State utility regulators are grappling with how to maintain affordable electricity as demand grows and the energy transition continues, according to interviews with key commissioners from nine states.
Affordable electricity affects consumers, but also utilities themselves.
“There's just no question that affordability is going to be a crucial issue as these grid transformations are implemented and executed on,” Paul Patterson, a utility equity analyst with Glenrock Associates, said.
Patterson said he is looking to see which jurisdictions may get tougher on utilities in terms of constraining their rate base, or whether they'll be “nickeled and dimed” by regulators in response to the issue of affordability, which affects a large portion of the population.
"It's going to be a jurisdiction by jurisdiction issue,” Patterson said. “It's something that investors have to think about.”
Utility Dive met with state utility commissioners earlier this month at the National Association of Regulatory Utility Commissioners’ annual meeting in Anaheim, California. We asked them what they viewed as the top issue they face. Here’s what they told us.
Colorado grapples with affordability
Affordability is Colorado Public Utilities Commission Chairman Eric Blank’s top issue. Public Service Co. of Colorado’s rate base has grown to the $20 billion to $25 billion range from about $8 billion when Blank joined the PUC in 2020, he said.
“It’s partly driven by EVs, beneficial electrification and data centers, so if those changes can bring in marginal revenue sufficient to support the capital, it may all work out,” Blank said. “But the challenge is to make sure the capital is well spent. We're doing what we can to avoid [spending] where possible and that the new load, particularly the data center load, pays its fair share.”
In the last 15 years, annual retail sales growth in Colorado has been under 0.3% but the state is looking at utility capital spending growing in excess of 15%, according to Blank. “We want to see that growth,” he said. “We want to see that investment in Colorado, but it's also a risk if we don't get it right.”
The affordability question is driven by “massive” increases in spending on the distribution and transmission systems as well as large generation investments and wildfire mitigation issues, according to Blank. “Wildfire mitigation seems to be a central, growing issue in the financial community,” Blank said.
Georgia needs generation
Data center growth, residential rates and planning a path forward, including with potential nuclear units and virtual power plants, are the top concerns for Tim Echols, a vice-chairman at the Georgia Public Service Commission.
"We do not want this falling on the back of residential rate payers.”
Tim Echols
Georgia PSC Vice-Chairman
“Going into a future where we need more capacity, are we going to just build more gas plants, which is certainly something we're not afraid to do in Georgia, but it's got a bill,” Echols said.
The PSC recently approved Georgia Power’s plan to add 1.4 GW of gas-fired generation at an expected cost of $1.5 billion. Avoiding that cost through less expensive VPPs is an appealing option, Echols said.
Potentially, Georgia Power and Alabama Power, both Southern Co. utilities, could share a new nuclear power plant, according to Echols. He said he would support a nuclear power plant if it was backed by a federal deal to protect project owners from a bankruptcy by the company building the plant.
The PSC aims to protect existing ratepayers from the cost of new load. When the PSC in April approved Georgia Power’s plan to acquire 6.6 GW, about 80% of the capacity was for data centers that paid for their share of the expense, according to Echols. “We do not want this falling on the back of residential rate payers,” he said.
Kansas faces resource adequacy challenge
Resource adequacy is the top issue concerning Kansas Corporation Commission Chairperson Andrew French. “The big challenge right now is we actually have sizable load growth for the first time in maybe decades, but you've got that coming at a time where it is more difficult to build infrastructure, maybe than it has ever been,” he said.
Utility regulators are working in a period of uncertainty, according to French. “We need to build a lot of resources, but we don't exactly know which resources we want to build, and we don't know how much of it we need, and we don't know if we'll be able to build it fast enough,” he said.
Local moratoria on solar projects, which would pair well with the region’s wind generation, are becoming a major challenge, adding to the uncertainty, according to French. Meanwhile, gas-fired generation can complement renewable energy, but it has its own set of problems including price volatility and performance problems in extremely cold weather, he said.
“Do we want to double down on this resource that seems to have both price issues and reliability issues?” French asked. “The really tough thing for regulators to swallow is the fact that there's no good alternative. The best you can probably do is to try to diversify your generation sources.”
Maine seeks cost-effective transition
A lot of the Maine Public Utilities Commission’s recent work has focused on the clean energy transition, according to PUC Chairman Philip Bartlett. “So top of mind for me, and the other commissioners, is thinking about how we approach this in the most cost-effective way possible, within the limits of what the legislative directives have been,” he said.
“How do we use grid-enhancing technologies and distributed energy resources in a way to help drive down costs for customers."
Philip Bartlett
Maine PUC Chairman
Key issues include making sure grid investments to support beneficial electrification match when the demand actually shows up, according to Bartlett. “We can't really afford to make investments that sit there for 10, 15 years before they're useful,” he said.
It also requires making sure the PUC structures procurements in ways that drive the most cost-effective bids and have the flexibility to ensure good deals for ratepayers, Bartlett said. The PUC must also think about restructuring low income programs in a way that can help consumers but avoid too big a cost shift to those who may not qualify for particular programs, according to Bartlett.
“How do we use grid-enhancing technologies and distributed energy resources in a way to help drive down costs for customers,” Bartlett said. “It's thinking about time of use rates … to both reduce long term costs but also empower customers to save money.”
Maryland strives to keep rates down
“We're very concerned about how to keep rates in Maryland affordable, because we're concerned about the ever increasing costs of essential services,” Maryland Public Service Commission Chair Frederick Hoover said. “By the same token, we need to make sure that the companies have enough revenue to provide reliable service and make the investments that they need … We're also trying to figure out how to deal with the impacts of climate change.”
At the same time, Maryland relies on the PJM Interconnection for its wholesale power supplies, partly through the grid operator’s capacity auctions, according to PSC Commissioner Michael Richard. Maryland has no control over those power costs, he noted.
Partly in response to PJM’s recent surge in capacity prices, the PSC is holding a technical conference next month on resource adequacy that could lead to a new state strategy on the issue, according to Hoover. “Everything should be on the table … from the demand side to the generation side,” he said.
Maryland feels “let down” by PJM’s grid planning, Richard said. “It's been a policy in Maryland that we want to have cleaner, decarbonized energy. Yet, even though there were very specific discussions as long as five years ago, that has not been taken into consideration for the planning of the grid.”
Michigan aims to bolster reliability
The top issues in Michigan are distribution system reliability and “how to keep the lights on,” according to Dan Scripps, chair of the Michigan Public Service Commission.
The PSC earlier this fall received a third-party audit of the two largest utility distribution systems in the state, Scripps said. The audit recommended performance-based mechanisms to better align the quality of customer service with how the utilities earn their money, improved distribution planning and an expanded focus on vegetation management and tree trimming, he said.
The challenge of maintaining resource adequacy comes amid a bottlenecked interconnection queue, load growth from electric vehicles, the onshoring and reshoring of U.S. manufacturing, and data centers, according to Scripps.
Michigan is working on those challenges through its participation in PJM and the Midcontinent Independent System Operator. “But I also believe that the states — through our integrated resource planning processes, or capacity demonstration process in Michigan — that we have a fundamental and central role to play in that,” Scripps said. “It's trying to responsibly manage the energy transition. But it's going to take all of us working a little harder and a little faster.”
Oregon faces investment needs
The bottom line utility regulators face in the Northwest is that the system has major investment needs around reliability, resiliency and meeting load growth demands “and the challenge of doing all of those things at a time when customers are talking to us a lot about the affordability pressures that they're facing broadly in their homes and businesses being exacerbated by utility rate increases,” said Megan Decker chair of the Oregon Public Utility Commission.
"That fundamental responsibility to be figuring out ways to lessen the impact on ratepayers and to make sure that the value proposition is strong for the investments that are being made is really our core job."
Megan Decker
Oregon PUC Chair
Utility regulators need to ensure that utilities are making necessary investments in their systems, but not overdoing spending, according to Decker.
Utilities must invest in their distribution systems to make them more resilient to wildfires and to improve reliability, Decker said. “The list of investment needs that we're most focused on might differ by region, but that fundamental responsibility to be figuring out ways to lessen the impact on ratepayers and to make sure that the value proposition is strong for the investments that are being made is really our core job,” Decker said.
That job is harder when there is inflation, supply chain problems and load growth at the same time, according to Decker. Also, utility commissions across the U.S. face significant resource constraints, she said. “When you have a period of rising costs and high investment needs, you're bound to see companies coming in for rate cases more frequently,” Decker said, noting an unprecedented four major utilities filed general rate cases this year in Oregon. “The strain [on the PUC] is real.”
Pennsylvania deals with resource adequacy
Resource adequacy is a major concern in Pennsylvania, according to Pennsylvania Public Utility Commission Chairman Stephen DeFrank. Reserve margins in the region are declining, power plants are retiring and not being replaced and there is major load growth, he said. In response, the PUC is held a resource adequacy technical conference on Nov. 25 that considered ways to get generation online.
The state is also dealing with data centers that want to be located at nuclear power plants, DeFrank said. “We're ground zero for that conversation, and it's a conversation that, if we get it right, that model is going to be used throughout the country,” he said.
Meanwhile, Pennsylvania and PJM needs transmission and distribution system investments while electricity prices are rising, according to DeFrank. “Affordability is a huge issue,” he said, noting utility arrears is increasing. “There is concern that you are pricing people out of utility service.”
The PUC is processing about 25 electric, gas and water utility rate cases, with decisions required within nine months of applications being filed, DeFrank said. Some consumers may face rate hikes across multiple utilities, he said.
The PUC has been taking steps to improve the state’s universal service programs that aim to ensure that utility service is affordable for all customers, according to DeFrank. “It helps, but we still have to address affordability and that balance, because all these costs are going up and these are necessary services,” he said.
Wyoming tackles wildfire risks
“I don't think our issues are dramatically different than everyone else’s,” Wyoming Public Service Commission Chairman Mary Throne said. “We're dealing with wildfire issues and the risks associated with that, the upward pressure on rates maintaining affordability and demand growth — the whole data center issue is active in Wyoming, as it is everywhere else.”
Wyoming has processes to protect customers from costs related to load growth, according to Throne. “The data centers have to bear the costs of their load and their infrastructure,” she said.
In a move that could affect the PSC, the Wyoming Legislature’s Minerals, Business & Economic Development Committee is considering a draft bill that would require utilities to submit wildfire mitigation plans to the commission for its approval. The legislature will likely discuss the bill when the legislative session begins next year, according to Throne.
