As 2011 rapidly approaches, electric utilities face significant legal and regulatory uncertainty on a variety of fronts.  First, with respect to transmission, the Federal Energy Regulatory Commission’s (“FERC”) Notice of Proposed Rulemaking on transmission planning and cost allocation and the Midwest Independent Transmission System Operator, Inc.’s (“MISO”) so-called “MVP” filing, which socializes the costs of new transmission projects across the entire MISO region, both remain pending.  The Commission could act on one or both of these items at its final 2010 open meeting (on December 16).  The MISO MVP filing gained added importance, as this week, MISO announced $1.2 billion in new projects.  Meanwhile, in the Southwest Power Pool (“SPP”), the issue of rising cost estimates for regional transmission projects, known as “priority projects,” has resulted in two states announcing investigations and the Regional State Committee firing off a pointed letter to SPP management raising the issue of vanishing consumer benefit in light of the rising costs for new projects.  The national debate on cost allocation has been intense and has spilled over to the mainstream press, with even the Wall Street Journal weighing in on the issue. 

Transmission development has oftentimes been linked to the need to more fully deploy renewable resources, a second area of uncertainty.  With the Republicans gaining control of the United States House of Representatives (as well as several state legislatures), there is little chance that a national renewable portfolio standard (“RPS”) will be enacted.  The lack of a national renewables mandate intensifies an already hot national debate on how best to develop and deploy new renewable resources.  With the Republican ascension, there has been some talk of enacting a “clean energy standard,” which would include nuclear and clean coal.  With nuclear and coal-fired resources enjoying a capacity factor advantage (but typically much higher up-front capital costs), resource decisions have become incrementally more complicated.  Regionally, off-shore wind versus Midwest or Great Plains wind remains a hot debate, with local job creation and the desire to avoid being allocated transmission development costs ties in to advocacy in favor of various development patterns.    

Third, on the environmental front, the industry faces several regulatory challenges, as has been chronicled previously in this publication. (see e.g. October 28, 2010 and November 12, 2010 edition of the WER). Most recently, the December 1, 2010 Energy Daily reports that investor-owned utilities are gearing up to fight an Environmental Protection Agency (“EPA”) to-be issued rulemaking that could require the use of cooling towers (rather than permitting “once through” cooling).  Utility industry groups and the North American Electric Reliability Corporation have been discussing the potential reliability and economic impacts of all of the environmental rules being considered by EPA.

In addition to these major areas, there are several other national issues of general applicability where the utility sector will not be immune to impact.  The uncertainty over the renewal of the Bush-era tax cuts looms large.  Utility sales are typically tied to overall economic activity and uncertainty over tax policy could lead to less consumer spending and investors “staying on the sidelines” until the issues are worked out.  Meanwhile, looming increases in the tax rate on dividends would presumably impact utility stocks and investment decisions.  Beyond tax policy, state and federal government responses to issues such as stubbornly high unemployment, deficit spending and government debt levels, and the future size and scope of federal and state government workforces will all have an effect on utilities in terms of resource needs, load growth, and the regulatory environment.  As of press time, optimism regarding a tax cut renewal deal was rising, but until enacted into law, uncertainty on the issue will remain.  All of these issues of course, will play out against the backdrop of a looming presidential election in 2012.  Stay tuned.