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CEOs say changing state policy decisions impact utility business

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CEOs say changing state policy decisions impact utility business

State policy decisions to drive cleaner energy are having more of an impact on power markets and on the strategies of market participants, chief executives from regulated and nonregulated segments of the North American electricity industry said Jan. 31.

A CEO panel at the S&P Global Market Intelligence Power and Gas M&A Symposium in New York discussed how the changing power generation mix, regulatory dynamics and technology developments are impacting their business in different ways.

States have taken a very active role in developing policies that impact competitive power markets during the current decade, Robert Flexon, CEO of independent power producer Dynegy Inc., said. The model that the Federal Energy Regulatory Commission created in which the lowest-cost megawatt is the one that makes it to the customer no longer appears to be what some states want.

"We know New York doesn't want that, New England doesn't want that and New Jersey is about to not want that," Flexon said, referring to states and regions that have created policies to support resources like nuclear power or renewable energy with out-of-market payments.

FERC as the overseer of competitive market formation "has been missing in action," he said.

Flexon commented he is up at night mulling issues of "policy, policy, policy."

"Number one is subsidies," Flexon said, where in 2012, it was the price of natural gas.

Mixed views on regulatory rollback

The panel also discussed the impact of the Trump administration's rollback of Obama-era regulations and streamlining the regulatory process to make it more business-friendly. These measures have been met with both indifference and support.

"We have been on a path of either shutting down [coal] plants or becoming compliant" with applicable regulations, Terry Bassham, CEO of Midwestern utility Great Plains Energy Inc., said. The growth of wind and depressed natural gas prices had been pushing the company away from coal, making any actions to stop the Clean Power Plan, which would have imposed stricter regulations on coal-fired generation, less important.

Streamlining the regulatory process in the transmission sector, however, was looked upon favorably. "If it takes 10 years to build a road, it probably takes a lot longer to build a transmission line," Barry Perry, CEO of Fortis Inc., the holding company that owns transmission company ITC Holdings Corp., said. Anything that can be done to expedite permitting approvals or land acquisition would be helpful, he said, adding that he hopes President Donald Trump's leadership on that issue "trickles down" to the state utility commission level.

Market forces driving technology more than regulators

In most jurisdictions, adopting new technologies is more a company decision than a function of regulators pushing certain innovations, Perry said. The big investment opportunities for his company lie in battery storage, electric vehicles, grid modernization and cybersecurity.

The ability to move as quickly as customers want while getting regulatory support and approval is what "scares" Great Plains' Bassham the most. For example, customer appetite for electric vehicles led utility subsidiary Kansas City Power & Light Co. to build a charging network across its territory before there was a rate structure in place for the technology. It's a "very aggressive cycle" of conversations between customers and regulators, he said. "We don't want to tell customers we'd like to do that but regulators say we can't."

Customers are demanding cleaner energy, Perry said, so his company is focusing on that. Fortis just finished building an LNG storage tank in British Columbia because the fuel is being used to power a local bus fleet and the province is retooling its ferries to run on natural gas, he said.

Jared Anderson is a reporter for S&P Global Platts which, like S&P Global Market Intelligence, is owned by S&P Global Inc.