grid modernization and new utility business...

Janine Migden-Ostrander, Principal

The Regulatory Assistance Project (RAP)®

+1 802 498 0740

[email protected]

Mike O’Boyle

Energy Innovation: Policy & Technology

+1 415 322 7878

[email protected]

Clean Energy Legislative Academy, Breckenridge, Colorado

Grid Modernization and New Utility Business Model

Janine Migden-Ostrander, Mike O’Boyle

24 July, 2018

Regulatory Assistance Project (RAP)® & Energy Innovation: Policy & Technology

• Energy Innovation’s mission is to accelerate progress in clean energy by supporting the policies that most effectively reduce greenhouse gas emissions. Through customized research and analysis for decision makers, we uncover the strategies that will produce the largest results.

• We work closely with other experts, NGOs, the media, and the private sector to ensure that our work complements theirs.

About Energy Innovation

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WWW.AMERICASPOWERPLAN.COM


• RAP provides technical and policy support at the federal, state and regional levels, advising utility and air regulators and their staffs, legislators, governors, other officials and national organizations.

• We help states achieve ambitious energy efficiency and renewable energy targets and we provide tailored analysis and recommendations on topics such as ratemaking, smart grid, decoupling and clean energy resources. RAP publishes papers on emerging regulatory issues and we conduct state-by-state research that tracks policy implementation.

About RAP – US


• Mike O’Boyle is the Electricity Policy Manager for Energy Innovation, working to uncover policy and technology solutions for a clean, reliable, and affordable U.S. electricity system.

• Mike is also a leading expert for America’s Power Plan (APP), a platform for policymakers, advocates, and utility stakeholders to reform the utility regulatory model and identify opportunities for grid transformation and optimization. He has worked with stakeholders from California, Rhode Island, New York, Hawaii, Minnesota, and more to improve the link between public policy goals and electric utility incentives.

• Mike is the predominant author and editor for APP’s monthly Trending Topics newsletter, which keeps policymakers and stakeholders updated on today’s most pertinent power sector issues. He has authored reports covering a wide range of power sector topics, including distributed energy resource ownership and operation, mechanisms for adopting performance-based regulation, grid modernization, and more.

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About Your Presenter – Mike O’Boyle

http://americaspowerplan.com/blog/

http://sepa51.org/phaseII/OBoyle_51stState_Addendum.pdf

http://energyinnovation.org/resources/our-publications/going-deep-performance-based-regulation/


• Janine L. Migden-Ostrander advises regulators and advocates on energy efficiency, renewable energy, demand response, distributed generation, and integrated resource planning. Recent projects include working closely with the Puerto Rico Commission, Arkansas Public Service Commission on energy efficiency as part of the Clean Energy Ministerial for the U.S. Department of Energy (DOE), facilitating the Mid-Atlantic Distributed Resources Initiative (MADRI), and providing workshops on power sector transformation for Commissioners. Her projects are predominantly in the U.S., but also overseas.

• Ms. Migden-Ostrander has worked in public utility law for approximately 35 years, most recently as the Ohio Consumers’ Counsel, where she oversaw the state agency that represents the interests of Ohio’s 4.5 million residential households with their investor-owned electric, natural gas, telephone, and water companies.

About Your Presenter – Janine Migden-Ostrander

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The Next Frontier in Distribution Planning

Grid Modernization


What do YOU want out of grid modernization?

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1. Why do grid modernization? Why now? 2. Value of grid modernization3. Infrastructure investments4. Integrated distribution planning5. Distributed energy resources6. Getting the most out of grid modernization7. Guidance for legislation8. Appendix

A. Regulatory grid modernization proceedingsB. Getting the most out of grid modernizationC. Resources

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Issues to be Covered:

Regulatory Assistance Project (RAP)® & Energy Innovation: Policy & Technology 11

1. Why grid modernization now?


The Context: Five New Power Sector Realities

• Clean = cheap• Information technology: new value and new risks• Shrinking demand, rising peaks, and aging infrastructure• The rise of distributed energy resources• New natural and manmade threats


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Disruptive Forces Transforming Electricity

ADO

PTIO

N

TIME

We are here

2020

$150/kWh

2010

Wind grid parity

Solar grid parity

Smart meterroll-out

PMUs

Information & Network Effects

Source: Chandu Visweswariah, Utopus Insights


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Control: Transactive Energy Is Here


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Clean Energy: A Rainbow of Benefits for Resilience


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5th Avenue, NYC, Easter 1900See any automobiles?

Park Avenue, NYC, Easter 1913See any horses?

Source: Tony Seba

Change Will Happen Fast…


2. The value of grid modernization –clean energy and other impacts


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Benefits of Smart GridBetter Utility System Operations• Improved Situational Awareness in Real Time over

broader areas• Outage restoration improvements

• Ability to deploy contingency resources fast• Important for high wind/solar scenarios• Synchrophasers

• High probability of success owing to standardization and wire company/RTO control


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Benefits of Smart GridBetter Customer Service• We know who you are when you call• We know when you lose, restore service• We can connect move in service fast

• We can disconnect move out service fast• We can offer time-based pricing and services

• Including time-based payments for onsite generation• And facilitate competitors’ services

• We can offer incentives for new and valuable curtailment and meter it (demand response)


• Percentage of renewable energy continues to grow

• New emphasis is on flexible capacity as opposed to base load capacity

• Demand response and storage are tools enabled through a smart grid

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Renewable Integration and Flexible Resources


• energy

A modern grid makes customers part of the solution.Smart grid investment How to get the clean energy benefit

Smart meters More advanced rate design

Collect, analyze system & customer data

Use data to target customers with distributed generation, efficiency, or storage

New communications systems Allowing for direct control of customer devices as a clean resource

Storage Storage improves system efficiency by reducing local & system peaks, reducing customer bills

Substation upgrades Help manage more distributed energy resources and allow them to replace bulk generation

When Modern = Clean(and when it doesn’t)

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EXAMPLE: Getting the most for customers – SMUD dynamic pricing pilots


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Ancillary benefits of grid modernization• Improved reliability and resilience• Customers control their bills and improve service• Business models for innovative utilities and third parties to better

serve customers• Lower cost (if done right)• Value for customers• Economic development


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• Potential pitfalls of grid modernization• Cybersecurity risk• Utility gold plating - are customers getting the benefits?• Higher bills or inefficient dynamic rates


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• Clean = cheapVariable resources increase value of demand flexibility

• Information technology: new value and new risksImproved reliability but needed security investment

• Shrinking demand, rising peaks, and aging infrastructureNeed for greater system efficiency and optimization

• Rise of distributed energy resourcesNeed new models for grid management

• New natural and manmade threatsNeed to update planning to account for local resilience needs

Back to the Future


Discussion


3. Infrastructure Investments


Cost – Smart Grid Spending

Source: Sustainable Energy Factbook 2017

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Characteristics of desired technologies• Compatible with desired outcomes:

o Two-way communicationo Strengthens the grid/resiliency issueso Provides data that enables third party provider optionso Enables customer interaction and choiceo Enables multiple value streams like ancillary services and

distributed energy resourceso Assists in renewable energy integration

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Choosing the Right Technologies


Characteristics of desired technologies• Cost-benefit analysis: Long-term benefits outweigh cost

through:oReduction in operating costsoCost avoidance, example – reduced storm damageoEnablement of new technologies that can help lower

distribution and generation costs such as: Strategically located DER’s Implementation of Time-Varying Rates Facilitates low cost renewable energy and demand response options

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Infrastructure Investment


Characteristics of desired technologies• Interoperablility - ability of system or software to exchange and

use information• Adaptable to upgrades as technology evolves to avoid

obsolescence and stranded cost

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Infrastructure Investment


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Technology Spotlight: Smart Meters, a.k.a. Advanced Metering Infrastructure (AMI)


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Advanced Metering Infrastructure (AMI)

A smart meter is an electronic device that records consumption of electricity in intervals of an hour or less and communicates that information at least daily back to the utility for monitoring and billing. This also provides the customer with more information to control energy consumption and monthly bills.


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Traditional vs. Smart Grid Demand Response


Smart metering permits customers to better manage their costs and usage:• Allows electricity suppliers to offer new pricing options that more closely align

actual cost of generating electricity during a given period• Provides consumers with precise details of their consumption patterns, so that

they can better manage their use of electricity• Uses customer data to target highest energy efficiency opportunities

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Benefits of Smart Meters


• Smart Metering enables new capabilities for consumers by:• Facilitating use of home energy management systems• Enabling remote management of electrical use• Accelerating development of microgeneration and embedded

storage• Assisting in use of electric vehicles

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Benefits of Smart Meters


• Cost – Average cost is $221/meter*• Smart grid enables time of use rates but low-income advocates

question the elasticity of demand and potential for savings.• Privacy Concerns – data on how and when you use electricity

*https://blogs.siemens.com/en/smart-grid-watch.entry.html/957-how-much-do-smart-meters-cost.html

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Drawbacks of Smart Meters

https://blogs.siemens.com/en/smart-grid-watch.entry.html/957-how-much-do-smart-meters-cost.html


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4. Integrated Distribution PlanningLaying the foundation to make the grid more efficient and dynamic


Integrated Distribution Planning (IDP) answers important questions utilities currently can’t (or won’t) answer:

• Hosting capacity analysis – How much distributed solar, storage, and other resources can the grid hold in any given location?

• Non-wires alternatives – How can DER help to defer infrastructure upgrades and reduce customer costs?

• Advanced forecasting – How much DER can utilities expect, and how can those expectations be better coordinated with planning to avoid unnecessary investments?

• Improved operations – How can the utility control the output of distributed energy resources to improve reliability and resilience?

Preparing the Grid for Distributed Energy Resources (DER)

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Hosting capacity analysis Non-wires alternatives

Preparing the Grid for Distributed Energy Resources (DER)

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Modern infrastructure can handle DERs -- where we put it and how much we build depends on speed and cost of DER adoption

• MNPUC 2016 Staff Report: “planning efforts will be an integral part of a systematic approach to grid modernization.”

Outcomes:• Understand potential contribution of distributed energy resources

and utility-led modernization investments• Produce data that regulators & stakeholders need to set targets;

this also allows DER providers to develop business models

Linking IDP & Grid Mod

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Why now?• Proactively addressing changes to planning– not after DER

adoption has accelerated

• Ensure infrastructure is truly needed in a rapidly changing technology environment

• No-regrets step to maximizing the value of customer-side resources

• Unpredictable extreme weather events risk reliability

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Resources on electric distribution system producing electricity:• Distributed Generation• Energy Storage• Microgrids• Behind-the-Meter Generation• DER aggregation• Cogeneration• Demand Response • Energy Efficiency

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5. Distributed Energy Resources -Definition


What is the status of distributed energy resources in your state?


Before and After Energy Storage: Grid View


Solar Prices Declining as Installs Rise


Demand-side Management


• 2 million electric water heaters in New England

• 4.4kW each – at least 1,000 MW of potential peak curtailment

• Curtailment goes un-noticed by consumers

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Water Heaters: The Hidden Battery


• Third-party aggregators aggregate customer load to respond to utility needs for demand reductions

• Third-party aggregators will market to customers, either independently or in coordination with a utility

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Third-party/Load Aggregator


Time• Peaks and managing generation and consumption patterns,

solar, wind…

Location• High marginal cost places

Attribute• Unbundled energy, capacity, ancillary, RE

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Value of DER distinguished by:


• Enabling technology enhances beneficial impacts of time-varying rates • Examples: SMUD and OG&E pilots demonstrated all groups of

residential across age groupings saved money• Peak savings in some pilots persisted for several years• Low-income customers can respond to price signals, although not

necessarily to the degree or in the numbers as other customer classes

Lessons Learned from Time-of-Day Pilots

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Discussion


6. Guide for Legislators


• Articulation of a clear vision• Define public interest and objectives• Provide guidance to regulators with sufficient direction and authority

to carry out the legislative intent • Provide broad statutory language to enable commission to

implement public policies• Details should be left to regulators

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The Role of Good Legislation


• Consider requiring utilities to demonstrate to commission to find that smart grid proposal:• Adequately demonstrates significant benefits that exceed costs

over long-term• Provides a mechanism to net the benefits against costs• Provides sufficient detail to demonstrate reasonableness of

technology chosen – consider a competitive bid component• Allows for periodic audits of costs and implementation of

technologies• Requires periodic publication of the audit to help hone in on

benefits and public objectives

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Guidance for Legislation: Smart Grid


• Consider requiring utilities to demonstrate to commission to find that smart meter proposal:• Includes a robust program to implement voluntary time-varying

rates within a year of the rollout of the first AMI meters• Includes a plan to enable DERs• Provides accountability for achieving the benefits set forth in its

proposals• Allows for periodic audits of the costs and the implementation of

the technologies• Requires periodic publication of the audit to help hone in on the

benefits and public objectives57

Guidance for Legislation: Smart Meters


How can a legislator help?

• Provide guardrails for grid modernization• Define goals to be achieved by grid modernization• Any rate authorization should require demonstration of benefits• Authorize public utilities commission to hold utilities accountable• Define utility’s role in grid modernization; is grid modernization meant to

create opportunities for third parties?• Define ownership of data & frameworks for data sharing


Explicitly state goals – what can grid modernization achieve?• Increase resiliency to routine faults, cyber or physical

attacks, & severe weather• Unlock demand response & reduce system costs• Support customer adoption of solar & storage• In-state industry development


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Define and analyze the benefits and costs of grid modernization• Require state energy office, public utility commission, or

both, to develop a state plan for grid modernization• Require utilities to modernize planning – integrate

distributed energy resources with existing resource planning (made possible in part by grid modernization!)


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• Require a PUC to begin an IDP proceeding

• Authorize PUC to hire consultants to bring regulators, stakeholders up the learning curve

• Articulate goals of IDP (data access, DER hosting capacity, advanced forecasting, improved operations)

• Require PUC to examine the deployment of DER as a resource

What can a legislature do on IDP?

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• Legislative intent and purpose• Definitions• Authority of the public utilities commission• Grid modernization and smart grid• Smart meters• Cost recovery for grid modernization and smart meters

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Model Legislation


• DERs• Energy efficiency• Demand response• Renewable energy• Decoupling• Codes of conduct

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Model Legislation


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Discussion


Appendix


A. Examples of State Grid Modernization Proceedings


• Series of intensive workshops focused on technology and policy• Undocketed process to allow Commission to hear from all

stakeholders• Commission to evaluate next steps• RAP Report: https://www.raponline.org/wp-content/uploads/2018/02/rap-

recommendations-ohio-power-forward-inquiry-2018-february-final2.pdf

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Ohio Power Forward

https://www.raponline.org/wp-content/uploads/2018/02/rap-recommendations-ohio-power-forward-inquiry-2018-february-final2.pdf


• PC-44 is Maryland Grid Modernization Process opened in late 2016• Six workgroups: rate design, EVs, storage, competitive supply,

interconnection, distribution planning• Big emphasis on opportunities and impacts for LMI customers• Good stakeholder participation, including State Consumer Advocate• All six workgroup chaired by senior MD PSC staff• Rate design workgroup co-chaired by RAP and RAP advising all six

workgroups

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Maryland Grid Modernization Proceeding


• MD PSC just approved a TOU pilot rate design with a summer and winter peak at a 4:1 peak to off-peak ratio (summer peak hours 2 p.m. to 7 p.m., winter peak 6 a.m. to 9 a.m.) - Rates are cost-based and consensus agreement from rate design workgroup

• MD PSC is concerned with ratepayer costs and modernizing grid• Cost of pilots is being carefully scrutinized• MD utilities are cooperative, engaged, and forward-leaning• Process is inclusive and seeks input from all parties

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Maryland Grid Modernization Proceeding


• Multi-stakeholder workshops• Culminated in “Minnesota Public Utility Commission Staff Report on

Grid Modernization”• First State with vertically-integrated utilities to tackle this issue

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Minnesota Proceeding


Grid Modernization Priorities


1. Definitions and principle2. Prioritization of potential issues such as: integrated distribution

planning; interconnection standards; rate design; new technologies like smart inverters; and. new market potentials like third party aggregation of distributed energy resources (DERs)

3. Development of a long-term vision of a modern grid that includes new utility business, regulatory paradigms and advanced rate concepts

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Three Phase Process:


Sec. 23-18-1003 of the Arkansas Code, authorizes the Commission to “…establish the terms and conditions for the marketing, selling, or marketing and selling of demand response by electric public utilities or aggregators of retail customers to retail customers or by electric public utilities, aggregators of retail customers, or retail customers into wholesale electricity markets…”

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Arkansas Legislation on Third-Party Aggregation


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Examples of AggregationRule 24 in California permits third-party aggregators to solicit PG&E customers to participate in their demand response programs and to then "bid in" the electricity reduction into the wholesale electricity market administered by the California Independent System Operator (CAISO). California Public Utilities Commission approved Electric Rule 24 with the goal of promoting demand response participation in CAISO markets.


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B. Getting the Most out of Grid ModernizationLegislative guardrails for utility ratemaking


Five steps to get the most out of grid modernization

1. Assess costs and benefits of a modern grid in the context of existing and planned generation and transmission

2. Clearly define policy goals based on that assessment – focus on desired outcomes

3. Tie quantifiable and independently verifiable metrics closely to those goals and outcomes as feasible

4. Set realistic targets balancing costs and benefits while incorporating stakeholder input

5. Consider tying utility revenue to performance against these targets

Steps adapted from Aggarwal, Sonia & Eddie Burgess, “New Regulatory Models,” America’s Power Plan and The Utility of the Future Center, March 2014; and from Woolf, Tim & Melissa Whited, “Utility Performance Incentive Mechanisms: A Handbook for Regulators,” Synapse Energy Economics, March 2015.

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http://energyinnovation.org/wp-content/uploads/2014/06/SPSC-CREPC_NewRegulatoryModels.pdf

http://www.synapse-energy.com/sites/default/files/Utility%20Performance%20Incentive%20Mechanisms%2014-098_0.pdf


Step 1 – Assess the costs and benefits of a modern grid

• Starts with IDP

• Share data about system needs and locational value

• IDP can produce the data that regulators and stakeholders will need to measure and set rational targets for grid modernization performance

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• Adaptable for different states & utilities

1. Affordability

2. Reliability/resilience

3. Security

4. Flexibility, variable resource integration

• Focus on measurable OUTCOMES where possible

Step 2 – define goals of a grid modernization program

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Step 3 - Measuring performance

Key Question – what are the metrics to achieve new goals for grid modernization?

https://www.hawaiianelectric.com/about-us/key-performance-metrics

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https://www.hawaiianelectric.com/about-us/key-performance-metrics


Step 4 – create an open process to set targets

• Transparency

• Time for stakeholder input

• Process for collaboration & periodic revision

• Share data from IDP

• Balance stringency with reality

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Step 5 – consider tying utility revenue to outcomes

Option 1: Cash incentives and penalties

• Require performance as a precondition, scale with performance, or combine both approaches

Option 2: shared savings

• Identify traditional investments that are ripe for non-wires smart-grid alternatives

Can combine both approaches

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• Focus on steps 1, 2, & 3; delegate process to the PUC if possible1. Require a thorough & transparent assessment of costs and

benefits2. Define the value sought – what outcomes would your constituents

value from grid modernization?3. Require transparent accounting of performance

• Leave the door open for 4 & 5


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C. Resources


Key Resources

H A W A I I E L E C T R I C C O M P A N Y

G R I D M O D E R N I Z A T I O N P L A N

Annual Grid Modernization Index

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https://www.hawaiianelectric.com/Documents/about_us/investing_in_the_future/final_august_2017_grid_modernization_strategy.pdf

https://www.hawaiianelectric.com/Documents/about_us/investing_in_the_future/final_august_2017_grid_modernization_strategy.pdf

https://cleanedge.com/reports/3rd-Annual-Grid-Modernization-Index


ICF, In tegrated Dist r ibut ion Planning , Prepared for the Minnesota PUC, 2016

Key Document

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https://energy.gov/sites/prod/files/2016/09/f33/DOE%20MPUC%20Integrated%20Distribution%20Planning%208312016.pdf


Key Document

Rhode Island PUC -Initial Considerations on Utility Compensation

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http://www.ripuc.org/utilityinfo/electric/UBM_8_16_2.pdf


Example Legislation on IDP

CA AB 327 (specifically addition of Section 769 to Public Utilities Code) https://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=201320140AB327

NV SB 146 https://www.leg.state.nv.us/Session/79th2017/Bills/SB/SB146.pdf

D.C. DER Authority Act of 2018 https://legiscan.com/DC/text/B22-0779/id/1779636

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https://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=201320140AB327

https://www.leg.state.nv.us/Session/79th2017/Bills/SB/SB146.pdf

https://legiscan.com/DC/text/B22-0779/id/1779636


Beneficial Electrification: Ensuring Electrification in the Public Interest

Enabling Third-Party Aggregation of Distributed Energy Resources

Grid-Connected Distributed Generation: Compensation Mechanism Basics

Regulatory Approaches to Grid Resiliency and Security

Smart Rate Design for a Smart Future

Designing Distributed Generation Tariffs Well

Best Practices in Electric Utility Integrated Resource Planning

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RAP Resources

https://www.raponline.org/knowledge-center/beneficial-electrification-ensuring-electrification-public-interest/

https://www.raponline.org/knowledge-center/enabling-third-party-aggregation-distributed-energy-resources/

https://www.raponline.org/knowledge-center/grid-connected-distributed-generation-compensation-mechanism-basics/

https://www.raponline.org/knowledge-center/regulatory-approaches-grid-resiliency-security/

https://www.raponline.org/knowledge-center/smart-rate-design-for-a-smart-future/

https://www.raponline.org/knowledge-center/designing-distributed-generation-tariffs-well/

https://www.raponline.org/knowledge-center/best-practices-in-electric-utility-integrated-resource-planning/