Decoupling

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Decoupling

• April 26, 2007
• Fran Cummings, Policy Director
• Renewable Energy Trust
• Massachusetts Technology Collaborative
• 75 North Drive, Westborough, MA 01581-3340
• tel [phone] ext. 270
• cell [phone]
• www.masstech.org/dg/decoupling.htm

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Potential topics for discussion
Introduction

• Activities underway in Massachusetts
• Resources available on MTC website
• Decoupling in the MADRI process
• Model Rule and Tariff
• PEPCO decoupling filing of 11/17/06
• Spreadsheets
• Decoupling status in other states
• CA
• Next Steps

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What is Decoupling?
Introduction

• Breaks the mathematical link between sales
  volumes and profits
• Objective is to make profit levels immune to
  changes in sales volumes
• This is a revenue issue, not a pricing issue
• Not intended to decouple customers bills from
  consumption
• Volumetric pricing approaches need not be changed

• The material in this slide is taken directly
  from Aligning Incentives with Public Policy, a
  presentation on Decoupling by Rick Weston, RAP,
  during an April 4, 2007 EPRI/STAC Massachusetts
  Stakeholder Conference Call

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Why Decoupling?
Introduction

• A way to encourage or adapt to substantial
  increases in customer-sited Distributed Energy
  Resources (DER)
• Energy efficiency
• Renewable energy
• Distributed generation
• Demand response
• A way to protect shareholder value in the face of
  declining revenue growth

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Recent decisions
Activities Underway in Massachusetts

• DPU/DTE
• March 23, 2007 -- DTE 07-6 Order Opening
  Investigation into standby rates and alternative
  rate structures that will promote efficient
  deployment of distributed generation
• February 16, 2007 -- Order On Revised Model
  Interconnection Standards And Procedures Tariff
• issues related to the appropriate ratemaking
  treatment of DG will be addressed in a subsequent
  Order
• FCM
• April 16, 2007 -- FERC Approval
• February 8, 2007 -- Forward Capacity Market Rules
  approved by NEPOOL Participants Committee
• participation by Intermittent and Demand
  Resources
• RGGI
• January 18, 2007 -- Governor Patrick Signs RGGI
• Auction of emissions allowances ... estimated
  25 million to 125 million/year ... to fund
  energy efficiency, demand reduction, renewable
  energy programs, and combined heat and power
  (CHP) projects.

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Recent articles
Activities Underway in Massachusetts

• April 18, 2007 -- Governor Patrick Sets Ambitious
  New Energy Standards for State Buildings
• Executive Order No. 484 Leading by Example,
  Clean Energy and Efficient Buildings
• April 17, 2007 -- Governor Patrick Announces New
  Manufacturing Plant for Evergreen Solar, Plan to
  Boost Clean Energy, Jobs Evergreen Solar and
  NSTAR Announce Alliance to Spur Interest in Solar
  Energy (pdf with multiple press releases and
  articles)
• April 14, 2007 -- Saving power and profit State
  Seeks Way for Utilities to Push Conservation, Not
  Lose Money, Boston Globe

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www.masstech.org/dg/decoupling.htm
Resources Available on MTC Website

• Includes most significant documents on
  decoupling, sorted by date
• Reports and studies (1994 - present)
• Recent presentations
• Some articles
• Some state-specific regulatory filings, orders
• Links to related source materials
• masstech.org/dg/rates.htm
• masstech.org/dg/benefits.htm
• masstech.org/dg/winwin.htm
• masstech.org/dg/epri-stac.htm
• masstech.org/dg/PV.htm
• masstech.org/dg/CHP.htm
• masstech.org/dg/collab-reports.htm

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Reports/Documents on Decoupling Recent
Resources Available on MTC Website

• October 2006 -- Aligning Utility Interests with
  Energy Efficiency Objectives, Kushlet et. al.,
  ACEEE Report U-061
• August 2006 -- Aligning Regulatory Incentives
  with Demand-Side Resources, a workshop hosted by
  NARUC and EPA (various presentations)
• April 2006 -- Distributed Resources Incentives,
  by NERA for EEI (in MADRI process)
• October 2005 -- Decoupling White Paper 1,
  Presented for discussion at the Strategic Issues
  Forum, Rutgers Center for Energy, Economic and
  Environmental Policy

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Reports/Documents on Decoupling 1994
Resources Available on MTC Website

• August 1994 -- Decoupling and Public Utility
  Regulation, R. Graniere et. al., The National
  Regulatory Research Institute
• June 1994 -- Regulatory Reform Removing
  Disincentives to Utility Investment in Energy
  Efficiency, RAP
• January 1994, The Theory and Practice of
  Decoupling, Eto, J. et.al. (LBL-34555)

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Decoupling addressed in larger rate context
Resources Available on MTC Website

• February 2007 The Potential Benefits of DG and
  Rate-Related Issues that May Impede Their
  Expansion, A Study Pursuant to Section 1817 of
  the Energy Policy Act of 2005, US DOE
• 2006 Clean Energy-Environment Guide to Action
• Utility Incentives for Demand-Side Resources,
  section 6.2 of EPA's Guide
• Removing Unintended Utility Rate Barriers to DG,
  section 6.3 of EPA's Guide
• May 2006 The Value of DG under Different Tariff
  Structures, by Ryan Firestone et. al., LBNL-60589
  
• December 2005 Rate Structures for Customers With
  Onsite Generation Practice and Innovation, by
  Synapse Energy Economics and Regulatory
  Assistance Project, NREL/SR-560-39142
• November 1997 Performance-Based Regulation in a
  Restructured Electric Industry, for NARUC, by
  Bruce Biewald and Tim Woolf, Synapse Energy
  Economics, Inc. et.al.

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MADRI Model Rule and Tariff
Decoupling in the MADRI process

• Used BGE Rate Rider as starting point
• Model Rule is product of collaborative
  stakeholder process
• Available at http//www.raponline.org/Feature.asp
  ?select78
• Tracks on demand and energy basis
• Currently 60-day lag between consumption
  recovery may present rate design issue
• Lag can be eliminated with a use and file
  approach
• As written, places weather risk on customer but
  this is not a policy position per se

The material in this slide is taken directly
from Rick Weston, RAP, 2 April 2007.
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Electric Utility Revenue Stability Adjustment
Factor (5/16/06)
Decoupling in the MADRI process

• Full cycle for this mechanism involves the
  following steps
• A. Test-year revenue requirements should be
  established for the customer, demand, and energy
  charge components for each rate schedule to which
  this rider applies.
• B. Determine a date on which the Revenue
  Stability Adjustment Clause is to be effective
• C. There are three different months used in
  each Revenue Stability Adjustment Factor
  calculation
• Filing Month means the month in which a Revenue
  Stability Adjustment Reconciliation filing is
  due.
• Reference Month means the month that is two
  months prior to the filing month.
• Billing Month means the month that is the second
  succeeding month after the Filing Month and is
  the month during which the Revenue Stability
  Adjustment is applied to customers bills.

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Decoupling in the MADRI process

• D. Prepare and file, on or before a set day
  (e.g., the 10th) of the Filing Month, an
  adjustment factor computation for each applicable
  rate schedule.
• E. Each subsequent Filing Month would use three
  different types of data
• Test year data is used as the base for computing
  the target revenues for each tariff component,
  based on the per-customer average billing units
  for that component. Test year data is assumed to
  be based on the test information for each
  calendar month in the test year, in order to
  capture expected monthly deviations in
  consumption. This data should be weather
  normalized and should match the underlying
  billing units used to compute the current tariff
  rates.
• Test year data is also used to compute a K
  factor for the kWh and kW (if applicable)
  distribution charges. The K factor is computed
  by comparing use per customers during the test
  year to use per customer during the year prior to
  the test year. In order to capture longer term
  trends and to help mitigate anomalies in the test
  year and pre-test year data, this factor could be
  recomputed annually on a rolling average basis.
  Both the Test Year data and other data used for K
  Factor calculations should be weather normalized.
• Reference Month data is used to reflect actual
  consumption in the form of billing units on bills
  actually sent to customers. Reference Month
  customer billing units are multiplied by the test
  year revenues per customer and by the K Factor to
  determine the target revenues to be collected in
  the Billing Month. Reference Month revenues are
  taken from customer billing records. The
  difference between target revenues and actual
  revenues represents the revenue increase or
  decrease that must be generated by the adjustment
  factor.
• Forecast Billing Month billing units are used in
  conjunction with the revenue shortfall or overage
  to compute an adjustment factor for the given
  tariff component (demand or energy).

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Calculation of Revenue Stability Adjustment
Factors
Decoupling in the MADRI process
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From PEPCOs decoupling filing of 11/17/06
Decoupling in the MADRI process
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From PEPCOs decoupling filing of 11/17/06
Decoupling in the MADRI process
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MADRI Spreadsheets
Decoupling in the MADRI process

• June 2006 -- PPL case study forecast simulation
  spreadsheet, referenced at Workshop in Trenton,
  NJ

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Recent Documents on DER, Other States
Decoupling Status in Other States

• NY Case 07027/03-E-0640 Case 06-G-0746
• April 2007 -- NY PSC SEEKS MORE EFFICIENT ENERGY
  USE, Utility Revenue Decoupling Mechanisms to
  Eliminate Disincentives (press release)
• May 2006 -- NY Order Extending Deadline and
  Continuing Standby Rate Exemption, NYPSC, Case
  99-E-1470
• MADRI (Mid-Atlantic Distributed Resources
  Initiative Working Group)
• June 2006 -- Policy Statement in Support of DER
  Initiatives
• May 16, 2006 -- Electric Utility Revenue
  Stability Adjustment Factor
• CT March 2006 -- Docket 05-07-16 DPUC Review of
  the Development of a Program to Provide Various
  Incentives for Customer-Side Distributed
  Resources
• March 27, 2006 Order, including incentives to
  utilities, rebates on gas delivery charges,
  provision changing standby charges
• OR February 2005 -- DG in Oregon Overview,
  Regulatory Barriers and Recommendations, Lisa
  Schwartz, Public UtilityCommission Staff
• ME February 2004 -- Report on Utility Incentives
  Mechanisms for the Promotion of Energy Efficiency
  and System Reliability, Maine PUC, presented to
  the Utilities and Energy Committee

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Decoupling Examples
Decoupling Status in Other States

• Maryland Gas Utilities (in place), PEPCO
  (filed)
• North Carolina Gas Utilities
• California 3 IOUs Electric Gas Utilities
• Oregon Northwest Natural Gas
• New Jersey (NJNG Awaiting approval order)
• Utah (Questar)
• Indiana Ohio (Vectren)

The material in this slide is taken directly
from Rick Weston, RAP, 2 April 2007.
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California Decoupling Basics
Decoupling Status in Other States

• Part of an aggressive and comprehensive policy
  framework designed to deploy cost-effective
  energy efficiency
• Covers SDGE/SocCalGas, PGE and SCE
• Tracks difference between allowed revenues and
  actual revenues
• Trued up each year to that years authorized
  revenues
• Revenue requirements are adjusted each year for
  inflation
• Each utility has individual mechanisms for
  determining annual revenue requirements

The material in this slide is taken directly
from Rick Weston, RAP, 2 April 2007.
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California Company Plan Features
Decoupling Status in Other States

• Southern California Edison
• Citing
• Poor financial health of company
• Changed circumstances since such adjustments were
  rejected (20 years ago)
• Commission approved non-test year revenue
  requirement adjustments
• Implemented revenue balancing account for over-
  under-collections of revenue adjustment
• San Diego Gas Electric and SoCalGas
• Each years revenue requirement is determined by
  the previous years base margin adjusted by CPI
• Minimum max. authorized adjustments (in 3-4
  range)
• Balancing account for adjustment collections
• Sharing mechanism

The material in this slide is taken directly
from Rick Weston, RAP, 2 April 2007.
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California SDGE/SoCalGasShareholder Customer
Sharing
Decoupling Status in Other States
The material in this slide is taken directly
from Rick Weston, RAP, 2 April 2007.
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California Pacific Gas Electric
Decoupling Status in Other States

• Separate Distribution and Generation mechanisms
• DRAM (Distribution revenue adjustment mechanism)
  and
• UGBA (Utility Generation Balancing Account)
  revenue adjustment mechanisms
• Allowed revenues annual CPI-based attrition
  adjustments for 2004-2006, with following
  minimums and maximums

The material in this slide is taken directly
from Rick Weston, RAP, 2 April 2007.
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Next Steps