6.1a ERMUSR 03-13-2017 Elk River
Municipal Utilities UTILITIES COMMISSION MEETING
TO: FROM:
Elk River Municipal Utilities Commission Troy Adams, P.E.—General Manager
John Dietz—Chair
Al Nadeau—Vice Chair
Daryl Thompson—Trustee
MEETING DATE: AGENDA ITEM NUMBER:
March 13, 2017 6.1a
SUBJECT:
Staff Updates—General Manager
DISCUSSION:
• The Board of Directors of the Minnesota Municipal Power Agency(MMPA)met on February 28,
2017 in Shakopee,Minnesota.
Shakopee Energy Park entered commercial operation on February 14, 2017. The project was
completed a month and a half early.
The Board reviewed the progress of member cities in rolling out the Clean Energy Choice
program to residential customers.
The Board also discussed the status of the renewable projects that the Agency is pursuing.
• The 2017 American Public Power Association(APPA)Legislative Rally was held in Washington
D.C.February 27—March 2,2017. I attended this event with Tom Sagstetter. There were
approximately 50 public power representatives from Minnesota this year including staff from
Minnesota Municipal Utilities Association(MMUA). We were able to meeting with our Senators
and our Congressman with small groups of constituents. The MMUA and APPA position
statements are attached for your reference. The four key issues for Minnesota public power
utilities this year are:
o Preservation of tax-exempt municipal bond financing.
o Preservation of local control over pole attachments.
o Preservation of local control over distributed generation.
o Protecting the interests of the Western Area Power Administration(WAPA)customers.
ERMU is not directly impacted by the concerns involving WAPA,however,other member of
MMPA would be and therefore this indirectly affects ERMU. The preservation of tax-exempt
municipal bond financing is of highest concern due to imminent tax reform efforts. Our concerns
were well received by our elected officials.And,we asked Congressman Emmer to sign onto a
letter supporting our position addressed to Congressman Kevin Brady(TX),the Chair of the
Ways and Means Committee of the House of Representatives.
During the APPA Legislative Conference each member utility can authorized a representative to
vote on policy during the Legislative and Resolutions Committee meeting. This year there were
four non-controversial resolutions which all passed unanimously. The committee meeting agenda
and resolutions are attached from reference.
iaerEREI BY
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While in D.C.,Tom and I also attended the annual Midwest Municipal Transmission Group
(MMTG)dinner.MMTG is the organization that helped municipal utilities first get the
opportunity to become owners in the transmission system. Through efforts by this group ERMU
was able to become an owner in the CAPX2020 transmission project.
• Our attorney Kaela Brennan of McGrann Shea Carnival Straugh&Lamb is working our
documentation for our electric service territory swap with Wright-Hennepin Electric Cooperative
Association(WH). The terms of this swap,which involve approximately seven single family lots
in the Mississippi Cove development and 11 townhome units in the Wild Flower Meadows
development,have already been reviewed and approved by the ERMU Commission and WH
Board of Directors.
First,Ms. Brennan is developing an agreement to formally document the terms of the swap. This
agreement will need to be executed by the WH board and the ERMU Commission. I hope to have
this on the April ERMU Commission agenda.
Second,Ms. Brennan is preparing the filing documentation for a boundary change with the
Minnesota Public Utilities Commission(MPUC).This will be filed with the MPUC following the
formal approval of the territory transfer agreement.
• ERMU staff and City IT staff continue to work on our Physical and Cyber Security initiative. We
have met with two different firms.Follow up meeting are scheduled. This is a budgeted imitative
for ERMU. We hope to develop economies of scale by coordinating efforts with the City.The
City would need to separately consider their participation and scope of work.
• The City, County,and ERMU met on March 8 as part of our joint ownership of the fiber loop in
Elk River which connects many of our facilities. This was an annual meeting to new/future
service laterals off the loop to facilities, outages,mapping,locating,and maintained.ERMU
looks to develop a long term capital outlay plan to build service laterals to our water towers,
wells,filter plants, substations,generation facilities,and other facility not currently connect to the
fiber loop.
• As anticipated, I have been selected to serve as a Reliability Representative on the Reliable Public
Power Provider(RP3)Review Panel.The letter from APPA is attached.
ATTACHMENTS:
• 2017 MMUA 2017 Federal Position Statements.
• 2017 APPA Legislative Rally Briefing Packet.
• The Capitol Letter from MMUA: Feb 17,2017;Feb 24, 2017; and Mar 3,2017.
• APPA RP3 Panel Appointment Notification Letter-Mar 8,2017.
P ® ■ EAE ® 11
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ARCHITECT
CAPITOL
Table of Contents
Tax-Exempt Municipal Bonds 3-4
Preserve Local Control of Pole Attachments 5-6
Distributed Generation 7-8
Protecting the Interests of WAPA Customers 9
Grid Security 10
Why Public Power? 11
Cover and back cover images courtesy of the U.S.Architect of the Capitol, public images.
171
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inirffirrisopi Position Statement
Tax-exempt municipal bonds
Comprehensive tax reform is a top
priority for Capitol Hill in 2017. As
Congress embarks upon this effort,
we urge all members to keep in mind - -
that tax-exempt municipal bonds are
critical financing tools for all public
power utilities, which are entities of
state and local governments. -
, ----- 4
„.....
Tax-exempt bonds help build utility
and community infrastructure.
Nearly three-quarters of the
infrastructure built in the U.S.—
�F_ r
including roads, bridges, schools, ,
hospitals, water and wastewater sI
treatment plants, and publicly- :410 ;
owned electric utility facilities—is
financed with muni bonds. These "
bonds are desirable to investors Tax-exempt bonds help build infrastructure necessary for health and economic
because the earned interest is growth.
not subject to federal income tax.
General obligation bonds are backed An outright repeal of the tax exemption for
by the full faith and credit of the issuing public municipal bonds would increase borrowing costs
entity so investors are paid even if the issuer has by 47 percent. Prior White House budget proposals
to raise taxes to make the payments. Municipal sought to soften this effect by capping the tax
electric utilities and joint action agencies rely value of the exclusion on muni bonds rather than
almost exclusively on revenue bonds, which repealing it; this would amount to a surtax on the
are paid for out of the revenue from the project interest of those bonds and still would increase
financed and are not dependent on tax revenue.
continued on next page
The federal tax exemption on municipal bondos ••••••44jinterest has been in place since enactment of the + 12 _ - $ r �z 7 i -#.1
44 t.
very first federal tax code in 1913. It has allowed 26 8 _12_4i—r----24:!! , #r1 o
163
state and local governments to save, on average, 305,9 _f 2 -i- — '-66t ? a
an estimated two percentage points on their --, R~80"— S6 2 i 300 'T
rii
borrowing, which translates into a 25 percent fl --..;f 81-:14— j--..t► ,",~- 300 7:
26,87
savings in public infrastructure costs over time. 3/3, 5 57 -(("r - ]l Skio —
The municipal bond market gives close to 42,000 ee �2 ty �>`` ~���
governmental issuers access to investors, of which ee2�, ar fi t2[ 37
CO—
over 70 percent are individual households. Nearly 3� 3s 53 -�, C y •,-,_ -n 7 s 3}—
60 percent of this household tax-exempt interest 1 se 1* -_' -6g 1 -' e9 so—
is earned by taxpayers over 65 years old. Over 34*I 15715 _ Clio---i' + - 1-----------6 r
the past few decades, tax-exempt financing has -•-- i --9- "'n
generated trillions of dollars of investment in Over the past few decades,tax-exempt financing has
vital public infrastructure, saving state and local generated trillions of dollars of investment in vital public
infrastructure,saving state and local governments hundreds
governments hundreds of billions of dollars in
interest costs. of billions of dollars in interest costs.
2017 Federal Position Statements/3
172
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photo courtesy of the Metropolitan Council Environmental Services
The St. Croix Valley wastewater treatment plant is one of eight owned by the Metropolitan Council.Total projected capital
cost,through 2030,for the Metropolitan system was recently estimated at approximately$3.8 billion.
borrowing costs by 32 to 35 percent. Further, some It seems counterintuitive that while Congress and
proposals would apply retroactively to $3.7 trillion the White House seem to recognize the urgent need
of existing bonds, imposing a significant financial for public infrastructure replacement, some are
burden on public power communities. Replacing looking to limit the one tool that local governments
the exclusion for municipal bonds with a direct have to control costs as they make the necessary
payment bond, as others suggest, would increase investments.
borrowing costs by 16 percent (assuming a direct
payment percentage of 25 percent of the issuer's MMUA Position
interest expenses). We urge Congress to preserve the traditional tax-
exempt financing tools used by local governments
In short, any proposals to tax municipal bonds since the development of the federal tax code
would impose higher borrowing costs on cities and more than a hundred years ago, and to reject all
other local governments and discourage investment proposals that would limit or eliminate the tax-
in critical infrastructure. Increased borrowing exempt status for municipal bonds, including
costs would lead to higher taxes and higher rates replacing muni bonds with tax credits or"direct
for municipal electric, water, and wastewater payment bonds."
services.
2017 Federal Position Statements/4
173
IIIIIIIIIIIfft Position Statement
Preserve Local Control of Pole Attachments
Across the nation, wireless service providers are 11‘,4164 ,e.
making legislative and regulatory efforts to restrict tiOOP
local governments from regulating access to their
utility poles, traffic signals, streetlights, and signs
for attaching antenna equipment to increase r
wireless service. In Minnesota, providers are
seeking unrestricted access to public rights-of-way,
as well as pushing to cap local cost recovery and
impose timelines for local governments to approve `
11111)
•
permits.
Legislative Efforts i "
t
Municipal utilities are currently exempt from f /
Federal Communications Commission (FCC)
jurisdiction over pole attachments. However, the . - . �� e
legislation introduced in Minnesota would cap the s *� ''
annual rates local governments would be allowed to •
charge wireless providers for collocating small cell x, ' ;` f'
wireless facilities to the Federal Communications
Telecommunications Pole Attachment Formula 1�'` t 1,
rate under 47 CFR, §1.1409 (e) (2). This state '_`" ir
,;,,
legislation would have the practical effect of �` r{ t
removing local control and tying Minnesota
municipalities to the FCC rate. With the FCC / ,tr
pole attachment rate having been lowered to the f I
cable rate, a municipality is unlikely to recover
the maintenance and management costs for the `ilk ,,
attached facilities. It is appropriate that local )1 # ,
�
technical, health, and safety considerations be
considered when establishing appropriate pole
attachment rates and that these decisions are best
made locally. MMUA opposes efforts—at both the Electric linework is a hazardous, highly technical,and
federal and state level—to subject municipalities to physically demanding job. Adding additional infrastructure in
the FCC pole attachment rate. close proximity to high voltage lines would create additional
hazards and potentially violate the National Electric Safety
Code.
Regulatory Efforts
Concurrently, the FCC is seeking comments on inquiry to include Section 332 of the TCA, which
a petition from Mobilitie for a declaratory ruling addresses the expansion of wireless facilities.
interpreting the "fair and reasonable compensation
provision of the Federal Telecommunications Act The FCC is looking for input on several items,
(TCA), Section 253. This section provides the including local government practices that may have
FCC with some authority to preempt enforcement an effect on prohibiting providing wireless service,
of any state or local government action that may whether the "reasonable period of time" for small
inhibit the ability of an entity to compete effectively
in providing telecommunications services. In its
request for comments, the FCC expanded the continued on next page
2017 Federal Position Statements/5
174
I,,I,Iwg
cell siting should differ from macro cell
siting, and what qualifies as a small ,
cell.
MMUA is joining with the League -.0 �` ,'
of Minnesota Cities in submitting
comments to the FCC to emphasize ,' tItP a:
the need for maintaining local control ' :,,1-,-ar,-,-,::,:i !0s, -, ),� -..
of sitingwireless facilities. Minnesota
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statute rightly provides locals �
governments the authority to manage tiP.
:-1\1= ;:1:4*:',11,1'10,-'4.0.--2-ft.s.:-';'11:11:;:;',:-: ,,- ::::'
telecommunications in public rights- F '" i'' ,
of-way. Each municipality has zoning, -
land use, and technical considerations , . ; ,
(including National Electric Safety '
Code requirements) that warrant
local authority over the use of its
infrastructure. In a docket also
involving Mobilitie, the Minnesota r� '
Public Utilities Commission recently °
affirmed a municipality's longstanding
authority to regulate activities in its AT&T's Project
right-of-way. AirGig(pictured
in an AT&T photo
above)would
While municipalities are strong ,` attach antennas
supporters of improved Internet "' 411
onto power
access, additional federal regulations ''IP lines.Municipal
regarding the siting of wireless electric utilities
:.
facilities would provide confusion, 1, ' E + have concerns
increase local costs, and remove 1 that this type
necessary local public safety of installation
would run afoul
considerations. N., of the National
i N Electric Safety
MMUA Position1r Code,and be
MMUA urges Congress to oppose a potential
any effort to remove the municipal j'` hazard for our
utility exemption from the federal pole lineworkers.
attachment rate.
- i
MMUA also opposes any federal
k
regulatory action that would impede
a municipality's ability to manage
the deployment of telecommunication A
facilities within its right-of-way. The
FCC should not make any declarations
as to the process and fees local governments use for siting
wireless facilities in their communities.
2017 Federal Position Statements/6
175
1111111111118
irirffirirlsoffe Position Statement
Distributed Generation
Distributed generation
(DG) is power that is
produced at the point of
consumption. Electricity
is generated on-site at
a utility customer's own
property. Distributed
generation resourcesoidid
can include solar -04
photovoltaic, small wind
turbines, combined
heat and power (CHP),
fuel cells, and micro-
turbines. Over 90 - r ffi �P
percent of installed
DG in the U.S. today
is solar. The amount
of solar generation has -- � �~��'— Y•
increased significantly
in the last several years. 6
Driving this growth is
the dramatic decrease Most distributed generation resources rely on the electrical grid to supply all or part of their
power at various times. Municipal utilities are intent on not having other customers subsidize
in the price of solar their distributed generation customers.
panels, with the installed
costs of residential
and commercial photovoltaic declining by over 70 exacerbates the problem of under-collecting for the
percent since 2008. Federal and utility incentives cost of providing service.As a result, other retail
for solar panel installations, state renewable customers subsidize customers with distributed
energy standards and other state-level incentives, generation. Utility efforts to adapt their rate and
including net-metering requirements, are also fee structures accordingly are sometimes wrongly
contributing to the increase in solar generation. decried as discriminatory. The reality is that
equal customer treatment requires such revenue
Under a net-metering program, a utility will credit collection adjustments, as solar DG penetration
generating customers for their electricity sales becomes a more significant part of the mix in utility
to the grid and charge them for periods when service territories.
electricity consumption from the grid exceeds
their generation. Under Minnesota's net-metering Customer-owned rooftop solar involves challenges
statute, the customer is both charged and credited for customers as well. Out-of-town
at the utility's full retail rate of electricity. contractors selling unfamiliar products involving
somewhat complicated financing issues can
Net metering creates an inherent revenue lead to unmet expectations and other problems.
challenge for electric utilities. Residential electric Increasingly, municipal utilities are providing
bills have been based primarily on a customer's customers an alternative option to rooftop solar
electric consumption, and the associated "customer through utility-scale community solar projects that
charges" rarely reflect the full amount of fixed costs alleviate uncertainty and reduce solar installation
utilities incur to provide retail electric service.
Under current billing practices, net metering continued on next page
2017 Federal Position Statements/7
176
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Municipal utilities are increasingly pursuing"community solar.gardens."This ribbon cutting for the second phase of the
Moorhead Public Service solar plant occured in October 2016.
and maintenance costs. Customers in publicDecisions on how to fairly distribute the cost of
power cities trust their locally-owned utility, and providing all customers with a fully accessible and
oca
community solar projects can help them achieve reable electric systeare bestmade at the ll
environmental stewardship while removing levelil. Congress shouldm fully resist proposals that
problematic rate cross-subsidization concerns that attempt to federalize decision makimng about how
impact others, most particularly low and fixed utilities design their rates and charges. Congress
income customers. shoualso resist attempts to mit or remove
utilitildes' ability to create and operate
licommunity
MMUA Position solar projects.
As many states do, Minnesota allows the local
governing bodies of consumer-owned municipal
and cooperative utilities to design their rates
based on factors specific to the utility system and
the characteristics of the customer base it serves.
2017 Federal Position Statements/8
177
Position Statement
Protecting the Interests of WAPA Customers
The four federal power marketing administrations
(PMAs) deliver reliable, cost-based hydroelectric ,•.,
power to various regions of the United States.
Approximately 1,200 public power systems and
rural electric cooperatives throughout the country
buy low-cost, zero-emissions hydropower from the , ,
PMAs, that market this power from the federal ) WOW
multi-purpose dams.
The Western Area Power Administration (WAPA)
•
is the PMA that delivers power to a 15 state region
of the central and western United States that also
includes the western third of Minnesota. WAPA's The Fort Randall dam on the Missouri River in South Dakota.
17,000-mile transmission system carries electricity
from 55 hydropower plants operated by the Bureau In accordance with federal law, PMA"cost based"
of Reclamation, the U.S.Army Corps of Engineers rates are set at the levels needed to recover the
and the International Boundary and Water
Commission. Minnesota is served by WAPA's costs of the initial federal investment (plus interest)
Upper Great Plains Region office, which provides in the hydropower and transmission facilities.
electricity from the seven dams of the Pick-Sloan The PMAs annually review their rates to ensure
Missouri River Program established by Congress in full cost recovery. None of the costs are borne
1944. by taxpayers. If a deficit is projected, rates are
adjusted to eliminate any deficit. Power rates also
help to cover the costs of other activities authorized
WAPA is critical to Minnesota municipal utilities, by these multipurpose dams such as navigation,
providing about one third of the wholesale power
needs of 47 public power systems serving over flood control, water supply, environmental
200,000 people in the western part of the state programs, and recreation. PMA power is generally
low-cost in relation to other sources of electricity
Congressional Action because hydropower is a renewable resource
Every few years, various interests and agencies and most dams were constructed long ago, when
propose to use WAPA and the other PMAs for material and labor costs were much lower than
purposes that depart from the original, vital goals today.
of the federal power marketing program. Several MMUA Position
proposals that have been rejected over the years MMUA urges Congress to reject proposals that
include: reallocation of Pick-Sloan irrigation costs would disrupt the stable, low-cost, and emission
to power customers; an administrative increase in free power that WAPA provides to so many
the interest paid on new PMA investments; and Minnesota communities. For well over half a
the requirement that PMAs to sell power at market century there has been a successful partnership
rates. between federal Power Market Administrations
Though President Trump has not yet released and the communities that receive a federal
his budget recommendations, there are again hydropower allocation. This has helped keep costs
rumblings that the new Administration questions low for our customers. Requiring PMA power to
the role of PMAs and a proposal to sell PMA power be sold at market rates will lead to uncertainty in
at market rates could be forthcoming. municipal utility budgeting and resource planning
and rate increases for our customers.
2017 Federal Position Statements/9
178
111111111111,11.8
1111111110112 Position Statement
Grid Security
Public power utilities, along
with the rest of the electric
industry, take seriously their •4
responsibility to maintain the j ,
.LL
very high degree of electric .� a:
grid security that is absolutely
essential to the welfare and AI
security of the nation. That
is why the industry worked
together to reach consensus on _ AT..
a mandatory reliability plan in # ' 4_
ril
the Energy Policy Act of 2005 ,, '� i :'PA -
(EPAct05). r: 0
Y
The electric utility industry is _,
the only critical infrastructure
sector, along with nuclearl.
, `"'
power plants, that adheres
to federal mandatory and
enforceable reliability and
cyber security standards; this
is known as the FERC-NERC The electric utility industry is the only critical infrastructure sector that adheres to
process (Federal Energy federal reliability and cyber-security standards.
Regulatory Commission and
North American Electric The public power community supports NERC's
Reliability Corporation), which oversees the Critical Infrastructure Protection standards and
standards as prescribed in the EPAct 05. FERC's physical standards, as well as efforts by
the Electricity Sub-sector Coordinating Council to
We take threats to the electric system very improve cyber standards throughout the industry.
seriously. We know that we need to be on constant We also encourage our local utilities to adopt the
guard against cyber-attacks. We also understand cyber security framework outlined in the White
how critical it is to protect our physical assets—our House's Executive Order that went into effect in
power plants, transmission lines, and substations. February 2014.
Electric utilities have worked diligently with MMUA Position
regulators to develop the necessary standards The regulations and standards (FERC-NERC)
and are making sure that they are upgraded to process set up in the 2005 Energy Policy Act
ensure that our defenses are up to date. Critical continue to provide a solid foundation for
Infrastructure Protection (CIP) Version 5 was strengthening the industry's security posture.
approved by FERC and became enforceable on These mandatory standards evolve with input
April 1, 2016. FERC also approved a new physical from subject-matter experts from across industry
security standard to protect our most critical and government. MMUA believes that close
substations which became enforceable beginning on coordination among industry and government
October 1, 2015. partners at all levels is imperative to deterring
attacks and preparing for emergency situations
and, as such, will continue to invest considerable
resources into this effort.
2017 Federal Position Statements/ 10
179
IIMINAril-18
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Why Public Power?
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photo courtesy of the Owatonna People's Press
One hundred twenty-five Minnesota cities benefit interests of stockholders. Our focus is Main Street,
from having a locally owned and locally operated not Wall Street. We work for you.
municipal electric utility. Thirty-three cities have
a municipal natural gas system. Of our 87 county We're not in it for the money. Municipal
seats, 50 are served by a municipal electric or gas utilities are not-for-profit and operated in the
system. A not-for-profit municipal electric or gas public interest. Our goal is long-term community
utility is a tremendous asset. Here are some of the benefit, not short-term gain. We work hard to save
reasons why: you money.
We have great service. We're part of the We're the yardstick for the industry. For
community and our policy makers, managers and generations, public power systems have set
workers are part of the community. Our crews are standards for rates and service that other utilities
always on hand in the event of emergency. You have had to meet.
don't need to call an 800 number to talk to us.
We'll be there. Most Minnesota's municipal
We're locally regulated. Members of the electric utilities have served their communities for
community who live in the community set rates more than a hundred years. In an era when new
and service practices. If you have a problem, you competitors come and go faster than we can learn
know who to talk to. their names, you can count on us. We will be there
when you need us.
We're owned by our customers. There is no
tension between the interests of customers and the We're Public Power.
2017 Federal Position Statements/11
180
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Dear Public Power Advocates:
With the presidential election of November 2016 bringing a change in
leadership in the White House, we expect a busy year in the new Ad-
ministration and Congress on a host of issues important to public power.
The Senate is beginning the year with nomination hearings for President
Donald Trump's cabinet picks, including those for the Department of Energy and Envi-
ronmental Protection Agency. It will also vet nominations for important political appoint-
ments, including commissioners for the Federal Energy Regulatory Commission, Commod-
ity Futures Trading Commission (CFTC), and Federal Communications Commission.The
House of Representatives began January with a flurry of legislative activity primarily focused
on regulatory reform legislation and passing a budget resolution that lays the procedur-
al groundwork for repeal and replacement of the Affordable Care Act. The House is also
expected to start work in earnest on tax reform legislation with the Senate following suit.
The Association will be actively engaged on tax reform legislation, working to preserve the
tax-exempt status of municipal bonds. President Trump has expressed a strong interest in
infrastructure development. For public power, the preservation of tax-exempt financing is
our top priority in 2017 and key for public power infrastructure development. Other issues
we expect to be addressed in the new Congress include grid security, environmental policy,
Endangered Species Act reform, and energy policy, including examination of Federal Power
Act-related matters, such as wholesale electricity markets and the blurring of federal-state ju-
risdictional lines. Other energy issues that may be considered are energy infrastructure (e.g.,
pipeline permitting reform, grid modernization, etc.), distributed generation, and reform of
the Public Utility Regulatory Policies Act of 1978.
In addition to fighting to preserve our ability to issue tax-exempt municipal bonds, other
priority issues include protecting against a "one-size fits all" approach to distributed genera-
tion. There continues to be interest on the Hill to promote distributed generation through
the imposition of federal directives. Another key priority is engaging in partnerships for
a secure grid.There is strong interest in grid security matters and we anticipate oversight
activities on cyber and physical security.The Association will continue to tout the benefits
of information sharing and liability protection and the successful relationship between the
electric industry and the government to protect the grid. Preparing for changing environ-
PublicPower.org 1
183
mental regulations is another Association priority.We expect action on ozone legislation
in Congress and discussions about possible updates to the Clean Air Act.The Hill will also
be focused on what the Trump Administration does on the Clean Power Plan,Waters of
the U.S. Rule, and ozone rule. In addition, we will continue to defend the core mission
and cost-based rates of the federal Power Marketing Administrations and Tennessee Valley
Authority.The Association will also continue its focus on problems in wholesale electricity
markets. Finally, we continue to advocate on other issues important to public power, such as
CFTC regulations, pole attachments, drones, and rail shipper issues.
Enclosed for your reference in preparing for the 2017 APPA Legislative Rally are issue
briefs on many of the important policy issues that are likely to be addressed in 2017.The
Association's Government Relations, Regulatory Affairs, and Engineering staff compiled
these briefing papers—should you have any questions or comments, a list of their names
and contact information can be found in this briefing packet.
We encourage you to visit with as many Members of Congress and their staff as possible
when you are in town. If you wish to meet with congressional staff regarding an issue not
related to energy, please remember that in many cases, those issues are handled by different
staff people.Therefore, when scheduling appointments with Members' offices, it is import-
ant to ask that not only the energy legislative assistants or legislative directors be present
for your meetings, but that staff that cover other issues, such as tax, rail transportation, or
telecommunications be present as well.The Association's Government Relations staff is
available to answer any questions you may have on these logistics.
The Association has a positive message to share with Members of Congress—adherence
to traditional public power values like local control, self-reliance, and customer focus has
consistently enabled us to provide power reliably and at reasonable cost while protecting the
environment.We look forward to sharing public power's positive messages on Capitol Hill
and executive branch agencies en masse in February and March.Thank you again for your
interest and support, and for all you do for public power.
Sincerely,
Fk_s-ctAk.
Sue Kelly
President and CEO
American Public Power Association
February 2017
2 PubUcPower.org
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Table of Contents
Staff Contact List 4 Promoting Functioning,Competitive 49
Wholesale Electricity Markets
Electricity Infrastructure Issues 5 Wholesale Electricity Markets and 51
Electric Transmission Policies 7 Regional Transmission Organizations
Cybersecurity and the Electric Sector 11 RTO Capacity Markets and Their Impacts 55
on Consumers and Public Power
Physical Security and the Electric Sector 13
Vegetation Management 15
Tax and Budget Issues 59
Ensuring Diversified Energy Sources 17
Municipal Bonds and Public Power 61
Electricity Generation 19
Sequestration of Build American Bond 63
Solar Distributed Generation 23 Credit Payments
Hydropower 25 Other Issues 65
U.S.Federal Power Program 27
Unmanned Aerial Vehicle(Drone) Use 67
Nuclear Power 31 In Public Power Utility Operations
Rail Competition and Antitrust Enforcement 35 Regulatory Flexibility Act and Small Business 69
Regulatory Enforcement Fairness Act Reform
Environmental Policy 37
Preserving the Municipal Exemption 71
EPA's Final Rule to Regulate Carbon Dioxide Emissions 39 from Federal Pole Attachment Rates
from Existing Fossil Fuel-Fired Power Plants
Waters of the United States 43
Energy Efficiency 47
185
Staff Contact List
Name&Title Phone E-Mail
Elise Caplan 202-467-2974 ecaplan@publicpower.org
Senior Manager,Electric Markets Analysis
Randy Elliott 202-467-2952 relliott@publicpower.org
Senior Regulatory Counsel
John Godfrey 202-467-2929 jgodfrey@publicpower.org
Senior Government Relations Director
Alex Hofmann 202-467-2956 ahofmann@publicpower.org
Director,Energy&Environmental Services
Mike Hyland 202-467-2986 mhyland@publicpower.org
Senior Vice President,Engineering Services
Tanzina Islam 202-467-2961 tislam@publicpower.org
Energy&Environmental Services Manager
Steve Medved 202-467-2928 smedved@publicpower.org
Government Relations Coordinator
Nathan Mitchell 202-467-2925 nmitchell@publicpower.org
Senior Director,Electric Reliability Standards&Security
Delia Patterson 202-467-2993 dpatterson@publicpower.org
Vice President,Regulatory Affairs&General Counsel
Sam Rozenberg 202-467-2985 srozenberg@publicpower.org
Engineering Services Security Manager
Laura Marshall Schepis 202-467-2954 Imarshallschepis@publicpower.org
Senior Vice President,Advocacy and Communications
Carolyn Slaughter 202-467-2943 cslaughter@publicpower.org
Director,Environmental Policy
Amy Thomas 202-467-2934 athomas@publicpower.org
Government Relations Director
Cory Toth 202-467-2939 ctoth@publicpower.org
Government Relations Director
Desmarie Waterhouse 202-467-2930 dwaterhouse@publicpower.org
Vice President, Government Relations&Counsel
Andrew Wills 202-467-2959 awills@publicpower.org
Government Relations Director&Counsel
Paul Zummo 202-467-2969 pzummo@publicpower.org
Director,Policy Research 6-Analysis
4 PublicPower.org
186
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AMERICAN
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ASSOCIATION
Powering Strong Communities
ISSUE BRIEF January 2017
Electric Transmission Policies
Summary Background
The Federal Power Act(FPA),the law governing the bulk Once most electricity is generated,it travels over high-voltage
transmission system,was amended by the Energy Policy Act of bulk power transmission lines from the generating unit to
2005 (EPAct05),and the results have been mixed.Since 2005, the area where it will be consumed.The electric transmission
for example,there have been efforts to get transmission built to network in the U.S.is organized into three"interconnec-
remotely located renewable generation,but to do so adds addi- tions"—very large bulk power transmission grids that operate
tional complications to an already complex system.The Federal in sync and that must be carefully coordinated at every moment
Energy Regulatory Commission(FERC),the federal regulatory to prevent widespread blackouts.The three are the"Eastern
agency that implements the FPA,has issued several orders over Interconnection," (covering the eastern two-thirds of the U.S.
the last several years related to regional and interregional trans- and Canada),the"Western Interconnection" (covering the
mission planning and cost allocation,integration of intermittent western U.S.and Canada),and the Electric Reliability Council
generation(such as wind and solar,that is not available 24 of Texas("ERCOT,"covering most,but not all,of Texas).These
hours a day,seven days a week) into the bulk electric grid,and interconnections set electrical boundaries.Electrons flow freely
applicability of open season and open access rules to merchant within them,but do not flow freely between them.There are
transmission projects and transmission built to support specific a few places where the interconnections do connect with each
generation projects.FERC's actions have muted calls by some to other,but power flows at these points are carefully controlled.
revisit transmission legislation. Once electrons flow from the generating unit to the bulk
State and local governments generally regulate the electric power grid,their path generally cannot be dictated.Electrons
distribution system(the hundreds of thousands of miles of follow the path of"least impedance,"meaning they will go
lower-voltage lines that provide power to homes and businesses) where their movement meets the least resistance.The path of
and the electric utilities that own and operate these facilities. least impedance is determined on an instantaneous basis by
However,some proposals in Congress and actions by FERC the laws of physics and a complex interplay of the capacity of
have sought to encroach on some of this state and local author- transmission lines to move the electrons,the location of the
ity in recent years.This regulatory tension between states/local- generation,and the amount of electricity consumed by homes,
ities and the federal government will continue,especially as the factories,and businesses located at different points along the
federal government seeks to promote new technologies,such as grid in that particular moment.
"smart"grids and distributed energy resources,and to expand its Therefore,specific electrons cannot be delivered to a specific
authority over electric system reliability. place on the interconnected grid.For example,if Utility"A"
The American Public Power Association(Association or buys power from the owner of Generator"B,"Generator B
APPA)believes that new bulk transmission facilities are needed. will deliver the power to the point where the generator's plant
Siting constraints and cost allocation(who pays) continue to connects to the grid and Utility A will receive the power it needs
be the major impediments to getting new transmission facili- from a different point on the grid.The electrons that Utility
ties built.The Association also believes that regulation of the A uses to provide power to end-use customers are likely a mix
vast and enormously complex distribution systems owned and of electrons from Generator B and many other generators,all
operated by close to 3,000 utilities nationwide should continue using different fuels and technologies.However,Utility A will
to reside with state and local governments. still receive power and Generator B will still be paid.Problems
with the transmission wires or multiple generator outages would
impede the ability of Utility A to receive electricity,even if Gen-
PublicPower.org 7
189
erator B were operating smoothly.Thus,a regional transmission Shaheen(D-NH)was a strong advocate of this change via corn-
grid is like an ecosystem;everyone who uses it is affected by munications to FERC prior to release of its policy statement.
everyone else's actions(or lack of actions). In 2013,however,investor-owned utilities and advocacy groups
To make matters even more complicated,electricity must supporting them commenced a new effort to get FERC to
be produced and consumed in"real time."Electricity currently keep transmission rates of return on equity(ROEs) at pre-2008
cannot be stored economically in significant amounts(although levels,despite a substantial drop in interest rates and investor
advanced storage technologies are being developed),and for returns since that time.In June 2014,however,FERC revised
practical purposes most electricity generation and consumption its method for determining base ROES in Opinion No. 531 and
must be balanced continuously. Otherwise,blackouts can result. began to establish hearings to determine new and likely lower
FERC is the regulatory agency tasked with overseeing the ROEs in a substantial number of pending and newly filed trans-
interstate transmission grid,using its authority under the mission rate cases.Many of these cases are still pending before
FPA.Because the ERGOT interconnection in Texas is wholly the agency,and the few petitions for judicial review of FERC's
intrastate,FERC does not regulate the bulk transmission lines orders that have been filed have yet to be decided,although the
in ERGOT;rather,the Public Utility Commission of Texas first of these appeals should be decided in the first half of 2017.
provides that oversight. EPAct05 also amended the FPA to give FERC authority to
Consumers do not receive power directly from the transmis- ensure that entities like public power utilities,which are not
sion system. Bulk power transmission facilities transmit electrici- directly subject to FERC rate oversight(because public power
ty to local electric distribution systems.Just as cars traveling utilities generally are regulated at the state and local government
on our interstate highway system need to exit and travel on a level),that own or operate bulk transmission facilities provide
system of smaller roads to reach their destinations,lower voltage transmission service on those facilities in a non-preferential
electric distribution systems interconnect with the bulk power manner—under rates and conditions comparable to those they
transmission systems in their regions to deliver electricity to would provide to themselves.FERC in its Order No. 1000
end-use consumers—industry,homes,and businesses.The rulemaking declined to use its authority under this new section
wires at the very top of wooden utility poles in a residential of the FPA to directly impose that order's transmission planning
neighborhood are distributing electricity to customers. In many and cost-allocation requirements on public power utilities,and
cities and suburbs,electric distribution wires are buried in the U.S.Court of Appeals for the D.C. Circuit upheld that
underground conduits.Utility workers gain access to these wires decision.But in December 2011,FERC used this new FPA
through maintenance holes that dot a typical city street.And in- authority to order the Bonneville Power Administration(BPA),
creasingly,electricity is being generated at the distribution level, whose transmission grid FERC does not generally regulate,
increasing"two-way"flows on distribution wires.As mentioned to provide"comparable"transmission service to certain wind
above,these distribution systems are regulated by state and local generators on the BPA transmission system.APPA and other
governments. parties sought rehearing of this order on the grounds that it is
an inappropriate use of FERC's statutory authority in this area,
but FERC denied the rehearing requests in an order at the end
Congressional and FERC Action of 2012.The Association joined a Ninth Circuit petition for
The last time Congress enacted any major changes to the FPA review of FERC's orders in the BPA proceeding,but on August
was in EPAct05.Several changes to the law were made,includ- 10,2015,the court denied those petitions.
ing provisions for the granting of additional transmission rate In August 2016,the U.S. Court of Appeals for the Fifth
incentives,beyond the basic rate of return granted by FERC Circuit issued a decision on El Paso Electric Company's peti-
to all owners of bulk transmission lines.These incentives were tions for review of FERC orders addressing compliance with the
to be granted for lines that presented higher levels of risk— requirements of Order No. 1000 in the WestConnect planning
for example,because they were unusually difficult to site or region.The decision vacated and remanded as arbitrary and
finance—but they became the rule rather than the exception. capricious FERC's decision to allow non-jurisdictional utilities,
FERC in 2011 started a proceeding to examine its transmission including several transmission-owning public power utilities,to
rate incentive policy,and released a policy statement revamping participate in the WestConnect region as Coordinating Trans-
its policy in 2012,which APPA supported. Under this policy, mission Owners("CTOs")that are not subject to binding cost
FERC appears to be more carefully scrutinizing requests for allocation for certain regional transmission projects,thereby
transmission rate incentives,thereby reducing the potential for creating uncertainty about the future of joint transmission
the unnecessary granting of such incentives,and the resulting planning in this region.How FERC acts on remand could be
unnecessary additional costs to electric consumers. Senator Jean significant from the perspective of its precedent on the reciproc-
ity principle.
8 PubUcPower.org
190
EPAct05 also instituted new federal backstop siting author- and resource plans of load-serving entities with service obliga-
ity that would have allowed FERC to step in under certain tions to retail customers to be considered in regional planning
circumstances to site transmission lines if states did not act. processes,as Section 217(b)(4) of the FPA requires.
FERC can use this authority only in corridors established by the
Department of Energy based on areas of congestion in the bulk Transmission for Renewables
transmission grid.Attempts in Congress have been made to As mentioned previously,renewable generation sites are often
repeal this provision since 2005,but they have failed. However, located remotely from population centers,making new and
legal decisions from the Fourth and Ninth Circuit courts have longer transmission lines necessary to access that generation.
rendered this authority of little practical use. However,because the wind does not always blow and the sun
The main policy areas involving transmission are: does not always shine,other types of generation or demand side
resources must be available to balance out those intermittent
Siting resources—or else the lights could go out.This makes it all the
more important to plan regional transmission facilities based on
Because court decisions have undercut the federal government's
limited backstop authority to site transmission,states have the the actual resource plans and needs of the load serving entities
major role in siting new transmission. Public opposition to in the region.
the siting of new lines is the most significant hurdle to getting
transmission built.On federal lands,the many approvals needed
from different federal entities can also create very substantial American Public Power Association Position
delays. One of the most significant impediments to getting new
transmission built continues to be the siting of the lines.The
Cost Allocation EPAct05 siting authorities were a major step forward(until they
Who pays for a new transmission line also is a very difficult were undercut by subsequent court decisions),and should be
issue,as there are often benefits to bringing transmission lines supported,clarified,and protected from repeal.The Association,
therefore,would support legislation to do so in any future de
onto the grid that extend beyond the immediate beneficiaries.
This is because the grid is like a large machine,which in some bate on transmission polity.If new electric generation resources
cases can often be improved by making small additions and are going to be brought to market to meet increasing demand
improvements to one part.APPA believes that a plausible reason and address environmental concerns,new transmission facilities
should exist to believe that the benefits received from a regional- are necessary.
ly allocated transmission project will be roughly commensurate Because of local and state opposition to siting transmission
lines,as many regional electricity stakeholders as possible should
with the costs to be assigned.Moreover,in allocating regional
transmission costs, FERC should be sensitive to differences in be included in their planning and ownership.APPA would
state policies. support new legislation that builds upon existing regional and
interregional transmission planning processes.The Association
Joint Ownership is concerned that FERC's Order No. 1000,however,does not
Some of the problems involved in regional planning and cost focus regional transmission planning in the first instance on
allocation could be resolved if new transmission lines were joint- the actual resource plans of load serving entities in the relevant
ly owned,with some part ownership by public power utilities region,as FPA Section 217(b)(4) requires.
where feasible.While there are parts of the country in which Congress should also encourage and support joint owner-
joint ownership is common,it is the exception rather than the ship of transmission,and should eliminate financial barriers to
such ownership like the private use restrictions for tax-exempt
rule in others,generally because of resistance by incumbent
financing.
transmission owners.
The Association also believes that regulation of the vast and
Regional Planning enormously complex distribution systems owned and operated
Transmission projects approved for regional cost allocation must by close to 3,000 utilities nationwide should continue to reside
be the result of a coordinated,open,and transparent regional with state and local governments.
planning process,as required by Order No. 1000.Such process-
es shall identify: (a) the need for the proposed project; (b) the
anticipated benefits of the proposed project; (c) the anticipated
beneficiaries of the proposed project,and(d) the estimated cost
of the project. FERC should also require the transmission needs
PublicPower.org 9
191
American Public Power Association
Contacts The American Public Power Association is the voice of
Cory Toth,Government Relations Director,202-467-2939/ not-for-profit,community-owned utilities that power
ctoth@publicpower.org 2,000 towns and cities nationwide.We represent pub-
Delia Patterson,Vice President,Regulatory Affairs,&General lic power before the federal government to protect the
interests of the more than 49 million people that public
Counsel,202-467-2993/dpatterson@publicpower.org
power utilities serve,and the 93,000 people they em-
Randy Elliott,Senior Regulatory Counsel,202-467-2952/ ploy. Our association advocates and advises on electricity
relliott@publicpower.org policy,technology,trends,training,and operations.Our
members strengthen their communities by providing
superior service,engaging citizens,and instilling pride in
community-owned power.
yo PubticPower.org
192
AMERICAN
PUBLIC
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ASSOCIATION
Powering Strong Communities
ISSUE BRIEF January 2017
•
Cybersecurity and the Electric Sector
Summary for non-compliance.Additionally,FERC can instruct NERC
The electric utility industry(including public power utilities) to develop new or revised reliability standards with a very short
takes very seriously its responsibility to maintain a strong elec turn-around time.
tric grid and it is the only critical infrastructure sector besides To date, the electric utility sector's Federal Power Act(FPA)
Section 215 processes and its actions beyond the Section 215 re-
nuclear power that has any mandatory and enforceable federal
gime have prevented a successful cyber-attack causing operation-
regulatory standards in place for cybersecurity.As the grid
l
evolves,unfortunately,so do threats to its integrity.The threat consequences on the bulk electric system in the United States.
of cyber-attacks is relatively new compared to long-known phys That said,APPA has long recognized that increased information
ical threats,but an attack with operational consequences could sharing and appropriately tailored liability protection would
further enhance the industry's ability to guard against cyber-at-
occur and cause disruptions in the flow of power if malicious
tacks.As such,the Association strongly supported passage of the
actors are able to hack into data overlays used in some electric
generation and transmission infrastructure.Furthermore,such Cybersecurity Act of 2015,which was incorporated as Division
an attack could also cause public power utilities to incur liability N of H.R.2029,the Consolidated Appropriations Act,2016.
for damages.While the American Public Power(Association or The Act set up policies and procedures for sharing cybersecurity
APPA) believes that the industry itself,with the North American threat information between the federal government and private
Electric Reliability Corporation(NERC),has made great strides entities(which include public power) and between private enti-
in addressing cybersecurity threats,vulnerabilities,and potential ties and provides limited liability protection for these activities if
emergencies,it recognizes that emergency situations warranting conducted in accordance with the Act.
In addition to the Cybersecurity Act of 2015,the Association
federal involvement may arise.
strongly supported Section 61003 of P.L. 114-94(the"FAST
Act"),which gave the Secretary of Energy broader authority to
Background and Congressional Action address grid security emergencies under the FPA and clarified
The electric utility sector is the only critical infrastructure sector the ability of FERC and other federal agencies to protect sen-
besides nuclear power plants(a part of the overall sector) that sitive Critical Electric Infrastructure Information(CEII)from
has any mandatory and enforceable federal regulatory regime public disclosure under the Freedom of Information Act(FOIA)
in place for cybersecurity. Congress approved the standards and other sunshine laws.Specifically,the provision directed that
regime for the bulk power system in the Energy Policy Act of FERC-designated CEII be exempt from disclosure for a period
2005 (Section 215 of the Federal Power Act). Under Section of up to five years with a process to lift the designation or chal-
215,NERC,working with electric industry experts,regional lenge it in court and established sanctions for the unauthorized
entities,and government representatives,drafts reliability and disclosure of shared information.FERC issued a final rule to
cybersecurity standards that apply across the North American implement this provision on December 21,2016.
grid,inclusive of Canada. Participation by industry experts and Outside of the legislative process,the Association and its
compliance personnel in the NERC standards development members,as well as other utilities,continue to participate in
process ensures that the standards are technically sound,fair, the NERC Critical Infrastructure Protection(CIP)standards
and balanced.The Federal Energy Regulatory Commission drafting process on cyber and physical security. (See APPA's
(FERC) has the power to then approve or remand those stan- "Physical Security and the Electric Sector"issue brief for more
dards as they apply in the United States.To ensure compliance, information on the physical-security standard.)As attacks on
critical electric infrastructure are ever-changing,so must be the
NERC conducts rigorous audits and can levy substantial fines
PubticPower.org II
193
nature of our defenses,whether they are designed to protect American Public Power Association Position
cyber or physical assets.As such,CIP Version 5 are in effect Protecting the cybersecurity of the electric grid is of upmost
and became enforceable on July 1,2016.FERC also approved importance to public power utilities and the electric utility
a physical security standard to protect the Nation's most critical industry as a whole.The regulations and standards("NERC-
substations that became enforceable on October 1,2015.Final- FERC")process set up in the 2005 Energy Policy Act continue
ly,APPA worked with others in the electric sector to participate to provide a solid foundation for strengthening the industry's
in and comment on the activities outlined in President Obama's security posture.These mandatory standards evolve with input
Executive Order on cybersecurity released in February 2013. from subject-matter experts from across industry and gov-
The Executive Order required the creation of a cybersecurity ernment.However,we recognize that we cannot protect all
framework,which was released in February 2014.The Associa- assets from all threats all the time,and instead must manage
tion has encouraged its members to adopt this framework and risk.APPA believes that close coordination among industry
evaluate their cybersecurity plans. and government partners at all levels is imperative to deterring
APPA is also involved with internal and external working attacks and preparing for emergency situations and,as such,will
groups to enhance the security of the electric grid.The Associa- continue to invest considerable resources into this effort.
tion created the Cybersecurity and Physical Preparedness Com-
mittee(CAPP),a collection of APPA members who serve on
working groups and share information related to security issues. American Public Power Association
Furthermore,the Association and its members play a leadership Contacts
role in the Electricity Subsector Coordinating Council(ESCC), Amy Thomas,Government Relations Director,
the government/industry partnership focused on security and
202-467-2934/athomas@publicpower.org
information sharing that is mentioned earlier in this document.
Through the ESCC,APPA works with the other critical infra- Cory Toth,Government Relations Director,
structure sectors,such as the downstream natural gas and dam 202-467-2939/ctoth@publicpower.org
sectors.
The Association has partnered with the Department of
Energy(DOE) and signed a three-year Cooperative Agreement
for up to$2.5 million per year to accelerate the Association's ef- The American Public Power Association is the voice of
forts to help its members understand and implement resiliency, not-for-profit,community-owned utilities that power
cybersecurity,and cyber-physical solutions,including refining 2,000 towns and cities nationwide.We represent pub-
and improving the adoption of advanced control concepts. lic power before the federal government to protect the
We respectfully encourage Congress to continue fully funding interests of the more than 49 million people that public
research in this area through the DOE's Office of Electricity power utilities serve,and the 93,000 people they em-
Delivery and Energy Reliability(OEDER). ploy. Our association advocates and advises on electricity
policy,technology,trends,training,and operations.Our
members strengthen their communities by providing
superior service,engaging citizens,and instilling pride in
community-owned power.
12 PubticPower.org
194
AMERICAN
PUBLIC
RTM
ASSOCIATION
Powering Strong Communities
ISSUE BRIEF January 2017
Physical Security and the Electric Sector
Summary Gas and Electric's(PG&E)system in California where at least
While threats from cyber attackers are on the rise,public power one person fired over 150 rounds of ammunition and cut two
utilities also face threats to their physical infrastructure—the critical telecommunications cables to the substation.These and
poles,wires,substations,transformers,and generating facilities several other press reports on attacks on utility infrastructure
comprising these utilities'means of delivering electricity to their have caused some Members of Congress to react by introducing
customers.The majority of physical-security threats to electric or exploring legislation related to utility security.
infrastructure,such as copper theft,have been known for years.
However,more sophisticated threats have emerged with the at-
tack on a California substation in April 2013.While customers Congressional and Regulatory Action
did not lose power as a result of the attack due to the redundan- The nation's electric distribution systems have always been,and
cy built into the system,it was a reminder to law enforcement are today,regulated by state and local governments.This is a
and electric utilities about the importance of working together deliberate separation of power given the retail nature of distribu-
to protect critical utility assets. tion systems,and the vast differences in the configuration,size,
Electric utilities,including public power utilities,take and ownership of the 3,000 distribution utilities in the U.S.
physical(and cyber,as discussed in the companion issue brief Given this situation,each individual utility's role in the secu-
"Cybersecurity and the Electric Sector") threats seriously and rity of its distribution facilities is paramount.However,in the
employ risk management programs to prioritize facilities and past few Congresses,several legislative proposals have included
equipment,develop contingency plans,and employ defense-in- physical-security requirements for electric utilities.While the
depth techniques to"keep the lights on." American Public Power Association(Association or APPA)
supports physical security initiatives at the bulk power system
and distribution levels,we do not support a federally legislated
Background "one-size-fits-all"mandate due to the differences in systems and
Public power utilities intimately understand the importance of regions noted above.
physical security and have longstanding programs and protocols
The North American Electric Reliability Corporation
designed to protect their utility systems.As the nature of phys (NERC),which promulgates mandatory and enforceable stan-
ical threats has changed over the years,public power utilities dards for the federally jurisdictional bulk power system to ensure
have planned,prepared,and responded accordingly.Today,due the reliability of that system,has considered proposals and
to security breaches,such as vandalism and terrorist attacks that issued regularly updated security guidelines that would enhance
physical-security requirements related to access to cyber assets
can cause damage to this infrastructure,utilities must develop
at electric utilities.' In response to developing threat analysis
the best available mitigation practices to address such attacks.
Physical infrastructure security can range from a substation with in March 2014,the Federal Energy Regulatory Commission
cameras,locks,and fences to engineering new facilities utilizing (FERC) used its authority under Section 215 of the Federal
design bases threat methodology. Power Act to direct NERC to submit within 90 days proposed
reliability standards requiring utilities with critical assets to
In recent years,a few high profile incidents of physical
take steps to address physical security vulnerabilities.NERC
security failure have drawn increased scrutiny from several
areas.One incident that received press attention was a shooting
incident at a transformer at an Arkansas utility.Another high 1 (See APPA's"Electric Transmission Policies"issue brief for additional informa-
profile incident took place at the Metcalf substation on Pacific don on the bulk power system.)
PubticPower.org 13
195
submitted a draft standard,known as CIP-014,to FERC in 77 America,inject computer viruses into grid control systems,
days,which FERC subsequently approved.2 bomb transformers and substations,and knock out power
lines by the dozen.
Industry Action
APPA and its members continually seek to promote increased American Public Power Association Position
physical security in a variety of manners and forums: The Association supports the adoption by public power utilities
of appropriate physical-security measures that take into account
• The Association and its members are intimately involved the specific assets being secured.APPA also supports enhanced
in the Electric Subsector Coordinating Council(ESCC), dialogue between the industry and federal government on
one of the coordinating councils established in the National physical-security threats and potential remediation,but does not
Infrastructure Protection Plan(NIPP) to facilitate ongoing support federal mandates in this area at the distribution level
communication between the sector(or subsector)and its sec-
tor-specific federal agency,which in the case of the ESCC is because a"one-size-fits-all"approach would do little to secure
the Department of Energy(DOE).The ESCC,which meets those assets.In addition,the Association supports the FERC/
three times a year,is a venue for senior industry and govern- NERC relationship codified in FPA Section 215 and as used
ment officials to coordinate sector-wide policies and initia to craft a standard on electric utility physical security for the
tives to improve cyber and physical security and emergency bulk-power system.
preparedness.
• In September 2016,APPA released a guidebook,Physical American Public Power Association
Security Essentials:A Public Power Primer,to educate its Contacts
membership on security terms,concepts,risk analysis,infor- Amy Thomas,Government Relations Director,
mation sharing,incident response,drills,and exercises.The 202-467-2934/athomas@publicpower.org
guidebook features a security checklist that helps identify
and mitigate security gaps,as well as improve overall security Cory Toth,Government Relations Director,202-467-2939/
awareness. ctoth@publicpower.org
• The Association hosted two security-related tabletop exercises Nathan Mitchell,Sr.Director,Electric Reliability Standards and
in 2016.The first was held in June and featured a coordinat Security,202-467-2925/nmitchell@publicpower.org
ed cyber-attack scenario similar to the Ukraine-cyber attack Sam Rozenberg,Engineering Services Security Manager,
that occurred in late 2015.The second,held in October,was 202-467-2985/srozenberg@publicpower.org
intended to review,validate,and examine gaps in the Public
Power Mutual Aid Playbook(MAP),in a scenario of signif-
icant physical damage caused by an earthquake in the New
Madrid Seismic Zone.This tabletop exercise was funded in The American Public Power Association is the voice of
part by a grant awarded to APPA by DOE. not-for-profit,community-owned utilities that power
2,000 towns and cities nationwide.We represent pub-
• On November 18-19,2015,APPA and other members of lic power before the federal government to protect the
the electric utility sector participated in the third bi-annual interests of the more than 49 million people that public
Grid Exercise(Grid Ex),a simulated combined cyber and power utilities serve,and the 93,000 people they em-
physical attack organized by NERC. Grid Ex III gave the ploy. Our association advocates and advises on electricity
360 electric entities and government agencies participating
the opportunity to check the readiness and preparedness policy,technology,trends,training,and operations. Our
members strengthen their communities by providing
for cyber and physical attacks.These attacks caused utili- superior service,engaging citizens,and instilling pride in
ties to enact their crisis-response plans and"walk through" community-owned power.
internal security procedures.While the details of the exact
simulations are classified,press reports indicated that the
threat scenario included attempts to turn out the lights across
2(See APPAs"Cybersecurity and the Electric Sector"issue brief for more infor-
mation about the FERC/NERC relationship,as codified in FPA Section 215.)
y4 PublicPower.org
196
AMERICAN
PUBLIC
P� IV ��TM
ASSOCIATION
Powering Strong Communities
ISSUE BRIEF January 2017
Vegetation Management
Summary impacted 7.5 million people across fourteen states,two Ca-
The proper management of vegetation near electric infrastruc nadian provinces,and parts of Mexico.An August 14,2003,
ture located on federal lands is important to ensure electric blackout caused by a falling tree led to an outage for 50 million
electricity customers across the Eastern and Midwestern United
reliability and prevent wildfires.Vegetation that has made
contact with electric infrastructure could result in power outages
States.
and forest fires.These serious and sometimes devastating out- As a result of the 2003 blackout and other reliability con-
cerns at that time,what was then the North American Electric
comes can be prevented with proper management of vegetation.
Legislation to enable vegetation management was approved Reliability Council(now the North American Electric Reliabil-
by the House Natural Resources Committee and included in ity Corporation or NERC)finalized vegetation management
standards and guidelines for the electric industry in 2005.In the
comprehensive energy legislation approved by the House of
same year Congress passed,and the President,signed the Energy
Representatives in December 2015.The American Public Power
Association(Association or APPA)supported these efforts by Policy Act of 2005 (EPAct05),which directed the creation of
nationwide mandatory electricity reliability standards to avoid
Congress to facilitate vegetation management on federal lands,
including hazardous and high-risk vegetation located outside of widespread electricity blackouts.EPAct05 contained a reliabil
rights-of-way(ROWs). ity provision(Section 1211) that sought to ensure that federal
agencies responsible for approving access to electric transmission
or distribution facilities located on federal lands expedite any
Background/Congressional Action approvals necessary to allow the owners or operators of such
When a ROW is properly maintained to prevent vegetation facilities to comply with any reliability standard under Section
from encroaching on power lines and other electric transmission 215 of the Federal Power Act pertaining to vegetation manage-
and distribution facilities on federal lands,it produces multiple ment.
Unfortunately,despite this directive in EPAct05 and over a
benefits.These include everything from operational efficiencies,
public safety,and environmental protection to cost-effectiveness. decade since its passage,the vegetation management issue on
federal lands has not been resolved.The Department of Energy's
Ultimately,the costs of operating,maintaining,and repairing
these lines and facilities on federal lands are borne by utilities 2015 Quadrennial Energy Review(QER) stated that"reliability
and their customers. and resilience projects have also included operations and main-
Since 1996,the vegetation within electric transmission and tenance activities,such as aggressive vegetation management.
distribution line ROWs located on federal lands have caused While it might be considered low-tech,vegetation management
several large-scale power outages in the United States and Can- is an essential activity—both the 1996 West Coast and 2003
ada.Lands managed by the U.S.Forest Service(USFS) include East Coast Midwest power outages started from trees along
3,000 electric transmission and distribution facilities,account- transmission lines."
ing for nearly 18,000 miles of electric ROW.Meanwhile,the However,in order to inspect the infrastructure to operate
Bureau of Land Management(BLM)has over 71,500 miles of and maintain these lines and facilities,electric utilities must seek
electric transmission and distribution lines.This accounts for permission and approval from the federal land management
nearly 90,000 miles of electric transmission and distribution agencies.In addition to being focused on managing vegeta-
lines. tion within a ROW,electric utilities are also concerned about
On August 10, 1996,three power lines in the Pacific North- adjacent vegetation outside the corridor that are high-risk and
west sagged on to untrimmed trees,causing an outage that potentially hazardous.Many utilities with infrastructure on
PublicPower.org 15
197
ROWs through federal lands are potentially liable for fires on American Public Power Association Position
federal lands caused by vegetation outside the ROWs that fall The Association was actively involved in the development of the
or otherwise disrupt electric transmission and distribution lines language of H.R.2358,and strongly supported it when it was
and facilities.Electric utilities,including public power utilities, marked up in June 2015,as expressed in a letter of support to
continuously encounter opposition and lengthy delays from the House Committee on Natural Resources.APPA also sup-
some USFS and BLM personnel to remove the potentially ported the addition of the text of H.R.2358 to H.R. 8,as well
harmful vegetation.This includes such processes as redundancy as the language added to that text by Rep. Cramer's amendment
in reviews,contradicting policies between agency offices,and during House consideration of H.R. 8.While the Senate energy
lack of timely decision-making related to the removal of the bill,S.2012,the Energy Policy Modernization Act of 2015,did
vegetation. not include similar language,the Association strongly encour-
In the meantime,poorly managed vegetation continues to in- aged the conferees to keep the vegetation management language
teract with power lines.The USFS reported 232 and 113 wild- in an energy bill conference report;but was ultimately unsuc-
fires,respectively in 2012 and 2013,caused by contact between cessful when the conference was unable to reach an agreement.
power lines and trees on its lands.To address this continuing Electric utilities need to be able to keep the lights on and help
problem,the House Committee on Natural Resources approved minimize wildfires through proper management of vegetation
legislation(H.R.2358)by Reps. Ryan Zinke(R-MT)and Kurt management.
Schrader(D-OR),in the 114th Congress,that sought to amend
the Federal Land Policy and Management Act of 1976 to en-
hance the reliability of the electricity grid and reduce the threat American Public Power Association Contact
of wildfires to and from electric transmission and distribution Cory Toth,Government Relations Director 202-467-2939/
facilities on federal lands by facilitating vegetation management ctoth@publicpower.org
on such lands.H.R.2358 was approved by the Natural Resourc-
es Committee in June 2015.
When the House Rules Committee met to consider H.R. 8,
the North American Energy Security and Infrastructure Act,in
the 114th Congress,it added the text of H.R.2358 to it.The
vegetation management language was amended on the House
floor through an amendment by Rep.Kevin Cramer(R-ND) in
December 2015.It would have authorized voluntary vegetation
management within 150 feet of the exterior boundary of the
ROW near structures.It also would have prevented the sale of
that vegetation being cut or trimmed and limit legal liabilities
for utilities.The House and Senate could not resolve their
differences on energy legislation,so the legislation,and the ac-
companying vegetation management language,died at the end
of the 114th Congress.
s6 PubucPower.org
198
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AMERICAN
PUBLiC
w I��TM
ASSOCIATION
Powering Strong Communities
FACT SHEET January 2017
Electricity Generation
Summary Electricity Net Generation,
The 114th Congress was very active on energy issues.Various Total(All Sectors)by Source,2015
pieces of legislation were introduced that sought to address
the many Environmental Protection Agency(EPA) regulations Non Hydro Other
Renewables 0.3%
impacting electric power generation.In addition,comprehensive 7.3%
energy legislation that passed in the House and Senate,included Hydro
6.0/0
provisions on a variety of issues impacting electric generation,
such as energy efficiency(which is intended to help offset the Oily
0.7/0
need to generate from power plants),streamlining of hydro-
power regulations,wholesale electricity markets,distributed
Coal
generation,and natural gas pipeline permitting reform,among
33.1%
others.The consideration of energy policy will likely continue in Nuclear
the 115th Congress given the importance of these issues to the 19'5%
Nation.
Gas
33.1%
Background
Electricity is created from the conversion of a fuel or other
source of energy into electrons.This process occurs on a large
scale in an electricity generating plant,and on a smaller scale
through distributed energy resources.Electricity must be gener- In terms of total U.S.power generation,according to the
ated at the instant it is used,requiring forms of generation that most recent data released by the Energy Information Admin-
must be available at all times in order to"keep the lights on." istration(EIA),in 2015,coal produced 1.352 billion mega-
The primary electricity generating technologies used in the watt-hours of electricity,natural gas produced 1.349 billion
United States are coal,natural gas,nuclear,and hydropower. megawatt-hours,nuclear produced 797.1 million mega-
A small but growing portion of the generation portfolio comes watt-hours,hydro produced 244.0 million megawatt-hours,
from non-hydropower renewable sources of energy,such as non-hydro renewables produced 295.1 million megawatt-hours,
solar,wind,landfill methane gas,and geothermal power from oil provided 28.3 million megawatt-hours,and other sources
underground formations.However,many of these resources produced 14.027 million megawatt-hours.This data can also be
are not available 24 hours a day,seven days a week,and may seen in percentages in the chart on page one.
be more expensive to construct and/or operate than traditional In terms of total generation produced by public power
sources of electricity.Most of these energy sources are used to utilities(not-for-profit,publicly owned,and serving 49 million
power turbines that generate electric energy. retail customers),according to the most recent data released
Each of the various generating technologies used to produce by the EIA,in 2015,public power entities produced 148.62
electricity has its advantages and disadvantages,which is why million megawatt-hours of electricity from coal,90.96 mil-
having a diversified portfolio of fuels—particularly generation lion megawatt-hours from natural gas,64.76 million mega-
sources that can be relied on most of the time—is a priority for watt-hours from nuclear,66.76 million megawatt-hours from
electric utilities. hydro,7.9 million megawatt hours from non-hydro renewables,
PublicPower.org 19
201
and 252,000 megawatt-hours from other sources.This data can Public Power Generation,
be seen in percentages in the chart on this page.It is important by Energy Source,2015
to note,however,that public power supplies approximately 15
percent of electricity to end-users in the United States,but it Non-Hydro
only produces approximately 10 percent of the megawatt-hours Renewables Other
generated.So,end-use public power utilities as a whole are net 2.1°A 0.1
purchasers of power from other sources(i.e.,investor-owned
utilities,independent power producers,joint action agencies,
rural electric cooperatives,federal power marketing administra-
tions,and the Tennessee Valley Authority). Nuclear``
17.1%,
Coal
Challenges Faced by Some of the 39.2%
Major Fuel Sources:
Coal Gas
Some fuel types face challenges not commonly contemplated 24.0%
or discussed when referencing such fuels. For example,when
most people think of coal,they tend to focus on its emissions
of carbon dioxide(CO2)and criteria pollutants(such as sulfur
dioxide(SO2) and nitrogen oxides(NOx))resulting from coal tricity generation in 2015.It is a reliable source of"base-load"
combustion.However,for utilities that depend heavily on coal, (available most of the time)energy that can expand.However,
they must also take into account transportation issues associated the amount of electricity generated from this source will always
with coal.Approximately 33.1 percent of the nation's electric- depend on droughts and other hydrologic conditions that im-
ity was generated from coal in 2015,the majority of which is pact various parts of the country and world.
shipped by rail.A substantial amount of that coal has only one While hydropower is expanding into exciting new areas
railroad option,and in most cases,only one viable transporta- like tidal and in-stream,large dams still provide the bulk of
tion option available for all or a portion of its shipment.There- the resource,and the impacts of those dams on fish and other
fore,a large amount of coal shipped for electricity generation wildlife will continue to be a concern for some stakeholders.
is"captive"to a single railroad and the costs of making that Furthermore,as environmental mitigation measures have been
shipment are frequently unreasonable,reflecting the monopolis- addressed,hydropower output from these large dams has been
tic power of the carrier. For more information,see the American reduced.Also,federal permitting has been and will continue to
Public Power Association's(Association or APPA)issue brief, be a hurdle to any new hydropower development,large or small.
"Rail Competition and Antitrust Enforcement." With less than three percent of the nation's more than 80,000
Several factors have worked to erode the advantage that coal- dams generating electricity,this is problematic.
fired generation has historically derived from its traditionally
lower fuel costs.These factors include the cost of compliance Natural Gas
with current and proposed environmental regulations and lower Natural gas was responsible for 33.1 percent of total U.S.gen-
natural gas prices because of the increased domestic supply of eration in 2015 and 24 percent of total public power generation
natural gas discovered in recent years. Coal also faces the major in the same year.Natural gas is used across all sectors,in varying
obstacle of its CO2 content and the current lack of technology amounts.The chart on page three gives an idea of the propor-
to capture and sequester CO2 on a commercial scale from pow- tion of natural gas use per sector.In 2015,the electric power
er plants.The major unknown going forward is the viability of sector accounted for the greatest proportion of natural gas use
carbon capture and sequestration or another,unknown technol- in the United States,with the industrial sector consuming the
ogy that may reduce the CO2 emitted from coal combustion. second greatest quantity of natural gas.
The demand for natural gas in the electric sector has grown
Hydropower and will continue to grow.This is partly a result of large
Hydropower is the nation's largest source of emissions-free, amounts of natural gas capacity built by merchant generators in
renewable electricity,accounting for approximately 45 percent regional transmission organization(RTO) regions because of:
of domestic renewable generation and 6.0 percent of total elec- 1) lower capital costs;and 2)faster build time.The increased de-
20 PublicPower.org
202
mand is also due to the lower CO2 emissions profile of natural Another issue is increased regulatory burdens due to new
gas(it produces approximately half the CO2 emissions as that or expected rules from the Nuclear Regulatory Commission
produced by coal,on average). (NRC)and EPA. In the aftermath of the Fukushima Daiichi
As for electric generation usage,natural gas can be used to accident in Japan,the NRC issued several safety-related rules
generate electricity in a variety of ways.The most basic natural which have a large cumulative cost.The cumulative effect of
gas-fired electric generation consists of a steam generation unit, these regulations will impose significant additional costs with
where natural gas is burned in a boiler to heat water and pro- minimal safety upgrades,both of which could be a challenge for
duce steam,which then turns a turbine to generate electricity. the nuclear power industry.
Gas turbines and combustion engines are also used to generate The construction of new,large-scale,nuclear facilities also
electricity.In these types of units,instead of heating steam to faces challenges,such as the ability of the owners to get financ-
turn a turbine,hot gases from burning fossil fuels(particularly ing and the regulatory approvals necessary to move forward but,
natural gas)are used to turn the turbine and generate electricity. despite these challenges,three new large nuclear facilities are
Despite these benefits,concerns with natural gas include either operating or close to operating as of this writing.These
significant historic and anticipated price volatility,infrastructure new facilities have moved forward because nuclear energy pro-
costs,the need for additional pipeline construction in certain duces no CO2 or air emissions(e.g.,SO2 and NON),and is an
parts of the country,the need for operational and scheduling extremely reliable source of base-load generation once the power
modifications for natural gas delivery to electric generators, plants are up and running.
limitations on natural gas storage capabilities,and emissions. A promising new technology that might spur even more new
nuclear is that of small modular reactors(SMRs).These smaller
Nuclear scale plants are less expensive and require less infrastructure.
Nuclear was responsible for 19.5 percent of total U.S. Several APPA members are actively exploring deployment of this
generation and 17.1 percent of total public power generation technology.
in 2015.The main challenge associated with existing nuclear
facilities is the disposal of nuclear waste,which has been a highly Oil
politicized issue.Nuclear facilities also have high capital costs Oil was responsible for 0.7 percent of total U.S.generation and
given the complexity of the units and safety features that must 0.1 percent of total public power generation in 2015. In the
be included and monitored on an ongoing basis, continental United States,oil is primarily used for emergencies,
Natural Gas Consumption by Sector
Batson CA4 u.:Feet
12 WC
MOO
7 scc
S
.',1/►'
2S
o
tau 196tI 19;o ta8ti 490 2e00 �(7tCk
—Natural abs Consumed by the Residental Sector Natural Gas Consumed by Me C;xnrnemal Sector
—Natural Gas Consumed by the In/Arabia!Sector,'rotat Natural Gas Consumed by the Transporat on Sec to%Total
--Natural Gas Consumed by the Elerdiic Penner Sector
Source:U.S.Energy Information Administration
PubUcPower.org 21
203
peak shaving,and as a source of backup generation in times of the need to build less new generation,reduced air pollution and
high electricity demand. It is also used as base-load generation greenhouse gas emissions and,in some cases,mitigation against
in areas which have limited access to other generation resources, outages on the distribution grid.For more information on solar
such as Alaska and Hawaii,and the territories of the United DG,see APPA's issue brief,"Solar Distributed Generation."
States. (Note however,that the latter are not included in EIAs
data.)
American Public Power Association Position
Non-Hydro Renewables Every fuel type has its advantages and disadvantages that require
Non-hydro renewables were responsible for 7.3 percent of total substantial risk management planning.Therefore,it is very
U.S.generation and 2.1 percent of total public power gener- important for today's electric utilities(where possible) to have
ation in 2015.The main challenges facing non-hydro power a balanced generating portfolio with multiple fuel types.An
renewables are:the intermittent nature of wind and the sun;the over-reliance on one fuel can and will create potential risk that
need to have them backed up with base load generation(typical- could substantially increase prices to consumers and reduce
ly natural gas);limited access to transmission lines;and financ- reliability.The Association supports federal policies that support
ing. Recent concerns about integrating wind have arisen due to and promote such fuel diversity in electric generation.
the fact that the wind often blows when demand is not high,
which thereby requires a ratcheting down of other resources that
can often be uneconomic and cause stresses to the operation of American Public Power Association Contact
a regional or sub-regional system.Most renewable resources, Steven Medved, Government Relations Coordinator,
however,do not emit pollutants or CO2 and their ongoing fuel 202-467-2928/smedved@publicpower.org
costs are low or non-existent.
Paul Zummo, Director,Policy Research and Analysis,
Distributed Generation 202-467-2969/pzummo@publicpower.org
Interest in distributed generation(DG)has increased over the
last few years.As of October 2016, 12.6 gigawatts(GW) of
distributed solar capacity has been installed in the U.S. DG is
power produced at the point of consumption.More than ninety The American Public Power Association is the voice of
percent of DG is rooftop solar,but it can include small wind not-for-profit,community-owned utilities that power
turbines,combined heat and power,fuel cells,microturbines, 2,000 towns and cities nationwide.We represent pub
and other sources. Under a policy called net-metering,cus lie power before the federal government to protect the
tomers with on-site generation are credited for the amount of interests of the more than 49 million people that public
kilowatt-hour sales sold back to the distribution grid.This rate power utilities serve,and the 93,000 people they em
can vary per utility,but is generally set the at the retail rate,as ploy.Our association advocates and advises on electricity
opposed to the wholesale rate,which is the rate utilities use to policy,technology,trends,training,and operations. Our
members strengthen their communities by providing
purchase power for their customers.
Due to this rate structure,concerns have arisen that net superior service,engaging citizens,and instilling pride in
metering customers are not paying their fair share of the costs community-owned power.
of keeping the grid operating safely and reliably.DG also has
operational issues that pose challenges for utilities,such as
maintenance of electric grid system balance,safety issues for
line-workers,load forecasting impairment,and increased strain
on the distribution system.Potential benefits of DG include
22 PublicPower.org
204
AMERICAN
PUBLIC
�RTM
ASSOCIATION
Powering Strong Communities
ISSUE BRIEF January 2017
Solar Distributed Generation
Summary each of which should be addressed at the local and state level.
In a shift from the traditional electric power paradigm,utili- For example,too much DG can create excess demand at a
ties and utility customers are installing distributed generation substation,causing power to flow from the substation to the
(DG) facilities that employ small-scale technologies to produce transmission grid and increasing the likelihood for high voltage
electricity closer to the end use of power.Driving this exponen- swings and other stresses on electric equipment.DG may
tial growth is the dramatic decrease in the price of solar panels, also contribute to lineworker safety issues such as"islanding,"
as well as state,federal,and utility incentives for solar panel when the DER continuously energizes a feeder even though
installations and state renewable portfolio standards(RPS). the utility is no longer supplying power due to an outage or
other cause.In addition, DG is more difficult to monitor and
Use of DG resources may offer numerous benefits,including
avoided generation capacity costs(e.g.,less need to build new may impact load forecasts,and,in rare circumstances,this may
generation),avoided transmission costs,less need for backup lead to outages and blackouts.Finally,DG may place increased
power,and neutral environmental impacts,but it may also pose strain on distribution systems since DG customers rely on the
operational and economic challenges to electric utilities and transmission,distribution,and generation systems more than
electric power customers.The American Public Power Associ- non-DG customers. Utilities will have to make capital invest
ation(Association or APPA)believes that solar DG can play ments to address these potential strains on the system,and these
an important role in helping meet energy needs and achieving costs may be borne by both DG owning and non-DG-owning
environmental goals so long as solar DG customers pay their electric customers.
fair share of the costs of keeping the grid operating safely and Along with the abovementioned operational problems,
reliably.Thus,the Association supports the integration of DG increased DG use may cause economic issues as well.Subject to
resources,including community solar projects,to meet custom- applicable state or local laws,most electric utilities compensate
er requests or utility goals. However,as rate design for DG must DG producers through net metering.Under a net metering
take into account a utility's technical limitations and geographic program,a utility will credit customers with on-site generation
considerations,the Association opposes attempts by Congress or for their kilowatt-hour(kWh) sales to the grid and charge them
federal agencies to federalize standards for DG implementation for periods when electricity consumption from the grid exceeds
or rate designs,both matters of state and local,retail regulation. their generation(or the net difference between consumption
and generation).Under most net-metering programs,the
customer is both charged and credited at the utility's full retail
Background rate of electricity,thus potentially over-compensating distribut-
Distributed energy resources(DER)include,among others, ed generators with a value of generation that is higher than the
solar photovoltaic(PV),small wind turbines, combined heat utility's avoided cost.Some states and non-regulated utilities
and power(CHP),fuel cells,and micro turbines. Use of DG have designed alternative compensation schemes to appropriate-
resources may reduce the need for new utility generation assets ly value the full costs associated with DG production,includ
and the procurement of ancillary services,allow utilities to avoid ing: increased customer charges for fixed costs,declining block
energy charge structure,residential demand charges according
higher transmission costs by reducing peak demand,reduce
air pollution emitted by traditional fossil fuel-fired generation, to peak kW usage,time based pricing,and standby rates.Still,
and assist utilities in hedging against widespread power outages. many regulators(states,localities,and non-regulated utilities)
Despite these potential benefits, DG may also create operational have not implemented compensation schemes that properly
and economic issues for electric utilities and power customers, account for certain fixed charges,and this may create aneco-
PubUcPower.org 23
205
nomic burden for both utilities and power customers.Commu- today's technology and customers'priorities.While certain FPA
nity solar projects owned,in part,by consumers of the electric- revisions may be warranted to address outdated provisions,the
ity produced by these facilities,may allow utilities to apportion Association would oppose any attempt by Congress to extend
costs and reduce variability of the system,thus addressing several federal jurisdiction over DG ratemaking or interconnection pro-
of the issues associated with using DER. cesses.Pursuant to the FPA and subsequent amendments,the
In 2015 and 2016,energy legislation in the Senate and transfer of electric energy from the DG producer to an end-use
House included provisions related to DER,including solar DG. utility customer is a retail transaction that must be regulated at
H.R. 8,the North American Energy Security and Infrastructure the state or local level.
Act,included language that would have created a new federal
standard under Section 111(d)of the Public Utilities Regulatory
Policies Act(PURPA)requiring states and non-regulated utili- American Public Power Association Position
ties to consider mandating that on receipt of a request,electric APPA believes that DG can and should play an important role
utilities would offer interconnection service and net billing in public power's renewable energy portfolio,and it supports
service to community solar facilities.APPA and others in the members'efforts to safely and effectively install and facilitate the
electric industry opposed this provision because it was duplica- use of DER.In order to continue fostering the growth of DG,
tive of standards added to PURPA Section 111(d) in 2005 on the Association believes that it is important that DG customers
net metering and interconnection.It also failed to recognize that pay their fair share of costs to keep the grid operating safely
these community solar facilities should pay for their use of the and reliably.Thus,rate structures should be designed to reflect
power grid and ignored retail electric laws in states without retail costs and assure that those who benefit from the grid are sharing
competition.S.2012,the Energy Policy Modernization Act,did the costs associated with building and maintaining it.Because
not include any PURPA must-consider requirements,but did community solar projects may address several issues associated
include language directing the Department of Energy(DOE)to with DG usage,the Association is a proponent of this type of
undertake net metering studies.APPA had concerns that studies ownership structure for DG facilities.APPA opposes attempts
could lay the groundwork for future federal net metering policy. by the federal government to nationalize rate design and distri-
Despite several months of negotiations between the House and bution-related matters that have traditionally been governed by
Senate to resolve differences between their energy bills,Congress state and local laws.Finally,the Association supports efforts to
did not pass comprehensive energy reform legislation. protect consumers from deceptive or misleading sales practices
Still,electric power regulators may now be facing jurisdic- by third-party DG leasing companies
tional challenges from the federal government.The Federal
Power Act(FPA),the statute that governs the bulk power
system,ascribes to the Federal Energy Regulatory Commission American Public Power Association
(FERC) the authority to regulate the interstate sale of energy,or Contacts
the sale of energy across state lines.On the other hand,the FPA Desmarie Waterhouse,Vice President,Government Relations,
reserves for the states the power to regulate the intrastate sale of &Counsel,202-467-2930/dwaterhouse@publicpower.org
power,or the sale of energy within the state,which is the source
of authority for states and localities to value DG.Also,PURPA Andrew Wills,Government Relations Director&Counsel,
imposed on each public utility,subject to minor exceptions,the 202-467-2959/awills@publicpower.org
requirements to purchase capacity and energy from certain gen-
erators at the"avoided cost"and to sell needed power services to
the generator.Since the most recent amendments to the FPA in The American Public Power Association is the voice of
the Energy Policy Act of 2005,FERC has issued several orders not-for-profit,community-owned utilities that power
aimed at exercising some level of authority(beyond PURPA) 2,000 towns and cities nationwide.We represent pub-
over electricity produced at the distribution level.In addition lic power before the federal government to protect the
to FERC laying jurisdictional claims on issues traditionally left interests of the more than 49 million people that public
to the states,the U.S.Supreme Court has issued several major power utilities serve,and the 93,000 people they em- -
decisions suggesting that the limits on FERC's jurisdiction may ploy. Our association advocates and advises on electricity
extend beyond interstate wholesale sales of electricity and into policy,technology,trends,training,and operations. Our
the sphere of local retail energy sales. members strengthen their communities by providing
On September 7,2016,the House Energy and Commerce superior service,engaging citizens,and instilling pride in
Committee's Subcommittee on Energy and Power held a hear- community-owned power.
ing to examine whether it needs to be revised in keeping with
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ASSOCIATION
Powering Strong Communities
ISSUE BRIEF January 2017
Hydropower
Summary Given these characteristics,hydropower plays a significant part
in ensuring reliable,zero emissions electric service at low-cost.
Hydropower accounts for a significant portion of the nation's
electricity supply,and is the most abundant source of renewable Despite the beneficial use of hydropower,most dams were
energy.Because the fuel(water)that turns the turbines to make built decades ago for purposes other than power generation,
electricity in a hydroelectric plant is essentially free,the cost of such as for flood control,crop irrigation,or storage of municipal
operating a hydropower facility is relatively low compared to water supplies—only three percent of the country's approx-
imately sources.There is a huge opportunity to develop addi imately 80,000 dams currently have facilities that generate
electricity. Given this situation,there is substantial potential
tional hydropower resources throughout the nation,much of
that at existing dams.There is also a wide and growing array of for adding renewable electric generation to non-powered dams
hydropower technologies and projects that have the potential to by installing electricity generation equipment at those sites.
further increase this reliable,low-cost,non-emitting domestic Analysts at the Oak Ridge National Laboratory found that
source of energy. 12,600 megawatts(MW) of new,emissions-free hydropower
At the same time,there are a number of regulatory,financial, can be generated at non-powered dams throughout the country.
and other barriers impeding the commercial development of this Also,there is potential to dramatically increase the hydropower
output in existing municipal,industrial,and agricultural water
hydropower potential. In the previous two Congresses,Congress
started to focus its attention on removing these barriers through distribution conduits/canals in the U.S.This untapped poten-
the passage of legislation addressing small hydropower and by tial could significantly increase the more than 98,000 MW of
introduction of new legislation addressing existing hydropower, hydropower capacity already operating in the U.S.The modern-
It also held hearings to examine these issues.The American Pub-
lie
of existing hydroelectric generation equipment to increase
lie Power Association(Association or APPA)supports legislative its capacity is also one of the most near-term,cost-effective,
and regulatory efforts to remove or reduce these barriers and and environmentally friendly means of developing additional
facilitate the development of additional hydropower resources. hydropower.
Other forms of hydropower can also be developed or further
developed in the U.S.as well,including pumped storage(cur-
Background rently the only significant,economically viable way to"store"
Hydropower is the nation's largest source of emissions free, electricity),hydrokinetic turbines,tidal,and wave technologies.
renewable electricity,accounting for 45.3 percent of domes-
tic renewable generation and 6.0 percent of total electricity
generation according to the most recent Energy Information Licensing and Regulatory Reform
Administration data from 2015.It is a reliable source of energy, The Federal Energy Regulatory Commission(FERC)is the
being available most of the time,unlike some other renewable primary federal agency responsible for the licensing of non-fed-
resources.Furthermore,hydroelectric generators can be started eral hydroelectric projects.Under the Federal Power Act,FERC
is authorized to issue licenses for construction,operation,and
or stopped quickly,which makes them more responsive than
most other energy sources for meeting demand for electricity at maintenance of hydropower projects.FERC also issues licenses
its"peak"or highest volume.These units also often have"black for the continuance of existing projects(relicensing),overseeing
start"capability that makes them especially valuable in restoring related environmental matters,and"oversight of all ongoing
power when there are widespread outages or disruptions on project operations,including dam safety inspections and envi-
the system—this capability allows the generating units to cycle ronmental monitoring."
back on quickly if they have been tripped off in a power outage.
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Many developers of hydropower projects consider FERC's during the 114th Congress.Two public power utility repre-
licensing process to be long and difficult,believing that it sentatives from Snohomish Co. PUD and Turlock Irrigation
constitutes a significant impediment to the development of new District(members of the Association)testified on the difficulty
hydropower facilities.Hydropower project developers must each of their utilities have had relicensing hydro projects that
comply with a plethora of regulatory requirements.For many are important sources of non-emitting power in their generation
small and low-head hydropower projects,the costs of meeting portfolios.
environmental regulations and connecting to the electric grid
can constitute a considerable barrier.
Small hydro projects must obtain a FERC license or license American Public Power Association Position
exemption,which can be a long and complicated process. The Association strongly encourages Congress to continue to
FERC's licensing exemption process for facilities of five mega- pursue legislation that would cut the length,duplicative,and,at
watts(MW)or less requires studies and documentation,the times,contradictory regulatory processes for relicensing existing
costs of which often exceed the costs of installing the generating hydropower projects.APPA supports requiring all resource
unit itself.Endangered Species Act considerations,water quality agencies with mandatory conditions for a facility to work
issues,marine navigation,and numerous other concerns must together under the designated schedule thereby reducing waste,
all be satisfied for licensing of a new hydro project,which can improving decision-making,and reducing the potential for con-
take several years.Further,the mandatory conditions imposed flict.The Association also supports requiring resource agencies
on hydropower projects of all sizes from state and federal agen- to clearly define the objective of each mandatory condition with
cies,some of which have nothing to do with the project,have an accompanying rationale and disclosure of impacts in an open
been extremely detrimental to the process and,in some cases, and transparent manner thereby adhering to the same standard
have stopped development of given projects due to the econom- of disclosure and explanation required of the licensee and other
is impacts of those conditions. Restructuring of this process is parties submitting mandatory conditions.Streamlining the
needed. multi-agency inefficiencies associated with hydropower develop-
ment on federal projects is also necessary.
Finally,APPA continues to support legislation,programs,
Congressional Action incentives,and initiatives that spur new hydropower devel-
The House and Senate versions of comprehensive energy legis- opment,including hydrokinetic,pump storage,low-impact,
lation in the 114th Congress included bipartisan hydropower constructed waterways,non-hydro dams,and the expansion of
licensing reform provisions.In the House,an amendment existing projects.
sponsored by Representatives Cathy McMorris Rodgers(R-WA)
and Jerry McNerney(D-CA)passed by voice vote during the
markup of H.R. 8,the North American Energy Security and American Public Power Association Contact
Infrastructure Act of 2015,in the fall of 2015.In the Senate, Amy Thomas,Government Relations Director,202-467-2934/
a hydropower licensing reform amendment was included in athomas@publicpower.org
S.2012,the Energy Policy Modernization Act,introduced by
Energy&Natural Resources Committee Chairman Lisa Mur-
kowski(R-AK). Both bills sought to modernize and improve
the hydropower licensing and relicensing process to make it The American Public Power Association is the voice of
more efficient and transparent while maintaining environmental not-for-profit,communityowned utilities that power
protections.APPAs President and CEO,Sue Kelly,testified on 2,000 towns and cities nationwide.We represent pub
May 19,2015,in the Senate Energy&Natural Resources Com- lic power before the federal government to protect the
mittee on the need for hydropower licensing and relicensing interests of the more than 49 million people that public
reforms,and in support of the concepts included in discussion power utilities serve,and the 93,000 people they em-
drafts of legislation on which S.2012 was based.Unfortunately, ploy. Our association advocates and advises on electricity
the energy bill conferees were unable to resolve their differences policy,technology,trends,training,and operations.Our
and the legislation died at the end of the 114th Congress.The members strengthen their communities by providing
Association encourages Congress to continue to work on these superior service,engaging citizens,and instilling pride in
issues in the 115th Congress. community-owned power.
Outside of the energy bill effort,the need for hydropower
reform was a focus of a hearing in the House Natural Resourc-
es Committee's Subcommittee on Water,Power,and Oceans
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ASSOCIATION
Powering Strong Communities
ISSUE BRIEF January 2017
U.S. Federal Power Program
Summary and Southeastern Power Administration(SEPA).These entities
The federal Power Marketing Administrations (PMAs)provide market wholesale electric power to approximately 1,200 public
power systems and rural electric cooperatives in 33 states.'They
millions of Americans served by not-for-profit public power and
rural cooperative electric utilities with cost-based hydroelectric also sell power to a number of other public agencies and federal
installations,as well as to for-profit,investor-owned utilities in
power produced at federal dams operated by the U.S.Army
years with high water flows or in special circumstances.
Corps of Engineers and Bureau of Reclamation.The PMAs
market federally generated hydropower,with a statutory right of In accordance with federal law,PMA rates are set at the levels
first refusal granted to not-for-profit entities,including public needed to recover the costs of the initial federal investment(plus
power utilities and rural electric cooperatives(called"preference interest) in the hydropower and transmission facilities.The
customers"),at rates set to cover all of the costs of generating PMAs annually review their rates to ensure full cost recovery.
None of the costs are borne by taxpayers.Power rates also help
and transmitting the electricity as well as repayment,with
interest,of the federal investment in these hydropower projects. to cover the costs of other activities authorized by these multi
Because the PMAs are part of the U.S.electricity market and purpose projects such as navigation, flood control,water supply,
are also federal entities,congressional and administrative action environmental programs,and recreation.The annual appro
in the last 20 years has primarily addressed increased federal priations process is also important to the PMAs.Although the
oversight of PMA facilities and potential ways in which the U.S. customers pay all of the PMA costs through their power rates,as
Treasury could receive additional funding from the PMAs and mentioned above,for WAPA,SEPA,and SWPA,those monies
their customers. flow back to the U.S.Treasury and then must be appropriated
Another important aspect of the federal power program is the by Congress. (BPA's governing statute,amended in the 1980s,
federally owned Tennessee Valley Authority(TVA). Congress allows for a"revolving fund"so ratepayer money goes directly to
established TVA in 1933 in the states of Tennessee,Alabama, BPA rather than to the Treasury.) In addition,the PMAs must
North Carolina,Kentucky,Virginia,Mississippi,and Geor- receive yearly funding levels from Congress for purchasing and
gia.TVA's authorizing statutes cite rural electrification,flood wheeling(transmitting)power in a drought situation or when
control,and navigation along the Tennessee River as reasons for the water at the dams is used for purposes other than for elec-
its creation.Today,TVA is a robust public power partnership, tricky production (i.e.,recreation and environmental mitiga-
providing low-cost electric power to more than nine million tion).This money for"purchase power and wheeling"will then
people in an 80,000 square mile territory.President Obama's be paid for by the PMA customers through their rates.
Fiscal Year(FY)2014 and 2015 budget proposals contained Ian- As one of the few providers of cost-based wholesale power,
guage directing the Office of Management and Budget(OMB) the PMAs serve as a yardstick against which consumers,regula-
to examine ways to reform,and possibly eliminate TVA or sell tors,and policymakers can measure the profit margin embedded
its assets.The American Public Power Association(Association in the cost of power from other sources.This is a key piece of
or APPA) opposed these proposals. market information needed to further the goal of a healthy and
1 The following states receive a portion of their power from the PMAs.BPA:
Washington,Oregon,Idaho,and Montana(part).WAPA:Arizona,California,
Background Colorado,Iowa,Kansas(part),Minnesota,Montana(part),North Dakota,Ne-
There are four Power Marketing Administrations—Bonneville braska,New Mexico,Nevada,South Dakota,Texas(part),Utah,and Wyoming.
Power Administration(BPA),Western Area Power Administra- SWPA:Arkansas,Kansas(part),Louisiana,Missouri,Oklahoma,and Texas
tion(WAPA),Southwestern Power Administration(SWPA), (part).SEPA:Alabama,Florida,Georgia,Illinois,Kentucky,Mississippi,North
Carolina,South Carolina,Tennessee,and Virginia.
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competitive marketplace.The PMAs also help to ensure market of its customers.Although TVA does currently have debt on its
diversity and lower the risks associated with consolidation of books,this debt is not tied to the federal budget deficit.More-
generation assets.Most importantly,they assist in keeping power over,the debt TVA holds currently is not unusual in the electric
rates low for millions of electricity consumers. power industry,where power plants can cost in the billions of
dollars,and are financed over 30 to 50 years.
The President's budget instruction regarding TVA triggered
Administrative and Congressional Action a great deal of negative feedback from TVA stakeholders in and
outside of Congress.A June 2014 report by Lazard Freres&
The Chu Memo Co.LLC(Lazard),a financial advisory and asset management
On March 16,2012,then-Department of Energy(DOE) Sec- firm that was commissioned by OMB to conduct a strategic
retary Steven Chu released a memo outlining proposed changes review of TVA,concluded that TVA's financial and operational
to the PMAs structure.These proposals sought to incorporate plans were sound and that TVA should not be divested from
several system-wide modifications to the PMAs to increase the the federal portfolio. Responding to this feedback,the Presi-
integration of variable resources such as wind and solar power. dent's FY 2015 budget stated that"TVA has undergone a major
In some cases,the PMAs were already undertaking several of the internal review and taken significant steps to improve its future
proposed changes,but were doing so with customer input and operating and financial performance."However,the FY 2015
the regionally specific benefits identified.Forcing all customers budget also endorsed severing or reducing federal ties with TVA,
to receive and pay for unnecessary system-wide"upgrades,"as possibly by transferring ownership to state or local shareholders.
the DOE memo envisioned,would certainly have increased the APPA continued to educate the Administration on why divesti-
cost of federal hydropower,resulting in cost increases for PMA ture of TVA would be unwise and we are pleased to report that,
customers. for the first time in four years,the President's FY 2017 budget
Congress reacted with strong concern to then-Secretary proposal made no reference of selling TVA.
Chu's memo in a bipartisan,bicameral manner.In April 2012,
166 members of Congress from the House and Senate,Repub- Hydropower Cost Allocation
licans and Democrats,sent a letter to Secretary Chu expressing Due in part to the continued tight federal fiscal environment,
that concern.Hearings on the memo were also held in the full recent years have seen a growing trend of dam operating agen-
House Natural Resources Committee.In addition,the House- cies (the U.S.Army Corps of Engineers and Bureau of Recla-
passed Energy and Water Development Appropriations bills mation)attempting to shift more and more costs to hydropower
for FY 2013 and FY 2014 included provisions to negate the customers without the concomitant benefits.The most notable
ability of Secretary Chu to carry out the memo.Secretary Chu of these efforts was at two projects in the Cumberland System
eventually abandoned most of the proposals in his memo,and in Southeastern Power Administration(SEPA) territory in 2015.
APPA believes that DOE as a general matter now has a better Under the Dam Safety Act, 15 percent of dam safety costs are
understanding of the important relationship between the PMAs deemed"joint costs"and assigned to authorized project benefi-
and their preference customers.The Association,however, ciaries,which includes hydropower customers,and 85 percent
remains vigilant in this regard,as past history has taught that are paid through the normal appropriations process.The U.S.
adverse proposals regarding the PMAs can appear without prior Army Corps of Engineers(Corps)wanted to shift the cost of
warning. the dam safety repairs to authorized project beneficiaries by
incorrectly classifying them as"major rehabilitation,"meaning
TVA Divestment that 100 percent of the costs would be considered"joint costs"
President Obama's Fiscal Year FY 2014 budget directed OMB to and disproportionately borne by power customers.Shifting the
examine ways to reform,and possibly eliminate,TVA through costs of dam safety improvements from the operating agency—
divestiture.The President's budget proposal argued that"reduc- whether it be the U.S.Army Corps of Engineers or the Bureau
ing or eliminating the Federal Government's role in programs of Reclamation—to not-for-profit customer-owned utilities is
such as TVA,which have achieved their original objectives not only unfair,but contradicts the spirit of statutes,such as the
and no longer require Federal participation,can help put the Flood Control Act of 1944 and the Reclamation Project Act of
Nation on a sustainable fiscal path."The premises underlying 1939,which direct federally operated dams to market power to
this budget instruction—that TVA is unnecessary and negatively "preference"customers(not-for-profit utilities get a right of first
impacting the federal budget—are incorrect.TVA ceased receiv- refusal to purchase power from federal dams)at the lowest cost
ing money from the federal government in 1959,is now fully possible consistent with good business practices.Moreover,such
funded through electric sales and power bond financing,and a shift could make the emissions-free,reliable,and affordable
has continually reformed itself to respond to the changing needs hydropower produced at these projects uneconomic.
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APPA joined PMA stakeholders from across the country and in ways that could result in substantial,unjustified electric rate
in Congress to push back against the Corps effort which,if suc- increases for public power utilities,create adverse economic
cessful,would have set a very bad precedent for cost allocation impacts,or reduce competition. Finally,the Association strongly
in other PMA regions. On October 2,2015,DOE announced opposes any efforts to disproportionately assign costs to federal
new rates for the Cumberland System that correctly applied the hydropower users for which they receive no additional benefits.
Dam Safety Act,meaning that 15 percent of dam modification
costs are allocated to project beneficiaries(including hydro-
power customers).This was a significant win for hydropower American Public Power Association Contact
customers.That said,public power must remain vigilant,as a Amy Thomas,Government Relations Director,202-467-2934/
caveat was included in the announcement: "...Southeastern athomas@publicpower.org
wishes to make clear that interagency discussions of this issue re-
main ongoing.If,as a result of those discussions,other relevant
federal agencies provide a factual and legal basis for a contrary
determination,the applicability of the Dam Safety Act would be The American Public Power Association is the voice of
reconsidered." not-for-profit,community-owned utilities that power
2,000 towns and cities nationwide.We represent pub-
lic power before the federal government to protect the
American Public Power Association Position interests of the more than 49 million people that public
The Association supports the continued existence and federal power utilities serve,and the 93,000 people they em-
ownership of the PMAs and TVA,the sale of federally generated ploy. Our association advocates and advises on electricity
hydropower at cost-based rates,increased customer involvement policy,technology,trends,training,and operations.Our
in funding critical operation and maintenance activities,and in- members strengthen their communities by providing
creased federal emphasis on funding these same activities.APPA superior service,engaging citizens,and instilling pride in
also continues to strongly oppose any action by Congress or the community-owned power.
Administration that would modify the federal power program
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ASSOCIATION
Powering Strong Communities
ISSUE BRIEF January 2017
Nuclear Power
Background Spent Nuclear Fuel
Nuclear power is the nation's largest source of emissions-free The United States has long searched for a solution to address
electricity,accounting for 60 percent of domestic emission-free the back end of the nuclear fuel cycle(also referred to as spent
electricity generation and 19.5 percent of total electricity nuclear fuel or"nuclear waste").In 1982,Congress passed the
generation. It is a reliable source of baseload(i.e.,available most Nuclear Waste Policy Act(NWPA),which assigned responsibil-
of the time)energy.Given these characteristics,nuclear plays a ity to DOE to site,construct,and operate a final repository for
significant part in ensuring reliable,zero-emissions electricity spent nuclear fuel.In 1987,Congress amended the NWPA and
service. designated Yucca Mountain as the sole site for DOE to consider,
Overall,public power utilities in 2015 generated 17.1 after conducting studies of nine potential sites.
percent of their electricity from nuclear power. Public power As part of the NWPA,a surcharge of one-tenth of one cent
utilities both own and operate nuclear reactors outright,or part- was placed on electricity produced from nuclear power plants
ner with other utilities to co-own a facility. In addition,public to fund the federal government's efforts to construct the final
power utilities receive power from nuclear power plants through depository.Nuclear energy consumers,through this surcharge,
bi-lateral contracts,indirectly through electricity markets,or in paid a total of$30 billion into the nuclear waste fund,or more
the case of those located in the Tennessee Valley,by purchasing than$750 million per year.In 2008,DOE began pursuing
power generated by the Tennessee Valley Authority(TVA), a license with the Nuclear Regulatory Commission(NRC or
which owns and operates several nuclear power plants. Commission)to construct a facility at Yucca Mountain.How-
The American Public Power Association(Association or ever,despite spending nearly$15 billion dollars on the project,
APPA)supports the continued use of nuclear power,a key the Obama administration,in 2009,eliminated funding for the
source of baseload,emissions-free electricity.The Association project and in 2010,DOE moved to withdraw its license.
believes the federal government should make the construction Due to the federal government's failure to fulfill its obli-
of an interim storage facility for nuclear waste in a willing host gations under the NWPA to construct a repository,the U.S.
community a priority.The Department of Energy(DOE)must Court of Appeals for the D.C. Circuit,in 2013,ordered DOE
also follow its statutory obligations and construct a final repos- to zero out the nuclear waste fee.DOE complied with the order,
itory for nuclear waste,whether at Yucca Mountain,or another and as of May 2014,no longer collects the fee.Separately,on
location.Federal policies should be enacted to facilitate the con- August 13,2013,the court also ordered the NRC to use already
struction of new nuclear facilities and further the development obligated funds to resume its review of DOE's license,which the
of small modular reactors(SMR).APPA also believes that the Commission had stopped in 2010.
federal government should allow the public power co-owners of In 2014,NRC staff finished a five volume safety evaluation
the two nuclear plants currently under construction in South report and found Yucca Mountain to be a safe location for the
Carolina and Georgia to allocate their portions of the pro- long-term storage of spent nuclear fuel. However,the reports
duction tax credit(from which,as not-for-profit utilities,they recommended against NRC approval of the site until land and
derive no direct benefit) to other co-owners. water rights are acquired and a supplement to DOE's environ-
mental impact statement(EIS)has been completed.While the
NRC has been pressed to use its own funds to complete the EIS,
it is unlikely that other necessary actions for approval will be
completed without DOE cooperation or congressional action.
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In 2010,the Obama Administration formed the Blue power utility or cooperative to reallocate its allocation of the
Ribbon Commission on America's Nuclear Future(BRC) to PTC to an investor-owned utility project co-owner or an entity
conduct a comprehensive review of policies for managing the engaged in the design or construction of the project in a manner
back end of the nuclear fuel cycle.The BRC released its report agreeable to each party.The Association also believes the placed-
in 2012,which contained eight key recommendations.APPA, in-service date currently in the statute that limits by when
along with the National Association of Regulatory Utility Corn- facilities can claim the nuclear PTC should be eliminated.This
missioners(NARUC),Nuclear Energy Institute(NEI),Nuclear will enable new nuclear that may not be in service by the end of
Waste Strategy Coalition(NWSC),National Rural Electric Co- 2020 to claim the remaining credits,thus fostering the construc-
operative Association(NRECA),and Edison Electric Institute tion of new nuclear generation,the intended policy goal of this
(EEI) endorsed the report.The Association also supports the provision in EPAct05.
construction of a final repository for nuclear waste,including, On April 7,2016,APPA joined other trade associations,
but not limited to,Yucca Mountain. EEI,NEI,NRECA,and the Large Public Power Council,in a
On March 24,2015,President Obama signed a memoran- letter to Senate Finance Committee Chairman Orrin Hatch(R-
dum authorizing the Secretary of Energy to develop separate re- UT)and Ranking Member Ron Wyden(D-OR)supporting the
positories for high-level radioactive waste resulting from atomic needed aforementioned fix to the advanced nuclear production
energy defense activities and waste produced at nuclear power tax credit.
plants. By authorizing the"de-commingling"of civilian and
nuclear waste,President Obama reversed a policy that was set
by President Reagan in 1985 that essentially provided blueprints Small Modular Reactors
for the development of the Yucca Mountain site as a permanent SMRs,currently under development,have the potential to be an
repository for nuclear waste.Currently,most defense waste, important addition to America's energy mix.SMRs are nuclear
which makes up about 15 percent of nuclear waste inventory, reactors that can generate up to 300 megawatts of power and
is stored at the Hanford Nuclear Reservation in Washington, can be linked together to provide incremental power as load
Idaho National Laboratory in Idaho,and Savannah River Site in grows.SMRs can yield significant economic,energy security,
South Carolina.The Obama Administration believed the memo and environmental benefits.They are expected to be attractive
would help make it easier to locate and license a permanent site options for generating electricity from an energy source that
for the storage of defense waste. Supporters of Yucca Mountain does not emit greenhouse gases and can provide utilities with
were concerned that this reversal of policy was another attempt flexibility with regard to scalability and plant siting.
by the Obama Administration to stop any efforts to develop the DOE has provided funding for the accelerated development
site in Nevada. and commercialization of SMRs.They will provide utilities
with another carbon dioxide emissions-free resource and should
therefore be a significant component of future energy plans.
Nuclear Production Tax Credit On February 19,2016,DOE announced an agreement to
As part of the Energy Policy Act of 2005 (EPAct05),Congress support possible siting of an innovative SMR project at its Idaho
created the nuclear production tax credit(PTC)to facilitate National Laboratory(INL).The Site Use Permit allows APPA
the construction of new nuclear plants.While investor-owned member,Utah Associated Municipal Power Systems(UAMPS),
utilities(IOU)are able to take advantage of the nuclear PTC, to access the INL site to analyze environmental,safety,and
public power utilities and rural cooperatives cannot,due to their siting conditions to identify potential locations suitable for
not-for-profit status. However,public power utilities and rural building its Carbon Free Power Project(CFPP).
cooperatives have partnered with IOUs in the construction of
new nuclear plants.
Public power utilities are critical partners in the construction Congressional Action
of new reactors for a variety of factors,including having the best In the 114th Congress,several nuclear-related bills were intro-
credit ratings in the electric utility industry.When public power duced.Senators Lamar Alexander(R-TN),Lisa Murkowski
utilities(and rural cooperatives)and IOUs partner to construct (R-AK),Diane Feinstein(D-CA),and Maria Cantwell(D-WA)
and co-own a new nuclear plant,the PTC is divided among the introduced S. 854,the Nuclear Waste Administration Act of
plant's owners on a pro-rata basis.The part apportioned to the 2015.The legislation sought to implement the BRC's recom-
non-profit owner is not usable,and,therefore,languishes— mendations to establish a Nuclear Waste Administration and
providing no benefit to electric customers and eliminating the create a consent-based process for siting nuclear waste facilities.
incentive intended by Congress.APPA believes that Congress Senators Harry Reid(D-NV)and Dean Heller(R-NV)intro-
should modify the PTC for nuclear facilities to permit a public duced S.691,the Nuclear Waste Informed Consent Act.The
32 PubUcPower.org
214
legislation would have required the governor,affected counties American Public Power Association Position
and cities,and affected tribes to sign off before the Nuclear APPA supports the construction of a consolidated interim
Regulatory Commission could authorize construction of a nu- storage facility in a willing host community in the next 10 years.
clear waste repository.Companion legislation(H.R. 1364)was The Association also supports the creation of a congressionally
introduced in the House by Representatives Dina Titus(D-NV) chartered federal corporation dedicated to implementing the
and Joe Heck(R-NV). waste management program and the construction of a final
Also in the 114th Congress,Senate Environment and Public repository for nuclear waste,including,but not limited to Yucca
Works Committee Chairman Jim Inhofe(R-OK)introduced Mountain.
S.2795,the Nuclear Energy Innovation and Modernization Furthermore,APPA urges Congress to modify the PTC for
Act.The legislation would have helped the NRC prepare for nuclear facilities to permit a public power utility to transfer or
the future by establishing new transparency and accountability sell its allocation of these tax credits to an investor-owned utility
measures on its budget and fee programs and ensure the NRC project co-owner in a manner agreeable to each party,as well as
was able to develop the regulatory framework necessary to eliminate the placed-in-service date.In addition,the association
enable the licensing of advanced nuclear reactors.It would also supports federal efforts to further the development of SMRs,
have established performance metrics and reports to Congress including the licensing and commercialization of SMR technol-
to improve transparency into the timeliness of decision making. ogies for the use of electric utilities in the U.S.
A hearing was held on the legislation on April 21,2016.H.R.
4979,the Advanced Nuclear Technology Development Act of
2016,was approved by the House on September 12,2016.This American Public Power Association Contact
legislation by Representatives Bob Latta(R-OH) and Jerry Mc Cory Toth,Government Relations Director,202-467-2939/
Nerney(D-CA),would have required DOE and NRC to work
ctoth@publicpower.org
together to provide certainty for the development of advanced
nuclear technology.
Lastly,in the House,Reps.Tom Rice(R-SC)and Earl Blu-
menauer(D-OR)introduced H.R. 5879,legislation that would The American Public Power Association is the voice of
have allowed not-for-profit utilities,including public power not-for-profit,community owned utilities that power
utilities,to assign their allocation of credits to entities with tax 2,000 towns and cities nationwide.We represent pub-
obligations that are involved in the project.The bill would also lic power before the federal government to protect the
have removed the placed-in-service deadline for claiming the interests of the more than 49 million people that public
nuclear production tax credit(currently the end of 2020).H.R. power utilities serve,and the 93,000 people they em-
5879 passed the House Ways&Means Committee on Sep ploy. Our association advocates and advises on electricity
tember 21,2016,but was not considered by the full House of policy,technology,trends,training,and operations. Our
Representatives. members strengthen their communities by providing
superior service,engaging citizens,and instilling pride in
community-owned power.
PubUcPower.org 33
215
34 PubLicPower.org
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AMERICAN
PUBLiC
POWER..
ASSOCIATION
Powering Strong Communities
ISSUE BRIEF January 2017
Rail Competition and Antitrust Enforcement
Summary of shippers,from farmers to chemical manufacturers to defense
Electric utilities rely on rail transportation to move the vast contractors,have experienced these same problems.In the last
majority of coal from mine mouths to power plants.Many few years,utilities have experienced extensive issues receiving
coal-burning electric utilities have no choice but to receive their coal shipments on time(as have other commodities groups
coal shipments from only one rail carrier,and thus are subject with their products),leading to concerns about electric reliabil-
to monopolistic behavior.As a result,these rail customers are ity due to the dwindling size of coal stacks.These service issues
are only exacerbated by the railroads'anticompetitive practices.
unable to negotiate the terms of their rail transportation in an
open and competitive market.These"captive"rail customers are The monopoly power of the railroads over captive shippers
charged higher rail rates while customers with more than one vi- has grown dramatically in the last 36 years.Since 1980,the in-
able transportation option pay lower,competitively priced rates. dustry has been reduced from 42 major carriers to five,with 95
Over the past several years,rail customers also have experienced percent of the market share dominated by four carriers.In 1995,
Congress abolished the Interstate Commerce Commission and
numerous service and reliability problems,with no relief.
The American Public Power Association(Association or gave the newly created STB authority over the rail industry for
APPA)and its members have been active in proceedings at the mergers,rate and service disputes,and construction,operation,
Surface Transportation Board(STB) on issues important to and/or abandonment of railroad lines.Since its creation,the
STB has failed to use the legal and regulatory mechanisms at its
captive shippers.While these proceedings could result in some
disposal to protect rail customers from monopolistic practices by
regulatory improvements,legislative remedies are still required
railroads.As a result,many rail customers have simply foregone
to enhance competitive transportation and improve rail custom
filing rate cases at the STB due to the low probability of success,
er protection mechanisms and enforcement implemented by the
STB.Absent congressional action,electric utilities and the com- as well as the high costs of filing and litigation.These problems
can be resolved by reforms to the STB process and by subjecting
munities they serve will continue to be subject to unnecessarily
higher rates and poorer service for coal transportation.In recent railroads to the major provisions of two major federal antitrust
Congresses,the Association has supported bills that would have laws,the Sherman and Clayton Acts. Railroads are uniquely
placed the railroads under antitrust law and reformed the STB. exempt from the nation's antitrust laws for mergers,consolida-
tions,acquisitions,and pooling arrangements approved by the
APPA continues to support such efforts.
STB.These exemptions give railroads immunity from lawsuits
filed by state attorneys general,the Department of Justice,and
Background private citizens.These exemptions have allowed for a wide range
Thirty-three percent of the nation's electricity is generated from of anticompetitive rail industry practices.
coal,the vast majority of which is transported by rail.A substan-
tial amount of that coal has only one option for railroad trans-
portation for at least a portion of its shipment.Thus,a large Congressional Action
amount of the coal used to generate electricity in this country On December 18,2015,President Obama signed into law
is"captive"to a single railroad for transportation.The transpor- S.808,the Surface Transportation Reauthorization Act of 2015
tation costs for shipping that coal reflect the monopoly power (PL 114-110).This was the first time that the STB had been
of the carrier,and are therefore frequently unreasonably high. reauthorized since 1998.APPA,along with the Freight Rail
While public power's interests relate to the movement of coal, Customers Alliance(FRCA),of which the Association is a
this issue is by no means restricted to coal shippers.A variety Board Member,was heavily involved in the bill's development
PubLicPower.org 35
217
and passage.The law set timelines for rate reviews to ensure the final rule is effective on January 29,2017,and the initial
STB decides on relief cases in a more timely fashion;expanded reporting date is February 28,2017.
voluntary arbitration procedures addressing rate and service dis-
putes;authorized the STB to initiate investigations on matters • Docket No.EP 731,Notice of Proposed Rulemaking,Rules
other than rate cases;and improved the STB's structure and Relating to Board-Initiated Investigations
decision-making processes by expanding the board membership
from three to five—which allows board members to talk with
one another without prior public hearing notice. American Public Power Association Position
APPA supports continued congressional oversight of the STB,
Congressional action in 2016 mainly consisted of oversight
of the implementation of S.808.Tom Heller,CEO of Missou particularly its implementation of the important reforms en
ri River Energy Services(an APPA member),was invited to acted as part of the STB Reauthorization Act(PL 114-10).The
testify before the Senate Commerce,Science, &Transportation Association also supports removing antitrust exemptions for the
railroad industry and encourages the STB to take actions using
Committee in August 2016 on implementation of the law.The
its existing authorities that will assist rail-dependent shippers.
Association and FRCA also lobbied Congress to appropriate
more funds to the STB for important IT upgrades.
American Public Power Association Contact
Regulatory Action Amy Thomas,Government Relations Director,202-467-2934/
The Association makes its voice heard on regulatory issues at athomas@publicpower.org
the STB via its membership in FRCA.Through FRCA,APPA is
participating in several pending rulemakings,including:'
The American Public Power Association is the voice of
• Docket No.EP 704(Sub-No. 1),Notice of Proposed not-for-profit,community-owned utilities that power
Rulemaking,Review of Commodity,Boxcar,and TOFC/ 2,000 towns and cities nationwide.We represent pub
COFC Exemptions lic power before the federal government to protect the
• Docket No.EP 711 (Sub-No.1),Reciprocal Switching interests of the more than 49 million people that public
power utilities serve,and the 93,000 people they em-
■ Docket No.EP 724(Sub-No.4),Final Rule on Rail Service ploy.Our association advocates and advises on electricity
Issues-Performance Data Reporting;Issued in November policy,technology,trends,training,and operations.Our
2016,the rule includes several suggestions raised by FRCA members strengthen their communities by providing
and other shippers,including making permanent the interim superior service,engaging citizens,and instilling pride in
weekly reporting requirements that have been in place since community-owned power.
October 2014(a result of the 2013-2014 service crisis).This
1 Other than the final rule on data reporting,it is unknown when the STB will
take additional actions on these matters.
36 PubUcPower.org
218
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AMERICAN
PUBLIC
prwr'
R
TM
ASSOCIATION
Powering Strong Communities
ISSUE BRIEF January 2017
EPAs Final Rule to Regulate Carbon Dioxide
Emissions from Existing Fossil Fuel-Fired
Power Plants
Summary power plants..."no later than June 1,2014.'Final standards
On August 3,2015,the Environmental Protection Agency would have to be issued by June 1,2015,and any guidelines
(EPA) released its final rule to establish emission guidelines for addressing existing power plants must include a requirement
carbon dioxide(CO2)emissions from fossil fuel-fired power that state plans required under Section 111(d)of the CAA and
plants. Called the Clean Power Plan(CPP)by EPA,the rule any implementing regulations be submitted to EPA by June 30,
sets state-specific,rate-based goals for CO2 emissions from the 2016.Following the President's directive,on June 2,2014,EPA
released its proposed emissions guidelines for CO2 emissions
power sector,subcategory-specific CO2 emission performance
from existing fossil fuel-fired power plants.It also released its
rates,and state mass-based CO2 goals that represent the equiv-
alent of each state's rate-based goal.The rule also establishes proposed guidelines for emissions from modified and recon-
guidelines for the states to follow in developing plans to achieve structed power plants.On August 3,2015,EPA released its final
the state-specific goals.According to the agency,the rule would "Carbon Pollution Emission Guidelines for Existing Stationary
reduce CO2 emissions from the power sector by 32 percent by Sources:Electric Generating Units" (called the Clean Power
2030 from CO2 emission levels in 2005. Plan)as well as its final"Standards for Performance for Green-
While EPA improved the final rule from its proposed rule, house Gas Emissions from New Stationary Sources:Electric
the American Public Power Association(Association or APPA) Generating Units" (new plant rule)2 and final Carbon Pollution
believes the final rule goes well beyond what is permissible Standards for Modified and Reconstructed Stationary Sourc-
under Section 111(d)of the Clean Air Act(CAA or Act) and is es:Electric Generating Units.In addition,EPA proposed its
strongly concerned about its potential impacts on some public Federal Plan Requirements for Greenhouse Gas Emissions from
power utilities and their customers.Thus,the Association has Electric Generating Units;Model Trading Rules;Amendments
challenged it in court.APPA believes we need to address climate to Framework Regulations(Federal Plan and Model Trading
change,but not through the existing CAA,which was enacted Rules) on August 3(this was done in an effort to assist states to
to address criteria pollutants for human health protection and develop implementation plans that rely on tradable compliance
not CO2 or other GHG emissions.In spite of the obvious instruments).All three rules and the proposed Federal Plan and
problems with regulating GHGs under the Clean Air Act,EPA Model Trading Rules were published in the Federal Register on
decided to go forward with its efforts to regulate such gases from October 23,2015.
existing fossil fuel-fired power plants under Section 111(d). Had The Clean Power Plan sets final emission guidelines in the
EPA proposed a rule that sought to reduce emissions through form of nationally uniform CO2 emission performance rates
heat rate improvements at fossil fuel fired electric generating for two kinds of fossil fuel-fired EGUs—steam generating units
units(the affected source),its rule would be on solid legal (1,305 pounds CO2 per megawatt hour(lb CO2/MWh)) and
ground. combustion turbines (771 lb CO2/MWh).It also finalizes
1 A copy of the Presidential Memorandum can be viewed at http://www.white-
house.gov/the-press-office/2013/06/25/presiden tial-memorandum-power-sec-
Backg round tor-carbon-pollution-standards.
On June 25,2013,President Obama sent a memo to the Acting
2.While APPA has concerns with EPA's final rule to regulate CO2 emissions
Administrator of EPA directing him to issue proposed"stare-
from new power plants,this issue brief focuses exclusively on the existing plant
dards,regulations,or guidelines,as appropriate,that address rule.
carbon pollution from modified, reconstructed,and existing
PublicPower.org 39
221
state goals between 771 and 1,305 lb CO2/MWh based on the are rejected or that fail to submit a final plan would be subject
weighted average of existing fossil-fuel fired generation in the to a federal plan imposed by EPA.
state and provides equivalent mass-based goals in short tons Compliance with the rule's final goals would be required
of CO2.This is a substantial change from the proposed rule, by 2030,although the final reporting period is actually from
which did not establish performance rates that would directly January 1,2030,to December 31,2031.The rule imposes two
apply to EGUs and only proposed mandatory state goals.These year compliance periods thereafter.In response to stakeholder
changes resulted in a range of state goals that is much narrower input,EPA pushed back the date for compliance with the inter-
than in the proposed rule and impose more stringent goals on im goals.There are three compliance periods beginning in 2022
states that are heavily reliant on coal-fired power. and states can adopt them as is or adjust them in their state
Under Section 111(d)of the CAA,EPA may establish plans.Under the proposed rule,compliance with the interim
procedures for states to develop plans to establish performance goals began in 2020 and front-loaded the emissions reductions
standards for an air pollutant from existing sources.The state (commonly referred to as the"cliff").
plans must"establish standards of performance that reflect the Since publication of the final rule in the Federal Register on
degree of emission limitation reduction achievable through the October 23,2015,more than 150 state and industry petition-
application of the'best system of emissions reduction' [BSER] ers have challenged the legality of the rule in the U.S. Court of
that,taking into account the cost of achieving such reduction Appeals for the District of Columbia Circuit("D.C.Circuit").
and any non-air quality health and environmental impacts and Many of those petitioners requested that the D.C.Circuit stay
energy requirements,the Administrator determines has been implementation of the rule during the litigation.In January
adequately demonstrated."3 In the final rule,EPA determined 2016,the D.C. Circuit rejected the stay request,which was
"that the BSER is the combination of emission rate improve- then made to the U.S.Supreme Court.On February 9,2016,
ments and limitations on overall emissions at affected EGUs the U.S.Supreme Court granted an emergency stay of the
that can be accomplished through"three building blocks:4(1) Clean Power Plan that puts implementation of the rule on hold
improving heat rates at affected coal-fired steam EGUs; (2) while the courts hear legal challenges to it.The stay will apply
substituting increased generation from lower emitting existing while the U.S.Court of Appeals for the District of Columbia
natural gas combined cycle units for generation from high- Circuit reviews the rule,as well as any future appeal to the U.S.
er-emitting affected steam generating units;and(3)substituting Supreme Court.While the stay is in effect,neither EPA nor
increased generation from new zero-emitting renewable energy the states can enforce any of the deadlines or requirements in
generating capacity for generation from affected fossil fuel-fired the final rule,nor will states be penalized for missing a deadline
generating units.The fourth building block on energy efficiency or requirement. Oral argument in the litigation occurred in
included in the proposed rule was dropped in the final rule. September 2016.As of this writing,the court has not issued a
EPA then calculated the amount of emission reduction achiev- decision.In addition,the Trump Administration has signaled
able through application of these three building blocks. its interest in eliminating the CPP.It is unclear thus far how the
Under the final rule,states have to submit initial state plans new Administration will go about doing so.
to EPA by September 6,2016.The initial plan must contain a
non-binding indication of what type of plan and approaches the
state intends to adopt,the reason why an extension is needed Congressional Activity
(assuming the state is seeking an extension of time to submit There was a lot of interest in the 114th Congress in EPA's efforts
a plan),and evidence of public engagement.An extension to regulate CO2 emissions from the electric utility industry.The
is deemed granted if EPA does not object within 90 days of House Energy&Commerce and Senate Environment&Public
receipt.States must submit progress reports to EPA on Septem- Works (EPW) Committees,which have jurisdiction over Clean
ber 6,2017,with final state plans due by September 6,2018. Air Act issues,held numerous hearings in the 114th and previ-
EPA has a year to approve a final state plan,which is required ous Congresses on the proposed and final rules,their potential
to include information such as a list of affected EGUs and their impact to ratepayers,businesses,and the economy,and the
emission standards,a trigger mechanism for corrective mea- Obama Administration's international efforts on climate change
sures,if interim goals are not achieved,and recordkeeping and and whether those efforts are driving the Clean Power Plan.
reporting requirements,among others.States whose final plans Both committees also approved legislation in 2015 that would
have put implementation of the final existing plant rule on hold
3 See footnote 1 of the final rule located at p.64664 of the Federal Register,Vo. until the courts decide on its legality.
80,No.205,10/23/2015. In addition,the House and Senate approved a disapproval
4.P.64707 of the Federal Register,Vo.80,No.205,10/23/2015 resolution under the Congressional Review Act(S.J. Res.24),
40 PubUcPower.org
222
introduced by Senators Shelley Moore Capito(R-WV)and rate improvements at fossil fuel-fired electric generating units
Heidi Heitkamp(D-ND),that would nullify the existing rule. (the affected source),its rule would be on solid legal ground.
Unfortunately,the disapproval resolution did not receive the Instead,the agency chose to finalize a rule that imposes emis-
number of votes needed to override a presidential veto.On sions reductions that cannot be achieved by affected sources and
December 18,2015,President Obama vetoed the disapproval requires the owner or operator of those sources to take actions
resolution,as well as another one on the new plant rule.APPA to reduce CO2 emissions that are separate and apart from the
supported both disapproval resolutions. source.Thus,APPA challenged EPAs new and existing power
plant rules in the U.S.Court of Appeals for the D.C.Circuit.
The Association also supported legislation in the 114th
American Public Power Association Position Congress to put the CPP on hold until the courts decide on
While EPA improved the final rule from its proposed rule,the its legality.APPA also supported disapproval resolutions in the
Association believes the final rule goes well beyond what is last Congress under the Congressional Review Act to overturn
permissible under Section 111(d) of the CAA,and is strongly EPAs rules for CO2 emissions from new and existing power
concerned about its potential impacts on some public power plants and the strong oversight conducted by the House Energy
utilities and their customers.APPA believes the agency exceed- &Commerce and Senate Environment&Public Works
ed its authority under the CAA when it established standards Committees.
of performance for any existing source in the fossil fuel-fired
category that are not achieved in practice by an existing EGU
through either technological or operational measures that limit APPA Contacts
the rate at which CO2 is emitted by that source.The Associa- Desmarie Waterhouse,Vice President,Government Relations,
tion is not aware of any precedent under Section 111 whereby &Counsel,202-467-2930/dwaterhouse@publicpower.org
EPA has required the owner or operator of a source to take
actions separate and apart from the source. Furthermore,the Carolyn Slaughter,Director of Environmental Polity,
final rule sets standards that will result in the curtailment or 202-467-2943/cslaughter@publicpower.org
closure of some affected facilities and the replacement of their
generation by EPA-preferred sources such as wind and solar.
EPA has the authority to require existing EGUs to make feasible The American Public Power Association is the voice of
improvements in their performance.Nothing in the CAA gives
not-for-profit,community-owned utilities that power
EPA the authority to tell EGU owners and operators to limit
2,000 towns and cities nationwide.We represent pub
operation or shutdown their units and instead generate electrici- lie power before the federal government to protect the
ty from other types of sources. interests of the more than 49 million people that public
The Association believes we need to address climate change, power utilities serve,and the 93,000 people they em-
but not through the existing CAA,which was enacted to address ploy. Our association advocates and advises on electricity
criteria pollutants for human health protection and not CO2 policy,technology,trends,training,and operations. Our
or other GHG emissions. In spite of the obvious problems with members strengthen their communities by providing
regulating GHGs under the Clean Air Act,EPA has decided to superior service,engaging citizens,and instilling pride in
go forward with its efforts to regulate such gases from existing communityowned power,
fossil fuel-fired power plants under Section 111(d). Had EPA
proposed a rule that sought to reduce emissions through heat
PubLicPower.org 41
223
42 PublicPower.org
224
AMERICAN
PUBLIC
POWER..
ASSOCIATION
Powering Strong Communities
ISSUE BRIEF January 2017
Waters of the United States
Summary
On May 27,2015,the Environmental Protection Agency(EPA) Components of the Final Rule
and U.S.Army Corps of Engineers (Corps) released a final rule The final rule defines WOTUS to include:
to redefine waters of the U.S. (WOTUS) under the Clean Water
Act(CWA).The rule became effective on August 28,2015.1 1 all waters which are currently used,were used in the
The American Public Power Association(Association or APPA) past,or may be susceptible to use in interstate or for-
believes that the rule is problematic because it dramatically eign commerce,including all waters which are subject
expands the definition of WOTUS, thereby subjecting more to the ebb and flow of the tide;
utility projects and activities to CWA jurisdiction.Currently,the 2 all interstate waters,including interstate wetlands;
WOTUS rule is stayed pending a decision on the merits in the
case in the U.S. Court of Appeals for the Sixth Circuit. 3 the territorial seas;
4 all impoundments of waters otherwise defined as wa-
ters of the U.S.;
Background
The Clean Water Act of 1972 gave the federal government the 5 all tributaries of waters identified in(1) through(3);
authority to regulate pollution of"navigable waters" (also known 6 all waters,including wetlands,adjacent to a water
as"Waters of the U.S.").This seemed straight forward on its identified in(1)through(5);and
face,but given the interconnectedness of surface water—clearly
navigable large rivers and lakes are fed by streams and other 7 on a case-specific basis, "other waters,"including
smaller bodies of water that are clearly not navigable—the line wetlands,that alone,or in combination with other
of the federal government's jurisdiction is a fuzzy and moving similarly situated waters in the same region,have a
one.Years of legal battles came to a head in a messy 4-1-4 ruling significant nexus to a water identified in(1) through
by the Supreme Court in 2006.Justice Anthony Kennedy (3).
joined the conservative wing of the Court in ruling that the gov- 8 waters within the 100-year floodplain of an(1) to(3)
ernment could no longer could broadly interpret its jurisdiction; water,and waters within 4,000 feet of an(1)to(5)
in other words,the government needed to write a new set of water of the U.S.,where those waters are found on a
rules for determining where it had jurisdiction.Justice Kennedy case-by-case basis to have a significant nexus to(1)to
wrote a standalone opinion suggesting that the government lim- (3)water.
it its jurisdiction to waters that have a"significant nexus"with
navigable waters.Instead of providing clarity,what constituted The Association has serious concerns with how various
a"significant nexus"kicked off another round of confusion terms are defined in the final rule.
between the federal government and industry.
EPA and the Corps released a proposed rule attempting to
define what constitutes a"significant nexus"in April 2014.
APPA felt the proposed rule dramatically expanded the agencies'
1 The final rule is available at http://www2.epa.gov/sites/production/
files/2015-05/documents/rule_preamble_web_version.pdf
PubUcPower.org 43
225
federal authority and would therefore trigger additional,costly best management practices are treated as a WOTUS,this will
CWA permit requirements for utility projects.EPA and the result in a never-ending cycle of regulation.
Corps released a final rule in May 2015.While it did address The final rule makes some changes to the ditch exclusion.
some of the issues that the Association outlined in its comments However,the final rule's ditch exclusions are still narrow and
on the proposed rule,the changes did not go far enough to allay raise concerns.A utility would be required to prove that its
APPAs concerns. ditch qualifies for an exclusion,using historical information
The Association remains very concerned with the expansive to demonstrate that the ditch did not excavate or relocate a
interpretation of adjacent waters,ditches,and waste treatment tributary.Further,the ditch exclusion now relies on the trib-
systems exclusions;ponds,lakes,oxbows,and other similar wa- utary definition,with the requirement that ditches are only
ters will now be jurisdictional by virtue of being near WOTUS. excluded when they do not"excavate or relocate a tributary."
Drainage ditches play a major role in utility operations,ensuring The tributary definition includes the ordinary high water mark
that storm water is properly channeled away from facilities (OHWM)standards,which in and of itself,is problematic due
and land where it would otherwise converge to create ponds, to it being ambiguous and inconsistently applied in the field.
interfering with the intended use of the land and facilities.The The OHWM standard within the tributary definition includes
Association argued in its comments that including ditches used a regressive looking review as to whether a feature used to be a
to support electric utility operations as a WOTUS would be tributary,thus allowing the agencies to assert jurisdiction based
overly expensive and onerous for its members.For example,the on past conditions.
CWA storm water program requires the construction of ditches/ While the final rule differs markedly from the proposal,it
storm water retention ponds to manage storm water in some does little to resolve the Association's concerns.Any increase in
areas of the country.If ditches constructed due to storm water federal jurisdiction will have a substantial effect on members'
Exclusions from WOTUS
Waters that are excluded in the final rule are not waters of • Artificial reflecting pools or swimming pools created in
the U.S.,even if they fall within categories(4) through(8)of dry land;
the final rule.However,the preamble suggests the exclusion
categories can serve as a hydrologic connection that the ■ Small ornamental waters created in dry land;
agencies would consider under a case specific significant • Water filled depressions created in dry land incidental to
nexus under the category(7)and(8)provisions of the rule. mining or construction activity,including pits excavated
The final exclusions are: for obtaining fill,sand,or gravel that fill with water;
• Waste treatment systems(WTS),including ponds or • Erosional features,including gullies,rills,and other
lagoons designed to meet the requirements of the CWA; ephemeral features that do not meet the definition of
• Prior converted cropland; tributary,non-wetlands swales,and lawfully constructed
grassed waterways;
• Certain ditches: (i)ditches with ephemeral flow that are
not a relocated tributary or excavated in a tributary; (ii) ■ Puddles;
ditches with intermittent flow that are not a relocated • Groundwater,including groundwater drained through
tributary,excavated in a tributary,or drain wetlands; (iii) subsurface drainage systems;
ditches that do not flow,either directly or through anoth-
er water,into an(1) through(3)water; ■ Stormwater control features constructed to convey,treat,
or store stormwater that are created in dry land;and
• Artificially irrigated areas that would revert to dry land if
application of water ceases; • Wastewater recycling structures constructed in dryland;
detention and retention basins built for wastewater recy-
• Artificial,constructed lakes and ponds created in dry land cling;and water distributary structures built for wastewa-
(e.g.,farm and stock watering ponds,irrigation ponds, ter recycling.
settling basins,fields flooded for rice growing,log clean-
ing ponds,or cooling ponds);
44 PubticPower.org
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ability to finance and develop new projects or perform mainte- add a"policy rider"to an appropriations bill prohibiting EPA
nance on existing infrastructure and facilities.The Association's from spending funds to enforce the rule while,in the long term,
members'construction and operations activities often require President Trump's Administration could pursue a new rulemak-
various permits under the CWA.The agencies'expansion of ing to refashion the rule.The path(s)congressional Republicans
jurisdiction by virtue of the revised WOTUS rule will result in choose to attack the rule will also depend on how the issue plays
additional permit obligations for all CWA programs. out in the courts.
Legal Challenges American Public Power Association Position
On October 9,2015,the U.S.Court of Appeals for the Sixth Overall,the Association believes that the final rule is problemat-
Circuit(Sixth Circuit)issued an order staying the WOTUS is because it would drastically expand the WOTUS jurisdiction
rule nationwide,pending further order of the court.After the of EPA and the Corps,which would subject more utility proj-
stay was issued,parties in the case filed motions to supplement ects and activities to CWA jurisdiction.This would mean that
the administrative record. On September 22,2016,the Sixth some projects'permitting processes would be required to under-
Circuit granted the business and municipal petitioners'motion go lengthier and costlier individual Section 404 permit proce-
to hold the WOTUS briefing in abeyance pending resolution dures.It also would affect the applicability of,and compliance
of the administrative record motions.Subsequently,the court with,other CWA programs,including National Pollutant Dis-
issued its decision on the scope of the administrative record. charge Elimination System requirements for industrial wastewa-
Briefing on the merits in the case have begun according to a ter and storm water,Section 311 requirements,and Section 401
revised schedule to be set by the court. certification,to name a few.As such,APPA supports legislative
In a related matter,the National Association of Manufactur- measures that would direct EPA and the Corps to withdraw and
ers(NAM)filed a writ of certiorari seeking U.S.Supreme Court re-propose the rule under certain parameters.
review of the Sixth Circuit's decision holding that it has exclu-
sive jurisdiction to decide the challenges to the WOTUS Rule
under CWA§509(b)(1).NAM argued that jurisdiction should American Public Power Association
remain at the local district court.The high court in a surprise Contacts
move on January 13,2017,granted petitioners'request to re- Amy Thomas,Government Relations Director,202-467-2934/
consider the Sixth Circuit decision to hear legal challenges in the athomas@publicpower.org
case.However,final outcome of the litigation is uncertain and
the Trump Administration has signaled its plans to eliminate the Carolyn Slaughter,Director,Environmental Polity,
WOTUS rule.The method and process the new administration 202-467-2943/cslaughter@publicpower.org
would employ to rescind WOTUS is unclear at this time.
The American Public Power Association is the voice of
Congressional Action not-for-profit,community-owned utilities that power
There were numerous unsuccessful attempts by congressional 2,000 towns and cities nationwide.We represent pub-
Republicans in 2015 and 2016 to nullify the WOTUS rule or lic power before the federal government to protect the
to direct EPA and the Corps to withdraw and re-propose it. In interests of the more than 49 million people that public
each case,the Senate was the stumbling block.However,while power utilities serve,and the 93,000 people they em-
Senate Republicans still lack a 60-vote majority to overcome ploy.Our association advocates and advises on electricity
a filibuster of any legislative effort to roll back the rule in the policy,technology,trends,training,and operations. Our
115th Congress,they will not have to contend with a veto members strengthen their communities by providing
as they did under President Obama. Outside of achieving a superior service,engaging citizens,and instilling pride in
filibuster-proof vote to gut the rule, Republicans could take a community-owned power.
two-pronged approach to preventing the rule from being im-
plemented:in the short term,congressional Republicans could
PublicPower.org 45
227
46 PubLicPower.org
228
AMERICAN
PUBLIC
Er TM
ASSOCIATION
Powering Strong Communities
ISSUE BRIEF January 2017
Energy Efficiency
Summary Energy Security and Infrastructure Act,that passed the House
Energy efficiency—the ability to maximize energy use via more on December 8,2015.Ultimately,these provisions did not
efficient technologies throughout the electric utility system,as become law because the energy bill conference committee could
well as for electric customers to minimize their energy use by not reach an agreement on a final bill.
using a variety of tools,technologies,and behaviors—is one of Also in the 114th Congress,APPA joined with over 20 trade
the most important,cost-saving tools available to utilities to associations,businesses,manufacturers,and other stakeholders
in a letter to senators on the Senate Energy&Natural Resources
meet energy demand,defer generation investment,and reduce
Committee urging them to support S. 869,the All-of-the-Above
greenhouse gas and other emissions.The federal government
creates incentives for energy efficiency through the tax code, Federal Building Energy Conservation Act of 2015.This legisla-
appropriations bills,and authorizing bills.The American Public tion was also included in S.720 and S.2012 that were approved
Power Association(Association or APPA)provides tools and by the Senate Energy&Natural Resources Committee in July
2015.S. 869 and its companion bill in the House,H.R.2177,
support for our public power members to deploy energy effi-
ciency measures at their utilities,and is generally supportive of sought to improve federal energy use management by provid
federal efforts to encourage and support such activities so long ing taxpayers with savings by enhancing efficiency in federal
as they are cost-effective for consumers and have a reasonable buildings.In addition,the language repealed a requirement
payback period. from the Energy Independence and Security Act of 2007(EISA)
regarding the reduction and eventual elimination of fossil-fuel
generated energy consumption in new and renovated federal
Congressional Action buildings.Due to the unrealistic nature of this provision from
Several energy efficiency measures were considered in the 114th EISA,the government has been unable to find a long-term path
Congress. On February 23,2015,Senators Rob Portman(R- to compliance.These provisions would also have strengthen
OH)and Jeanne Shaheen (D-NH) introduced a scaled-down several existing federal energy management provisions that pro-
version of their larger energy efficiency bill from the 113th Con- vide federal building energy managers the flexibility to achieve
gress.The scaled-down legislation,S. 535,the Energy Efficiency cost-efficient reductions in consumption and encourage efficient
Improvement Act was comprised of three major provisions: (1) technologies and practices,as well as retrofits of federal build
the Better Buildings Act; (2)language on grid-enabled water ings.The Association strongly supported these measures.
heaters;and(3)language on energy information for commercial Additionally,on June 25,2015,APPA joined the same stake-
buildings. It passed unanimously by voice vote in the House holders from the April 29,2015,letter,in a letter to members
and Senate in the spring of 2015,and was signed into law by of the House Energy&Commerce Committee's Subcommittee
on Energy&Power urging them to include these provisions in
President Obama on April 30,2015.
In addition,in March 2015,Senators Portman and Shaheen H.R. 8.These provisions were included in the House energy bill
introduced their larger efficiency package,S.720,the Energy as Sections 4115 and 4116.
Savings and Industrial Competitiveness Act of 2015.A com-
panion bill to S.720 was introduced in the House,H.R.2177,
by Reps. David McKinley(R-WV)and Peter Welch(D-VT). American Public Power Association Position
The Association strongly supports legislation to improve energy
Many of the provisions in this legislation were included in S.
2012,the Energy Policy Modernization Act,which passed the efficiency in multiple sectors.Many of our members have
already taken steps either through the use of federal incentives,
Senate on April 20,2016,and H.R. 8,the North American
PublicPower.org 47
229
other funds,or local initiatives to improve energy efficiency for
customers.APPA will continue to monitor and work on priori- The American Public Power Association is the voice of
ties with stakeholders and the House Energy 8c Commerce and not-for-profit,community-owned utilities that power
Senate Energy&Natural Resources Committees in the 115th 2,000 towns and cities nationwide.We represent pub-
Congress. lic power before the federal government to protect the
interests of the more than 49 million people that public
power utilities serve,and the 93,000 people they em-
American Public Power Association Contact ploy.Our association advocates and advises on electricity
Cory Toth,Government Relations Director, policy,technology,trends,training,and operations.Our
202-467-2939/ctoth@publicpower.org members strengthen their communities by providing
superior service,engaging citizens,and instilling pride in
community-owned power.
48 PubticPower.org
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AMERICAN
PUBLIC
i • RP ►,. TM
ASSOCIATION
Powering Strong Communities
ISSUE BRIEF January 2017
Wholesale Electricity Markets and
Regional Transmission Organizations
Summary Wholesale Markets Overview
In the U.S.,roughly five billion megawatt hours of electricity are In regions not controlled by an RTO,wholesale sales are
sold at the wholesale level,i.e.,sold to a utility or other entity conducted bilaterally,through direct contact and negotiation,
reselling that energy to residential,business,or industrial cus- through a voice broker,or through an electronic brokerage
tomers.There is no single national market for these wholesale platform,such as the ICE.They also have forums that serve to
electricity sales.In some regions,these sales are conducted bilat- create robust bilateral markets in these non-RTO regions.For
erally,through direct contact and negotiation,through a voice example,the Western Systems Power Pool provides a standard-
broker,or through an electronic brokerage platform,such as the ized power sales agreement that provides for a liquid wholesale
Intercontinental Exchange(ICE).In other regions,specifically power market with transparent price information reported
in the Northeast,Mid-Atlantic,Midwest,California,and Texas, through multiple indices. Generally,these regions are where
there are wholesale electricity markets operated by large entities "traditional vertically integrated utilities" (i.e.,utilities owning
known as regional transmission organizations(RTOs) and generation,transmission,and distribution facilities)continue
Independent System Operators(ISOs)—collectively referred to to operate. (Some RTOs are also predominantly categorized by
as"RTOs."Bilateral transactions can also occur in RTO regions, vertically integrated utilities as discussed below.)
but through separate settlements and in compliance with corn- Conversely,RTOs are relatively new creations,formed as
plex RTO rules.These RTO markets provide for the wholesale some state and local regulators changed retail electricity markets
sale of electric energy(both day-ahead and real-time purchases), rules to encourage or require traditional vertically integrated
as well as ancillary services.Some RTOs also operate capacity utilities to sell their generation facilities and give retail utility
markets. customers the ability to purchase power from other generators.
Public power utilities,state utility commissions,consum- As a result,private utilities were forced to purchase their power
er-and low-income advocates,and industrial electric power on the wholesale market. (Most states exempted not-for-profit,
customers have raised significant concerns about RTO-run locally governed public power utilities from these requirements,
wholesale electricity markets,which do not function as we though for unrelated reasons these utilities generally must make
traditionally think of markets functioning,but are rather highly wholesale purchases of power).This"deregulation"was intend-
complex and opaque administrative constructs.Such concerns ed to apply to the sale of electricity and related products,such
initially revolved around high and volatile prices.More recently, as energy management,beyond traditional utilities,and spur
the leading concerns have been the cost and effects of manda- competition.In fact,many utilities simply sold their generation
tory markets for capacity run by some RTOs.The American facilities to a parent holding company that continued to sell the
Public Power Association(Association or APPA)has developed majority of electricity purchased by the utility's customers.
detailed proposals for both long-and short-term solutions to the Meanwhile,at the federal level,RTOs were authorized by
problems in these markets.It has also developed a policy pro- FERC in 1996 to"remedy undue discrimination in access to the
posal to more immediately address issues with capacity markets. monopoly owned transmission wires that control whether and
In addition,the Association strongly supports congressional to whom electricity can be transported in interstate commerce."
oversight of Federal Energy Regulatory Commission(FERC) (FERC Order No. 888,April 24, 1996.) RTOs have function-
market policies including,but not limited to,the problems as- al control,but not ownership,of the transmission system in
sociated with capacity markets and lack of transparency in RTO their"footprint."They provide non-discriminatory access to
dealings. Congress needs to delve into the intricacies of FERC transmission lines to sellers and purchasers of electricity and
policies to ensure fairness. eliminate rate"pancaking"(charging multiple transmission fees
PublicPower.org 51
233
for one transaction). RTOs also coordinate regional planning for by securing an obligation from customers that they will curtail
new transmission lines. power at times of peak load.The cost of capacity is in addition
The RTO markets were also authorized to administer to the price paid for the actual delivery of power and other
wholesale markets for the sale of electric energy(both day-ahead ancillary services.Most RTOs(other than the Southwest Power
and real-time purchases),electric power capacity,and ancillary Pool(SPP) and California Independent System Operator(CAI-
services.RTOs do not own the power plants that generate the SO)) operate markets for capacity.Like RTO-run wholesale
power bought and sold in the market,but do exercise extraordi- markets for energy,RTO capacity markets rely on a centrally
nary controls over power generation.They decide which genera- determined single clearing price(again allowing windfall profits
tors will run and at what levels,grant(or deny) the transmission for low-cost units);are subject to LMP;and can impose dollar
services needed for transactions to occur,and run the billing caps on bids.Capacity prices are established in periodic auctions
systems for payments for power. –typically on an annual basis. In contrast to energy markets,
Prices paid in these markets are not set through bilateral several RTO capacity markets (ISO-NE,PJM,and NYISO)
exchanges,but are centrally determined by the RTO.Cus- also include mechanisms to prop up prices for generators,such
tomers can,however,engage in bilateral contracts with cepa- as minimum offer price rules or buyer-side mitigation rules.See
rate settlements at different prices.All RTOs have centralized APPA's issue brief,"RTO Capacity Markets and Their Impacts
markets for the day-ahead and real-time purchase of wholesale on Consumers and Public Power"for a more detailed discus-
electric power.The prices are set(either every five minutes or sion.
every hour) based on the bids that sellers submit to the RTO.
The RTO takes all bids in ascending order and stops with the
last incremental bid needed to supply power to buyers in that Market Concerns
time interval.The price all sellers in that time interval receive, RTO wholesale markets suffer significant problems stemming
however,is based on the last bid the RTO accepted—this is from:certain fundamental features of the market design;the
known as a"single clearing price"market. Bids need not reflect ability of some generators to strongly influence market prices,
the sellers'actual costs of generating power,as FERC formerly also known as exercising market power;highly complex rules;
required.As a result,low-cost generation can reap substantial and problematic governance processes.These problems have
financial windfalls. RTOs generally limit the maximum price of arisen,and remain,because of a lack of sufficient FERC over-
a bid,typically$1,000 per megawatt-hour,although RTOs all sight.While in recent years FERC has undertaken enforcement
have some form of"shortage pricing"where electricity prices can actions against financial entities that have clearly manipulated
spike above these caps during times of system stress(prices paid these markets,the generators operating in the markets are still
in these markets also strongly influence the price of electricity extracting excess revenues—either operating within the existing
charged by generators outside these markets in bilateral or"stan- rules or obtaining FERC's approval for changes to the existing
dard offer"contracts.) rules to generate excess revenues.The generators'behavior is an
In some cases,congestion on power transmission lines may inevitable consequence of the flawed and opaque market struc-
prevent all available generation from being delivered to cus- ture.For its part,FERC continues to impose a strict reliability
tomers in a"constrained zone."As a result,the RTO may allow standard on these RTOs,while taking a hands-off approach
more expensive generation located within the zone to meet that as to whether resulting rates to customers are still"just and
demand,and customers in the zone must pay the higher price. reasonable."
The difference between the lower price in the RTO generally Ironically,when RTOs first established wholesale markets,
and the higher price being charged in the constrained zone is proponents said switching from a cost-based rate to a mar-
called the"congestion charge."This congestion pricing system is ket-based rate would increase price competition,and consumers
known as"locational marginal pricing" (LMP).In theory,LMP would benefit both from lower prices and greater investment
should incentivize construction of new generation or additional in new infrastructure necessary for the future reliable opera-
transmission facilities,or reduce power usage through conserva- tion of the grid.Instead,the opposite has occurred.Electricity
tion or shifting of the times when energy is consumed.In reality, prices are,on average,higher in RTO regions and have risen
generation and transmission development has not been greater faster than in other regions,and there is scant evidence that
in LMP regions. these higher prices have produced greater levels of reliability or
One way to ensure that peak load is met is for a utility to significant infrastructure.There has been relatively little new
pay a generator to stand ready to provide power,i.e.,to have the investment while plant retirements,primarily that of nuclear
"capacity"necessary to meet peak load. Capacity can also be met
52 PubllcPower.org
234
plants,are more of a problem inside RTO regions than outside American Public Power Association Position
RTO regions.' The Association has long had concerns about the RTO markets,
FERC initiated a new effort in late 2014,in response to particularly related to cost to electricity customers and market
generation owner recommendations,to examine price formation manipulation.In recent years,APPA has focused intensely on
in the energy and ancillary services markets.This docket has led the problematic mandatory capacity markets operated by the
to two final rules that could significantly increase prices.In June Eastern RTOs.As discussed above,many questions have been
2016,FERC approved its first rule under the price formation raised about whether these markets can provide reasonably
effort.One problematic component of the rule is to require all priced and reliable long-term service to electricity customers.In
RTOs to trigger price spikes,known as shortage prices,during response,the Association has developed detailed proposals for
any time period when a shortage of energy or operating reserves both long-and short-term solutions to the problems in these
occurs,rather than requiring a shortage to have a minimum markets.For the long-term,APPA's Competitive Market Plan
duration before such shortage pricing occurs.APPA and NRE- proposes to retain the RTO functions that are working well—
CA filed comments,as did many other parties,questioning the principally those associated with planning for and operating
benefits of shortage pricing for such transient shortages relative the regional transmission grid—and replace or minimize those
to the costs.A second rule,issued in November 2016,would al- functions that are not benefiting consumers,mainly the design
low energy market offers to exceed the current cap of$1,000 per and operation of the capacity markets.The Association has also
megawatt-hour(MWh),as long as the seller of energy believed developed a policy proposal to more immediately address issues
its costs are likely to exceed that amount.APPA and American with capacity markets.See APPA's issue brief,"RTO Capacity
Municipal Power(AMP)have requested a rehearing of that Markets and Their Impacts on Consumers and Public Power,"
problematic rule because the removal of the offer cap represents for more information.
the elimination of a key protection against market power abuses. Finally,APPA continues to support congressional oversight
of FERC market policies including,but not limited to,the
problems associated with capacity markets and lack of transpar-
Congressional Action ency in RTO dealings. Congress needs to delve into the intrica-
The Association and other like-minded organizations continue cies of FERC policies to ensure fairness.Association staff have
to encourage the leadership in both the Senate Energy&Natu- met with members of Congress and their staff regarding these
ral Resources and House Energy&Commerce Committees to issues and will continue to conduct such outreach to increase
investigate the functionality of these RTO-run electricity mar- their understanding of RTO-related problems.
kets themselves.They have also urged FERC to undertake an in-
vestigation of these markets. On September 7,2016,the House
Energy&Commerce Committee held a hearing,"Federal American Public Power Association
Power Act:Historical Perspectives,"to begin an inquiry into the Contacts
blurring of lines between historic federal and state jurisdictional Elise Caplan,Senior Manager,Electric Market Analysis,
divides;how regulated and competitive markets continue to fare
202-467-2974/ecaplan@publicpower.org
under both FERC's and the states'oversight;how reliability and
security of the grid,innovation,and distributed energy resources John Godfrey,Senior Government Relations Director,
are prioritized in the current system;and how other external 202-467-2929/jgodfrey@publicpower.org
factors,such as tax policy and renewable mandates factor in to
the functioning of competitive markets.The committee may
continue to look at these matters under new Chairman Greg A Description of the RTOs
Walden(R-OR). There are seven RTOs operating in the U.S.:ISO New England
(ISO-NE);New York ISO(NYISO);PJM Interconnection
'"Five nuclear power plants have retired in recent years,amounting to 4.7 (PJM);Midcontinent ISO(MISO);California ISO (CAISO);
gigawatts of capacity.Owners of nuclear power plants claim that reduced elec- Southwest Power Pool(SPP),and Electric Reliability Council
tricky prices in RTO-operated markets are a primary factor in lowering needed of Texas(ERCOT). Of the seven only ERCOT,which operates
nuclear plant revenue and spurring retirements.Such price drops have resulted entirely within the state,is not subject to FERC jurisdiction.
from decreases in the price of natural gas and growth of wind power,Because of
these lower earnings,nuclear plant owners have sought to increase their revenues
through state programs to direct additional revenue to the plants,such as recent- California ISO(CAISO)
ly passed legislation in Illinois and an order from the New York Public Service CAISO operates only in California,but it is under FERC's
Commission;and for overall changes in the wholesale markets that would boost
electricity rates." jurisdiction because the state's transmission grid is interconnect-
ed with the rest of the West.Some public power utilities in the
PubUcPower.org 53
235
state have chosen not to turn over operational control of their New York ISO(NYISO)
transmission facilities to CAISO,but all public power utilities NYISO operates only in New York,but is FERC-jurisdic-
are impacted by CAISO's energy market prices and provision tional because the state's transmission grid is interconnected
of transmission service due to the web of business relationships with the rest of the region.New York City is a very transmis-
among market participants in the state.In October 2014,the sion-constrained area within NYISO,which requires substantial
ISO began operating an energy imbalance market(EIM)with mitigation of the power sales into that area.The ISO operates a
PacifiCorp,which was joined by NV Energy in November shorter-term capacity market than in PJM and ISO-NE,but it
2015.The EIM is operated separately from CAISO markets. is only mandatory within the New York City and Lower Hud-
Several public power utilities are either exploring joining the son Valley zones.
EIM or planning to do so.The Balancing Authority of North-
ern California,the Sacramento Municipal Utility District,and PJM Interconnection
Seattle City Light have announced their intent to join the EIM. PJM operates in all or parts of Delaware,Illinois,Indiana,Ken-
PacifiCorp and the ISO have begun the process of possibly in- tucky,Maryland,Michigan,New Jersey,North Carolina,Ohio,
corporating PacifiCorp into CAISO,most likely in early 2019, Pennsylvania,Tennessee,Virginia,West Virginia,and the Dis-
were it to come to fruition. CAISO does not operate a capacity trict of Columbia. PJM operates a three-year forward mandato-
market. ry capacity market,called the reliability pricing model(RPM).
In the energy market,PJM has also recently received approval
ISO-New England(ISO-NE) for an increase in the offer cap from$1,000 per megawatt-hour
ISO-NE operates in Maine,New Hampshire,Vermont, (as it is in all RTOs) to$2,000 per megawatt-hour,with offers
Massachusetts,Rhode Island,and Connecticut.The region is between$1,000 and$2,000 justified based on costs.
facing numerous challenges from growing reliance on natural
gas without a corresponding increase in natural gas pipeline Southwest Power Pool
capacity,retirements of nuclear and coal plants,and rising SPP operates in all or parts of Arkansas,Kansas,Louisiana,
energy and capacity prices.Since the end of 2013,the ISO has Mississippi,Missouri,Nebraska,New Mexico,Oklahoma,
implemented a Winter Reliability Program involving direct pay- and Texas.SPP has approached RTO formation and market
ments to oil and dual-fuel generators to increase oil inventories, development on a slower and more conservative track than
for natural-gas-fired generators to contract for liquefied natural many other RTOs.SPP transitioned to a full RTO with both
gas,and for new demand-response resources.ISO-NE operates a a day-ahead and real-time market in March 2014,but has not
mandatory capacity market,called the forward capacity market implemented a capacity market.
(FCM),which procures capacity three years in advance. -
Midcontinent ISO(MISO)
MISO operates in all or parts of Arkansas,Illinois,Indiana, The American Public Power Association is the voice of
Iowa,Kentucky,Louisiana,Michigan,Minnesota,Mississippi, not-for-profit,community-owned utilities that power
Missouri,Montana,North Dakota,Ohio,Pennsylvania,South 2,000 towns and cities nationwide.We represent pub-
Dakota,Texas,Wisconsin,and Manitoba,Canada.MISO has lic power before the federal government to protect the
seen both defections by transmission-owning utilities—First En- interests of the more than 49 million people that public
ergy and Duke left MISO to join PJM and a significant expan- power utilities serve,and the 93,000 people they em-
sion of its territory to include what is known as"MISO South." ploy.Our association advocates and advises on electricity
Many industry observers believe the former MISO utilities that policy,technology,trends,training,and operations.Our
joined PJM did so to receive lucrative capacity market payments members strengthen their communities by providing
not available from MISO,while MISO's revisions to its capacity superior service,engaging citizens,and instilling pride in
market was one of the incentives for the southern expansion. In community-owned power.
2012,FERC approved a voluntary locational capacity market
for MISO,but ruled against mandatory participation or a
minimum offer price rule in that market.MISO filed a proposal
in 2016 to create a mandatory capacity auction in those regions
where there is retail choice and the utilities are not responsible
for supplying power to their customers.
54 PublicPower.org
236
AMERICAN
PUBLiC
P� W iil`♦NTM
ASSOCIATION
Powering Strong Communities
ISSUE BRIEF January 2017
RTO Capacity Markets and Their Impacts
On Consumers and Public Power
What is a capacity market? and are procured close to the period when the capacity will be
To serve their customers,electric power utilities provide not needed.
only electric power on a continuous basis,but related services, The Midcontinent ISO's(MISO) capacity market is volun-
including"capacity."Capacity is the maximum amount of tary and LSEs can choose whether to participate.But MISO
electricity that a power plant can produce,usually stated in proposed in November 2016 to develop a capacity market that
megawatts(MW). Customers who agree to curtail their use of would be mandatory just for the utilities that have been restruc-
electric power when called upon(known as demand response) tured and no longer own generation to serve their customer's
also provide capacity. load.Public power and consumer representatives have opposed
In the context of wholesale electric markets,a capacity mar- the proposal out of concern that it will lead to a mandatory ca-
ket is a mechanism to provide revenue to a power plant owner pacity market in the remainder of MISO.Neither the California
to stand ready to supply power when needed.An electric power ISO nor the Southwest Power Pool operates a capacity market.
utility or other load-serving entity(LSE')purchases or owns The Electric Reliability Council of Texas(ERCOT),which
capacity to ensure a reliable supply of power during peaks in de- functions as an RTO,but is not under FERC's jurisdiction
mand(generally the hottest and coldest times of the year).The because of the intrastate nature of its grid,does not operate a
LSE would need to have in place sufficient capacity to meet the capacity market.
projected peak demand plus a reserve margin,as determined by While RTO markets for capacity are described as"com-
regional reliability entities,which help ensure that the regional petitive,"they are highly mechanized,centrally administered
grid can"keep the lights on"and adhere to the statutory obliga- constructs governed by thousands of pages of complex rules.
tions under the Federal Power Act's Section 215. Transactions in these markets are opaque,with little meaningful
In several regions of the country,large bureaucratic,qua- data available to the public.RTO-operated wholesale electric-
si-governmental entities,known as regional transmission ity markets are regulated by the Federal Energy Regulatory
organizations(RTOs),operate and oversee the bulk power grid Commission(FERC). (See the American Public Power Associa-
and operate wholesale markets for energy,capacity,and ancillary tion's(Association or APPA)Issue Brief,"Wholesale Electricity
services.Three of the nation's seven RTOs operate mandatory Markets and Regional Transmission Organizations"for more
capacity markets. In these mandatory markets,capacity must information.)
be bought and sold through the RTO market. Capacity that
is owned or contracted for bilaterally still must be offered into What is the alternative to a mandatory capacity
and clear the capacity auctions.Also,the price paid for capacity market?
purchased through the auction is set by the RTO.The three LSEs in regions without mandatory capacity markets meet their
RTOs with mandatory capacity markets are ISO New England reliability requirements through ownership and bilateral con-
(ISO-NE),PJM Interconnection(PJM)—covering the mid-At- tracts—and generators recoup the costs of providing capacity
lantic states,Ohio,and Northern Illinois,and New York ISO through these mechanisms.In contrast to the RTO-operated
(NYISO).PJM and ISO-NE both operate a"forward"market mandatory capacity markets,such long-term contracts are
where capacity is procured three years in advance for a one- procured and negotiated through truly competitive processes.
year period.The capacity auctions in NYISO are shorter term Procuring capacity through long-term bilateral contracts and
ownership is important for maintaining adequate capacity,and
1 A Load Serving Entity(LSE)is an entity that provides electricity to end-users, necessary to obtain financing for new power plants,including
including a utility or alternative supplier serving the utility's customers. nuclear and renewable energy projects.
PublicPower.org 55
237
What is wrong with the mandatory capacity markets? long-term fixed-price contracts for new power plants and,at
Capacity prices in mandatory capacity markets have increased about the same time,the Maryland Public Service Commission
the cost of electricity and account for a significant share of the issued an order to procure long-term contracts for new capacity.
total electricity costs paid by consumers and businesses.In the- Fearful of the lower prices that would result from the entry of
ory,capacity payments cover a power plant's fixed capital costs new generation constructed under these state efforts,owners of
and other costs not recovered through electricity sales in energy existing power plants sought to block this competition.PJM re-
and other markets.But these markets have not demonstrated sponded with a similar proposal,and in 2011,FERC approved
that they incent investment in either the generation necessary changes to the PJM's"minimum offer price rule" (MOPR).This
to achieve a reliable and diverse supply of power or generation more stringent rule requires PJM to replace low-or zero-price
where it is most needed.Moreover,they do not exhibit any of offers from new natural gas plants with higher price offers,mak-
the features of competitive markets,and are instead adminis- ing it more difficult for these new plants to"clear"the capacity
trative constructs requiring elaborate rules and processes.The auctions.
RTOs have continually tweaked the rules in an attempt to ISO-NE,in accordance with an order from FERC,modified
address increasing reliability concerns in light of:pending coal its rules to create a similar MOPR to PJM in December 2012,
and nuclear retirements;an increased reliance on natural gas; despite the absence of support from stakeholders in the region,
poor performance of generators during the 2014 winter;and and received approval from FERC in February 2013.The
new environmental regulations. Often these rule changes have ISO-NE minimum offer price applies to all resources,including
not improved the markets,but instead simply increased the rev- renewable energy(other than a small exemption).In both PJM
enue paid to owners of existing generation resources,who have and ISO-NE,FERC actually reversed carefully negotiated pro-
a strong interest in a regime that limits competition from new visions agreed to when the markets were created that guaranteed
entrants and props up capacity prices,as described below. that self-supply resources could clear the auctions.The PJM
To illustrate the high costs of these markets,in the PJM and ISO-NE orders were appealed to the U.S. Court of Appeals
capacity market,known as the Reliability Pricing Model(RPM), for the Third Circuit.Unfortunately,the court ruled that the
approximately$95 billion has been paid or pledged to capac- self-supply appeal was mooted by FERC's approval of a com-
ity suppliers through the middle of 2020.This works out to promise for a self-supply exemption(described later),and also
approximately$1,600 per man,woman,and child living in rejected the states'appeals of the MOPR rule.In separate cases,
PJM's 13-state area.In 2015,the RPM added$120 per year federal district courts in Maryland and New Jersey invalidated
to the average electric bill of a homeowner, $930 for a retail the Maryland order and New Jersey law,respectively,because,
establishment,and$19,000 for an industrial facility. But only a the courts stated,FERC has jurisdiction over wholesale power
small portion of the$95 billion spent or committed is financing rates and states cannot take actions that impact wholesale power
new generation capacity.More than 90 percent of the capac- markets.These decisions were appealed and upheld by the U.S.
ity procured is existing power plants and only two percent is Courts of Appeals for the Third and Fourth Circuits. Both
new and"reactivated"generation resources.While PJM touts New Jersey and Maryland state commissions and two indepen-
demand response as a successful outcome of RPM,this resource, dent power producers filed petitions for certiorari to the U.S.
combined with energy efficiency,accounts for only five percent Supreme Court asking it to review the Circuit Court decisions,
of the capacity. which were granted for the Maryland and independent power
producer cases,and consolidated into a single case.In a narrow-
What are the most problematic changes to the ly written decision on April 19,2016,the U.S.Supreme Court
capacity markets? affirmed the Fourth Circuit and invalidated the Maryland long-
Among the more problematic changes to capacity market rules term contract because the contract would guarantee the owner
have been"buyer side mitigation"or"minimum offer price of the new power plant a wholesale interstate rate,and therefore
rules."The impetus for these changes began about five years ago "disregards an interstate wholesale rate required by FERC,"and
when several states located within RTOs became frustrated with is preempted by the Federal Power Act.The Court also let stand
the lack of new power generation being developed despite bil- the Third Circuit's decision with regard to the preemption of
lions of dollars spent on capacity payments.These states sought the New Jersey contracts.
to take control of their energy resource future and protect their A second set of problematic changes to the capacity markets,
residents from high electricity prices.New Jersey,Maryland, referred to as"capacity performance"in PJM or"performance
and Connecticut all took steps to establish competitive bidding incentives"in ISO-NE,will also significantly increase capacity
processes for the procurement of capacity for long-term bilateral costs and further constrain supply.In New England,generators
contracts.In January 2011,New Jersey Governor Chris Christie that are not operating or not providing reserves during scarcity
signed legislation to create a competitive bidding process for conditions are subject to stringent penalties,encouraging re-
s6 PublicPower.org
238
sources not meeting this requirement to face significantly higher to resources without any support from a utility customer charge
costs and submit higher price offers for capacity. PJM has placed or payments from a governmental entity.Exempt self-supply
new capacity performance requirements on all resources that resources are those owned or procured by LSEs who have long
wish to participate in the capacity auction similarly requiring standing business models(i.e.,public power,cooperative,and
resources to be available during emergency periods.These rules vertically-integrated utilities)and who can meet certain"net-
carried significant capacity price increases in both RTOs,but short"or"net-long"thresholds.Net-short,net long means
especially in PJM where the offer cap was lifted,thus allowing that the exempt resource would not result in the LSE buying
capacity resources to bid in much greater prices than needed substantially more capacity in the capacity markets than they sell
to meet the capacity performance obligations.An APPA-com- (net-short) or selling substantially more capacity than they buy
missioned analysis of the PJM capacity performance rule found (net-long).Such thresholds are intended to demonstrate that the
that the new rule will increase capacity costs by$7.3 billion over LSE would not have any financial incentive to exercise"buy-
three years with no discernible benefit to reliability.Moreover, er-side market power."But this exemption has been challenged
these rules will greatly disadvantage hydropower and other forms in the U.S.Court of Appeals for the District of Columbia
of renewable energy,demand response,and energy efficiency pro- Circuit by a group of merchant generators.
grams,further constraining supply.PJM's Capacity Performance State-sponsored resources are still not subject to any exemp-
rule is being challenged in the U.S. Court of Appeals for the tion in PJM unless they can demonstrate that the resource was
District of Columbia Circuit by APPA and eight other parties, procured through a process that was open to all generation
including public power utilities,trade associations,and environ- types,an unrealistic scenario given the need for states to be able
mental groups. to determine what resources best meet regulatory and policy
needs.In NYISO,self-supply exemptions were granted by
How Will these changes impact public power? FERC in two separate 2015 dockets.First,FERC approved a
In a mandatory capacity market,a public power utility or competitive entry exemption for resources that are offered into
other LSE that constructs generation for its own customers still the auction,but receive no payments from bilateral contracts
must offer such"self-supply"capacity into the RTO's capacity or other"subsidies."Second,FERC later approved exemptions
auction. If that capacity is required to be offered at a higher for self-supplied resources and a limited amount of renewable
price under buyer-side mitigation rules, that capacity might not energy. Resources eligible for the self-supply exemption would
clear the auction while the utility would be required to purchase be required to meet net-short and net-long thresholds as in
capacity that had cleared the auction.Thus, the buyer-side mit- the PJM MOPR self-supply exemption. But the NYISO's
igation rules could force an LSE to pay for capacity twice—first proposed rule changes to implement FERC's order have been
in paying for the construction of its own power plant and then challenged by the New York Power Authority,New York Public
again as a capacity payment to a generator that did clear the Service Commission,and New York State Energy Research and
auction.The original rules of the capacity markets in PJM and Development Authority,as well as the New York Association of
ISO-NE contained provisions to ensure that self-supplies capac- Public Power because these rules would make it very difficult for
ity would clear capacity auctions.This blanket exemption for self-supply resources to qualify for the exemption.Thus far,no
self-supply was undone by FERC,and revised capacity market exemption has been approved by FERC for the NYISO.
rules now threaten a cornerstone of the business model for pub- These self-supply exemptions represent a significant im-
lic power and cooperative utilities—their ability to self-supply provement to the buyer-side mitigation rules,but still are not
energy services to their own customers.Moreover,the capac- a return to the complete exemption for self-supply agreed to in
ity performance and performance incentive rules will further the original design of the capacity markets in PJM and ISO-
increase the cost of the portion of capacity that is purchased by NE(which still does not have a self-supply exemption)and
public power and place additional constraints on their ability to later overturned by FERC.Self-supply is one of the few viable
self-supply,especially when using resources,such as hydropower, alternatives that public power has to the RTO-operated capacity
that may not meet the overly stringent performance criteria. markets,and therefore greater certainty of this right is critical
There have been recent positive developments that may min- for public power.
imize the negative impacts on public power of the buyer-side
mitigation rules.Negotiations among merchant generators,
industrial customers,and public power and cooperative utilities Congressional Action
in 2012 resulted in an agreement providing for a MOPR The House and Senate approved competing versions of com-
exemption for both competitive entry and self-supply resourc- prehensive energy legislation in the 114th Congress:H.R. 8,
es that meet certain criteria.This agreement was approved by the North American Energy Security and Infrastructure Act of
FERC in May 2013.The competitive entry exemption applies 2015,and S.2012,the Energy Policy Modernization Act of
PubticPower.org 57
239
2015.House and Senate conferees were unable to resolve dif- spring of 2015,the Association drafted legislative language for
ferences between the bills,though,and the measures died upon this immediate fix for the RTO capacity markets.Specifically,
adjournment of the 114th Congress. APPA proposed that: 1) RTOs that have not yet implemented a
One point of contention during the energy bill conference mandatory capacity market should not move to do so without
was the issue of wholesale capacity markets. H.R. 8 proposed re- unanimous support by the states in the region;and 2)RTOs
quiring RTOs with capacity markets to report on whether their that have already adopted a mandatory capacity market should
markets ensure a sufficient supply of capacity meeting certain not impair(through rates,or rules,regulations,or practices
reliability attributes. Generally,these criteria matched the per- affecting rates)the ability of a load-serving entity to meet its
formance requirements established in PJM and,generally,would capacity obligations through a resource it owns,builds,controls,
have excluded renewables,including hydropower.These reports or for which it has a contract for capacity.
would have had to have been filed with FERC every time an
RTO sought a change to market rules.While this language was
better than language in an early draft of the bill that would have American Public Power Association
required all RTOs capacity markets to meet PJM-like perfor- Contacts
mance requirements,APPA had concerns that even a simple John Godfrey,Senior Government Relations Director,
report,particularly when filed with every proposed change to 202-467-2929/jgodfrey@publicpower.org
RTO capacity market rules,would have increased pressure on all
RTOs to adopt these performance requirements.The Senate bill Elise Caplan,Senior Manager,Electric Market Analysis,
would have required a one-time report from RTOs on electric 202-467-2974/ecaplan@publicpower.org
capacity resources available;the current and projected state of
reliability;and the extent to which RTO market rules meet a
series of criteria related to:wholesale electric prices;diversity
of generation;and availability of self-supply of electric capacity The American Public Power Association is the voice of
resources by public power entities. not-for-profit,community-owned utilities that power
2,000 towns and cities nationwide.We represent pub-
lic power before the federal government to protect the
American Public Power Association Position interests of the more than 49 million people that public
The Association has long advocated for fundamental reforms power utilities serve,and the 93,000 people they em-
ploy. Our association advocates and advises on electricity
that would transition from mandatory capacity markets to
voluntary residual markets,with the primary procurement of policy,technology,trends,training,and operations.Our
capacity conducted by states and local public power and coop- members strengthen their communities by providing
superior service,engaging citizens,and instilling pride in
erative utilities through bilateral contracts.In the near term, community-owned power.
however,APPA has sought to fully restore public power rights
to self-supply.In close cooperation with its members,in the
58 PubLicPower.org
240
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ASSOCIATION
Powering Strong Communities
ISSUE BRIEF January 2017
Municipal Bonds and Public Power
Summary requiring issuers to register bonds for the interest to be exempt
Tax-exempt municipal bonds have financed$2 trillion in new from tax—and to tax the interest on bonds determined not to
be for governmental purposes. By way of example of the latter,
investments in infrastructure in the last decade,including
$112 billion in new investments in electric power generation, the 1986 Tax Reform Act substantially revised the tax treatment
transmission and distribution,and should be the cornerstone of private activity bonds.'In 1988,a slim U.S. Supreme Court
of any plan to address the significant challenges of funding and majority in South Carolina v.Baker found that municipal bonds
financing new investments in public infrastructure.Federal tax could be taxed,but Congress has been unwilling to overturn
exemption reduces costs at the margin,but municipal bonds are decades of precedent by changing the tax treatment of govern-
subject to local control and responsibility.Therefore,the Amer- ment purpose bonds.
ican Public Power Association(Association or APPA) opposes
any efforts to limit or eliminate municipal bonds given these
adverse impacts on our public power utility members and their Strengths and Benefits of Municipal Bonds
customers. State and local governmental entities—including public power
utilities—have limited means to raise funds for their commu-
nities'capital needs.The municipal bond market gives close to
Background and History 42,000 governmental issuers access to investors.This is partic-
The first recorded municipal bond was issued in 1812.Today, ularly important to the vast majority of small towns,counties,
there are$3.7 trillion in municipal bonds outstanding,with cities,and publicly owned utilities that issue municipal bonds.
more than$200 billion funding new projects every year.Close The median corporate bond issue is$210 million. Conversely,
to five percent of those issuances(as much as$11 billion every while roughly five percent of municipal bond issuances are for
year) finance new investments in power generation,distribution, $200 million or more,the vast majority of municipal bonds,
reliability,demand control,efficiency,and emissions control:all including for public power investments,are far smaller: the
needed to deliver safe,affordable,and reliable electricity, median municipal bond issuance is$7 million.
In addition to infrastructure for public power utilities,these The federal tax exclusion of bond interest means issuers can
bonds finance roads,bridges,sewers,hospitals,libraries,schools, finance their investments affordably. Over the past 20 years,the
town halls,police stations,and every other sort of govern- average yield of Standard&Poor's Corporate Bond(Aaa) Index
ment-purpose investment made by state and local governments. has been 130 basis points higher than that of Moody's High-
In fact,nearly three-quarters of the infrastructure investment in Grade Municipal Bond Index.Adjusting for the cost of call
provisions common in municipal bonds,but rare in corporate
the U.S.is financed by state and local government bonds.
Since the creation of the federal income tax in 1913,interest
on government purpose municipal bonds has been excluded 'Private activity bonds differ from government purpose municipal bonds in
from federal income tax.This dates back to a series of U.S. that they can be issued by a state or local government to finance certain private
Supreme Court decisions in the 1800s concluding first,that a projects.Interest on qualifying private activity bonds is exempt from regular
federal income tax,but subject to the federal Alternative Minimum Tax(AMT).
state tax on a federal enterprise inherently violated the Constitu
The volume of private activity bonds that can be issued in a state is subject to an
tion and,second,that a federal tax on municipal bond interest annual cap.While power generation and distribution are among the qualified
likewise would be unconstitutional.Subsequently,the U.S. private activity bond activities,other restrictions and considerations make
Supreme Court has given the federal government the right to the use of tax-exempt private activity bonds rare for such purposes.Of 1,150
municipal bonds issued for public power projects from 2007-2011,just 30 were
regulate government purpose municipal bonds—for example, private activity bonds.
PublicPower.org 6s
243
taxable bonds,the spread is closer to 180 basis points.The • Replacing the exclusion for municipal bonds with a direct
difference can save municipal bond issuers 25 percent over the payment bond would increase borrowing costs by 16 percent
30-year life of a project.These savings result in more critical (assuming a direct payment percentage of 25 percent of
investments in infrastructure and essential services by state and the issuer's interest expenses).Direct payment bond issuers
local governments and lower costs for the services they provide. would also be vulnerable to the annual budget process,as evi-
Also,municipal bonds are ideally suited to finance capital-inten- dented by the ongoing sequestration order for Build America
sive and long-lived public infrastructure,such as the assets of a Bond payments. (See APPA's fact sheet,"Sequestration for
public power utility. Build America Bonds'Credit Payments"for additional infor-
Investors purchase municipal bonds in part because of tax mation.)
considerations,accepting a lower rate of return because the To put these numbers in perspective,a$250 million power
interest is exempt from federal income tax.Municipal bonds plant would cost$80 million more to finance if the tax exemp-
are also valued for their ability to generate a steady stream of tion for municipal bonds were repealed;$40 million more if the
revenue for fixed-income households.Individual households tax exemption were"capped"and$30 million more if municipal
are the investors in over 70 percent of municipal bonds.Nearly bonds were replaced with direct payment bonds.
60 percent of this household tax-exempt interest is earned by
taxpayers over 65 years old.In 2012,48 percent of all municipal
bond interest paid to individuals went to those with incomes of
less than$250,000.2 American Public Power Association Position
The Association believes municipal bonds are the single most
Recent market performance and the"flight to quality" un-
derscore that municipal bonds are also valued as stable financial effective tool for financing investments in public infrastruc-
investments.Now more than 200-years old,the U.S.municipal ture.Taxing municipal bonds would impose higher borrowing
costs that would limit investment in critical infrastructure and,
bond market is well-established,with a robust and compre-
hensive federal legislative and regulatory system that protects ultimately,impose higher electric rates on our residential and
investors.Likewise,municipal bonds themselves are typically business customers. In sum,any such change would simply
extremely secure investment vehicles:the default rate for invest- shift costs from the federal government onto the backs of state
and local residents.As a result,the Association believes that the
ment grade municipal bonds is far less than 0.1 percent,a frac
federal tax exclusion for municipal bond interest should not be
tion of the default rate for comparably rated corporate bonds.
limited or replaced.
Congressional and Administration Actions— American Public Power Association Contact
Threats to Municipal Bonds
Calls to tax municipal bonds to pay for federal income tax rate John Godfrey,Senior Government Relations Director,
cuts or deficit reduction are on the rise.All would have the 202-467-2929/jgodfrey@publicpower.org
same effect:limiting or eliminating the income tax exemption
for interest from municipal bonds would reduce investments in
vital infrastructure across the country and increase the cost of The American Public Power Association is the voice of
electricity for public power customers.Ultimately,a dispropor- not-for-profit,community-owned utilities that power
tionate share of this burden will be shouldered by those who can 2,000 towns and cities nationwide.We represent pub-
least afford it. lit power before the federal government to protect the
For example: interests of the more than 49 million people that public
• A repeal of the tax exemption for municipal bonds would power utilities serve,and the 93,000 people they em-
increase borrowing costs by 47 percent; ploy. Our association advocates and advises on electricity
policy,technology,trends,training,and operations.Our
• A surtax on municipal bond interest to create a"cap"on the members strengthen their communities by providing
tax value of the exclusion for municipal bonds would increase superior service,engaging citizens,and instilling pride in
borrowing costs by 32 to 35 percent;and communityowned power.
z Internal Revenue Service,"Statistics of Income-2010:Individual Income Tax
Returns"(2012).
62 PublicPower.org
244
AMERICAN
PUBLiC
pots-
TM
ASSOCIATION
Powering Strong Communities
ISSUE BRIEF January 2017
Sequestration of Build America Bond
Credit Payments
Summary In drafting ARRA,Congress sought to ensure that BAB
Failure of the Joint Select Committee on Deficit Reduction to credit payments were not vulnerable to year-to-year budget leg
deliver a federal deficit reduction package in 2012 has triggered illation enacted by Congress. First,ARRA clarified that a credit
more than$1 billion in payment cuts to state and local issuers payment to a bond issuer is a"refundable credit."2 Second,
of Build America Bonds (BABs).Those cuts are scheduled to ARRA specifically added BAB credit payments to the list of tax
credit payments for which funds are permanently appropriated.'
continue through 2025.Public power utilities issued more
than$16 billion in BABs for power-related projects.These In the 21 month period(April 2009 through December 31,
cuts ignore Congress's intent for BABs and renege on what the 2010) in which BABs could be issued,2,275 BABs were issued
federal government promised in partnership with state and local worth$181 billion.'Of those issuances, 108 BABs worth$16
governments.The Administration should review the decision billion financed power related projects.
to cut BAB credit payments and Congress should act to prevent
further cuts. Sequestration of BAB Credit Payments
On January 15,2012,$984 billion in automatic spending cuts
known as"sequestration"were triggered by the failure of the
Background Joint Select Committee on Deficit Reduction to meet deficit
reduction targets required under the Budget Control Act of
Creation of Build America Bonds 2011 (BCA).These cuts,totaling roughly$110 billion annual-
Public power utilities annually finance roughly$11 billion in ly,began to take effect on March 1,2013,and had been set to
expire after fiscal year 2021,i.e.,after September 30,2021.
electric system investments with tax-exempt municipal bonds.
(see"APPA1s Municipal Bonds and Public Power"issue brief for In September 2012,the Office of Management and Budget
more information).During the 2008 credit crisis,traditional (OMB)provided to Congress a program-level list of cuts that
municipal bond investors pulled out of the market and interest would be required under sequestration.'In that report,OMB
rates soared.To provide liquidity to these markets—and in turn wrote that,while tax credit payments to individuals are exempt
from sequestration,credit payments to other entities—including
encourage the sorts of infrastructure investments municipal
BAB credit payments to BAB issuers—are not.While perhaps
bonds finance—the American Recovery and Reinvestment Act
(ARRA)of 2009 created the BAB.' aligning with a strict reading of the law,this interpretation
contradicts the Treasury Department's belief that BAB credit
A BAB meets the same requirements of any other govern-
ment-purpose municipal bond,but instead of the interest paid
Z Refundable credits generally are exempt from sequestration(2 USC§905(d)),
to the bondholder being tax-exempt,the bond issuer receives
although as discussed further in this report the Office of Management and
a credit payment from the Treasury Department equal to 35 Budget(OMB)has interpreted this exemption narrowly and,as a result,OMB
percent of the interest paid.These new"direct payment"bonds has not applied this exemption to BABs credit payments.
were intended to expand the pool of investors for municipal
bonds to include investors willing to invest in taxable assets 31 USC§1324(b).
without materially increasing the cost of financing for the mu- 4 U.S.DEPT OF TREASURY,TREASURY ANALYSIS OF BUILD AMERI-
nicipal issuer. CA BOND ISSUANCES AND SAVINGS,at 2(May 16,2011).
'American Recovery and Reinvestment Act of 2009,Pub.L.No.111-5(123 5 OFFICE OF MGMT.&BUDGET,EXEC.OFFICE OF THE PRESIDENT,
Stat.115)§1531 (codified as 26 U.S.C.54AA). OMB REPORT PURSUANT TO THE SEQUESTRATION TRANSPAREN-
CY ACT OF 2012(EL. 112-155),at 157(Sept.24,2012).
PubLicPower.org 63
245
Year 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
Sequester
Percentage 8.7% 7.2% 7.1% 6.8% 6.9% 6.4% 6.1% 5.8% 5.5% 5.5% 5.5% 5.5% 5.5%
Sequester
($millions) 171 312 301 285 260 230 208 188 169 161 153 145 138
Sources:2013 through 2017 sequestration data from the Office of Management and Budget;2018 through 2025 sequestration estimates are based on Congressional
Budget Office estimates of sequestration percentages with APPA calculations of likely BAB volume outstanding.
payments and other refundable credit payments are"compa- American Public Power Association Position
rable"under the law.'OMB's interpretation was certainly not Congress clearly did not intend for BAB credit payments to be
intended by the congressional authors of the BAB.7 subject to sequestration. Likewise,it is clearly a"breach of con-
Because of OMB's decision,BAB credit payments made after tract"for bond issuers to have negotiated financial deals based
March 31,2013,through the end of fiscal year 2013 were cut on the promise of a payment on which the federal government
by 8.7 percent. In other words,instead of receiving a payment is now reneging.BAB-financed investments in power genera-
equal to 35 percent of the interest paid to bond holders,BAB tion,distribution,and system improvements shored up critical
issuers received a payment equal to 32 percent of interest paid infrastructure at a time when traditional tax-exempt bond inves-
BAB bond holders.Since March 2013,BAB payments have tors were in short supply and state and local government access
been cut by$1.069 billion.APPA estimates that BABs payments to the municipal bond markets was impaired.It is unfair for the
will be cut by another roughly$1.7 billion between 2017 and federal government to decide by fiat to renegotiate the terms of
2025.8 those deals.Every dollar cut means one dollar less that is avail-
Finally,BAB credit payments could face an increase in the able to build power plants,power lines,and systems needed to
percentage amount of sequestration.The Statutory Pay-as-You- continue to deliver electric power to public power's customers.
Go Act of 2010 requires that revenue or mandatory spending Every dollar cut also represents a dollar more that public power
laws must not increase federal budget deficits.This"Pay-as- utilities'customers must pay to receive such power.
You-Go"requirement is enforced through sequestration—in OMB should reconsider its narrow reading of the budget law
this case,solely of mandatory spending items(including BAB and decide to exempt BAB credit payments from sequestration.
credit payments).A failure to meet Pay-as-You-Go requirements If OMB refuses to do so,Congress should act to prevent further
would increase the percentage cut from BAB credit payments. BAB credit payment cuts and protect any future tax credit bond
6Tax Exempt and Taxable Government Bonds:Hearing before the H.Sub-
or direct payment bond programs from sequestration.
comm.On Select Revenues of the H.Comm.on Ways&Means,111th Cong.
12(2009)(Serial No. 111-22)(Statement of Alan B.Krueger,Assistant Sec'y.of
Treasury of the United States). American Public Power Association Contact
'John Buckley,Remarks at the Urban-Brookings Tax Policy Center and George John Godfrey,Senior Government Relations Director,
Mason Center for State and Local Government Leadership panel discussion Fall- 202-467-2929/jgodfrey@publicpower.org
out from Federal Tax Reform:Implications for State and Local Revenues(Sept.
21,2012)(http://www.taxpolicycenter.org/events/federal-tax-reform-and-the-
states.cfm)(Buckley,who as chief tax counsel for the House Ways and Means
Committee helped write the BAB provision in ARRA,called OMB's decision The American Public Power Association is the voice of
"extraordinary and strange"). not-for-profit,community-owned utilities that power
'APPA estimates based on prior year sequestration and estimates provided in 2,000 towns and cities nationwide.We represent pub
Cong.Budget Office,Estimated Impact of Automatic Budget Enforcement Pro- lic power before the federal government to protect the
cedures Specified in the Budget Control Act,at 8(Sept.12,2011).a Statutory interests of the more than 49 million people that public
Pay-as-You-Go Act of 2010,Pub.L.No.111-139(124 Stat.8)(codified as 2 power utilities serve,and the 93,000 people they em-
U.S.C.931).
ploy.Our association advocates and advises on electricity
policy,technology,trends,training,and operations. Our
members strengthen their communities by providing
superior service,engaging citizens,and instilling pride in
community-owned power.
64 PubLicPower.org
246
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AMERICAN
PUBLiC
�1(TM
ASSOCIATION
Powering Strong Communities
ISSUE BRIEF January 2017
Unmanned Aerial Vehicle ("Drone") Use
In Public Power Utility Operations
Summary the sky from the cockpit to"see and avoid"other aircraft.So,
Unmanned aerial vehicles("drones")have the potential to be despite being considered local and state governmental entities,
public power utilities have generally not benefitted from these
very useful to public power utilities in assessing storm dam-
FAA exemptions. Because of these limitations on local and state
age,surveying distribution and transmission equipment,and
supporting construction and repair.Federal Aviation Adminis governmental entities,the FAA previously required govern-
tration(FAA)rules allow drone use in some circumstances,but mental entities to obtain an FAA-issued Certificate of Waiver
these rules generally preclude operations over long distances or or Authorization(COA) to operate drones,a process that was
at night—operations where and when drones could be particu complicated and unpredictable,with successful applications still
larly helpful.The American Public Power Association(Associa—
tion or APPA) believes that as drones are further incorporated in
the national airspace,Congress and the FAA should take greater
steps to facilitate drone use in utility operations. Congressional and Regulatory Action
The FAA Modernization and Reform Act of 2012 required the
FAA to develop a plan to integrate civil drones into the national
Background airspace system and simplify the process for state and local gov-
Drones show particularly cost-effective potential for use by elec- ernmental entities seeking a COA.On June 21,2016,the FAA
tric utilities in assessing storm damage,surveying distribution released final rules for commercial operation of small unmanned
and transmission equipment,and supporting construction and aircraft systems(or drones).These rules,referred to collectively
as"Part 107,"made it easier for businesses,nonprofits,and
repair.Some APPA members already deploy drones in routine
surveys of electric power equipment and in support of construc- government agencies to use drones for a variety of purposes;
however,these rules do not allow users to operate beyond"visual
tion and repair,and others are investigating how drones can
line of sight"and do not clarify that drone usage by public pow
assist them in effective,efficient operations,including damage
assessment and restoration after disasters. However,FAA regula- er utilities is a"governmental activity."Public power utilities are
tions are still catching up to this new technology. just beginning to explore the possibilities of operations under
Generally,different FAA rules govern the use of aircraft by Part 107,but from the start,it is clear that it will be of little use
governmental jurisdictions and by private(civil) operators. in certain operations,including surveying and assessing equip-
Government-operated(public)aircraft must comply with fed- ment in remote locations and aiding operations,which occur
eral airspace and air-traffic rules,but generally are exempt from outside daylight hours.
civil airworthiness and airman certification requirements.This On July 15,2016,the President signed into law the FAA Ex-
exemption has eased the use of traditional aircraft by govern- tension,Safety,and Security Act of 2016,extending authoriza-
mental entities.The FAA,however,has taken a very narrow tion for the FAA beyond the July 2016 deadline until September
30,2017.Among other things,this bipartisan legislation also
view on what governmental activity should qualify as"govern-
mental activity"for purposes of the exemptions related to drone included new aviation safety provisions and multiple guidelines
use,generally limiting them to law enforcement,fire control, pertaining to drones.For example,the reauthorization includ
aviation research,and geographic surveys. Further,drones can- ed language aimed at streamlining the regulatory processes for
not,by definition,meet airspace rules requiring the pilot to scan using drones during emergencies and disaster response efforts,
including utility and infrastructure restoration. Further,the bill
PublicPower.org 67
249
provided for an application process for entities to operate drones American Public Power Association Contact
beyond the visual line of sight and at night if responding to Andrew Wills,Government Relations Director&Counsel,
covered incidents or activities. 202-467-2959/awills@publicpower.org
American Public Power Association Position
The Association believes drones could be beneficial to the The American Public Power Association is the voice of
operation of public power utilities,including for surveying not-for-profit,community-owned utilities that power
electric power equipment,assessing damage for restoration after 2,000 towns and cities nationwide.We represent pub-
disasters,and aiding in construction and repair.APPA appre-
ciates the dedication of Congress and the FAA to establish fair, interests of the more than 49 million people that public
measured laws and regulations that maintain safety and encour- power utilities serve,and the 93,000 people they em-
age innovation and use.We encourage Congress to continue to ploy.Our association advocates and advises on electricity
oversee the regulatory implementation of these rules and will policy,technology trends,training,and operations. Our
continue to work with Congress and the FAA in drafting new members strengthen their communities by providing
laws and regulations that keep pace with this rapidly evolving superior service,engaging citizens,and instilling pride in
technology. community-owned power.
68 PubticPower.org
250
AMERICAN
PUBLIC
P� - 11(TM
ASSOCIATION
Powering Strong Communities
ISSUE BRIEF January 2017
Regulatory Flexibility Act and Small Business
Regulatory Enforcement Fairness Act Reform
Summary population of less than 50,000. It also allows federal agencies to
The Regulatory Flexibility Act(RFA) and Small Business Reg- set their own standard for"small,",if appropriate.
ulatory Enforcement Fairness Act(SBREFA)require agencies SBREFA is an amendment to the RFA that provides,among
to consider"direct"costs of a new rule or regulation on small other things,that the Environmental Protection Agency(EPA),
entities—indirect costs on small business are not considered. Occupational Safety and Health Administration(OSHA),and
Shortcomings in these statutes make it too easy to downplay Consumer Financial Protection Bureau(CFPB)solicit input
these costs or to fail to amend proposed regulations to address from small entity representatives before finalizing a rule that will
them.The RFA definition of a small governmental jurisdiction have a large impact on a substantial number of small entities,as
allows agencies to ignore many functionally small public power defined in the RFA.
utilities'as part of the RFA and SBREFA processes.The Amer-
ican Public Power Association(Association or APPA) believes
that the RFA and SBREFA should be amended to require that Size Standard
all federal agencies comply with both statutes when designing For small businesses,the Small Business Administration(SBA)
rules and regulations,and that federal agencies consider"in- has developed specific standards (generally based on number
direct"costs of regulations on small entities.They should also of employees) for each sector based on the North American
be amended to create a consistent,common-sense standard for Industry Classification System(NAICS) Code.To be a small
deciding which public power utilities are"small." organization,the entity must not be"dominant"in its field of
operation.A governmental jurisdiction,which includes public
power utilities,is small if it has a population of 50,000 or less.
Background These differing standards for small businesses,small organi-
Under the RFA,federal agencies must:consider the"direct zations,and small governmental jurisdictions are problematic
costs"of new rules,regulations,and requirements on small because the standard for a small governmental jurisdiction(pop
businesses;analyze effective alternatives to minimize the cost of ulation of 50,000 or less) only includes very small organizations
when applied to certain industry sectors,particularly the electric
new regulations on small businesses;and provide this analysis
to the public for comment.The law states that"agencies shall utility sector,and may not properly account for functionally
endeavor,consistent with the objectives of the rule and of ap small public power utilities that should be small for purposes of
plicable statutes,to fit regulatory and information requirements the RFA analysis.Further,this standard creates perverse results
to the scale of the businesses,organizations and government with respect to public power utilities and may result in incorrect
jurisdiction subject to regulation."Notably for public power,the classifications of those utilities inconsistent with the intent of
RFA defines a"small governmental jurisdiction"as one with a the RFA.For example,a public power utility with very few cus
tomers is still considered large if it happens to operate in a large
1 APPA considers a public power utility to be functionally small if it meets the city.Conversely,agencies and SBA expect a public power utility
currently effective SBA definition for a small business,which classifies entities with many customers—even if operating in a small jurisdic-
based on the number of employees.For example,Longmont Power and Com- tion—to exempt itself from consideration as a small utility.
munications serves about 37,500 customers in a city of almost 60,000 people, The effect of these concerns is that agencies can ignore more
but the utility only employs 51 utility workers,roughly 668 employees smaller
than the 750 employee SBA standard for a small generation utility.On the other than 100 public power utilities that are quite small relative to
hand,Dominion Power serves more than 5 million customers in a city of about others in the sector when conducting RFA analysis—or conven-
215,000 people,and it employs over 14,000."
PublicPower.org 69
251
ing SBREFA panels—making it easier for these agencies to of H.R.33,which APPA supports.The Association is seeking
determine that new regulations do not have a significant changes to the RFA language in H.R. 5 to change the definition
economic effect on a substantial number of small entities. of"small governmental jurisdiction"to be consistent with the
currently effective definition of"small business"and the defini-
tion of"small organization"proposed in H.R. 5,as the current
SBREFA Gaps definition denies many small public power utilities an appropri-
SBREFA requires only EPA, OSHA,and CFPB(and not other ate voice and makes it easier for agencies to determine that new
federal agencies) to receive input from affected small entities regulations do not have a significant economic effect on them.
before proposed rules are published.If the proposed rule is
expected to have a significant impact on a"substantial number"
of small entities,the proposing agency must convene a panel American Public Power Association Position
to review the draft proposed rule and related analysis prepared APPA supports amending the RFA and SBREFA to broaden
by the proposing agency.It must also collect advice from small the scope of the statute to cover all federal agencies and require
business representatives that are identified by the SBA Office of those agencies to consider both direct and indirect costs of
Advocacy compliance.The Association believes future revisions to the
These review panels are critical for the covered federal RFA should:
agencies subject to SBREFA to understand how their rules will
affect small entities,such as public power utilities.However, • Include an amendment to the definition for a"small govern-
covered federal agencies have not always provided all of the mental jurisdiction"to ensure that it appropriately designates
required information so that proper analyses can be conducted, public power utilities consistent with the original intent of
and they have not consistently used the information provided the RFA.Using the same standard for all entities—where an
by small business representatives to minimize the impacts of the SBA industry standard is available—would provide clarity
proposed regulations on small businesses.As a result,SBREFA and consistency and would ensure that the real effects of
regulations on small entities are not artificially diminished.
proceedings are often not a productive way to influence the
substance of final regulations. • Require federal agencies to provide all pertinent information
on a proposed rule and an exhaustive list of the regulatory
alternatives to the small entity representatives with sufficient
Congressional Action time to review all materials before a SBREFA panel is
In the 114th Congress,then-Chairman David Vitter(R-LA) convened.
of the Senate Small Business Committee introduced S. 1536,
the Small Business Regulatory Flexibility Improvements Act of
2015.Among other changes,S. 1536 would have amended the American Public Power Association Contact
RFA to clarify that a governmental entity should be considered Andrew Wills,Government Relations Director&Counsel,
a"small entity"if it meets the SBA small business standards for 202-467-2959/awills@publicpower.org
the respective industry type.For example,a city-run distribu-
tion utility would be considered a small governmental entity
for purposes of the RFA if it had 1,000 or fewer employees,and
non-electric department city employees would not be counted The American Public Power Association is the voice of
when deciding whether the utility department met the size not-for-profit,communityowned utilities that power
standard.APPA supported this legislation. 2,000 towns and cities nationwide.We represent pub-
On January 3,2017,House Small Business Committee lie power before the federal government to protect the
Chairman Steve Chabot(R-OH) introduced H.R.33,the interests of the more than 49 million people that public
Small Business Regulatory Improvements Act.This legislation power utilities serve,and the 93,000 people they em-
would amend the RFA and SBREFA to require that all federal ploy. Our association advocates and advises on electricity
agencies adhere to both laws and consider"indirect"econom-
policy,technology trends,training,and operations. Our
is impacts to their proposed rules. On January 11,2017,the members strengthen their communities by providing
House of Representatives passed comprehensive regulatory superior service,engaging citizens,and instilling pride in
reform legislation,H.R. 5,the Regulatory Accountability Act of community-owned power.
2017.The bill would require accountability and transparency in
federal agencies'regulatory proceedings. It also includes the text
7p PubUcPower.org
252
AMERICAN
PUBLIC
or 1 rMrm
ASSOCIATION
Powering Strong Communities
ISSUE BRIEF January 2017
Preserving the Municipal Exemption from
Federal Pole Attachment Rates
Summary needs and interests."This exemption has continued(despite
In 2009,Congress directed the Federal Communications claims that the exemption would lead to excessive rates charged)
Commission(FCC or Commission)to develop a National through multiple telecommunications reform efforts,including
Broadband Plan(NBP) to ensure every American has"access to enactment of the Telecommunications Act of 1996,because
broadband capability."A year later,the FCC issued its NBP and Congress maintained that the existing process is appropriate
and adequate.Attachment rates are determined at the local level
recommended that federal,state,and local governments under-
and,if an entity is seeking excessive pole-attachment rates,the
take efforts to improve the utilization of infrastructure to"en-
sure that network providers have easier access to poles,conduits, affected operator has the remedy of taking the issue to the local
ducts,and rights-of-way."As part of this recommendation,the government and community to challenge that rate.
FCC suggested that Congress consider eliminating the exemp- In 2009,Congress directed the FCC,through the Ameri-
tion public power and rural electric cooperative utilities have can Recovery and Reinvestment Act(ARRA),to develop and
from FCC jurisdiction on pole attachments.As of this writing, deliver to Congress within one year a NBP to ensure that every
no proposals to remove the exemption have been introduced, American has access to broadband capability.On March 16,
but draft legislation in the House in the 114th Congress would 2010,the Commission released its NBP,which recommended,
have made changes to federal pole attachment law that would among other things,that"Congress should consider amending
have impacted public power utilities and potentially laid the Section 224 of the Act to establish a harmonized access policy
for all poles,ducts,conduits,and rights-of-way."In making this
groundwork for future repeal.
The American Public Power Association(Association or recommendation,the FCC singled out the exemption of"poles
APPA)would oppose any such efforts to remove the munici owned by cooperatives,municipalities,and non-utilities,"and
pal exemption for public power entities from the federal pole poles in states that have adopted their own system of regulation,
attachment rate.While a few states adhere to the federal pole noting that 85 million poles are not subject to its jurisdiction.
attachment rate and others look to it as a reference,for most However,the Commission cited no cases where the exemption
public power utilities,their pole attachment fees are decided at proved to be an impediment to broadband deployment.In fact,
the local level,with all interested parties able to present their the FCC provided no rationale for removing the exemption ex-
cept to have a"uniform policy for broadband access to privately
cases to the local government in situations where the rate is
disputed. owned physical infrastructure."
The FCC issued a Further Notice of Proposed Rulemaking
(FNPRM)later in 2010 seeking to revise its"pole attachment
Background rules to lower the cost of telecommunications,cable,and broad-
In 1978,Congress passed the Pole Attachment Act,which band deployment and to promote competition,as recommend-
added Section 224 to the Communications Act of 1934,to re ed in the NBP."In the FNPRM,the FCC sought comment on
quire the FCC to establish subsidized rates for pole attachments its proposal to establish rental rates for pole attachments that
"are as low and close to uniform as possible."APPA filed corn-
for the then-new cable industry.Under the law,public power
ments in the proceeding,stating that the Association did not
and rural electric cooperative utilities were exempted from
this requirement"because the pole attachment rate charged oppose a uniform rate approach,but that it opposed any revi-
by municipally owned and cooperative utilities [were] already sion to the FCC formula that would establish an artificially low
subject to a decision-making process based upon constituent rate,effectively requiring electric ratepayers to subsidize the pole
attachments of for-profit communications service providers.
PublicPower.org 71
253
APPA believes that all attachers who benefit from poles should American Public Power Association Position
pay their fair share of the full costs of installing and maintaining The Association strongly supports the NBP goal of ensuring
the poles. every American has access to broadband capability. However,
On April 7,2011,the FCC approved its pole attachment or- we strongly disagree with the FCC's assertion in the NBP that
der.While most public power utilities are not directly impacted Congress should consider eliminating the municipal/cooperative
by the order because their pole attachments are not subject to exemption in Section 224 of the Communications Act in order
the FCC's jurisdiction under Section 224(a)(1)of the Commu- to"create a uniform policy for broadband access to privately
nications Act of 1934(as amended),many are indirectly affected owned infrastructure."The FCC provided no evidence that the
because the FCC's revised telecom formula and make-ready exemption is an impediment to broadband deployment,and
provisions provide a benchmark for pole attachment rates and ignored Congress's long-held belief that the pole attachment
access.APPA is highly disappointed that the FCC ignored the rates charged by municipally owned and cooperative utilities
serious concerns of utilities about the impact that reducing are reasonable because they are"subject to a decision-making
the telecom rate for attachments down to the cable rate would process based upon constituent needs and interests."
have on cost recovery.The FCC also ignored other important APPA will oppose any effort in Congress to remove the
concerns,including those regarding wireless attachments above exemption for public power entities from the federal pole
the communications space.The Association believes the FCC's attachment rate.The Association also strongly disagrees with
order will do little to spur broadband deployment or adoption, the FCC's decision to lower the federal telecom pole attachment
which the FCC asserted would be aided by"streamlin[ing] rate to the lower cable rate.Doing so created a rate that does
access and reduc[ing] costs for attaching broadband lines and not capture the full costs of attachment and pole maintenance,
wireless antennas to utility poles." thus forcing electric consumers to subsidize for-profit attaching
In December 2015,the House Energy&Commerce Com- entities.
mittee's Communications&Technology Subcommittee marked
up legislation that sought to improve broadband deployment
through streamlining the requirements for obtaining rights of American Public Power Association Contact
way on federal lands and creating a database of federal real prop Andrew Wills, Government Relations Director&Counsel,
erty that may be used for deploying broadband communications
202-467-2959/awills@publicpower.org
facilities.The legislation also included language from H.R.3805
to require the installation of broadband conduit in federally
funded highway projects("dig once"bill) and would have made
changes to federal pole attachment law.The legislation did not The American Public Power Association is the voice of
repeal the municipal/cooperative exemption in Section 224(a) not for-profit,community-owned utilities that power
(1).However,it would have subjected all pole owners,including 2,000 towns and cities nationwide.We represent pub
public power and electric cooperative utilities,to a non-dis- lic power before the federal government to protect the
criminatory access requirement that would have prevented such interests of the more than 49 million people that public
an owner from denying access to a pole based on the type of power utilities serve,and the 93,000 people they em-
attacher.APPA had no concerns with this provision.However, ploy. Our association advocates and advises on electricity
the draft bill also included language that could have laid the polity,technology trends,training,and operations.Our
future groundwork for repeal of the municipal/cooperative members strengthen their communities by providing
exemption through the imposition of reporting requirements on superior service,engaging citizens,and instilling pride in
an annual basis to the FCC on the location of all poles,ducts, community-owned power.
conduits,and rights-of-way,as well as the rates charged for such
attachments.The Association strongly opposed these provisions,
which would have created a huge regulatory burden on public
power utilities and raised security concerns. Fortunately,the full
Energy&Commerce Committee did not mark up the legisla-
tion;nor was it ever formally introduced.
72 PublicPower.org
254
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AMERICAN
UlBp ir
ASSOCIATION
Powenn. Strong Comajunitis
1 Crystal Drive
li 245Suite 1000
Arlington,VA 22202-4804
Voice:202.467.2900
Fax:202.467.2910
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www.PublicPower.org
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Vol. 16, No. 6 February 17, TO17
Senate Tax Committee Hears Construction Materials Sales Tax
On Tuesday, the Senate Tax Committee heard S.F. 460, which provides a refundable option
for sales tax on construction materials paid by local governments. Marshall Municipal
Utilities General Manager Brad Roos joined Sen. Gary Dahms (R-Redwood Falls) in
presenting the bill, highlighting the difficulties the Department of Revenue rule presents to
local governments in accessing the existing sales tax exemption for construction materials.
As was done in the House Tax Committee, the bill was laid over for possible inclusion in the
omnibus tax bill. Now we wait for each legislative body to develop its tax package.
Xcel's Becker Bill Passes Senate
On Thursday, the Senate passed legislation (H.F. 113) that would allow Xcel Energy to
replace its retiring Sherco 1 and 2 coal-fired units without undergoing the Certificate of Need
process. The House had passed the bill off the floor last week.
Prior to the House vote, the Governor had announced that he would sign this bill if the
Legislature passed it as it had been amended in committee by the Senate. He said he would
not support any other legislative efforts to curtail the authority of the Minnesota Public
Utilities Commission, which was perceived as a warning shot to MREA. Dayton noted that
the citizens of Becker(where Sherco is located) needed the certainty of continued jobs in their
community. The Governor's announcement likely contributed to the bipartisan support the
Xcel bill received in both bodies.
It is anticipated that the House will re-pass the bill with the Senate language next week and
the legislation will soon head to the Governor's desk.
MREA Bill Update
A bill sponsored by the Minnesota Rural Electric Association hit a bump in the road to
passage in the Senate this week. The legislation would put regulatory review of certain
cooperative utility interconnection issues squarely within the purview of co-op governing
boards, in much the same way that utility commissions or city councils are responsible for
municipal utility oversight of those subjects. The bill would also curtail future potential
customer complaint proceedings before the state PUC for both coops and municipals. An
industrial municipal utility customer is threatening to derail the legislation to preserve a
threat to take its utility to the PUC over unrelated issues that do not fall within the PUC
purview—namely, municipal utility rate making authority. MREA and MMUA are working
with legislators to remove the threat which may have more to do with rate negotiation tactics
than substance.
256
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•
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AMMO
Vol. 16, No. 7 February 24, 2017
"More" Regulatory Certainty Legislation Advances in Senate and House
On Monday, the Senate Environmental and Natural Resources Policy Committee heard S.F.
737, which would provide municipalities with certainty after they invest in wastewater
treatment facilities. Working with the League of MN Cities, Sen. Bill Weber (R-Luverne)
offered an author's amendment that brought Public Facilities Authority support and MN
Pollution Control Agency neutrality to the legislation. The bill states that after a city builds
a wastewater treatment facility, if new effluent limits are adopted, the city would be required
to upgrade their facility no sooner than 16 years after it became operational. The LMC
stressed that cities are not trying to get out of making upgrades to their wastewater
treatment plants, they just want to protect what is often the largest capital expenditure a
city ever makes. The bill was re-referred to the Senate State Government Committee.
The House companion bill (H.F. 1003) was heard in committee on Tuesday, where it was
amended to include industrial permit holders in addition to municipal facilities. It was re-
referred to the House Government Operations Committee.
Legislative Renewable Energy Council Bill Advances
On Tuesday, bills to create a Legislative Renewable Energy Council (H.F. 1038/S.F. 1111)
were heard in both the House Job Growth and Energy Affordability and Senate Energy and
Utilities committees. This proposal goes hand-in-hand with legislation to restructure Xcel's
Renewable Development Fund, transferring the funds to a state account (the"Energy Fund")
and discontinuing the Made in Minnesota Solar program. Under the bills, the Legislative
Renewable Energy Council would make recommendations on appropriations that should be
made from the Energy Fund. Eligible expenditures include research and development,
demonstration projects, statewide programs, and financial incentives. The bills allow for
General Fund dollars to be put in the Energy Fund, which would allow those resources to
fund projects outside the Xcel service territory.
S.F. 1111 was re-referred to the Senate State Government Finance Committee. It is likely
that the bill will later be merged with the RDF repurposing bill(S.F. 214) in Senate Finance.
H.F. 1038 was laid over, as the RDF bill (H.F. 235) has already passed off the floor.
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Vol. 16, No. 8 March 3, 2017
"Small Cell" Legislation Heard in House and Senate Committees
Legislation that would limit local governments' authority to manage their right-of-way to
allow wireless providers increased access to install small wireless antennas to streetlights,
utility poles, and signs received hearings in the House and Senate this week.
House
On Tuesday, H.F. 739 was heard in the House Commerce Committee. Although a delete-all
amendment that was an attempt to alleviate some of the local government concerns was
offered, committee chair/bill author Rep. Joe Hoppe (R-Chaska) announced that this bill was
still a work in progress and much work had to be done to improve it. He said of the legislation,
"I represent three cities. Two of them dislike it and one of them hates it."
Testimony from CTIA, the national trade association for wireless providers, said that
"customers are demanding" upgraded service and this bill would "remove barriers" and "set
reasonable fees" for 5G deployment. AT&T presented cities as a roadblock for deploying
small wireless technology and used examples of high fees being proposed in St. Paul and
Bloomington. AT&T said that their company's "capital will flow the path of least resistance"
and suggested Minnesota could miss out.
The League of MN Cities testified that cities support the rollout of 5G, but it is difficult for
legislation to keep up with emerging technology. They said the delete-all amendment does
not address all their concerns. It is a core right of cities to manage their right-of-way and
this bill does not provide for adequate management and oversight. The preclusion of third-
party contractors from management costs was objectionable, since many small cities hire
outside firms for their city engineering work. The 60-day shot clock to approve permits and
automatic approval provisions were problematic.
The city engineers (CEAM) also provided testimony, saying this one-size-fits-all bill will not
work. Cities need to individually review each proposed location to ensure it will work for all
right-of-way users. They brought up concerns with structural integrity, downed poles,
liability,blocked views at intersections, and traffic signal interference. The county engineers
(MCEA) also spoke in opposition, noting that the addition of small wireless facilities will
change crash impact of poles on higher speed county highways.
Amanda Duerr provided testimony on behalf of MMUA. She highlighted concerns with
structural integrity and safety concerns, noting that "when we're talking about installing
antennas that emit radiation on energized structures and high-voltage distribution, local
control really is in the best interest of public safety." She explained that many MMUA-
member cities have worked out mutually-acceptable agreements with wireless providers, and
that is how the process should work. Worthington Public Utilities General Manager Scott
Hain then discussed how his city worked out an agreement with Verizon, taking into
consideration their fully-underground electric utility and need to manage the right-of-way.
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Several committee members noted their cities' opposition and encouraged the stakeholders
to keep working towards agreed-upon legislation. Rep. Hoppe reiterated that there would be
changes to the bill. H.F. 739 was re-referred to the House Government Operations
Committee, where a hearing is expected next week.
Senate
On Thursday, the Senate Energy and Utilities Committee heard S.F. 561. Chair/author Sen.
Dave Osmek (R-Mound) described this bill as providing "administrative guidance" to cities
on how to handle small wireless facilities. His delete-all amendment removed all references
to fees, saying that would be dealt with later. He too acknowledged that there was still work
to be done on this bill, and he wished he could have brought the legislation to committee in
more of a final form.
The same proponents and opponents of the bill provided very similar testimony as to what
was delivered in the House committee. In the Senate, however, there was more committee
discussion and more concern expressed.
Sen. Scott Dibble (DFL-Minneapolis) said he had no idea the bill was so prescriptive and
removed the fundamental responsibility of cities to management right-of-way. Sen. Osmek
responded that the state could"miss out on money if we don't have rules of the road" and the
bill"doesn't take away [cities'] ability to do anything."
Sen.Dave Senjem(R-Rochester)—who is a co-author on the bill—questioned if a bill was even
needed, since cities can already process siting requests under existing authority. Sen. Mike
Goggin (R-Red Wing) said his community just invested a lot into beautifying their downtown
and had concerns with their decorative poles, in addition to structural and electric issues.
Sen. Andrew Mathews (R-Milaca) said his cities were keeping him on notice and he hoped
that the parties would keep working. Sen. John Marty (DFL-Roseville) said that if the
stakeholders don't come to an agreement, he hopes the bill will be stopped.
Sen. Osmek assured the committee the stakeholders would continue working on the bill, as
all pledged to do in their testimony, and that he would be involved in negotiations. On a
divided voice vote, S.F. 561 was re-referred to the Senate Local Government Committee.
Volkswagen Settlement Bills Continue to be Discussed
On Wednesday, the Senate Environment and Natural Resources Finance Committee heard
two bills related to the use of VW settlement dollars.
S.F. 1256, authored by Sen.Andrew Mathews(R-Milaca)would appropriate $1.5 million/year
from the VW settlement towards the purchasing of propane school buses and fueling stations.
The MPCA noted that there is a very specific list of items for which the settlement dollars
could be used, and while they could be used to replace diesel buses with propane buses, they
could not be used to purchase propane fueling stations. Chair Bill Ingebrigtsen (R-
Alexandria) asked several questions about the prescriptive uses of settlement dollars and
expressed frustration at the limitations. The bill was laid over for possible inclusion in the
committee's budget omnibus.
S.F. 914, authored by Sen. Tom Bakk (DFL-Cook) would require the VW settlement funds to
be appropriated by the Legislature before they could be spent by the MPCA. He said it would
be his hope that a portion of the funds would be used for propane school buses, but wanted
to let the MPCA outreach and stakeholder process regarding these funds continue. The bill
was re-referred to the Senate Transportation Committee.
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On both bills, the MPCA cautioned that the proposals could jeopardize Minnesota's receipt of
the settlement dollars. Though a trustee has not yet been appointed to manage the
settlement, they would want to ask the trustee before going down this path.
In the House, the companion to S.F. 914 (H.F. 1355), authored by Rep. Pat Garafalo (R-
Farmington) was heard in the Environment Committee on Thursday. It was laid over for
possible inclusion in the committee's budget omnibus.
Co-ops' "Local Democracy" Bill Clears Another Hurdle
On Thursday, the Senate Finance Committee took up the House-passed version of the bill
MREA has been working tirelessly to pass in response to challenges against co-op fixed cost
recovery fees at the PUC. Committee Chair Sen. Julie Rosen (R-Vernon Center) made clear
from the start that no public testimony would be taken. Bill author Sen. Bill Weber (R-
Luverne) introduced the legislation and answered several questions from committee
members.
Sens. Chris Eaton (DFL-Brooklyn Center) and John Marty (DFL-Roseville) voiced concerns
related to the size of co-op fees, discouraging solar investment and jeopardizing the rights of
solar generating co-op members. Sen. Torrey Westrom (R-Elbow Lake) asked for a PUC
representative from the audience and asked him if it wouldn't be "like letting the fox guard
the henhouse" if co-op and municipal utility customers could no longer take their complaints
to the PUC.
Thanks in part to pre-hearing efforts by MREA as well as MRES, MMUA and several of their
members, no harmful amendments were entertained at the hearing. It is quite possible
however that at the next step in the process, Senate floor debate, amendment could be offered
that would be damaging to co-ops and municipal utilities. Keep an eye on your inbox for e-
mail from MMUA regarding this legislation, HF 234, in case you are needed to contact your
state senator with a timely, targeted message to prevent such amendments from passing.
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March 8,2017
Troy Adams
General Manager
Elk River Municipal Utilities
13069 Orono Parkway
P.O.Box 430
Elk River,MN 55330
Dear Mr.Adams:
On behalf of the American Public Power Association(the Association), I invite you to
serve on the Association's Reliable Public Power Provider(RP3)Program Review Panel
as the Reliability Representative.
As you know,the RP3 program supports the use and implementation of best practices that
help utilities continue to be safe,reliable, and thrive as organizations. By action of the
Association's Board of Directors,the RP3 Review Panel was given the responsibility of
approving all RP3 applications and program improvements, as well as providing general
policy oversight for the program.
Members of the Panel are appointed to repeatable,two-year terms through a formal
nomination process. Your first term will begin immediately following the spring RP3
meeting this year and expire after two years, in 2019(at the spring RP3 meeting of that
year).At that time,you will have the opportunity to serve a second two-year term that
would expire after the 2021 spring RP3 meeting.RP3 Review Panel members may serve
up to three terms.
Your obligations will be to attend at least two meetings annually, at which grading,
funding,policy, and other decisions about the program will be made. Expenses for travel
are the responsibility of your employer. A single-day meeting is held in conjunction with
the Association's annual Engineering and Operations Technical Conference(E&O),
usually between March and May, at various locations around the United States. Two 2-3
day meetings to grade applications and discuss essential issues are held in the late fall at a
various host utility locations and at the Association's offices in Arlington,VA. Should
you accept the appointment,you are invited to shadow the RP3 meeting on Sunday,May
7,2017 in San Antonio, Texas. More detailed information regarding the meeting will be
sent to you in a follow up email.
As a panel member,there are additional responsibilities that you may be asked to fulfill.
You may be asked to represent your designated area of expertise in RP3 policy matters
between meetings. You may be asked to make presentations on behalf of the program for
membership recruitment or to serve on a task force for a limited period of time to further
investigate specific issues,such as special application cases, or marketing strategies. In
addition, Association members may call you to discuss potential policy proposals or
grading issues.
I hope you share the Association's enthusiasm for this most important program and will
agree to participate as an RP3 Review Panel member.Please call or email Alex Hofmann,
Director,Energy& Environmental Services at 202-467-2956 or
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ahofmann@publicpower.org at your earliest opportunity to confirm that you will be able
to serve,or if you have any questions.
Sincerely,
,4-1*--(;421 /Cr
Andrew M. Boatright
Deputy Director,Independence Power&Light,MO
Chair,APPA Board of Directors
Cc: Mike Hyland
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