1. To obtain a copy of the response,
please visit www.us.capgemini.com/naruc.
In general, where the commissions
were asked to rank responses, this
detailed analysis presents both their
number one choice and the top one to
three overall rankings. In some cases,
this approach rearranges the order of
priorities, while in other cases it further
reinforced the rankings. The objective
was to highlight the top few priorities,
while still indicating the leading overall
priority for each commission. Some
questions required commissions to
respond from a state perspective
with the same or similar questions
also asked from a national
perspective. The findings
that follow highlight
these perspectives
where applicable.
Background
This survey was designed to develop a
national energy perspective from within
the National Association of Regulatory
Utility Commissioners (NARUC). This
is the first nationwide survey of this
association specifically focused on
energy and the immediate challenges
facing the energy industry. The
questions were developed with input
from NARUC executive staff and
commissioners in California, Colorado,
North Carolina, New Jersey and
Pennsylvania. The survey was
conducted between December 4, 2007
and February 15, 2008 with 41 states
and the District of Columbia (83
percent) participating.
The following analysis draws
conclusions, but exceptions can
be found in the comments from
commissioners.
NARUC Membership
Energy Survey
Detailed Analysis and Review April 2008
Energy, Utilities & Chemicals the way we see it
2. 2
Highlights
Increasing Generation
and Adding Transmission
Reviewing the survey responses, several
common themes emerge. The majority
of commissions recognize the key role
the energy industry is expected to play
in reducing carbon emissions, but
their foremost concern is the need to
increase generation capacity and add
new transmission. Reducing
Greenhouse Gas (GHG) emissions
ranked fifth out of five pressing issues
with new generation and transmission
tied for number one. This suggests a
pragmatic approach driven by the
clarity of the immediate capacity needs
when compared with the uncertainty
surrounding the climate debate.
Impact of Anticipated Legislation
With 93 percent of the respondents
anticipating federal carbon legislation,
acting decisively ahead of such
legislation is risky. While most new
construction generation is natural
gas fueled, a combined 68 percent of
those surveyed indicated that nuclear
and/clean coal are the best base load
fuel choices for new generation, with
only 9 percent preferring natural gas.
This apparent conflict between what is
preferred and what is being approved
by regulators reflects the reality that
on one hand, nuclear energy, though
proven, requires long lead times for
licensing and construction is costly and
has waste storage issues. While clean
coal is still unproven as a large-scale
solution, and also faces waste storage
and cost hurdles. On the other hand,
natural gas generation has a short
construction cycle and low carbon
outputs, but also has demonstrated cost
volatility and creates a greater energy
dependence on foreign sources over
time. While coal is relatively cheap and
abundant, the impact of anticipated
carbon legislation on the overall cost
of new coal generation has created
an uncertain future for coal. Most
commissions would like to see more
renewable energy, more conservation
and more energy efficiency, but few, if
any, consider these to be alternatives
to base load. The impact of carbon
legislation or the lack of such legislation
has made once obvious solutions less
clear and the survey results reflect this
uncertainty. It is not unusual in this
situation to find commissioners who
believe major construction decisions
that can be delayed should be, while
national guidelines are formulated.
Not just the Negawatt
The survey finds that most
commissions are seeking ways to
encourage and incent energy efficiency
– a technique referred to as the
Negawatt1
. Energy Efficiency was
ranked number one overall, ahead of
renewable and nuclear energy, as the
best tool, at the state level, for
achieving carbon reduction. Notably,
no state appears to consider the
Negawatt alone as the path to meeting
growing demand with an acceptable
low carbon solution. Most commissions
also support tools such as time-of-use
or dynamic pricing, conservation
incentives, even rate decoupling and
the creation of a smarter, more
responsive grid provided these can
help lessen demand and reduce usage
and carbon. Electricity is, however, the
lifeblood of our economy and while
avoiding wasteful use is desirable,
simply avoiding useful consumption
is not considered a solution.
Cleaner + More Efficient =
More Expensive
No matter what options the
respondents considered, there appears
to be an acceptance that prices are
going to go up and the paradigm that
resulted in ubiquitous, reliable and
cheap electricity is in transition and
likely to assume characteristics that
lead to cleaner, more efficient and
increasingly more expensive electricity.
NARUC Membership Energy Survey - Participation
Source: Capgemini Energy and Utilities Practice
1
Negawatt power is a term coined and introduced by Amory Lovins in a 1989 speech. This technique works by utilizing consumption efficiency to
increase available market supply rather than by increasing plant generation capacity. This "virtual generation" method can supply growth of supply by
increasing efficiencies rather than increasing generation. Source: http://en.wikipedia.org/wiki/Negawatt_power
3. to obtain adequate future generation
capacity. While their opinions vary on
exactly which base load generation fuel
is most desirable long term, nuclear,
after decades of stagnation and decline,
was tied (34 to 34 percent) with clean
coal as the number one choice of
regulatory commissioners2
. Renewable
energy was third with 18 percent of the
vote, ahead of natural gas with 9
percent. The idea of a portfolio of base
load fuels was also suggested by seven
commissions, although many others
certainly support the concept.
Rise in Natural Gas Use
As noted earlier, these findings indicate
a clear intellectual trend away from
natural gas as a base load fuel, but the
reality is that the average annual
growth in natural gas-fired electric
power generation from 1995 to 2006
was 4.6 percent as compared to a 1.4
percent average annual growth for both
NARUC Membership Energy Survey 3
Energy, Utilities & Chemicals the way we see it
Findings
State and Federal Regulatory
Coordination and Policy
The vast majority of respondents
(86 percent) would support greater
national and regional coordination
between NARUC members. For such
an independent-minded group, this
is an interesting finding, suggesting
recognition that their common voices
may be needed at this critical time.
This interest in greater NARUC
coordination may be driven by the
overwhelming belief within the
membership (93 percent) that the
federal government will impose new
regulations to reduce GHG emissions.
Such legislation, while accepted as a
fundamental requirement for market
clarity and industry guidance, is not
something that the commissions believe
should be developed without input
from the state commissions and
certainly not something that should be
implemented overnight. NARUC
Resolution EL-1, Resolution on Federal
Climate Legislation and Cap-and-Trade
Design Principles, November 13, 2007,
a coordinated effort by NARUC designed
to guide national policy, is an excellent
example of how the voices of the group
are being united to guide national policy.
On this same issue, the survey found
that one-third of the respondents favored
a 10-year implementation period for
national climate legislation, while 76
percent selected either 3, 5 or 10 years.
This timeline is important for an
industry that typically makes acquisition,
construction and operating decisions
with 10-40 year depreciation periods.
Generation Capacity
Nuclear and Clean Coal Top the List
Most commissions, regardless of state or
region, are concerned about their ability
2
On September 24, 2007, NRG Energy filed a full application with the NRC to build two GE ABWR's (Advanced Boiling Water Reactors)
at the South Texas Project site. [2] As of its filing, this application was the first full application to be submitted to the NRC since the year 1979.
Source: http://en.wikipedia.org/wiki/South_Texas_Project. Between 2007 and 2010, NRC indicates a total of 33 new nuclear power plant
applications either filed or expected to be filed.
Source: http://www.nrc.gov/reactors/new-reactor-licensing.html, Expected New Nuclear Power Plant Applications.pdf.
Future Base Load Alternatives
Response Guide:
AL, MO, SD selected a portfolio
of Nuclear and Clean Coal
while LA, MA, ME, and MT
selected other combinations
NM, WI, OK, AK, NC, OH, VA, DE
and NE did not respond to survey
Actual responses can be obtained
by visiting www.us.capgemini.com/naruc
Responses by State
Nuclear - 19
Clean Coal - 19
Renewable - 10
Natural Gas - 5
TBD - 3
All - 4
Source: Capgemini Energy and Utilities Practice
“As this study makes clear, the
uncertainty surrounding our
nation’s energy policy is doing
more harm than good. Our
members understand how
this uncertainty is impacting
energy supply and costs borne
by ratepayers. NARUC is
pleased to have contributed
to this important study, as this
collaboration with Capgemini
adds critical perspectives and
solutions to the energy issues
facing our country.
”Marsha Smith
President of NARUC
and Idaho commissioner
4. Transmission Capacity
Another consistent theme found in
the data—driven in part by the need
for generation capacity and in part
by the need for replacement of aging
infrastructure—is the need for
additional transmission capacity. This
may be the sleeper issue of this survey,
since it not only impacts fossil fuel
generation, but also renewable
generation. When the top five overall
issues (issues receiving the most first,
second and third-place votes) facing
state commissions are tallied, the need
for new transmission capacity ranks
alongside new generation capacity as the
top overall issues at the state level and is
only one vote below the second place
selection of reducing GHG emissions
from a national perspective.
While in some regions the desire is to
connect remote renewable generation
such as wind to load areas, in other
regions the objective is to simply
connect existing or expanded fossil
fuel generation to an endless
expanding demand.
Transmission may have been on the
mind of many commissioners when 67
percent indicated support for greater
federal and state coordination. Under
Section 1221 of the Energy Policy Act
of 2005, the federal government was
given new power to site certain
transmission lines, traditionally a state
function. DOE can grant construction
permits and federal eminent domain
power to enable construction under
certain conditions where they find
congestion on “National Interest
Electric Transmission Corridors” or
where a state has withheld approval
of a proposed transmission project in
such a corridor for more than one
year. This power may enable regional
transmission construction more readily,
transmission that in many cases will be
coal and nuclear power generation3
.
This rise in natural gas use at the
expense of coal and nuclear energy has
not come without a price to ratepayers,
with the per MMBtu cost of natural gas
at U.S. electric power plants on March
12, 2008 at $9.11, as compared to
$6.94 in 2006, $5.96 in 2004 and
$3.56 in 2002, a 255 percent increase
in six years4
. The reality is that natural
gas, though increasingly more costly, is
viewed as less risky in this period of
legislative uncertainty and mounting
environmental sensitivity.
Increasing Generation or
Reducing GHG Emmissions?
The issues of new generation capacity
and new transmission capacity tie as
the top two issues facing the energy
industry from a state perspective with
generation fuel cost as a close third.
These three issues received a combined
67 percent of the entire top five votes,
with energy efficiency receiving 18
percent and reducing GHG emssions
receiving 16 percent. When this same
question is asked from a national not
4
state perspective, reducing GHG
emssions rises to second place with
23 percent of the vote, behind new
generation capacity with 25 percent;
and one vote ahead of new transmission
capacity with 21 percent.
This finding suggests that the majority
of energy regulatory commissions find
nothing more pressing at the state or
national level than the need for
additional generation capacity, but a
similar number nationally accept that
reducing GHG emissions is one of the
top issues facing the nation. To the
degree that a common concern can
unite a group as diverse as NARUC,
these two issues appear to give this
group common purpose, if not agreed
solutions. To that end, given the
anticipated impact of climate legislation
carbon policy on generation fuel
options, it seems certain that the lack
of such guidelines will continue to
hamper regulatory clarity, creating a
gap between what regulators believe
to be the best long-term solutions and
what they can approve while they wait
for Congress to act.
3
Source: Energy Information Administration; Electric Power Annual with data for 2006, October 22, 2007.
4
Source: Energy Information Administration; Electric Power Annual for 2006 and the EIA Natural Gas Weekly Update for March 12-19, 2008.
National Energy Priorities
Source: Capgemini Energy and Utilities Practice
5. Order6
and in enhanced financial
due diligence procedures such as the
Carbon Principles7
developed by JP
Morgan and other Wall Street banks. It
is apparent that regulators consistently
demonstrate in their survey comments,
conversations and regulatory actions
that energy efficiency and conservation
measures should be addressed first or
in parallel with any and all other
demand and emission reduction
solutions. However, they do not
consider the Negawatt to be a
replacement for future base load
generation capacity.
Like the transmission issue, energy
efficiency has also gained momentum at
the national level. The Department of
Energy and the Electric Power Research
Institute signed a Memorandum of
Understanding March 5, 2008 designed
to strengthen cooperation on research,
development, and deployment of
technologies that increase energy
efficiency8
. It is clear from the survey
data that energy efficiency has become
the accepted first step to addressing
increasing demand and carbon
reduction and those seeking to develop
solutions and create business in this
area should find the results from
this survey encouraging.
Sharing the Cost
While the Negawatt is an important
“low-hanging fruit” in the effort to help
reduce demand and carbon, 69 percent
of respondents support time-of-use or
dynamic pricing, considered another
tool for addressing this issue and
perhaps preparing the customer for
the price increases to come. There is
a growing belief within the regulatory
community that the price of energy
is going up and little can be done to
prevent these increases. Whether the
increase is the result of a climate policy
carbon tax, the growing reliance on
natural gas for electricity generation
and/or the need to add higher price
renewable generation and/or clean coal
and nuclear generation, the result
appears to be a higher price for energy,
short term and possibly long term.
When the issue of cost is tied directly
to increasing the cost of energy (read
higher rates) instead of indirectly to
higher costs for generation fuels, the
issue moves from priority number three
to number one among the respondents,
probably reflecting traditional sensitivity
necessary to move renewable energy
such as wind from remote generation
sites to load centers. Regional
organizations, like the Western
Governors’ Association, are also
working to enable these types of projects
to help member states achieve their
state mandated renewable generation
portfolio standards5
. The high-level
priority given the transmission issue in
responses to this survey suggests the
national and regional efforts to craft
solutions are focused on the right issue.
Energy Efficiency and Conservation
It is also apparent from the data that
energy efficiency and conservation,
(the Negawatt), have become part of
the overall strategy to slow increasing
demand as a means to address limited
supplies and begin to meet state
mandated carbon reduction targets.
When considering only the top
selection (number one ranking only)
for each commission, energy efficiency,
renewable and nuclear energy were tied
as the number one tools for reducing
GHG emissions at the state level.
Adding the second and third place
votes moved energy efficiency to
number one overall with 30 percent
of the vote, renewable energy second
with 27 percent and nuclear third
with 17 percent.
This probably reflects the growing
belief that energy efficiency can have
an immediate impact on reducing GHG
emissions, because it does not generally
require new legislation or rely on future
advances in technology. Policies and
procedures that prioritize energy
efficiency and conservation above
other capacity options can be found
in regulatory guidelines such as the
California Energy Action Plan Loading
NARUC Membership Energy Survey 5
Energy, Utilities & Chemicals the way we see it
State Energy Priorities
13
8 8
4
2
3
4 5
6
4
2
6
4
4
7
0
2
4
6
8
10
12
14
16
18
20
Generation
Capacity
Transmission
Capacity
Generation
Fuel Cost
Energy
Efficiency
Greenhouse
Gas
18 18
17
14
13
Source: Capgemini Energy and Utilities Practice
5
Source: Western Governors’ Association Clean
and Diversified Energy Initiative Report of the
Transmission Task Force, May 2006.
6
http://docs.cpuc.ca.gov/published/Report/28715.htm
7
http://www.carbonprinciples.org/
8
Source: http://www.eere.energy.gov/
6. respondents who selected state GHG
policy with those that selected Federal
Carbon Policy as important tools for
reducing GHG emissions, it is apparent
that both are suggesting the need for
legislative guidelines, and if combined
would raise this issue to third place
overall, behind energy efficiency and
renewable generation, as solutions
needed by the states. This is another
indication that the states are in need of
legislative guidelines when the issue of
climate change and carbon reduction is
to be addressed.
Water Availability Issues
Another common theme is that of
water as it relates to the generation
of energy. Water availability was
identified by 67 percent of respondents
as an issue. Some traditional regional
patterns were obvious in the data, while
some regions, like the southeast are
more likely adding this issue to their list
as a result of recent drought conditions.
Regardless of the reason, the availability
of water to support the generation of
electricity is an increasingly important
issue across most of the nation. Water
is an issue that has often required
infrastructure. With 40 percent of
commissions considering the smart grid
a fundamental requirement to support
their energy future and another 26
percent reviewing the issue, the
distribution system is clearly in
transition, becoming smarter, more
transparent and more responsive.
Greenhouse Gases
As noted earlier, when asked to list
energy priorities at the state level,
reducing GHG emissions is ranked as
number five in total scores. When the
same question is asked, but from an
industry wide or national not state
perspective, reducing GHG emissions
is ranked number two, second only to
increasing generation. This change in
priorities tied to the shift in perspective,
highlights the point at which most state
regulators find themselves unable
politically or practically to prioritize
the larger climate issue ahead of their
immediate electricity availability and
reliability mandates. They are aware that
collectively this is one of the industry
and nation’s highest priorities, but they
are state regulators who must regulate
within the federal and state legislative
guidelines at hand. Combining those
6
to rising rates. It is within this context
that support appears to be growing for
pricing mechanisms that at a minimum
expose the ratepayer to the true cost
of their energy consumption decisions,
while creating the technical infrastructure
necessary to pass those costs along to a
larger segment of society.
Decoupling of the volumetric
component of the rate from the fixed
components is a tool used by many
states to remove financial disincentives
for utilities as a means to promote
efficiency and conservation programs.
While deregulated states can be
considered decoupled to some degree,
where the distribution company is the
provider of last resort, the reality is that
the distribution company continues to
have a volumetric component to the
rate, unless this issue is addressed
directly or indirectly as part of the
overall pricing approach. At least
46 percent of respondents support
decoupling and a further 19 percent are
reviewing the issue, while 31 percent
oppose decoupling. Many states also
support direct financial incentives to
customers and some are considering
broad utility incentive programs, like
the Duke Save-a-Watt program, to
further encourage efficiency and
conservation. Providing direct
incentives to customers for
conservation was supported by 62
percent of respondents and another
10 percent are reviewing the concept.
Smart Grid
Regardless of the policies that lead
to dynamic pricing, the requirement
creates a demand for more timely
metering data, two-way, real-time
communications that enable market
price signals and associated system
controls, as well as the back office
systems and business processes
necessary to manage this huge new
flow of information. In many ways, this
is the issue that leads to the smart grid,
a step beyond an automated metering
Top 5 Solutions Enabling States to Reduce Greenhouse Gas
Responses by State
#1 Energy Efficiency - 28
#2 Renewable Generation - 25
#3 Nuclear Generation - 16
#4 Clean Coal - 14
#5 GHG Programs - 10
Response Guide:
A 2-color blended indicates a commission
that selected two of the top 5 choices: AR-3,4;
AZ-1,2; CA-1,2; CO-1,4; GA-1,3; IA-1,2; ID-1,2;
IL-2,3; IN-3,4; LA-1,3; MA-1,2; ME-2,5; MT-1,2;
ND-2,4; NJ-1,2; NV-1,2; OR-2,4; PA-2,4; RI-3,4;
SC-1,3; SD-1,3; TN-1,2; VT-1,5; WA-1,2; WY-2,4.
A pattern indicates a commission that selected
at least 3 of the top 5 issues: AL-1,3,4; CT-1,2,5;
FL-1,3,5; HI-1,2,5; KY-1,4,5; MD-1,2,3; MI-1,2,3;
MN-2,3,5; NY-1,2,5; TX-1,3,4; UT-1,2,4; WV-1,2,4.
MS did not select any of the top 5.
NM, WI, OK, AK, NC, OH, VA, DE and NE did not respond to survey
Actual responses can be obtained by visiting www.us.capgemini.com/naruc
Source: Capgemini Energy and Utilities Practice
7. Regardless of the issue or the solution,
the price of energy appears to be going
up. Nuclear energy, clean coal, wind
and solar power are today more
expensive, where available, than the
existing base electric load underpinning
of coal. Without a policy that levels the
playing field or at least clarifies the
regulatory guidelines, a state regulatory
guided transition, such as that being
proposed in California, will be difficult,
slow to implement and limited by
jurisdictional constraints. While many
of the fundamentals that have guided
the electric industry for the last 75
years may be in transition, large,
complex generation and transmission
projects that create larger complex
environmental issues defy expedient
or even quick solutions.
The regulatory community is clearly
aware of the issues, even united in
certain solutions, but they will require
new rules and some technology
advances to enable them to fully
participate. Their first order of business
is to keep the lights on through the
transition; their responses to this
survey reflects this reality.
Summary
Responses to the survey send several
clear signals. Electricity generation
capacity is tight everywhere in the
nation, and the best options for
increasing generation capacity while
reducing its impact on the environment
will remain unclear while the industry
waits for federal climate and carbon
legislation and the resulting federal
and state regulations. Reducing GHG
emissions is a recognized national
requirement, but meeting demand
and ensuring reliability remains the
fundamental driver at the state level.
While supply and demand remains
the order of the day at the state level,
the regulators demonstrate an
understanding of the change that is
upon them, although the outcome
remains unclear. Some steps such as
efficiency and conservation need not
await federal policy guidelines and
these programs are becoming
commonplace within the industry,
even to the point of changing the way
utilities make operational decisions and
perhaps resulting in changes to the
electric distribution grid and the
relationship between the energy
providers and their customers.
regional even federal solutions not
state or local ones. Future generation
decisions, such as the decision to
lean more heavily on nuclear energy,
will have to be made in the context of
the need for an increasing amount of
water in a time of increasing water
availability issues.
Industry Consolidation
When asked if more energy industry
consolidation is anticipated, 64 percent
of commissions agreed. Many made the
point that they do not believe such
consolidation will actually achieve
greater financial stability for the
companies or result in better regional
coordination. Challenges to the
financial stability of utilities can be
traced to many sources, including
uncertainty in the capital markets, the
need for significant infrastructure
investments, the increasing cost of fuel
and the lack of regulatory clarity as it
relates to environmental policy. Utilities
that made long term base load
generation investments under one set
of policy guidelines could find
themselves in a financially challenging
situation under new guidelines that tax
or cap carbon. More outside ownership
of U.S. utilities is a distinct possibility
given the weak dollar; however, these
ownership changes could follow the
privatization models at Puget Sound
Energy and Oncor instead of the
traditional M&A approach. Recent
failed mergers such as the FPL and
Constellation merger or Exelon and
PSEG merger, as well as stalled mergers
such as the Iberdrola and Energy East
merger or overall credit/capital market
constraints could dampen the near
term market for utility M&A activities.
Regardless, the need to work across
regulatory jurisdictions will remain
a challenge, with the survey
comments suggesting anticipation
of more mergers, but a degree of
skepticism as it relates to the merit
of such transactions.
NARUC Membership Energy Survey 7
Energy, Utilities & Chemicals the way we see it
State Water Issues
Response Guide:
KS selected all three responses
CA listed Water Rights Allocation
IN listed Fragmented Regulations
KY Water Distribution
NM, WI, OK, AK, NC, OH, VA, DE
and NE did not participate in the survey
Actual responses can be obtained
by visiting www.us.capgemini.com/naruc
#1 Water Availability - 28
#3 Water Cost - 4
Alternative or No Selection
#2 Water Quality - 5
Responses by State
Source: Capgemini Energy and Utilities Practice
