a future, 2010 test year for the case, arguing that a future test period would more accurately reflect the conditions that will exist while the rates are in effect. (03/09)

• The Florida PSC has authorized Tampa Electric to increase its rates by $138 million over two years, reflecting an authorized ROE of 11.25 percent. This compares to a $227 million (12 percent ROE) request by the utility. (03/09)

• Duke Energy Carolinas has announced plans to file for three straight years of rate increases (2010, 2011 and 2012) in North and South Carolina. The goal is to minimize rate shock but increase returns in each jurisdiction. (03/09)

• The Public Utilities Commission of Ohio has approved an electric security plan for AEP. This plan will result in a 23 percent rate increase for Ohio Power and a 19 percent increase for Columbus Southern Power, over three years. This represents approximately half of the initially requested increases. Additionally, the PUCO approved AEP's request to defer certain expenses over a nine-year period beginning in 2012, with a 14 percent interest rate, and allows AEP to put in its rate increase retroactively back to January 1. Even with these higher rates, AEP's rates are expected to remain the lowest in Ohio, according to the PUCO. (03/09)

• The Idaho PUC has authorized Idaho Power Co. to increase rates by approximately $21 million, with an authorized ROE of 10.5 percent. Although allowing a much smaller increase than that requested by the company, based on the economy, the Comm'n did allow the use of some projected cost information. The Comm'n also adopted a three-tiered rate structure with a differentiation for summer and non-summer usage for residential customers, designed to promote efficiency. (01/09)

New Generation and Environmental Compliance

• The Florida PSC has approved Florida Power & Light Co.'s request to defer, for possible future recovery, $34 million in preconstruction costs associated with a cancelled power plant project (specifically, two ultra-supercritical pulverized coal generating units of 980 MWs each, previously proposed by FP&L). In 2007, the Florida PSC rejected FP&L's proposed construction of the two units. But, in this deferral case, the PSC noted that FP&L had incurred significant major equipment contract termination costs, committed to because of unprecedented limitations on the supply of such major power plant equipment. Thus, the PSC concluded that FP&L made efforts to meet its projected in-service date, and that the utility reasonably decided to make the major equipment contract commitments. (01/09)

• The federal Government Accountability Office has stated that a $500 million "math error" led the Bush administration to cancel plans for the Mattoon, Illinois, FutureGen clean coal and carbon capture and sequestration project in 2008. According to the GAO, the Energy Department failed to incorporate inflation when it compared the original 2004 price for the project to the final project estimate, and thus wrongly concluded that the project costs were going to be too high. DOE Secretary Chu said that he hoped to proceed with the original FutureGen project in a "modified way," perhaps as part of a coordinated international effort. (03/09)

• DOE Secretary Chu also said he supports an expansion of U.S. nuclear power, and that the administration's decision to abandon the Yucca Mountain nuclear waste project would not limit the licensing of new reactors. He also said he supports DOE loan guarantees for nuclear power plants. (03/09)

• A federal bill sponsored by Senator Bingaman and Senator Murkowski would require major new assessments of how various forms of energy development and production affect U.S. water resources, as well as how much energy is consumed by water storage and delivery systems. (03/09)

• LS Power affiliate White Pine Energy Associates announced that its plan to build a 1600 MW coal-fired plant in Nevada is being put on hold because of current economic conditions and future regulatory uncertainties. (03/09)

• The Louisiana PSC has directed Entergy Louisiana to suspend development of the Little Gypsy repowering project and present to the PSC updated information about the project's costs and benefits. (03/09)

• U.S. EPA has proposed a rule that would require industries to report greenhouse gas emissions. The rule promulgation is in compliance with a previous congressional mandate. The proposed rule covers both upstream suppliers of fuels and direct emitters, and includes power plants, refineries, coal mines, auto and engine makers, and other types of industrial plants and operations such as cement and metals production. The rule would cover roughly 13,000 facilities that account for 85 percent to 90 percent of U.S. emissions – applying to a range of sites having direct emissions of 25,000 or more metric tons of CO2 per year. The first annual reports under the rule would be required to be submitted to the EPA in 2011, for the calendar year 2010. (03/09)

• The Obama administration has stated that it will propose new regulations for storing coal ash by the end of the year, following in the wake of the Tennessee Valley Authority's ash pond spill in December. (03/09)

• Legislation to encourage the development of nuclear plant construction is expected to become reality in Oklahoma this year. The anticipated legislation, passed by both the Oklahoma House and Senate, would establish procedures for the Oklahoma Comm'n to review utility proposals to build nuclear plants and would include rules allowing utilities to begin recovering their costs as a nuclear plant is being planned, designed and built. (03/09)

• Duke Energy Carolinas has filed for a combined construction and operating license for a third unit at the William States Lee nuclear plant in South Carolina, but "is not ready to pull the trigger" and commit to construction yet. That will depend on the company's ability to collect the money as construction goes along, which will require legislation in North Carolina.

• The Georgia PSC has approved two plans by Georgia Power to keep pace with load growth without contributing to climate change: the addition of 2 new nuclear units at the Vogtle Station by 2017 and the conversion of an older coal plant to burn biomass by 2012. The PSC also accepted Georgia Power's request to recover its financing costs for the nuclear construction through "construction-work-in-progress" ratemaking treatment beginning in 2011. (03/09)

• Interstate Power & Light has dropped plans to build a 630-MW coal plant in Iowa, based on the current economic and financial climate, legislative and regulatory uncertainty about greenhouse gas regulation, and the terms placed on the proposed plant by regulators (a price cap 20 percent below the estimated cost, and a 10.51 percent ROE). (03/09)

Energy Efficiency, Renewables, and Climate Change

• The Michigan PSC has approved revised net metering rules, in response to legislation intended to boost participation by homeowners and businesses in self-generating a small portion of their electricity needs. Under the new rules, net metering limits have been raised from 20 kW to 150 kW for renewable generators and up to 550 kW for methane digesters. In addition, the new rules: classify interconnection projects into different categories to reflect the level of complexity of projects according to their size; add an alternative dispute resolution process to resolve conflicts; provide for re-application when an applicant makes a material modification of an approved project; establish billing and crediting procedures for net metering customers; and provide for the transfer of current net metering customers to the new net metering program within 30 days of the new rules becoming effective. (03/09) 
• The Utah PSC has directed Rocky Mountain Power Co. to increase the enrollment cap on metering from 0.1 percent to 20 percent of its cumulative generating capacity, despite operational concerns raised by the utility. (02/09)
• The U.S. Geological Survey has detailed how it will assess the nation's potential to store CO2 underground, in a report released in mid-March. The method will give specialists a uniform way to estimate the carbon storage capacity contained within the pore spaces of both depleted oil and gas reservoirs and saline aquifer formations, which are two of the major areas with the geologic potential to contain carbon.
• The New Hampshire Comm'n has concluded its investigation into energy efficiency rate mechanisms, and has found, among other things: (1) existing rate structures often pose obstacles to increased energy efficiency; (2) new rate mechanisms, such as performance measures and decoupling, may be useful; (3) such mechanisms will be best analyzed in individual utility cases rather than on a generic basis. (01/09)
• The Georgia PSC has approved an experimental "Sustainable Environmental and Economic Development" pilot program proposed by Atlanta Gas Light Co., which will allow for three potential avenues for contracts: (1) new utility service extensions to new plant sites; (2) financing for the purchase and installation of new high efficiency gas equipment; and (3) discounted utility rates to help lower overall energy costs. (03/09)

Smart Grids

• In the hopes of accelerating development of a "smart" electric grid, the Federal Energy Regulatory Commission (FERC) on March 19, 2009, proposed a policy to encourage investments in Smart Grid technology, which FERC believes will advance the efficiency, security, reliability and interoperability of the electrical grid. The FERC's proposed policy would set priorities for development of key interoperability standards and would provide direction on cybersecurity. The proposal would also allow FERC-regulated utilities to seek recovery of smart grid deployment costs before final interoperability standards. The proposed rate policy also provides for assured recovery of stranded costs associated with legacy systems replaced by smart grid technology. FERC has invited comments from interested parties, which are due May 11, 2009. (03/09)
• FERC also is partnering with the National Association of Regulatory Utility Commissioners (NARUC) as co-chairs of the NARUC/FERC Smart Grid Collaborative, designed to facilitate and advise transition to a Smart Grid. The Collaborative members developed and announced a list of criteria for the Department of Energy to consider when establishing preconditions under which Smart Grid projects should be funded through the American Recovery and Reinvestment Act of 2009. The criteria are broken down into eight categories focusing on the preconditions for the grants themselves, technologies, rate designs and regulatory issues. Specifically, the criteria focus on identifying projects that are designed for interoperability, that provide proper management of cybersecurity concerns, and that will maintain the reliability and integrity of the grid. (03/09)
• Included in the Public Utilities Comm'n of Ohio's order approving a new electric security plan for AEP is an approval of AEP's plan to install advanced meters and other technology (such as distribution automation and home area networks) to create a "smart grid." (03/09)
• The California PUC has approved PG&E's request to upgrade its proposed SmartMeter program, to be comparable to the advanced metering infrastructure being implemented by San Diego Gas & Electric and Southern California Edison. The upgrade will extend installation of smart meters to 600,000 more customers, will include a load-limiting connect/disconnect switch in the meters and will include a home area network gateway device. As part of the decision, PG&E will also be able to implement its peak-time rebate proposal. The total upgrade is estimated to cost customers approximately $467 million, in addition to the $1.74 billion originally authorized. (03/09)

Mergers and Acquisitions

• The FERC has approved Electricite de France's purchase of a $4.5 billion ownership interest in Constellation Energy Group's nuclear generation business. The FERC also approved the terms of an agreement that gives Constellation Energy the option to sell its ownership interests in various non-nuclear generating assets to Electricite de France. (02/09)

• According to a report by PricewaterhouseCoopers, mergers and acquisitions involving renewable energy assets or technology accounted for 25 percent of all global power sector deals in 2008.

Regional Transmission Organizations / Transmission Issues

• The FERC has approved incentive rate treatment for several proposed transmission projects: PSE&G's portion of a $1.4 billion transmission project between Virginia and New Jersey; AEP/Duke Energy's proposed Pioneer high-voltage transmission line project in Indiana; and ITC Great Plains' projects in the SPP footprint. The incentives granted by FERC include ROE adders (150 to 200 basis points), CWIP treatment and recovery of potential abandonment costs. (03/09)
• PJM has asked FERC to clarify issues surrounding its proposed changes to PJM's registration process for demand response providers, after Indiana regulators and others complained that the proposal usurps existing authority. At issue is the extent to which a state commission can require that it approve customers' direct participation in RTO demand response programs. (03/09)
• The Public Utilities Comm'n of Ohio has opened an investigation into whether retail customers are receiving sufficient value from Ohio utilities' participation in RTOs. Comments are due to the PUCO in this docket by May 4. (03/09)
• The FERC has indicated that it will review the benefits of having the Southwest Power Pool (SPP) operate as Entergy's independent coordinator of transmission, since it shares some of the concerns voiced by utilities in the Entergy system about the arrangement's value. (03/09)
• U.S. Senator Jeff Bingaman and Majority Leader Harry Reid (D-Nev.) have both introduced transmission planning bills, with Bingaman's bill broader in scope and Reid's limited to transmission development for renewable energy purposes. (03/09)
• Emphasizing its longstanding position against the expansion of federal authority over siting, NARUC has outlined a set of principles for consideration before lawmakers supplant states' siting authority. These principles include: primary siting jurisdiction should remain with the states; FERC's authority should be limited to "backstop authority" that is as limited in scope as possible; FERC should not be granted additional authority to site or build new intrastate lines; FERC should not be given authority to approve an interstate line that is not consistent with a regional transmission plan developed in coordination with state commissions; and FERC should not be authorized to approve new interstate lines unless there is already in place either a cost allocation agreement among all involved states or a FERC-approved cost allocation methodology covering the entire project route.
• The Texas PUC has set an aggressive deadline of December 2013 for completion of $4.93 billion in "competitive renewable energy zone" transmission projects approved and assigned to specific transmission companies last July. (003/09)
• A study ordered by the Texas PUC in the aftermath of Hurricane Ike has found that improvements to transmission structures within 50 miles of the coast could be cost-effective and should be explored further. (03/09)

Other Developments

• Brian Wolff, executive director of the Democratic Congressional Campaign Committee and former political director for Speaker of the House Nancy Pelosi, is joining EEI in April as senior vice president in charge of governmental affairs and communications.
• Electricity consumption is expected to decline 1.7 percent this year, led by a projected 6.4 percent drop in industrial usage, according to the Energy Information Administration's March Short-Term Energy Outlook. EIA said it expected electricity consumption would rise 1.2 percent in 2010 as a slowly improving economic climate contributes to a recovery in the sales of electricity. EIA also said it expected retail electricity prices to rise about 1.1 percent this year and another 1.8 percent in 2010.
• The U.S. EPA is preparing a finding that greenhouse gas emissions pose a danger to public health and welfare, and is aiming to issue an endangerment finding on April 16, according to a draft EPA document. (03/09)