Public Utilities Commission Research Articles

Regulatory Challenges Facing Renewable Natural Gas

Natural gas is coming increasingly under attack by policymakers and elected officials who are embracing “electrification only” as a means of reaching state clean energy and climate‐mitigation goals. Achieving these goals may mean reducing the use of natural gas as a residential and industrial fuel. Earlier this year, the California Public Utilities Commission (CPUC) launched a new rulemaking to address the state's transition away from natural gas. The commission will address issues related to stranded assets and cost recovery, and unfair shifting of costs among different customer classes. Other state public utility commissions in New Jersey and New York may follow shortly, given their increasing opposition to interstate natural gas pipelines that would serve their residents and businesses.

A Spatial Analytics Framework to Investigate Electric Power-Failure Events and Their Causes

The U.S. electric-power infrastructure urgently needs renovation. Recent major power outages in California, New York, Texas, and Florida have highlighted U.S. electric-power unreliability. The media have discussed the U.S. aging power infrastructure and the Public Utilities Commission has demanded a comprehensive review of the causes of recent power outages. This paper explores geographic information systems (GIS) and a spatially enhanced predictive power-outage model to address: How may spatial analytics enhance our understanding of power outages? To answer this research question, we developed a spatial analysis framework that utilities can use to investigate power-failure events and their causes. Analysis revealed areas of statistically significant power outages due to multiple causes. This study’s GIS model can help to advance smart-grid reliability by, for example, elucidating power-failure root causes, defining a data-responsive blackout solution, or implementing a continuous monitoring and management solution. We unveil a novel use of spatial analytics to enhance power-outage understanding. Future work may involve connecting to virtually any type of streaming-data feed and transforming GIS applications into frontline decision applications, showing power-outage incidents as they occur. GIS can be a major resource for electronic-inspection systems to lower the duration of customer outages, improve crew response time, as well as reduce labor and overtime costs.

Closing Diablo Canyon Nuclear Power Plant, 2009–2018: Decision-Making on Energy Investments Relevant to Climate Change

Modern economies cannot function without electricity, and production of electric power affects citizens in many ways, including climate change. Production of electricity requires investments that easily reach billions of dollars, and streams of investment capital must be perpetual to procure fuel, build and maintain plants, and transmit electricity to customers. This case study addresses whether a California decision relevant to investments about generating electricity adequately considered competing concerns. In 2009, Pacific Gas and Electric (PG&E, a private, investor-owned utility) applied to renew the operating licenses of its two nuclear reactors at the Diablo Canyon Nuclear Power Plant (the “plant”). By 2016, PG&E had decided not to seek license renewal and asked the California Public Utilities Commission (CPUC) to approve a price increase for its electricity to pay for specified expenses in closing the plant, which generated 24% of PG&E’s electricity. Four environmental groups and two labor organizations supported PG&E, and CPUC approved most elements of PG&E’s plan in 2018. PG&E’s application generated considerable debate during the CPUC process, and multiple organizations argued that PG&E’s plan was flawed. Two of the protests were from environmental groups favoring nuclear power as mitigation for climate change. Nuclear reactors generate electricity with uranium and have low emissions of carbon dioxide, the key source of climate change. This case study summarizes the competing arguments relevant to energy investments and climate change. Was the decision to close the plant in the best interest of the PG&E customers and the residents and taxpayers of California?

Texas's operating reserve demand curve's generation investment incentive

Faced with reserve margin projections well below the adopted target of 13.75% of the system peak forecast, the Public Utility Commission of Texas on 01/17/2019 ordered the state's grid operator, the Electric Reliability Council of Texas, to “right shift” the operating reserve demand curve (ORDC) to increase generators' revenue from energy sales in ERCOT's real-time market (RTM). Using a large sample of 15-min data for the backcast period of 01/01/2015 through 12/31/2018, we calculate the ORDC shift's impact on RTM prices and investment incentives for natural-gas-fired generation (NGFG). Had the ORDC shift been in effect in the backcast period, the resulting RTM price increases in 2018 could suffice to justify NGFG investment, though not in the prior years of 2015, 2016 and 2017. While the actual ORDC shift occurred on 03/01/2019 had a large impact on RTM prices in the ensuing six-month period of March–August 2019, Texas's planned renewable generation is expected to erode NGFG's operating profit, thus diminishing the ORDC's investment incentive over time. Hence, Texas's energy-only market design will likely need further refinements to solve the missing money problem of inadequate NGFG investment incentive.

Tree-hugging utilities? The politics of phasing out coal and the unusual alliance that passed Oregon's clean energy transition law

In 2016, the state of Oregon passed the Oregon Clean Electricity and Coal Transition Plan, which doubles the state's renewable portfolio standard to 50% and eliminates the use of coal-fired electricity by 2030. The research presented here examines the central factors that contributed to passage of the legislation. Interviews were conducted with individuals closely involved in the bill's passage and who have extensive knowledge of energy policy in the state. The findings were analyzed using the Multiple Streams Approach, which analyzes public policy to understand how certain items emerge onto the political agenda, creating opportunities for policy change. The research found that cooperation between the utilities and environmental groups was crucial to its success. Another key factor was a threatened ballot initiative that prompted the utilities to negotiate the alternative that was eventually passed in the legislature. The collaboration between the state's utilities and environmental groups represents an example of passing environmental legislation that can be emulated elsewhere. However, the context of the bill's passage, which took place during a short legislative session that did not allow for extensive consideration and excluded the Public Utilities Commission, also contributed to an erosion of trust and damaged relationships.

How May Location Analytics Be Used to Enhance the Reliability of the Smart Grid?

The United States (U.S.) electric infrastructure urgently needs renovation, as highlighted by recent major outages in California, New York, Texas, and Florida. The media has discussed the aging power infrastructure, and the Public Utilities Commission called for a comprehensive review of the causes of recent power outages. Without optimization algorithms to account for the many operating parameters and outage scenarios, planning engineers may inadvertently choose non-optimal locations for new components such as automated distribution switches, thereby impacting circuit reliability. This study aims to address this problem by answering the research question: “How may location analytics should be used to enhance the reliability of the smart grid?” To address this problem, Insights for ArcGIS was used to build worksheets using a geographic information systems (GIS)-based approach to resolve the challenges faced by utilities to reduce power outage frequency. Three case studies demonstrate various risk scenarios wherein a utility can prepare for the unexpected. An artefact in Insights for ArcGIS was created using a design science research methodology. This research proposes a solution to facilitate storm/disaster planning and vegetation management, identify optimal grid locations needing inspection or work, and detect regions where new distribution switches may provide benefits, considering the many operating parameters and outage scenarios. The artefact demonstrates that GIS can play an integral role in resolving this problem.

A Review of Challenges to Attract Public Private Partnership (PPP) Investments to Power Generation Infrastructure In Sri Lanka (SL)

Ceylon Electricity Board (CEB) is a State Owned Enterprise (SOE) operating in power industry of Sri Lanka being a monopolistic. Long Term Generation Expansion Plan (LTGEP) that prepared by CEB and approved by Public Utility Commission and the Cabinet of Ministers. As per LTGEP capital investments for Generation Infrastructure from 2018 to 2037 had been projected around USD 14,568 million. As per Electricity Act 2009, CEB was vested with responsibility to implement LTGEP to satisfy power requirement of the country. The Government policy decision of sourcing of funds by CEB its own has been implemented from year 2015 and CEB is operating for last several years with negative cash flow mainly due to subsidized tariff structure. The funding agencies have imposed stringent financial covenants into loan agreements. CEB has been challenged to adhere with those financial covenants due to existing mal financial position of CEB. Electricity Act 2009 states any person to generate capacity above and over of 25 MW, shall Government hold 51% of ownership. Sri Lanka by law any investment in power generation above and over 25 MW shall be a Public Private Partnership (PPP). Non implementation of above projects on time will lead to power shortage in the country and accelerates cost of unit of electricity immensely to pay by the public. In this circumstance PPP model has proven that mostly applicable for development of public infrastructure in developed and developing countries. CEB being a monopolistic player in the power industry, is required to pursue PPP for development of power generation infrastructure to assist growth momentum of the country. The challenges pertaining to institution could be addressed within the organization such as effective leadership for trust building and coordination, modification of bureaucratic structure of organization with changing environment to attract private investment. The main challenges have been identified such as state credibility and inconsistent policies .The challenge of social support could be harnessed by CEB with Ceylon Electricity Board Engineers Union (CEBEU) which has become integral arm in collaboration for policy formulation in power sector of Sri Lanka. With the reviewed literature could conclude that state credibility, inconsistent policies and lack of public support had hindered the private investor confidence in power sector in SL.

Governance models of public utility commissions in the United States

Regulation of utilities at the state level in the United States is undertaken by a commission on which anywhere from three to seven commissioners sit and must vote on virtually all significant utility actions, including rate requests, resource plans, acquisitions and mergers, and financing mechanisms. Public utility commissions (PUCs) are, in a very real sense, courts with adjudicatory responsibility over the area of state utility laws. In hearing a utility case, they must follow the state’s statutes and court rules. The commissioners function as judges in this court of public utility law. In a majority of states, commissioners are appointed by the state’s governor with the advice and consent of the state legislature. In a significant minority of states, commissioners are elected by popular vote. However, recent changes in US election law have made it easier for corporations and special interest groups, called political action committees, to influence elections through donations targeting direct voter outreach on behalf of specific candidates. This chapter examines what the entry of political spending in PUC elections means, and whether elected commissioners can adjudicate in the public interest, or will adjudicate for special interests. The chapter concludes that while both the appointment and election governance model can produce both “good” and “bad” commissioners, it is the elected commission that is most at risk of selecting commissioners that will not be truly independent and objective arbiters of the law.

Keeping current: How advancements in electricity storage can save money for consumers

ABSTRACTAdvances in storage and battery technology offer value to the electric grid and individual budgets, with the potential for electric vehicles (EVs) to significantly lower household transportation spending as the best current example.Cost-effective storage is a holy grail for the electrical grid and for consumer advocates. Storage potentially provides opportunities to help lower overall electric system costs, such as by time-shifting, frequency regulation, reducing the cost of renewables integration, and helping to more cheaply balance supply and demand. It also provides opportunities to help individual budgets, with the potential for electric vehicles (EVs) to significantly lower household transportation spending as the best current example. While there are thus many good reasons for advocates to be bullish on electricity storage, maximizing the full consumer value depends on continuing the impressive cost declines of batteries and other storage technologies we have seen over the last decade. It is important for states, regional power markets, and public utility commissions to get policy right. Keeping up with the evolving storage market and maximizing consumer and environmental value will require proactive policies aimed at facilitating integration, aligning incentives, and promoting innovation. Given the great potential, now would be a good time for stakeholders and policymakers to start moving forward.

Who Pays for Retail Electric Deregulation? Evidence of Cross-Subsidization from Complete Bill Data

Retail electric deregulation has been identified in the literature to have favorable price impacts to businesses and households because of the introduction of competition into rate-setting. Those studies often ignore the important role of regulatory intervention. They are also generally national or multi-state aggregated studies that ignore state- and utility-specific dynamics, and most rely on Energy Information Administration (EIA) price data that does not account for riders and surcharges on consumer bills, which can total more than 60 percent of bills. Using a unique panel of representative, complete electricity bill data from the Public Utilities Commission of Ohio (PUCO), this paper provides a multi-utility panel regression analysis of the effect of retail deregulation on total electric bills in Ohio. The results identify two main sources of cross-subsidization that have generally cancelled out the favorable effects of restructuring. Both types of cross-subsidies result in substantial burden shifts to residential consumers.

Electricity Markets in the United States: Power Industry Restructuring Processes for the Present and Future

Following Order 888 from the Federal Regulatory Energy Commission (FERC) in 1996, the U.S. power industry began its restructuring process. This undertaking involved a transition from a vertically integrated utility structure where generation, transmission, and distribution are combined to serve consumers. Through advancing to a market environment, generation companies (GenCos) can compete with each other to provide energy through open transmission and distribution systems managed by transmission (TransCos) and distribution companies (DisCos). The goals of the restructuring are the efficient production of electricity and efficient generation investment through competition. Under the restructured environment shown in Figure 1, wholesale electricity markets are managed by independent system operators (ISOs) or regional transmission organizations (RTOs), whose responsibility is reliable system operation, market administration, and system planning. GenCos, large consumers, load aggregators, marketers, and load serving entities (LSEs) buy and sell electricity through FERC-regulated wholesale electricity markets. Small consumers like individual households, some large consumers, LSEs, marketers, and load aggregators can transact energy either at a regulated retail rate overseen by the public utility commission (PUC) or through retail competition. The restructuring process has been complex, especially in trying to harmonize the wholesale and retail sides, and involves many stakeholders from both public and private sectors (see Figure 1).

Rate design for a decarbonizing grid

The Western U.S. electric grid has undergone vast changes since the pre-renewables era. For example, renewables now comprise nearly 30% of California’s electric supply portfolio, and recent CA legislation mandates 50% renewables by 2030. As a consequence, intra-day variation in hourly net loads is rapidly steepening, as shown by the California Independent System Operator (CAISO)’s now famous ‘Duck Curve”. In 2015, CAISO recommended a four-season TOU pricing period design, with peak hours between 4 PM and 9 PM on summer weekdays, and a “super-off-peak” period in spring mid-day hours. We present an aggressive four-season time-of-use (TOU) rate design based on CAISO’s recommended TOU periods, and some illustrative impacts of implementing such TOU rates.In Western U.S. energy markets, high wholesale prices generally correspond to high marginal carbon emissions, and conversely. Properly designed TOU rates can help reduce GHG emissions by discouraging energy use during times of high marginal carbon emissions. However, demand charges, a feature of many commercial rate designs, can negate the benefits of TOU rates if applied during off-peak hours. We show that overuse of non-coincident demand charges can discourage customer investments that would benefit both the customer and the grid if rates were correctly aligned with cost. We recommend the following pricing strategies to support long-term efforts toward decarbonization of the electric grid: (1) More widespread use of aggressive 3- or 4-season TOU rates (or RTP where feasible); and (2) Reduced dependence on demand charges that apply during off-peak hours. Widespread utilization of retail rates that are aligned with temporal variation in carbon intensity, by both residential and nonresidential customers, is essential, for achievement of decarbonization goals. DisclaimerOpinions and recommendations stated herein should be attributed to the author alone, and not to the California Public Utilities Commission or its Staff.

Potential for Economic Regulation of Michigan’s Water Sector

This policy brief considers the potential role for economic regulation of water utilities in Michigan, particularly given considerable pressure on infrastructure costs and prices and subsequent concerns about efficiency and equity. Economic regulation by state public utility or public service commissions (PSCs) is widely accepted for privately (investor) owned utilities in the United States. Michigan is one of only six jurisdictions that do not regulate water utilities (along with the District of Columbia, Georgia, Minnesota, North Dakota, and South Dakota). Today, while all of Michigan’s 1,385 water systems are subject to environmental regulation, none are subject to economic regulation, including rate review.

Profiling Transport Network Company Activity using Big Data

Transportation network companies (TNCs) provide vehicle-for-hire services. They are distinguished from taxis primarily by the presumption that vehicles are privately owned by drivers. Unlike taxis, which must hold one of approximately 1,800 medallions licensed by the San Francisco Municipal Transportation Agency (SFMTA) to operate in San Francisco, there is no regulatory limit on the supply of TNCs. TNCs have an increasingly visible presence in San Francisco. However, there has been little or no objective data available on TNCs to allow planners to understand the number of trips they provide, the amount of vehicle miles traveled they generate, or their effects on congestion, transit ridership, transit operations, or safety. Without this type of data it is difficult to make informed planning and policy decisions. Discussions with Uber, Lyft, and the California Public Utilities Commission, which collects trip-level data from TNCs in California, requesting information on TNC trips have not resulted in any data being shared. Under increasing pressure from policymakers for objective data to inform policy decisions, the San Francisco County Transportation Authority (SFCTA) partnered with researchers from Northeastern University who developed a methodology for collecting data through Uber’s and Lyft’s application programming interfaces (APIs) with high spatial and temporal resolution. This paper provides a brief literature review on transport network company (TNC) data, and goes one to describe the methodology used to collect data, summarizes the process for converting the raw data into estimated TNC trips, and presents an analysis of the results of the TNC trip estimates. This study determined that TNCs serve a substantial number of trips in San Francisco, over 170,000 on a typical weekday, that these trips follow traditional time of day distributions, and that they tend to take place in the busiest parts of the City.

Empirical evaluation of the stringency and design of renewable portfolio standards

In two decades of experience with state renewable portfolio standards (RPSs), the United States has observed immense growth in renewable energy markets, initially in wind energy and more recently in solar power. During this time, RPSs have experienced considerable policy reinvention and increased diversity. Here, we explain how changes in RPS policy design features relate to different market outcomes. We develop a score for measuring RPS stringency and show that a one-point increase in RPS stringency leads to increases of 0.2%, 1% and 0.3% in renewable energy, solar generation and renewable energy capacity, respectively. Other important design features include resource eligibility, planning processes, cost recovery and geographical restrictions. These findings are then reaffirmed through 42 semi-structured phone interviews with experts in the field of RPS implementation from government agencies, including public utility commissions and state energy offices, electric utilities and various renewable energy firms and associations. Renewable policy standards have been instrumental in the growth of renewable energy in US states. Through a ranking of policy stringency and interviews with industry stakeholders, researchers show the significance of stringency and other policy design features towards a standard’s effectiveness.

Do markets make good commissioners?: A quasi-experimental analysis of retail electric restructuring in Ohio

AbstractEmpirical support for the purported benefits of retail electric deregulation is mixed at best. Prior studies that identify states as simply “retail deregulated” overlook complex policy environments in which deregulation is implemented by regulators with a high degree of discretion. Prior studies also rely on Energy Information Administration data that do not account for core regulatory interventions that can take place during the process of implementing deregulation. Using robust time series household final bill survey data from the Public Utilities Commission of Ohio, this article provides a quasi-experimental analysis of the price impacts of retail electric restructuring in Ohio. The results suggest that residential electricity prices have increased following retail restructuring in all service territories in Ohio, with significant favourable welfare effects observed only in the Cincinnati area, where key policy implementation stages were not circumvented.

The Utility of Finance

Public Utilities Commissions (PUCs) are charged with regulating a public utility’s rates at levels that serve the public’s interest while allowing the utility’s investors to earn a rate commensurate with that expected by businesses facing similar risks. Although the process of adjusting rates for risk is a staple of modern finance, we know surprisingly little about how well accomplish their regulatory mandate when judged against the benchmarks of financial economics. This article analyzes a dozen years’ worth of gas and electric rate-setting decisions from PUCs in the United States and Canada, demonstrating empirically that allowed returns on equity (ROE) diverge significantly and systematically from the predictions of accepted asset pricing methodologies in finance. Our analysis suggests that current regulatory practice more plausibly reflects an amalgam of other non-finance desiderata, including political goals, incentive provision, and regulatory capture. For example, elected PUCs award significantly lower ROEs than appointed ones. We nevertheless conjecture that the divergence of observed regulatory behavior from asset-pricing fundamentals may be due (in part) to a lack of financial valuation expertise among regulators. To test this conjecture, we study a unique field experiment that exposed commissioners and their staffs to immersion training in finance. We find evidence that treated PUCs began to issue ROE rulings that were (moderately) more aligned with standard asset pricing theory than those of untreated placebo groups. Our results suggest that it is possible to train non-expert legal and regulatory decision-makers to exhibit greater fidelity to principles of financial economics.

How Politics Influences the Energy Pricing Decisions of Elected Public Utilities Commissioners

An argument of those supporting the direct election of regulators is that election allows voter preferences to be translated easily into policy outcomes. However, a danger of this approach is that the low salience of regulatory issues among the median voter could allow for regulatory capture, where regulated firms use their influence to extract favorable outcomes. Although the role that institutional design plays in influencing capture has been evaluated by comparing appointed and elected regulators, evidence of the capture of elected regulators remains scant, and we know little about the conditions that may mitigate such capture. Here, we study electricity rate-making by Arizona's elected public utilities commission to determine how the economy, citizen complaints, and industry and interest group lobbying affect rate decisions. Leveraging original quantitative and interview data, we find that commissioners respond to voters and set pro-consumer electricity prices when inflation rises and when citizen complaints increase. We do not find that industry and interest group lobbying influence rate-making. We argue that commissioners are pro-behavior because prices are salient, and commissioners desire reelection. The result suggests that the electoral mechanism reduces chances of regulatory capture, although the matter of electoral pandering remains unresolved.

Who Pays for Retail Electric Deregulation?: Evidence of Cross-Subsidization from Complete Bill Data

Retail electric deregulation has been identified in the literature to have favorable price impacts to businesses and households because of the introduction of competition into rate-setting. Those studies often ignore the important role of regulatory intervention. They are also generally national or multi-state aggregated studies that ignore state- and utility-specific dynamics, and most rely on Electricity Information Administration (EIA) price data that does not account for riders and surcharges on consumer bills, which can total more than 60 percent of bills. Using a unique panel of representative, complete electricity bill data from the Public Utilities Commission of Ohio (PUCO), this paper provides a multi-utility panel regression analysis of the effect of retail deregulation on total electric bills in Ohio. The results identify two main sources of cross-subsidization that have generally cancelled out the favorable effects of restructuring. Both types of cross-subsidies result in substantial burden shifts to residential consumers.

Quantifying the capacity value of natural gas efficiency in New England

Natural gas utilities in New England face increasing natural gas transmission system congestion and volatile spot gas prices. We observe that prevailing evaluation methods for natural gas efficiency programs value avoided firm pipeline capacity based on its total (‘gross') cost. We propose, consistent with deregulated electricity markets, to value avoided firm pipeline capacity at its ‘net’ cost. Specifically, we account for revenues associated with selling excess capacity during periods when the firm capacity holder does not fully utilize its rights. Our evaluation of commercial building efficiency programs suggests that prevailing evaluation methods could over-estimate the value of efficiency programs when those programs are intended to offset new capacity investments (i.e., the utility is in need of additional firm capacity). The situation is more complex for a utility with sufficient firm pipeline capacity to meet forecast load (i.e., consumption). In this case, the prevailing evaluation methods have the potential to under- or over-estimate the value of efficiency programs. The value of avoided infrastructure investments is likely to vary with the specific circumstances of the utility and the expected revenues associated with short-term sales enabled by available capacity. In the future, we recommend that economic regulators of natural gas distribution utilities, the state public utility commissions (PUCs), value avoided infrastructure investments at the ‘net' cost of the investment instead of the ‘gross' cost.