(November 2009)Regulators are in the unenviable position of determining an allowance for ROE that’s fair to consumers and investors in a volatile economy. The cases that stand out this year...
Regulators Forum: Restructuring Rollback
State-policy turmoil reshapes utility markets.
the projections of what the market would look like during the transition period. In exchange for rate caps and default-service provider status, the EDCs were allowed to recover stranded costs. Also, during the state’s transition period to market-based generation pricing, before the rate caps expire, state statute specifically requires EDCs to maintain their reliability standards, thereby addressing concerns about reliability of service in a restructured electric industry.
After the rate caps expire, the default-service providers are protected from market risk because the state laws that restructured the industry allow them to collect “prevailing market price” via commission-approved default-service plans.
Fortnightly: Will time-of-use metering help stabilize energy prices? Is Pennsylvania adopting the advanced metering policies advocated in EPAct?
Holland: The PUC has been studying time-of-use metering as well as other options that would encourage consumers to conserve their electricity usage with the hope that some stabilization of energy prices will occur. Some pilot programs already exist throughout Pennsylvania for all customer classes. But as we all know, the smartest part of the meter is the customer. Studies do suggest moderate reductions in peak demand may result in significant reductions in wholesale energy prices, the benefits of which eventually would be reflected in retail rates. The locational marginal pricing (LMP) model used in the PJM Interconnection responds more to time-of-use pricing than other pricing models.
The commission is taking aggressive action to reduce demand. We’re working to design a program that will work for all of Pennsylvania and the different types of electric utilities across the state. In the commonwealth, our governor, general assembly, and commission are actively engaged on energy issues. The eyes of the nation are on us as we all work toward developing and implementing a comprehensive energy policy. We are currently in the midst of a special session on energy called by the governor. It comes at exactly the right time to engage in a wide-ranging energy discussion and move forward with legislation.
While the commission has been working on these issues, I believe additional action by the PUC at this time would be premature. Additional direction may be provided to us if the legislature chooses to act on energy conservation, efficiency, and demand-side response as part of its special energy session.
Fortnightly: Will Pennsylvania consider decoupling utility returns from sales volume?
Holland: Revenue decoupling is one of many regulatory tools available to us. The PUC and its Demand Side Response (DSR) working group specifically considered revenue decoupling as part of its investigation into DSR options. Through its investigation, the working group determined a consensus on the role of revenue decoupling does not exist in the state.
The objective of decoupling the level of sales from the allowed revenue requirement is to provide the utility with a mechanism to recover revenues lost due to lower usage per customer, driven either by the implementation of effective DSR programs or general improvements in technology. An appropriately designed revenue-decoupling program may therefore remove an energy utility’s disincentive to foster energy efficiency and conservation.
Revenue-decoupling mechanisms do not appear to be expressly contrary to