Docket UE21801
Order UE93-10IN THE MATTER of an Advance Plan Report filed by Maritime Electric Company, Limited.
BEFORE THE COMMISSION
on Friday, the 18th day of June, 1993.
Linda Webber, Chairman
John L. Blakney, Vice-Chairman
Anne McPhee, Commissioner
Order
Contents
Appearances & Witnesses
Reasons for Order
Part One - Introduction
Part Two - The Advance Plan
2.1 General
2.1.1 Introduction
2.1.2 Level and Reliability of Service
2.1.3 Security of Supply and On-Island Generation
2.2 Energy and Load Forecasts
2.3 Generation System Planning
2.3.1 Introduction
2.3.2 Least Cost Planning and Environmental Considerations
2.3.3 Point Aconi Purchase
2.3.4 Dalhousie Investment
2.3.5 Non-Utility Generation
2.3.6 Natural Gas Development
2.3.7 Wind
2.3.8 Wood-fired Cogeneration
2.4 Transmission System Planning
2.5 Distribution System Planning
2.6 Rate Structures, Conservation and Load Management
2.6.1 Rate Design
2.6.2 Demand Side Management
2.7 Research and Development
2.8 Environmental Issues
2.9 Regional Initiatives and Associations
2.10 Other Issues
2.10.1 Intervener Funding
2.10.2 The Next Advance Plan
Order
Appearances& Witnesses
1. For Maritime Electric Company, Limited
Counsel:
William G. LeaWitnesses:
J. H. Reynolds, President and Chief Executive Officer
P. H. Newcombe, Vice-President, Production and Energy Supply
J. A. Lea, Vice-President, Corporate Planning
J. Landrigan, Director, Customer Service
R. O. Younker, Executive Assistant to the President2. For the Environmental Coalition of Prince Edward Island.
Witness:
Jeremy Stiles3. For the Prince Edward Island Forest Technicians Association
Witness:
D. Murnaghan4. For Island Technologies Incorporated
Witness:
M. Lodge, President5. For the Minister of Energy & Forestry, Government of Prince Edward Island
Counsel:
J. Gordon MacKayWitness:
Wayne MacQuarrie, Director, Energy and Minerals Branch6. For the Atlantic Wind Test Site
Witness:
R. J. Brandon, General Manager
B. Richards, Consultant7. Other Witnesses:
Claude Anger and G. Raymond Brow
Ole Hammarlund and Donald Holte
Bruce McCallum, Consultant and Woodlot Owner8. For The Island Regulatory and Appeals Commission
Counsel:
Thomas A. MathesonStaff:
Donald G. Sutherland, Director, Utilities Division
George W. Mason, Senior Analyst, Utilities Division
Gloria Dalziel, Recording Secretary
Reasons for Order
Part One
Introduction
In December 1991, Maritime Electric Company, Limited ("Maritime Electric" or the "Company") filed an Advance Plan Report ("Advance Plan", the "Report") in accordance with rule of practice and procedure No. U-001 of the Island Regulatory and Appeals Commission (the "Commission"). Following receipt of the report, the Commission published a Request for Public Comment on the Advance Plan including a number of specific questions on which the Commission sought public input. Responses were received from the P.E.I. Forest Technicians Association ("FTA"), the Town of Summerside ("Summerside"), the P.E.I. Forest Industry Association, Island Technologies Inc. ("ITI"), the Environmental Coalition of Prince Edward Island ("ECOPEI"), Raymond Brow and Claude Anger, Melvin Gallant, the Atlantic Wind Test Site Inc. ("AWATS"), and the Minister of Energy and Forestry (the "Minister").
In view of the public response, the Commission held public hearings on the Report. The hearings commenced on October 14, 1992 and continued on October 15, 16, 20, 21, 22, 30, December 9, 10, 11, and January 5, 1993. Presentations were made by the Company, FTA, ITI, ECOPEI, Mr. Brow and Mr. Anger, AWATS and the Minister as well as by Mr. Bruce McCallum and Mr. Donald Holte.
Part Two
The Advance Plan
2.1 General
2.1.1 Introduction
The Advance Plan details the future plans for Maritime Electric's generation, transmission and distribution system, for rate structures, for demand side management and for other related matters. In general, the planning process of the Company commences with a forecast of future electricity sales and then evaluates the company's existing system and future options to determine how the Company can best provide safe and adequate service to its customers. While all of the components are important, the focus of the hearing was on new generation—an area involving high capital outlays and one which seems to provide an opportunity for competition from third parties. Virtually all of the effort of the public participants was directed at either reducing the need for, or providing alternative, new generation sources.
In addition to the general issues addressed in the Advance Plan, the Commission sought input from the public on a number of specific issues:
1. Are the customers of Maritime Electric generally satisfied with the level and reliability of service provided? If not, what changes are required?
2. Do the customers of Maritime Electric support the plans to place increasing reliance on imports of electricity from out of Province?
3. Are the customers of Maritime Electric willing to pay a premium for on-Island generation? If so, how should the premium be determined and what is a reasonable amount?
4. Are there viable opportunities for non-utility generation on Prince Edward Island?
5. Are the customers of Maritime Electric familiar with and generally satisfied with the types of programs and the level of effort related to Demand Side Management?
With the exception of Question 4—which was of direct interest to many of the participants at the hearing—the Commission did not receive responses directly from the customers. The Company, however, presented responses to a number of customer surveys that had been carried out under contract in 1986, 1989, 1991 and 1992. These responses were reviewed by the Commission in evaluating the first three issues which are discussed below. The remaining questions are addressed in the following sections which discuss the Advance Plan issues in the order in which they appear in the report.
2.1.2 Level and Reliability of Service
Maritime Electric's customer surveys indicate that approximately two thirds of the Company's customers have a good or excellent overall opinion of Maritime Electric while less than 10% are dissatisfied with the Company. Overall, customers appear to believe that the Company has continued to improve the reliability of service and are satisfied with the Company's response to power outages; however, customers are divided on their opinion of Maritime Electric's efforts to reduce the cost of electricity. In the Commission's view, given that our electricity prices are among the highest in Canada, the latter is not surprising .
Electricity costs have been the subject of many studies over the past two decades and are generally considered higher because of this Province's lack of low-cost, indigenous resources, small sales base, distributed population and other factors. The Commission has not seen evidence to suggest that this higher cost is a result of inefficiency on the part of Maritime Electric.
2.1.3 Security of Supply and On-Island Generation
The Province has always depended on external supplies of energy to meet its electricity needs—first in the form of imported oil and later in terms of electricity imports following the interconnection with New Brunswick in 1977. While no major disruption has occurred in our electricity supply as a result of either oil shortages or the severing of the interconnection, the Commission continues to believe that security of supply is important.
Customers have not shown a similar concern with security in Maritime Electric's surveys. Customers have continued to show a strong preference for purchasing from off-Island sources if there is a cost advantage and a reluctance to pay more for on-Island generation. Although we acknowledge the survey results as representative of views of the Company's customers, we believe that these views would change quickly if a disruption in the interconnection caused a major prolonged power outage in the Province. In our view, this issue takes on increasing importance when one considers the evidence emerging that indicates that there may not be a large cost advantage to off-Island generation. In fact, some on-Island options appear to be competitive with some larger out-of-province plants.
The Commission believes that the issue of security of supply, both in terms of fuel security and in terms of generation capability within the province, needs to be more completely addressed in Maritime Electric's planning. We also believe that the Company should assign some preference to on-Island options and pursue out-of-province options only when there are expected to be demonstrated cost savings or other significant advantages.
1. In future generation planning studies, the Company is to demonstrate that its proposed options achieve a balance between least cost economics and security of supply.
2.2 Energy and Load Forecasts
The sales forecast of Maritime Electric ultimately forms the basis for most of the planning activities of the Company. Long-term sales are forecast using an econometric model based on regression analysis. The model uses forecasts of population, gross domestic product, electricity prices and per capita personal disposable income to forecast sales based on historical relationships. Sales are then adjusted for the estimated impact of the Company's demand side management programs, Company consumption, and transmission and distribution losses. Further adjustments are made to short-term forecasts to reflect the Company's specific knowledge of larger customers and other factors. The result is the net energy required to be produced and purchased annually by the Company. Finally, peak loads are estimated based on forecast load factors.
Figure 2.1 illustrates the sales forecasts that were presented to the Commission in the Advance Planning process in comparison with actual sales. At the last advance plan in 1987, sales growth was forecast to gradually slow until the end of the century. Actual performance showed accelerated growth for a number of years followed by relatively flat sales during the current recession. Sales are currently forecast to increase at an average annual rate of approximately 2% into the next century.
Given the uncertainties in the provincial and regional economy and in forecasting in general, the Commission continues to find the Company's methodology to be acceptable for planning purposes. The major issue raised by participants was whether the Company evaluated its forecasts after-the-fact to identify potential explanations for deviations between forecast and actual sales. In particular, AWATS was interested in whether there might be a correlation between peak load and wind that might enhance the value of wind generation to the system. Based on the response, the Commission was left with the impression that the Company does not systematically review its actual versus forecast performance to evaluate possible explanations for the differences and improvements in the forecasting methodology. We believe that the Company should do so.
Based on the evidence presented, the Commission finds the Company's sales forecasting methodology to be reasonable but believes that the Company should improve its monitoring of the results with the goal of increasing its forecasting accuracy.
2. The Company shall endeavour to improve its sales forecasting accuracy through the ongoing monitoring of actual results.
The requirements for the Advance Plan (Rule No. U-001) include additional forecasting issues such as the impacts of new construction and other factors on the cost of electricity (rates). During the hearings, the Company referred to its forecasts of revenue requirement and rate impacts on a number of occasions, but was reluctant to disclose any details of forecast electricity rates because of uncertainties in the various assumptions and other factors. While the Commission believes that customers who are making energy-related decisions could benefit from accurate rate forecasts and that the Company is in the best position to provide such forecasts, participants in the hearing did not raise this as a major issue. In addition, events in recent years have shown how unpredictable events such as the Gulf War or changes in the economy can result in sales forecasts being significantly off the mark. As a result, the Commission accepts the Company's submission that its longer-term rate forecasts are too uncertain to be made available to the public at this time.
The Commission, however, wishes to be kept informed of forecast electricity rates for Maritime Electric and, in particular, the magnitude of major increases that are expected. The Commission will then determine when and if such information is of such importance that it should be made available to the public.
3. The Company shall report its five year forecast for revenue requirement and rates to the Commission upon request.
2.3 Generation System
Planning
2.3.1 Introduction
Maritime Electric's requirements for generating capacity are defined by the peak load that is placed on the system, the pattern of energy usage and requirements such as sufficient reserve to ensure that the Company can provide reasonably safe and adequate service. Ongoing planning is required by the Company to replace existing capacity as it reaches the end of its useful life and to supply growing electricity requirements.
Maritime Electric's generating capacity currently consists of the following:
- 6 heavy-oil fired generating units in Charlottetown with a combined capacity of 65.4 MW;
- 2 diesel-oil fired gas turbines located at Borden with a combined rating of 38.7 MW;
- 10% ownership interest in a 200 MW coal/oil-fired plant located in Dalhousie, New Brunswick with a net capacity of 19 MW at the delivery point to P.E.I.;
- Contract to purchase 20 MW from the nuclear power plant at Point Lepreau, New Brunswick providing 19 MW at the delivery point to P.E.I. until October 31, 1994; and,
- Contract for 5 MW of capacity from the New Brunswick Electric Power Commission until October 31, 1994.
The Company therefore has, through ownership or contract, sufficient capacity to generate 147.1 MW until October 31, 1994, when contracts expire for 24 MW (net) of capacity. The minimum requirement for capacity is determined as follows:
- Peak Load - Interruptible Load = Firm Peak Load
- Firm Peak Load + 15% Planning Reserve = Required Capacity
Figure 2.2 illustrates the forecast capacity requirement of Maritime Electric in comparison with its installed and purchased capacity based on the Company's most recent sales forecast for the planning period. Based on the forecast, the Company will require a minimum of 22 MW of new capacity in 1994 and at least an additional 12 MW by the year 2000.
In order to determine the least cost plan for supplying the future load, the Company follows a planning process which can be summarized as follows:
- the Company identifies what it considers to be all feasible options for meeting its future requirements through either construction or purchase;
- the levelized electricity costs are then calculated for the various options and the high cost options are eliminated;
- the remaining options are compared using a generation system planning model which calculates the net present value of energy and new capacity costs under a variety of scenarios; and,
- a financial forecast is prepared using the final option(s) to evaluate the impact on rates.
In a departure from the traditional practice of selecting the plan with the lowest long-term cost, the Company proposes to give preference to the plan or plans which will result in the lowest level of rate shock in the short-term, provided that pursuing such an option does not reduce their long-term flexibility.
At the time of the hearing, the result was a proposed plan by the Company to acquire an equity interest in 10 MW of the circulating fluidized bed ("CFB") coal plant in Point Aconi, Nova Scotia and to negotiate a contract for bridging capacity for the balance of its requirement over the next few years.
The actual costs and other data supporting the Company's proposal were not presented at the hearing. The Company argued that such information should be kept confidential while they were in the process of negotiating the actual contracts. The Commission believed that making such information public at the time could compromise the Company's negotiating position and therefore accepted the request for confidentiality. The Commission only accepts such requests, however, in exceptional circumstances.
2.3.2 Least Cost Planning and Environmental Considerations
Maritime Electric's objective in generation planning is to obtain generation at the "lowest cost consistent with providing reliable service". Least cost planning, while not mandated by legislation, is a generally accepted principle of utility planning. At issue is the question of which costs should be included. The Company generally includes in its analysis the costs for which it is "billed" or for which it expects to be billed in the future ("accounting costs"). The Company does not normally include "externalities" such as the cost to society of emissions from its plants unless such costs are mandated by law. Instead, it attempts to make the Commission aware of such issues and the potential risk of the external costs becoming costs that must be recovered through rates (internalized).
Two principal participants, ECOPEI and AWATS, promoted including "environmental externalities" in the costs analysis. ECOPEI appeared to suggest that the estimated environmental costs should be added to the accounting costs for all options so that the project with the lowest overall cost could be selected. It submitted that this would not necessarily alter the price paid for electricity.
In the Commission's view, in order for this procedure to have any effect on a utility's purchase decisions, the decision would have to shift from lower accounting cost options to higher cost options. This would ultimately increase customers' bills. In addition, environmental costs are difficult to measure, particularly when there is no agreement on which costs should be measured or how they should be measured. Finally, the Commission does not believe that either we or the Company are necessarily better at valuing environmental externalities than government policy-makers who have not found the remaining externalities important or controllable enough to regulate. As a result, the Commission expects Maritime Electric to continue to evaluate the actual and potential environmental impacts of its activities and to assess foreseeable risks. We believe that it is premature to expect the Company to determine the full costs to society of each or any of its generating options.
AWATS submitted that environmental benefits could be used to justify a premium for generation from sources with low environmental impact. This position is partially supported by a recent survey for Maritime Electric showing that 44% of respondents would support some premium while 39% were opposed (Exhibit M-21). In some other jurisdictions, this has led to the concept of "environmental adders" which are now the subject of much criticism. In the Commission's view, criteria other than lowest accounting cost are important; however, when addressing environmental issues, applying judgment on a case-by-case basis is preferred to rigid criteria.
4. The Company shall continue to make decisions on future generating capacity with the objective of minimizing the long-term costs of electricity to the rate payers of the Province while bringing to the attention of the Commission any potential negative impacts on the environment.
2.3.3 Point Aconi Purchase
Maritime Electric confirmed at the hearing its intention to negotiate a purchase of approximately 10 MW of the CFB coal plant under construction by Nova Scotia Power Inc. (NSP) at Point Aconi, Nova Scotia. The proposed purchase was examined by many participants and specifically opposed by ECOPEI, who considers the plant to be a potential economic and environmental disaster. In addition to being a plant based on a relatively new technology, it is well known that the Government of Nova Scotia specifically excluded this plant from review by the then Nova Scotia Board of Commissioners of Public Utilities and thus avoided the resulting public scrutiny.
The Commission does not, in these Reasons, intend to deal specifically with the evaluation of the proposed Point Aconi purchase which, if pursued by the Company, would be the subject of a specific application. We do, however, believe that the participants raised a number of legitimate concerns with respect to the plant and how it has been evaluated.
One concern is the Company's approach to evaluating the project. With the exception of carrying out an independent review of certain components of the project, Maritime Electric generally appeared to accept the evaluation of NSP who would ultimately be the managing partner in the plant. Based on what we heard, the Commission found Maritime Electric's arguments to be less than compelling when the uncertainties of the plant are considered. We expect the Company to carry out a more critical evaluation when it is attempting to select the most attractive of a number of competing options that are available.
A second, yet related, concern is that the Company will negotiate a final contract and then require relatively rapid approval. The Company was therefore asked at the hearing to prepare a proposed plan which would provide sufficient time for all interested parties to properly evaluate the Point Aconi (or alternative) purchase. In response, the Company filed a document outlining how it had evaluated the risk of the proposed purchase and how issues might be resolved either through correspondence or by reopening the hearing. Responses were received from ECOPEI, ITI and the Minister which generally identified specific questions which each believed needed to be addressed.
The Commission does not believe that it is efficient to further evaluate this or any other specific project when the costs and terms of agreement remain either confidential or incomplete. We believe that the Company is aware of the various issues and we expect to see them addressed when an application is before us. We also expect the Company to allow for at least four months between the filing of an application and the finalizing of an agreement so that all interested parties can have sufficient time to examine the application and, if appropriate, prepare evidence.
5. In any specific generation plan to be submitted to the Commission for review, the Company shall allow for at least four months from the filing of an application to the date on which a Commission decision may be expected.
2.3.4 Dalhousie Investment
The New Brunswick Electric Power Commission ("NB Power") initiated a project a number of years ago to add flue gas desulphurization equipment ("scrubbers") to the Dalhousie plant and to convert the plant to burn Orimulsion. The cost of this conversion was estimated to be $340 million which, if Maritime Electric was to pay its proportionate share, would cost the Company in excess of $20 million.
The Company was questioned at some length on this project, since it could add significantly to its costs and the rates of its customers without providing corresponding benefits. The Company's responses indicated that it had been examining the project and the various options open to it, but had not reached a decision. Recognizing that the project is scheduled to be completed in 1994, the Commission wishes to know the Company's intention with respect to the Dalhousie plant and the anticipated impact on rates.
6. The Company shall file with the Commission, on a priority basis, its intentions with respect to the Dalhousie conversion and the estimated impact on rates of its participation.
2.3.5 Non-Utility Generation
Over the years, Commission staff, and we believe the Company, have been approached by numerous parties proposing to develop electrical generation projects. The Commission believes that one of the barriers to development of such projects is the lack of a comprehensive policy, including terms and pricing, by which Maritime Electric will purchase from independent producers. As a result, the Commission instructed Maritime Electric to update its Power Purchase Policy (for units up to 100 kW) and to propose a policy for purchasing from larger non-utility generators.
A draft proposal has since been filed for review. We believe that establishing such a policy will be of assistance to all parties who propose to generate power, including those who have participated in the Advance Plan.\
2.3.6 Natural Gas Development
Ray Brow and Claude Anger appeared before the Commission in support of their proposal to drill for natural gas in the Souris area and to generate power for sale to Maritime Electric if natural gas is found. Specifically, the Commission was requested to:
- ... keep open the possibility for a producer of gas on the Island to sell it as electricity within the next 24-30 months time period;
- ... reserve an "Energy Window" of 20 Mw for on Island uninterrupted electrical generation;
- ... see that a good collaboration can be established between possible local producers of wind, coal bed methane, and natural gas. And the local electrical utility;
- ... see that a favourable environment is given to investors who could improve the local production of electricity; and,
- ... encourage Maritime Electric to invest in the exploration for gas that will be used to produce electricity.
(Exhibit P-6)
At the hearing, considerable discussion took place between Maritime Electric and Mr. Brow about whether he was asking the Company to change its planning process to accommodate the natural gas prospect. Mr. Brow's response was that he did not wish to see Maritime Electric change its planning process.
This comment eliminates the need for the Commission to address the first two issues. It may be that the Company will have an "Energy Window" open if it negotiates bridging capacity, but it would be premature to plan for natural gas generation given the uncertainty of discovery of a commercial reserve.
Mr. Brow and Mr. Anger also wish to see a "favourable environment" developed for third party investment in generation. The Commission agrees with this concept and believes that the proposed new Power Purchase Policy that the Company is required to file will help address this issue.
On the last issue, Maritime Electric is not in the gas exploration business and we would not necessarily encourage it to undertake such a high risk venture were it within our mandate to do so. We do appreciate, however, that a significant commercial gas find on Prince Edward Island would be of great benefit to the Province and potentially to electrical consumers. We therefore expect the Company to cooperate with Mr. Brow and Mr. Anger to the extent that it reasonably can within its mandate.
7. Maritime Electric shall continue to cooperate with potential non-utility generators to the extent possible to develop viable, cost effective generating options within the province.
2.3.7 Wind
Wind generation was raised as an option by a number of parties including Mr. Brandon representing AWATS, Mr. Lodge of ITI, and Mr. Stiles of ECOPEI. While the concept of implementing wind systems varied from small distributed facilities proposed by ITI to a larger wind farm (or farms) proposed by AWATS, the above groups all favoured developing wind generation that they believed to be an economic, low environmental impact option.
Maritime Electric submitted that it supports wind generation to the extent that it has allowed experimental units to be connected to its system and purchases power from such units at the avoided cost of purchased energy. Proponents of wind argued that the price paid by Maritime Electric was too low and did not fairly reflect the capacity value of wind generation or the future avoided cost of new generating capacity. The Company initially argued that, from its perspective, wind did not have any capacity value. However, by the end of the hearing, it appeared convinced that it would have to reconsider its position.
The Commission believes that many of the arguments made in support of wind generation—on-Island security, low environmental impact, potential diversity—indicate that the Company should be considering wind as a serious, if small scale, alternative. Specifically, we believe that provision should be made for a small wind farm in the province and that the company should propose rates for a wind farm that appropriately recognize the energy and capacity value. The proposed rate might properly be part of the new Power Purchase Policy of the Company which is currently being reviewed. While the Commission believes that developing such a rate will be useful for valuing wind generation and for potential developers to assess projects, we have no preference for form of ownership so long as electricity is supplied on a least-cost basis.
8. Maritime Electric shall file with the Commission, as part of its revised Power Purchase Policy, proposed pricing for the purchase of capacity and energy from existing and new wind-based generation.
9. The Company shall include in its evaluation of future options provision for a small, on-Island wind farm.
2.3.8 Wood-Fired Cogeneration
The Department of Energy and Forestry (as it was at the time of the hearing) has been attempting to develop a wood-fired cogeneration project on Prince Edward Island for a number of years. Approximately two years ago, the Government announced in the speech from the throne that it intended to build a wood-fired cogeneration plant in the Province if it was found to be environmentally acceptable. At the Advance Plan hearing, neither the Government nor Maritime Electric were promoting wood-fired cogeneration as a viable generation alternative. According to the Government witness, Mr. MacQuarrie, the environmental assessment was ongoing and no decision would be made until it was complete. The Company's position is that it would consider the project if it could obtain satisfactory answers to what it considered to be the major issues:
1. Who will bear the additional cost of the project relative to Maritime Electric's most economic alternative?
2. How does the Company accurately forecast wood prices?
3. How can the Company be certain of a secure supply of fuel?
Specifically, the Company would want a cost subsidy, a guaranteed wood price and a guaranteed wood supply from the Provincial Government or similar party before proceeding with a project.
Mr. Murnaghan of the FTA and Mr. McCallum both spoke in support of the cogeneration project. Both individuals believe that the supply of poor quality wood is more than adequate for the project and that the project is important if the forests of the province are to be improved. However, neither speaker supported significantly higher electricity prices if that should be the result of the project.
The Commission is left with the impression that the Company has continued to invest in evaluating wood-fired cogeneration and in carrying out an environmental assessment of this alternative even though it does not consider it to be a viable option. The Commission does not believe that the Company should incur any further expenditures related to wood-fired cogeneration unless there is a commitment from government or the project economics otherwise warrants.
The Commission wishes, however, to see the economic analysis of the cogeneration plant and of any other alternatives that the Company has examined when the Company files its generation plan in support of the next generation purchase.
10. The Company shall file the economic analysis of all generation options that have been evaluated in support of its future application(s) for generation purchase/construction.
2.4 Transmission System Planning
The Company's system planning is guided by its 10 year transmission planning study which is updated approximately every 5 years. In recent years, the Company's priorities have focused on improving the main lines in the Province and upgrading the interconnection so that the two submarine cables could be operated simultaneously.
With the completion of these major projects, the Company believes that its transmission system is generally adequate to meet its immediate needs. Future projects that have been identified include upgrading transformers and extending existing lines as load growth dictates. No major issues were raised by other participants and the Commission is generally satisfied with the Company's efforts.
2.5 Distribution System Planning
Over the last few years, the Company has continued to improve its distribution planning process. This process has been examined by the Commission in detail at successive capital budget hearings. The Commission has seen improvements over time and hopes that further improvements will be made to ensure that problem areas are addressed in an efficient manner and that system reliability continues to be increased.
2.6 Rate Structures, Conservation and Load Management
2.6.1 Rate Design
The Company's rate design is guided by its long-term rate objectives. These are consistent with generally accepted criteria that rates should be:
- based on cost;
- stable;
- simple and understandable; and,
- designed to provide customers with proper price signals.
Issues related to rates are reviewed on a regular basis during the general rate hearings and many issues have been addressed in recent years. The Commission is generally satisfied with the rate design of the Company but, recognizing that rate design involves a great deal of judgment, will continue to consider new changes that might improve the fairness in charging customers for services.
2.6.2 Demand Side Management
Demand side management is an area of activity which is relatively new to the Company and the electric industry in general. Indeed, most utilities only started implementing major programs in the past few years.
In Commission Order No. E-880331(3)—which followed the first advance planning hearing—the Commission concluded, among other things, that:
4. MECO must do additional analysis on the feasibility of demand-side options.
5. MECO must integrate demand-side and supply-side options.
Since that time, the Company has implemented a number of demand-side management programs with some success. The overall demand side management ("DSM") effort and the individual programs are reviewed annually by the Commission as part of the capital budget review. In Commission Order UE93-6—which followed the 1993 Capital Budget—the Company was ordered to prepare a report of its DSM program covering progress to date and possible future directions, for filing with its 1994 budget proposals. As a result, only the issues raised at the hearing will be discussed here.
A number of participants, in particular ECOPEI, raised the issue of implementing DSM programs that encourage customers to convert from electricity to more efficient fuels, often referred to as fuel switching. Proponents of such programs typically argue that fuel switching reduces the cost to society of energy consumption and is therefore to be encouraged.
The Company views its role as delivering electricity at the lowest possible cost consistent with providing safe and adequate service. The Company believes that fuel switching is inconsistent with this role. In particular, the Company submits that fuel switching can result in higher electricity prices for the remaining consumption, an outcome which the Company does not believe it should encourage.
The Commission has directed the Company to include such issues in its DSM review and we will address these issues at that time.
ECOPEI also raised the issue of third-party delivery of DSM programs and projects. In particular, ECOPEI believed that it may be able to deliver certain components of DSM more effectively than the Company, possibly at lower cost. Such a concept is not new as the Company has some experience with third-party delivery of programs, at least to the extent of its commercial lighting seminars. The Commission believes that the options for third-party delivery of DSM programs should be explored by the Company with the objective of achieving DSM objectives on a least-cost basis. Such options should include the concept of DSM bidding that are being considered or implemented in other jurisdictions and should be included in the DSM review.
11. The Company shall include an analysis of options for third party delivery of programs and DSM bidding in its DSM review.
In terms of the Company's overall planning strategy, the Commission commented in Order E-880331 (3) as follows:
The Commission is concerned, however, that MECO still views these supply-side and demand-side options separately and, to date, has not integrated them to develop a least-cost, long-term generation plan.
While some progress has been made towards what is now referred to as Integrated Resource Planning ("IRP"), the Commission is not yet convinced that the Company places as great an emphasis on DSM as it does on generation planning. The Commission is also aware that efforts are being made in other jurisdictions to move companies beyond IRP towards Customer Focused Planning where, for example, planning begins with looking at the actual energy needs of the customer and then helping the customer meet those needs through a least cost plan for DSM, fuel switching, self-generation and power purchase. The Commission believes that such issues need to be examined and should form part of the DSM review.
2.7 Research and Development
Maritime Electric, as a small company, does not consider it appropriate to engage in major research and development projects, but instead participates primarily as a member of regional and national associations. The Company does provide funding to smaller projects which it considers worthwhile and is now carrying out a larger marginal cost pricing study which was mandated by the Commission. With the exception of issues discussed elsewhere in these Reasons, the Commission generally accepts the Company's level of effort as reasonable.
2.8 Environmental Issues
The Company submits that, in addition to complying with regulations and other requirements, it attempts to anticipate environmental problems and to alleviate those where there is a public concern. Examples of initiatives in recent years have been emission reductions from plant operations, PCB removal and changes in pole treatment practice.
Electromagnetic Fields (EMF) are an additional issue that has attracted public attention in recent years and continues to be the subject of numerous studies. Maritime Electric views this issue as one in which there is not sufficient knowledge to guide either changes in practices or corrective action. The Company therefore considers its role to be to make information available to interested parties.
The Commission agrees that evidence on this matter is inconclusive but expects the Company to continue to monitor findings related to the issue.
With the exception of the environmental issues related to power generation that are discussed earlier in these Reasons, other issues have not been brought to our attention which we feel need to be addressed. The Commission therefore finds the Company's handling of environmental issues to be acceptable.
2.9 Regional Initiatives and Associations
Maritime Electric has been interconnected with other utilities in the region since 1977 when the submarine cable to New Brunswick was commissioned. Prompted by the efforts to create the Maritime Energy Corporation at about the same time, the electric utilities in the Maritimes have continued to coordinate planning and Maritime Electric has been an active participant in the process.
A recent project was the Joint Utility Planning Study prepared for the Council of Maritime Premiers' regional cooperation initiative. The report on this project became an issue at the hearing primarily because the Minister quoted from it in her evidence, yet was unwilling to have it released to the Commission. The Company was also unwilling to release the document as it could not obtain agreement to do so from the other utility presidents. While the report was ultimately submitted, we find it unacceptable that excerpts of a report of this nature should be used in evidence before the Commission while the report itself was withheld.
Having reviewed the Joint Utility Planning report briefly, the Commission tends to agree with Mr. Reynolds, President and Chief Executive Officer of Maritime Electric, that the report is not particularly useful. Given the time and effort that we were led to believe the Company contributed to this effort, we must question the prudence of investing so much in a project which appeared to accomplish so little. The Commission will therefore require the Company to prepare an estimate of costs and expected benefits related to its future participation in the cooperation effort for review by the Commission.
12. The Company shall file with the Commission by July 31, 1993 the estimated costs of its future participation in the Joint Utility Planning project and a summary of expected benefits.
2.10 Other Issues
2.10.1 Intervener Funding
The issue of intervener funding was raised in this hearing by ECOPEI. This intervener believes that it has contributed to the process, but as a volunteer group has no mechanism for funding or recovering costs associated with the participation.
The Commission has reviewed the issue of Intervener funding in the past and concluded that the legislation under which we operate does not allow for financial assistance to third parties. The result is that customers of Maritime Electric pay through rates for the entire effort of the Company while other parties are responsible for their own costs, irrespective of who may benefit. Other jurisdictions have recognized this inequity and have provided for intervener funding using a variety of methods. For example, the funding assistance is often left for the Commission to determine once the value of an intervention has been assessed.
The Commission believes that all electric customers in the province could benefit from a limited form of intervener funding. By these reasons, therefore, the Commission requests that the Government of Prince Edward Island review the matter of intervener funding and, specifically, whether making provision for an assessment of reasonable costs to the Company in the legislation would be in the best interests of electricity consumers.
2.10.2 The Next Advance Plan
In Order E-880331(3), the Company was ordered to update and file an Advance Plan on a triennial basis. The Commission continues to believe that this is a reasonable period for planning purposes.
13. The Company shall file its third Advance Plan with the Commission on or before December 31, 1995.
An Order implementing the findings and conclusions contained in these Reasons will therefore issue.
IN THE MATTER of an Advance Plan Report filed by Maritime Electric Company, Limited.
Order
WHEREAS Maritime Electric Company, Limited (the "Company"), filed an Advance Plan Report (the "Advance Plan", "Report") with the Island Regulatory and Appeals Commission (the "Commission") in December, 1991;
AND WHEREAS the Commission heard from the Company and a number of Participants at public hearings conducted in Charlottetown during the period from October 14, 1992 to January 5, 1993, after due public notice;
AND WHEREAS the Commission has issued its findings in this matter in accordance with the Reasons for Order issued with this Order;
NOW THEREFORE, pursuant to the Island Regulatory and Appeals Commission Act and the Electric Power and Telephone Act;
IT IS ORDERED THAT
1. In future generation planning studies, the Company is to demonstrate that its proposed options achieve a balance between least cost economics and security of supply.
2. The Company shall endeavour to improve its sales forecasting accuracy through the ongoing monitoring of actual results.
3. The Company shall report its five year forecast for revenue requirement and rates to the Commission upon request.
4. The Company shall continue to make decisions on future generating capacity with the objective of minimizing the long-term costs of electricity to the rate payers of the Province while bringing to the attention of the Commission any potential negative impacts on the environment.
5. In any specific generation plan to be submitted to the Commission for review, the Company shall allow for at least four months from the filing of an application to the date on which a Commission decision may be expected.
6. The Company shall file with the Commission, on a priority basis, its intentions with respect to the Dalhousie conversion and the estimated impact on rates of its participation.
7. Maritime Electric shall continue to cooperate with potential non-utility generators to the extent possible to develop viable, cost effective generating options within the province.
8. Maritime Electric shall file with the Commission, as part of its revised Power Purchase Policy, proposed pricing for the purchase of capacity and energy from existing and new wind-based generation.
9. The Company shall include in its evaluation of future options provision for a small, on-Island wind farm.
10. The Company shall file the economic analysis of all generation options that have been evaluated in support of its future application(s) for generation purchase/construction.
11. The Company shall include an analysis of options for third party delivery of programs and DSM bidding in its DSM review.
12. The Company shall file with the Commission by July 31, 1993 the estimated costs of its future participation in the Joint Utility Planning project and a summary of expected benefits.
13. The Company shall file its third Advance Plan with the Commission on or before December 31, 1995.
DATED at Charlottetown, Prince Edward Island, this 18th day of June, 1993.
BY THE COMMISSION:
Linda Webber, Chairman
John L. Blakney, Vice-Chairman
Anne McPhee, Commissioner
