The Community Renewable Energy Association (CREA) submits the following

Transcription

1 April 20, 2018 Via Chair Lisa Hardie Commissioner Megan Decker Commissioner Steve Bloom Oregon Public Utility Commission 201 High St SE, Suite 100 Salem, Oregon RE: Senate Bill 978 Comments Dear Commissioners: The Community Renewable Energy Association (CREA) submits the following comments in response to the Oregon Public Utility Commission s request for written responses to the following specific questions related to its Senate Bill ( SB ) 978 process. CREA members include 14 counties, one city, irrigation districts, councils of government, project developers, forprofit businesses and non-profit organizations. CREA works with local communities, counties, state and federal agencies, Congress, the Oregon Public Utilities Commission and the Legislature to advocate for improved policies that support development of more community renewable energy in Oregon and by doing so enhancing Oregon s economy. Our comments respond to all four questions posed by the Commission Staff s directions.

2 Page 2 1. Summarize the Commission's current responsibility The OPUC s own mission statement states: To ensure Oregon utility customers have access to safe, reliable, and high-quality utility services at just and reasonable rates. We do so through robust and thorough analysis and independent decision-making conducted in an open and fair process. While the mission statement is a good fundamental starting place to describe the Commission s responsibilities, this statement is not all inclusive. At the risk of stating the obvious, the Commission s responsibilities implicitly and explicitly include a host of other considerations as well. These include other statutory guidance and mandates including creating a competitive market for wholesale generation, creating market choice for retail customers, assurance of compliance of Oregon s renewable portfolio standards, including a requirement that 8 percent are community based resources, and providing investor owned utilities a fair rate of return for prudently incurred investments, made in accordance with integrated resource planning performed under the provisions of state law and regulations. This question directly tees up the discussion regarding to what extent the Commission acknowledges these responsibilities compared to the articulation that the Commission s current responsibility is somewhat limited to being an economic regulator. To this question CREA answers that the Commission is not only authorized but is obligated to acknowledge their responsibilities go beyond being an economic regulator. The Oregon legislature has passed a number of energy / utility / environmental laws whose intent is almost certainly thwarted absent the OPUC taking a view of its responsibilities broader than that of a narrow economic regulator tasked only with ensuring safe, reliable, and high-quality (however that may be defined) utility services at just and reasonable rates. As will be described in greater detail below, CREA

3 Page 3 believes that the Commission has taken an unreasonably and inappropriately narrow view of its role and by doing so has in fact thwarted the direction provided it by the legislature. 2. What public policy objectives are promoted or impeded by the Commission's current system for regulating investor-owned utilities? In order to answer this question, CREA would like to slightly clarify the question. In answering this question, CREA interprets the use of the word promoted to mean objectives that the Commission intends to and / or actually achieves. Based on the discussion at the most recent 978 meeting, when combined with the Commission s mission statement, the policy objectives that are ostensibly promoted under the current regulatory regime would be affordable rates and safe and reliable service. That said, it is not clear if in fact these objectives are in fact being promoted. Oregon s PacifiCorp ratepayers (on a total revenue divided by total mwh sales basis) pay more than those of any other state that PacifiCorp operates other than CA. Furthermore, Oregon s PGE and PacifiCorp ratepayers pay more than Nevada Power and Sierra Pacific s ratepayers in Nevada, and Avista s Washington s ratepayers (We acknowledge that Idaho Power s Oregon customers pay less than those in Idaho, and that all Oregon s investorowned utilities (IOU) customers pays less than Puget Sound Energy s WA customers. See more on rates below.) A brief examination of the OPUC s reports does not make it clear how successful the current regulatory system is for achieving safety and reliability. While reliability statistics are kept over time for PGE, PacifiCorp and Idaho Power and thus those statistics compare those three utilities, it does not appear that there is a rigorous benchmarking with other utilities to identify and understand how the performance of PGE, PacifiCorp and Idaho Power in Oregon compares with an identified peer group.

4 Page 4 Obviously, the Commission s history of decisions defines the Commission s current system for regulating investor owned utilities. CREA believes those decisions constitute the promotion of what essentially can be described as preservation of the relatively traditional vertically integrated utility model. This model presumes two basic premises, utility service is a natural monopoly and electric generation has significant economies of scale, which justifies a significant return to the utility s shareholders to ensure adequate capital investment. This leads to a discussion regarding the other half of the question. CREA believes that the Commission s current system of regulating the IOUs impedes a number of policy objectives that can be reasonably construed to be intended by Congress and the legislature and have been advocated by many interest groups. When Oregon s original RPS was adopted by the legislature, the law established as a goal that 8% of load be supplied by community-based resources and that All agencies of the executive department as defined in ORS shall establish policies and procedures promoting the goal declared in this section. CREA is of the opinion that there is no agency that has more influence in the achievement of this goal than the OPUC and that the OPUC s efforts, through rulemaking or orders, were insufficient to promote achievement of this goal. In fact, CREA believes that the OPUC did little to even ascertain the compliance status of goal attainment. In 2015 the legislature passed SB 1547, which modified the community renewables requirement in a number of ways, the most important of which is making it a mandate upon the IOUs. At this time, the OPUC has not commenced rulemaking regarding community renewables under SB While an articulation of why this history has come to pass would require speculation, CREA believes this is a clear example of how the current system of regulating the IOUs has inhibited a clear legislative policy objective.

5 Page 5 CREA also believes that the OPUC has clearly inhibited the proper implementation of PURPA. It is well known and understood that PacifiCorp, PGE and Idaho Power have taken an aggressive position to roll back or minimize their PURPA obligations. It is also clear that this effort is part of a multistate coordinated effort by the IOUs under the auspices of the Edison Electric Institute. Efforts by the IOUs, with at least partial acquiescence of the Commission, to reduce the eligibility cap for standard contracts and shorten the number of years a QF can receive long-term avoided cost contracts are evident in the record. More troubling to CREA, the Commission has adopted what is somewhat of a double standard regarding the treatment of IPP/QFs compared to IOU-owned projects. The latter essentially are allowed into rate base at cost and then generate a return for the IOUs, and thus are not limited to the costs of wholesale power on the market. The IPP/QFs are treated differently with avoided costs essentially being set at a mark to short-term market rate during extensive periods of projected resource of sufficiency, which in fact appear to be somewhat manipulated by the IOUs to err on the side of underpayment to the QFs. Another example of the Commission impeding policy objectives involves direct access. In 1999 the Oregon legislature attempted to allow IOU customers to gain direct access to the electric market with the passage of SB Since 1999, the OPUC has embarked on a number of often lengthy processes regarding direct access. At this time, it appears approximately seven percent of total IOU retail sales are a result of direct access (EIA ). CREA believes that this number is surprisingly low given it has been almost 20 years since the adoption of SB This can be attributed to essentially three things or a combination of things; there is little inherent customer interest in direct access, the fundamental economics of direct access are not sufficiently attractive to customers, or the Commission s implementation of SB 1149 has served as an

6 Page 6 impediment to direct access. Frankly, CREA believes that the latter is the primary reason direct access has not occurred to a significant extent in Oregon. While CREA recognizes the question of negative impacts on customers choosing to remain on bundled utility service is legitimate, CREA is inclined to believe that this issue has increasingly been over time a rationale to minimize direct access and by doing so perpetuates the traditional utility model in the face of changing generation technology, economics and ratepayer desires. Finally, CREA believes that the Commission s actions on community renewables, PURPA and direct access, couple with their actions directly applied to the questions around wholesale competition, when taken together have served to impede the growth of a competitive non-utility generation business in Oregon. As with direct access, CREA believes that the results somewhat speak for themselves. The preponderance of IOU-owned resources winning OPUC directed competitive bidding processes strongly suggest these processes are inherently designed to provide the incumbent IOUs an advantage. 3. List and briefly describe the primary obligations and benefits that the current regulatory system creates for the PUC and its regulated utilities. Notwithstanding CREA s belief noted above that the OPUC currently has an obligation to consider and incorporate state and federal laws and regulation on topics including renewable energy, small scale community renewables, customer access, competitive generation and PURPA compliance, it is CREA s observation and belief that the OPUC believes its primary obligation is one of an economic regulator and uses the economic regulator obligation as the primary prism through which the OPUC approaches these other responsibilities to the extent they approach them at all.

7 Page 7 The OPUC itself is a primary beneficiary to this approach. Stated simply, this narrow approach reduces the obligations and associated moving parts that the OPUC must consider in its decision-making, and it allows one consideration to take priority among multiple and sometimes competing considerations. This is reflected in how the OPUC s obligations are identified through its mission statement and how it is implemented and measured through their key performance measures (KPM) as described in the OPUC s strategic plan. KPM #2 is one of the most frequently cited measures in the evaluation of the accomplishment of tactical goals contained in the strategic plan. It calls for the average price of electricity of residential customers to be 92% of the US average (or slightly lower than the average paid by ratepayers nationwide). We note this is notwithstanding the PNW s cost advantage associated with relatively greater supply of low cost hydro resources, either owned directly by the IOUs or available to them through secondary market purchases, not necessarily the result of rigorous economic regulation or the traditional utility structure that prevails in the region. As noted above while the OPUC tracks reliability statistics of its three regulated utilities it, appears there is no KPM for reliability nor broader benchmarking of peer utilities to determine how the reliability of Oregon s IOUs compares to others in order to determine the level of success in meeting this not well-defined reliability goal contained in the mission statement and strategic goals. A similar situation appears to exist for safety, also contained in the mission statement and strategic goals. While there is a KPM for safety, and it appears this KPM is being achieved, it is not clear if this result is good performance relative to a benchmarked peer group, simply a reflection of current IOU levels or trends, or some other undefined approach.

8 Page 8 The OPUC s strategic plan does contain one KPM regarding alternative suppliers. That KPM is set at what CREA believes is a pretty low number (10 percent) for a limited subset of Oregon ratepayers (business customers) and that it appears that this KPM is not being achieved. While it is important to cite what is included and measured in the OPUC s strategic plan, it s also illustrative (and perhaps more so) to note what is not included. This includes a variety of things such as environmental compliance measures (or conversely permit violations), carbon emissions per mwh, attainment of RPS requirements, attainment of community renewable requirements, the numbers of independent power producers and projects operating in the state, including the number of QFs, and a more robust KPM for direct access which would include the number of customers participating in direct access (rather than just ten percent of business customers energy consumption) and competitive bidding, such as a KPM showing the percent of RFP awards made to non-utility generators, and finally a KPM for bottom line energy efficiency. In summary, all of this reflects a fairly traditional, narrow and conservative view of the electric utility industry that has not kept pace with emerging technological, economic and customer trends and realities by the OPUC. This in turn benefits the IOUs whose desire is to maintain the traditional IOU vertically integrated natural monopoly return on investment model with little modification. 4. What actions and behaviors are encouraged by the current PUC system? As noted above, it is clear that the current system encourages the IOUs to support the traditional utility model and oppose actions that would result in more than a modicum of changes to that model. CREA believes that this does not necessarily make the IOUs bad actors as

9 Page 9 much as it makes them rational actors in the context of the current regulatory construct. This manifests itself in a variety of ways including opposition to PURPA, opposition to community access, opposition to expanded customer direct access, opposition to requirements that would result in a greater percentage of Oregon s generation fleet being owned by IPPs and opposition to (or perhaps more accurately a desire to be carved out of) legislation resulting in carbon reduction resulting from electric generation. Conversely, what is encouraged is IOU-owned generation that generates a greater return on shareholder investment, company goals that are not sufficiently aligned with the goals established by Oregon s elected officials and the citizens / ratepayers that they represent, and from that, compensation practices for senior utility managers that are not sufficiently aligned with state and ratepayer goals. And this summarizes the context of the SB 978 process which the OPUC is currently engaged in. CREA clearly believes that the OPUC s regulatory approach, as it has defined for itself, is insufficiently aligned with, reflective of, or designed to achieve key energy and environmental laws, regulations, and policies. That in turn results in the IOUs having insufficient incentive to be as cooperative as they otherwise might be in accomplishing these very same objectives. CREA applauds the legislature for passing SB 978 and thereby requiring the Commission to examine itself and the current regulatory construct. We encourage the Commission and its staff to use this opportunity to honestly examine itself and think more broadly and creatively regarding changes to the current regulatory construct and the OPUC s business practices in order to both achieve its traditional mission while embracing a broader mission of energy and environmental policies and strengthening Oregon s economy.

10 Page 10 Sincerely /s/ Brian Skeahan Brian Skeahan, Executive Director, CREA