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Utilities Answer State Order Seeking Plans on Federal Funds

6 min read

Arkansas utilities responded Wednesday to regulators’ questions about their plans to take advantage of federal programs offering millions of dollars in incentives for energy-saving projects and new power transmission connections.

The Arkansas Public Service Commission, which regulates state utilities like Entergy Arkansas and Summit Utilities, queried the state’s power and natural gas companies in a Dec. 28 order that gave them just a few weeks to reply.

The first of those responses, involving federal initiatives authorized by the Inflation Reduction Act of 2022 and the Infrastructure Investment and Jobs Act of 2021, were filed Wednesday.

The initiatives, according to PSC Chief of Staff Danni Hoefer, could help state utilities improve utility infrastructure at minimum cost to Arkansas ratepayers. The goal, she said, is to find out how utilities are looking to take advantage of the funding.

Wednesday’s filings came in response to questions about whether utilities would consider programs that require a 50% match for federal funds. Arkansas’ biggest utilities said yes, but with considerable qualifications.

Matching fund projects tend to be less attractive to investor-owned utilities because those companies are guaranteed a base rate of return on equity by regulators. That guaranteed return is about 10% per year in Arkansas, and it also applies to money spent on capital projects like grid and infrastructure improvements, as well as new transmission projects. In other words, for every dollar invested in infrastructure, these utilities are allowed to bill ratepayers an additional 10 cents.

The Arkansas Advanced Energy Association favors taking advantage of the infrastructure incentives, according to executive director Lauren Waldrip, who says the collaborative approach would offer savings to Arkansas ratepayers, create jobs and stimulate the economy.

“It’s time for Arkansas to come to the table, and we commend the Public Service Commission as well as Infrastructure Director Becky Keogh for raising this important opportunity that can ultimately generate significant savings for Arkansans,” Waldrip told Arkansas Business. AAEA is a trade group for the advanced energy industry based in Little Rock.

Generally, Wednesday’s responses were long on jargon and short on specifics.

Entergy Arkansas LLC, the state’s largest electric utility, said in its response that it is working with Keogh and the state’s Grid Innovation Program “to facilitate” the state’s concept paper for taking advantage of the federal money.

But some of its response was withheld from public view. “Individual project proposals involve a number of categories of highly sensitive information protected by state and federal law, particularly involving commercial sensitivities with counterparties, bidders, or competitors,” Entergy’s response said. “EAL is filing a motion for an interim protective order contemporaneously with these comments.” 

The electric company, a subsidiary of Entergy Corp. of New Orleans, said it was evaluating “potential opportunities for funding initiatives that may have potential to provide complementary benefits to EAL’s existing energy efficiency programs.” It also said it was discussing potential renewable energy opportunities with the state’s Department of Energy and Environment but had not identified any “viable initiative at this time.” Entergy said it was still exploring opportunities for funding under the U.S. Environmental Protection Agency’s Climate Pollution Reduction Grant Program.

The power company also said that it is willing to contribute a 50% match to federal money on certain projects under the U.S. Grid Resilience and Innovation Partnership program, known as GRIP. The Grid Innovation Program funding can only be applied for by states or public service commissions and has an initial deadline of Jan. 12 for concept papers.

“Yes. EAL reaffirms its commitment to work” with the state and the DOE to secure federal funding for projects within its service territory, the utility said in its response, which was filed by attorneys Micah Goodwin, Kimberly Bennett, Jana K. Law and Cesar Caballero.

 “EAL believes generally that its customers would benefit from a cost match of federal funds, disbursed by the State of Arkansas or the Department of Energy, for the identified projects and initiatives (or, upon further review, other appropriate projects) and looks forward to working with the Commission to establish any tariffs and/or cost recovery mechanisms made necessary by such funding or any requirements imposed by DOE and/or federal law as a condition of cost sharing under GRIP or other funding opportunities …,” the filing said.

Entergy’s responses suggested it should be able to recover costs for its investment in any funds match. “EAL offers that cost recovery should follow established prudence principles and authorities,” the filing said. “There could be any number of reasons a particular project is not considered to be eligible for funding or appropriate for application … ,” it said.

One industry observer, speaking on the condition of anonymity, said it’s illogical that with $10.5 billion worth of existing planned transmission projects listed in the Midcontinent Independent System Operator’s grid service footprint, Entergy’s filing didn’t identify a single dollar that could align with the broad intent of the federal initiatives. The U.S. Department of Energy, the observer said, is interested in any grid projects to support resilience and reliability.

Southwestern Electric Power Co. of Shreveport, which serves about 125,000 meters in west Arkansas, said in its response that it is already taking advantage of benefits with projects to use available tax credits. It also said it was participating in smart grid and distributed energy improvements in coordination with its parent company, American Electric Power of Columbus, Ohio.

Swepco said it was working on advanced grid ideas with Southwest Power Pool of Little Rock, a major grid and electricity market manager, on a proposal to address interregional electricity transmission congestion. The utility plans to replace almost all retail electric meters in Arkansas with advanced units that can measure power consumption, demand and other parameters “in time-differentiated registers.” It said this will let the utility modernize and “meaningfully enhance functionality compared to traditional meters.

Waldrip, the AAEA chief, suggested that Arkansas utilities aggressively pursue the eligible projects.

“I think people need to know why transmission is so important,” she told Arkansas Business, citing a long queue of transmission projects that could benefit the state, including a great many in the Midcontinent Independent System Operator grid service area. “When you have more transmission, it means you have more distributed energy, which is more decentralized power, not just one single source of power. That’s good for saving ratepayers money. It’s good for grid resiliency and reliability. It’s a powerful economic impact in a lot of these rural communities. So a lot of this federal funding, not just this particular GRIP opportunity, but across the board, can help save ratepayers money.”

Since electric utilities operate essentially as monopolies, they are regulated to protect their customers. In exchange for their exclusive ability to deliver power, they are guaranteed by public utility commissions a rate of return on their assets. Nationally, the average ROE is slightly more than 10% for public regulated utilities.

Power company critics say this set return essentially gives them an incentive to make questionable investments in new power plants, for example.

As a nonprofit utility, Arkansas Electric Cooperative Corp. does not qualify for the return on equity enjoyed by investor-owned utilities, and its response to the PSC noted that cooperatives cannot take advantage of some incentives without partnering with another entity.

“AECC has reviewed the U.S. Department of Energy’s GRIP funding opportunity and has not identified any AECC projects under current planning or development that aligned with the qualifying criteria … that are not already the subject of other federal funding opportunities,” the cooperative’s initial response said. “As will be further described in future filings in this docket, AECC has pursued certain federal funding under Section 22004 of the IRA that is specific to electric cooperatives under the New Empowering Rural America Program (New Era). AECC submitted and is currently awaiting a response to its New Era Letter of Intent (LOI).”

The cooperative said it expects a federal response to its submission within months.

It also said applying for GRIP funding would risk its New Era application.

It also said that any 50% match for federal funding, while possible, seems unlikely.

“AECC has not identified any projects under Topic Area 3 that such a match contribution would appropriately relate,” the filing said. “Notwithstanding this face, AECC would consider meeting a cost match of 50% of project costs for Topic Area 3 projects if, and when, AECC’s management in its discretion determined such a project aligned with AECC’s needs based on AECC’s mission to provide affordable, reliable and responsible power.”

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