Dear Mr. President — Energy Industry Stakeholders Outline Pet Policy Considerations

S&P Global Market Intelligence
Written By: Lilian Federico
S&P Global Market Intelligence
Written By: Lilian Federico

During the initial days of President Donald Trump's administration, energy industry stakeholders have begun to communicate their policy objectives to the new administration. Issues raised include support for infrastructure replacement, federal-state jurisdictional boundaries, the need to fill the vacancies at the Federal Energy Regulatory Commission, pipeline safety, nuclear waste management and tax policy.

National Association of Utility Regulatory Commissioners

Commissioner Robert Powelson of the Pennsylvania Public Utility Commission, in his role as President of NARUC, sent a letter to the administration in January 2017, indicating that commissioners' key concerns include infrastructure replacement/modernization, nuclear waste, the Public Utility Regulatory Policies Act of 1978, or PURPA, and state-federal jurisdictional boundaries. Specifically, NARUC called for the administration to push forward with stalled proceedings to establish a permanent nuclear waste repository at Yucca Mountain, an issue that has been ongoing for decades. The Yucca Mountain nuclear waste repository was designated by 1987 amendments to the Nuclear Waste Policy Act; the project was approved by Congress in 2002, but federal funding for the site was discontinued in 2011.

NARUC also requests that the administration re-examine PURPA. PURPA is part of the National Energy Act that was intended to promote greater use of domestic energy, particularly generation not owned by traditional utilities. Among other things, PURPA required utilities to purchase energy produced by certain qualifying, nonutility facilities at the utilities' avoided cost, provide backup power to these facilities, interconnect with these facilities and operate with them under "reasonable terms and conditions." The enactment of PURPA marked the beginning of competitive wholesale power markets in the U.S. and paved the way for electric retail competition.

According to NARUC, PURPA "needs to be modernized to reflect the nation's 21st century landscape." NARUC notes that when PURPA was enacted, the U.S. energy sector "faced tremendous uncertainty." By contrast, the sector now "has the ability to become independent through robust domestic energy resources."

In addition, NARUC seeks "help remedying the recent federal agency decisions that have encroached on state authority and blurred the distinction between federal and state jurisdiction." NARUC asserts that certain recent federal regulations undermine or bypass state: generation resource allocation decisions; initiatives to integrate distributed generation resources, i.e. net metering; and electric transmission siting authority.

NARUC also seeks to "renew its relationship" with U.S. Department of Transportation's Pipeline and Hazardous Materials Safety Administration. PHMSA was created in 2004 and is responsible for developing and enforcing safety regulations for the nation's pipeline infrastructure. PHMSA's enforcement authority was initially somewhat limited, but in recent years, in the wake of highly publicized pipeline incidents, PHMSA's authority to impose penalties for noncompliance has expanded, and the agency has promulgated increasingly stringent rules and reporting requirements.

According to Powelson, "NARUC members possess a depth of knowledge and practical experience in energy and utility matters that affect every American citizen. NARUC is a non-partisan association. We know how to work collaboratively and effectively, and that is our goal with the new Administration."

Edison Electric Institute

The Edison Electric Institute, or EEI, the trade association representing the electric utilities in the U.S., did not send a letter to the administration, but in a Feb. 8 presentation in New York City, outlined its priorities for 2017: comprehensive tax reform, infrastructure investment, grid security and preserving a balanced energy mix.

EEI stressed that to accommodate new technology and energy sources such as distributed generation, ratemaking frameworks and power markets need to be restructured in order to recognize the costs and benefits, or attributes, unique to each generation resource. EEI expressed hope that the administration and Congress will be able to restore FERC to a quorum in a short time frame so these issues can be addressed properly.

With respect to tax reform, EEI advocates the following:

  • Tax deductibility of interest should be maintained. According to EEI, debt financing has been a key tool used by utilities to finance infrastructure remediation and expansion while keeping rates in check. EEI states that since 1991 average retail energy prices have risen 58% on a nominal basis, versus a 76% rise in the Consumer Price Index, for a net reduction in cost to consumers.
  • Tax deductibility of state and local taxes should be maintained. EEI notes that utilities are a major source of revenue for state and local governments and that, due to their footprint, property taxes represent a large portion of their cost of doing business.
  • Retain normalization accounting.
  • Maintain low dividend and capital gains tax rates, as well as parity between the two. Due to their cash flow characteristic, utilities generally maintain higher payout ratios than other industries, and investors generally purchase utilities for these current income opportunities.
  • Should the federal corporate tax rate be lowered, a transition period should be established to adjust the value of deferred tax liabilities in order to avoid unintended consequences for ratepayers.

Governors' Wind & Solar Energy Coalition

On Feb. 13, a coalition of governors from 20 states that have a significant portion of renewables in their resource mix sent a letter to the administration urging that "any national infrastructure legislation introduced in Congress should provide significant funding for grid modernization." The group also requests that the administration foster the development of comprehensive long-term offshore wind legislation that includes an extension of available investment tax credits beyond 2019. The governors request that the administration establish a task force to foster research into the development of additional renewable resources and technologies to support them.

Advanced Energy Economy

Among the first to communicate its wish list to the new administration was Advanced Energy Economy, an association of business leaders whose mission is to "transform public policy to enable rapid growth of advanced energy companies." The association issued a letter to the Trump team immediately following the November 2016 election. The association asserted that rebuilding the nation's infrastructure should include modernizing the electric power system; to accommodate alternative energy resources, both the utility business model and the traditional regulatory structure needs to be revamped; and customers should be accorded greater choices, and technologies should be permitted to compete.

While the letter predated the recent changes in membership at FERC, the association recommended that the administration appoint commissioners "who understand and appreciate advanced energy technologies."

With respect to environmental issues, the association recommends that the administration direct the U.S. EPA to make multipollutant regulation a priority, strengthen the Clean Energy Incentive Program and promote the growth of electric vehicles.

To promote industry transformation and ensure grid security, the association believes that the U.S. Department of Energy should take a more active role in state initiatives and the Department of Transportation should "support the electrification of transportation."

Similar to the Governors Wind & Solar Coalition, the association proposes that the investment tax credit for wind should be extended and expanded. The association also supports the development of advanced nuclear energy technologies, such as small modular reactors.

Nuclear Energy Institute

In a letter sent to the administration in December 2016, the Nuclear Energy Institute touted the potential economic and environmental benefits of nuclear generation but asserted that, in order to achieve these benefits, certain federal policies need to be changed. The institute opines that the regulatory framework at FERC needs to adequately recognize the attributes of nuclear power and that these attributes are appropriately valued in competitive markets. In addition, the regulatory framework should set out goals and allow markets to determine how the goals are met.

In addition, the institute urges the Department of Energy to complete the licensing process for Yucca Mountain and the NRC to establish a predictable licensing process for both new nuclear plants and an "away-from-reactor" consolidated interim storage facility.

American Gas Association

It appears that the American Gas Association, the trade association that represents the local gas distribution companies, has provided policy suggestions to the new administration but has not publicly released those documents. However, in a media briefing conducted in December 2016, Pierce Norton, chairman of the association and president and CEO of ONE Gas Inc., touted natural gas as "a foundation fuel for the U.S. energy economy." He indicated that the member companies plan to focus on safety, upgrading and modernizing gas infrastructure and communicating/promoting natural gas as "an essential resource in a low carbon future."

In addition, the American Gas Association, along with several other groups, was a signatory to a Feb. 3 letter urging Trump to act expeditiously to restore a quorum to FERC to allow that agency to "tackle much of its important work promoting energy infrastructure for the benefit of U.S. energy consumers."

National Association of Water Companies

The National Association of Water Companies, or NAWC, which represents privately owned water utilities, in a November 2016 letter to Trump applauded his emphasis on infrastructure development.

The association said water infrastructure is in particularly dire need of repair and is one of the great challenges of our time."

The association indicated that it hopes to work with the administration to "open the door for more effective public-private partnerships and other entrepreneurial methods that will improve the state of the nation's water infrastructure systems."

As such, the association proposes that the administration seek to remove the volume cap on tax-exempt, private activity bonds; modify regulations impeding public-private partnerships; refrain from reducing tax deductions for depreciation and interest expense, or increasing the tax rate for dividends and capital gains; amend the Safe Drinking Water Act to provide greater accountability and encourage partnerships; and develop policies to foster cooperation among utilities, government agencies and consumers to combat cyber threats.

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