The McDonnell Group

By Don McDonnell

ATLANTA – Nov 23, 2010 – For state utility regulators, effective policymaking can be like battling the Hydra.  Lop off one problematic head and it sprouts two more.  The latest two pesky heads seem to be CO2 market uncertainty and looming financing challenges.  Two separate sessions at last week’s 122nd annual NARUC meeting in Atlanta focused on practical solutions to these issues.  In a very real sense the two subjects are not only a two-headed hydra, but also two sides of the same coin.  On one side is the capital needed to refurbish and modernize power systems for the 21st century; on the other is the cost of  that capital. 

The lack of a clear market signal on forward pricing for CO2 has stalled many needed investments that should already be moving forward.  Putting aside the zero sum game of utility CO2 politics, energy efficiency, effective capital and infrastructure utilization and non-carbon based fuel sources will become increasingly valuable.  Smart grid investments play a strategic role in advancing all three. 

While my first post from NARUC suggested a micro focus on the consumer, clearly regulators and utilities must also think macro and look many decades out to plan effectively.  These issues are too important and too strategic to be left to the federal government, or worse, to international geopolitical dynamics.

While the session Brother Can You Spare Three Trillion? did a good job providing the normal update to utility financial conditions and current financing costs, the last day’s session, The Climate Syndrome: Without Congressional Action, What Do State Regulators Need to Know?,  was  the most instructive and valuable session for me.  In the spirit of looking at local solutions, this session examined the  actions of one province, two states, and one utility. The net/net of the session was to say to state and local political leaders, regulators and utilities: “Stop bemoaning a lack of federal or international action, take charge and use the tools already at your disposal to step up and lead!”

 
Susan F. Tierney of Analysis Group opened this panel session by framing the issues and opportunities facing various stakeholders. She was pragmatic and her knowledge of utility issues and the tools in play for local solutions was a strong foundation for the discussion.  She was followed by Ken Quesnelle, Commissioner of the Ontario Energy Board, who outlined Ontario’s provincial energy policy strategy and related some important lessons learned about the need to account for distribution system investments  in the wake of distributed renewable energy incentives.  Ron Binz, NARUC’s Chair for the Task Force on Climate Policy , reviewed the lightning speed at which Colorado is advancing a review of new energy policies, including stakeholder meetings that were so large they needed to be moved to outdoor venues.  Who knows -- maybe we’ll see regulatory forums at Mile High stadium in 2011?

Sam Waters, director of system planning for Progress Energy Carolinas outlined the utility’s strategic analysis of  a retrofit vs. replacement approach to  some  coal-fired generation plants within the Progress portfolio. The little understood and often mystifying utility integrated resource plan showed tremendous strength as a rubric for intelligent application of risk modeling around policy uncertainty.  In this instance, Progress earned its name and took a progressive view of stakeholder long-term needs based on North Carolina law and their regulatory requirements.

Thinking about integrated resource planning from the bottom up and incorporating a long view on CO2 should help utilities build bridges with local regulators and smart grid programs tailored to local needs will help pave the way.  This may help remove uncertainty that can impinge the ability to fund investment and innovation as everyone holds their breath and waits for CO2 legislation from Washington.  The smart money, cheaper access to capital, and long term more cost-effective rates will follow states, regulators and utilities who lead the way.