Highlights:

• In Q4 2018, 10 utilities in 8 U.S. states initiated new general rate cases (GRCs).
• 18 GRCs concluded in Q4 2018.
• 30 GRCs were pending in 17 states at the close of 2018.
• Proposed residential fixed-charge increases ranged from 21% to 238% in Q4 2018.
• Rate cases filed in California, Indiana, Massachusetts and South Carolina are illustrative of the diversity of the clean energy and distributed energy issues addressed in modern electric utility GRCs.

Welcome back for another installment of EQ Research’s quarterly review of electric investor-owned utility GRCs. The map below shows where rate cases for investor-owned electric utilities were active as of December 31, 2018. Scroll over any state to find out which utilities have GRCs pending before the state’s utility regulators.

As in the past, this post will examine proposed and approved residential fixed-charges in GRCs. In addition, this quarter we are also taking a brief look at four proposals from five utility rate cases filed last quarter to illustrate some of the diverse issues under consideration in GRCs:

1. PG&E is proposing a non-bypassable charge in California for hydroelectric generation, which would shift costs from its bundled customers to all customers, including customers receiving generation service from non-utility providers or using distributed generation.
2. NIPSCO is proposing to shift costs from its industrial customers to non-industrial customers in Indiana as part of its plan to prevent load defection from cogeneration, while it slashes GHG emissions by 90% over the next 10 years through retirement of its entire coal generation fleet and replacement with clean energy resources.
3. National Grid is seeking approval in Massachusetts for a panoply of clean-energy related proposals, including a transformative five-year Performance-Based Regulation plan, major new EV & storage programs, and a Monthly Minimum Reliability Contribution for net metering customers.
4. Duke Energy is doubling down on its strategy to significantly increase residential fixed charges and implement a grid modernization plan in its rate cases filed in South Carolina.

Update on Residential Fixed Charges

In Q4 2018, 10 utilities in 8 U.S. states filed new GRCs. As shown in Figure 1, Duke Energy’s two GRC filings in South Carolina requested the largest residential fixed-charge increases.

Figure 1: Proposed Residential Fixed-Charge Increases, GRCs Filed in Q4 2018

© 2019 EQ Research LLC

State regulators issued final decisions in a whopping 18 GRCs – double the number of GRCs that were decided in Q3 2018. Similar to previous quarters, half of the final decisions resulted in no increase or a reduction to the utility’s residential fixed charge, despite most utilities seeking large increases, as depicted in Figure 2.

Figure 2: Existing vs. Proposed vs. Approved Residential Fixed-Charge Increases, GRCs Decided in Q4 2018

© 2019 EQ Research LLC

Let’s now turn to four examples of utility proposals in GRCs filed in Q4 2018 to get a flavor of some of the other issues being considered.

California Wildfires Engulf PG&E Hydro Proposal

In California, PG&E recently provided notice that it intends to file petitions on or around January 29, 2019 to reorganize under Chapter 11 of the U.S. Bankruptcy Code, brought on by PG&E’s soaring liabilities associated with the 2017 and 2018 deadly wildfires allegedly caused by its equipment. Not surprisingly, wildfire mitigation and liability insurance-related costs were the focus of the utility’s $1-billion-plus requested rate increase in its GRC application filed in December.

A generally overlooked, but nonetheless important, proposal contained in PG&E’s GRC application is the utility’s request for a new non-bypassable charge related to its hydroelectric generation portfolio. PG&E claims that hydroelectric generation provides benefits beyond electricity generation, such as outdoor public recreation, enhanced protection of natural habitats, and protection of historic resources. The utility is therefore proposing to shift these costs from its generation rates (applicable only to its bundled customers) into a non-bypassable charge, meaning these costs would be recovered through charges paid by all of PG&E’s distribution customers, which would extend to community choice aggregation (CCA), direct access, and net metering customers under “NEM 2.0” for all grid-imported kWh.

PG&E’s proposal opens up another front in the California utilities’ ongoing skirmishes with CCAs by threatening to shift an increasing portion of PG&E’s costs from their generation customers to all distribution customers. If approved, this could be a double-whammy for CCAs, as an October decision by California regulators on the Power Charge Indifference Adjustment resulted in increases to that non-bypassable charge to millions of CCA customers across the state.

Indiana Sees the Light on Solar

In Indiana, NIPSCO is requesting an across-the-board percentage increase for all customers except its large industrial customers, for which the utility hopes to slash and restructure rates to stave off potential load defection arising from customer-sited cogeneration resources.

Notably, the utility simultaneously filed its integrated resource plan (IRP) that proposes to close all five of its remaining coal units by 2028 and replace the resources with clean energy (and no new natural gas plants), resulting in a 90% decline in GHG emissions. One underreported facet of the IRP is the sheer volume of solar – possibly more than 2,700 MW of nameplate capacity – that the utility says it would procure via competitive solicitations over the next decade, with the majority placed in service by 2023. In comparison, the entire state only had 318 MW of solar installed through Q3 2018 according to SEIA.

So how is the utility planning to make the clean energy transition work financially, given it is retiring all of its coal units earlier than planned? In its GRC, NIPSCO says it still plans to recover the remaining net book value of its coal generation assets. But due to the magnitude of the effect of the change in retirement dates, it plans to mitigate the effects of a significant rate increase by recovering all remaining costs through the end of 2030, as opposed to the physical retirement date of the units (i.e., 2023 for four units, and 2028 for one unit). By spreading out the remaining costs over a longer period of time, the utility would be able to avoid a large rate shock to customers as it transitions to clean energy resources.

Massachusetts Ushers in DERs with Performance-Based Ratemaking

In Massachusetts, National Grid is proposing a number of key proposals, including one that rethinks its business model. Specifically, its proposed five-year Performance-Based Ratemaking Plan includes a mechanism to adjust rates annually based on a revenue-cap formula, during which the utility would be barred from filing a new rate case. It is also proposing four performance incentive mechanisms that would financially reward the utility for its performance on four metrics related to (1) peak reduction; (2) EV adoption; (3) EV supply equipment cost-containment; and (4) customer ease in interacting and doing business with the utility. Furthermore, an Earnings Sharing Mechanism would allow the utility to earn up to 200 basis points above its proposed return on equity of 10.5%, with a portion of returns earned above that amount shared with its customers.

In its filing, National Grid is also proposing several distributed energy resource programs and tariffs, including:

• An Energy Storage Program, under which it would procure and place in service up to 14 MW / 56 MWh of utility-owned storage demonstration projects over five years at a cost of up to $50 million.
• A Phase II EV Program, supporting the addition of 17,400 Level 2 EV charging ports and 300 DC fast charging ports.
• A Monthly Minimum Reliability Contribution, effective April 1, 2020, that would be a fixed monthly charge assessed on all net metering customers (e.g., $4.20/month for residential customers (schedules R-1 and R-4)).

South Carolina Families Facing Prospect of Highest Fixed Charges in Nation

In South Carolina, Duke Energy (DE) filed GRCs for both its Duke Energy Progress (DEP) and Duke Energy Carolinas (DEC) service territories. Notably, the GRCs are proposing what would be the highest investor-owned utility monthly fixed charges in the nation for residential customers.

Big fixed-charge increase proposals are nothing new for Duke Energy. In every recent rate case filed by its affiliates, Duke Energy has consistently sought large hikes to these charges as shown in the following figure.

Figure 3: Existing and Proposed Residential Fixed Charges by Duke Energy Affiliates in Recent GRCs

© 2019 EQ Research LLC

Another important part of Duke Energy’s rate cases is its Grid Improvement Plan, which the utility claims contains the investments it needs to support the growth of solar energy, battery storage, microgrids and EVs. To fund part of the Grid Improvement Plan, though, Duke Energy is requesting – you guessed it – recovering most of the costs through an additional fixed charge on customers.

Conclusion

Many utilities continue to request significant increases to residential customer charges in new GRC filings, although settlement agreements and regulatory scrutiny have often tempered these potential increases. Although rates and rate design are among the most important components of a rate case, utility GRCs often contain other key proposals, such as those related to performance-based ratemaking, grid modernization or clean energy programs, as the four cases highlighted above demonstrate.

Rate cases will continue to serve as one of the primary forums for both utility innovation, and, on the flip side, possible utility rent-seeking. This tension will likely become more palpable as utilities navigate new clean and distributed energy policies and programs, modernize their grid, and determine the future of their legacy resources.

EQ Research summarizes new GRCs initiated by investor-owned electric utilities, available for purchase on our marketplace or as a subscription. Contact us at info@eq-research.com for more information.