Utility regulators worry about climate change costs, favor nuclear power

Brewster, N.Y., December 1, 2009 – State utility regulators in the U.S. are increasingly viewing nuclear power as a preferred type of electricity generation, according to a recent national survey from RKS Research and Consulting.

The independent marketing research firm also found an increase in regulatory willingness to permit utilities to contract directly with natural gas providers for their fuel. And regulators continue to say that new ratemaking methodologies are needed to better respond to current regulatory realities.

These are some of the top findings of the 2009 Survey of State Utility Regulators, conducted by RKS Research and Consulting. This year’s study is the sixth time since 1995 that RKS has surveyed state utility regulators and summarized their views on electricity and natural gas issues.

Topics covered in this year’s survey include: electric and gas ratemaking methodology; energy supply; electric generation preferences; energy efficiency; risk management; sufficiency of electric and gas supply; electric reliability; renewable energy; and environmental protection.

Regulators’ Concerns

The RKS survey reveals that many state regulators are expressing concern about:

  • A nationwide recession leading to declines in utility revenues
  • Deteriorating financial profile of some utilities
  • Turbulent capital market conditions

More than six in ten (62 percent) regulators continue to strongly support the need for new ratemaking methodologies. These results are consistent with findings from both the 2007 and 2005 RKS regulator surveys.

However, previous RKS regulator surveys have found regulators unable to articulate the new ratemaking methodologies that appear most promising.

The 2009 Survey of State Utility Regulators offers some hints that regulatory decoupling might fill that bill.

Regulatory decoupling continues to gain acceptance by state utility regulators, although survey results suggest that this tool is not yet regarded as an unqualified success.

Decoupling, which separates a utility’s profit from its commodity energy throughput, is more common for gas utilities than electrics, and regulators view gas decoupling as more successful than electric decoupling, according to the RKS survey.

Nearly six in ten regulators (58 percent) say their jurisdiction presently permits decoupling for natural gas utilities, while only 39 percent respond their jurisdiction allows decoupling for electric utilities.

Three in ten regulators (29 percent) regard natural gas decoupling as successful, but only 7 percent expressed that same view regarding electric decoupling.

For regulators with no decoupling programs in their jurisdictions, about one in six report they are very likely to initiate decoupling for either electricity, natural gas, or both.

On cost recovery, state utility regulators express concern over the volume of regulatory trackers and riders that exist. This concern may help explain why regulators taking part in the survey are shifting their preferred mechanism for recovering future capital costs away from trackers and toward the utility’s next general rate case.

Forty-three percent of state regulators now respond that they favor recovering capital costs in the next general rate case, a 12-percentage-point increase from what was found in 2007. By contrast, 38 percent of regulators say they favored recovering capital costs through tracker or rider mechanisms, also a 12-percentage-point change from 2007

Preferred Types of Electric Generation

Asked about which types of future electric power generation most effectively balances consumer’s need for low-cost energy with having a minimal environmental impact, 35 percent of regulators said they preferred nuclear power, followed by natural gas (18 percent), wind (16 percent), and coal (8 percent). One in ten (10 percent) said they are simply not sure.

About the Survey

Between August and October of 2009 RKS Research conducted telephone interviews with 97 state utility commissioners and 10 regulatory commission professional staffers representing a total of 52 separate jurisdictions.

The survey, conducted for the 6th time since 1995, asked regulators to identify the issues that are most important to them. The survey asked specific questions about financial issues, ratemaking and cost recovery, power and gas supply, electric transmission, environmental and efficiency initiatives, mergers and acquisitions, and commissions’ relationship with utilities and political leaders in their jurisdiction.

 

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