Month: December 2018

FERC Directs Guidance on Return on Equity

FERC Directs Guidance on Return on Equity

On November 15, the Federal Energy Regulatory Commission (FERC) issued guidance on how pending cases are going to be affected by a recent order that proposed using a “new approach for calculating the allowed Return on Equity (ROE) to have it be included in the rates of transmission owners” in New England. These new orders were voted on at FERC’s meeting on October 16.

The first order established a paper hearing to two parties involved in ongoing proceedings regarding the Midcontinent Independent System Operator, Inc. (MISO) transmission-owning members to submit briefs concerning FERC’s new approach to determining the base ROE. The order proposes to change the approach for determining ROE by giving four financial models equal weight, as opposed to relying on the discounted cash flow methodology that FERC had been using.

With these new policies, FERC is abandoning its old two-step discounted cash flow methodology that was issued in Opinion No.531, saying they need to stop using that methodology exclusively, and will instead be using the new, broader model to give everything equal weight.

FERC says that by using a wider range of evidence to determine base ROE, their decisions will now be more closely aligned with how investors make their decisions on investments. This order is similar to the Coakley Briefing Order in that it will not make any changes to the new methodology, it instead will help ensure that everyone in these proceedings gets an opportunity to present their arguments and evidence on determining base ROE.

FERC has also essentially raised the burden of proof for a Section 206 proceeding.

During this discussion, FERC Chairman Neil Chatterjee said they plan to consider if additional changes are needed for its transmission incentives and calculation of base ROE. Chatterjee said it was “high time” to see if FERC’s ROE and incentive policies are producing “the level and type of transmission investment the nation needs.”

“FERC needs to stay laser-focused on adopting and enforcing policies that ensure reasonable transmission rates. This especially applies to making sure equity returns included in transmission rates are not excessive,” said Delia Patterson, senior vice president and general counsel at the American Public Power Association.

The second order gave some additional guidance on the effects of the Coakley Briefing Order in regard to any pending proceedings about base ROE that are already set for hearing and settlement procedures. FERC said in this order that in these types of proceedings it expects the parties involved to address the new methodology that is proposed in the Coakley Briefing Order. This includes presenting evidence based on the new methodology how to apply the new methodology to the facts in these proceedings.

According to FERC’s presentation, “The Coakley Briefing Order addressed issues that the D.C. Circuit remanded to the Commission in Emera Maine v. FERC, related to the New England Transmission Owners’ base ROE as provided for in the ISO New England tariff, which the Commission approved in Opinion No. 531.”

FERC’s new policies are based on the hope that by raising transmission owners’ ROEs, they will encourage some desperately needed investments to respond to changes in the transmission business. They need transmissions to be expanded so they can connect new renewable energy and may affect “how particular resources provide services to the grid and the relative competitiveness of various types of generators.”

Climate activists and transmission owners alike can attest to the importance of bringing more green energy onto the power grid, and the new ROE methodology might help make this happened. During the October meeting where this was voted on, Commissioner Cheryl LaFleur suggested that FERC intends to apply this new policy fairly broadly.

“FERC had coordinated its approaches to determining transmission and pipeline ROEs under the one-stepDCF methodology in the past, it is entirely plausible that FERC will synchronize its ROE methodology for pipelines with the Coakley 2018 proposal soon.”

FERC Staff Issues Assessment of Demand Response and Advanced Metering

FERC Staff Issues Assessment of Demand Response and Advanced Metering

On November 7, the Federal Energy Regulatory Commission (FERC) issued their 13th annual report on demand response and advanced metering, which is required by the Energy Policy Act of 2005.

They discussed the penetration rates for advanced meters, as well grid modernization. The report noted that data has recently indicated that advanced meters have become the main type of meters in the United States. The penetration rate for advanced meters has approached 50 percent. In the last year, several states have requested advanced meters to be deployed on a larger scale; a number of them were approved to carry on.

The summer of 2018’s high temperatures and high fire risks led to utilities and operators in multiple states asking their customers to participate in voluntary conservation, emergency demand response, and/or critical peak pricing.

FERC also provided information on survey data from the U.S. Energy Information Administration (EIA) on recent actions that were taken at the state, federal, and regional levels, as well as by industry. EIA’s data shows that the biggest increase in customer enrollment in retail demand programs was in the radio frequency region, which increased by 50 percent. EIA says this increase was mostly due to the higher reported enrollment programs that are run by DTE Electric Company, Delmarva Power, and Potomac Electric Power Company.

The data shows that the enrollment in retail demand response programs went up by 8.2 percent between 2015 and 2016, and the enrollment in time-based rate programs went up by 4.8 percent.

FERC also responded to Advanced Energy Economy’s (AEE) petition for declaratory order pertaining to their “jurisdiction to regulate the participation of certain energy efficiency resources in the wholesale electricity markets.” FERC found that it indeed has jurisdiction in those markets, exclusively.

They approved the proposed modifications to PJM’s tariff to “improve the ability of certain resource types to participate in PJM’s capacity market.”

The assessment also included information on Order No. 841, the Electric Storage Resource Participation in Markets Operated by Regional Transmission Organizations and Independent System Operators, which is intended to remove any barriers for “the participation of electric storage resources in the RTO and ISO markets,” by requiring RTO and ISO to revise their tariffs and establish a model for participation that recognizes the operational and physical characteristics for the storage of electric resources.

FERC discussed the different issues and developments in demand response, specifically state legislative and regulatory activities regarding those and time-based rates. Several states have approved time-based rate pilot programs, “some in combination with proposed electric vehicle charging infrastructure investments, due to an interest in incenting off-peak charging of electric vehicles.” Other states have begun to consider what their next steps will be in regard to time-based rate programs and demand response.

FERC discussed the different issues and developments in demand response, specifically state legislative and regulatory activities regarding those and time-based rates. Several states have approved time-based rate pilot programs, “some in combination with proposed electric vehicle charging infrastructure investments, due to an interest in incenting off-peak charging of electric vehicles.” Other states have begun to consider what their next steps will be in regard to time-based rate programs and demand response.