Energize Weekly, July 31, 2019
Almost half of the major U.S. electric utilities filed rate cases with state regulators in 2018 – the highest number since 1983 – with nearly 90 percent seeking rate increases, according to the federal Energy Information Administration (EIA).
The rate increase requests were driven mainly by increased spending on electricity transmission and delivery. In the past, adding new generating capacity has been a driving force.
The 2018 expenditures included grid modernization, connecting wind farms to the gird, repairing storm damage and installing new customer information and billing systems.
Other elements spurring requests for higher rates included increased environmental compliance costs, rising costs for operating nuclear power plants and more expensive wind projects as the federal production tax credit is phased out.
Regulated utilities file rate cases to cover operating and maintenance costs and to get a return on investments, such as power plants and transmission lines. The amounts awarded, including a set rate of return on investment, and how that will be raised through customer rates are set by regulators, primarily state public utilities commissions.
Ten of the 89 cases filed in 2018 sought to reduce rates and one was a negotiated rate freeze until 2020. The other 78 sought rate hikes.
The EIA said that there have not been this many rate filings since the early 1980s when the U.S. energy market had been roiled by a series of major crises.
The 1973 Arab oil embargo and following oil crisis increased the cost of oil-fired generation and spurred investments in coal and nuclear power. Then the 1979 accident at the Three Mile Island nuclear plant led to increased safety-related costs for nuclear units.
The Public Utility Regulatory Policies Act (PURPA) was passed in 1978 in part to address some of these issues by encouraging utilities to buy potentially more expensive power from small, local renewable energy facilities.
These events and policy moves contributed to electricity rates increasing by an average annual rate of 12 percent in the decade following the Arab oil embargo.
In a move to lower electricity rates in the 1990s, federal and state government sought to increase competition and transparency in pricing in natural gas and electricity markets. Many utilities were required to sell off generation assets to open their markets to competition.
During this restructuring of the electric sector, very little capital investment was made, and there were few rate cases, the EIA said.
Events then once again spurred investment as the 2003 Northeast blackout led to federal focus on improving the grid. Hurricane Sandy in 2012 also led to many areas losing power, and an emphasis on grid-resiliency policy initiatives, mainly at the state level, spurred renewable energy generation investments.