LA QUINTA, Calif. — Hundreds of state regulators, utility officials and other stakeholders traveled to the California desert last week for the 128th Annual Meeting of the National Association of Regulatory Utility Commissioners.

Among the topics were new generation technologies, the impact of the 2016 elections and the priorities for incoming NARUC President Robert Powelson. NARUC also approved its first manual on ratemaking for distributed energy resources and resolutions defending its authority against federal intrusion.

Here’s some of what we heard.

Rooftop vs. Utility-Scale Solar Battles not a Concern for Industry

At a breakfast presentation sponsored by the Solar Energy Industries Association, Georgia Public Service Commissioner Tim Echols asked about what he called “infighting” between the utility-scale and rooftop solar proponents. “They’re splintering organizations and it’s almost like if your state can’t do distributed generation, you’re not doing true solar,” Echols said. “Is this splintering within the solar community … helpful to the cause?”

“I think it’s a sign of a maturing industry. Everybody’s in competition with everyone else,” responded California Public Utilities Commissioner Mike Florio, who said he had seen the price of grid-scale solar drop from 15 cents/kWh to as low 4 cents since he joined the commission in 2011.

Former Maryland Public Service Commissioner Anne Hoskins, now chief policy officer for rooftop installer Sunrun, saw the two as meeting different needs rather than being in direct competition.

Rooftop solar is “taking advantage of the built infrastructure,” she said. “You’re not having to take up other land. You’re not having to deal with wetlands or any of those other kinds of challenges.”

Rooftop solar also is attractive to those wanting to power electric vehicles or to have a backup power source other than a gas generator.

Community solar, on the other hand, provides an option for renters and others for whom rooftop solar isn’t an option.

“I don’t see it as a competitor to [rooftop] solar at all. I see it as a way to expand access to solar,” she said. “There’s really room for all of it. We have a tremendous climate challenge.”

Former Hawaii Public Utilities Commissioner Mike Champley said it is “a huge debate” in his island state, where he said DERs collectively represent the biggest source of generation.

“The way it’s pitched is utility-scale is solar of the 19th century and rooftop is the solar of the 21st century. There’s some people who believe the future is a distributed-centric world,” he said. “My opinion [based on] my 40 years in this business is that portfolios [of various resource types] will be the appropriate thing.”

M&A: Is Bigger Better?

A session on utility mergers touched on recent trends and looked into the future.

Dan Ford, managing director of Barclays, said the impact of the 2016 presidential election was unclear. Changes in tax policy, he said, “could change the economics of combinations pretty dramatically.”

“We don’t know how much of the campaign rhetoric turns into actual policy,” he said, adding that the biggest change for utilities thus far has been the rising cost of capital. “The yield curve has noticeably steepened since the election,” signaling expectations of higher inflation.

“I think that in all likelihood the election will have the effect of migrating us back from what we’ve seen the last several years — which is acquisitions for cash, for growth by large companies and small companies — to more of a merger of equals regime.”

Those mergers are designed to reduce costs to “create headroom” for more money to invest.

“I think there is a great deal of efficiency that can still be wrung out of this industry, as capital intensive as they are.”

Connecticut Consumer Counsel Elin Katz said she didn’t expect mergers slowing down absent a “dramatic change in tax policy or major shift in the market.”

Richard McMahon Jr., vice president of energy supply and finance for the Edison Electric Institute, agreed. “There’s still 44 investor-owned utilities … and hundreds and hundreds of munis and co-ops. The concentration isn’t an issue like it might be in some other industries.”

As for whether mergers are good for consumers, Katz said it depends.

“It really depends where you start and it depends where you end up. The devil you know is your own local utility. … If you start with a company that’s financially weak or in a disadvantageous position and perhaps remote management has not gotten along so great with the regulators or with the legislators or you’ve had some a checkered history with respect to storm response and people are fed up with that then, yeah, I think there’s potential for benefits. But on the flip side we always worry about the loss of local control.”

Ford said the typical utility merger in the last two decades has outperformed expectations “both in terms of actual achieved efficiencies on behalf of customers — and because of regulation that gets recaptured in the future.”

“So you shouldn’t think a merger as the last time you get a bite at the apple from a regulatory standpoint. You always get a bite at the apple.”

“You may get another bite at the apple, but it’s still the same apple,” responded Katz. “You can’t unwind a merger. Obviously you’re going to have to live with it for a long time.”

D.C. Public Service Commissioner Willie Phillips asked questions as moderator. But he was reticent when asked about the on-again, off-again Exelon-Pepco merger, which consumed D.C. regulators for months. Phillips said he couldn’t say much because there are still challenges pending to the deal. (See Exelon Closes Pepco Merger Following OK from DC PSC.)

“There was lots of zigs and zags,” he said. “And I’m not going to go farther than that.”

Powelson Replaces Kavulla as President

Powelson, a Pennsylvania Public Utility Commissioner, was elected to replace Montana’s Travis Kavulla as NARUC president.

Connecticut Public Utility Regulatory Authority Commissioner John Betkoski III moved up to first vice president and Commissioner Ellen Nowak, chair of the Wisconsin Public Service Commission, was elected second vice president. Confirmed to the board of directors were Margaret E. Curran of Rhode Island, Mark Vannoy of Maine and Nick Wagner of Iowa.

In his remarks to the conference, Powelson said his one-year term would focus on “infrastructure, innovation and investment.”

He lamented that the U.S. spends less than 2% of GDP on the electric grid and other “modern day infrastructure investment,” far below the spending of India and China.

“We’re not going to cut it spending less than 2%,” he said. “And I think that we as an association have a key role to play in driving that agenda.”

On the subject of innovation, he noted that one of the resolutions approved at the meeting was one encouraging state regulators to consider whether utilities should be able to earn a rate of return on cloud computing services and pay for them out of their capital budgets.

The resolution says that although commercial cloud computing services can provide increased reliability, flexibility and security, utilities may be unwilling to use them because they don’t earn a rate of return on software-as-a-service expenses. In contrast, they can capitalize spending on hardware and “on-premise” software.

Members also approved resolutions asserting state authority over DERs and calling for an extension of the nuclear production tax credit and changes in the Public Utility Regulatory Policies Act’s mandatory purchase rules.

Nuclear Production Tax Credit

NARUC called for an extension of the federal income tax credit of 1.8 cents/kWh for power produced by advanced nuclear reactors. The credit, included in the Energy Policy Act of 2005, is limited to the first 6,000 MW of capacity placed in service on or before Dec. 31, 2020. Only four advanced nuclear reactors totaling 4,400 MW currently under construction — Georgia Power’s Vogtle Units 3 and 4 and South Carolina Electric & Gas’ V.C. Summer Plant Units 2 and 3 — are expected to be completed in time to qualify.

The resolution urges Congress to pass legislation extending the in-service date for the credits and to expand the eligibility to public power entities and consumer-owned electric cooperatives that own shares of advanced nuclear units but do not pay federal income taxes.

PURPA

NARUC approved a resolution asserting that state commissions should have control over decisions on mandatory purchases and avoided cost determinations under PURPA and that the law’s goal of promoting qualifying facility development “must be balanced with the states’ interest in just and reasonable rates.”

Because of the growth in renewable generation, NARUC said the mandatory purchase obligation has created unintended consequences, including generation not needed to serve loads, high-cost long-term fixed-price contracts and planning challenges because of the “unexpected and unpredictable addition” of PURPA projects.

NARUC also criticized QF developers for circumventing FERC’s small renewable criteria by disaggregating their projects into multiple smaller projects. (See related story, FERC Rejects Entergy Attempt to End PPA with Goodyear Plant.)

“A number of state regulatory commissions have recently been devoting an inordinate amount of time attempting to discern the intent and assess the impact of PURPA, the meaning of FERC regulations and the parameters of state discretion,” the resolution says.

At Congress’ urging, FERC held a technical conference in June on issues that included the mandatory purchase obligation and determination of avoided costs. (See FERC Conference Debates PURPA Costs, Purchase Obligations.)

FTC ‘Intrusion’ into State Jurisdiction

NARUC also defended its jurisdiction over DERs, saying it was concerned over the U.S. Federal Trade Commission’s June 21 workshop concerning electric utilities and anti-consumer and anti-competitive activities.

NARUC said it “opposes any attempt by the FTC, or any other federal agencies, to infringe on areas that are exclusively under state regulatory authority, because this could produce unintended consequences and would disrupt a carefully balanced set of technologies, markets and interests.”

Although FTC “acknowledged explicitly” state jurisdiction, NARUC said the commission also was critical of state rate designs, saying rate reform “may be a disguised effort by utilities to make solar [distributed generation] less desirable relative to the status quo, thereby minimizing solar DG as a competitive threat.”

NARUC called for a “partnership and dialogue” with the commission, saying the agency “can contribute meaningfully in enforcement against the business practices of non-regulated power providers, DER marketers and utilities that do not protect the interests of customers.”

DER Manual

Completing a yearlong project that attracted some controversy, NARUC released a manual intended to help state commissions in designing rates and compensation policies for DERs: “Distributed Energy Resources Rate Design and Compensation.”

NARUC’s effort led to a dust-up with SEIA, which sent the organization a letter in August raising questions about the transparency of NARUC’s effort. In response, NARUC assured the solar group that it would publish all of the comments it received. It reviewed more than 70 comments from stakeholder groups.

Sean Gallagher, vice president of state affairs for SEIA, pronounced the group happy with the final result, saying the manual “was significantly improved due to their willingness to be open to input from stakeholders.”

“I would have loved to have had this manual” when the Nevada Public Utilities Commission was updating its rules, said Anne-Marie Cuneo, the PUC’s director of regulatory operations, who participated in a briefing on it.

“Everyone can find something in it to dislike,” Kavulla joked. “Which means we must have done our job.”