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The following reports, publications or presentations
A Presentation to the National Association of Utility Consumer Advocates - June 2014
A Presentation to the National Association of Utility Consumer Advocates - June 2014
June 12, 2012
JBS gave a quick review to the study by Perfect Power Institute (PPI) entitled “Investing in Grid Modernization.” That paper ostensibly shows that Grid Modernization (Smart Grid) would provide benefits to consumers that exceed the investment cost by a factor of 3 or more. Based on our overview of the benefit calculations it appears that the benefits are grossly overstated and quite unrealistic, and the conclusion is therefore completely false and misleading. Major reasons are that 1) for half of the alleged benefits, the costs to achieve are not included but rather are assumed, 2) the calculations of some benefits are questionable, and 3) the reliability solutions experienced by a small municipal utility have only limited relevance to larger utilities with diverse service territories. Furthermore the validity of the assumptions made by PPI is likely to vary considerably depending on the type of utility and climate zone. Thus readers should be very cautious in expecting that the benefits claimed in the PPI study could be obtained cost-effectively if at all.
April 20, 2012
This paper was prepared by William B. Marcus for Northwatch and submitted to the Ontario Energy Board
“Given Northwatch’s strong concern with regional planning issues, Northwatch chose to devote significant attention to the regional planning issues identified by the Board, and specifically the interface between transmission and distribution utilities to provide leastcost regional solutions. However, this submission will also speak to several other areas. The first is the need for broader regional planning of supply and demand across regions – including generation planning. Second, Northwatch addresses distribution planning issues more generally (including plans for growth, aging infrastructure, information technology and smart grid), given Northwatch’s overall perspective regarding the need for planning to support sustainable development, while assuring that money is spent wisely, given the pressures on rates and customer bills in Ontario. Northwatch has also identified an issue that was left out of the Board’s analysis – the necessity for incentives and plans for utility system investment to reduce energy use on the distribution systems, including reductions of distribution losses and control of customer voltage.”
A new trend has emerged. Utilities are starting to move existing and new assets from state regulation to more generous FERC regulation to earn more money on the same assets. They have been aided to some degree by the rate policies of Regional Transmission Organizations, which spreads costs either to entire regions or to zones, while using FERC-regulated returns for all transmission owners. RTO policies reduce risk for transmission owners, even while FERC gives an incentive increase to the return on equity for joining RTOs despite the reduced risk. Some utilities, most notably American Electric Power (AEP), have adopted a strategy of creating transmission-only subsidiaries to reduce business risks and increase returns at the expense of ratepayers. This JBS testimony, filed on behalf of the Arkansas Attorney General at the Arkansas Public Service Commission, opposes AEP’s attempt to form a transmission-only subsidiary paid by the RTO to build new assets in Arkansas in tandem with the integrated utility (Southwestern Public Service Company or SWEPCO), shows that AEP’s attempt would raise SWEPCO’s transmission rates by 38%, and provides a detailed discussion of the business risk of independent and quasi-independent transmission owners in an RTO environment. Exhibits to the testimony are available by contacting Bill Marcus: email@example.com.
This question has been treated as almost an ideological question, with proponents of deregulation pointing to increased efficiency and benefits of customer choice, while opponents look at various cost-increasing factors such as duplication of activities, losses of economies of scale, expensive FERC regulated transmission, and strategic bidding and exercise of market power. But data on state-by-state electric rates and bills compiled by the Energy Information Administration can be used to examine this question. In this report, JBS Energy reports on a cross-sectional analysis of residential rates in the continental United States. The analysis finds that deregulated states have residential rates that are 1.3 to 1.5 cents/kWh higher than states remaining under regulation – after controlling for regional differences in costs and differences in average kWh sales that affect rates.
A presentation to National Association of Utility Consumer Advocates Conference in San Francisco California,
June 15, 2010.
Presentation to National Regulatory Research Institute,
February 11, 2010
In this presentation to a February 2010 tele seminar sponsored by the National Regulatory Research Institute, Bill Marcus provides a consumer oriented perspective on the need for basic conservation-oriented residential rate design in a world where regulators appear entranced by the capabilities of "smart" metering. The presentation discusses the need to stop promoting electric heat, close declining block rates, freeze or lower customer charges and consider inverted block rates. It also points out some concerns with the time of use and critical peak pricing rates that new meters can make possible, including the difficulty of developing voluntary programs and how to price to the variety of customers who do not choose them, the fact that small users can never save or shift enough peak period energy to pay for advanced meters through a customer charge; and potential adverse bill and consumer impacts on the poor and elderly. Finally the presentation discusses whether programs are better than rates for residential customers and explains how improving air conditioner efficiency is both more valuable than demand response and will end up reducing the amount of available demand response savings.
Presentation to University of California’s Electric Institute Policy Conference,
Sacramento, California, December 10, 2007
W. Marcus and G. Ruszovan, Know Your Customers: A Review of Load Research Data and Economic, Demographic, and Appliance Saturation Characteristics of California Utility Residential Customers. Attachment to Formal Comment Filed in CPUC App. 06-03-005 Dynamic Pricing Phase for The Utility Reform Network. December 2007.
Bill Marcus’s presentation to the University of California’s Energy Institute Policy Conference held in Sacramento, discussing preliminary findings resulting from the analysis of the California Energy Commission’s Residential Appliance Saturation Survey and utility provided load research data, demonstrating the difficulties of expecting demand response for smaller and lower income residential users. The accompanying paper presents these findings in greater detail.
Presentation to Law Seminars International Seattle Conference on Renewable Resources and Energy Efficiency,
August 10, 2006
Integrated Resource Planning is a powerful tool for assuring that energy efficiency and renewables receive proper consideration. This presentation provides a consumer perspective on the IRP process, the role of renewable resource developers in that process, and what is necessary for the process to work properly.
This presentation examines the key difference in planning between minimizing customer bills and minimizing rates and the how choosing rate minimization prevents development of cost-effective energy efficiency programs. It also identifies utility incentives to build and own powerplants and other facilities and how those incentives are increased when regulatory commissions authorize rates of return that are higher than expected returns of the stock market as a whole. The presentation also identifies other IRP pitfalls including utility inexperience, inappropriately low fuel price forecasts, and regulatory processes that prevent real integration while promoting regulators’ and utilities’ preferred outcomes.
Presented to the American Council for an Energy Efficient Economy (ACEEE) Summer Study on Energy Efficiency in Buildings, Asilomar Conference Center, Pacific Grove, California August, 2006
W. Marcus and C. Mitchell, “Critical Thinking on California IOU Energy Efficiency Performance Incentives from a Consumer Advocate’s Perspective,” Proceedings of 2006 ACEEE Summer Study on Energy Efficiency in Buildings, Panel 5, August 18, 2006.
Incentives for utilities to pursue energy efficiency cannot be set in a vacuum. Many utilities, including those in California , are authorized equity returns in the range of 11%, even though a wide range of indicators (including the utilities’ own expectations as investors in pension funds and nuclear decommissioning funds) are that the stock market will earn considerably less in the next decade. With rates of return far above the cost of equity capital, utilities have large incentives to pursue supply projects to build rate base, while downgrading efficiency, particularly when it dampens peak load growth.
If authorized equity returns are not cut to single-digit levels, it is difficult to develop appropriate efficiency policies to offset utility corporate incentives to profit from sales. Rather than leaving utilities as program managers for delivery of efficiency, regulators should consider independent administration (such as that pursued in Vermont and Wisconsin).
If utilities retain the program administration function with high equity returns, it is either impossible or prohibitively expensive to give enough incentives to generically favor efficiency over supply. Under these conditions, incentives must be designed strategically and should not simply be tied to kilowatt hour savings and/or “net benefits.” Undifferentiated incentives will pay utilities even if they do not adequately target (1) reductions in peak loads that threaten their infrastructure-based profits and (2) “lost opportunity” conservation in long-lived building and appliance applications. Decoupling revenues from profits, while a reasonable step under many conditions, could have similar counterproductive effects of encouraging energy savings but not peak savings in the event that the reduction in risk arising from decoupling is not considered when authorizing utility equity returns.
This testimony, prepared for the Arkansas Attorney General, presents an analysis of Arkansas' Electric Co -operative Corporation's wholesale rate design -- which places all demand costs in the summer months and charges only 2.2 cents/kWh to member co-ops for off-season electricity. The rate design is encouraging distribution co-ops to promote major increases in electric space and water heating loads. As a result, the system is becoming dual peaking and that power that could be sold on the open market for 3-5 cents/kWh is instead used to provide electric heat at 2.2 cents/kWh, thus raising everyone's rates. At the same time, Arkansas gas companies appear to be losing load to new electric heat cusotmers, threatening rate increases for their other customers. Finally, electric heat is less efficient than direct combustion of gas and increases environmental emissions.
A relatively simple change to the G&T co-op's rate design -- to place some demand cost responsibility in winter months -- is proposed to eliminate the incentives to promote electric heat.
Southern California Edison is proposing to spend over $900 million to remove old steam generators and install new steam generators at its San Onofre units 2 and 3. This economic analysis, presented to the California Public Utilities Commission in testimony, shows that the installation is only marginally cost-effective under a reasonable set of base case assumptions and becomes uneconomic with only small increases in O&M and capital expense from the base case, small decreases in capacity factor, or replacement power prices consistent with estimates made recently by Pacific Gas and Electric Company.
Edison's analysis is different for three main reasons. First, it assumes that closure of San Onofre will create the need for substantial new transmission investments, even though San Diego Gas and Electric believes that those investments must be made in a similar time frame regardless of whether the steam generator is replaced. Second, its base case does not include estimates of expenses and capital from its 2006 General Rate Case, which are over $400 million above the estimates that it made when estimating the cost effectiveness of steam genertor replacements. Finally, Edison assumes the entire plant must close at the same time, rather than extending the life of the two units, particularly Unit 3, which has less degradation.
The testimony also presents arguments against requests by Edison to increase early year cash flow through including Construction Work in Progress in the rate base and accelerated amortization of the removal costs of the old steam generators.
W. Marcus and E. Richlin, Clean and Affordable Power: How Los Angeles Can Reach 20% Renewables Without Raising Rates. For Environment California. March 2003.
This March, 2003 JBS Energy study represents an independent analysis of implementation of a Renewable Portfolio Standard (RPS) of 20% by 2017 at the Los Angeles Department of Water and Power (LADWP). When taking into account the declining cost of renewable energy and the volatile and rising cost of natural gas, along with the benefits of maintaining a diversified energy portfolio containing fixed price resources, investing in renewable energy is a smart business decision. This study finds that implementing an RPS will not raise rates for LADWP customers, and may in fact save money in the long run.
JBS conducted some extensive research using utility residential databases to determine the economic and demographic factors influencing California residential electricity and gas use -- in particular the impacts of income, housing type and square footage, and household size. The analysis is highly disaggregated, with demographic factors being calculated separately for each utility, for climate zones within each utility, and for customers with and without electric heat.
This report provides an important counter-example to the oft-repeated claims by utilities that usage is insensitive to income. The report also presents information on the relationship of income to air conditioner saturation and to housing size and type, as well as usage patterns of vacation homes . Finally, the report offers evidence from PG&E and SDG&E load research data that large users use a greater percentage of their electricity during high cost peak summer periods than smaller users.
JBS has prepared gas cost of service and rate design testimony on Washington Gas Light Company's system for the Maryland Office of People's Counsel. In addition to the detailed analysis of the specific utility, this testimony contains a background and introductory material on the methodology for conducting and interpreting both embedded cost of service and marginal cost studies for gas utilities (prepared to provide information to new members of the Maryland Commission). The testimony also identifies data sources that can be used in other jurisdictions to show the disproportionate impact on service establishment charges on renters and poor people.
California’s dysfunctional energy markets have been nothing short of a nightmare for the last 18 months. Since the summer of 2000, utilities have gone bankrupt, consumers’ bills have skyrocketed and the state treasury has hemorrhaged millions of dollars in an attempt to keep the lights on.
Unless the state takes action now to renegotiate some long-term contracts, the energy crisis threatens to turn into a quagmire of skyrocketing consumer bills, state budget deficits, dirty energy sources and no stability in the energy market.
A coalition of consumer and environmental organizations joined to analyze all the long-term contracts, and found that the state can fix much of the problem by renegotiating the twelve worst contracts.
This report is a joint effort of consumer and environmental organizations to aid in solving the problem. While the goals and philosophies of these groups are not identical, the goal remains the same: to develop a workable solution to renegotiate the worst of the long-term contracts and put California on the path to a sustainable, stable and affordable energy future.
Prepared for: Utility Consumers’ Action Network, Environmental Defense, The Utility Reform Network, Natural Resources Defense Council, Consumers Union and Sierra Club
Click here to view “A Blueprint for Renegotiating...” online as a web page
This paper traces the little-known historical origins of California's current electricity crisis. The lack of electricity supply is due to unrealized utility and Energy Commission forecasts for conservation and power imports, as well as a FERC decision to stop the planned construction of 1400 MW of renewables and cogeneration plants. The influence of gas deregulation and lack of gas storage by power generators is a critical component of the high electricity prices in the winter of 2000-2001. The price impacts of a regional market-based emissions trading system exacerbated electricity prices for the whole state, and assumptions critical to the success of deregulation turned out not to be fulfilled. In the end, competitive participants acted in their own self-interest, but no one looked out for the public interest.
Testimony filed by JBS on behalf of the Arkansas Attorney General's office in response to Reliant Arkla's Proposal to Increase Gas Margin by nearly 50% and raise residential gas customer charges to $25.
Two separate files are available.
The accompanying presentation, discussing why load reduction and distributed generation are worth more than the market price of electricity, was given in slightly different forms at the NAESCO, NASUCA, and Pace Law School conferences in November 2000. The presentation summarizes the results of our analysis of the Californa and Mid-Atlantic States served by PJM, and includes an analysis of the value of photovoltaics by using the hourly output of two UPVG sites, one in California and the other in Pennsylvania.
You may view the presentation on-line, or download the presentation in an Adobe Acrobat or Microsoft PowerPoint 2000 format. If you do not have PowerPoint, you may also download and run the free PowerPoint viewer,
A review of the California Power markets was prepared using regression analysis for California PX day-ahead market, the ISO imbalance market, and reserve and regulation markets for ancillary services. Two critical points have become clear:
This paper examines the promise of restructuring from a theoretical point of view, and explores how the critical assumptions have not yet materialized in practice in several jurisdictions. Unless the cost of additional energy can be obtained at prices lower than the average cost paid by consumers under regulation, opening the electricity market to competition will lead to higher prices for all kWh, and adverse consequences for consumers.
In addition, the rate design consequences of deregulation, where fixed costs are captured in an energy price only, may have adverse and unexpected impacts on large industrial customers. Furthermore, under a deregulated structure the importance of investments in energy efficiency is increased, because conservation reduces the price of all kWh purchased. This externality factor needs to be recognized and incorporated into the cost/benefit analysis for efficiency investments.
As part of its work for Utility Consumers Action Network in the current San Diego Gas and Electric Company rate design case, JBS Energy has made two findings with significant public policy implications.
Both of these points are contrary to conventional wisdom. Both individually and taken together, these facts require a significant rethinking of policies on energy efficiency, load management, and rate design in competitive markets. .
Adapted from a presentation to the National Association of Regulatory Utility Commissioners Energy Resources and Environment Committee, July 20, 1999. By William B. Marcus, Principal Economist, JBS Energy, Inc. and Eugene P. Coyle, Ph.D., Economic Counsel
This presentation identifies a new trend to raise both customer costs and customer charges under restructuring – disproportionately raising regulated distribution rates to small customers, and charging a higher percentage of these rates in fixed charges. It recalls the past history of this debate and identifies policy issues related to the new rise of customer costs and customer charges.
A new trend has emerged – increases in regulated distribution rates for small customers after deregulation.
A number of utilities in areas where JBS is active are proposing greater allocations of distribution costs to small customers and higher customer charges, often to levels thought to be extreme a few years ago.
This detailed "nuts and bolts" summary of stranded cost issues is the distillation of JBS' recent analysis of stranded costs in a generalized format. It examines the need to avoid subsidizing future operations of existing powerplants, the best ways to quantify stranded costs, whether certain costs for regulatory assets are really stranded at all, the extent to which stranded costs should be shared between ratepayers and shareholders and securitization.
Bill Marcus discusses several topics, including the legislative and regulatory roles in stranded cost determination and the role of securitization of stranded costs as a panel member at the 1998 NCSL conference. These notes cover eight specific elements of what legislators should and should not do in writing the portion of restructuring legislation dealing with stranded costs
On the eve of competition, Ontario Hydro is working to get approval to spend billions of dollars to resurrect 5000 MW of dead nuclear plants. After spending $6 billion on this task, the value of its entire generating system is pegged at only $5 billion. Additionally, Hydro has spent $2.8 billion previously collected for nuclear decommissioning and is likely to need to collect the same dollars a second time. Read about it in a presentation made by JBS to the November, 1998 Independent Power Producers Society of Ontario (IPPSO) conference.
Don't try this at home, kids, without your parents' permission! California has given away the store to incumbent utilities in the new market for metering and billing, and small customers will be the victims of this monopoly-building strategy. Read about it in this presentation to the National Association of State Utility Consumer Advocates' conference in November, 1998, and help your states not to make the same mistakes
By Carrie Peyton
Sacramento Bee Staff Writer
(Published June 6, 1999)
Click here to read Bill’s snappy quote from a Sacramento Bee article about the now closed Rancho Seco nuclear power plant
Click here to see a listing of major JBS reports, papers, and publications, many of which are available in printed form.