Stranded-cost recovery plus incentives for renewable energy.A New England utility executive told a U.S. Senate energy panel earlier this fall that the region was hammering out electric market solutions (em especially on stranded costs and environmental quality (em and that federal legislators should follow its lead.
Dan Delurey, a New England Electric System v.p., was one of 16 witnesses called to testify before the Committee on Energy and Natural Resources meeting in Burlington, VT, September 9. Sen. James M. Jeffords (R-VT), vice chairman of the Subcommittee on Energy Production and Regulation, chaired the hearing.
Before citing progress in the moves to a competitive market in Rhode Island, Massachusetts, and New Hampshire, Delurey, in his written testimony, noted that the key to the "magic kingdom" was stranded investment recovery:
"Recovery ... is a threshold issue which must be resolved before advancing on any other front. As they say out West, 'there is nothing like a hanging to focus your attention.'"
Delurey said utilities must recover "historic costs" during the transition to competition. Rhode Island, he noted, allows near full recovery of stranded investments on a fixed-cost basis. Sunk costs of generating plants and regulatory assets will be recovered over 12.5 years. Above-market power contracts (one-third of all stranded exposure) and nuclear decommissioning costs also will be recovered over the lifetime
of those obligations. A transition charge starts at 2.8 cents per kilowatt hour (¢/Kwh), and then after 12.5 years, drops to 0.5¢/Kwh.
In spite of those charges, New England Electric System projects average first-year savings for Rhode Island customers of 15 percent.
Like other witnesses, Delurey stressed the importance of keeping the environment clean. The Rhode Island law includes a 0.23¢/Kwh charge to fund energy conservation and renewables.
One witness said that "dirty" generators with excess capacity are upwind of New England. New England plants, meanwhile, are subject to more stringent emission controls and therefore have higher generating costs.
"Our region already suffers impacts from atmospheric transport of pollution," said Jeffords in his written testimony. "A study I've requested from the Energy Information Administration will be released today projecting a dramatic increase in air pollution from power plants over the next 20 years. This reinforces comments made by Federal Energy Regulatory Commission (FERC) that air pollution will be a problem in the first two decades of the twentieth century."
Robert H. Young of Central Vermont Public Service Corp. suggested that the federal government raise low-cost capital to refinance and lower near-term costs of capital-intensive power plants, such as "qualifying facilities" under PURPA (Public Utility Regulatory Policies Act). The federal government should direct state actions that benefit the nation's environment, he said. Generating plants that have been grandfathered under the Clean Air Act (in the expectation that they would be retired) should "be moved toward new source performance standards."
Other witnesses urged continued federal support of renewable programs. "In a restructured industry, renewable resources can be supported through various means," said Richard H. Cowart, chairman of the Vermont Public Service Board, in his written testimony. "There are different advantages to the use of a system benefits charge, portfolio standards, green pricing, and tax credits."
Like Cowart, many of those testifying also supported a regional independent system operator (ISO) to ensure coordination, reliability, security, and stability of the power system.
"Under current law, a truly independent ISO cannot be created without greatly affecting state-regulated generation and transmission owners, but the ISO would be regulated by FERC," Cowart said. "Given the importance of such an entity to the region, cooperative oversight by both the FERC and state regulators is highly desirable. This might best be accomplished through a regional 'Joint Board' consisting of both state and federal regulators."
Several witnesses addressed the reliability issue.
Richard M. Chapman, president of Vermont Electric Power Co., Inc., quoting a February 1, 1996, PUBLIC UTILITIES FORTNIGHTLY article, said there were two kinds of reliability: sufficient generating capacity and sufficient transmission capacity. "Reliability is not an accident," Chapman said in his written testimony. "It is the result of careful system planning, constant monitoring, and very substantial investment in the necessary physical facilities, including transmission facilities."
But reliable electric system planning and operations require cooperation and coordination, Chapman said, "cannot be mandated by regulation or legislation."
John Goodrich, a manufacturing v.p. with EHV Weidman, Inc., said contracts should replace utilities' obligation to serve, and that utilities shouldn't be obligated to stand by as suppliers of last resort. Transition or stranded costs should be shared, Goodrich said. "Transition costs must not be recoverable by utilities until all utilities have demonstrated that they have taken reasonable steps to mitigate such costs. ... Transition costs should be limited to the net cost of generation that exceeds the market price."
Other witnesses included Donald F. Santa, Jr., FERC commissioner; John B. Howe, chairman of the Massachusetts Department of Public Utilities; Lewis M. Milford, energy project director of the Conservation Law Foundation; and Richard Sedano, commissioner at the Vermont Department of Public Service. t
Joseph Schuler is an associate editor of PUBLIC UTILITIES FORTNIGHTLY. E-mail firstname.lastname@example.org
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