PURPA comments filed

On August 8, 2005 the Energy Policy Act of 2005 was signed into law. Among the many provisions of this federal legislation are five proposed standards having to do with energy conservation and consumer-driven rate management. These proposals were included as amendments to the Public Utility Regulatory Policies Act of 1978 (PURPA).

The five (5) new standards include: (1) Net Metering, (2) Time-Based Metering and Communications, (3) Diversity of Fuel Sources, (4) Fossil Fuel Generation Efficiency, and (5) Distributed Generation Interconnection.

Net Metering
Net metering service is service to an electric customer in which excess electricity generated by the customer from an eligible on-site generating facility is offset against electric energy provided to the customer by the utility during the applicable billing period.

Fuel Source Diversity
Fuel source diversity involves the implementation of a plan to minimize dependence on one fuel source and to ensure that the electric energy the utility sells to customers is generated using a diverse range of fuels and technologies, including renewable technologies.

Fossil Fuel Generation Efficiency
The fossil fuel generation efficiency standard proposes development and implementation of a ten-year plan to increase the efficiency of a utility’s fossil fuel generation.

Time-Based Metering and Communications (Smart Metering)
Time-based metering is a time based rate schedule where the rate paid by electric customers varies during different time periods to reflect the variance, if any, in the utility’s costs of acquiring electricity.

Interconnection
The interconnection standard sets forth the terms under which electricity generated by a customer may be connected to a utility’s facilities.

Please note that cooperatives in North Carolina purchase all or a considerable amount of their power requirements either from North Carolina Electric Membership Corporation (“NCEMC”), or from large investor-owned utilities, such as Progress Energy or Duke Energy, under long-term full-requirements contracts. For this reason, they would not likely be able to adopt Standards 2 (Fuel Sources) and 3 (Fossil Fuel Generation Efficiency), and their ability to effect aspects of other standards may be limited as well.

The PURPA findings are as follows:

STATE OF NORTH CAROLINA

RALEIGH

In the Matter of: ) WAKE

Consideration of Federal Standards Proposed ) ELECTRIC MEMBERSHIP

by Amendments to the Public Utilities ) CORPORATION’S FINDINGS

Regulatory Policies Act (“PURPA”) ) AND DETERMINATIONS

INTRODUCTION AND BACKGROUND

On August 8, 2006, the President of the United States signed into law the Energy Policy Act of 2005 (“EPAct 2005”). Title XII, Subtitle E of the EPAct 2005 amends the Public Utility Regulatory Policies Act (“PURPA”) by proposing federal standards relating to Net Metering, Fuel Source Diversity, Fossil Fuel Generation Efficiency, Interconnection, and Time-Based Metering and Communications.

EPAct 2005 proposed the aforementioned five new federal standards under Section 111(d) of PURPA for consideration by, among others, non-regulated electric utilities (such as EMCs, or as they are commonly referred, “electric cooperatives”) which had retail sales for applicable time periods in excess of 500 million kWh. In addition, other EMCs may consider the standards on a voluntary basis. In each instance, the participating EMC will consider and determine “whether or not it is appropriate to implement such standard[s]” within certain defined time lines based on evidence collected from interested persons after public notice and hearing. In making this assessment, EMCs are to analyze potential adoption of the standards in light of PURPA’s overarching objectives, which are (1) conservation of energy supplied by electric utilities; (2) optimal efficiency of electric utility facilities and resources; and (3) equitable retail sales to electric customers

On or about January 11, 2007, the North Carolina Association of Electric Cooperatives (“NCAEC”) published Public Notice on behalf of Wake Electric Membership Corporation (“WEMC”) and other participating North Carolina EMCs, advising that it would be hosting and facilitating the administrative proceedings required to implement statutory directives in the EPAct 2005, which amended PURPA. The Public Notice was published in the following newspapers published in the service area of WEMC: the “Henderson Daily Dispatch,” the “Franklin Times,” the “Oxford Public Ledger,” and the “Wake Weekly.” It was also published in the major newspapers of the state of North Carolina. This notice set forth the following timeline:

Initial Comments: to be submitted on or before April 6, 2007.
Reply Comments: to be submitted on or before May 11, 2007.
Request to Participate in Public Hearing: to be submitted on or before May 11, 2007.
Public Hearing: to be held on May 23, 2007, commencing at 9:00 a.m. at the North Raleigh Hilton, 3415 Wake Forest Road, Raleigh, North Carolina 27609-7330.
Determination: to be rendered on or before August 7, 2007.

At this time, those comments filed with NCAEC, and a transcript of all testimony provided at the May 23 public hearing, have been made available for review and consideration by the Board of Directors of WEMC. Upon review of this administrative record, and with the input of WEMC staff, the Board issues the following findings of fact:

WEMC is a non-regulated electric utility with retail sales for calendar year 2005 in excess of 500 million kWh.
WEMC purchases all of its full power requirements from North Carolina Electric Membership Corporation (“NCEMC”), under a long-term full-requirements contract.
NCAEC did not receive input, inquiry or comment from any WEMC member in response to the January 11, 2007 Public Notice, nor did any member of WEMC attend the May 23, 2007 public hearing conducted by NCAEC.
Both within the electricity industry and in the general public, there is increasing interest in the development of alternative and so-called “renewable” resources, such as solar, wind, hydroeclectric, geothermal, biomass, fuel cells, and microturbines.
This interest is reflected by legislative efforts currently underway in the North Carolina Legislature which may result in imposition of a state-mandated Renewable Portfolio Standard, or RPS.
Similar legislative efforts are also progressing in the United States Congress, and there is reason to believe that the federal government may also impose a mandatory RPS.
Whether to facilitate compliance with RPS requirements, or simply to further laudable objectives related to environmental protection and energy conservation, there exist considerable incentives to enable WEMC customers to interconnect generation resources when feasible and cost-effective.
Under existing federal law, WEMC is already required to provide interconnection service to Qualifying Facilities, as defined by PURPA prior to its recent amendment.
Given existing resources and experience within the North Carolina community of EMCs, expanding this interconnection service requirement to all customers (members) should not unduly tax the cooperative’s resources or interfere with current policies, practices or contract templates.
Such resources include model interconnection templates filed at the North Carolina Utilities Commission (“NCUC”) by the state’s major utilities, Model Interconnection Procedures and Agreement for Small Distributed Generation Resources promulgated by the National Association of Regulated Utility Commissioners, a Distributed Generation Interconnection Toolkit compiled by the National Rural Electric Cooperative Association, a Small Generator Interconnection Rule published by the Federal Energy Regulatory Commission, and IEEE Standard 1547 for Interconnecting Distributed Resources with Electric Power Systems developed by the Institute of Electrical and Electronics Engineers.
WEMC currently has no interconnected members but plans to work with other electric cooperatives in the state to develop a uniform interconnection agreement template.
Federal law and North Carolina law do not require unregulated utilities such as electric membership corporations to provide net metering to interconnected customers.
In 2005, the NCUC ordered Progress Energy Carolinas, Duke Energy Carolinas and Dominion North Carolina Power to adopt net metering, but restricted this requirement to generators of 10kW or less for residential customers and 100kW or less for non-residential customers, and capped the net metering requirement to 25 customers per utility or 0.2% of the utility’s peak load, whichever is less.
For the purpose of these proceedings, WEMC will apply the term “net metering” to mean the concept whereby a consumer’s electric meter rolls forward when the consumer uses more electricity than he produces and rolls backward when the consumer produces more electricity than he consumes.
The economic value of the electricity consumed and produced by a consumer can and does vary significantly with time, a fact not reflected by the concept of net metering adopted for the purposes of this proceeding.
“Net metering,” as understood for these purposes, fails to appreciate that a net metering customer may well be consuming more electricity than he produces during peak electric usage time, when electricity is most valuable and expensive, while replacing that expensive peaking electricity with cheaper energy produced during off-peak periods.
The cost of the difference in value between electricity produced and consumed under such circumstances would necessarily be passed on to other cooperative customers, which must subsidize the interconnected member’s generation operations.
In North Carolina, member-generators have access to a state Green Power program which pays an incentive to producers of renewable resources, which combined with the price paid by WEMC would provide a total payment to the producer that is typically more than twice the kWh value amount that the member would receive under net metering.
For most of its members, WEMC currently charges an average retail price for its electricity sold within a member class, which price does not vary depending on time of day, season or load conditions.
However, WEMC does have a time-based rate program which, based upon historical load data, provides an incentive for members to defer electricity use during historically peak periods of electricity demand, which typically is the most expensive electricity to provide. A relatively small number of residential and commercial members participate in this program.
WEMC largely purchases power from NCEMC at a price based primarily on kilowatt hours priced the same for all hours, and does not receive a “live” signal which indicates the real-time price of electricity used or purchased.
Because the rate charged by NCEMC does not vary during different time periods for any given day, WEMC will derive little to no benefit by implementing additional time-based rates for its members at this time.
Implementing additional time-based rates for WEMC’s membership would also not further PURPA’s stated objective that rate schedules “reflect[s] the variance, if any, in the utility’s costs of generating and purchasing electric energy at the wholesale level.”
As previously recited, WEMC purchases virtually all of its power requirements under a wholesale power contract with NCEMC, and does not generate any of its own power.
WEMC is not in a position to make an independent assessment or decision regarding fuel choices or alternatives.
The North Carolina Utilities Commission (“NCUC”) maintains a long-range generation expansion plan to meet the state’s long-range energy needs, with the goal of maximizing generation plant efficiency, pursuant to which it has adopted a rule requiring its wholesale power providers to file an annual plan known as the Integrated Resource Plan (“IRP”).
The IRP rule requires wholesale power providers to file specific information and data regarding planning for major generating unit expenditures, and reinforce the state’s emphasis on fuel efficiency. The various reports and data provided to the NCUC as part of the IRP process provides significant incentive to the state’s power providers to seek improved operational efficiencies.
The NCUC’s IRP process is a more effective alternative to address fossil fuel efficiency than the 10 year plan contemplated by PURPA’s proposed standard on Fossil Fuel Sources.
WEMC does not exercise control over the efficiency of any of the generation resources from which their power is derived.

WHEREFORE, WEMC, based on the evidence available to it as a result of public notice and hearing conducted on its behalf by NCAEC, and bearing in mind the overarching PURPA considerations of (1) conservation of energy supplied by electric utilities; (2) optimal efficiency of electric utility facilities and resources; and (3) equitable retail sales to electric customers (WEMC members), makes the following determinations as to each of the applicable PURPA standards:

WEMC will adopt and implement the proposed PURPA Interconnection Standard. As soon as reasonably practicable, WEMC will offer interconnection for member-owned generation pursuant to such policies, practices, agreements and rates as it determines are appropriate and reasonable.
WEMC will not adopt a true “net metering” standard as that term has been applied to these proceedings. Rather, WEMC shall largely adopt a standard for compensating member-generators predicated on the concept of avoided cost. Doing so will ensure that WEMC not require one set of members to subsidize the operations of another, consistent with the third of PURPA’s overarching objectives, the equitable treatment of members. WEMC is not persuaded that the other two PURPA objectives would be further by adoption of a net metering standard. If used in conjunction with the incentives offered by North Carolina’s Green Power program, an avoided cost standard should still allow many self-generating members to realize significant benefits from their operations.
In certain instances, determined on a case-by-case basis, WEMC may decide to provide net metering to a small number of those members who first seek interconnection, purely as an administrative convenience. WEMC reserves the right to discontinue this practice, and to refuse to net meter additional customers, at such time and at such levels as it deems appropriate.
At this time, WEMC will not adopt PURPA’s standard on Time-Based Metering and Communications. Given that WEMC’s rates from its wholesale power provider do not vary according to time of use, it would not further PURPA’s overarching objectives for WEMC to implement such rates for its members. Rather, WEMC should continue to implement rates that accurately reflect the costs that make up its revenue requirements. WEMC should monitor developments at the state and local level that may impact the manner in which it obtains its wholesale electricity, and if its wholesale provider[s] begins offering rates that vary according to time period or time of use, it should fully explore the viability of offering such rate variances to its members at that time.
WEMC will not adopt PURPA’s Fuel Sources standard because its wholesale power supplier, not WEMC, determines the fuel mix used to generate the electricity it purchases. WEMC notes further that the fuel portfolio of its current wholesale power provider is already quite diverse and contains renewable resources, and that there is considerable potential that such diversity will increase in the future due to legislative and/or social pressures.
WEMC will not adopt PURPA’s Fossil Fuel Efficiency standard, both because the plan dictated by the standard would be inferior to current efficiency planning efforts already undertaken by its wholesale power provider and because WEMC is not in a position to dictate the fuel sources selected for the generation of the power it purchases on a wholesale basis.

On this 24th day of July, 2007,

WAKE ELECTRIC MEMBERSHIP CORPORATION

By:

President