E9-31128. Notice of Determinations on the PURPA Standards Set Forth in the Energy Independence and Security Act of 2007

AGENCY:

Tennessee Valley Authority.

ACTION:

Notice of Determinations on the PURPA Standards set forth in the Energy Independence and Security Act of 2007.

SUMMARY:

At its meeting on November 19, 2009, in Bowling Green, Kentucky, the TVA Board made its determinations on the PURPA Standards set forth in the Public Utility Regulatory Policies Act of 1978 (Pub. L. 95-617) (PURPA), as amended by the Energy Independence and Security Act of 2007 (Pub. L. 110-140) (EISA). The standards considered are listed in subsections 111(d)(16) through (19) of PURPA, as amended by EISA. The TVA Board considered the standards in accordance with PURPA and the objectives and requirements of the Tennessee Valley Authority Act of 1933, as amended, 16 U.S.C. 831-831ee (2006 & Supp. I 2007) (TVA Act).

FOR FURTHER INFORMATION CONTACT:

Veenita Bisaria, Tennessee Valley Authority, 400 West Summit Hill Drive, Knoxville, TN 37902, [phone].

SUPPLEMENTARY INFORMATION:

PURPA, as amended by EISA, requires TVA to consider adopting for itself and the distributors of TVA power four new PURPA standards. These four standards are identified as Integrated Resource Planning, Rate Design Modifications to Promote Energy Efficiency Resources, Consideration of Smart Grid Investments, and Smart Grid Information. The TVA Board is charged with considering and making determinations on whether or not it is appropriate to implement each standard.

Data, views, and comments were requested from the public as to the need and desirability of adopting the standards. In addition to posting notices in the Federal Register on December 16, 2008, and June 25, 2009, which described the standards and solicited public input on the standards, TVA also provided a PURPA Web site (http://www.tva.com/​purpa) for purposes of educating the public on the standards and soliciting public input. All public input received on the standards has been included in the official record and made available to the public through the Web site.

TVA's process for considering and making determinations on the new PURPA standards was carried out pursuant to the provisions of (a) PURPA, under which TVA is identified as the regulatory authority for electric utilities over which TVA has ratemaking authority, and (b) the TVA Act. After consideration of the initial comments and materials received, TVA staff developed recommendations on each of the standards. TVA subsequently requested public comment on these staff recommendations, as well as any additional comments the public might have on the four standards. All comments from the public, as well as the TVA staff recommendations, have been made a part of the official record and have been made available to the public through the Web site.

The TVA Board considered these standards on the basis of the PURPA purposes, which are the (1) Conservation of energy, (2) efficient use of facilities and resources, and (3) equity among electric consumers, and the objectives and requirements of the TVA Act. The Board took into account these considerations as well as the official record developed during the consideration process in reaching the determinations below.

The TVA Board's determinations follow.

TVA Board Determinations

Standard 16: Integrated Resource Planning

I. Standard Under Consideration

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.

II. Observations

The standard promotes the PURPA purpose of encouraging conservation of energy supplied by electric utilities. Energy efficiency refers to efforts that allow consumers to use less energy. On the supply or utility side, energy efficiency is accomplished through improving heat rates, reducing losses on the grid, etc. On the demand side, energy efficiency is accomplished through deployment of newer technologies, energy efficient appliances, bulbs, etc. TVA strives to secure reliable and cost effective electricity with an emphasis on energy efficiency by using a diverse resource portfolio.

TVA and distributors already have many programs that encourage energy efficiency. TVA has begun an updated and expanded integrated resource planning process (IRP) in 2009. TVA will look at cost-effective energy efficiency measures in the list of options to consider for sustainable resources, which includes renewable generation, conservation, and energy efficiency. TVA also uses a Power Supply Plan (PSP) as TVA's internal comprehensive generation and capacity planning process. The goals, tools, methodologies, and processes by which the PSP is developed support the IRP. TVA's goal is to achieve a balance between supply side and demand side alternatives to meet customer electric needs. TVA and distributors are taking steps to increase the opportunities to use energy efficiency measures to reduce peak load requirements and change end-users' load patterns in a manner that is cost effective. TVA's and distributors' efforts in energy efficiency are consistent with what is required by the proposed integrated resource planning standard.

III. Determination by the TVA Board

The standard under consideration is adopted as written.

Standard 17: Rate Design Modifications To Promote Energy Efficiency Investments

I. Standard Under Consideration

(A) In General. 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.

(B) Policy Options. In complying with subparagraph (A), each State regulatory authority and each nonregulated utility shall consider—

(i) Removing the throughput incentive and other regulatory and management disincentives to energy efficiency;

(ii) Providing utility incentives for the successful management of energy efficiency programs;

(iii) Including the impact on adoption of energy efficiency as one of the goals of retail rate design, recognizing that energy efficiency must be balanced with other objectives;

(iv) Adopting rate designs that encourage energy efficiency for each customer class;

(v) Allowing timely recovery of energy efficiency-related costs; and

(vi) Offering home energy audits, offering demand response programs, publicizing the financial and environmental benefits associated with making home energy efficiency improvements, and educating homeowners about all the Federal and State incentives, including the availability of low-cost loans, that make energy efficiency improvements more affordable.

II. Observations

A cost-effective energy efficiency activity is defined as one in which the cost to implement the energy efficiency (either conservation of energy or shift of energy use to a lower-cost time period) is less than or equal to the cost of continued energy use on the current basis (the status quo). The standard focuses on the role of electric rates and rate setting processes in promoting energy efficiency and energy efficient investments. In general, electric rates that accurately reflect the cost of providing electric services will incentivize cost-effective energy efficiency. If electric rates do not accurately reflect the cost of providing services, energy efficiency activities that are cost-effective in terms of real resources use may not be pursued.

The objective of public power is to minimize cost to the customers, rather than to maximize profit, so TVA and municipal and cooperative distributors of TVA power do not require incentives to pursue energy efficiency. Similarly, it may not be necessary to provide added financial incentives for TVA or for distributors of TVA power (such as higher rates of return) beyond what TVA is called upon to do under the TVA Act, which is to keep customer rates as low as feasible. However, lost revenue from a reduction in demand will need to be recovered.

Promotion of energy efficiency is a current ratemaking goal that TVA and distributors have set out in their current rate discussions. Time-of-use rates are being discussed by TVA and the distributors in current rate discussions. TVA and distributors currently have programs in this area and are also considering what non-rate programs may best incentivize cost-effective energy efficiency and demand response in the Valley. A balanced approach to cost-effective energy efficiency investments should be employed. TVA will work with distributors to develop mechanisms to ensure that distributors recover their fixed costs when cost-effective energy efficiency occurs. All policy options will be considered for applicability. TVA's efforts in promoting energy efficiency are consistent with the proposed Rate Design Modifications to Promote Energy Efficiency Investments standard.

III. Determination by the TVA Board

The standard under consideration is adopted as written.

Standard 18: Smart Grid Investments

I. Standard Under Consideration

(A) In General. Each State shall consider requiring that, prior to undertaking investments in nonadvanced grid technologies, an electric utility of the State shall 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.

(B) Rate Recovery. Each State shall consider authorizing each electric utility of the State to recover from ratepayers any capital, operating expenditure, or other costs of the electric utility relating to the deployment of a qualified smart grid system, including a reasonable rate of return on the capital expenditures of the electric utility for the deployment of the qualified smart grid system.

(C) Obsolete Equipment. Each State shall consider authorizing any electric utility or other party of the State to deploy a qualified smart grid system to recover in a timely manner the remaining book-value costs of any equipment rendered obsolete by the deployment of the qualified smart grid system, based on the remaining depreciable life of the obsolete equipment.

II. Observations

Smart Grid is not defined by EISA but generally refers to the electric grid and the intelligence behind the grid. It consists of the intelligent electronic devices (IEDs) and communications between the devices for feedback to achieve a self-healing, performance optimized electric grid.

The Customer Resources Energy Efficiency and Demand Response Group is coordinating the overall smart grid program at TVA and is partnering with Electric Power Research Institute (EPRI) and Tennessee Valley Public Power Association (TVPPA). Leadership teams will recommend the optimal approach for smart grid. The teams will also coordinate communication about smart grid activities at TVA as well as promote general education about Tennessee Valley Smart Grid Vision (TVSGV) and smart grid strategies. TVA Business Units planning smart grid projects are each responsible and accountable for developing their own business cases and cost/benefit analyses in accordance with TVA corporate guidelines. TVA is also working collaboratively with its distributors and directly-served customers to implement smart grid investments in the TVA region. TVA kicked off its TVSGV to the TVPPA Technology Application committee on January 22, 2009.

Due to smart grid's many components, it will be built incrementally. Distributors have primary responsibility to implement smart grid at the distribution level, and TVA has primary responsibility for smart grid implementation at the transmission level. The consideration and selection of smart grid investments will involve many stakeholders. Costs for smart grid will have to be recovered through rates (charged by TVA and the Distributors). The total benefits of smart grid can only be realized if suitable rate structures are in place. TVA and distributors are currently working on the rate redesign efforts.

Current TVA and distributor practices are consistent with the intent of this standard. The smart grid investment evaluation factors outlined in subsection A of the proposed standard should be employed by TVA and distributors in their consideration of smart grid investments. The Rate Recovery provisions contained in subsection B and the Obsolete Equipment provisions in subsection C employ a rate of return perspective that applies to investor-owned utilities. Recovering costs and dealing with obsolete equipment are the Board's responsibility to handle under the TVA Act and in accordance with TVA's objective of keeping rates as low as feasible. Accordingly, the proposed consideration of the smart grid investments standard was revised to better fit TVA's circumstances.

III. Determination by the TVA Board

The standard under consideration is revised and adopted as follows:

(A) In General. Prior to undertaking investments in nonadvanced grid technologies, TVA and distributors shall consider 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.

(B) Rate Recovery and Obsolete Equipment. The cost of capital, operating expenditures, or other costs related to the deployment of a qualified smart grid system and equipment rendered obsolete by such deployment, as power system costs, should be recovered through the application of TVA's power rates in a manner determined by the TVA Board pursuant to the TVA Act.

Standard 19: Smart Grid Information

I. Standard Under Consideration

(A) Standard. All electricity purchasers shall be provided direct access, in written or electronic machine-readable form as appropriate, to information from their electricity provider as provided in subparagraph (B).

(B) Information. Information provided under this section, to the extent practicable, should 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 kilowatt hours (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 usage 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.

(C) Access. 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.

II. Observations

There are two major benefits to providing smart grid information. First, it helps customers better manage their usage, which reduces their overall electricity costs and helps TVA reduce its peak demand. Second, the price and usage information provides detailed electric market and system information to the public. Researchers and other interested parties can learn more about demand elasticity, income response, and other factors influencing energy markets over time. This information can also be used by policymakers to make better decisions. The intent of the standard is consistent with TVA's objective to provide power at the lowest feasible rates. However, TVA and distributors do not currently have all elements of smart grid investments in place. The details regarding how smart grid information will be made available and the timing of its implementation across the Valley cannot be specified at this time and, as such, will evolve as these programs mature. It is important that cost-effectiveness tests be applied in making decisions on what information is made available to consumers. The trade-offs between security and ease of providing this information should also be evaluated.

In addition, due to TVA's unique structure, its relationship with 158 distributors, and the different stages of implementation of smart grid by distributors, TVA staff does not believe it is appropriate for TVA to apply a uniform customer information standard to its power distributors. Accordingly, the standard was revised to account for such circumstances.

III. Determination by the TVA Board

The standard under consideration is revised and adopted as follows:

TVA will endeavor to provide power distributors and directly served customers with appropriate price and usage information to facilitate cost-effective smart grid and other energy efficiency activities in the Valley. TVA also will work with power distributors on a cooperative basis to make available information systems and data that will facilitate cost-effective smart grid and energy efficiency activities at the distributor retail level. TVA will prepare and present to distributor and directly served customers on an annual basis information on sources of generation by fuel type and estimated greenhouse gas emissions. TVA recommends that this information be shared with the distributors' retail customers where possible.

Dated: December 23, 2009.

Maureen H. Dunn,

Executive Vice President and General Counsel.