Area Descriptions:
Page Description - this page is a glossary of interest to
regulators.
Definitions & Terms:
- Advanced Determination of Prudence - ADP - is when
utilities ask regulators to determine a project is a prudent investment for
consumers because it's necessary to supplying energy. That label also is
helpful to utility companies who are then guaranteed the ability to get more
money from their customers to offset their costs. The concept comes under
question, however, when customers are paying for the start-up costs of
something that was never built.
- Decoupling -
In public utility
regulation, decoupling refers to the disassociation of a utility's profits
from its sales of the energy commodity. Instead, a rate of return is aligned
with meeting revenue targets, and rates are trued up or down to meet the
target at the end of the adjustment period. This makes the utility
indifferent to selling less product and improves the ability of energy
efficiency and distributed generation to operate within the utility
environment. Ideally, utilities should be rewarded based on how well they
meet their customers' energy service needs. However, most current rate
designs place the focus on commodity sales instead, tying a distribution
company's recovery of fixed costs directly to its commodity sales. In order
to motivate utilities to consider all the options when planning and making
resource decisions on how to meet their customers' needs, the sales-revenue
link in current rate design must be broken. Breaking that link between the
utility's commodity sales and revenues, removes both the incentive to
increase electricity sales and the disincentive to run effective energy
efficiency programs or invest in other activities that may reduce load.
Decision-making then refocuses on making least-cost investments to deliver
reliable energy services to customers even when such investments reduce
throughput. The result is a better alignment of shareholder and customer
interests to provide for more economically and environmentally efficient
resource decisions. As an added benefit, breaking the sales-revenue link
streamlines the regulatory process for rate adjustments. Contention over
sales forecasts consumes extensive time in every rate case. If the
sales-revenue link is broken, these forecasts carry no economic weight, so
the incentive to game forecasts of electricity sales is removed and rate
cases become less adversarial. Wikipedia -
http://en.wikipedia.org/wiki/Decoupling#Utility_Regulation
- Energy Efficiency Resource Standard - EERS - is a
regulatory mechanism that encourages more efficient generation,
transmission, and use of electricity and natural gas. An EERS
ensures that utilities adopt energy efficiency as a clean, cost-effective
energy resource by establishing an explicit, numerical target for
incorporating energy efficiency into the power source mix. An EERS can be
used independently or in combination with a Renewable Portfolio Standard -
RPS. EERS creates market demand for energy efficiency which,
especially combined with complementary practices such as tax credits, can
boost the local economy by attracting new industries, creating new, local
jobs and bringing in revenue associated with energy efficiency projects.
- Public Benefit Fund - a policy tool that has been adopted
by many states and some municipalities in the US. It is used to
provide a cohesive strategy and long-term funding for state and city-run
energy programs. It is most commonly supported by a Systems Benefit
Charge.
- Ratepayer Obligation Charge Bonds - see Grid Modernization
Monetization - Long-term ratepayer obligation charge bonds may provide
answers -
http://www.EnergyCollection.us/Energy-Regulators/Grid-Modernization-Monetization.pdf
- Securitization - Several Gulf Coast states responded by
passing legislation that specifically authorized the option of
"securitization" of storm-related utility costs. Securitization
means that new or amended state authorities are created where a specially
authorized charge is placed on electric consumption that creates a specific
cash flow that can be packaged and sold as a security to private investors.
- System Benefit Charge - In response, some states
introduced a new policy—the system benefits charge (SBC)—to ensure that
efficiency efforts would continue despite retail competition. An SBC is a
charge collected from all distribution customers, regardless of generation
service provider, to fund DSM programs (and in some cases other activities
that offer public benefits). SBC policies have been primarily responsible
for a turnaround in the decline in utility investment in energy efficiency.
Between 1998 and 2009, U.S. electric utility expenditures on energy
efficiency increased significantly, from $0.9 billion to about $3.4 billion
in direct costs. Load management expenditures followed a similar pattern.
- Utility Tariff Bonds - The special class of utility tariff
bonds (UTBs)-in this case called storm recovery or hurricane bonds---would
be sold to private investors. UTBs more generally are called ratepayer
obligation charge (ROC) bonds. The laws created a unique and powerful form
of credit enhancement for the new bonds to achieve the highest credit rating
(AAA) and to be sold at the lowest interest rate. This combination
significantly mitigated increases in customers' electricity rates by using a
long-term approach