Public Utility Regulatory Policies Act

Congress enacted the Public Utility Regulatory Policies Act of 1978 (PURPA) to promote conservation of energy, efficient use of facilities and resources, and equitable rates to customers.

PURPA set forth electric utility service practice and rate-making standards for consideration by state regulatory authorities and non-regulated utilities. The Act tasked state regulatory authorities and non-regulated utilities with considering whether the adoption of the proposed standards would further the Act’s objectives.

Over the years, PURPA has been amended to include additional standards related to electric utilities. TVA has considered those standards under the PURPA procedural requirements.

In August 2007, the TVA Board of Directors considered adopting standards regarding net metering, fuel diversity, fossil fuel generation, smart metering, and interconnection. Please see TVA’s findings on those standards.

Currently, TVA staff is working with the public and distributors of TVA power to gather information on four additional standards that have been issued as part of the Energy Independence and Security Act of 2007.

The standards under consideration are:

Integrated Resource Planning, Rate Design Modifications to Promote Energy Efficiency Investments, Consideration of Smart Grid Investments, and Smart Grid Information. Please see our filing in the Federal Register for more detailed information.

Under PURPA TVA is authorized to make the final determinations on the suitability of these standards for implementation for itself and for the distributors of TVA power. In considering these standards for implementation, TVA will create an official record upon which the TVA Board will base its determinations. The official record shall consist of all oral, written, and electronic comments submitted to the official record, including TVA staff’s recommendations for each standard.

The TVA staff has posted initial comments on each of the four standards that can be found in the following document: TENNESSEE VALLEY AUTHORITY STAFF REPORT ON PRELIMINARY RECOMMENDATIONS ON THE FOUR PURPA STANDARDS UNDER SECTION 111(d) OF THE PUBLIC UTILITY REGULATORY POLICIES ACT PURSUANT TO THE ENERGY INDEPENDENCE AND SECURITY ACT OF 2007. Comments on the preliminary recommendations will become part of the official records as described above. Comments may be submitted from now through July 27, 2009.

In making its determination on each standard, the TVA Board has the option of adopting the standard as written, adopting the standard in a modified form, or finding the adoption of the standard not necessary or appropriate. If the TVA Board finds that the adoption of the standard is not necessary or appropriate, its reasons for such determination must be stated in writing.

Comments may be made using the online comment form or by mailing comments to Veenita Bisaria, Tennessee Valley Authority, WT-3D, 400 W. Summit Hill Dr, Knoxville, TN 37902. Comments must be submitted before July 27, 2009. Comments will become part of the official record, and the official record will be available here when the comment period is over.

Standards Currently Under Consideration

The following are brief descriptions of the standards under consideration. The actual standards are set out in the Staff Report, as well as in the Federal Register notice.

Integrated Resource Planning

Each electric utility shall (A) integrate energy efficiency resources into utility, State, and regional plans; and (B) adopt policies establishing cost-effective energy efficiency as a priority resource.

Integrated resource planning for electric utilities involves evaluating alternate resources to meet the energy needs of the service territory over time and making decisions on future plans for power supply. This standard would focus utilities on considering energy efficiency programs and resources in integrated planning as well as more traditional generation resources. These energy efficiency resources could include conservation programs, automated load control programs, and other measures. To the extent that energy efficiency is a lower-cost way to balance supply and demand than generation, electricity costs for consumers could be reduced. There also may be environmental benefits to energy efficiency measures as opposed to traditional generation resources. This standard provides that cost-effective energy efficiency measures would be given a priority status in integrated resource planning.

When considering comments regarding integrated resource planning, TVA will look at options for TVA and distributors of TVA power to work together to plan and implement energy efficiency programs. TVA will also consider the impacts of energy efficient resources on long-term and integrated resource planning efforts, like power requirements studies, generation capacity needs assessments, and long-range financial planning projections.

Rate Design Modifications to Promote Energy Efficiency Investments

The rates allowed to be charged by any electric utility shall (i) align utility incentives with the delivery of cost-effective energy efficiency; and (ii) promote energy efficiency investments.

The structure of rates charged for electric power can have a significant impact on how effectively energy efficiency measures are pursued. Rate structures can indicate to the ratepayer the value of conservation and demand reduction and also the timing when such activities are most beneficial to the power system. Some rate structures, such as time-of-use and hourly real time pricing rates, do a better job of motivating such activities than simpler rate structures that neither indicate how much utility costs vary across time nor indicate the times at which electric supply costs are highest.

TVA and interested power distributors have already offered pilot programs involving time-of-use and real time pricing rate structures. Under this standard, consideration and possible expanded applications of programs would be a guiding principle for rate design.

Consideration of Smart Grid Investments

Each State [as well as TVA as the designated state regulatory authority for the area served with TVA power] shall consider requiring that, prior to undertaking investments in non advanced grid technologies, an electric utility of the State demonstrate to the State that the electric utility considered an investment in a qualified smart grid system based on appropriate factors, including (i) total costs; (ii) cost-effectiveness; (iii) improved reliability; (iv) security; (v) system performance; and (vi) societal benefit.

Under this standard, utilities would be focused on evaluating advanced ‘smart grid’ equipment for installation on their power grids. These ‘smart’ technologies can range from digital information and controls technology to automated demand response technology controlling consumer appliances. Such technology can both improve the reliability and performance of power grids and lower utility operating costs. The standard provides that installation of such ‘smart grid’ equipment should be considered before investments are made in less advanced technologies.

In many cases, benefits of such advanced technologies can be realized only if suitable rate structures are available to reflect utility costs across time so that they can properly motivate efficient load control behavior.

Smart Grid Information

All electricity purchasers shall be provided direct access, in written or electronic machine-readable form as appropriate, to information from their electricity provider. Information provided under this section of the standard, to the extent practicable, shall include:

(i) Prices. Purchasers and other interested persons shall be provided with information on (I) time-based electricity prices in the wholesale electricity market; and (II) time-based electricity retail prices or rates that are available to the purchasers.

(ii) Usage. Purchasers shall be provided with the number of electricity units, expressed in kWh, purchased by them.

(iii) Intervals and projections. Updates of information on prices and usage shall be offered on not less than a daily basis, shall include hourly price and use information, where available, and shall include a day-ahead projection of such price information to the extent available.

(iv) Sources. Purchasers and other interested persons shall be provided annually with written information on the sources of the power provided by the utility, to the extent it can be determined, by type of generation, including greenhouse gas emissions associated with each type of generation, for intervals during which such information is available on a cost-effective basis.

Purchasers shall be able to access their own information at any time through the Internet and on other means of communication elected by that utility for Smart Grid applications. Other interested persons shall be able to access information not specific to any purchaser through the Internet. Information specific to any purchaser shall be provided solely to that purchaser.

Under this standard, utilities would consider whether communicating certain information on electric power sources, costs, and pricing is appropriate. To the extent that consumers can respond to this information, electric power costs could be lowered. Providing this information to consumers would involve added administrative costs, however, so the possible customer response benefit of having the additional information available has to be weighed against the additional cost of making the information available. Additional information for consumers is most likely to be cost effective where the customer is on a time-differentiated rate structure.

The Process

TVA’s consideration process seeks public input on the standards from which an official record will be developed for the TVA Board to review before making the required determinations as to the standards.

Comments may be made using the online comment form or by mailing comments to Veenita Bisaria, Tennessee Valley Authority, WT-3D, 400 W. Summit Hill Dr, Knoxville, TN 37902. Comments must be submitted before July 27, 2009. Comments will become part of the official record, and the official record will be posted after the comment period has closed.