Global EnergyRegulation

Reporting on energy regulation issues around the world December 2015

Issue 199

EUROPEAN NEWS

UK

UK Launches Second Capacity Market AuctionThe UK opened its second Capacity Market auction aimed at securing extra

power for 2019/20. The auction, which is run by National Grid, is intended

to ensure enough electricity is available to meet peak demand. Generators,

providers of demand-side response, and (for the first time) interconnectors are

all eligible to participate in the auction.

DECC, 08/12/15; Energy Live News, 08/12/15

China Gives Go-Ahead To BG-Shell MergerRoyal Dutch Shell has been given the green light by China’s Ministry of

Commerce to take over British oil and gas exploration firm BG Group for £47,000

million (US$68,000 million). This go-ahead comes after similar approvals from

regulators in the US, EU, Brazil, and Australia earlier in the year. Having cleared

its final regulatory hurdle, the deal–which is one of the energy industry’s biggest

to date–is set to be completed in early 2016.

Bloomberg, 14/12/15; Reuters, 14/12/15

UK Allows Fracking Under National ParksMPs in the House of Commons voted in favour of the government’s proposal to

extract shale gas beneath national parks, by a vote of 298 to 261. This victory

essentially gives the go-ahead for the exploration of shale gas under national

parks, at depths of at least 1,200 metres, on condition that the drilling must take

place from outside these protected areas. Some view the decision as a U-turn by

the government, which earlier this year had been committed to an outright ban

on fracking in national parks.

Reuters, 16/12/15; Energy Live News, 16/12/15

Contents

1 Europe

14 North America

17 Central & South America

18 Asia Pacific

19 Middle East

General EditorTomas Haug

Regional EditorsAmparo Nieto: North America

Oscar Arnedillo: Spain, Portugal,

European Union and Latin America

Carlo Scarpa: Italy

December 2015 2

Austria ACER Dismisses E-Control’s Appeal Against Its Recommendation To Split Market Zone

The European Agency for the Cooperation of Energy Regulators (ACER)

dismissed an appeal by the Austrian energy regulator, E-Control, against its

September 2015 proposal to split the Austro-German market zone for electricity.

In September 2015, ACER recommended that the Austro-German market zone

be split, due to negative effects on neighbouring countries. It also proposed

specific steps to implement the market splitting. E-Control appealed against

this decision to ACER’s Board of Appeals as well as to the European General

Court. The Board of Appeals dismissed the appeal as inadmissible, arguing that

ACER’s opinion was not legally binding and therefore no appeal can be brought

against it. Consequently, E-Control has already announced it will ignore ACER’s

proposal. The appeal to the European General Court is still pending.

E-Control website, 17/12/15

E-Control Appoints Electricity Exchanges As “Nominated Electricity Market Operators”On 15 December, the Austrian energy regulator, E-Control, appointed three

electricity exchanges as Nominated Electricity Market Operators (NEMOs) for

Austria. NEMOs have to be designated under the EU’s Capacity Allocation and

Congestion Management (CACM) Guidelines, which entered into force in August

2015. NEMOs serve as coordinators and counterparties for the exchange of

electricity on the European day-ahead and intraday markets to ensure efficient

network utilization. The three nominated exchanges are the spot markets

of the Central European (EPEXSPOT), the Austrian (EXAA), and the Nordic

(Nordpool Spot) exchanges. All the major steps in implementing the CACM

Guidelines require approval by the respective national regulatory authorities.

E-Control website, 15/12/15

December 2015 3

Belgium Belgian Regulator Proposes Methodology for Risk Assessment of Infrastructure Investments

The Belgian federal energy regulator, the CREG, published a draft decision for

consultation, setting out the methodology and criteria with which it intends

to assess gas and electricity infrastructure investments and the associated

level of risk. Its approach is based on European legislation on coordinated

support measures for Projects of Common Interest (PCIs)–a number of network

development projects designed to enhance European energy market integration.

According to the draft decision, the investment evaluation methodology

comprises several steps, including presentation of the project by the network

operator, a risk assessment by the regulator, and an assessment of existing

measures and mechanisms to limit economic risks. Following the evaluation

process, the CREG may opt to adjust the tariff methodology. Stakeholders can

submit consultation responses until 20 January 2016.

CREG website, 03/12/15

CREG Approves Electricity Transmission Tariffs for 2016-19The Belgian federal energy regulator, the CREG, published its approval of the

tariffs that Elia, the Belgian electricity transmission system operator, can charge

network users over the regulatory period 2016-19. Elia had submitted a proposed

new tariff scheme based on the CREG’s tariff methodology of 18 December 2014.

Elia’s total allowed revenues for the period 2016-19 are 2.5% lower than in 2015.

However, Elia considers the approved budget to be sufficient for its investment

program in Belgium, which amounts to more than €1,600 million (US$1,750

million) over the period 2016-19. Under the new arrangement, the CREG has

adopted a new incentive mechanism, which supports the implementation of

major network development projects.

CREG website, 04/12/15

Regulator Gives View on Belgian Gas Market The CREG presented a study containing its findings on the structure and

operation of the Belgian natural gas market, covering issues such as the

evolution of market shares, price levels, and price formation. The CREG found

that the opening of the Belgian gas market made further progress in 2014, with

new suppliers arriving on the market. The trend towards hub-based gas price

formation continued, with less than 10% of supply contracts for industrial

customers indexed to oil prices. Similarly, indexation of the variable energy price

component for residential (household) consumers relies upon gas price quotes.

CREG website, 22/12/15

December 2015 4

New Incidents Cast Doubt On Future of Belgian Nuclear Reactors The Belgian nuclear reactors at Doel and Tihange suffered a series of technical

incidents that led to renewed fears over the security of the nuclear reactors,

and provoked criticism from neighbouring countries. Doel 1 shut down

automatically on 2 December, operation of Tihange 1 was halted unexpectedly

on 18 December, and Doel 3 was stopped on New Year’s Eve. The Doel 1 reactor

was taken out of service in February 2015 after 40 years of operation; in June,

however, the Belgian parliament decided to grant an extension of 10 years to

Doel 1 and 2, driven by concerns over security of supply. In light of the recent

incidents, the extension will now be subject to renewed scrutiny from its critics.

lesechos.fr, 05/01/2016; lesoir.be, 04/01/16

Czech Republic ERU Plans Support For Existing Renewable Energy SourcesThe Energy Regulatory Office (ERU) published price decision 9/2015, allocating

support to existing renewable energy sources. Based on a government resolution

approved on 21 December 2015, the price decision sets support for 2016 at

42,000 million Czech Krone (US$1,700 million).

ERU, 29/12/15; CEZ, 29/12/15; Ceska Tiskova Kancelar, 29/12/15, 23/12/15

European Union European Parliament Urges Member States To Interconnect Their GridsThe European Parliament approved a non-legislative resolution titled “Achieving

the 10% electricity interconnection target – Making Europe’s electricity grid

fit for 2020”. According to the resolution, full integration of the EU electricity

market could cut bills by at least €2 per MWh (US$ 2.16 per MWh), and save

users up to €40,000 million (US$ 44,000 million) per year by 2030. However,

achieving these savings requires an investment of €150,000 million (US$

164,000 million). The European Network of Transmission System Operators for

Electricity, ENTSO-E, backed the European Parliament’s resolution but noted that

one-third of the infrastructure projects identified in ENTSO-E’s 10-year network

developmentplan is delayed.

ENTSO-E, 17/12/20; Europa.eu, 15/12/20

December 2015 5

European Commission Launches Consultation On The Operation Of The Auctioning Regulation Pursuant To The EU ETSThe European Commission launched a consultation aimed at collecting

stakeholders’ views on proposed amendments to the Auctioning Regulation,

which sets out rules for the auctions of greenhouse gas emission allowances.

The amendments are required due to the forthcoming introduction of the

Market Stability Reserve (MSR). The consultation also asks stakeholders to

share their views on how the Auctioning Regulation has functioned in the

more than 700 auctions of allowances executed to date. The consultation is

open until 15 March 2016.

European Commission, 16/12/20

ACER Adopts New Recommendation On Cross-Border Cost Allocation RequestsThe Agency for the Cooperation of Energy Regulators (ACER), adopted a

new Recommendation on requests for cross-border cost allocation (CBCA),

including requests for electricity and gas Projects of Common Interest. The

Recommendation builds on experience from the first investment requests for

Projects of Common Interest. It provides project promoters with guidelines

to help them better fulfil EU regulatory requirements when submitting an

investment request, and it provides National Regulatory Authorities with

the main principles to be applied when handling an investment request and

deciding on the cost allocation across borders. It also clarifies that CBCA

decisions shall be final, and provides guidance on: the treatment of uncertainty,

calculation of costs and benefits, TSO consultation processes, submission of

investment requests, reporting requirements, cross-border payments, and

evaluation of the impact on network tariffs.

ACER, 21/12/15

ACER Administrative Board Endorses Agreement With FERCACER endorsed an agreement with the US Federal Energy Regulatory

Commission (FERC), aimed at sharing knowledge, experience, and best practices,

and at providing mutual support in the process of monitoring wholesale energy

markets. This agreement builds on the Memorandum of Understanding signed

between both institutions in early 2015.

ACER, 17/12/15

December 2015 6

European Commission Accepts Bulgarian Energy Holding Commitment To Open Up Wholesale Electricity MarketThe European Commission adopted a decision that makes legally binding the

commitments offered by the state-owned company, Bulgarian Energy Holding

(BEH), to alleviate the Commission’s concern that BEH may have abused its

dominant position in the wholesale supply of electricity at non-regulated

prices. In particular, the Commission expressed concern over certain clauses

in electricity supply contracts between BEH and third parties that imposed

territorial restrictions on the resale of electricity. BEH’s commitments include

the establishment of a new power exchange and the offer of stipulated volumes

of electricity in the day-ahead market for a period of five years.

European Commission, 10/12/15

European Commission: ACER Publishes Conclusions And Next Steps In Electricity Transmission Tariff HarmonisationACER published the conclusions of analysis undertaken during 2015 on

the potential harmonisation of the structure of electricity transmission

tariffs. The Agency’s conclusions take into account consultancy reports and

recommendations, stakeholders’ comments received through questionnaires,

two public events, and comments from ENTSO-E and the European Commission.

The document also sets out further steps to be undertaken from 2016 onwards.

ACER, 2/12/15

France Decision On Update Of Gas Transport Tariffs PublishedThe French energy regulator, the CRE, published its decision on the annual

update of gas transport tariffs (ATRT5), effective from 1 April 2016. The current

gas transport tariffs have been in force since April 2013 and are subject to an

annual update, taking into account the actual levels of non-controllable costs.

The tariffs concern the regulated services provided by the two French gas

transmission system operators, GRTgaz and TIGF. Under to the CRE’s decision,

GRTgaz’s tariffs will increase on average by 4.6% on 1 April 2016, while the

increase in TIGF’s tariffs amounts to 5.0%. The tariff increase results from a

fall in capacity bookings and a rise in allowed revenues, whereby the latter is

mostly driven by increasing capital costs.

CRE website, 10/12/15

December 2015 7

Germany Court Of First Instance Finds Damages Claims For Nuclear “Moratorium” To Be Overstated

On 17 December the District Court in Essen heard RWE’s claim against the

German authorities for damages due to the nuclear “moratorium” imposed after

the accident at Fukushima, Japan. The RWE case covers the Biblis nuclear power

plant and claims around €235 million (US$257 million) in damages. It is the first

in a series of cases filed by power plant operators against various government

decisions relating to the shutdown of nuclear power plants. Germany’s highest

administrative court has already ruled that the moratorium imposed on the

Biblis plant was unlawful. Key areas of dispute in the damages case include

the level of damages and whether the state of Hesse or the federal government

is liable. The District Court indicated that the damages claim was likely to

be significantly overstated because it failed to incorporate gains from higher

prices and increased sales at other plants. RWE will now provide new damage

estimates in February and the lawsuit is expected to continue over the summer.

Frankfurter Rundschau, 18/12/15; Dow Jones Newswires, 17/12/15

Decision On “Nuclear Liabilities Law” Postponed As RWE Announces Split Into Conventional And Renewable Power Generation The German Parliament chose to delay passing the so-called “Ex-Post Liability

Law” (“Nachhaftungsgesetz”), a law designed to ensure that the owners of

nuclear power plants remain liable indefinitely for all future costs arising

from the decommissioning of nuclear plants they have operated. RWE had

announced that it would spin off its renewables, grid, and retail operations into

a separate company, which will be part-listed on the stock exchange by the end

of 2016, with RWE planning to keep a majority holding in the long run. This

move by RWE follows a similar split that E.ON announced a year ago. According

to RWE, the split will have no effect on the assets available to back its nuclear

liabilities, as it will retain control over the new subsidiary company.

Focus, 18/12/15; Handelsblatt, 16/12/15; Wall Street Journal, 02/12/15;

Handelsblatt, 01/12/15

December 2015 8

Cost Of Network Stability Measures Increased In 2015According to a new report by the German federal networks regulator, the

Bundesnetzagentur (BNetzA), the volume of redispatch measures used in

Germany during the first half of 2015 exceeded the volume used for the whole

of 2014 (around 5.2 GWh) by a small margin. Payments for these measures

increased from €186 million (US$203 million) during 2014 to around €250 million

(US$273 million) in the first half of 2015. In addition, the cost of curtailing

output from renewable energy sources reached nearly €150 million (US$164

million) during the first half of 2015.

BNetzA, 07/12/15

German Parliament Passes New CHP LawThe German Parliament passed a new combined heat and power (CHP) law.

The new law comes into force on 1 January 2016. The final version of the law

makes some changes relative to the official draft published on 31 August (see

August edition of GERN): (1) the CHP law sets a goal of increasing net production

from 110 TWh in 2020 to 120 TWh by 2025, instead of defining expansion

targets as a percentage of total non-intermittent electricity generation; (2)

small installations below 50 kilowatt will now receive subsidies for 60,000

hours instead of 45,000 hours; and (3) new plants will receive subsidies for an

additional two years, i.e., until the end of 2022. Overall, the total maximum

subsidy for CHP will double from the present value of €750 million (US$820

million) to €1,500 million (US$1,640 million) per year.

Gesetz zur Neureglung des Kraft-Wärme-Kopplungsgesetzes, 21/12/15

December 2015 9

Italy Electricity Transmission, Distribution And Metering In The Fifth Regulatory Period

On 28 December 2015, the Italian energy regulator (Autorità per l’energia

elettrica il gas e il sistema idrico, Aeegsi) passed Decision 654/2015/R/eel

approving the regulation of tariffs for electricity transmission, distribution,

and metering in the fifth regulatory period. In line with the proposals put

forward during the consultation process, Aeegsi extended the regulatory

period to eight years (2016-23), divided into two sub-periods of four years

each (NPR1 for 2016-19 and NPR2 for 2020-23). For NPR1, Aeegsi approved

the current hybrid methodology of rate of return (for CAPEX) and incentive

regulation (for OPEX) based on a building block approach. From NPR2, Aeegsi

approved a ”totex” approach with a related review of the tariff structure. In

the coming years, Aeegsi intends to engage with stakeholders over the design

the new TOTEX regulatory framework.

Aeegsi website, 28/12/15

Reform Of The Weighted Average Cost Of Capital Methodology for Electricity and GasOn 2 December 2015, Aeegsi passed Decision 583/2015/R/com, approving the

new methodology for setting the Weighted Average Cost of Capital (WACC) for

transmission and distribution in the electricity and gas sectors. The Decision

lays out the methodology and the values of all the key parameters used to

determine the WACC, with the exception of sector-specific parameters (i.e.,

gearing and beta). In contrast with the previous regulatory framework, Aeegsi

introduced a separate regulatory period for the WACC for all regulated sectors

(so called PWACC) that spans six years (2016-21), and allows for a review of

key parameters after three years. In terms of changes to the methodology for

setting the WACC, Aeegsi opted for a “Total Market Return” approach that sets

the cost of equity as a weighted average of both arithmetic and geometric

means of long-run historical data, whilst introducing a specific component of

Country Risk Premium.

Aeegsi website, 02/12/15

December 2015 10

Netherlands Tariff Decisions For Regional Electricity and Gas Networks (2016)The Consumer and Market Authority (ACM) set the 2016 maximum tariffs for

the regional gas network of Zebra Gasnetwerk B.V., and for regional electricity

and gas networks of: Cogas Infra; Beheer B.V.; Delta Netwerkbedrijf, Endinet

B.V.; Enexis B.V.; Liander N.V.; N.V. RENDO; Stedin B.V.; and Westland Infra

Netbeheer B.V. These tariffs are based on earlier proposals submitted by the

companies in accordance with respective electricity and gas Method Decisions

of October 2013.

ACM website, 02/12/15

Modified Method Decision For TenneT Efficiency Factor (2014-2016)Henceforth, when determining the efficiency of TenneT, the ACM will apply

a “safety margin” of 5%. TenneT had appealed against the Method Decisions

defining the revenues of its Transportation Business and the System Operator.

On 11 August 2015, the Appeal Tribunal for Business (CBb) issued its judgment

in these appeals, ordering the ACM to remedy or amend certain weaknesses in

the decisions, which it has done by issuing modified decisions. The ACM had

relied on a particular model to measure efficiency but may not, according to

the judgement, apply the results of this model directly. The ACM will therefore

assume a safety margin of 5% over the model results. In addition, the CBb ruled

that the ACM should not include the costs of land, buildings, planning, and

intangible assets when applying the efficiency factor.

ACM website, 08/12/15

Increase Of Maximum Fines Under Electricity Act 1998 And Gas Act One Step CloserOn 24 November 2015, the second chamber of the Dutch parliament adopted a

bill to increase the maximum fines levied by the Dutch competition regulator,

the ACM. For violations of the Electricity Act 1998 and Gas Act, the current

maximum fine is €450,000 (US$490,000). The bill would increase the maximum

fine for minor violations to €900,000 (US$980,000) or 1% of the perpetrator’s

annual turnover, whichever is greater. For serious infringements, the maximum

fine would rise to the greater of €900,000 or 10% of the perpetrator’s annual

turnover. For repeated violations, these maximum fines would be doubled. The

bill has yet to be approved by the Senate of the Dutch parliament.

De Brauw Blackstone Westbroek, 10/12/15; www.eerstekamer.nl (item 34.190),

24/11/15

December 2015 11

NEMO Appointments For APX and Nord Pool Spot The ACM appointed APX and Nord Pool Spot as Nominated Electricity Market

Operators (NEMOs) under the EU Regulation on Capacity Allocation and

Congestion Management (the “CACM Regulation”), which came into force on

14 August 2015. NEMOs are responsible for connecting supply and demand

for electricity across Europe, in both day-ahead and intraday trading, taking

into account limited cross-border capacity. They must do so using a computer

algorithm that maximises welfare. APX and Nord Pool Spot must now develop

such algorithms, and have the next 18 months to submit proposals to the

regulatory authorities in Europe.

ACM website, 14/12/15

Tariff Decree 2016 For Gas Transport ServicesThe ACM set the tariffs that Gas Transport Services (GTS), the Dutch national

gas pipeline company, may charge in 2016 for: transportation; balancing; quality

conversion; new connections; and existing connections. On average, the rates

charged by GTS will fall by about 3%, subject to additional revenue awarded

for investing in a new pipeline in Zeeland, for expansion of quality conversion

in North Holland and for a restructuring at Oude Statenzijl. The decision also

reflects an amendment to the Method Decision for 2014-2016, dating from

August 2015, that reallocates costs between the transport business and the

connections business, leading to an extra decline in transport charges, and a

rise in charges for existing connections.

ACM website, 18/12/15

Decision On Maximum Price For Heat In 2016The ACM set the heat tariffs for 2016, including the maximum price. The annual

bill for a typical household fell by €5 (US$5.50) as a result. Regulated prices set

under the Heat Act apply to about half a million consumers and to some Small/

Medium Enterprises that receive heat from block or district heating. For 2016,

the ACM set three rates: (1) a maximum price for the supply of heat, comprising

a fixed sum of €276.13 (US$300) and €22.66 (US$25) per gigajoule consumed;

(2) a metering charge of €24.97 (US$27); and (3) the one-off connection fee. For

2016, the connection fee is €962.95 (US$1,050) for all new connections up to 25

metres from an existing heat network; and connections over 25 metres incur an

additional charge of €33.87 (US$37) per metre. (All prices include VAT.)

ACM website, 23/12/15

December 2015 12

Dutch Offshore Wind Tenders Face Delay After Senate VoteThe Dutch senate voted to reject the new Electricity and Gas Bill, which

includes a plan for the offshore network, among other things. Tenders for 700

MW of offshore wind will now be delayed, said TenneT, the transmission system

operator. The tender for two 350 MW offshore wind parks in the Borssele area

had been planned for early 2016. Having already been postponed once, it now

faces additional uncertainty.

Loyens & Loeff, 23/12/15; SeeNews, 23/12/15; www.offshorewind.biz, 23/12/15

Portugal ERSE Launches Consultation To Review Natural Gas Sector RegulationsThe Portuguese energy regulator, ERSE, launched a public consultation on a

proposal to modify certain regulations governing the natural gas sector, such as

the Commercial Relations Regulation, Tariff Regulation, Grid Access Regulation,

and the Network Operation Regulation. The modifications are required for: (1)

implementation of European network codes for natural gas; (2) clarification of

the regulatory framework applicable to the retail market and strengthening

of consumer protection measures; and (3) changes to regulatory models. The

consultation is open until 3 February 2016.

ERSE, 18/12/15

Spain Government Approves Participation Of Renewable And Cogeneration Plants In Ancillary Service Markets

The Spanish government published an administrative decision allowing

renewable and cogeneration installations to participate in ancillary services

markets. They will participate in these markets under the same conditions as

conventional electricity generation. According to the government, this decision

will increase competition in these markets and will have a favourable impact

on electricity prices.

Ministry of Industry, Energy and Tourism, 18/12/15

December 2015 13

Government Approves Royal Decree On BiofuelsThe Spanish Cabinet passed a Royal Decree promoting the use of biofuels

in transport, which sets out minimum mandatory thresholds for the annual

consumption of biofuels until 2020. In particular, the minimum threshold for

2016 has been set at 4.3% of total energy used in transport. The threshold rises

gradually every year until 2020, when it reaches 8.5%. The Decree also aims to

foster energy efficiency by allowing end-users to have more information about

their consumption of gas and electricity. The Decree also establishes the need to

evaluate the energy efficiency potential of power and gas infrastructures.

Ministry of Industry, Energy and Tourism, 04/12/15

Turkey Turkey Expected To Reduce Reliance On Russian Gas ImportsAs a result of the escalating tension between Russia and Turkey, Turkey plans

to reduce its imports of liquefied petroleum gas (LPG) from Russia by a quarter

in 2016. In 2015, Russia exported around 1.1 million tonnes of LPG to Turkey, or

28% of Turkey’s LPG imports. Unnamed sources said that this this figure could

drop to 0.8 million tonnes in 2016, and that exporters of LPG from the United

States might increase their share of Turkish LPG imports from 6% in 2015 to

12%-14% in 2016.

The Moscow Times, 03/12/15; Reuters, 02/12/15

Russia Russia Suspends Talks on Turkish Stream PipelineOn 3 December, Russia suspended talks on the proposed Turkish Stream

pipeline, following Turkey’s downing on 24 November of a Russian warplane

that had allegedly strayed into Turkish airspace. The Turkish Stream would

cross the Black Sea from Russia to the European portion of Turkey, then enter

the EU via Turkey’s border with Greece. Preparatory work began in May 2015. On

17 December, however, Russian President Vladimir Putin announced that the

project would resume if Russia receives guarantees from the EU. Russian Energy

Minister Alexander Novak also indicated on 29 December that Russia was

interested in resuming the talks.

Natural Gas Europe, 30/12/15; TASS, 17/12/15; BBC, 03/12/15

December 2015 14

Russia Halts Construction on Turkish Nuclear PlantOn 9 December, Russia’s State Atomic Energy Corporation, Rosatom, halted

construction on Turkey’s first nuclear power plant, due to be commissioned in

2022 at Akkuyu. This action resulted from soured relations between Turkey and

Russia after Turkey shot down a Russian warplane that allegedly crossed into

Turkish airspace on 24 November. Rosatom has not terminated the contract,

as that would incur large compensation payments to Turkey. However, Turkey

is assessing other candidates to complete the project. Rosatom has already

invested US$3,500 million out of a total expected cost of US$20,000 million. The

completed project would comprise four 1.2 gigawatt reactors, and would help

reduce Turkey’s nearly total dependence on imported energy. In 2013, Turkey

commissioned a French-Japanese group to build a second nuclear power plant,

and has plans for a third nuclear power plant.

Sputnik News Service, 11/12/15; Reuters, 09/12/15

NORTH AMERICAN NEWS

United States Congress Passes Bill To Extend Federal Tax Credits For Renewable Energy

The US House of Representatives passed a US$1.1 trillion government

spending bill that includes an extension of wind and solar energy tax credits

by another five years before phasing them out. The Investment Tax Credit

(ITC) for solar power would remain at 30% until 2019, and would then decline

to 26% in 2020, 22% in 2021, and finally to 10% for non-residential and

third-party owned residential systems, and 0% for “host-owned” residential

systems. The Production Tax Credit (PTC) for wind power would remain at

US$0.023/kWh in 2016. Any wind facility that begins construction before

2020 could be eligible for the tax credit, but the PTC will drop by one-fifth

each year until 2020 if the projects begin construction after 31 December

2016. The extensions will help eliminate some of the regulatory uncertainty

surrounding renewables investment.

UtilityDive, 18/12/15; Greentech Media, 18/12/15

December 2015 15

FERC Orders ISO-NE To Revise Capacity Market And Transmission RatesThe Federal Energy Regulatory Commission (FERC) ordered the ISO New England

(ISO-NE) to revise portions of its Transmission, Markets and Services Tariff that

were deemed unjust and unreasonable. In particular, FERC requested that the

ISO adopt changes to zonal sloped demand curves for use in its next Forward

Capacity Auction (FCA). FERC said the current use of vertical demand curves

within constrained zones is unjust, unreasonable, unduly discriminatory,

or preferential because it does not sufficiently address price volatility and

susceptibility to the exercise of market power. FERC opened a proceeding and

directed the ISO to file, by 31 March 2016, revisions to the tariff that provide for

zonal sloped demand curves to be implemented in the upcoming FCA 11. The

Commission also ordered the ISO to add more clarity to the determination of

open access transmission rates, including how certain costs are derived and

recovered in the formula rate.

FERC, 28/12/15; SNL, 28/12/15

FERC Recommends Lower Return On Equity For MISO Transmission Owners A FERC administrative law judge (ALJ) recommended that the base Return

On Equity (ROE) for transmission-owning companies in the Midcontinent

Independent System Operator Inc. (MISO) be lowered by about two percentage

points, addressing a complaint by groups representing large energy users in the

region. In a complaint filed in November 2013, several consumer groups had

requested that the current base ROE of 12.38% for transmission owners (except

American Transmission Co., which collects 12.2%) be reduced to 9.15%. The

consumer groups, including the Association of Businesses Advocating Tariff

Equity, the Coalition of MISO Transmission Customers and industrial energy

user groups in Illinois, Indiana, Minnesota, and Wisconsin, argued that the base

ROE awarded to the transmission owners was excessive because it did not take

into account changes in the marketplace since the rate was first established.

On 22 December, Presiding ALJ David Coffman issued an initial decision

recommending the current base ROE be lowered to 10.32%. A final decision is

expected within 10 months.

SNL, 23/12/15; Star Tribune, 29/12/15

December 2015 16

New Rates For Nevada Net Energy Metering CustomersOn 22 December, the Public Utilities Commission of Nevada (PUCN) approved

an order to implement new cost-based rates for new and existing Net Energy

Metering (NEM) for small commercial and residential customers, in effect

from 1 January 2016. The PUCN determined that under existing rates costs are

being unreasonably shifted from NEM customers to other ratepayers. The order

requires NV Energy to create separate ratepayer classes for NEM customers, and

to begin compensating the excess energy produced via net metering systems at

the wholesale market rate, as opposed to the retail rate.

The order also approved an increase in fixed charges, and a corresponding

decrease in the volumetric commodity charge to cover the utility’s

infrastructure costs of serving NEM customers when solar energy systems are

not generating electricity. Also, NEM customers will now have the option to

take energy at time-of-use rates, so that these customers can respond to price

signals. The PUC rejected NV Energy’s proposal to add a demand charge to the

NEM rate at this time, but stated that the utility could propose such charges

as part of a general rate case.

SNLEnergy, 22/12/15; PUCN website, 21/12/15

Mexico SENER Announces Tender For Deep Water Exploration Blocks The Mexican Secretariat of Energy, SENER, announced that it will hold a tender

process for ten deep water exploration and extra-heavy oil blocks covering

24,000 square kilometres. This tender is part of the Round One process which

aims to encourage private sector investment in the oil sector. The blocks are

located in the Salina Basin of the Gulf of Mexico and in the Perdido Fold Belt.

SENER says a licensing model is most suitable and that the auction will be held

in the third quarter of 2016.

SENER, 17/12/15

Government Enacts The Energy Transition LawMexico´s government enacted the Energy Transition Law, which regulates the

sustainable use of energy, renewable energy obligations for utilities, and the

reduction of greenhouse gas emissions. The law sets out a gradual increase

in targets for renewable energy production: 25% for 2018, 30% for 2021, and

35% for 2024. The law also formally establishes Clean Energy Certificates as a

mandatory mechanism.

Encontacto, 29/12/15; Diario Oficial de la Federación, 24/12/15

December 2015 17

CENTRAL & SOUTH AMERICAN NEWS

Argentina Government Approves Decree On Electricity Emergency Until End Of 2017

Argentina’s Minister of Energy and Mining issued a decree declaring a state

of emergency in the National Electricity System until 31 December of 2017.

According to the Minister, the state of the national electricity system is

precarious and there are serious problems in electricity distribution. The decree

instructs the Ministry of Energy and Mining to guarantee electricity supply and

to implement measures for the rational use of energy.

Presidency of Argentina, 17/12/15

Brazil Brazil Launches Distributed Generation Program The Brazilian Ministry of Energy and Mines has launched the Distributed

Generation Development Program for Energy (ProGD) program. This national

program is aimed at incentivizing distributed generation from renewable

energy sources at consumers’ premises, particularly from solar sources. The

government estimates that by 2030 there will be around 2.7 million kWh of

distributed generation produced by capacity of 23.5 GW and investment of

R$100,000 billion (US$ 25,000 million).

Ministry of Energy and Mines, 15/12/15

ANEEL Announces Electricity Transmission AuctionThe Brazilian energy regulator, ANEEL, announced that it would hold the largest

electricity transmission auction in recent years. A total of 26 concession lots will

be offered or the construction and operation of electricity transmission lines

crossing 17 states. The projects are expected to be operational 36– 60 months

after the concession contracts are signed.

ANEEL, 15/12/15

December 2015 18

Brazil Approves Its 10-Year Energy Extension PlanThe Brazilian Ministry of Mines and Energy has approved the country’s 10-Year

Energy Expansion Plan 2024 (Plano Decenal de Expansão Energia 2024), which

defines projects to be carried out over the next 10 years. The government’s goal

is to increase electricity generation capacity from 133 GW in 2014 to 206 GW in

2024, whilst natural gas production is expected to grow from 87 to 144 million

cubic metres. During this period, the government foresees total investments of

around R$1,400 billion (US$ 350,000 million).

Brazilian Ministry of Mines and Energy, 29/12/15

Colombia Colombia Will Develop Electricity Interconnection Projects With Ecuador

The Colombian Ministry of Mines and Energy has announced investments of

US$7,500 million in developing electricity interconnection projects with Ecuador

under agreements signed by both governments. The infrastructure works will

take place in Colombia and will be financed by resources from the fund for the

electrification of non-interconnected areas.

Colombian Ministry of Mines and Energy, 16/12/15

ASIA PACIFIC NEWS

Australia New Rules For Last Minute Electricity Rebids The Australian Energy Market Commission introduced stronger rules for

generators selling electricity into the wholesale market, aimed at deterring

generators from submitting late re-bids that mislead the market. Under the

new “bidding in good faith” rule, generators may not make false or misleading

offers, and must keep records of the rationale behind (legitimate) last minute

re-bids made in response to changes in market conditions. The new rules also

enhance the ability of the Australian Energy Regulator to manage compliance

with bidding rules, and to take action against false or misleading re-bids. The

possibility of last minute, disingenuous re-bids can lead to inefficient outcomes,

where participants deliberately delay placing re-bids and information is

withheld from the market. However, this risk must be balanced against the need

for flexibility to respond to market conditions, to reflect supply and demand,

and to create efficient signals. The new rules are effective from 1 July 2016.

AEMC website, 10/12/15

December 2015 19

Consultation On The Local Generation Network Credits Rule Change RequestThe Australian Energy Market Commission released a consultation paper on

a proposal to introduce a new incentive for local “embedded” generation. The

proposal put forward by the City of Sydney, Total Environment Centre, and the

Property Council of Australia is a suggested alternative to further investment in

the electricity network, and would require network businesses to pay embedded

generators a credit that reflects the long-term benefit of the embedded

generation in terms of deferred investment or reduced operating costs. The

Commission will investigate whether this new mechanism is required to

efficiently reflect the long-term benefits of local generation, or whether the

current rules already perform this function. Feedback is sought on the proposed

“local generation network credit”, with submissions due by 4 February 2016. The

Commission will also host a series of public workshops between February and

April 2016 to facilitate stakeholder engagement and input.

AEMC website, 10/12/15

MIDDLE EAST NEWS

Saudi Arabia Saudi Arabia Cuts Energy SubsidiesOn 28 December, senior Saudi officials announced cuts to government spending

at a press conference unveiling the government’s 2016 budget. The spending

cuts are aimed at reducing the kingdom’s record high budget deficit, the result

of low global prices for crude oil. The government plans to cut lavish energy

subsidies over a five-year period to encourage efficiency in the use of energy,

and announced increases in the regulated prices of petroleum products. The

price of gasoline was increased by 50% to US$0.24 per litre, and the price of

natural gas for industrial consumers was increased by 75% to US$1.25 per

MMBTU. The Ministry of Finance also announced plans for structural economic

reforms, including the privatisation of “a range of sectors”, but failed to

provide details. Other oil-exporting countries, hit hard by falling oil revenues,

have also announced plans to reduce energy subsidies. Oman’s Council of

Ministers approved plans to bring regulated petroleum prices closer to global

levels starting in January 2016. Prices are to be set monthly by a government

committee, taking account of prices in the UAE and international price levels,

said a senior official of the Oil and Gas Ministry.

Financial Times, 30/12/15; Reuters News, 30/12/15, 29/12/15, 28/12/15

About Our PracticeNERA is at the forefront of the continuing transformation of energy industries worldwide. Our experts have developed approaches for introducing competition in segments such as power generation, where competition is workable, and for improving the regulation of sectors where it is not. We work with companies and governmental bodies worldwide to design competitive power markets and to develop tariffs and rules of access for regulated transmission and distribution systems for electricity and gas and transport of oil and oil products. With industry restructuring, we also help companies develop strategies for exploring new opportunities and minimising new risks, including issues related to climate change and other environmental initiatives.

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December 2015 20

About NERANERA Economic Consulting (www.nera.com) is a global firm of experts dedicated to applying economic, finance, and quantitative principles to complex business and legal challenges. For over half a century, NERA’s economists have been creating strategies, studies, reports, expert testimony, and policy recommendations for government authorities and the world’s leading law firms and corporations. With its main office in New York City, NERA serves clients from more than 25 offices across North America, Europe, and Asia Pacific.

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