Sgt. Joe Friday: Just the Facts, SB564 Grid Modernization

A bill (Senate Bill 564) that allows for the acceleration of the electrical grid modernization has drawn a lot of attention.

The House has passed its own version and made significant changes to the bill. The House used SB564 as the baseline to begin with. You can read the House’s version as it passed committee by clicking here.

United for Missouri has been engaged for several years in energy issues, and I have been engaged in them in some form or fashion since first being elected to office 26 years ago.  The following is provided to assist our members and the public understand and engage these issues with knowledge. The following is based on the version passed by the Senate.

There are those who agree and those who disagree with the bill and the need to accelerate modernization of our electrical grid. That’s completely understandable and part of the process. However, agreement or disagreement on the issues should be based on the facts, the actual provisions of the bill, and not on the way we might want or not want it to be or personal feelings for or against a utility. I, personally, would much rather this effort start the deregulation of our highly regulated utility (gas and electric) system. But it’s not.

We start with a structure that was put into place in 1913 and has had some minor modifications a few times but no significant changes. The 1913 structure and subsequent modifications worked well when there was deflation (when it was first established) and when electric load growth was significant. Neither of those is the case today but the system in place acts as if it is.

Today not only do we not have deflation, but electric loads are declining, not increasing. Energy efficiency is “working”. New fenders, doors, and a few other modifications have been added to the chassis, but it’s still the same chassis.  The old chassis is no longer serving us well.

Some have said this is an anti-coal/anti-nuclear bill but it’s not. New power plants are not covered under the provisions of the bill. There’s nothing in the bill that prevents, nor encourage, either being built.

New plants are not being built because of over burdensome regulations. creating significant obstacles to doing so.  But there is simply no need to build new plants because load does not support the building of any.

The St. Louis Post-Dispatch reported several months ago that Ameren had released a list of plant retirements that covers the next few decades. The first one on the list is Meramec power plant. There is no projection today of future loads that indicates the capacity lost from shuttering Meramec will need to be replaced. That’s significant.

SB564 has several moving parts and is very complicated.

The first thing it does, that greatly benefits consumers, is it requires utility rates be reduced due to the federal tax cuts. The projections are rates will be reduced by 3-4% or more.

SB564 also puts into place a method by which grid modernization can take place at a faster rate than today, while providing for rate freezes as well as rate caps. These rate caps will be based on the reduced rates mentioned above and will include impacts from fuel adjustments and renewable energy standards (including rebates) mandated by Amendment 2 several years ago.

In exchange, utilities can invest more quickly, and they will do so while having 15% of their prudently incurred costs automatically disallowed.. That means they will never get them back.

One of the issues important to many grassroots activists is that of “smart meters, “more specifically, the ability to “opt out” of the installation of these meters.  SB564 does not contain specific language providing for voluntary “opt out”. It does provide that “smart meters” can only account for six (6) percent of the proposed annual capital budget.

It should be noted that the Public Service Commission (PSC) requires each utility to provide customers with the option to use standard meters rather than “smart meters”. That requirement is contained in each utility’s approved tariff. (See KCP&L and Ameren opt-out requirements).

There is a push in the House to add specific statutory language on this issue. Until such time as that may happen, anyone who has experienced difficulty in being allowed to opt-out of smart meter installation should contact the PSC and file a complaint.

One of the recurring false statements being made about the bill is that it somehow allows the utilities to raise rates without PSC approval. That claim is absolutely false!

SB564 does not provide any mechanism whereby utilities can increase rates without filing with the PSC first!

Below are the sections of the bill and a “What does it do?” explanation.  After reading the facts of the bill you will be fully equipped to make your decision about whether you would support or oppose the bill.

Everyone should also understand that the process is not completed yet. The House is formulating their own version of the bill which will be sent to the Senate for consideration.

The version we are dissecting is the Senate Substitute #5. This is the version the Senate perfected, third read and sent the House.

If you’re not familiar with the structure of a bill, when you read a bill, all text that is not bolded is existing law and is unchanged. Bolded text is “new” language and is new law even if the existing law itself is not changed.

Deletions of existing law are normally bracketed (“[“, “]”). These are sometimes easy to miss so watch carefully.

SB564, as it passed the Senate after hours of filibuster and compromises, provides basically three (3) options to regulated utilities. Each of the options are stand-alone and cannot be combined.

Option One: status quo.  The three (3) major electrical utilities can choose to change nothing in the way they are regulated and remain under the same process they are currently operating under.

Option Two: revenue decoupling.

Option Three: participating in the Plant in Service Accounting (PISA) which is the primary purpose of the bill.

Once again, it’s important to remember that utilities, whether SB564 passes or not, cannot raise rates on their own. The Public Service Commission (PSC) is required to approve all rate changes under SB564.

There is also a significant provision that will result in lowered rates.

MANDATED RATE REDUCTION

• 393.137 (Single Issue Ratemaking on Federal Taxes) – This section gives the PSC the authority to direct electrical corporations to reduce their rates to reflect the impact from the single issue of the federal 2017 Tax Cut and Jobs Act. Authorizes the use of a regulatory asset to capture all the benefit from the 2017 Tax Cut for rate payers.

Let’s get started discussing the last two options.

REVENUE DECOUPLING

• 386.266. (Revenue Decoupling) This section permits electrical corporations to implement revenue decoupling, allowing it to adjust its rates (to residential and non-demand metered customers) to achieve a level of revenues authorized by the PSC.
  • Not permissible for a company that has opted to utilize the PISA.
  • Utility must file quarterly surveillance reports on: (1) components necessary for determining the utility’s rate base, (2) information on its capitalization, (3) income statement, (4) information on allocation of costs between the states it serves, and (5) financial data notes.
  • Expires January 1, 2029.

PLANT IN SERVICE ACCOUNTING (PISA)

• 393.1400 (Plant In Service Accounting, PISA) This section permits an electrical corporation to elect to defer only 85% of all depreciation expenses and its return associated with certain qualifying electric plan to a regulatory asset until December 31, 2023.
  • The deferral period may be extended for up to five years upon application of the electrical corporation and approval of the PSC.
  • The electrical corporation shall file a capital investment plan annually during the term of the deferral period.
  • No more than 6% of the investment in any given year shall be in “smart meters.”
  • The capital investment plan shall include a certain minimum investment proportion in, among other things, digital and control technology, dynamic optimization, integration of distributed generation, incorporation of demand-side resources, “smart” technology and appliances, advanced electricity storage and peak-shaving technologies, and information and control technologies.
  • Regulatory asset balances survive the termination of the deferral period.
• 393.1610. (Pilot Programs) The Commission may approve investment in small scale or pilot innovative technology projects designed to give electrical corporation operational knowledge of deploying new technologies that result in customer savings when scaled up.
• 1640. (Incremental Load Growth Rates) Certain customers may apply for special discounts from electrical corporations for incremental load growth.
  • To receive a special discount, a customer must show that it adds incremental load, receives governmental economic development incentives, and meets criteria set forth in the electrical corporation’s tariff.
  • The discount shall average 40% over 5 years.
  • The customer can receive an additional 10% discount for taking service from an under-utilized circuit.
  • The discounted rate must be higher than the electrical corporation’s variable cost and make a positive contribution to its fixed cost.
  • The revenues lost from the discount shall be allocated to all other customers.
  • Replaces need for “special” legislation granting availability to only certain companies.
• 393.1650. (Contractor Bidding for Construction Services) Electrical corporations shall develop a bidding process for contractors to provide construction services on their distribution systems.
  • The electrical corporation must verify that it has established a qualification process and confirm that it uses the process for no less than 10% of the combined external installation expenditures made by the electrical corporation for construction services on its distribution system.
  • Requires competitive vendor selection.
• 393.1655. (Rate Freeze and Cap) Any electrical corporation choosing to utilize PISA provisions shall be subject to a rate freeze for three years and a rate cap for as long as the deferral election is effective.
  • Rates during the deferral period shall not exceed a 2.85% or 3% (depending on the company) compounded annual growth rate for the average rate set prior to the deferral period i.e., after rate reduction for tax cut plan (Section 393.137).
    • The electrical corporation may not recover more than the rate cap.
    • If changes in the fuel adjustment clause (386.266) or renewable energy rate adjustment mechanism (393.1030) cause an increase in rates that exceeds the cap between rate cases those excess dollars are put into the plant in service accounting mechanism (393.1400) for consideration in the next PSC rate case.
  • Rates for large power service customers shall not exceed a 2% compounded annual growth rate for the average large power service rate class set prior to the deferral period.
• 393.1665. (Utility Scale Solar) Electrical corporations shall make additional investments in utility-owned solar facilities, as follows:
  • A company with more than one million Missouri customers, $14 million; if more than 200,000 but less than one million customers, $4 million; if less than 200,000 customers, $3.5 million.
  • Reflects existing requirements of 393.1020 – 393.1075
  • Investments causing rates exceed the 1% RES limitation may now be recovered as a regulatory asset.
• 393.1670. (Limited Solar Rebates) Electrical corporations shall grant additional solar rebates in the 2019 – 2023 timeframe, as follows:
  • 50 cents per watt if operational in first half of 2019; 25 cents per watt for systems that become operational thereafter.
  • A company with more than one million customers, $28 million in aggregate and no more than 1/5 of that amount; if more than 200,000 but less than one million customers, $8 million; if less than 200,000 customers, $7 million aggregate.
  • The cost of the rebates may be recovered from other customers. Recovery that exceeds the 1% RES limitation may now be recovered as a regulatory asset.
  • Reduction in load shall be considered conservation.
  • Reflects existing requirements of 393.1020 – 393.1075.
• 393.170. (Small Generating Units) Permits electrical utilities to construct energy generation units of 1 megawatt or less without obtaining a certificate of convenience and necessity from the PSC.

#gridmodernization
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