Ratemaking & New Technology A Regulatory Innovative Approach to - - PowerPoint PPT Presentation

Ratemaking & New Technology

A Regulatory Innovative Approach to Carbon Capture Projects

Kara B. Fornstrom, Chairman, Wyoming Public Service Commission 2019 WIA Spring Conference March 29, 2019

Today’s Presentation

• Why the Future of Coal Matters to

Wyoming

• Pressures on Coal-Fired Electricity
• Wyoming’s Response = LEAD
• What’s Impeding Utilities from

Investing in CCUS Technology?

• Rate Making 101
• 2019 Wyoming Legislative Policy
• Is Regulatory Innovation the Missing

Piece?

• Conclusion/Questions

Why the Future of Coal Matters to Wyoming

• Wyoming Coal Mines
• Wyoming Coal-Fired Generation Plants
• Wyoming’s Portion of the US Coal Economy

Wyoming’s Coal Mines

Top 10 Producing Coal Mines by Tonnage in the US (2015)

University of Wyoming Center for Energy Economics and Public Policy, 2017.

Top 10 Producing Coal Mines by Tonnage in the US (2017)

EIA

2017 U.S. Coal Production by State

Wyoming’s Coal-Fired Plants

Coal Revenue for Wyoming

Coal-Fired Power Plants Fueled by the Powder River Basin

Source: https://wildearthguardians.org/climate-energy/maps/powder-river-basin-coal-plants/

Wyoming Coal-related Employment (2012)

University of Wyoming Center for Energy Economics and Public Policy, 2015.

Coal Economy Addition to Gross State Product (2012)

University of Wyoming Center for Energy Economics and Public Policy, 2015.

Pressures on Coal-Fired Electricity

• Natural Gas – Domestic Production
• National Energy Policy
• Legal Rulings
• State Energy Policy
• Impact on Wyoming

U.S. Natural Gas Production: 1990 - 2018

National Energy Policy: Public Utilities Regulatory Act (PURPA)

• Enacted in 1978 as part of the National Energy Act in

response to a national energy crisis

• Encouraged the development of renewable energy and

cogeneration technologies as competitive alternatives to

• il and other scarce sources of fuel
• PURPA requires electric utilities to purchase power

produced by qualifying facilities (QFs) that used renewable energy and cogeneration technologies - Must Take Obligation

• Ratepayer Indifference Standard

National Energy Policy: ITCs and PTCs

• Solar Investment Tax Credit (ITC)

○ Established by the Energy Policy Act of 2005 ○ Federal policy mechanism to incentivize the deployment of both rooftop and utility-scale solar. ○ Allows both residential and commercial developers to recover 30% of the cost of a solar investment ○ Tax credit begins stepping down at the end of 2019

• Renewable Electricity Production Tax Credit (PTC)

○ Established in 1992 by the Energy Policy Act of 1992 ○ Originally available to all forms of renewable energy ○ Currently only available to wind for facilities commencing construction after December 31, 2016 ○ Tax credit is $0.015/kWh, adjusted for inflation in current calendar year in which the sale occurs ○ Tax credit was $0.0024/kWh in 2018 ○ Tax credit is phased down for wind facilities commencing construction in 2017 and thereafter ○ Repowering ○ Wind facilities must complete construction by December 31, 2020 to receive 100% PTCs

National Energy Policy: Results

• PURPA along with ITCs and PTCs have had a tremendous impact on renewable development

○ According to the EIA, wind generation grew 80% between 2008 and 2018 to 275 MWh, accounting for 6.5% of total electricity generation ○ Solar, meanwhile, exploded from just 2 million MWh to 96 MWh, comprising 2.3% of total generation last year

Soruce: https://ncsolarnow.com/how-purpa-helped-boost-utility-scale-solar-in-north-carolina/ Photo: Wikimedia Commons and Pixabay

Legal Rulings: Massachusetts v. EPA, 549 U.S. 497 (2007)

• The U.S. Supreme Court ruled that GHGs are “air pollutants” under the Clean Air Act
• The EPA subsequently had authority to regulate emissions of the same from both stationary and mobile

sources.

• In 2009, the EPA found that “greenhouse gases in the atmosphere may reasonably be anticipated both to

endanger public health and to endanger public welfare.”

• EPA has been exercising its authority for the past decade and continues to regulate GHG emissions from

coal-fired, natural gas, and other fossil fuel powered facilities

• Massachusetts v. EPA remains the law of the land

Citation: “Carbon Capture and Sequestration in the Cowboy State: A Primer for the Wyoming Lawyer, Kipp Coddington, March 14,2019.

State Energy Policy

• Renewable Portfolio Standards: Requires electricity suppliers to source a certain quantity of renewable

energy

• In percentage, megawatt-hour or megawatt
• First RPS Design – California – 1995 (adopted in 2002)
• Other Versions: “Clean”; “Carbon Neutral”

http://www.ncsl.org/research/energy/renewable-portfolio-standards.aspx

State Energy Policy

2015 Coal Shipments from Wyoming to Other States (Tons)

2016 Coal Shipments from Wyoming to Other States (Tons)

2015 – 2016 Comparison

• New York or Florida stopped receiving Wyoming Coal
• Reduction in shipments to the three of Wyoming’s historically largest coal

receiving states:

○

Texas: 55.1 Tons in 2015 to 44.5 Tons in 2016, a decrease of 10.6 Tons

○

Missouri: 40.4 Tons in 2015 to 34.4 Tons in 2016, a decrease of 6 Tons

○

Illinois: 45.6 Tons in 2015 to 29.6 Tons in 2016, a decrease of 16 Tons

Impact on Wyoming: Coal Production: 1970- 2016

Source: https://auber.org/wp-content/uploads/2018/05/Godby-_20171022.pdf

Impact on Wyoming: Coal Production: 2007 t0 2017

EIA

Impact on Wyoming: Annual Average of Wyoming Coal-Related Jobs

EIA

Impact on Wyoming: Coal Revenues

Wyoming’s Response = LEAD

• Legal Framework: State and Federal
• Technology: CCUS & Integrated Test Center
• CO2 Pipeline Corridors
• Regulatory?

Legal Framework: Wyoming Statutes

• Specifies who owns the pore space (Wyo. Stat. § 34-1-152 (2017))
• Establishes permitting procedures and requirements for CCS sites, including permits for

time-limited research (Wyo. Stat. § 35-11-313 (2017))

• Provides a mechanism for post-closure MRV via a trust fund approach (Wyo. Stat. § 35-11-

318 (2017))

• Provides a mechanism for utilization of storage interests (Wyo. Stat. § 35-11-315 (2017))
• Specifies that the injector, not the owner of pore space, is generally liable (Wyo. Stat. § 34-

1-153 (2017))

• Clarifies that vis-à-vis storage rights, production rights are dominant but cannot interfere

with storage (Wyo. State. § 30-5-501 (2017))

• Provides a certification procedure for CO2 incidentally stored during EOR (Wyo. Stat. § 30-

5-502 (2017))

Citation: “Carbon Capture and Sequestration in the Cowboy State: A Primer for the Wyoming Lawyer, Kipp Coddington, March 14,2019.

Legal Framework: Federal

• FUTURE Act and 45Q Tax Credit

○ Introduced in July, 2017; signed by President Trump in February, 2018 ○ Major components ○ Increased amount of tax credit ○ Extend timeframe, no volumetric limit ○ Made tax credit assignable

• Use it Act

○ Sponsored by U.S. Sen. John Barasso (R-WY) ○ Introduced in March 2018 ○ Furthers the FUTURE Act by supporting carbon utilization and direct air capture research ○ Support federal, state, and non-governmental collaboration in the construction and development of CCUS facilities and CO2 pipelines

Technology: Electricity Generation and CCUS

https://phys.org/news/2014-04-theory-reality-carbon-capture- storage.html https://www.worldcoal.org/coal/uses-coal/coal-electricity

Technology: Uses for Captured CO2

Technology: Integrated Test Center

• Carbon XPrize

○ Breathe (Bangalore, India) ○ C4X (Suzhou, China) ○ Carbon Capture Machine (Aberdeen, Scotland) ○ CarbonCure (Dartmouth, Canada) ○ Carbon Upcycling UCLA (Los Angeles, CA, USA)

• Japan Coal Energy Center (JCOAL) and Kawasaki Heavy Industries, Ltd.

○ Kawasaki is slated to test their solid sorbent capture technology ○ Memorandum of Understanding (MOU) between JCOAL and Wyoming, signed August 2, 2016 ○ MOU covers technical cooperation, R&D, communication, information exchange, and facilitating coal exports and sales ○ JCOAL works to promote overall coal activities, from coal mining to the field of coal utilization

• University of Kentucky Center for Applied Energy Research (CAER)

○ Announced March 7, 2019 ○ Signed a lease to use a portion of the ITC’s large test bay as part of their Phase II application of the Fossil Fuel Large-Scale Pilots funding

• pportunity

○ Currently finalizing Phase II application ○ Hopes to obtain $50 million in DOE grant funding ○ If grant is obtained for Phase III, CAER will also host at ITC

Technology: Ongoing Projects

Technology: National Momentum

CO2 Pipeline Corridors: Wyoming’s Infrastructure

Citation: “Carbon Capture and Sequestration in the Cowboy State: A Primer for the Wyoming Lawyer, Kipp Coddington, March 14,2019.

Is Regulatory Innovation the Missing Piece?

CO2 Technology State Law Federal Law Regulatory?

What’s Impeding Utilities From Investing in CCUS Technology?

• Utility Risk Profile - Risk Tolerance
• Incentives
• Traditional Rate Making Model

Utility Risk Profile: Risk Profile By Industry

Incentives: Power Sector Regulation & CCUS

NARUC, 2018

Traditional Rate Making Model

• The Regulatory Compact

○ Provides utilities the opportunity to recover expenses and earn a reasonable return on investments with the goal of ensuring safe, adequate, reliable service at reasonable rates, while protecting customers from monopoly abuses.

• Overriding Principles

○ Protect Public Interest ○ Used and Useful ○ Safe and Reliable

• Why isn’t CCUS typically included in rate base?
• Lack, to date, of commercial success
• Big Price Tag

○ Is CCUS necessary in ensuring the goals set forth in the regulatory compact?

Rate Making 101

• Rate Base

○ What is it? ○ How is it used?

• Regulatory Process

○ Application, Parties, Interveners, Contested Cases

What is Rate Base?

How is Rate Base Used?

Regulatory Process: Time Consuming

Process typically takes 8-10 months

○

Notice: Allow for Comment Period

○

Intervenors

○

Burden of Proof

○

Commission Review

○

Contested Case Hearing

○

Deliberation

○

Preparation of an Order

2019 Wyoming Legislative Policy

• Wyoming Senate File 0159
• Wyoming House Bill 0113

SF159-New Opportunities for Coal-Fired Generation

• Utilities are obligated to purchase electricity generated by a coal fired

generation facility by agreement approved by the Commission:

• Electricity sold at utility’s avoided cost – determined by Commission
• Cost of PPA is 100% recoverable in rate; Situs Asset
• Determination of Avoided Cost
• Value of energy and capacity generated from the facility
• Value of any reliability benefits associated with the operation of the facility
• Any other factor deemed appropriate by the Commission
• Limitation on Cost Recovery
• Good Faith
• Reasonable Offer to Purchase
• Purchase Only Effective After Commission Approval

HB113-Service Agreements Between Electric Utilities and Customers with Specified Electric Usage

• Projects with greater than five megawatts - tariff approved by the Commission.
• An electric utility may enter into a serve agreement with these customers provided that the terms and

conditions of the agreement: ○ Are expected to result in revenue to the utility in an amount that exceeds the expected cost to serve the customer’s projected electric usage. ○ Shall not result in obligating other customers for any utility investments or any direct, indirect or reasonably assigned costs related to the utility's service to the customer under the agreement. ○ Provide benefits to other customers without imposing additional current or future costs.

• Electric utility shall retain for its owners any profits or losses that result from entering such an agreement

with a customer.

• Electric utilities to report to the Commission at least once every three years as to the impacts of the

agreements on other rate payers.

Wyoming’s 2019 Legislative Policy Direction

• Preference is to Delay Retirement of Coal Plants
• Encourage Utilities to find Purchasers
• Must Take Obligation
• Commission Determinations
• Good Faith
• Reasonableness of Agreements
• Ability of Purchasers: Managerial and Environmental
• Cost Recovery Implications
• Expands Commission’s Innovative Ratemaking Jurisdiction
• Compensate Utilities outside Traditional Rate-Base
• Separate Utility Revenue Stream – Not Included in ROE
• Ensure Other Customers Protected

Is Regulatory Innovation the Missing Piece?

State Law Federal Law Regulatory? CO2 Technology

CO2 as a Revenue Stream

• How do we incentivize

Regulated Utilities to take advantage of Opportunities where CO2 be turned into a profitable commodity?

CO2 As a Commodity: Pass-On Mechanism?

• Similar to treatment of

Natural Gas Utilities – Decoupling Efforts

• Credit to Customers

CO2 As a Commodity: Sharing Bands?

• Consistent with Legislative

Policy expressed in HB113, should the PSC Consider Additional Incentives for Regulated Utilities?

• If not allow CCUS

Infrastructure in Rate Base, should the IOU Share in the C02 Revenues?

CO2 Revenues: Separate Treatment from ROR and ROE

• Is the Public Interest Served when

Separating CO2 Revenues from rate of return and return on equity calculations?

Conclusion

• The Future of Coal Matters to Wyoming
• Traditional Ratemaking Model May not Provide Sufficient

Incentives for Regulated Utilities to Pursue CCUS Projects

• Wyoming Legislative Policy Seems to be Opening Doors to

Innovative Ratemaking Solutions

• Can Wyoming Innovative Ratemaking be the Missing Piece for a

Project to Proceed Here?

• Can Wyoming’s Regulatory Policies Assist Other States?

Questions?

Chairman Kara B. Fornstrom Phone: 307.777.7427 Email: kara.fornstrom@wyo.gov Follow me on Twitter @k2bfornstrom