Summer Energy SymposiumKeep the Lights on and Lower the

Costs

Robert A. Rio, Esq.Senior Vice President and Counsel

Associated Industries of Massachusetts222 Berkeley StreetBoston, MA 02177rrio@aimnet.org

SolutiaJune 28, 2011

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AIM - Who We Are

• Employer trade association w/office in Washington D.C.

• Nonprofit and nonpartisan

• 1915 - established as an association of manufacturers

• 1988 - charter amended to include all employers

• 2006 - the largest association of Massachusetts employers

• 6500 members of all sizes and industries

• Nearly 1 out of 5 workers in Ma.

• Website: www.aimnet.org

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AIM - Mission

• To promote the well-being of our members and their 680,000 employees

• To promote the prosperity of the Commonwealth of Massachusetts

• To improve the economic climate by proactively advocating fair and equitable public policy

• To provide relevant, reliable information and excellent services

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State House Tag Team

John Regan

BA, Philosophy and Classics, St. John’s Seminary College

Six years in Legislature

Banks and Banking and House Ways and Means

State Director of Business Development (Weld/Cellucci appointee)  

At AIM since 2000

 

Robert Rio

BA, Biology, Boston U.

MS, Environmental Engineering, NU

JD, Suffolk Law School

4 years in DEP, 8 years in industry

At AIM. since 1997

Responsible for all chemical, energy, environmental, public safety or product legislation, regulation, litigation or ballot questions

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State House Tag Team

Eileen McAnneny

BA, Political Science, Tufts University

JD – Suffolk Law SchoolFour years in Legislature Counsel to the Senate Chair

of the Taxation CommitteeAt AIM since 1998 Responsible for all

Tax/Healthcare issues legislation, regulation, litigation or ballot questions

Brad MacDougall

BA , Political Science, Assumption College

MBA – Suffolk UniversityTwo years with Congressman

Marty MeehanAt AIM since 2007

Responsible for everything else

How Electricity Works

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The System

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Deregulation

• Electric Restructuring Act of 1997– Massachusetts deregulated the electric

industry– Prior to deregulation utilities were

vertically integrated• Owned power assets and distribution

– “Utilities” forced to divest generation assets

• Now generation owned by independent companies

– 16 states deregulated

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Regional Transmission Organizations (RTO) or Independent System Operators (ISO)

• Coordinate the power grid to ensure the reliable delivery

• In New England it is ISO-New England– Other states

• California Independent System Operator (California ISO)

• the Electric Reliability Council of Texas (ERCOT) • the Midwest Independent Transmission System

Operator (Midwest ISO) • the New York Independent System Operator (NYISO) • PJM Interconnection (PJM) • Southwest Power Pool (SPP)

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ISO New England

• Nonprofit created in 1997• Facility located in Holyoke• Control 350 Plants• Day before ISO predicts usage and puts out

the calls• Cheapest sources come online first• Marginal power in usually gas• Regulated by FERC (Federal Energy

Regulatory Commission)

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Day Ahead Market

30000 MW

15000 MW

Most efficient units go firstGas

Nuclear

Coal

Hydro/renewables

PriceEXTREME

Emergency generators, oil, inefficient units

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About New England

• 6.5 million electricity customers; • 8,000+ miles of high-voltage transmission lines• Currently about 30,000 MW installed capacity in NE• NE is a summer peaking area

Peak Summer day is about 24,000 MW On August 2, 2006 the region reached an all time record demand of 28,130

MW• Summer peak increased by 20% over last 10 years

Peak winter about 20,000 MW Top Demand Days Ratepayers pay for peak power availability 24/7

• Operating reserve– In case a power plant unexpectedly goes done, within 10 minutes

ISO can fill void– Currently about 1700 MW required reserve

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Components of Your Bill

• Energy: Most large customers use suppliers• “Utilities” (NSTAR, NGRID, FGE, WMECO) concentrate only on

transmission and distribution (T&D)– Transmission “T” (big lines)

• Governed by FERC (Federal Energy Regulatory Commission)• Paid in accordance with the amount of power used, even if lines are in

another state – each state pays their ratio – utility does not keep• Lots of controversy with renewables

– Distribution “D” (local lines) • Subject to Department of Public Utilities and Attorney General review• DPU sets rates and governs customer service quality• Only part that really gives “revenue” to utilities

• T&D formerly about 30% of bill, now INCREASING• NEED TO WATCH T&D BECAUSE YOU HAVE LEAST

CONTROL OVER IT

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Facts about each New England state

• Massachusetts– 45% of the New England electrical load

– About 43% of generation in ISO area

• New Hampshire– 9% of the New England electrical load

– About 13% of generation in ISO area

• Connecticut– 25% of the New England electrical load

• About half in Southwestern Ct alone

– About 25% of generation in ISO area

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How is US power generated?

New England United States

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US Regional Electric Fuel Mix in 2009 - EEI

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Lots of coal used elsewhere

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Massachusetts Energy Facts

• We have the highest (or near highest) prices for electricity in the US (source – EIA)– Due primarily to environmental restrictions on power plants

(NE 45% Nat. Gas)

• In 2 of 4 Investor Owned Utilities, almost 45% of residents are under federal poverty level and receive discounted electricity

• We have near the lowest emissions of CO2 per GSP• We have aggressive renewable power goals but the

cheapest are off the table• 2000 MW wind by 2020 (currently have 6.6 MW)• 250 MW Solar by 2017 (currently have about 5 MW)• Biomass plants on hold

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Near Highest Prices in US

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GHG - Massachusetts is a minor GHG emitter

0

500000000

1000000000

1500000000

2000000000

2500000000

3000000000

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

MA RGGI Region USA

Source: Energy Information Administration (EIA)

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Obligatory Sympathetic Polar Bear Pictures Taken Completely Out of Context

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EPA eGrid lbs Co2/MWh

2/16/2009

1,311

724

1,324

927

1,883.08

1,537

1,019

1,960 – The highest

499, the lowest

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Massachusetts Only ProgramsMost energy programs focused on GHG• Energy and Environmental Policy intertwined

– Environmental Secretary now Energy and Environmental Secretary

– Department of Public Utilities now under Secretary

– Non Regulatory/Regional• Regional Greenhouse Gas Initiative (RGGI)

– Non Regulatory/Legislative (07-08 Session)• Green Communities Act (omnibus energy bill)• Global Warming Solutions Act• Green Jobs Bill

– Non Regulatory/Administrative (Department of Public Utilities)

• Decoupling

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Energy Charges – buriedEXTREMELY DIFFICULT TO ITEMIZE

• Regional Greenhouse Gas Initiative– About 50 million per year– About 0.10 cents per kWh– Charge is on Generators

• Renewable Energy Requirements– Utilities and suppliers must buy a certain portion of their

supply as “renewable”– Currently at 6%, increases 1% per year– Adds approx. 125 million per year (0.25 cents per kWh),

increasing about 20 million per year. – Four types of renewable requirements

• Class I REC• Class II REC• Alternative Energy Certificates• Solar Energy Certificates - sRECs

– Charge is on Suppliers

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Renewable Portfolio Standards (generally defined in Statute)

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Distribution Charges- Energy Efficiency

• 125 million collected by current SBC (0.25 cents per kWh) – separately listed (DSM)

• 80% of RGGI auction money (50 million depending on auction prices) – listed under generation

• NEW EERF (results of GCA) – BURIED– 2010 (126 million) – total EE 302– 2011 (265 million) – total EE 451 (about 0.50

cents/kWh)– 2012 (410 million) – total EE 584 (about 0.70

cents/kWh)• Total EE charge on D-bill – about 0.75 – 1.00

cents, not counting RGGI

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Note on Gas

• 2009 about 35 million/year• New Charges

– 2010 – 86 million– 2011 – 114 million– 2012 – 143 million

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Energy Efficiency

• Along with the increased money, increased programs

• Utilities handle EE• New Program allows you to borrow

interest free some of the money for upgrades

• Interest paid by EE fund• www.masssave.com

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Distribution Charges- Renewables

• Current Program– 0.05 cents per KwH charge to fund CEC (25 million)

• Rebates for renewables, etc.

– Renewable Portfolio Standard – A different program

• GCA– Increases RPS 1% per year indefinitely about 20

million per year increase) – listed under generation– Allows Utilities to own solar installations -

Distribution • WMECO approved 42 million for 6 megawatts

– Long term contracts for renewables (i.e. Cape Wind) - Distribution

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Distribution Charges - Other Great Ideas

• Net metering

• Smart grid

• Many programs, little oversight

• It goes on D-Charges because that is the only charge that the DPU has control over and it is hidden and paid by everyone

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What happens when usage falls

• Costs high – people reduce or self generate• Under deregulation utilities don’t make money on power

– Utilities get paid when you use electricity on a kWh basis – their revenue is the distribution charge (the “D” in “T&D”)

• Therefore, while usage goes down, so does utility revenue. Utilities complaining that EE and other programs they support and make money off of are eating up their profit

• Utilities want ratepayers to subsidize their loss of revenue and guarantee them a revenue stream.– 25 states considering this– Breaks the link between revenues and use– Massachusetts ordered this in 2008

• NGRID big supporter – first to decouple – WMECO followed last year

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Decoupling explained

• Utility revenue (rates) adjusted to compensate for reductions in the use of electricity declines for any reason, including recession

• Supported by the Administration, approved by the Department of Public Utilities – requires all utilities to file decoupled rates as part of their next rate case

• Gas companies too!• Rates will increase every year to make up shortfall.• Increase will be on D-Rates

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Worcester Business Journal – October 1, 2007

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For those keeping Score (and not leaving the state)

• Generation Charges– RGGI

• Supplier– Renewable portfolio Standard– Solar Carve out

• Distribution – Utilities add profit to all these programs– Energy Efficiency

• DSM• EERF

– Renewables• Utility Owned solar• Long-term contracts

– Other Great Ideas• Net Metering• Smart Grid

– Decoupling– Beacon Hill Institute estimates 2.6 cents/kWh by 2020

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Big Surprise

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Don’t Forget Transmission

• Massachusetts– 45% of the New England electrical load

– About 43% of generation in ISO area

• New Hampshire– 9% of the New England electrical load

– About 13% of generation in ISO area

• Connecticut– 25% of the New England electrical load

• About half in Southwestern Ct alone

– About 25% of generation in ISO area

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Transmission

• Billions already scheduled over the next few years– Old infrastructure– Changes in generation (i.e. power plants

going out of business)– Almost forgot – Utilities get 13% return on

transmission– Transmission paid in accordance to state

usage, even if transmission upgrade does not happen in the state

• Very attractive for states like Maine– Note: This does not include increases for

potential renewable development

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NE Transmission (RNS) Rate Forecast

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Result – Big Electricity Increases coming

• Generation Charges– RGGI – possible national program

• Supplier– Renewable portfolio Standard– Solar Carve out

• Distribution – Utilities add profit to all these programs– Energy Efficiency

• DSM• EERF

– Renewables• Utility Owned solar• Long-term contracts

– Other Great Ideas• Net Metering• Smart Grid

– Decoupling– Beacon Hill Institute estimates 2.6 cents/kWh by 2020

• Transmission– Huge increases for old infrastructure and renewable development

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Pancake Effect 2010-2013 Additional costs

• $50 M – RGGI• $125 M RPS (increases about 20 M

per year)• $$ Solar Carve out• $465 M – EERF• $$ Utility Solar Program• $$ Smart Grid• $$ Net Metering• $$ Long Term contracts• $$ Decoupling• $$ Transmission

• Total – 3-3.5 cents by 2015 (ESTIMATE)

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Other Components of Bill- Example G2 (1st 2000kw -summer)• Total Delivery 0.04625• Distribution – total 0.03378

– Distribution – 0.02795– Pension Adj - 0.00191– RAAF – 0.00128– EERF – 0.0026– NMRS- 0.00004

• Transition – total 0.00947– Transition - 0.01084– Transition Adj. 0.00003– Default Adj Factor – (0.00140)

• DSM – 0.0025• Renew – 0.00050

Cape Wind – A Case Study

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Facts about Cape Wind(from their website – www.capewind.org)

• 130 Turbines• Rated 468 MW but most likely to produce 170

MW (75% of demand of Cape)• 28 sq. miles/17,920 acres• Cost (not on website)

– Expected price to be 2+ billion• Expect cost of electricity (not on website)

– 18-19 cents (supply/RECs only)• Will avoid 700,000 +tons of C02 annually

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Cape Wind Controversy• No-Bid contract• DPU approved increase of over 1 billion dollars just

for Cape Wind ABOVE expected market value of power

• And yes, that includes GHG policies going forward• Cape Wind power, average 25 cents per kWh (18.7-

30.5) (Power and RECs) and that includes discounts for federal subsidies.

• If federal subsidies are eliminated, then customer pays more.

• Current cost of power Cape Wind would be displacing – approx. 7 cents

• This alone is about .50 - .60 cents per kWh• ALL NGRID customers will pay for Cape Wind, even if

you buy power from competitive supplier

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Cape Wind Controversy

• NSTAR does competitive bidding• Submitted February 22• Received over 23 times the amount

they need to contract for• Using the same projections as on

Cape Wind, the NSTAR bids will be 100 million BELOW projections, actually saving money

• Prices confidential but it appears to be about 9-10 cents

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Next Steps on Cape Wind

• AIM only major trade group opposing– Other groups

• Alliance to Protect Nantucket Sound• TransCanada• New England Power Generators

• AIM and other groups filed appeal with Supreme Judicial Court– AIM alleges that contract violated the law in that

all customers will pay but power will go to Basic service customers.

• Oral argument scheduled for September• Hope is that Court finds the contract in

violation of law

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What’s the Future

• Higher prices, even though energy side may stabilize or go down

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Who do you want to kick off in the name of saving the planet?

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What can you do?

• Get involved• AIM, WMIG, Power Options, TEC-MA are

generally the only trade association fighting these programs

• Most trade associations/chambers focus on “job gains” without thinking the programs through and commenting

• TELL YOUR TRADE ASSOCIATION TO GET INVOLVED

• CONTACT YOUR LEGISLATOR TO SUPPORT CHANGES