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Insights Into Rate Case Proceedings And Other Major Regulatory Activity Pending For U.S. Energy Utilities

Ultra-Fast Broadband Services Remain A Niche Offering In Latin America

Energy

Power Forecast Briefing: Fleet Transformation, Under-Powered Markets, and Green Energy in 2018

Five Cheapest Triple-Play Bundles In Key Countries In Western Europe

Trading Of US Linear TV Advertising Shifting To Programmatic Trading

Energy
Insights Into Rate Case Proceedings And Other Major Regulatory Activity Pending For U.S. Energy Utilities

Apr. 23 2018 — The pace of regulatory activity remains active nationwide, with 77 electric and gas rate cases pending in 36 states as of March 16. In addition, most state regulatory commissions and the Federal Energy Regulatory Commission have opened proceedings to address the revenue requirement impacts of the federal tax act enacted in December 2017. Taking effect January 1, the act, among other things, lowers the corporate income tax rate to 21% from 35%.

Map of pending energy rate cases

In these 77 pending cases, the utilities are seeking rate increases aggregating to about $5.5 billion, net, excluding the later-year steps of multiyear rate requests

Of the 77 pending rate cases, about 18 of them were formally initiated this year. In those cases, the average requested ROE is 10% for electric and 10.4% for gas utilities versus 12% for electric and 12.4% for gas companies in 2000.

Average electric and gas requested ROEs graph

In addition to rate case proceedings, state commission reviews of merger proposals are underway in a few states from proposed transactions announced in 2017 and 2018.

Tax reform-related proceedings are ongoing at the state and federal level. A large number of companies are addressing the issue with their respective commissions on a stand-alone basis or as part of commission-initiated generic proceedings. Others have proposed to address the tax reform issues more holistically in the context of pending rate proceedings and have filed revised revenue requirements that reflect the changes that stem from the TCJA. Still others have filed new base rate cases or indicated that they plan to do so in the future to address the issue.

Several grid safety and modernization proceedings are pending nationwide. In California, the California Public Utilities Commission’s investigation into whether Pacific Gas and Electric Co., or PG&E, and its parent PG&E Corp.’s organizational culture and governance prioritize safety and adequately direct resources and accountability measures to achieve safety goals and standards continues. Among the possible remedies to be considered is a reduction in the company’s authorized ROE. An investigation is also pending before the California PUC to determine whether the costs related to Aliso Canyon Natural Gas Storage Facility should be excluded from the rates of Southern California Gas Co. following a highly publicized safety-related incident.

The District of Columbia Public Service Commission has opened an investigation to “identify technologies and policies that can modernize our energy delivery system for increased sustainability and will make our system more reliable, efficient, cost-effective, and interactive.”

In neighboring Maryland, the Public Service Commission has opened a proceeding to conduct a “targeted review” of Maryland’s electric distribution system to “ensure that [the system] is customer-centered, affordable, reliable, and environmentally sustainable.” Working groups are to complete deliberations on these issues by June 2018.

The Public Utilities Commission of Ohio has initiated a proceeding to investigate the merits of certain technological and regulatory initiatives that could “serve to enhance the consumer electricity experience.” The PUC has established a three-phase investigation; the first phase began in April 2017, with presentations to the commission that offer “a glimpse of the future.”

An investigation into the “NextGrid Utility of the Future,” a collaborative that will primarily focus on identifying future technological advancements and improved utility regulatory models was recently initiated by the Illinois Commerce Commission. An independent third party will lead the investigation, and reports will be presented to the commission in 2018.

A grid modernization investigation is underway in Rhode Island, referred to as the Power Sector Transformation Initiative. Meanwhile, as part of a pending rate case, National Grid plc subsidiary Narragansett Electric Co. is proposing a Power Sector Transformation plan to support the Initiative. Narragansett Electric’s Power Sector Transformation plan is comprised of four main components: investments in advanced metering, grid modernization, electric vehicle infrastructure, and energy storage and solar demonstration projects.

Similar proceedings are pending in Massachusetts, Connecticut, and Minnesota. In New York, a policy framework on ratemaking and utility business models was adopted in May 2016 as part of the Reforming the Energy Vision proceeding. The utilities submitted Distributed System Implementation Plans that address distribution system planning, operations, and administration, and identify changes that can be made to effectuate state energy goals and objectives.

Generic proceedings are underway in several states to review aspects of the ratemaking framework. In New Mexico, a proceeding is pending to increase the “transparency” of “rate cases by reducing the number of issues litigated in rate cases and provide a “more level playing field among intervenors and [New Mexico Public Regulation Commission] staff on the one hand, and the utilities on the other.”

In Oklahoma, a task force was established to undertake a “performance assessment” of the Oklahoma Corporation Commission, including the time it takes to process cases.

The Michigan Public Service Commission has commenced a study to address performance-based regulation, whereby a utility’s authorized rate of return would be dependent on achieving certain targeted policy outcomes. The PSC is to provide a report to the legislature and governor in April 2018.

In Minnesota, the commission initiated an investigation into performance metrics and potentially, incentives for Xcel Energy subsidiary Northern States Power-Minnesota’s electric utility operations.

In Nevada, a Committee on Energy Choice has been established by Gov. Brian Sandoval, a Republican, due to the passage on November 8, 2016, of a ballot measure that would amend the state’s constitution to allow for a competitive retail electric market for all customers. In addition, the Nevada Public Utilities Commission initiated a proceeding to examine issues associated with the state’s Energy Choice Initiative and the possible restructuring of Nevada’s energy industry.

In Oregon, legislation was enacted in August 2017 that requires the Oregon Public Utility Commission to establish a public process for investigating how developing industry trends, technologies, and policy drivers impact the existing regulatory system and incentives currently used by the commission.

In Pennsylvania, the PUC has opened a proceeding to address alternative forms of regulation of varying kinds. As part of a grid modernization investigation in Rhode Island, referred to as the Power Sector Transformation Initiative, various state agencies have proposed shifting the traditional utility business model in the state to a more performance based model that would align incentives with customer demand and public policy objectives. Other recommendations include utilization of multiyear rate plans, or MRPs, containing budget and revenue caps “to incent cost savings.”

In South Carolina during July of 2017, SCANA Corp. subsidiary South Carolina Electric & Gas, or SCE&G, announced that it will cease construction of V.C. Summer nuclear units 2 and 3, each 1,117-MW plants. On August 1, 2017, SCE&G formally filed with the PSC to abandon V.C. Summer units 2 and 3 and related ratemaking treatment of the related costs. The General Assembly and the governor’s office are conducting reviews. SCE&G subsequently tendered a proposal designed to resolve the ratemaking and capacity issues associated with the Summer abandonment. The South Carolina Office of Regulatory Staff and Governor Henry McMaster have called for SCE&G to cease collecting $445 million that is currently in rates, and legislation has been introduced to that effect. Passage of this legislation would severely impact SCANA’s financial health and possibly could engender a bankruptcy filing.

Pending before the FERC is a June 5, 2017 complaint related to the ROE authorized for certain transmission owners in the Southwest Power Pool. This is the latest in an ongoing string of complaints against FERC approved ROEs for transmission owners that are part of the California Independent System Operator, MidContinent System Operator and the PJM Interconnection.

A proceeding is also ongoing to broadly examine issues associated with the resiliency of the bulk power system, the goals of which “are to develop a common understanding among the Commission, industry and others of what resilience of the bulk power system means and requires; to understand how each regional transmission organization [RTO] and independent system operator [ISO] assesses resilience in its geographic footprint; and to use this information to evaluate whether additional Commission action regarding resilience is appropriate.”

Several proceedings have been initiated before the FERC to address changes in federal tax rates for companies it regulates, as a result of the TCJA, including electric transmission utilities and natural gas and oil pipelines. For the electric sector, FERC said that “because most of the FERC-regulated electric transmission companies have transmission rates that automatically adjust with changes in the tax rates, the adjustments for much of the industry are already taking place.” However, the commission simultaneously issued “show cause” orders directing 48 companies to propose revisions to their transmission tariffs.

For the natural gas pipeline sector, FERC issued a notice of proposed rulemaking, or NOPR, “that would allow FERC to determine which pipelines under the Natural Gas Act may be collecting unjust and unreasonable rates in light of the corporate tax reduction and changes to the Commission’s income tax allowance policies.” In addition, the NOPR requires pipelines “to file a one-time report, called FERC Form No. 501-G, on the rate effect of the new tax law and changes to the Commission’s income tax allowance policies.”


Technology, Media & Telecom
Ultra-Fast Broadband Services Remain A Niche Offering In Latin America

Highlights

The following post comes from Kagan, a research group within S&P Global Market Intelligence.

To learn more about our TMT (Technology, Media & Telecommunications) products and/or research, please request a demo.

Oct. 18 2018 — Increasing availability of triple-digit advertised speeds, elimination of lower speed packages, free broadband speed upgrades and migration from copper to fiber are paving the way to faster broadband speeds in five major Latin American markets. However, 38% of broadband households still subscribe to packages with speeds under 10 Mbps.

Kagan analyzes reported fixed broadband speeds in the top five broadband markets in Latin America in 2017 — Argentina, Brazil, Chile, Colombia and Mexico — in terms of subscriber numbers. Broadband speeds are divided into three tiers, with the lowest tier defined as speeds below 10 Mbps, the middle tier as speeds in the range of 10 Mbps to 100 Mbps and any speed above 100 Mbps considered the highest tier. Our estimates are based on regulator data, which is used to determine the markets' reported speeds.

Broadband households with 10-100 Mbps speeds dominate in the five major Latin American markets, with 59.6%, or 34.1 million, of the 57.3 million subs. This tier is followed by households with speeds below 10 Mbps with a 37.9% share, while speeds above 100 Mbps remain a niche offering with only 2.5% of broadband households among the five chosen markets.

Diving deeper into each of the five markets, the majority of the broadband households in Brazil, Mexico and Chile have speeds in the 10-100 Mbps tier, while most broadband households in Argentina and Colombia have speeds below 10 Mbps. Chile has the highest percentage of highest tier households due to local operators migrating customers to higher speeds.

Out of the estimated 7.6 million residential fixed broadband households in Argentina, we estimate 53.5% or 4.1 million subscribers are in the lowest tier at year-end 2017. The middle tier closely follows this with 3.5 million subscribers, leaving households above 100 Mbps as the least penetrated speed with 11,695 subs as of 2017. In the lowest tier, 74% is made up of households with 6 Mbps speeds. Across the middle tier, most households subscribed to speeds in the 10-50 Mbps range. Almost all of the broadband households in the highest tier have 150 Mbps speeds.

As for Brazil, we estimate 26.2 million broadband households are composed of 9.3 million in the lowest speed tier, 16.5 million in the middle tier and around 417,000 subscribers in the highest tier. Aside from being the largest ISP in terms of market share, Claro Brasil also dominates both the middle and highest tiers through its cable service, which operates under the brand name NET. In the middle tier, 15 Mbps is the most penetrated speed with 5.1 million customers, of which 2.7 million are from NET. A huge chunk of the highest tier is in 120 Mbps, with around 317,000 households subscribed to NET.

Despite being the smallest among the five markets, Chile has the most number of broadband households subscribed to speeds above 100 Mbps, as subscribers were recently migrated to higher broadband speeds, particularly from VTR. VTR increased its broadband speeds from 100 Mbps to 120 Mbps in February 2017 with no additional charges.

Unlike the rest of the five markets, dominant speeds per speed tier in Colombia lead by a wide margin, with 5 Mbps, 10 Mbps and 150 Mbps being the most popular contracted speeds in each tier. In the lowest tier, 5 Mbps is dominant with 58.9% or almost 2.7 million homes, around 1.4 million of which are Claro Colombia subscribers. Claro Colombia dominates the middle tier as well, with around 490,000 of its subscriber base in the 10-100 Mbps spectrum, concentrating 70.8% of the middle tier. In the highest tier, 98.8% or 914 households have 150 Mbps, the majority coming from ETB and a very few households from Azteca and Claro Colombia.

Mexico has the highest middle tier percentage among the five markets, with 78.4% or an estimated 11.7 million out of 15 million households subscribed to speeds from 10 Mbps to 100 Mbps. The lowest tier comes next with 19.7% or 2.9 million broadband homes, around 1.1 million of which are from the combined subscriber base of Grupo Televisa SAB's subsidiaries — Cablecom, Cablemás, Cablevisión México, Cablevisión Red SA de CV (Telecable), TVI and Sky México. The highest tier only has 2%, or around 288,000 households with speeds above 100 Mbps.

Average speeds: Ookla and Netflix

Average speeds reported by Netflix Inc. and Ookla should not be taken as the true speed measure of the mentioned markets. Netflix calculates the average prime-time bit rate used when streaming Netflix content across all end-user devices, regardless of the simultaneous internet activity performed on a single connection. Ookla, on the other hand, is limited to reporting broadband connections that actively performed speed tests on its platform.

Demand for higher broadband speeds is increasing as more people prefer to watch content over streaming services. According to Netflix's ISP Index, among the chosen five markets, Chile has both the highest country average and ISP speed.

In Argentina, cable operator TeleCentro had the highest average speed at 3.61 Mbps, while Telefónica Argentina's Speedy was at the lowest with 2.38 Mbps. TeleCentro's broadband plans range from 30 Mbps to 1 Gbps, causing it to reach higher average speeds compared to other providers. On the other hand, Speedy only offered plans from 3 Mbps to 10 Mbps in December 2017.

Netflix ranks TIM Participações SA as the ISP with the highest average speed at 3.12 Mbps in Brazil, while Telefónica Vivo falls at the bottom with 2.16 Mbps. Vivo Internet (DSL) and Vivo Fibra (fiber) were ranked separately but are both under Telefónica, which might have affected the average speeds ranking of Telefónica as a whole. Given the FTTH upgrades planned by Brazil's major operators, broadband speeds are expected to increase, driving penetration in the middle and highest broadband tiers.

GTD Internet's Fiber broadband ranks as the fastest ISP in Chile with 4.02 Mbps, which is also the highest ISP speed among the five major Latin American markets. Again, separating the average speed from its DSL counterpart might have affected the total average of the ISP. Fixed wireless provider Entel Chile, aside from having the lowest number of broadband subscribers in Chile among the operators analyzed, also ranks last in the average speeds with 2.45 Mbps as of 2017.

According to Netflix's ranking, Claro Colombia leads the average speeds only by a few points above ETB, with 2.99 Mbps and 2.9 Mbps, respectively. The lowest is DIRECTV Colombia's fixed wireless broadband service with speed offerings ranging from 2-10 Mbps in 2017.

Grupo Salinas' Total Play Telecomunicaciones SA de CV has the highest Netflix average speed in Mexico at year-end 2017, given its full fiber network. Average speeds from providers vary between 2-4 Mbps, except for Axtel's fixed wireless service Acceso Universal. However, separating the average with Axtel's Xtremo fiber service might have affected the company's overall average speeds ranking.

Although Ookla's Speedtest Global Index also shows Chile as the leader in average broadband speeds, it lists Colombia as the market with slowest average speed.

The availability of faster broadband speeds is also attributable to the increasing number of operators deploying their own fiber networks. After the initial trend of fiber rollouts, Kagan forecasts FTTH revenue in the Caribbean and Latin America is set to experience staggered but stable growth until 2022 as ISPs hold off spending until high-end fiber networks become more available, hence incurring lower expenses.

Despite the availability of broadband packages with higher speeds, reported speeds reached remain low. As internet service providers are slowly getting past the hurdles of network upgrades and deployments, the challenge is how to come closer to the maximum advertised speeds in their broadband plans.

Global Multichannel is a service of Kagan, a group within S&P Global Market Intelligence's TMT offering. Clients may access the full article, with detailed breakdown of speed tiers and Netflix ISP average speeds per country, as well as year-end 2017 data available in Excel format, by clicking here.

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Watch: Power Forecast Briefing: Fleet Transformation, Under-Powered Markets, and Green Energy in 2018

Steve Piper shares Power Forecast insights and a recap of recent events in the US power markets in Q4 of 2017. Watch our video for power generation trends and forecasts for utilities in 2018.



Five Cheapest Triple-Play Bundles In Key Countries In Western Europe

Highlights

Western Europe’s biggest markets represent some of the region’s cheapest triple-play (TV, broadband and fixed telephony) bundles.

Germany, France and the U.K. are the three biggest media markets in Europe by revenue and by total GDP, yet they host some of the cheapest bundles

Scale and the intense nature of competition in those markets are key factors affecting pricing.

Oct. 12 2018 — Western Europe’s biggest markets represent some of the region’s cheapest triple-play (TV, broadband and fixed telephony) bundles. Germany, France and the U.K. are the three biggest media markets in Europe by revenue and by total GDP, yet they host some of the cheapest bundles. Scale and the intense nature of competition in those markets are key factors affecting pricing. Austria is the only nation featured in our cheapest bundles table that is not one of the big five markets in Western Europe. Bundling, incidentally is not popular everywhere: in the Nordics – Europe’s most advanced and competitive sub-region – operators are less inclined to bundle their products with the lack of interest in fixed telephony impacting bundling strategies.

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Technology, Media & Telecom
Trading Of US Linear TV Advertising Shifting To Programmatic Trading

Oct. 08 2018 — Both buyers and sellers of traditional linear TV advertising, not including connected TV or over-the-top video, are moving toward the adoption of programmatic trading. In 2017, Kagan estimates that $690 million or 0.9% of total linear TV spend was traded programmatically. Within the next five years, that figure is expected to climb to $9.76 billion or nearly 12% of total linear TV advertising revenue. MVPDs are forecast to trade the greatest percentage of their ad inventory programmatically in 2022 with 30% of ad revenue from programmatic trading.

Kagan defines programmatic trading as being automated and data-enhanced, not just one or the other. Trading may be through a private or open marketplace and does not have to be through an auction, which is more common in digital video advertising.

There are several issues holding participants back from programmatic trading. Unlike digital programmatic marketplaces, where there is a seemingly unending supply of ad inventory, linear TV has a finite supply. Demand for TV inventory exceeds the supply, so there is still an attitude of "If it isn't broken, don't fix it." TV ads are also bought well in advance, not immediately.

While many agencies have experimented with the programmatic trading of linear TV, not all are on board. Many of the advertisers and agencies are interacting directly with the supplier platform rather than going through a demand-side platform, or DSP, today. In their experiments, the agency needs to use separate platforms to aggregate inventory and tie it together, which is a lot of work.

The lack of inventory is one factor holding back programmatic trading. The only way it takes off is to make linear TV inventory available in some type of buyer platform that can combine the various supply platforms. It is even more complicated when the buyer wants to bring in connected TV (OTT).

Agencies do like the automation capabilities of programmatic, particularly where the process takes a lot of time. An algorithm may do better in areas such as weighting estimation, the first pass at scheduling and the negotiation process as well as postings and billings. The process of buying inventory is not difficult, but computing where a buyer will be able to find its preferred audience is. Therefore, interest in automating the planning and analysis to find an optimal audience is high.

We forecast a gradual uptake for programmatic trading with continued testing in 2018. Broadcast stations and networks, cable programmers, and MVPDs need to add more inventory to programmatic platforms before agencies begin using it in earnest. It will take time for all parties to feel comfortable transacting in a new way.

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