Electric Reliability and Competition White Paper
Transmission
Generation
Other Regulatory Reforms
The Wisconsin Legislature passed Act 204 in 1998 to address electric
shortage problems experienced in eastern Wisconsin during the summers
of 1997 and 1998. Among other things, the Act required construction
of 500 MW of new generation (including 50 MW of new renewable power
resources), required identification of needed new transmission facilities,
and streamlined the regulatory process. Act 204 was a first
step to restoring the reliability of Wisconsin's electric system.
However, further action by the Legislature and the Public Service
Commission (PSC) is necessary to restore our position as a highly
reliable, low-cost electricity state and to lay the foundation for
increased competition in the electric industry for the benefit of
all customers. We must restore customers' confidence in our state's
ability to provide reliable power. By doing so, Wisconsin's thriving
economy will continue to grow, with associated increases in jobs and
income. These actions are designed to improve the long-term
reliability of our electric system by encouraging the construction
of new infrastructure. They are also intended to create greater elasticity
of demand by providing market-based pricing opportunities for large
customers.
TRANSMISSION
The Challenge. New transmission facilities can be very difficult
to build if there is controversy over the environmental impacts
of these facilities. Almost any new construction of high-voltage
transmission facilities is likely to be opposed by some landowners
and others in affected areas who are concerned about siting issues.
Under existing law, there are few, if any, offsetting benefits for
local communities from new lines. Also, transmission is inherently
a regional, interstate function. Yet there are no regional regulatory
arrangements in effect for oversight of the development of transmission
projects in the upper Midwest. As a result, construction of new
transmission desperately needed by Wisconsin to achieve a reliable
electric system may be delayed substantially.
To address these problems:
Recommended PSC action:
-
Implement promptly the recommendations in its Report to the
Legislature dated September 1, 1998, that Wisconsin utilities
build new transmission that will result in 3,000 MW of firm,
simultaneous import capability from the west and the south.
The new facilities should use existing rights-of-way wherever
practicable and the routing and design should minimize environmental
impacts consistent with achieving reasonable electric rates.
The PSC should determine how the cost of these lines will be
allocated among Wisconsin's transmission owners.
Recommended Legislative action:
-
Direct the PSC to condition the approval of construction of
new high-voltage transmission projects that will materially
increase import capability into Wisconsin on the owners reserving
50% of the new import capability for the benefit of a transparent,
regional spot energy market that includes Wisconsin and for
the possibility of retail competition in the future. This direction
is necessary to ensure that current transmission owners and
customers do not reserve all of the new capacity into the state
on a long-term basis, frustrating the ability of retail customers
to access competitive sources of energy if retail competition
is authorized in the future. Until such time, this capacity
will be available for short-term imports to lower the cost of
electricity for all Wisconsin customers.
- Require the PSC to adopt specific rules implementing the environmental
standards of existing law. These rules should require preparation
of environmental impact statements (EIS's) where appropriate,
and adequate time to comment upon and be heard regarding such
EIS's. The rules also should provide all parties with firm timetables
so that environmental issues are dealt with appropriately, while
dockets are processed without undue delay.
- Create an incentive for siting of new high-voltage transmission
facilities (230 kV and above) by imposing an impact fee on the
owners of transmission facilities for which construction applications
are filed in 1999, and thereafter, such that local governmental
units through which new facilities are routed receive a payment
comparable to the payment received for generating facilities located
within the boundaries of such municipalities.
- Create a one-time environmental impact fee to be paid by the
owners of such new facilities, equal to a percentage (e.g., 5%)
of the authorized original project cost to fund projects to "offset"
environmental and aesthetic impacts of the transmission facilities.
The fee would be paid to the counties and other units of local
government through which a transmission facility is routed, with
50% going to the counties and 50% to the affected other local
units (towns, villages and cities), allocated on the basis of
the amount of investment in each county and local unit. These
funds would primarily be used by the affected counties and local
units for park, conservancy, wetland restoration and similar environmental
offset projects, but may not be used by transmission applicants
to finance the costs of specific mitigation measures for the project.
- Authorize and request the Governor to negotiate and enter into
a Regional Transmission Need and Siting Compact with one or more
states in the upper Midwest to create a joint process to determine
the need for and siting of regional transmission facilities that
will be located in part in Wisconsin. The Compact should require
compliance with each state's environmental and siting standards,
but provide for a regional need determination and a mechanism
to resolve siting conflicts between states.
- Remove the sunset on the PSC's authority to order new transmission
facilities set forth in Act 204.
GENERATION
The Challenge. Act 204 requires the construction of approximately
550 MW of new generation in eastern Wisconsin. This new generation
may not be adequate to meet Wisconsin's needs, given anticipated
delays in construction of new transmission, load growth, plant retirements
and other factors. At the same time, if the needs of Wisconsin customers
are not met by independent wholesale merchant plants, large utilities
are reluctant to invest in ratebase generation due to uncertainty
about future regulation. Also, landowners are concerned about siting
issues. Therefore, additional actions need to be taken to encourage
the responsible construction of new, efficient generation at appropriate
sites and at the same time allow for the creation of a competitive
generation market that will not be dominated by the incumbent investor-owned
utilities.
Recommended PSC action:
- Revoke its order establishing the two-stage CPCN process, so
that utilities can proceed to propose new rate-based generation
without going through that cumbersome process. Utilities will
remain obligated under the federal Public Utility Regulatory Practices
Act (PURPA) to purchase power from Qualified Facilities, and the
siting process for new generation, including consideration of
land-use and environmental impacts, will remain the same. Specific
rules implementing the environmental standards of existing law
should also encompass generation projects.
Recommended Legislative action:
- Create additional incentives for local siting of new generation
by imposing an impact fee on the owner of new generation, equal
to the amount necessary to provide local governmental units where
a new plant is located with the same amount of revenue each year
for the life of the plant that they receive through the shared
revenue account during the first year of service of the plant.
- Where need may not be met by independent wholesale merchant
plants, encourage the construction of new generation by utilities
on a ratebase basis, by providing that the owner of a new ratebase
plant will be entitled to elect when it receives its PSC construction
authorization (CPCN) to commit to divest the new plant by auction
if Wisconsin retail sales are deregulated, subject to PSC review
of the fairness of the auction. If this election is made, the
owner will be entitled to receive 20% of any profit above its
net book value from the sale of such facility at auction, with
80% of such profit being flowed back to the ratepayers on the
utility's distribution system. If the sale price at auction is
less than net book value, utility shareholders will be required
to absorb only 20% of the loss, with ratepayers being allocated
the remaining 80% of the loss.
- Enact the Customers First! public benefits package, with substantial
funding for energy conservation in order to lower electric demand
and with a proposed renewable portfolio requirement to increase
the amount of renewable energy resources.
- Clarify the authority of the PSC to order public utilities with
an obligation to serve Wisconsin customers to construct new generation
necessary for reliable service at appropriate sites. In addition,
the law should be clarified to permit utilities that invest prudently
in conservation projects in their service territories to recover
their related investment and expenses in rates.
- Direct the PSC and the DOA to encourage the development of high-efficiency,
smaller-scale generating units that provide side benefits in the
areas of support for the transmission and distribution system,
power quality and environmental performance. These technologies
include combined heat and power systems, fuel cells, microturbines
and photovoltaic systems which can be situated in, on, or next
to buildings or other load centers.
- Direct the PSC to prepare, with the assistance of an expert
economic consultant, a comprehensive report to the Legislature
on the potential of generation market power to frustrate the creation
of a competitive retail electricity market in Wisconsin and of
measures that will eliminate this problem on a sustainable basis.
Other
Regulatory Reforms
The Challenge. Many industrial customers have been upset
by implementation of interruptible and curtailable programs during
the last two summers. Many other customers have been displeased by
urgent appeals to reduce consumption voluntarily. At the same time,
retail customers have not received price signals at times of tight
supply that could provide needed elasticity of demand. To address
these issues:
Recommended PSC action:
- Promptly authorize new retail real-time interruptible and curtailable
programs for large customers that result in the customers receiving
a market price signal for load reductions during peak periods
when shortages may develop that could require curtailments of
firm customers. For existing large customer firm load, the program
should allow the customers to reduce verifiable load voluntarily
on request in exchange for a payment based upon the market price
for energy at the time of reduction. Existing interruptible/curtailable
customers should be given an option to convert from current fixed
credits to significantly lower fixed credits in exchange for receiving
payments at the time of actual curtailments or interruptions based
upon the market price of energy.
- Expand performance-based ratemaking for investor-owned utilities
based upon reliability, emissions and customer service performance.
In addition, the PSC should provide for monetary credits to residential
and commercial customers when an investor-owned utility is required
by its own circumstances to issue an urgent appeal for voluntary
conservation by such customers.
Recommended Legislative action:
- Direct the PSC to develop and approve new market-based pricing
options for customers that will allow them, through service from
their existing utility, to take market risk for their energy purchases.
The options should be designed to protect other customers from
price swings.
- Direct the PSC to issue a rule requiring full public disclosure
by utilities of their current reliability status, including operating
reserves, planning reserves, available transmission capacity into
their systems and unit and line outage status. This disclosure
will be necessary for customers to be able to respond to price
signals and to prepare for possible shortages.
|
