New York’s “Reforming the Energy Vision” (REV) initiative is setting the stage for increased promotion of distributed energy resources (DER) and energy efficiency, according to “The Energy Industry Update” released on Sept. 15 by ScottMadden.
The New York State Public Service Commission (PSC) in early June created a separate docket to consider policy options for large-scale renewables under the REV, including bundled procurement of renewable energy certificates and energy by utility competitive solicitation, ScottMadden said.
Discussing key REV activities and policies, ScottMadden noted that the PSC, concerned about vertical market power, said that utilities cannot own DER, except in limited circumstances, such as market failure.
Utility REV filings must address, for instance, advanced metering needs, as well as actual, forecast system loads, and capital expenditure projections. ScottMadden added that staff guidance is expected to be issued on Oct. 15.
ScottMadden noted that utilities in July filed proposals with the PSC for demonstration projects, testing REV goals.
As TransmissionHub reported, Fortis subsidiary Central Hudson Gas and Electric, Consolidated Edison (NYSE:ED), Niagara Mohawk Power Corporation d/b/a National Grid USA, Orange and Rockland Utilities, and Iberdrola USA subsidiaries New York State Electric and Gas (NYSEG) and Rochester Gas and Electric (RG&E) submitted a total of 12 demonstration projects for review. National Grid is a subsidiary of National Grid plc, while Iberdrola USA is a subsidiary of Iberdrola S.A.
ScottMadden said that important questions that are still to be addressed include how large and at what “level” will the REV market be, and how fast can or will it be created?
Getting a clear idea of REV costs and benefits is now a priority, ScottMadden said, noting that the PSC has said that energy efficiency should go beyond “dollar-for-dollar” savings and MW/MWh reduction, but should also be judged on contribution to “market transformation” and move beyond “ratepayer contributions through system benefits charges.” It is unclear on how those programs will be paid for, ScottMadden added, noting that PSC staff has issued a benefit-cost analysis (BCA), which is a framework by which utilities will assess DER versus traditional infrastructure to address system needs. The PSC has said that a formalized BCA will not be definitive in every instance.
ScottMadden also said that PSC staff has released a white paper proposing fundamental changes in the utility business model and rate paradigm. Three categories of suggested reforms are:
•Utility business model reforms, including opportunities for market-based earnings
•Incremental ratemaking reforms to the utility revenue model
•Rate design reforms to reflect the needs of the evolving energy marketplace
Discussing staff’s position on key ratemaking issues, ScottMadden said, for instance, that staff deems the traditional cost-of-service approach to ratemaking “insufficient” to realize the PSC’s vision of a multi-sided platform. In a platform model, buyers, sellers and the platform provider each interact with two or more parties, ScottMadden said, adding, “But because market investments could displace utility investments, PSC staff believes utilities may have a disincentive to encourage an efficient market and use lowest-cost funding.”
Staff also advocates gradual changes in rate design, phasing carefully to assess bill impact, and using earnings impact mechanisms as a temporary transition toward more market-based earnings and less rate-base earnings, ScottMadden said.
Metrics measuring transmission investment policy effectiveness
ScottMadden discussed FERC’s approval of metrics to measure transmission investment policy effectiveness. In April, FERC staff proposed, and FERC commissioners supported, six metrics to assess FERC transmission policy effectiveness, with the metrics focusing on timeliness and cost-effectiveness of transmission investment and will compare performance before and after FERC Order 1000.
Those are different from the ones proposed by staff last year to measure reliability, operations and market performance, ScottMadden added, noting that staff has yet to report on those 2015 metrics and will use its initial assessment for industry outreach, refinement of analysis and consideration of other metrics.
ScottMadden said that the metrics include load-weighted curtailment frequency – that is, the number of transmission loading relief orders or unscheduled flow events of a transmission owner, state, or region in bilateral markets, normalized on retail load – and circuit miles per dollar of investment, or the number of circuit miles added by an entity in a given year divided by the total dollars invested.
‘Things to think about’ on Clean Power Plan
ScottMadden also discussed the Clean Power Plan (CPP), which the U.S. Environmental Protection Agency (EPA) released last month, saying that the energy industry continues to try to untangle the rule and its implications.
ScottMadden said, for instance, that “things to think about” include:
•Inevitable litigation as the CPP will likely be challenged in using the Clean Air Act Section 111(d), which was intended to establish performance standards under a “best system of emissions reduction” as improperly extending the term “system” beyond a specific resource
•Individual or multistate approach as states will need to consider the challenges and opportunities associated with different approaches; states with steep compliance goals, or those already engaged in regional trading schemes, are likely to pursue multistate approaches to capture cost efficiencies
•Reliability implications as while the EPA has added some flexibility and planning requirements to account for potential reliability issues, NERC’s assessment of reliability implications is expected in 2Q16, and time will tell whether the EPA and the courts will allow exemptions for reliability critical generators
Generation, storage, cyber security matters
ScottMadden also discussed natural gas and renewable energy. Of “The Marcellus Monster,” for instance, ScottMadden said that total proved reserves are highest in Pennsylvania and West Virginia at 15.8 TCF and 10.1 TCF, respectively. The largest absolute and percentage gains seen by the Marcellus, Utica and Rogersville shale plays, amounting to 137 TCF.
Additionally, despite low prices, gas production continues to grow, although capital budgets, especially for shale production, have been cut. ScottMadden added that U.S. gas production grew by 5% last year, averaging 68.4 BCF/day. Gas for electric power production was down last year due to a cool summer, ScottMadden said, noting that with lower spot and forward gas prices and new environmental rules taking effect, more coal-to-gas switching might be seen this year and in 2016.
Of renewable energy, ScottMadden said that community solar programs are starting to take off nationwide, but are especially promising in California, Colorado, Massachusetts and Minnesota. Community solar entails multiple end users buying a portion of the capacity or output produced form a solar photovoltaic facility and getting a benefit on their electric bill, with the project often being located near the end customer or within the utility’s jurisdiction.
ScottMadden also noted that media fanfare around Tesla’s Powerwall has reignited discussion of the technical feasibility, cost and role of energy storage in the country.
As GenerationHub reported, Tesla Motors, the maker of high-end electric cars, announced its plans to commercialize batteries that would be able to power homes or businesses at times when the grid is not available.
ScottMadden said that while Tesla’s pricing of its units may be aggressive, with all-in costs, the economics of those units may not yet be compelling, at least as a grid power alternative for individual residences.
Utility-scale installations are the ones to watch, ScottMadden said, adding that 2014 was a banner year for energy storage installations, with almost 62 MW deployed; more than 55 MW were utility-scale or “front of the meter” installations.
Among other things, ScottMadden addressed cyber security, noting, for instance, that historically, utilities and other private firms have been reluctant to share their own cyber security information, either with industry peers or the government. Five federal cyber threat sharing bills have been introduced this year, targeting information-sharing barriers, ScottMadden said, adding that the U.S. House of Representatives in April passed two bills, H.R. 1731 and H.R. 1560, which encourage voluntary information sharing about cyber threats between the private sector and with the federal government.