Energy Regs Flashcards

Question

Bluefield

Answer 1

• “Just compensation” depends upon many circumstances and must be determined by the exercise of a fair and enlightened judgment. o This 1923 case still cited for what utilities should be allowed to earn on rates.  (it needs to be able to attract investors, must give them a return that corresponds to that level of risks versus the other entities out there competing for capital).  (must be able to compete with similarly risky entities) o Should assure confidence in the financial soundness of the business. o Should be adequate to maintain and supports its credit and enable it to raise money necessary for discharge of its public duties.

Answer 2

Hope Natural Gas (1944) is the 2nd leading case cited in rate hearing testimony. • MUST balance the investor and the consumer interests • A reasonable return: o Maintains financial integrity o Must be enough revenue not only for the operating expenses but also frht ecaptical costs of the business o Return should be commensurate with returns on investments in other enterprises having corresponding risks o Return should be sufficient to assure confidence in financial integrity of the enterpricse to as to maintain its credit and attract capital. it is the result reached not the method employed which is controlling.” o Great discretion to ratemaking method. it is the result reached not the method employed which is controlling.

Answer 3

* It’s the total effect of the rater order - cannot be unjust and unreasonable. * The fact that the method employed to reach that result may contain infirmities is notthen important. * Court isn’t going to look behind it but will see if you are recovering operating expenses and earning enough profit to attract enough capital on reasonable returns, earning returns of companies with corresponding risks, - court will not pick at particular method used to determine the rate base. If the total effect of the rate order cannot be said to be unjust and unreasonable, judicial inquiry under the Act is at an end.”

Answer 4

• Rate or Return reflects risk; Court: you can higher rate base and lower rate of return and number on the end could be the same. o If you use current cost = lower rate of return o If original cost with depreciation = higher rate of return  But it all washes out, and you get same result with either scenario

Answer 5

1. sufficient to maintain the financial integrity of the utility; 2. sufficient to compensate the utility’s investors for the risks assumed; 3. sufficient to enable the utility to attract needed new capital.

Answer 6

• the utilities did not make the showing that the total effect of the rate order was unreasonable. Slight reduction in the rate of return is not enough to be constitutionaly objectionable. o Supreme court: “overall impact of the rater orders is not constitutionally objectionable. no argument has been made that these slightly reduced rates jeopardize the financial integrity of the company The reductions here are so slight (.4 and .5), still in range of reasonableness; • Rate case range looked at by PSC was probably 10% to 18%, wide range. • Reasonable rate could probably be anywhere from 14% to 17%. • Courts give great deference to regulators.  “The economic judgments required in rate proceedings are often hopelessly complex and do not admit of a single correc result.”  “The constitution is not designed to arbitrate these economic niceties. “  “The constitution protects the utility from the net effect of the rate order on its property. “

Answer 7

o The higher the equity the less risk, the higher rate of return; equity is more expensive than debt o Higher debt ratio = higiher risk = more leveraged. o Higher debt ration is CHEAPER but less safe, more risk. o Higher equity ratio is More expensive but less risky. *PUC will generally not allow a high equity ratio because of the higher costs for customers. Balancing of economy v. safety.

Answer 8

Look at comparable group of companies with comparable risks (Bluefield, Hope)

Answer 9

look at actual interest rates from outstanding debt issuances

Answer 10

• Alternative: is to propose a rate decrease for customers as Green Mountain Power did

Answer 11

* 1) *When you merge with other Company your operating costs are lower. “Synergy Savings” but downside is it can result in layoffs because positions are duplicated. * 2) The utility got out of and got rid of a its ties to a generation facility (Vermont Yankee).

Answer 12

criteria identified by the court for determining “fair value” of the rate base * 1) original cost of construction * amount expended in permanent improvements * 2) the amount and market values of the utility’s bonds and stocks * 3) the present as compared with the original cost of construction * 4) the probable earning capacity of the property under particular rates prescribed by statute;

Answer 13

 1) original cost construction is easy  amount expended in permanent improvement is easy to track in asset accounts  2) market value of bonds/stocks: difficult for regulator, stock prices always going up and down. The stock will be attractive if the regulators set high rates and if regs set low rates then investors wont like stock: very circular.  3) present v. original cost const. (replacement cost) is more difficult b/c you would have to look at all materials and equipment used, labor, etc.  4) Probable earning capacity: same as #2, difficult for regulator.

Answer 14

For historical values, investors do not bear risk of inflation, it's accounted for.

Answer 15

o Court: Hope Case, FERC didn’t do its job by looking at what affect the disallowance would have on the utility’s ability to raise capital. It’s the end result that counts, but FERC didn’t do any analysis when making their JCPL decision. o Court: do your job, make analysis as to whether disallowing the cost will cripple the utility. DC Circuit vacates FERC decision. • FERC reached its determination by flatly refusing to consider a factor to which it is undeniably required to give some weight. Since no fact finding and hearing was held by FERC, the court remands for FERC to hold a hearing to determine whether the rate order it issued constituted a reasonable balancing of the interests; FERC didn’t do HOPE End Result Analysis (so remanded). • FERC held hearing on remand but made same decision. It doesn’t adversely effect utilities ability to raise capital. FERC just had to do end result analysis.

Answer 16

Mikva Dissenting Opinion: Majority decision “would virtually insulate investors in public utilities from the risks involved in free market business.” “This would drastically diminish protection of the public interest by thrusting the entire risk of a failed investment onto the ratepayers.” o If this utility were in free market, would it recover on its investment that was never completed? No, why treat them differently.

Answer 17

• The utility behaved reasonably when it undertook construction b/c it had obligation to serve, it was fulfilling that obligation, and circumstances changed so the plant was no longer needed. o Prudent Investment Test.

Answer 18

see if actions/decisions were reasonable at time they were made. Trying to avoid hindsight regulation; o PSC looks at standard utility practice, what do other utilities do at the time. o What info did utility have when the investment was made? o If bad decision then utility will pay;

Answer 19

exists when an unreasonable balance has been struck in the regulation process so as unreasonably to favor the ratepayer interest at the substantial expense of investor interests.”

Answer 20

provides compensation to build plant during the period the plant is under construction. Once the plant comes on line, the regulator allows the utility to capitalize the interest the account has earned, so the interest is added to rate base along with the dollars the utility invested. • Utility can’t raise rates for the 5 years of construction and when plant is completed it goes online at $130M instead of $100M amortized over useful life of plant; so the $130M is depreciated over useful of the plant. o AFUDC presrves Matching principle: customers in years 1-5 are not paying for anything they aren’t getting. In year 6, those customers are paying for that plant, including financing cost to build the plant.

Answer 21

provides compensation to build plant in rate base before the plant is completed. put in rate base some or all of the utility's investment in a yet-to-be-completed plant. • Utility can actually raise its rates as it is incurring costs to build the plant. • Over course of 5 years of construction rates go up $30M, but when plant goes online in year 6 it goes online (into rate base) at $100M (The recorded cost of plant b/c no captilized interst of AFUDC approach. The other $30M is in rates). o CWIP violates matching principle: customers in years 1-5 are paying price of financing plant and getting no benefit)

Answer 22

* CWIP would attract more investors which can be an issue for something as costly as a nuclear plant. * AFUDC would be preferred for consumers to protect them from the risk that the plant never comes online, which is possible due recent changes in nuclear energy policy in Germany and France, for example. Utility hates AFUDC; CWIP is preferred. AFUDC provides no cash flow, ratio of $ to pay debt service is really low and can result in a downgrade of credit rating b/c they don’t have the cash. Depreciation annually is higher under AFUDC than CWIP

Answer 23

Better deal for utility customers (arg for both): • CWIP (phasing in of rates, less depreciation) • AFUDC (matching principle, you pay when it’s online, not when it’s being built) Better deal for utility shareholders: • CWIP (clearly better off, rates raised each year is safer investment)

Answer 24

matches benefits and burdens. Customers who benefit from the plant's operation (i.e., who receive the electricity generated by it) have the burden of paying for it. the regulator sends appropriate price signals to customers • AFUDC appropriately matches risks to the utility and its customers. It protects customers from the risk of paying a return on a plant that never comes on line.

Answer 25

AFUDC can give investors a skewed picture of how a utility is doing. (utility can recognize on its financial statements what it earns in its AFUDC accounts as earnings. But those earnings do not actually produce cash flow until the plant goes on line ) • AFUDC keeps the risks associated with construction of a new plant on utilities until the plant is on line. (No sharing of risk can cause concern for bond rating agencies).

Answer 26

* Investors are risk averse. Allowing CWIP reduces the risk to a utility of a failed investment. Bond rating agencies, likely to give a better bond rating. * A better bond rating for a utility allows it to acquire capital on more advantageous terms, so a better bond rating can reduce a utility's cost of capital.

Answer 27

utility is receiving a return on its investment before the plant is on line, thus, customers are paying for something that is not yet providing service to them. • CWIP violates the principle of intergenerational equity. Intergenerational equity is a cost causation principle: those who cause a utility to incur a cost should bear the cost. With CWIP, customers who receive no service from a plant will bear some of the cost. violation of matching principle also means regulator is sending inappropriate price signals to customers.

Answer 28

• AFUDC could shock customers with higher rate in year 6. Whereas CWIP sneaks in higher rates each year over life of construction.

Answer 29

The starting point for setting utility rates Usually the most recent historical period Some states use a “future” test period (most states use historical period and adjust from there; but some states use a “future” test period). o EX: Assume rate case filing of July 1 ’14, 10 month statutory suspension period; most likely test period will be the 12 months ended Dec 31, 2013 with “rate effective period” beginning on May 1, 2015 (the 10 months inbetween for PSC doing discovery, research, etc.) provides a best estimate

Answer 30

o Adjust test period results for non-recurring events (“normalizing” adjustments)  Ex: Superstorm Sandy = non-recurring; normalize that out. o Adjust test period results for known and measurable future events (“pro forma” adjustments).  Not extraordinary in the test period but you know it will be different once rates take effect in 2015. EX: 5 year union agreement where employees get 5% raise. Health insurance premiums going up. *Needs to be known and measurable.

Answer 31

o 9% return on equity is your allowed return; in order to attract capital and maintain financial integrity. o What if economic downturn so revenue is lower (7%)?  That’s part of risk of operating utility, you can’t retroactively recover that  Retroactive ratemaking is prohibited o What is winter is colder than forecasted, and utility generates more revenue?  Utility can over earn, utility gets to keep that.  Now, if you consistently overearn, the PSC will require a rate reduction;  But a short-term bump in revenue is kept.

Answer 32

Ordinary and necessary • Origin: dictum in Smyth v. Ames: o “under the evidence there is no ground for saying the the operating expenses of any companies were greater than necessary.” Non-recurring Reasonable Prudent (investment or expenditure) Provides benefits to ratepayers General presumption of management competence Missouri ex rel. Southwestern Bell Tel. Co. v. Public Serv. Comm’n, 262 U.S. 276 (1923), utility doesn’t need to prove prudence of every single expenditure or investment.

Answer 33

o oppose: more cost effective for all gas utilities to get together and do R&D than for one to do it on its own o o defend: as long as some benefit is shown from R&D then should fine.

Answer 34

depends on part of the country.

Answer 35

o defend: offered as part of total compensation package. | o some statutes specifically provide that this is allowed;

Answer 36

o oppose: why don’t you build the same old stuff instead of spend money on this new technology, ratepayers shouldn’t bear that risk. o defend: o its an incremental cost b/c of new technology so its riskier

Answer 37

o Jersey Central Case. prudently decision making at the time? Prudence Standards (Jersey Central Case): • Prudence of utility investment or expenditures • Prudence is based on what the utility knew or should have known at the time of its decision o No hindsight evaluation o were actions reasonable in light of the circumstances at the time? • Role of regulatory compact. (utility built plant on role of obligation to serve so commission has obligation to treat the utility fairly).

Answer 38

o defend: less of a drain on utility | o these are always recoverable in rates.

Answer 39

o defend: substantial investment in facility; utility could say it will lessen lawsuits. o 1st amendment right to inform ratepayers at their expenses? Utility can’t have ratepayers pay for it. o Litigation is allowed to recover in operating expenses. o Prof: this is generally not recoverable

Answer 40

o Yes, might reduce litigation expenses of landowners suing.

Answer 41

o defend: part of our total compensation package.

Answer 42

o WV PSC said yes o VA said no: we don’t want our utilities doing demo projects o Without having both states AEP canceled the project.

Answer 43

not allowed • Institutional advertising (love your utility): not recovered in rates Central Maine Power Co., 26 P.U.R.4th 388 (Maine PSC 1978) Disallowing advertisements designed to influence pending rate proceedings as “political.”

Answer 44

to save energy: always allowed

Answer 45

typically Not allowed.

Answer 46

o Balancing of investor and consumer intersts o What about enviro impact of utility’s actions? • That’s not what setting just and reasonable rates is about; Look at agency’s stat auth, it’s not to engage in enviro protection is to make just and reasonable rates (even tho its clear the PSC action does have envrio impac). *must look at agency's stat. authority.

Answer 47

 Recovery of envrio related costs in rates different than using rate proceedings to evaluate environmental impacts  Recovery of envro costs in rates is an issue and EPA clean power plan is good ex of utility incurring costs that must be recovered in rates.

Answer 48

• Is this a good deal for Wheeling Power: o Not fair for ratepayer, great for shareholders o Violates matching principle, in that Wheeling and its ratepayers have never received any benefits from the Conner Run impoundment and have not been responsible for any of the material placed in the impoundment. • EPA will issue rules on Dec 19 on regulation of coal ash under RICRA (hazardous substance) which would close Connor Run. • Ratepayers are getting no benefit from Connor Run o Will not be used and useful. o Ratepayers shouldn’t have to pay anything with this facility.

Answer 49

see if industrial paying too much, residential paying too little so utility can recommend different rate increases for each customer classes; • AEP wants to raise residential rates more than industrial rates in WV o Due to rising day to day OPERATING COSTS/EXPENSES; also tree trimming costs; and also costs due to Superstorm Sandy and derecho (extraordinary event that can be recovered b/c it was so big and costly)  Create a deferred account and recover costs over a # of years; typically cant do retroactive costs, but exception: if it’s big enough you can. • Recession, hot summer, warm winter, etc. = not big enough for retroactive; something like Hurricane Sandy damage is.

Answer 50

* EX $96M for… | * the cost of a Harrison County power plant purchase

Answer 51

``` • Next Steps: o Discovery on initial testimony o Filing of opposing testimony by staff, other parties o Discover on opposing test o Filing of rebuttal test by company o Discovery on rebuttal test o Hearings  Before full commission or Admin Law Judge. ``` • Next Steps: o Briefs to commish o Decision b commish o Compliance filing of tariff sheets to implement decision o Petitions for rehearing/reconsideration  Standard of review • Very hard to overturn PSC decisions.  Johson act: can’t appeal rate case orders to federal court if adequate state remedy;  Just compensation for assets devoted to public service. If PSC haven’t given you what you need, you can’t make a federal case out of every rate decision (Johson act ). •

Answer 52

Allocation Allocate costs to customer classes, based on cost causation Demand costs are typically allocated based on peak usage, on the theory that the utility constructs capacity to meet its peak Example: Allocation of generation demand costs depending upon how “peak” is defined

Answer 53

Meters: Customer Related Costs A nuclear base load generating unit: Energy Related Costs Fuel costs: Energy Related Costs A natural gas-fired peaking generation unit: Demand Related Costs Postage meter for the billing department: Customer Related Costs Principle: cost causers bear the cost. Must also look at bill impact; even if economist says we should raise rates 50%, that isn’t an increase that the PSC is going to approve. Break up costs into bundle of costs to allocate the pie

Answer 54

``` Peak generation demand cost: demand costs allocated based on peak usage, on theory that the utility consructs capacity to meet peak. Which customer class is driving the need for us to acquire or build plant? That class gets the cost of the plant. ```

Answer 55

• 2 CP o if a "needle" peak occurs once per year, a 1 CP method may be appropriate, while a 2 CP approach would be more appropriate if the peaks each season are fairly equal.

Answer 56

o provide revenue stability and predictability o Promote efficient allocation of resources o Tarrifs are clear enough so people aren’t fighting about what the words mean.

Answer 57

- Declining Block (cheaper as you use more) - Uniform Rate structure (flat line but not "flate rate") - Inverted Block (price goes up as you use more) - Time of Use (seasonal or time of day)

Answer 58

concept: what’s max amount of elec. You are taking at any one time during a month; utility ties it to the capacity related costs; component of the rate is tied to peak usage. See notes slides from 9-11. EX for Industrial entity: • Max consumption measured at the customer’s meter during any 24-hour period beginning at 9:00 AM Central, and ending at 9:00 AM Central the following day during the most recent peak months of Dec., Jan., and Feb. {Same concept as the ratchet} Cost causers bear the cost; trying to allocate among the basic charge, demand charge, energy charge so slice of pie covers revenue requirement; Sends economic signals.

Answer 59

1. The Natural Gas Policy Act (NGPA) o NGPA failed to capture all that was going on with NG prices; the interplay with NG and Oil; 2. Crude Oil Windfall Profits Tax Act (COWPT) o Crude Oil Tax: failure b/c demand factors weren’t reflected accurately 3. Public Utility Regulatory Policies Act (PURPA) o PURPA: notion that encouraged non-utility generation; utilities forced to estimate costs for next 10-20 years, estimates were wrong so contracts were very expensive and required buyouts. Utlity had to sign contracts for next 10-20 years, required by law, and costs ended up being much lower.  Avoided cost: in the past, if you had to acquire an incremental MWh; figure out costs to build a new coal plant (Ex: 7.3 kwh/h) compared to a qualifying facility that would come online; • Avoided costs were way higher than actual costs 5-7 years out.  now we will just go onto wholesale market (PJM website) to look at what avoided cost will be.

Answer 60

No. performance based ratemaking “may not work for utility with significant capital additions . . . unless a rate base adjustment component is included.” Here, the utility will be adding new generating units over the next decade: i.e., significant capital additions.

Answer 61

a. Performance-based ratemaking (PBR) b. Price caps or rate freezes c. Earnings sharing mechanisms d. Non-traditional rate mechanisms AFOR may include any ratemaking process that does not involve traditional rate base/rate of return regulation Objective of AFORs to streamline the process and provide incentives for utility efficiency 1. Reduce regulatory compliance costs 2. Provide utility with greater operating flexibility (May not work for utility with significant capital additions a. Unless a rate base adjustment component is included)

Answer 62

 P is growth in external inflation measure (GDP or Industry Specific)  X is some measure of productivity, to ensure that prices decline in real terms (inc. in costs offset by gains in productivity)  Z adjusts for exogenous factors that are outside the control of the utility (reg changes, tax changes, etc) (PBR also typically includes Service Quality Measures) (PBR also commonly include sharing mechanisms to promote sharing benefits with customers) (benchmarking, yardstick regulation)

Answer 63

Intended to remove the disincentives for utilities to encourage DSM (conservation) Decoupling partially severs the relationship between sales volumes and revenues

Answer 64

Variations in weather may cause utility to over or under recover fixed costs. Utility reduces risk associated with weather. Some utilities have a Weather-Adjusted Rate Mechanism (WARM) which allows real-time adjustments to customers’ bills to reflect the effect of weather on gas use. - if weather colder than normal, rate per therm is reduced. - if warmer than normal, rate per them increased.

Answer 65

In WV, the Expanded Net Energy Cost (ENEC) mechanism is a fuel cost adjustment mechanism (See Allegheny Energy ENEC Fact Sheet. *These are very common because Fuel costs are large expenses, volatile at times, and difficult to predict; thus this category of op expenses is moved outside the ratemaking into a Fuel Adjustment Mechanism to receive special treatment. True up piece to this (if over recovered or under recovered, rate is adjusted) look at what was projected a year ago versus what actually happened.

Answer 66

In the past, utilities would only consider supply side options - adding plants to provide more power, and ignore demand side management (DSM). IRP requires a comprehensive planning process that a utility undertakes to evaluate all of its supply and demand options for meeting its obligation to serve customers, and combines them into a common analytical framework. IRP requires a utility to consider not only traditional power plants as supply side options, but also renewable facilities, because factors such as reliability, cost, environmental impact, and risk must be taken into account requires companies to consider demand reduction, 3rd party gen, and cleaner sources along with traditional supply-side alternatives to serving load.

Answer 67

``` o EE is a resource the utility is using to meet its load and it doesn’t matter what customer class EE comes from (if Conservation Resource Manager for industrial customers is easiest way to achieve EE then go there). • WV still does silos, doesn’t include energy efficiency as an option. ```

Answer 68

recognizes and makes sure that utilities are indifferent so they make as much $ on demand side stuff; recognition to make sure utility’s don’t suffer financially by investing in EE and conservation. encouraging EE, power generation, and distribution; there are things the utility can do in its generation, transmission, distribution, etc. that can reduce losses; encourage utility to make system more efficient required that all elec utilities adopt least cost or IRP.

Answer 69

evaluates full range of alternatives . .. to provide adequate and reliable service to its customers at the lowest system cost. Utility shall treat demand and supply resources on a consistent and integrated basis. = key concepts form EPACT.

Answer 70

Combines the load forecasting process with analysis of existing supply capabilities Identifies the “supply gap” that must be filled with additional resource acquisitions Evaluates the various options for filling that supply gap, and provides the analyses to guide future acquisitions Allows “demand-side” options (i.e., energy efficiency, conservation) to be considered alongside “supply-side” options o Includes a public process for stakeholders to participate in utility planning decisions. o IRP process can help justify prudent investment.

Answer 71

the margin of error to take into account plants down, maintenance, etc. – usually based on loss of load probability (LOLP) – plants that are going to be down.

Answer 72

what utility needs to fill as part of IRP –what’s lowest cost to fill that gap considering supply side and demand side resources.

Answer 73

• Look over 20 year period: Present Value of Revenue Requirements (PVRR) captures the total resource cost of each portfolio. Preferred Portfolio identifies the least-cost, risk-informed portfolio to fill resource needs based on forecasted customer demand

Answer 74

Action plan path analysis is used to allow utility to adjust its future actions based on changes in assumptions. If existing resources are not in balance with loads, utility must add resources to assure service under peak load conditions

Answer 75

Forecasting loads (or gas requirements) Analyzing supply-side resources Analyzing demand-side resources Developing least cost resource supply portfolio Developing Action Plan that takes specific steps to implement resource strategy

Answer 76

As a result of restructuring, the selection, construction, and operation of generation facilities was left largely to private investors responding to their perceptions of the market for power output. • Utility thinking about doing IRP, wasn’t sure what customers it was going to serve; the regulatory compact broke down in The States that went to competitive/restructured model.

Answer 77

* By March 2015, Requires PSC to issue guidance requiring utility IRP every 5 years (most states 2-3 years); going to “analyze and review” (not adopt or approve). * Prof: it’s a good start.

Answer 78

o Bad policy by Bangor: Bangor must think about short term v long term. Cant say its not appropriate to pay customers to conserve – will send customers wrong signal, EE efforts are long term efforts.

Answer 79

• Depending on state, it’s a commitment (sometimes stat enforced) that utilitie will procure a % of their elec. Supply from renewable resources • Renewable energy must be defined. Determine Ability to trade RECs; • Some RPS are just goals, some are mandates/standards the have penalties if they aren’t meet. • These are policy decisions made by either legislatures or PSCs; o Depends on State as to how effective it is. o SE states stay away from RPS b/c they don’t have wind, only option is more expensive solar/biomass which will raise electricity costs.

Answer 80

• REC: market for electrons produced by renewables; REC measures the greenness of those electrons; there is a market for RECS, way of complying with RPS; greenness of electrons is a separate commodity. If aggressive RPS then price of RECS is high. • Can do a carve out via REC: Solar carve out: S-REC market, separate REC market for solar. It gives a bump to the particular technology carved out. Solar REC price different from the general REC price. **(• Carve out’s support promising technologies with valuable characteristics that might otherwise be shut ouf of the market b/c of their higher costs. Solar energy is primary recipient of most RPS set aside rules ) • REC is a form of subsidy, alt would just be gov grants or production tax credits. RPS subsidy is through your electric bill, basically the utility is having to pay more $ for renewable energy – subsidy for utility to pay more for renewable shows up in electric bill; there is no free lunch – it will force up electricity prices.

Answer 81

• ACELA (Senate) includes coal mined methane and qualified waste (garbage) to energy which are excluded from the ACES (House: Waxman-Markey). • ACES: o Combined EE and Renewable standard of 20% by 2020; o 25% target may be met by EE, and can be raised to 40% upon state petition

Answer 82

• 10% from 2015 to 2019 15% from 2020 to 2024 25% by January 1, 2025 based on their annual electricity sales; only 10% may come from Natural Gas

Answer 83

WV seen as a goal regarding renewables b/c the 25% requirement by 2025 can be met entirely by alternative energy. All renewable energy projects built in WV are being built to sell RECs to other states and into PJM; no real REC market within WV, has no value b/c RPS allowed to be met with all alternative resources. PJM provides marketplace (integrity) for trading RECS; here is a REC from wind (for ex), what State can the REC be sold to based on how the state defines renewables and a utility that needs to buy that REC to meet its RPS requirement

Answer 84

* Utility has to buy power back from customers at a ceratin price. * 1) PURPA: purchase from QFs at avoided costs under the PURPA * 2) purchase from retail customers under “net metering.” * 3) purchase form retail customers under a Feed in Tariff. (FIT).

Answer 85

• QF = good facility we want to encourage; usually cogeneration or combined heat and power (CHP) or renewables. • Morgantown Energy Assoc is a QF b/c it produces steam to power campus facilities. o QF is exempt from provisions of fed power act to file rate case to set rates. o QF gets to sell power at the avoided costs. o PURpA requires local utility to inter-connect with the QF. • Avoided cost: where is utility going to get that next MW hour from (wholesale markets, power purchase agreement, new NG plant). • Failures of fixed priced reg: utility has a schedule of avoided costs, can make a profitable plant under the rates; build a cheap plant allowing you to make $.

Answer 86

• FERC determines the QF; State PUC determines how avoided costs are set but FERC provides guidance in the regulation; FERC grants substantial deference to the States.

Answer 87

o PURPA – Avoided Costs  In this region, most utilities would go to PJM to buy an additional MWh (wholesale market purchase) Ex: 5 cents/kwh; probably can’t build power plant and make $ at 5 cents/kwH so not a whole of independent power plants coming into being right now with power prices so low. • ****Wholesale markets so developed that all Mon Power has to do is hook up the Motown Energy Associate plant to let them sell to PJM. Unlike 1978, then the utility was forced to buy Motown Eenergy Assoc output at avoided cost, but now Mon Power can say all we have to do is interconnect you, we don’t have to buy your output at avoided cost, you sell it into PJM. *****

Answer 88

net billing involes one meter and one transaction. Electricity flows through the meter in both directions and is netted out and one meter reading made at the end of the billing period; meter can turn backwards to sell back to utility at the utility’s effective retail rate.

Answer 89

• MA argued that if this is a QF, if we’re buying power from them over the course of the year (they are net sellers to us) then we’re not going to pay anything more than avoided cost; o Ex: if this is a QF then PURPA applies and we don’t pay more than avoided cost of 5 cents; not the 9 cents we charge as an electric rate. • Court: over course of year if you sell back to utility, your displacing purchase from the utility so you are selling back at 9 cents/kwh BUT over course of year you are net seller then PURPA steps in and says if you are a QF then you only get Avoided Cost.; • Prof: most people only size solar for their home to meet load so they aren’t a net seller. • 39 states now have net metering provisions.

Answer 90

is policy decision, forces utility rates up; utility buys power at 9 cents when they could be buying in wholesale market at 5 cents. Utility forced to buy back at retail prices. If it gets too expensive, WV has a safety valve: no greater than 3 percent of elec. Utility aggregate customer peak demand in State during previous year (if we do too much, it raises utility rates) • This 3% is pretty standard amongst the states as a safety valve. State is wading in. *cap so you can’t be net seller really

Answer 91

1) purpa: avoided costs (5 cents) 2) net metering (retail rate) (9 cents) 3) fee in tariff o If utility was left to their own decision, they would buy from wholesale power market. Price they are paying for avoided cost or retail rate is adding to the revenue requirement b/c they are payin more than they can at wholesale prices on the market.

Answer 92

FITS is a fixed amount paid to the electricity generator, determined up front on the basis of the generator’s cost and profit expectations. * You enter into a contract (utility and customer) to require output of a resource; FIT encourages onsite generation (PSEG will pay me 15 cents/kwh for my solar generation; you sign 10 year agreement makes it easy to get financing). * Its an extra incentive to really promote on site generation. * German very aggressive with fits, 43 cents/kwh. PURPA requires a QF, but FITS can be anyone with a renewable enrgy system, not just a QF.

Answer 93

net metering rewards a business/homeowner for installing renewable energy system that sometimes provides more than enough electricity to meet the customers needs with the leftover sold back to the grid. No $ made unless excess sold back to grid. • FITS can pay anyone for electricity generated from renewables, whether or not it serves any load at all. $ made even if no load.

Answer 94

• FIT focuses on investor certainty and setting a price to drive renewable deployment. However RPS focuses on quantity, leaving the price up to the competitive bidding. RPS and FITS forces up utility prices, but RPS is much more indirect. RPS allows acquiring RECS, more compliance options than FITS. Thus, RPS is better for ratepayers in terms of cost given the compliance options utilities have for complying with an RPS. • FITS provides a stable investment environment with well designed policies; financing can occur more quickly; guaranteed contract terms enable investors to finance larger portions of the project with debt financing as opposed to equity. FITS also provides a guaranteed reliable revenue stream.

Answer 95

* Why did FIT cause problem? Potentially above the “avoided cost.” Yo uhaec a state adopting policy for CHP by adopting generous FIT, but if it’s a QF then PURPA applies; this case illustrates how you reconcile a state goal with what fed law requires under PURPA and it’s all about how you define avoided costs. * Conflict: must be consistent with avoided cost of purchasing utility. Outcome: FIT not preempted by PURPA as long as rate established by FIT does not exceed avoided cost of purchasing utility.

Answer 96

: if actually avoiding real environmental costs then you can add that to avoided costs. Can’t just throw in that number, have to show it.

Answer 97

* Yes. * Can’t throw out number and say we will give you a 10% bonus. Must build evidentiary record that you’ve analyzed the T&D costs the utility will avoid. * As long as it is cost based by ref to actual costs the utility is avoiding then you’re good to go. * FERC decision in CA PUC is great case for quantifying the actual cost benefits to send the right price signal. : Accordingly, if the CPUC bases the avoided cost “adder” or “bonus” on an actual determination of the expected costs of upgrades to the distribution or transmission system that the QFs will permit the purchasing utility to avoid, such an “adder” or “bonus” would constitute an actual avoided cost determination and would be consistent with PURPA and our regulations

Answer 98

o You avoid t&d infrastructure costs o Rates of buyback should reflect avoidance of t&d costs, reward distributed generator investors for those cost savings. o Increased system reliability, reducing vulnerability of relying on larger gen plants and the bulk power transmission lines. o Avoided added investment in substations. o Reduce peak load, provide anciallary services such as reactive power and voltage support, and improved power quality o Market clearing price will be lower, everyone benefits, dispatch fewer facilities, should result in lower wholesale prices. o Feed in Tarrifs – invest in renewables. Trickiest aspect of FIT is arriving at the appropriate cost. o Line losses avoided: lose 7-9% of elec. Over transmission line. DG avoids this.

Answer 99

o Different regulations by the states o Costs (higher); financing issues (Feed in Tariffs help with that). o Environmental siting and permitting o Grid interconnection issues (need for unidirectional flow of power);  Utilities have onerous interconnection issues (you pay engineering fees; get $1M insurance policy for anything than may happen = too expense for 3rd parties to interconnect); States had to streamline processes to allow easier interconnection. o Safety hazards due to unintentional islanding.

Answer 100

• Why: state action immunity; extension regulatory oversight of what utilities do. Protection of consumers is provided by heavy regulatory oversight by PUCs.

Answer 101

* Filed rate doctrine: protects firms with a filed rate (approved by fed or sate agency) from antitrust suits. Doctrine serves to protect consumers against discrimination in the setting of rates, by not allowing a firm to provide some customer discounts due to a legal judgment. * Concept: everyone gets the same deal. Utility by law can charge no more or no less than what its tariffs provide. Gives them antitrust immunity due to heavy reg oversight and state laws are clear that utilities can’t depart from their tariffs. Utility can’t cut you a deal if it likes you.

Answer 102

• P. 113: (As long a there is state action), federal antitrust laws are not intended to reach state-regulated anticompetitive activities.

Answer 103

Apply 2 prong Midcal Test: : prong 1) active supervision (“the conduct had to be performed pursuant to a clearly articulated policy of the state to displace competition with regulation.”) o As long as the state as sovereign clearly intends to displace competition in a particular field with a regulatory structure, first prong of Midcal test is satisfied. (satisfied here b/c FL has obvious and clearly articulated policy to displace competition via regulation) : prong 2) the conduct had to be closely supervised by the state. • In this case: satisfied b/c PSC exercised active supervision over FPL. Outcome: • No antitrust remedy here b/c of states oversight; even though FPL behaved badly. • Point of this case: 2 prongs of Midcal test: 1) clearly articulated policy of closely regulated utilities and 2) active oversight.

Answer 104

today: • Production: competitive markets • Pipelines: regulated by FERC • Distribution: regulated by State PUCs.

Answer 105

customer that pays a special interruptible rate which allows the industrial user to buy gas at low rates on condition that they can be cut off if the pipeline space is needed for residential gas heating on very cold days. • The interruptible customer pays little of the fixed cost of the pipeline b/c the pipeline serves the user only when spare capacity exists. o Alternatively: residential customer pays 1) actual amount of gas used; and 2) a reservation or demand charge b/c the pipeline reserves space to meet this customer’s demand at all times.

Answer 106

PRoduction of gas: (low economies of scale and low barriers to entry) p. 492, top. Which is why gov opened it up to competition and deregulated it b/c not monopoly. • Transportation of gas (interstate and LDC) is a natural monopoly (large economies of scale and high barriers to entry). Thus regulated closely.

Answer 107

• FERC gave Southern roll in rate b/c it resulted in system wide benefits to consumers. • Also applies on transmission side for electricity o Real disadvantage to wind developers to bear cost of constructing transmission line so “roll in” rates can help pay for that b/c it benefits consumers. o Thermal utilities don’t want it rolled in, they want it assessed only against the wind farm being integrated which makes the wind project non competitive ************************************* • Rolled InTest: is there benefit to broader system, if it will enhance system reliability then better chance you will get a rolled in rate.

Answer 108

• the paramount interest in the interstate business carried on between the two companies is not local to either State, but is essentially national in character. The rate is therefore not subject to regulation by either of the 2 States in the guise of protection to their respective local interests; but if such regulation is required it can only be attained by the exercise of the power vested in Congress. o (Has to be wholesale power or power crossing state line to be under federal jurisdiction).

Answer 109

States would compete with each other with power rates in an interconnected system. • One state could dump more costs on customers that are impacted outside of the state, giving way favorable rates to state residents. • Feds must come in to prevent states from fighting, regulate interstate transactions.

Answer 110

o Highlighted need for integration across the grid. The ISOs were not talking enough with each other, so now FERC can impose fines, NERC sets and enforces reliability standards.

Answer 111

• IOUs • Federal Power System: o Federal agencies that generate, transmit, or market power  Federal Power Marketing Agencies (Bonneville)  Federally owned or chartered power systems (TVA) • Publicly owned systems (muni’s) o Seattle City and Light • Rural electric cooperatives • Power marketers: (Ex: Enron, buy/sell power) • Independent power producers (IPPs) / Merchant generators o Longview Plant in Morgantown

Answer 112

• An electric utility holding company is the parent/umbrella companies of subsidiary IOUs that hold the stock of the IOUs. • Southern Company: 3 generating subsidiaries and 4 retail operating companies o Southern Generation; Southern Power (wholesale power generation); Southern Nuclear o Retail: Alabama Power, Georgia Power, Mississippi Power, Gulf Power  Its rates are primarily set by FERC due to agreements between the generating subsidiaries and the retail entities via wholesale transactions.  Benefit of more generous rate of return from FERC.  One of the most financially sound utilities in the country.

Answer 113

 Transmission of elec. In interstate commerce  Sale of elec energy at wholesale in interstate commerce  Exclusion for 1) facilities in local distribution, 2) transmission of electric energy in intrastate commerce (ERCOT).

Answer 114

• Supreme Court: we reject case by case analysis. • Bright Line Test: o All wholesale sales in interstate commerce o Except those expressly reserved by Congress for the States  Strictly intrastate commerce • This avoids the need to take a case by case analysis of the impact of state regulation on the national interest when the scope of fed jurisdiction over interstate sales of gas or electricity at wholesale is to be determined.

Answer 115

* FPLs transmission lines were connected with those of another Florida utility which in turn connected with the GA Power Company. Thus, FPL’s power was commingled with Corp power and exported across the GA line; electrons were in interstate commerce; electrons go where they want to go. * If electron on transmission level, can’t say it will stay in state = FERC jurisdiction. * Wholesale: utility to utility transaction = FERC jurisdiction. (even if small transaction at distribution level) (• Texas avoids the shipment of power across state lines, and is regulated within the state by ERCOT).

Answer 116

• Supreme Court: o Zone of reasonableness: this is not an exact science, many numbers that would satisfy a just and reasonable rate under the Fed Power Act and if FPC can set a rate down within range of reasonable that eliminates this discrimination (on retail rate) then you have to do that. o There is a range of reasonable that could make the discrimination go away, so go with the rate that addresses this issue. * Court: obligation under Section 206 to adjust your jurisdictional rate within that range to eliminate the disadvantage. * EX: if retail rate is below the range of reasonableness for the wholesale rate, does wholesale have to go below the bottom end of that range? No, the utility must receive a reasonable rate of return so can’t go below that on the bottom end of the range.

Answer 117

when one utility tries to pick off the best customers of another utility. • Utility makes a lot of $ off customer with high load factor (high load near peak at a constant rate); utility will try to take a more preferable (usually industrial) customer • Almost like death spiral on small scale: you lose the best, most profitable customers then the others are left to pick up the costs.

Answer 118

* Federal power act can require mandatory interconnection but could not require utilities to wheel power. Regulatory scheme is not so pervasive (doesn’t require mandatory wheeling), so antitrust consideration not determinative. * Court: activities which come under the jurisdiction of a regulatory agency nevertheless may be subject to scrutiny under the antitrust laws.

Answer 119

• You have to compete with superior service, lower costs, and increase efficiencies; here: otter tail had to open up transmission lines to muni’s with cheaper power. the utility will receive necessary and appropriate compensation for opening up its transmission system; still will get a guaranteed, reasonable rate of return. Sherman Act] assumes that an enterprise will protect itself against loss by operating with superior service, lower costs, and improved efficiency. Otter Tail’s theory collided with the Sherman Act as it sought to substitute for competition anticompetitive uses of its dominant economic power.”

Answer 120

!PUHCA repealed as part of Energy Policy Act of 2005 Now possible for merger of utilities located far from each other Need not be interconnected Enhanced FERC authority for approval of mergers

Answer 121

• Rules encouraged new entrants (known as QFs), by requiring utilities to purchase or sell electricity from such facilities. o If you build QF, utility has to buy your output at an avoided cost. It stimulated IPP to put up a QF b/c utility had to buy your output. o Carter’s energy policies were very progressive and forward looking, started the ball rolling on a market for generation. • Interconnection with the electric utility grid was required.

Answer 122

• FERC routinely required wholesale transmission access as a condition to its approval of market based rates; led to opening up the transmission grid.

Answer 123

the rates, terms, and conditions under which the service is offered must be nondiscriminatory and comparable to what the utility provides other customers; • Began concept of open fair and nondiscriminatory access, whatever you offer yourself you must offer to others; watershed b/c precursor to order 888, levels the playing field.

Answer 124

• Not let utility use monopoly power to advantage their power sales and power marketing over other entities; Developers of IPP require fair rules for them to compete. Objective is to create this robust, competitive market, which should result in lower costs for consumers. FERC Order 888 just like 636 in the NG sector.

Answer 125

To develop and maintain a same-time information system To separate transmission from generation marketing functions and communications Functional unbundling Clarifies federal/state jurisdiction over transmission in interstate commerce (• Ferc can’t tell public utility district and muni’s to file an open access transmission tariffs; but FERC put in a reciprocity provision )

Answer 126

* Open Access Same Time Information System: * P. 630: shows available transmission capacity so capacity reservations can be made. Information available to all customers, same info, same time; utility doesn’t get the upper han

Answer 127

FERC has jurisdiction over the transmission component of retail rates where the utility has “unbundled” its service. * When a bundled retail sale is unbundled and becomes a separate transmission and power sales transactions, the resulting transmission transaction falls within the federal sphere of regulation. * State still makes rates for the electrons. FERC does not require retail utilities to “unbundle” their services (dodged the Q due to juris. issues). * ENRON wanted FERC to regulate bundled electricity. Enron didn’t want incumbent utilities to get into the market b/c utilites will behave badly but enron wanted a level playing field. Enron found discrimination at the distribution level. * Justice Thomas bought into that Enron argument, ferc cannot decide as a matter of policy to decline to do that. Yea sensitive jursidctional issues, but if discrimation really exists FERC can’t walk away they need to deal with it. * Argument still out there if FERC could have required it.

Answer 128

• (ISO is subset of RTO); key is independent. Independent 3rd party operates transmission lines so FERC has reasonable assurances that FERC will not engage in discrim. Practices. o Consistent with promoting comp., • Jurisdictional utilities were expected to voluntarily form RTOs. • Cutting across utility territories, it’s a regional approach. Voluntary formation of RTOs, not mandatory.

Answer 129

• RTO operates like a utility, files its tariff sheets for transmission rates to move electrons over grid, based on operating expenses the RTO incurs to operate and maintain the lines.

Answer 130

• Very high burden to overturn these contracts; strong policy it’s all about protecting contracts. Burden you have to get out of contract: adversely effects the public interest SDG v. FERC; SDG trying to get out of contract: o SDG agreed to really bad deal and wanted FERC to bail them out o FERC: no, we strongly encourage utilities to engage in contracts and they cannot be easily disturbed. If were allowed to get out it will disrupt the wholesale market; volatility of oil prices isn’t unforeseeable that is an assumed risk in a 13 year contract.

Answer 131

under the mobile sierra presumption, setting aside a contract requires a finding of unequivocal public necessity or extraordinary circumstances. o Standard for a buyer’s challenge must be the same as the standard for a seller’s challenge: the contract rate must seriously harm the public interest.

Answer 132

overall impact of the contract on the utility’s revenues was minimal. • Its not going to impair Metro Edison’s entire service territory. so contract stands even though its a bad deal.

Answer 133

o Mobile Sierra Doc: FERC won’t disturb, very high burden before FERC will grant any relief to contracts based on market based rates; FERC will let markets operate, rates just and reasonable; • Supreme Ct: Must be a nexus: have to show Enron’s illegal activity affected price of this particular contract to be granted any relief. ; o the mere fact that the market is imperfect or chaotic s no reason to undermine the stabilizing force of contracts that the Fed Power Act embraces as an alternative to purely tariff based regulation.

Answer 134

(All FERC did was look simply at whether consumers rates increased immediately upon the relevant contracts going into effect, rather than determining whether the contracts imposed an excessive burden on consumers down the line relative to the rates they could have obtained but for the contracts after elimination of the dysfunctional market. ) **• “if that increase is so great that even after taking into account the desirability of fostering market stabilizing long term contracts, the rates impose an excessive burden on consumers, rates must be disallowed.”

Answer 135

• Market based rates: b/c of volume of transactions on single market partiicpatint has large amount of power. Once ferc is satisfied you are buying and selling in wholesale market they will step back and say the prices in those markets are just and reasonable, no longer need to have any tariff filings. The rates produced by comp. market are deemed to be just and reasonable. No utility has to make filings to justify the contract.

Answer 136

NRG Power Marketing LLC v. Maine PUC the Mobile Sierra doctrine applies even to 3P who do not participate in a settlement and there is no public interest standard independent of the “just and reasonable” requirement. o These 8 third parties are bound by Mobile Sierra doc even though they didn’t sign the deal; o It does not depend on the identity of the complainant.

Answer 137

“[I]mposition of this additional burden on purchasers challenging rates [requiring a finding of ‘unequivocal public necessity’ or ‘extraordinary circumstances’] was not authorized by the governing statute.” It was sensible to require a contracting party to show something more than its own desire to get out of what proved to be a bad bargain before FERC could abrogate the parties’ bargain. It is not sensible, nor authorized by the statute, for the Court to change the de facto standard of review whenever a rate is set by private contract, based solely on the Court’s view that contract stability should be preserved unless there is extraordinary harm to the public interest.”

Answer 138

relieves an electric utility of its obligation to enter into a new contract or obligation to purchase QF power upon a Commission finding that certain market conditions exist. mandated elimination of the purchase obligation where QFs have nondiscriminiatory Access to wholesale markets for long term sales of capacity and electric energy. recognized evolution of competitive wholesale market. To encourage ind. Power producers, we don’t need to impose obligation on utilities to buy QF output at avoided cost, just make utilities interconnect tso the IPP can access the markets

Answer 139

• In sum, since not all of the nation is covered by functioning wholesale markets, the mandatory purchase provisions of Section 210 of PURPA continue as before in areas w/o functioning wholesale markets. o Bottom line: important development of PURPA. Utility relieved for QF larger than 20 MW, process in place for less than 20 MW but no utility has satisfied yet. We don’t really need utilitis buying from QFs now to promote ind. Power production b/c the markets are so robust now, just interconnect and start selling powr into the market.

Answer 140

- Merger; eliminate duplicated jobs, enhance efficiencies. - Synergy savings: company operates more efficiently. - Mid American will be able to stay out of rate case by slashing costs like crazy; hold rates steady/slash costs/$ just goes to shareholders. = pretty good strategy, allows NV Energy and Berkshire Hathaway to reap benefits of synergy savings.

Answer 141

* Restructuring * p. 683: states have not achieved complete deregulation; state laws and regulations are still in place. * Trying to regulate the natural monopoly but figure out where you can allow competition to happen.

Answer 142

less expensive power for consumers, choices of electricity suppliers (including some that generated electricity in an environmentally friendly manner), innovations in generation and transmission grid technologies; • lower prices, better services, spur innovation, improve the environment.

Answer 143

charge that customers pay to incumbent utilities to cover their stranded costs • CTC was known as a “wires charge.” If you picked a diff. provider of the electrons, the utility delivering electrons to you got stuck with the stranded costs so it was built into the delivery rate. The customer can’t avoid it since it’s built into the delivery charge (wires charge). Stuck with CTC that is owed to the incumbent utility.

Answer 144

designed to ensure that the environmental programs underway in the electric utility industry would be continued in a restructuring environment. • If you open retail markets to competition than utilities have to compete on basis of price, and if they compete on price they may not do some of the good things we want them to do (enviro and EE things).

Answer 145

o 1) underpreciated investments in power plants that are more expensive thatn generators today. “out of market power plants” o 2) long term contracts, most if not all mandated by PURPA (buying from QF at avoided cost, can become out of market). o 3) Generators built but not used, primarily nuclear (based on long term planning) o 4) Expenses related to demand side management and other conservation programs that, as subs for new plant construction, were charged to the generation side of the business. • Regulatory compact: utility protected from competition, and gets reasonable rates; thus, utilities undertook long term investments (20-30 yrs) based on that: big generators, long term contracts. o Then when utility doesn’t protect utility from competition, it can reduce customer base of utility, but utility made investments relying on the old deal.

Answer 146

• Its like another prudence investigation. Why is it stranded? Was it prudent at the time you made the investment? If it wasn’t, we shouldn’t give you stranded cost recovery.

Answer 147

o Take bundle of stranded costs and securitize by issuing bonds; taking it from regulatory promise to a statutory promise. Statutory promise to pay means there is a code provision so regulators can’t change it = reduced risk, this bundled refinanced debt will benefit customers. * Benefits: reduce the utility’s interest expenses; Legislature and PSC guaranteed it so capital markets could provide certainty and lower interest rates. * Controversy: fixing the level of stranded costs up front would be necessary for securitization, which has all the potential drawbacks of ex ante estimation approach (might be a windfall or loss to utility).

Answer 148

o 1) CA relied on elec. Imported from other states for up to 25% of its gen needs, but those states were growing rapidly themselves o 2) the Pacific northwest experienced a drought o 3) NG prices skyrocketed to three and four times the national average in CA o 4) the spot market exposed utilities to the fluctions in electricity prices; there were restrictions on long term contracts. Flaws in market design allowed manipulation. o 5) CA’s largest utilities had sold off their generation assets, leaving them more exposed to the spot market. o 6) a rate freeze was in place to protect customers, but that meant utilities were buying power at high wholesale rates and selling it at low frozen retail rates. o 7) market manipulation by Enron

Answer 149

o Assessing enviro impacts permitted, properly recoverable cost (cost of study here: study impact on the rule) o Precedent: FL PUC approved legal advocacy work by Duke Energy and Gulf Power with respect to cooling water intake rule.  Therefore, it likely isn’t that farfetched for FPL to recover the $224k in costs proposed here. o General R: lobbying costs aren’t recovered in rates by ratepayers; shareholders can pay for.

Answer 150

o 1) the determination of “need,” for the facility so as to avoid unnecessary economic duplication of costly infrastructure; o 2) environmental impacts / environmental protection, so as to provide local land use and other environmental concerns input on the placement of necessary generation and transmission facilities. Lessen environmental impacts.

Answer 151

• FP&L would much rather compete to serve the City of New Smyrna Duke's new plant will be a merchant plant and a competitor of FP&L * When FP&L does an IRP, PSC may want FP&L to enter into a long term agreement with Duke. * The new plant would cause wholesale prices to go down. FP&L likely has some excess capacity they sell into wholesale market, which will compete with the power Duke sells, resulting in FP&L earning a lower price. * FP&L does not want Duke in their sandbox.

Answer 152

Don’t have a rate base, don’t have captive rate base. • EPAct of 1992 created the EWG, like a QF, but it’s not a QF – they are Ind. Power producers / merchant power plants that sets its own rates. • Why is Duke’s status as an EWG important here? o FP&L says the CCN statute is about FP&L, model doesn’t work when not a retail utility. o State PSC: EWG regulated at fed level so you’re a utility under our statute (progressive, will result in lower power costs, advance competition).  Duke’s EWG is allowed to come in and play.

Answer 153

• That would not protect legit local concerns, that may want to municipalize their systems and want a competitive generation market to purchase cheap power. o Counter/argument: protect local utility, FP&L, so an outside entity does not come in to take over a municipalities access to power. • This would reduce competition in wholesale elec. Gen.

Answer 154

* Yes, this would deter competition and prevent a wholesale market from being established in FL. * If Duke had to enter into contract with FP&L, Duke would have no leverage in the contract; it allows FP&L to become the gatekeepers. *Such an application of state regulation is economic protectionism and per se invalid.

Answer 155

- congress expressly left to the states the power plant siting and need determination issues - effectively allows Florida to prevent development of merchant plants within the state.

Answer 156

• The geographic area must be “experiencing electric energy trnamission capacity constraints or congestion that affects consumers. • P. 933: Secretary may consider whether: o Economic vitality and development of corridor or end markets served may be constrained by lack of adequate or reasonably priced elec. (holding back economic development) o Economic growth of the corridor may be jeopardized by reliance on limited sources of energy o A diversification of supply is warranted o The energy independence of the US will be served o Interest of national energy policy served o National defense and homeland security enhanced.

Answer 157

o EPAct 2005 Gives Doe authority to conduct studies on elec. Transmission congestion and Designation National Interest Electric Transmission Cooridors or NIETCs o Gives FERC authority to issue permits within NIETCs for construction of elec. transmission facilities.

Answer 158

o Court: affirmatively denying an application ends it, it does not mean approval was withheld; Ferc does not have authorization to exercise backstop authority if permit is denied by state within one year. * Dissent: goal of this statute is to build transmission lines when states won’t cooperate, he buys FERCs argument. FERC overrules states if they aren’t cooperating. * I believe the outcome of the majority opinion is better (otherwise State’s would always have to eventually approve siting in national transmission corridor areas, allowing FERC to effectively preempt the States);

Answer 159

California Wilderness Coalition v. U.S. Dept. of Energy, 631 F.3d 1072 (9th Cir. 2011) Vacated the DOE's Congestion Study as well as the NIETCs designated therein In vacating the DOE's actions, the Ninth Circuit ruled that the DOE: Failed to properly consult with affected states in preparing the Congestion Study, as required by section 216, and Failed to consider the environmental effects of designating NIETCs under the National Environmental Protection Act ("NEPA") Effectively vacated the designation of NIETCs in Northeast and Southwest

Answer 160

principle of “cost causation”? • P. 952: cost causation requires that approved rates reflect to some degree the costs actually caused by the customer who must pay them o Cost causers bear the cost o If you’re benefiting then you should shoulder a greater share; match cost with benefits.

Answer 161

* Judge Possner: not enough evidence in record where FERC quantifies the benefits to ComEd; FERC isn’t authorized to approve this pricing scheme where benefits are quantified for ComEd. * Dissent, J. Cudahy: put burden on ComEd to show that it would not benefit; ComED you are part of the system and this huge transmission line is a backbone of the system and will benefit the entire grid so all members will share in the entire cost – supports objective to build in more transmission.

Answer 162

After Piedmont, siting is a big deal b/c FERC authority to exercise backstopping authority is severely impeded by Piedmont

Answer 163

- Upheld in D.C. Circuit Ct in Aug. 2014. FERC has authority to require transmission providers to participate in regional planning process, does not interfere with state regulation of planning. o Order 1000 does not trample State decision over siting; If FERC says we need transmission line, still have to come to State to get siting approval. o But FERC saying the line is needed, is strong evidence when going to State PSC for approval. If state says no, still left with 216 after Piedmont, FERC can’t force it. But FERC 1000 encourages regional transmission process to obtain state permitting.

Answer 164

gen. facilities that rely on 2 or more primary fuel sources; • Advantages: reduce problems with intermittency and achieve great efficiency. Using the strength of one fuel to compensate for the weaknesses of others, especially with regards to issues like storage and intermittency. • Any combo of renewable and thermal resources that firms up your consistent output of energy.

Answer 165

• Yes; unless statute does a federal carve out allowing local govs to do more then currenly local govs cannot input requirements stricter than fed requirements Ex: EPACT 1975 nationwide standards for HVAC performance. • Why: for consistency re manufacturers nationwide; don’t want a patchwork approach b/c that’s harder to comply with.

Answer 166

• Why EE: o Most cost effective means of meeting a utility’s supply gap. o Most cost effective means of reducing GHG. o Less risky than clean energy technologies. • EE pays for itself Rebound Effect: demand for energy services may increase in response to energy efficiency: energy consumption increases alongside EE increase.

Answer 167

• “norm activation” – internalizing social norms to conform to accepted social sanctions or rewards to motivate changes in consumer behavior; sense of moral obligation; environmental norm. It isn’t enough to just provide info, you must stimulate the behavior.

Answer 168

* Demand response Involves identifying a potential reduction in consumption and treating that reduction as the service provided. Focuses on reliability reasons rather than economic reasons. Compensates customers for curtailing load. * Dynamic pricing: prices that vary with real time supply and demand conditions. Give customers the price signals to modify their behavior.

Answer 169

real time pricing (RTP). • Less dynamic and more restrictive forms such as critical peak pricing (CPP). • peak time rebates

Answer 170

customers are equipped with devices that automatically reduce consumption during high priced hours (such as a programmable communicating thermostat). Thus, rates are dynamic and prices change in response to events allowing customers to respond by manually curtailing end uses .

Answer 171

customer end uses are directly controlled by the utility and are shut down or moved to a lower consumption level during events such as an operating reserve shortage.

Answer 172

Customers agree to reduce consumption to a prespecified level or by a pre specified amount during system reliability problems in return for an incentive payment of some form.

Answer 173

* Petitioners complain FERC’s new rule goes too far, encroaching on the states’ exclusive jurisdiction to regulate the retail market. * Substantive Argument (used FERC authority under FPA to get them there): paying too much; all paricipants in PJM paying, costs spread among all players and the LMP will be higher depending on the particular nodes. This program is too expensive/too generous. * Has an effect on retail prices; no limit if FERC has juris on this • FERC argues §§ 205 and 206 grant the agency authority over demand response resources in the wholesale market. These provisions task FERC with ensuring “all rules and regulations affecting ... rates” in connection with the wholesale sale of electric energy are “just and reasonable.” 16 U.S.C. § 824d(a) (emphasis added); see also id. § 824e(a). Thus, the Commission argues it has jurisdiction over demand response because it “directly affects wholesale rates.”

Answer 174

Court: • he Commission’s rationale, however, has no limiting principle. Without boundaries, §§ 205 and 206 could ostensibly authorize FERC to regulate any number of areas, including the steel, fuel, and labor markets. • sections 205 and 206 do not constitute a “clear and specific grant of jurisdiction.” * States, not the Commission, regulate demand response. * Even if FERC had authority, still fail b/c it was arbitrary and capricious; FERC did not properly consider argument that 745 will result in unjust and discriminatory rates.

Answer 175

Dissent: • Because the Act is ambiguous regarding FERC’s authority to require ISOs and RTOs to pay demand response resources, we are obliged to defer to the Commission’s permissible construction

Answer 176

real time, automated interactive technologies that optimize the physical operation of appliances and consumer devices for metering, communications concerning grid operations and status and distribution automation. • Advantages: real time awareness of system outages, increase grid reliability and security, increased power quality and efficiency.

Answer 177

• Most common: pumped hydro, compressed air energy storage, batteries, flywheels (all utility scale)

Answer 178

• 2 way movement of both energy and comms. To deploy appliances; integration of renewable resources; SG ability to integrate resources wherever they are.

Answer 179

* Allows you to see what wholesale prices are: higher prices during day and very low prices at night. In terms of DG, it brings DG online when prices are high. If you have solar, your peak output is usually during peak power prices, you can get compensated for value of that power at time when power prices are high. Incentive to bring most power to market when needed. * Most, standard meters, not advanced enough to record when you using power to be compensated for using less during peak times.

Answer 180

• any deviation from normal of a voltage source (either DC or AC) can be classified as a power quality issue (EX: voltage sags or swells) SG addresses this: • Utility has to maintain voltage within a prescribed range, SG deploys sensors throughout grid to manage quality of power even with increased DG. • New business model: design rates so that utility’s are compensated for all the services they are actually providing in unbundled form instead of just one flat bill.

Answer 181

[[If you only charge $19 via customer charge, and total fixed costs $66, then you get rest through energy charges]] [[so you should have decreased energy charge if you increase customer charge]]. If customer charge up substantially then the residences that use least amount of energy will be impacted the most by this charge. • Disincentive for customers that want to install rooftop solar. o Your raising customer charge, lowering energy charge so the buyback to sell energy is lower. Makes the buyback period tougher. o Reduced incentive to invest in renewables. **lower risk for utility with higher fixed charges.*** (This rate increase is addressing the fundamental issue of DG and its impact on utility business model. Issue is solar prices continue to drop).

Answer 182

other issue is cross subsidization: utility has to maintain the grid, solar users not paying their fair share and if recovering these fix costs via energy costs = under recovery. If you have solar panels you are winning but if you don’t you are subsiding your neighbors solar panels. Thus, raise customer charge so you have less fixed costs recovered via energy charge; try to roll back net metering b/c that’s a big energy revenue cost driver.

Answer 183

Cable TV model: pay huge charge to have access to cable. Will utility try to raise fixed costs in customer charge and remove it from energy charge b/c it’s more at risk in energy charge. That’s also a death spiral, the more you use raise customer charge to $66/mo then better incentive for people to drop off the grid.

Answer 184

- direct use of geothermal heat | - production of electrical energy

Answer 185

- dry steam - flash plants - binary (most common b/c allows production from moderate temp resources)

Answer 186

- geothermal can operate like a base load plant b/c high capacity factor. This is what makes geothermal attractive; O&M high, capital costs high, but still lower than solar and nuclear. - Direct Use: taking advantage of fact that hot fluids are coming out of the ground. - Most common for residential use: passage geothermal systems, very cost effective if you have the acreage, and land to sink deep wells. No taking advantage of fluid or liquid out of ground just the constant temp of ground around 50 degrees.

Answer 187

purpose of the Geothermal Steam Act of 1970? | - Law reserving any mineral to the U.S. construed to embrace geothermal resources

Answer 188

Occidental Geothermal, Inc. v. Simmons: - What’s reasonable use of prop to access geothermal prop? - Reasonable in Occidental; reasonable use of surface was among rights granted by a federal geothermal lease.

Answer 189

Geothermal - Advantages: High capacity factor, for base load. Simple, zero fuel costs; small enviro impacts. - Disadvantages: located in remote locations, need transmission to integrate it. High up front exploration costs, drilling wells. Requires control of large amount of property (issues with uncertain title)

Answer 190

Why wouldn’t merchant plants like this idea? • Battery storage shaves the peak, merchant plants make all their $ on the peak Locational Marginal Price, battery technology will reduce that price. • Also push prices down in the ancillary services market (power plant running on standby and waiting to be dispatched when needed, immediately dispatchable; batteries would replace that).

Answer 191

• NG: New, large plants (roughly 100 MW or larger) fueled by natural gas could emit no more than 1,000 pounds of carbon dioxide per megawatt-hour (MWh) of electricity produced, which is achievable with the latest combined cycle technology. Smaller natural gas plants, which tend to be less efficient and operate less frequently, would have to achieve a less stringent rate of 1,100 lbs CO2/MWh Coal: CCS tech required to meet standard. coal plants would have to begin using CCS soon after startup to achieve a 12-month average emission rate of 1,100 lbs CO2/MWh. Alternatively, coal plants could begin using CCS within seven years of startup to achieve a seven-year average emission rate of between 1,000 and 1,050 lbs CO2/MWh, • Effectively prevents construction of any new coal plants b/c CCS is not yet commercially available.

Answer 192

* Issue of all the landowners to access the pore space. When do you have a taking? * Cost of $100M just to do title searches for the area of Monroe Co.

Answer 193

• Hurdles that must be overcome for CCS: o Streamline existing laws o Public use? Could say anything below 2,500 feet is public property (that’s how it is in Poland); o Unitization (forced pooling): mandate that pore space rights can be used for CCS if a majority of rights are obtained by consent. o Permit authorization: det public benefits v benefits to private prop owners o Reverse rule of capture: o Rule of capture: if you take it is yours, if you drill into underground reservoir you can take it all even if its under somebody elses land; reverse of that: we send CO2 underground and if it goes somewhere else, tough. o Recovery of CCS costs in rates (AEP proposal: WV said yes and VA said no so Mountaineer CCS project scrapped)

Answer 194

• WV report also mentions issue of acquiring all the necessary property rights. • Private investment is a big challenge given the risks. • Over long term, appears likely that some type of public assumption of liability will be necessary to spur private investment in the technology. o Price Anderson act: passed to stimulate investment in nuclear plants (if something really bad happens, insurance companies won’t insure so government will).

Answer 195

Storing/sequestering CO2 somewhat like radioactive waste from nuc plants; hard to see how private operators step up to this obligation.

Answer 196

Pipeline development, decision to build: * “Open season:” shippers can say they want to invest b/c they will want to put X amount of capacity on the pipeline. * Developers and shippers take risk when building pipeline, FERC is there for environmental review and stakeholder process for input, they are not there to determine need (FERC doesn’t weigh in much on need) – investors determine need via the open season process. • FERC performs no assessment of necessity, driven by investors/industry. No captive rate payers, if its bad investment then investors take the hit; no ratepayers that need to be protected and all risks borne by developers; thus no assessment of necessity. o Good point: no protection for landowner, landowner may suffer if pipeline isn’t necessary. FERC relies on the markets though.

Answer 197

• FERC has access for eminent domain authority if there is a storage facility

Answer 198

* TGP-Z4 (Marcellus): high $2.85, low $2.35 (very depressed in Marcellus Shale) * Most gas around the country trading in mid $4 range. Some hubs at $11, need for NG (Ex: hub in Mass./NE).