met in miami article.pdfstation power plants. more renewables, some semi-centralized and some...

FORTNIGHTLYPUBLIC UTILITIES“In the Public Interest”

Colorado Chair EpelFERC Comm. ClarkTwo new energy surveys25 contributing authors

JULY 2016$24

Nuclear Energy Assembly met in Miami

1607 Cover-r2.indd 1 6/18/16 11:45 AM

1607 ads.indd 2 6/20/16 10:36 AM

JULY 2016 PUBLIC UTILITIES FORTNIGHTLY 3


July 2016 • Volume 154, No. 7

4 From the Editor: Costs Fixed Depending on Timeframe

ARTICLES8 Giving Credit Where Credit is Due

By Joshua Epel, James Tarpey, Nicholas Eaton and Jacob Rey

12 Order 745 – A Time Bomb for Electricity Consumers

By Robert Borlick

16 Energy Cloud Playbook By Mackinnon Lawrence and Jan Vrins

24 The Consumer-Centric Utility By Jan Ahlen

30 Regulators Can Win the Trifecta with Residential Demand Charges

By Ross C. Hemphill and Kenneth W. Costello

36 Geomagnetic Disturbances and the GridBy David Mueller

40 Energy Company’s Pipe Dream By Vincent DeVito

42 Ratemaking and theCampaign against Rooftop Solar

By Ari Peskoe

NEW ENERGY SURVEYS48 Here Comes the Sun

By Daniel Gabaldon, Matt Guarini and Jamie Wimberly

56 Public Weighs In on Market Conditions Threatening Nuclear Power Plants

By Ann Stouffer Bisconti

ENERGY PEOPLE INTERVIEWS60 Tony Clark

Tony Clark, with Pat McMurray

66 John HargroveJohn Hargrove, with Steve Mitnick

70 Ken GerlingKen Gerling, with Steve Mitnick

COLUMNISTS76 Innovating Like Edison:A Robotic Concrete Crawler

By Maria Guimaraes

78 Nuclear Notes:Action Needed Now To Prevent More

Nuclear Plant ClosuresBy Maria Korsnick

80 Two Power Guys:Marginal Utility

By Leonard S. Hyman and William I. Tilles

82 Counterflow:POPS Is Here to Stay

By Steve Huntoon

11 PUF Crossword: State PUCs86 Picture Energy

88 July Birthdays: Nikola Tesla and Bob Dylan89 Coming in Next Month’s Issue

89 Published by90 Off Peak: Weird Appliances

Cover photo: At the Nuclear Energy Assembly 2016, Katie Damratoski, Entergy, Brett Rampal, NuScale Power, Marvin Fertel, CEO of Nuclear Energy Institute, Natalie Wood, Entergy, Donald Brandt, Chair of Pinnacle West and NEI.Photographer: Chuck Fazio.

PUF is must-read again. Contact [email protected] to

subscribe.

1607-TOC-r1.indd 3 6/18/16 8:45 AM

4 PUBLIC UTILITIES FORTNIGHTLY JULY 2016 4 PUBLIC UTILITIES FORTNIGHTLY JULY 2016

Steve Mitnick is Editor-in-Chief of Public Utilities Fortnightly and author of the book “Lines Down: How We Pay, Use, Value Grid Electricity Amid the Storm.”

Costs Fixed Depending on TimeframeAs we head towards a fixed cost electricity systemBY STEVE MITNICK

charges in rates have a far shorter time-frame in mind, in eff ect. As they see it, the entirety of how we all receive elec-tricity is not as unclear. For the foresee-able future, in their view, much of the existing infrastructure will still be here, still be serving the public for decades to come. Albeit with periodic maintenance and cyclical modernization.

Which side is peering into the more prescient crystal ball?

Complicating the debate, the breakdown between the fi xed and vari-able costs of producing and delivering electric utility service is not static. Th e breakdown is changing. And it is sig-nifi cantly diff erent than the fi xed versus variable breakdown of just a few years ago. Costs are actually becoming less variable and more fi xed. Surprised?

It’s commonly thought that our system for supplying electricity is inevitably becoming less sluggish and more nimble. Hence it shall be more variable in every regard. Fewer central station power plants. More renewables, some semi-centralized and some dis-tributed. More demand response, the embodiment of variability. But take a closer look.

Electric service costs are largely

A ll costs are fi xed. All costs are variable. Both of these statements are true about any business including electric utility service. How is that possible? How can costs be entirely fi xed and entirely variable?

As Albert Einstein might say, it depends on the reference of time.Suppose we ask what costs are fi xed over the time horizon of an instant. Over

an infi nitely brief period, time is stopped, and all costs are fi xed. Including costs we normally think of as variable, particularly consumption of power plant fuels.

In the limit, for you math geeks out there, a region’s demand for electricity and dispatch of power plants are settled and set. Th ere’s no opportunity for human dis-cretion and intervention. Costs in this frozen frame of time are thus fi xed.

Th en suppose we ask what costs are fi xed over the time horizon of a half century. Over that lengthy a period, time is ample, and all costs are variable. Including costs we normally think of as fi xed, particularly relating to the capital assets of the grid.

In the limit, at this other extreme end of the range, a region’s demand for electricity and dispatch of power plants are anything but settled and set. Indeed, that goes for everything including the basics of substations, lines and poles. Half a century hence, will that 230 kV line even be needed?

Th is discussion would be no more than an intriguing academic exercise. Except that we rely on the breakdown of electric utility service costs between fi xed and variable to design customer rates. And except that states across the nation are presently engaged in a funda-mental reexamination of costs and rates.

One side argues that electric service costs are predominantly variable. Th e other side argues that, au contraire,

electric service costs are predominantly fi xed. Th is debate among the regulatory protagonists has made the U.S. Con-gress seem collegial.

Both sides can’t be right, is our gut reaction. But both sides are. Because what both sides don’t agree about is the timeframe.

Th e opponents to increasing fi xed charges in rates have a half century timeframe in mind. As they see it, the entirety of how workplaces, schools and homes receive electricity is up for dis-cussion. No component of the existing ephemeral infrastructure is guaranteed a role in the electricity system of the year 2066.

Th e advocates for increasing fi xed

From the Editor-in-Chief

Costs are actually becoming less variable and more fixed.

»

1607 From the Editor-r3.indd 4 6/17/16 8:47 PM

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6 PUBLIC UTILITIES FORTNIGHTLY JULY 2016

recall, there are no fossil fuels to over-use if we overuse electricity. Th ere are therefore no pollutant emissions that will be spewed whether we use a little or a lot of power.

Th at’s how we treat Internet usage for the most part, here in the year 2016. Apart from relatively minor charges that are volumetric-based, it’s open season. We freely use as much social media, web searching, e-mail, etc. as we wish with-out regard to the incremental cost of one more post, search, or message.

But wait, you say. If the price of electric service were to become com-pletely fi xed, regardless of usage volume, wouldn’t we go crazy and use impos-sible amounts forcing the construction of more and more power generation and delivery assets? With all their attendant negative externalities?

Yes, society would need to build more renewable generation capacity and more cables and wires to bring us power. But that’s a rather good scenario. A growing green economy producing jobs to meet the ever-expanding demands of the public. For the most portable, most scalable, most fl exible, and the safest and cleanest energy source that man-kind has found. PUF

Indeed, the demand side of our electricity system may also become more fi xed and less variable. Not just from demand response, but from more effi cient buildings and space heating and cooling. Th e relatively ineffi cient space cooling of the past and present required a variable-cost-based electric-ity system.

You might be thinking, we can’t possibly have a rate design for electric service customers that is a hundred percent fi xed charges. Th ere would be no incentive to conserve, to curb usage. And light-usage households, generally lower in economic means, would be unfairly billed the same amount as heavy-usage households that tend to have greater means.

So what? In this hypothetical elec-tric system of the year 2050 or so, you’ll

variable when the power plant fl eet is heavily based on the combustion of fos-sil fuels. Th at’s because every kilowatt-hour of electricity consumption causes a quantity of coal, natural gas or oil to be combusted.

Th is is the classic Econ 101 relation-ship of quantity and price. Buying more quantity begets more cost which begets more price.

But when the power plant fl eet is less heavily based on the combustion of fossil fuels, electric service costs become less variable and more fi xed. When we envision a future fl eet that is heavily based on renewables, we envision a fl eet with primarily fi xed costs.

A hypothetical fl eet made up of nuclear, hydro, wind and solar would be a fi xed cost system. Th at is, over the timeframe of the replacement life of these power generating assets.

Timeframe, there’s the concept again. Th e power generating fl eet that many of you envision has a fi xed cost, for the most part, over a timeframe of decades.

We’ve never had an electricity sys-tem so dominated by fi xed costs, so independent of variable costs. But that’s where we’re heading. Th e variable cost share is diminishing before our eyes.

The most portable, scalable, flexible, safest, cleanest energy source mankind has found.

In 1930, just twenty million of the twenty-nine million homes nationally were wired for electric service. Only seventy-five thousand had dish-washers. Less than two million had electric refrigerators, and less than two million had electric sewing machines. Less than six million had electric fans (and very few had air conditioners). Less than seven million had radios, and less than seven million had washing machines. A majority of homes had none of these appliances.

N.E.L.A. Bulletin, National Electric Light Association, 1931.

1607 From the Editor-r3.indd 6 6/17/16 8:47 PM

Xcel Energy files to build, own, and operate Colorado’s largest wind farm

© 2016 Xcel Energy Inc.

Partnering with Invenergy

and Vestas, the proposed

Rush Creek 600-megawatt

facility in eastern Colorado

would bolster local economy

and deliver carbon-free,

affordable energy to customers.

In the past decade, Xcel Energy’s use of

wind energy has steadily grown to become a

principal component of its energy mix, making

up 17 percent of the company’s total electric

energy supply in 2015.

Through high-tech forecasting and other

changes to the company’s operating practices,

Xcel Energy is now achieving levels of wind

generation that were once thought impossible.

In the last six months, Xcel Energy had days

where wind generation supplied more than

50 percent of Colorado customers’ power.

In April 2016, the American Wind Energy

Association named Xcel Energy the nation’s

No. 1 utility wind provider for the 12th year

running. Roughly 40 percent of that wind

capacity is in Colorado.

“Colorado is a state known for its

environmental leadership and commitment to

reduced carbon emissions,” says David Eves,

Xcel Energy–Colorado president. “A passion

for sustainability is central to the state’s

culture and is keenly important to residents and

businesses that call Colorado home, including

Xcel Energy. This project is an important part

of Our Energy Future plan for Colorado that will

bring more options to our customers.”

To meet business and customer demand for

more renewable energy resources, Xcel Energy

recently filed with the Colorado Public Utilities

Commission to build, own and operate what

would be the state’s largest wind farm in

eastern Colorado.

If approved, the 600-megawatt Rush Creek

wind project is expected to generate enough

electricity to power approximately 325,000

homes and further transition the state to a

more sustainable energy future—one with

reduced emissions at an affordable price.

In addition to environmental benefits, Rush

Creek is expected to create substantial

employment and economic development

opportunities, including approximately 350

construction jobs and a $1 billion benefit to

the region’s economy. The project will also

be “made in Colorado” due to the company’s

partnerships with Vestas and Invenergy.

Xcel Energy customers will also benefit. By

taking advantage of Production Tax Credits,

Xcel Energy can reduce capital costs, saving

residents and businesses an estimated $800

million over the next 25 years.

“We see wind energy as a vital resource for

the state. It powers the economy through

lower energy costs and significant investment

in our state,” said Eves. “Our plan is to

expand Xcel Energy’s wind and solar energy

offerings to provide what our customers want

and, at the same time, create hundreds of

new jobs for Coloradans, facilitate millions

of dollars in new investments, and increase

economic development.”

If approved by state regulators, the construction

will begin in late 2017, with anticipated

commercial operations set for late 2018.

“ A passion for sustainability is

central to the state’s culture and

is keenly important to residents

and businesses that call Colorado

home, including Xcel Energy.”

David Eves, Xcel Energy, Colorado President

1607 ads.indd 7 6/17/16 5:22 PM

BY JOSHUA EPEL, JAMES TARPEY, NICHOLAS EATON AND JACOB REY

Ensuring State Emission Reduction in Clean Power Plan

Giving Credit Where

Credit is Due


1607 FEA1 Epel et al-r3.indd 8 6/18/16 9:36 AM


Joshua B. Epel is chairman of the Colorado Public Utilities Com-mission and chair of the National Association of Regulatory Utility Commissioners Task Force on Environmental Regulation. James K. Tarpey was a Colorado Public Utilities commissioner from Janu-ary 2008 to January 2014. He is presently of counsel with Ireland Stapleton Pryor & Pascoe, P.C., a law firm located in Denver, Colo-rado. Nicholas Eaton is a Colorado Law graduate of 2016. He is presently serving as Judicial Law Clerk for the Honorable Nina Y. Wang, Magistrate Judge, on the U.S. District Court for the District of Colorado. Jacob Rey is a Colorado Law graduate of 2016. He is presently serving as Judicial Law Clerk for the Honorable Magis-trate Judge Michael Hegarty on the U.S. District Court for the Dis-trict of Colorado.

he Supreme Court’s stay of the Clean Power Plan, has exposed an uncomfortable dilemma. States that continue to transition to lower carbon generation may be penalized if the Environmental Protection Agency, EPA, fails to credit any reductions states achieve in the interim.

Regardless of the steps EPA may take in response to the ultimate resolution in the courts, any action must credit states for carbon reductions achieved while the fate of the plan remains uncertain.

Th is commitment would promote cooperation and coordination among EPA and the states consistent with coopera-tive federalism principles. And will likely yield more innovative solutions to the nation’s most pressing environmental concerns.

Th ere obviously is uncertainty with respect to the steps EPA will take in the event changes to the plan are required.1 Th is may result in a change to the compliance dates and/or changes to the carbon reduction goals.

As part of its deliberations, EPA also may consider setting a year subsequent to 2012 as the baseline year. However, updating the baseline would disregard all reductions states made in the interim , in eff ect penalizing them for being leaders in carbon reduction.

Th is result would be particularly troubling given that EPA has informally encouraged states to continue compliance with the fi nal rule and at least nineteen states have declared their intention to do so.

Indeed, EPA’s continued reliance on Clean Air Act Section 111(d) almost requires it.

Section 111(d) is a unique provi-sion in that it is the only provision that bestows signifi cant fl exibility to the states when implementing a New Source Performance Standard.

In contrast, states must adopt whatever technology based stan-

dards EPA promulgates under Section 111’s New Source Performance Standards. And under Section 112’s National Emission Standards for Hazardous Air Pollutants, denying states any fl exibility.3

This distinction is important. If EPA continues using its Section 111(d) authority to implement environmental rulemak-ings, it must work towards developing a deferential relationship with the states.

Giving states credit for their reductions achieved in the interim is an excellent way for EPA to maintain those positive relation-ships and is imperative to the continued success of cooperative federalism principles and environmental rules.

In both its proposed and fi nal rule, EPA vigorously defended its use of the 2012 baseline. It stated that such data was more reliable, despite many comments that this baseline punished proactive states that implemented carbon reduction programs during or prior to 2012.4

EPA did not credit any renewable installations added prior to 2013. In some cases, 2012 was a peak year for installations.5

Because of this, several states that added signifi cant renewable capacity, at least 1,500 megawatts between 2005 and 2012, did

Unfortunately, if past EPA practices are a guide, this result should not be dismissed, as the fi nal rule failed to give states credit for major reductions they made before 2013. By setting its emissions baseline at 2012, EPA disregarded substantial carbon-reduction investments that states made prior to 2013.

As Figure 1 demonstrates, these investments in renewables were not trivial. Colorado installed 2,214 megawatts of renewables between 2005 and 2012 while Iowa added 4,486.

These reductions were not given credit in the fi nal rule. These states received two of the highest required rate reductions in the nation, thirty-eight and forty-two percent respectively. Compounding the inequity, the Final Rule deprives leading states’ credit for renewable energy installed in 2012, as incentivized by the Production Tax Credit.

Strong public policy favors giving states credit for the carbon reductions they make while the Plan’s legality is pending.2

T

EPA also may consider setting a year subsequent to 2012 as the baseline year.

1607 FEA1 Epel et al-r3.indd 9 6/18/16 9:41 AM


frequently used to memorialize arrange-ments between EPA and the states.

Under the Clean Water Act, for exam-ple, EPA enters into memoranda with states authorizing them to implement the National Pollution Discharge Elimina-tion System permitting program. These documents are agreed to and signed by both EPA and the state, typically through the relevant state agency.7

Each memorandum identifi es its over-all objective and stipulates the precise responsibilities of each party.8 Moreover, the memoranda recognize the impor-tance of coordination and cooperation between the parties, a concept venerated by Section 111(d) that EPA relied on for the Plan’s authority.

Given the uncertainty surrounding the fate of the Clean Power Plan, and EPA’s informal encour-agement that states continue complying with the regulation’s mandates, a memorandum that commits EPA to crediting any

carbon reductions achieved in the interim is both neces-sary and appropriate.

In its current form, the Clean Power Plan penal-izes some of the nation’s most proactive adopters of renewable generation, by not crediting reductions achieved prior to 2012 nor any added renewable capacity prior to 2013. Such

a result is fundamentally unfair and contradicts the fl exibility given to states under Section 111(d).

Accordingly, crediting states for carbon reductions achieved while the fate of the Plan remains uncertain, necessarily pro-motes cooperation and coordination among EPA and the states consistent with cooperative federalism principles. Further, it will likely yield more innovative solutions to the nation’s most pressing environmental concerns. PUF

Endnotes:1. Sidley Austin, L.L.P., “Effect of Supreme Court Stay on Clean Power Plan

Deadlines,” 2016. Arguing that EPA will be forced to consider the Plan’s com-pliance deadlines. Richard L. Revesz and Alexander Walker, “Understanding the Stay: Implications of the Supreme Court’s Stay of the Clean Power Plan,” Institute for Policy Integrity, April, 2016. Discussing whether the Court will extend the Plan’s compliance deadlines.

2. If EPA promulgates a fi nal rule with a more recent baseline, states could potentially make a variety of legal arguments in a challenge to the rule. First,

not receive compliance credit for those installations and they face the most stringent reduction rates in the nation.

States that are illustrative of high reduction rates being imposed despite signifi cant amounts of renewable energy, at least 1,500 megawatts being installed between 2005 and 2012, are: Colorado, Iowa, Illinois, Indiana, Kansas, Minnesota, North Dakota and Washington.

Among these eight states, EPA failed to credit a combined total of more than 21,000 megawatts of renewable capacity installed prior to 2013.

To avoid further inequitable results, EPA must credit carbon reductions achieved while the fate of the Plan remains uncertain. EPA has informally encouraged all states to continue compliance efforts, despite the Supreme Court stay of the fi nal rule.

In doing so, those states will work towards carbon reduc-tions based off the 2012 baseline in the existing rule. Should EPA change this baseline upon fi nal resolution of the Plan’s legal battle, there is no telling how many more reductions will go uncredited.

For this reason, it is imperative that EPA credit any reductions achieved in the interim. This outcome will not only strengthen its relationship with the states, but will also reach results much more equitable than those in the fi nal rule.

More importantly, this outcome will comport with the direc-tives of Section 111(d), allowing states the fl exibility to reach the Plan’s goals without EPA dictating how each state will achieve its respective reduction rate requirement.

To ensure that any state actions taken in the interim to reduce carbon emissions are credited, EPA should consider signing a Memorandum of Agreement with each individual state committed to reducing carbon emissions.6 These kinds of memoranda are

To avoid further inequitable results, EPA must credit carbon reductions achieved while the fate of the Plan remains uncertain.

NON-BIOMASS RENEWABLES BY IN-SERVICE YEARFIG. 1

Includes only operating and temporarily out-of-service units

Source: Query of SNL Financial LC data run in February 2016

RE not eligible for CPP CPP requiredCO2 emission rate reductionState

Total MW installed2005-2012

MW installed 2012 (% of 2005-2012 RE)

CO 2,214 533 (24%) 38%

IA 4,486 808 (18%) 42%

IL 3,535 832 (24%) 42%

IN 1,551 209 (13%) 39%

KS 2,612 1,451 (56%) 43%

MN 2,416 266 (11%) 42%

ND 1,740 254 (15%) 45%

WA 2,986 696 (23%) 37%

Total 21,539 5,049 (23%)

1607 FEA1 Epel et al-r3.indd 10 6/18/16 12:41 PM


megawatts between 2005 and 2012.6. Memorandum of Agreements Between EPA and States Authorized to Imple-

ment the National Pollution Discharge Elimination System Program, EPA. Also, 2011 DOE – EPA MOU Work Plan 3-5, March, 2011.

7. EPA also enters into memorandum of understandings, which are similar to MOAs, with federal and foreign entities. Two relevant examples include EPA’s MOU with the Ministry of Environmental Protection of the People’s Republic of China regarding scientifi c and technical cooperation in the fi eld of environmental protection, and EPA’s MOU with the Department of Transportation regarding automobile greenhouse gas emissions.

8. For example, National Pollution Discharge Elimination System Memoran-dum of Agreement Between State of Alaska and the U.S. Environment Pro-tection Agency, Region 10, August 11, 2011. Discussing and agreeing to the specifi c responsibilities of the state and EPA in administering the ADPES pro-gram in accordance with the Clean Water Act.

states could argue that changing the baseline was arbitrary and capricious. Additionally, relying on the Supreme Court’s characterization of cooperative federalism programs as contractual in nature, states could argue that EPA breached an implied contract that the original rule created between states and EPA. Lastly, if states can overcome a substantial sovereign immunity hurdle, they may be able to claim that they detrimentally relied on an implied promise EPA made to maintain the current baseline.

3. 42 U.S.C. §§ 7411, 7412.4. For example, Carbon Pollution Emission Guidelines for Existing Stationary

Sources: Electric Utility Generating Units, 80 Fed. Reg. 64662, 64,815, December 15, 2015. To be codifi ed at 40 CFR Part 60. Colorado, for exam-ple, did not receive any credit for greenhouse gas reductions achieved by its 2004 Renewable Energy Standards and pre-2013 Clean Air Clean Jobs Act actions.

5. For example, Kansas added 1,451 megawatts in 2012, while adding 2,612

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25 26

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29

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31

19

15 16 17

11

4 5 6

2

See the answers to the puzzle in the July 13th edition of This Fortnight from Public Utilities Fortnightly.

Next Month’s Crossword: Power’s History

State PUCs

Across 1. Typical no. of commissioners

in states 3. Very common in commission

names 5. In Iowa, New Jersey,

Vermont’s names 7. Commissions’ association 9. Smaller no. of

commissioners in states 11. Commissioners’

research arm 12. ___ discrimination

13. Acronym for commission 19. Commissions’ judges 20. In Washington’s name 23. Head of a commission 24. ___ and reasonable 27. Governor and legislature pick 28. just and ___ 29. Singular in many

commission names 30. In Washington’s name 31. Commission decision

Down 2. In almost all names 3. Large no. of commissioners

in states 4. Association’s executive

director 6. Undue ___ 8. In Alaska and Indiana’s

name 10. Commission acronym 14. In Connecticut and

Massachusetts name 15. In Arizona, Kansas,

Oklahoma, Virginias’ names 16. Not appointed except by the

public 17. Commission meeting 18. Association’s chair 21. In Alaska and Ohio names 22. In Connecticut and

Massachusetts’ names 25. In the names of a large

majority of commissions 26. Also in the names of a large

majority of commissions

1607 FEA1 Epel et al-r3.indd 11 6/18/16 1:29 PM

BY ROBERT BORLICK

One of the worst orders FERC has ever produced

Order 745A Time Bomb for Electricity Consumers


1607 FEA2 Borlick-r2.indd 12 6/18/16 1:24 PM


Robert Borlick is an energy consultant with more than forty years of experience related to the electric power industry. He previously held partner-level positions in two international consulting firms: Putnam, Hayes & Bartlett, Inc., and Hagler, Bailly, Inc.

Mr. Borlick actively participated in the FERC docket that pro-duced Order 745 and an amicus curiae opposing Order 745 before the Supreme Court.

hile reading Charles Cicchetti’s recent article extolling the virtues of FERC Order 7451, I had the feeling that he and I live in diff erent universes. For reasons presented below, I view Order 745 as one of the worst orders FERC has ever produced.

equa ls it s margina l cost of production.

At a superfi cial level, Order 745 appears con-sistent with this principle, if one ignores the addi-tional compensation that retail customers receive through their retail electricity bill savings. However, that additional

compensation encourages those customers to curtail energy usage that could have produced products or services whose market values exceed the cost of providing the energy that was curtailed. Thus, the economy loses that net value.

The economic effi ciency shortcoming is even more appar-ent when customers produce the DR, not by curtailing their consumption, but rather by running generators located behind their meters. These are typically more costly to run and have higher emissions rates than the wholesale generators whose energy outputs they displace.

Cicchetti acknowledges that Order 745 overcompensates DR. But he asserts that this is appropriate in order to internalize external costs, primarily that of carbon dioxide emissions which are not captured in market energy prices. By highlighting these external costs, he makes an important contribution but takes it too far.

A rigorous calculation conducted for the state of Minnesota valued the carbon dioxide emissions produced by a mix of natural gas-fi red combustion turbine and combined-cycle plants at $23.75 per megawatt-hour.2 These are the plants whose generation would generally be displaced by DR.

The excess compensation for large customers buying directly from PJM, or on an LMP-based tariff, roughly equals the LMP prices. Figure 1 summarizes the economic DR activity for the PJM market that occurred in 2015.3

These data reveal that average prices paid for economic DR in 2015 greatly exceeded the estimated $23.75 per megawatt-hour external cost of carbon dioxide emissions. Consequently, Cicchetti’s proposal would greatly overcompensate DR.

I support the inclusion of external costs in the economic dispatch of demand response and generation. But it should be done effi ciently, such as by imposing a carbon tax or a cap-and-trade scheme. Order 745 is an expensive, uneconomic vehicle for reducing carbon dioxide emissions.

Order 745 is Seriously FlawedOrder 745 is fl awed in four ways. The rule: overcompensates demand response, unduly discriminates against wholesale sup-pliers, sanctions and institutionally enforces the exercise of mon-opsony market power, and will ultimately raise electricity prices.

So what’s not to not like?

Order 745 Overcompensates Demand ResponseFERC’s basis for paying demand response, DR, with full loca-tional marginal pricing, LMP, is that DR provides a balanc-ing service that is equivalent to generation. But they are not equivalents. The balancing service provided by DR causes the independent system operator to lose sales revenues, whereas, the balancing service provided by generators does not.

Thus, Order 745 forces a system operator to incur a cost of two times LMP for a megawatt-hour of DR-sourced balancing service. Once through a direct payment of LMP and again through a revenue loss of LMP, compared to just LMP when it procures a megawatt-hour of generator-sourced balancing service. The FERC lawyers, but not its economists, conveniently ignored this fact.

The excess compensation, which equals LMP, is shared between the retail customer that provided the DR, its aggregator, and its load serving entity. The retail customer’s, and its aggrega-tor’s share, equals the payment avoided under the retail energy rate, referred to as G in Order 745. The load serving entity’s share is the remainder, that is, LMP minus G.

Some large industrial customers buy their electricity directly through the wholesale market while others are served by load serving entities, but buy their electricity at retail rates indexed to the wholesale market LMPs. All of these customers are com-pensated at twice LMP for their demand response, once through the direct LMP payment and again through their bill savings.

A fundamental economic principle is that society’s total welfare is maximized when the price of each economic good

WBalancing service provided by DR causes the ISO to lose sales revenues whereas balancing service provided by generators does not.

© Can Stock Photo Inc. / focalpoint



generating plant unless its projected total future revenues from all sources are suffi cient to support a compensatory rate of return. Thus, developers of future generating projects will demand higher capacity payments to offset the projected future decreases in energy prices.

Whatever a new plant doesn’t receive through energy revenues, it will earn through higher capacity revenues. However, the sum of these capacity and energy revenues must necessarily be larger than they would be in the absence of Order 745, because someone

has to also bear the cost of the DR excess compensation. That someone is the group of electricity consumers served through system operator-administered wholesale markets.

So who benefits from Order 745? In the near-term, all electric-ity consumers that pay the reduced electricity prices but the primary beneficiaries are the customers providing the DR, particularly the large industrial and com-mercial customers that buy their electricity at LMP or at LMP-indexed retail rates.

In the longer-term the only benefi ciaries will be DR providers. If FERC’s objective was to enrich large industrial and commercial customers, it is diffi cult to conceive of a better vehicle than that created by Order 745.

The day of reckoning is not far off. A recent NERC assess-ment of resource adequacy concludes that the Midwest ISO and California ISO markets will need additional generating capacity resources by 2020 and the ISO-New England market will soon follow.5

Interpretations of Hogan, Kahn, FERC and Supreme CourtIn his Public Utilities Fortnightly article, Cicchetti describes the positions of Bill Hogan, Fred Kahn, the FERC, and the Supreme Court review of Order 745, in a manner that confl icts with reality.

1. Bill HoganCicchetti claims that Bill Hogan’s opposition to Order 745

Order 745 Discriminates Against Wholesale SuppliersThe overcompensation of DR discriminates against wholesale suppliers, who can provide balancing service at half the cost the ISO incurs when procuring it from DR providers. The discrimina-tory nature of Order 745 becomes even transparent when a DR provider produces the balancing service by generation energy with running generators behind their meter.4

Order 745 directly confl icts with the statutory language of Section 205(b) of the Federal Power Act, which states:

“No public utility shall, with respect to any transmission or sale subject to the jurisdiction of the Commission, (1) make or grant any undue preference or advantage to any person or subject any person to any undue prejudice or disadvantage, or (2) maintain any unreasonable difference in rates, charges, service, facilities, or in any other respect, either as between localities or as between classes of service.”

If incurring twice the cost when procuring an identical service doesn’t constitute undue preference or unreasonable difference, where does one draw the bright line? Five times? Ten times?

Order 745 Sanctions and Enforces Exercise of Market PowerBy imposing a Net Benefi ts Test, Order 745 explicitly sanctions the optimal exercise of market power to suppress energy prices in order to minimize them, thereby maximizing the benefi t received by wholesale buyers at the expense of wholesale suppliers.

This Net Benefi ts Test is similar to the calculation a monopo-list would make to optimally withhold output in order to maxi-mize its profi ts. I think it is scandalous for a federal agency, whose primary function is to prevent the exercise of market power by suppliers, to selectively abuse its authority to prescribe and enforce the exercise of market power on behalf of buyers.

Order 745 Will Ultimately Raise Electricity PricesIn drafting Order 745, FERC myopically focused on wholesale energy markets and ignored their interactions with wholesale capacity markets. Although Order 745 does lower wholesale electricity prices in the near-term, ultimately it will increase electricity prices for all consumers.

This will occur because no supplier will invest in a new

If FERC’s objective was to enrich large industrial and commercial customers, it is difficult to conceive of a better vehicle than Order 745.

PJM ECONOMIC DEMAND RESPONSE ACTIVITY IN 2015FIG. 1

Market Participation Energy Curtailed (MWh) Revenues Paid (Dollars) Average Price Paid ($/MWh)

Day-Ahead Market 33,659 $2,217,142 $65.87

Real-Time Market 87,469 $5,766,346 $65.92

Total 121,129 $7,983,748 $65.91

Source: PJM, 2015 Dem

and Response Operations Markets

Activity Report: May 2016



I think it is fair to conclude that the views of the two lead-ing witnesses have never been reconciled. Not by FERC and not by Cicchetti.

4. Supreme CourtCicchetti’s interpretation of the Supreme Court ruling is as follows:

“Thus, neither the FERC nor the Supreme Court majority relied on external benefi ts to reach their shared conclusion; that all buyers would be better off, or at least no worse off, if all buyers paid the lower ex ante LMP, plus the price of the DR product that reduced demand and thus lowered the market price.”

It escapes me why he concluded that. The Supreme Court never gave any consideration to the issue of external benefi ts, nor did they endorse the Order 745’s compensation scheme. The Court merely deferred to the FERC’s judgment, stating:

“The Commission, not this or any other court, regulates electricity rates. In upholding that action, we do not discount the cogency of EPSA’s arguments in favor of LMP minus G. Nor do we say that in opting for LMP instead, FERC made the better call. It is not our job to render that judgment. Our important but limited role is to ensure that the Commission engaged in reasoned decisionmaking.”12

So Where Does This Leave Us?Shortly after the Supreme Court decision, FERC Commissioner Tony Clark proposed that FERC do a thorough assessment of Order 745’s compensation scheme. The FERC Chairman, Nor-man Bay, and two other commissioners responded by announcing that they had no intentions of revisiting the issue.13

Even so, all is not hopeless.State regulators have the authority to develop retail DR pro-

grams that replace Order 745 wholesale DR and which achieve the same goals in a more effi cient manner.14

Furthermore, the current efforts to develop market-based

is based on the inability to resell demand response.6 Not so. Hogan’s primary reasons for opposing the FERC order are that it overcompensates DR and that it discriminates against wholesale suppliers, both of which I have already discussed.7

2. Fred KahnCicchetti’s interpretation of the late Alfred (Fred) Kahn’s position is also in error, but some background information is needed to understand why.

In an affi davit presented to the FERC, Kahn argued that a reduction in demand should be equally compensated as an identical increase in supply, because both have the same effect in balancing supply and demand. That is true. However, it is unclear whether Kahn realized that paying full LMP for wholesale demand response effectively cost the ISO twice LMP, when the ISO’s lost revenues are accounted for.8

In a later affi davit, Kahn stated:“Since DR is actually, and not merely metaphorically, equiva-

lent to supply response, economic effi ciency requires that it be regarded and rewarded equivalently as a resource proffered to system operators. And that it be treated equivalently to generation in competitive power markets.

For a putatively expert Commission to desert the additional conception of just and reasonable as economically effi cient or cost-justifi ed would be, I suggest, madness.”9

Kahn’s choice of the term, “rewarded equivalently,” suggests that he opposed double compensation for demand response. Further enforcing this interpretation, he advanced the idea that FERC’s objective should be to set rates that promote economic effi ciency. Thus, Kahn supported economically effi cient com-pensation for wholesale DR.

3. FERCCicchetti stated:

“The Commission eventually found a way to reconcile Hogan with Kahn, by authorizing Regional Transmission Organiza-tions (RTO) to dispatch demand-responsive resources at a price equal to full LMP, but only at those times when the RTO could determine that Demand-Side Management (DSM) would be cost effective. To enable that solution, the Commission required a specifi c net-benefi ts test (NBT) to determine cost-effectiveness.”10

FERC’s Net Benefi ts Test does nothing to ameliorate the uneconomic effects of excess compensation. Rather it ensures the last increment of DR dispatched by the system operator does not incrementally increase the market energy price. Furthermore, neither Hogan nor Kahn supported FERC’s Net Benefi ts Test.11

Putting lipstick on the Order 745 pig will not ameliorate the damage it has done, and will do, to the U.S. economy.

– Robert Borlick

‘‘

’’

(Cont. on page 23)


BY MACKINNON LAWRENCE AND JAN VRINS

BuildingCompetitive Advantage for Grid of the Future

Energy Cloud

Playbook


1607 FEA3 Vrins Lawrence-r2.indd 16 6/18/16 9:37 AM


Mackinnon Lawrence is a senior research director leading Navi-gant Research’s Energy Technologies and Utility Transformations programs. With more than a decade of experience as an analyst and attorney serving the international energy sector, he has played a lead role in guiding the Energy practice’s worldwide research agenda. Mackinnon’s work has focused on the Energy Cloud and emerging technologies that are transforming the power grid.

Jan Vrins is a managing director and Navigant’s Global Energy practice leader. He advises utility executives on developing strate-gies for ensuring long-term operational and financial success in a rapidly changing landscape. Jan developed the Utility of the Future Framework to help clients understand how the trends in the mar-ket and evolving business models can improve their commercial and operational performance. His utilities industry experience includes investor and government owned utilities in North America, Europe and Latin America.

he pace and impact of change in the energy industry are unrelenting. As echoed in Klaus Schwab’s recent book, “Th e Fourth Industrial Revolution,” the speed of current global breakthroughs across the physical, digital, and biological spheres has no historical precedent.

Th is revolution is unique in its velocity, scope, and complexity. Leveraging the pervasive power of technology and digitalization, innovations are evolving at an exponential pace.

Nearly every industry will be impacted. Th e energy industry is no exception. Already, the prolifi c rise of renewables and distributed energy resources, behind-the-meter smart devices, digital infrastructure, advanced controls and analyt-ics, and changing customer demands are ushering in a new era of highly networked power.

Th e end result will be a whole-scale transformation in the way energy is produced and consumed. Moving away from one-way grid architecture powered solely by large centralized generation assets like fossil fuel, hydro, or nuclear power plants, toward a platform of two-way power fl ow and intelligent grid architecture. We call this the Energy Cloud.

Peer into a fully realized Energy Cloud. One can imagine an autonomous, self-healing grid leveraging the full capa-bilities of artifi cial intelligence and cyber-physical systems such as the Internet of Th ings, self-driving electric vehicles, and smart grid.

While this evolution will be measured in decades, current innovations are sowing the seeds of disruption today. Disruption needs not imply negative conse-quences for incumbent players.

Utilities deeply invested in power infrastructure and direct-ly serving diverse customers have much to gain. But they will need to embrace uncertainty and risk.

The good news is that among stakeholders, including utilities, there is now widespread consensus that the industry is facing profound change. However, industry surveys also suggest a lack of urgency among utilities.

More than half of respondents to a recent Navigant-PUF survey felt the role of regulated utilities would not undergo signifi cant change in providing services to customers within the decade. And nearly fi fty percent of industry respondents pointed to a supportive regulatory environment as the most important tipping point for moving aggressively into owning and operating distributed energy resources.

With digital innovation signifi cantly lowering the barrier for market entry, competition will grow increasingly fi erce. Consider that the most powerful and consumer savvy companies in the world, Apple, Amazon, Google, Oracle and others, are already staking out positions across the energy value chain.

Utilities that take a wait and see approach today will feel the impacts of this transformation most acutely. Worse, these utilities risk missing out on the expected growth opportunities that lie beyond the current purview.

To be sure, the path will not be easy. In the U.S. alone, where nearly $400 billion worth of electricity is traded annually, an

Leaving future predictions aside, the global march toward a cleaner, more distributed, and intelligent grid is showing no sign of slowing down.

Embracing TransformationFacing tectonic shifts in the industry, one certainty emerges. Yesterday’s strategies and business models must evolve. Consider the following anticipated impacts of a mature Energy Cloud:

■ Industry boundaries will be expanded. Barriers to entry will be lowered or eliminated. Markets will become increasingly segmented and inter-connected.

■ New distribution channels and services will be created. Pricing for basic electricity versus incremental products and service will change. Pricing mechanisms will become more complex and diverse, and new products and services will proliferate.

T

Toward a platform of two-way power flow and intelligent grid architecture, we call the Energy Cloud.

1607 FEA3 Vrins Lawrence-r2.indd 17 6/17/16 8:58 PM


of new business models, products, and services, and transform their organizations and culture in order to fully integrate sales, customer services and operations.

■ They must also continue to upgrade the grid and redesign operations to facilitate the integration of distributed energy resources, and invest in emerging technologies across the trans-mission and distribution grid. And take a holistic approach to planning that accounts for both current and future interdepen-dence across technology, regulation, policy, economics, and customer demands.

The starting point is a holistic strategy planning process that seeks to outmaneuver disruption. Utilities must:

■ Sponsor a cross functional team that will spearhead a strategy with a view toward a robust, integrated Energy Cloud planning, and assess how the Energy Cloud is evolving across markets in which the utility operates or has targeted for expansion.

■ They must also identify ineffi ciencies in their current value chains and business models, and develop more effi cient and cost-effective solutions. And fi nally, they must innovate relentlessly across their organization.

The New SAIDI if You Will1. Sponsor a TeamExecutive leadership of a utility should embrace the challenges and opportunities of the Energy Cloud. They should assign a cross-functional organization team that will assess the need to hone their understanding of the likely business environment in which they operate. This includes today as well as fi ve, ten, and even twenty-fi ve years into the future.

The team is responsible for developing an Energy Cloud playbook, working with internal and external stakeholders, based on scenario-planning linked to strategy, policy and

estimated $850 billion worth of infrastructure is in dire need of upgrading. Meanwhile, the price tag for an all-in digital invest-ment in the U.S. grid is estimated to be at least $400 billion.

In many cases, utilities must make a choice. Do they perpetu-ate a predictable good system likely declining in value, or expose capital to yet-unproven solutions that have the potential to deliver improved power quality and revenue growth tomorrow?

Energy Cloud PlaybookPredicting the future is always fraught with challenges, but we can begin to understand Energy Cloud transformation through the lens of clean, distributed, and intelligent energy. These trends describe broad paradigm shifts affecting how power is generated and consumed.

Facing an increasingly multivariable landscape and mass-produced technologies with ever-shorter life cycles, utilities must rethink many of the assumptions that have anchored strategic planning to date. This requires that utilities play both defense as well as offense to remain competitive.

An updated defensive strategy entails:■ Engaging with customers and regulators to understand

customer choices vis-à-vis price and reliability. It also entails improving customer service and grid reliability at the lowest prices possible.

■ It further entails fi nding equitable ways to charge distributed energy resources customers for transmission and distribution (services are also known as value of the grid.) And developing utility-owned renewable and distributed energy resources assets to appeal to environmentally conscious as well as prosumer customers, while diversifying asset base.

Playing offense is even more important. Utilities must:■ Create new revenue streams through the development

Emerging: The Energy CloudToday: One-way Power System

Wind Farm with Energy Storage

Utility/Community Solar

Homes with Solar PV and Storage

Hospital Campus with Microgrid

Wind Farm with Cogeneration

Power Plants

Commercial Offices with

Rooftop Solar

Natural GasCombined Heat

and Power

Power Plant

CommercialResidential

Industrial

Transmission & Distribution

Electric Vehicles

Factory with

THE ENERGY CLOUDFIG. 1

Source: Navigant Consulting. ©2016 Navigant Consulting, Inc. All rights reserved.



Energy Cloud matrix.Revenue allocation across the electric value chain remains

mostly similar to existing percentages, such as generation account-ing for nearly two-thirds of cost and revenue recovery.

Traditional forms of baseload generation will lead in these markets, with natural gas replacing coal, and moderate uptake of utility-scale renewables and penetration of distributed energy resources.

Smart grid digitalization efforts penetrate nearly all phases of grid operations, however, the focus is primarily on improving utility effi ciency.

Incumbent utilities are expected to control a sizeable percent-age of the value chain within these markets and successfully over-come threats to market share from third-party market entrants.

A Grid Reform scenario will see some penetration of clean, distributed, and intelligent energy, such as disruptions occurring in roughly half of the fi fteen tipping points. Revenue allocation across the electric value chain shifts downstream on a limited basis with generation and retail accounting for roughly an equal share of cost and revenue recovery.

Additional revenue is attributed to digitally-enabled products

regulation, integrated resource plans and operations and infra-structure planning.

Utilities in California and New York have assigned initial teams to support the Distribution Resource Plans and Distributed System Implementation Plans respectively. These teams will bring real focus to transformation and must do so by working across age old silos.

2. Assess Your MarketThe potential for Energy Cloud disruption can be assessed by observing the impacts of clean, distributed, and intelligent energy within a market. These trends intersect fi ve key dimensions affecting the utility business: customers. regulation and policy, business models, technology, and operations.

Each intersection across the matrix repre-sents one of fi fteen potential tipping points, based on the underlying drivers, in the Energy Cloud evolution.

The differences across markets can be assessed by asking specifi c questions pertain-ing to these intersections:

■ What are the prevailing views of cus-tomers within my jurisdiction around the value of renewables?

■ How are distributed energy resources solutions incentivized under the regulations and policies within my jurisdiction?

■ What machine learning innova-tions have the potential to affect the utility industry?

By defi ning the scenarios most appropriate for their core or target markets today and in the future, utilities can evaluate strategic priorities to best position for long-term success.

A Business-as-Usual scenario will see minimal penetration of clean, distributed, and intelligent energy. Disruption may occur in only a limited number of the fi fteen tipping points across the

UTILITY GRID REFORMOne example utility, that operates in what could be characterized as a Grid Reform state, with aggressive renewable and distributed policies, has taken a decidedly Energy Cloud mindset. Anticipating a more networked grid, this utility has begun developing new ser-vices, integrating electric vehicle charging with demand response, offering bring-your-own-device programs to customers, etc. To

serve an integrated, plug-and-play electricity system that it believes will enhance the value of individual assets across the network.

With the goal of shifting away from the traditional ratepayer model, this utility is taking steps to provide customers maxi-mum flexibility and choice in how they use energy in order to maximize value across the network. To accomplish this, the utility has

proactively built collaborative partnerships with technology providers.

Or as one of the industry leaders in the recent Public Utilities Fortnightly report, “State and Future of the Power Industry” stated: “Utilities are between a rock and a hard place. Microgrids are not going away. But utilities should take the lead in every proposal. Lead rather than follow.” –ML, JV

Where digital platforms have the potential to scale rapidly, latecomers could risk missing the boat.

– Mackinnon Lawrence

‘‘

’’



one hundred percent of total generation. Distributed energy resources uptake is accelerated, driven in part by robust market demand and prosumer engagement.

Grid operations are fully distributed and autonomous, and grid devices and networks are self-organizing and self–healing.

Utilities will likely own traditional assets such as poles and wires. And they will have an opportunity to forge a new vital role as an enabling platform for diverse market based offer-ings. Examples include enabling and facilitating transactions between and among market actors across the platforms such as transactive energy.

3. Identify InefficienciesWith many utilities hemmed in by a regula-tory model better tuned to the Business-as-Usual scenario, vulnerabilities abound across the energy value chain.

Because the Energy Cloud Playbook calls for evaluating ineffi ciencies in the current business, many questions arise:

■ Do your customers feel they pay too much for your service and would they opt for a third party solution?

■ Are your distribution assets fully opti-mized and could you save money by investing in data analytics?

It is important to link core assets to associ-ated revenue in order to prioritize the assets which, if disrupted by a better solution in the marketplace offered by a competitor or new market entrant, would have a substantial impact on the organization’s bottom line.

4. Develop More Efficient and Cost-Effective SolutionsWith value shifting signifi cantly downstream, it is critical to develop more effi cient and cost-effective solutions to optimize the current business. At the same time, utilities must create

and services. Coal is likely to see aggressive phase-out. Utility-scale solar, wind, natural gas, and nuclear will fi ll much of the baseload void.

Adding to the mix, distributed energy resources uptake will be strong, with greater synchronization of technologies integrated into the grid. Grid operations are becoming more integrated, supporting individualized products and services, and enabled by advanced controls, including behind the meter tools and analytics.

A lack of harmonization of standards and protocols prevent autonomous grid operation. Utilities are likely to become moder-ately more specialized under this scenario, focusing predominately on infrastructure, services, and/or grid operations.

An Energy Cloud scenario will see a convergence of clean, distributed, and intelligent energy across all fi ve dimensions, with signifi cant disruption occurring across all the fi fteen tipping points.

Revenue allocation across the electric value chain shifts signifi cantly downstream toward the customer, where current costs and revenues associated with generation and retail effectively swap. Customer acquisition costs and revenue recovery represents more than two-thirds of revenue.

Utility-scale and distributed renewables account for fi fty to

Intelligent

The increasing connectivity, controllability, and automation of energy-consuming devices through the use of sensor technology, communications infrastructure, and software applications available to users (e.g., Smart Cities, Smart Homes, and the Internet of Things) as well as integration of data analytics capabilities

The increased proliferation of distributed energy resources (including Energy Efficiency, Demand Response, Distributed Storage, Distributed Generation, and Electric Vehicles), brought about by technology advancements and increased customer desire for control over their energy usage

The global movement to reduce GHG/carbon emissions, through federal or state legislative, regulatory, or other policy efforts as well as increased social pressures and/or customer demands

Distributed

Clean

ENERGY CLOUD TRENDSFIG. 2

Utilities can ill afford to wait for regulators to act because the pace of change is well beyond the normal rhythm.

– Jan Vrins

‘‘

’’

Source: Navigant Consulting



Innovation by using an agile development framework and process provides a useful blueprint.

Agile innovation is focused on two objectives: accelerating the time to market readiness, and reliably producing high-quality results.

Agile innovation is designed to be highly iterative, enabling rapid adaptation to unfamiliar and turbulent environments. Sitting on the precipice of profound industry change, utilities that

embrace holistic planning while remaining fl exible are likely to be the most successful at preserving and growing revenue.

Will the Real Network Orchestrator Stand-Up?According to Barry Libert, Jerry Yoram, and Megan Beck Fenley from the University of Pennsyl-vania’s Wharton School, every company uses one or more of four business models: asset builder,

service provider, technology creator, and network orchestrator.1

Of these, network orchestrator has proven to be the most prof-itable and scalable by leveraging digital connectivity and delivering value through relationships or network capital. These companies create a platform that participants use to interact or transact across the network. Including high-growth ventures like Uber, Airbnb, and Spotify, these companies may sell products, build relationships, share advice, give reviews, collaborate and more.

To date, we have not seen network orchestrators at scale within the electric industry. As noted by Libert et al., physical things do not scale quickly, easily or cost-effectively. However, the emergence of the Energy Cloud means that anyone anywhere can sell energy services into an open market, typically on a forward-looking basis.

As proven many times over, network orchestrators are adept

investment space for new business models, products, services and technologies.

With some exceptions, utilities have generally not been granted much fl exibility to take on signifi cant risk when investing in emerging technologies. As with any such investment, the risk-reward trade-off is important.

And for physical assets, there is considerable value in being the second-mover or follower. But in the era of the Energy Cloud, where digital platforms have the potential to scale rapidly, latecomers could risk missing the boat.

The good news is that for utilities deepening their investment in emerging solutions, opportunities abound. With solutions proliferating across the value stream, utilities can protect upstream value while also creating new value downstream, especially on the customer side of the meter.

5. Innovate RelentlesslyFinally, the Energy Cloud Playbook calls for utility strategic planning to embrace the ability to fail fast, early, and often to keep pace with the acceleration of technology change. If innovation tells us anything, it is that many initiatives are bound to fail. Or even worse, return just enough to sustain interest and tie up resources for several years before fi nally fl aming out.

The pursuit of new business models remains vitally important in this shifting landscape, whether regulated or not. But the utility opportunity lies more in the ability to continuously shape and prune distributed energy resources portfolios, embrace the rise of the digital prosumer, and capitalize aggressively on platform opportunities for bundled solutions.

To do so effectively, utilities must begin transforming their operations and business models today by simultaneously pursuing risk mitigation capabilities, and making bold bets on potentially high-growth product offerings.

And practically speaking, utilities can ill afford to wait for their regulators to act because the pace of change is well beyond the normal rhythm of the lawmaking and regulatory world.

UTILITY BUSINESS AS USUALOne example utility in a state representa-tive of the Business-as-Usual scenario, stayed the course on investing in tradi-tional generation assets and was reluc-tant to even pursue advanced metering investments. However, disappointing load growth and increased federal regu-lations targeting fossil generation of late, have begun undermining long-standing

assumptions, causing management to re-evaluate priorities.

This includes surveying distributed energy resources opportunities and con-templating shifting investments toward distribution automation assets and services. The questions remain whether these efforts will be too-little-too-late, as customers increasingly become targets for third-party

providers of energy services.As another industry leader in the recent

Public Utilities Fortnightly report, “State and Future of the Power Industry,” stated: “The industry could go a number of different ways. But utilities could be blamed if things go poorly. The cost to consumers will be disruptive. And the additional expenses will start wearing on people.” –ML, JV

The good news for utilities deepening investment in emerging solutions, opportunities abound.



In all cases, there are numerous technology paths for utilities to pursue. However, network facilitation must be the focus of every strategy to maximize potential revenue returns in the Energy Cloud.

The concept of platform business models and multi-sided networks is at the heart of New York REV. The Distributed System Platform is their new structure for regulated utilities. We shall see how much this new role fi ts the archetype of the orchestrator model.

The scale and velocity of change facing the power sector has no precedent. But the payoff will be improved reliability, safety, cost,

sustainability of power. And more importantly, long-term stakeholder value. PUF

Endnotes:1. “What Airbnb, Uber, and Alibaba Have in Common,” by Barry Libert, Jerry

Yoram and Megan Beck. Harvard Business Review, November 20, 2014.

industry disruptors. Funding, investors, customers and talent will continue to fl ow towards companies proving capable of capitalizing on digital networks and platforms.

As the Internet of Things, distributed energy resources, build-ings, and prosumers proliferate across the edge of the grid, it is only a matter of time before an innovator leveraging ubiquitous digital connectivity establishes itself within the industry.

The utility industry must also adapt its culture. Composed of highly talented individuals largely trained in disciplines like electrical engineering, the industry must pivot rapidly toward a digital mindset.

For utilities embracing innovation, several fast-emerging platforms offer fertile testing grounds for new services and business models: virtual power plants (iDER – Integrated DER), smart cities, Internet of Things, zero-net-energy homes, buildings and the digital customer, transactive energy, and the energy communications superhighway.

Currently, many utilities are evaluating and making the initial investment in network orchestrator roles. In areas like virtual power plants, building energy management, microgrids, energy storage, and others. But these are just the beginning.

NAVIGANT’S ENERGY CLOUD MATRIXFIG. 3

Dimension CLEAN DISTRIBUTED INTELLIGENT

Customers

■ Rise of Community Choice Aggregation (CCA)

■ Demand for solar/wind■ Sustainability programs

■ Self-generation/storage■ Security/reliability■ Cost savings

■ Data access control■ Transactive energy■ Multiple communication

channels

Regulation and Policy■ Renewable Portfolio Standards■ Clean Power Plan (EPA 111[d])■ Paris Accord

■ Self-generation incentives■ Net Energy Metering ■ Feed-in Tariffs (FITs)

■ Smart grid infrastructure investment

■ Standardization

Business Models■ Utility-scale renewables■ Green pricing■ Community aggregation

■ DER investment■ DSM/EE spend■ Energy services

■ Network orchestrator■ Variable rate design■ Performance-based incentives

Technology■ Solar/wind adoption■ Cost decline■ Pairing: solar + storage

■ Distribution automation■ AMI■ DER

■ IT / data analytics■ Sensors / telecommunications■ Open vendor platforms

Operations

■ Integrated G,T&D planning■ Renewables integration■ Load balancing

■ Distribution automation■ Volt/VAR■ Distr. VPP aggregation and

dispatching

■ Customer engagement (e.g., BYOT)

■ Cybersecurity as a foundation■ Data visualization & controls

Source: Navigant Consulting

The scale and velocity of change facing the power sector has no precedent.



“The beer should be cold in two hours.”

Cartoon drawn by Peter C. Vey. Perm

ission granted by The New Yorker and Conde Nast

FERC later interpreted the order to include net load reductions produced by generators running behind retail customers’ meters.

5. North American Electric Reliability Corporation, 2015 Long-Term Reliability Assessment, December 2015.

6. In fact, DR sold into an ISO market is resold several times. First, the retail customer sells DR to its aggregator, who then resells it to the ISO, who then resells it to its wholesale buyers (through surcharges imposed on the wholesale energy prices).

7. William Hogan, “Demand Response: Getting the Prices Right,” Public Utili-ties Fortnightly, March 2016.

8. The California ISO had already implemented a FERC-approved tariff that paid full LMP for economic demand response, but it also avoided any revenue loss by requiring each LSE whose retail customers produced demand response to pay the ISO for the energy (or rather phantom energy), which its retail cus-tomer had curtailed. The Midwest ISO proposed a similar scheme. Order 745 nullifi ed the existing CAISO tariff.

9. Fred Kahn, Affi davit submitted in FERC Docket RM10-17, August 26, 2010.10. Charles Cicchetti, “Order 745: Challenge to Plain Old Power Markets,” Pub-

lic Utilities Fortnightly, April 2016.11. In his second affi davit, Kahn stated: “No additional net benefi t test, as has

been set for comments by the Commission, is required.”12. Supreme Court of the United States, Federal Energy Regulatory Commission

v. Electric Power Supply Association et al., Opinion of the Court, decided January 25, 2016.

13. Chairman Bay and Commissioners LaFleur and Honorable jointly made this statement at the 2016 NARUC Winter Meeting. Only Commissioner LaF-leur participated in the Order 745 docket.

14. State regulators have the authority to prohibit their jurisdictional customers from directly accessing the wholesale markets. FERC Order 719A recognized and further expanded that authority.

locational prices for distributed energy resources, such as the New York REV initiative, will obviate the need for provid-ing retail customers direct access to wholesale markets. Those locational price signals will fully compensate distributed energy resources, including demand response, for the energy and other products they deliver.

Putting lipstick on the Order 745 pig will not ameliorate the damage it has done, and will do, to the U.S. economy and to the vast majority of electricity consumers who ultimately will be burdened with paying for the subsidies fl owing to large industrial and commercial customers.

As I said earlier, what’s not to not like? PUF

Endnotes:1. Charles Cicchetti, “Order 745: Challenge to Plain Old Power Markets,” Pub-

lic Utilities Fortnightly, April 2016.2. Clean Power Research Inc., Minnesota Value of Solar: Methodology, Pre-

pared for Minnesota Department of Commerce, Division of Energy Resources, January 31, 2014.

3. PJM LLC, 2015 Demand Response Operations Markets Activity Report, May 9, 2016.

4. Although Order 745 is silent regarding running meters behind the generator,

Order 745: A Time Bomb(Cont. from p. 15)


BY JAN AHLEN

Empowering Consumers whileManaging Risk and Optimizing Assets

The Consumer-

CentricUtility


1607 FEA4 Ahlen-r3.indd 24 6/18/16 12:40 PM


Jan Ahlen is a senior regulatory affairs specialist at the National Rural Electric Cooperative Association, NRECA. He addresses key grid modernization, industry structure, and retail rate design issues in industry forums and political arenas, on behalf of NRE-CA’s nine hundred electric cooperative members, and their forty-two million customers.

t’s no secret. New and cheaper technologies are profoundly impacting the electric utility industry. Th e cost to install solar has decreased seventy-three percent since 2006. Battery storage costs are following a similar trajectory.

Th e proliferation of smart meters and Internet-connected devices creates an exponential amount of data on energy consumption. Consumers are also beginning to desire more control over their energy

use. At the same time, consumers will continue to demand safe, aff ordable, and reliable electric service.Paraphrasing Amory Lovins, they want their beer to be cold when they open their refrigerator. Th e combination

of new technology and increased consumer expectations presents new and exciting opportunities for utilities and consumers alike.

Electric utilities do not simply sell a commodity. Th ey sell safe, aff ordable, reliable and clean electric service. Th ey sell the assurance that beer will stay cold twenty-four hours a day.

Th e “Consumer-Centric Utility” business model expands upon this critical service. Th e model provides a viable framework for utilities to continue to provide safe, aff ordable, reliable and clean electric service, while enabling new products and services that meet growing consumer expectations.

Th is article will defi ne the concept of a consumer-centric utility, illustrate its advantages, and discuss the role of policymakers.

It is important to note that consumer-centric utilities can be investor-owned utilities, municipal utilities, or elec-tric cooperatives.

Electric cooperatives and municipal utilities are naturally consumer-focused because they are locally or consumer-owned. Investor-owned utilities can also be consumer-centric if state

regulators give them the correct incentives, or if management has the inclination.

Empowering Consumers and Enabling Distributed Energy ResourcesThe consumer-centric utility is well-positioned to deliver innova-tive solutions. This is because it is consumer-focused, takes a long-term view, and has economies of scale, scope and integration.

A long-term view is important because certain grid investments are necessary to enable new solutions well into the future. An investment in a two-way metering system, for instance, may be necessary to enable consumers to control their energy usage and facilitate new services in the future.

Scope and integration allow a consumer-centric utility to take a broad perspective of the system. A holistic view is necessary to understand how all of the pieces fi t together.

Various system benefi ts may not be realized if certain invest-ments are not made in a different part of the system. For instance, the utility could see the benefi t of making investments

What is a Consumer-Centric Utility?At its most basic, a consumer-centric utility is a utility that integrates and optimizes a pool of resources on behalf of its consumers. These resources can include traditional genera-tion, transmission and distribution assets. They also include distributed energy resources, such as demand response, energy effi ciency, energy storage, and distributed genera-tion technologies.

What sets it apart from traditional utilities is that it empow-ers consumers by facilitating new service offerings. New services such as community solar programs are tailored to local condi-tions and specifi c consumer preferences. It also manages risk and provides energy advice to consumers.

To put it simply, the core business structure of the utility remains constant. But the business that consumer-centric utilities operate in will continue to evolve.

The general goals of all consumer-centric utilities are the same. But the model is fl exible to accommodate different con-sumer preferences and geographic areas. What may work in the borough of Manhattan, in New York, may not be appropriate for Chapel Hill, North Carolina. The model is fundamentally fl exible so that it can advance in line with consumer desires.

I

A consumer-centric utility integrates and optimizes a pool of resources on behalf of its consumers.



utilities have in creating an optimized ecosystem.A consumer-centric utility is well-suited to plan out a technol-

ogy ecosystem. This is because the utility takes a long-term view and sees the system holistically.

The Electric Power Research Institute also argues that a planned distribution grid will be more effi cient and cost effective than an unplanned grid.1 Utilities will design ecosystems that refl ect unique, local conditions, implemented at the rate of value to the system as a whole.

Vermont Electric Cooperative provides a useful example of a utility that planned out strategic grid investments tailored to local conditions in order to enable new services behind the meter.

Vermont Electric is the largest locally-owned electric dis-tribution utility in the state, serving seventy-fi ve towns and territories in rugged and remote areas. Between 2000 and 2014, the utility took a step-by-step approach to creating its tech-nology ecosystem.

An essential component was its electronic mapping system. This integrated into its opera-tion technology and information technology platforms in 2001.

The next step was the selec-tion of an automated two-way

meter platform that could fi t with the rugged service territory. Once that was in place, Vermont Electric installed and integrated an outage management system with the meter system. Thanks to this integration, the utility was able to cut its number of outages in half.

The fi nal step was upgrading its supervisory control and data acquisition system to enable integration with the advanced metering infrastructure system. With these investments, Vermont Electric is well-positioned to provide new services to its consumers and adapt their system to increasing amounts of solar and other distributed energy resources.

The partnership between North Carolina Electric Membership Corporation, a generation and transmission cooperative, and its member distribution cooperatives, provides another example of how a consumer focus yields innovation.

The cooperative has always supplied power and related services to its member distribution cooperatives. But now the genera-tion and transmission utility cooperative and local co-ops see opportunities to link wholesale and retail power in a distribution system operator environment.

In this environment, the distribution co-op remains respon-sible for balancing supply and demand, as well as maintaining its distribution system and interfacing with members. The

in sensor technology in places with a high penetration of distributed solar.

Economies of scale can bring to bear necessary resources to invest in appropriate grid technology and enable cost-effective behind-the-meter solutions. This does not mean that the con-sumer-centric utility can do all of this itself.

On the contrary, partnerships with diverse third-party pro-viders of distributed energy resources will be crucial. What the consumer-centric utility does, however, is leverage these partnerships in a way that optimizes the system and improves energy service for its consumers.

An increased consumer focus is what separates consumer-centric utilities from traditional utilities. As consumers demand new products and services, this fl exible utility would enable those services in a way that meets individual needs and works for the system as a whole.

Know Your ConsumerGrid technologies such as advanced metering infrastructure systems, smart inverters, and sensors provide consumer-centric utilities with a wealth of information about their consumers and the system. With these data, they can also improve system performance, thanks to advanced analytics capabilities.

Consumer-centric utilities actively engage their consumers through surveys, polling, and other methods.

One example is CoServ Electric, which wanted to reduce electricity use during peak summer hours.

The consumer interest generated by a small demand response pilot program in 2015 prompted the co-op to expand efforts. In 2016, the co-op partnered with Nest and its voluntary demand response program called Rush Hour Rewards.

CoServ provides a one hundred dollar credit if a consumer enrolls a Nest Learning Thermostat in the program. After the fi rst year, participants receive a forty dollar bill credit each year. The target goal of three thousand thermostats enrolled in a year was reached in four weeks.

Creating an Ecosystem for Distributed Energy ResourcesA critical piece to enabling distributed energy resources is an optimized ecosystem. This ecosystem includes generation, transmission, distribution, and distributed energy resources. New technology integration must promote safe, affordable, reliable, and clean electric service.

The electricity sector is complex. Each segment of the grid is affected by every other.

It will become even more complex as new technologies, and two-way fl ows of energy and communication, continue to prolifer-ate. Interoperability protocols, sensors, smart inverters and other grid modernization investments are tools that consumer-centric

The consumer-centric utility is consumer-focused, takes a long-term view, and has inherent economies of scale, scope and integration.



and fi nancing and insurance options. These tools will help to drastically reduce soft costs.

Okanagan County Electric Cooperative, located in eastern Washington, currently has two community solar systems. It launched the fi rst system in 2010 due to consumer demand. It then quickly expanded to two systems because shares quickly sold out. Okanagan County Electric was effectively able to gauge consumer interest in solar and provide an innovative, cost-effective solution.

The Colorado Energy Offi ce and GRID Alternatives has taken the community solar idea a step further. The groups partnered with fi ve electric cooperatives in Colorado. They created community solar systems designed for low-income households. By providing the cooperatives with these community solar models, the two organizations are helping to ensure that all types of consumers are receiving affordable energy while utilizing new technologies.

Behind the Meter MarketWhen talking about her cooperative, Christine Hallquist, chief executive offi cer of Vermont Electric Cooperative, says that “our responsibility is to the meter. Our opportunity is beyond the meter.” Vermont Electric’s consumers already receive behind-the-meter solutions thanks to the distributed resource-enabling ecosystem.

In 2014, Vermont Electric decided to provide the mobile platform SmartHub to its consumers. SmartHub is an account management tool that enables consumers to manage all aspects of their utility account.

In addition to paying their bill, consumer-members can view their power usage data, report an outage, and set up alerts to be notifi ed when a power outage occurs and when power has been restored. Hallquist says that these types of services will expand in line with consumer demand.

Since the launch of the Tesla Powerwall, there has been

electric membership corporation’s role is to pilot technologies like Internet-connected ecobee3 thermostats. It will also manage some integration of distributed resources including community solar projects and energy storage.

The generation and transmission cooperative is also work-ing with its member cooperatives to fi nd upstream value from transmission providers and energy markets through services like conservation voltage reduction. Each of these initiatives is consumer-focused, with wholesale impacts. The new eco-system is primed for continued consumer-fi rst innovation, like the current build out of two reliability and sustainability-focused microgrids in co-op communities.

The distribution system operator structure benefi ts the member cooperatives by providing competitive resources and greater predictability. The structure also maintains affordability, reli-ability, and member relationships.

In the case of both Vermont Electric and North Carolina Electric Membership Corpora-tion, the existing utility effectively planned out a series of investments that fi t with its specifi c service territory and consumer base.

Community SolutionsUnderstanding the consumer and taking advantage of economies of scale, scope and integration can be a powerful combination.

In recent years, solar development has skyrocketed. While a lot of attention is paid to rooftop solar, only a fraction of U.S. households have suitable rooftops.2 Many other interested consumers may be renters. Community solar is an attractive alternative. It allows any consumer who wishes to own solar the ability to do so. It is also cheaper than rooftop solar.

The utility can take advantage of economies of scale and site the project in a location that is optimal for the system. Under community solar programs, the utility would develop a solar farm itself or work with a third-party developer.

It would then allow interested consumers the ability to buy a panel, or a share of the system. So instead of owning a solar system on their rooftops, consumers would own a piece of a larger solar system.

Electric cooperatives are leaders in community solar. They’re working together to lower community solar costs and deploy systems more easily.

The National Rural Electric Cooperative Association, the trade association representing America’s electric cooperatives, leads a U.S. Department of Energy SUNSHOT-funded project. The project is called Solar Utility Network Deployment Acceleration.

The goal of the effort is to develop a photovoltaic system package consisting of engineering designs, business models,

Community solar allows any consumer who wishes to own solar the ability to do so.

– Jan Ahlen

‘‘

’’



it gained extra revenue from the additional electricity sales from the water heaters.

Consumers are able to purchase solar energy from the commu-nity solar system and save money. This provides a perfect example of the advantages of scope, integration, and consumer focus.

How to Enable the Consumer-Centric UtilityPolicymakers do not need to radically alter regulation or retail markets to promote innovation and distributed resource solutions.

The key for policymakers is to support consumer-centric utilities to make decisions tailor-made to local circum-stances. This will organically lead to a future where utili-ties provide a wide variety of energy services options for

their consumers while achieving traditional goals of safe, reliable, affordable, and clean energy.

One-size-fi ts-all policies get in the way of delivering appropriate solutions for individual areas. Given the diversity in service territo-ries and consumer preferences across the nation, fl exibility should be afforded. In other words, policy makers should not promote specifi c policies or technologies by picking winners and losers.

Conclusions“Consumer-Centric Utilities” represent an evolution, not a revolution, of the role of the electric utility. Utilities continue to evolve at different rates. But they all focus on the consumer in order to provide new service offerings, and safe, affordable, reliable, and clean electric service.

One thing is clear. The future is bright if utilities become more consumer-centric and policymakers give them the fl exibility to implement local solutions. PUF

Endnotes:1. Electric Power Research Institute, The Integrated Grid: A Benefi t-Cost

Framework, Final Report, February 2015.2. National Renewable Energy Laboratory, Estimating Rooftop Suitability

for PV: A Review of Methods, Patents, and Validation Techniques, December 2013.

3. Keith Dennis, “Community Storage: Coming to a Home Near You,” Pub-lic Utilities Fortnightly, February 2016.

increased excitement about in-home battery systems. Green Mountain Power, a Vermont investor-owned utility, was well in tune with its customers’ desires. As a result, Green Mountain began offering various fi nancing options to its customer base to install the battery system.

Consumers behind the meter are becoming increasingly important in helping to integrate renewable energy and to manage the grid, by using energy wisely to coincide with energy supply availability. The idea of community storage3 is an emerging approach that enables utilities and consumers to share the benefi ts of the energy storage available in hot water heaters, electric vehicles, or home battery storage systems.

Great River Energy, a generation and transmission cooperative in Minnesota, coordinates the use of the overall storage capability in electric water heaters. There is nearly a gigawatt-hour worth of storage in hot water heaters in the service territories of Great River Energy’s twenty-eight distribution cooperatives.

Great River Energy integrates the common home appliance with wind and solar power. By funneling latent energy gener-ated by these sources to water heaters, and then using advanced controlling systems, participating customers are able to save up to two hundred dollars annually. The co-op is also able to manage energy load demands across their entire community more effi ciently.

Steele-Waseca Cooperative Electric, participates in Great River Energy’s water heater program, providing interested con-sumers with a free one hundred and fi ve gallon grid-connected electric water heater. The program allows Steele-Waseca to control twenty percent of peak load, passing on those savings to the consumer.

Recently, Steele-Waseca’s members began expressing interest in solar energy. However, a rural co-op with fewer than ten thousand members would inevitably face monetary challenges when trying to fi nance a solar program. So, the utility decided to pair its existing hot water heater program with a commu-nity solar program.

Steele-Waseca offered members who opt into the successful demand response program the opportunity to purchase a four hundred and ten watt solar panel for one hundred-seventy dol-lars. This amount was ninety percent less than the panel would ordinarily cost. The fi nancial math worked out.

Steele-Waseca was able to save money by shifting load. And

The future is bright if utilities become more consumer-centric.


• New Technologies for Heating Homes • Nuclear Issues • Net Metering And More!

Go to http://www.naruc.org/summermeetings to register and view the agenda.

Join the National Association of Regulatory Utility Commissioners as we coverthe essential regulatory issues facing our nation!

• Rate Design • U.S. Natural Gas Exports-LNG • FERC Joint Meeting • Electricity• Telecommunications • Consumer Affairs • Transportation • Water • Cybersecurity

July 24-27, 2016 ǀ Nashville, TennesseeOmni Nashville Hotel

@NARUC #NARUCSummer16

1606 ads.indd 13 5/17/16 1:36 PM

BY ROSS C. HEMPHILL AND KENNETH W. COSTELLO

Advanced metering and demand charges give efficient and equitable price signals

to customers.

Residential Demand Charges

RegulatorsCan Win the Trifecta

with


1607 FEA5 Hemphill Costello-r2.indd 30 6/17/16 9:19 PM


Ross C. Hemphill is currently an independent consultant with over thirty-seven years of experience on regulatory and energy policy issues. Most recently, he was vice president of regulatory policy and strategy for ComEd in Chicago.

Ken Costello serves as principal researcher for energy and environment at the National Regulatory Research Institute. Contact him at [email protected].

he wide deployment of smart meters gives regulatory policy-makers a rare opportunity to change resi-dential rate design. Th is can be done in a way that improves economic effi ciency, and utility consumer and shareholder equity. And that improves the long-term economics of technologies transforming the electric utility industry.

It can be done through the replacement of highly volumetric charges. Th at is, per kilowatt-hour charges. Replacing them with demand-based charges. Th at is, per kilowatt charges.

Th e topic of residential rate design for distribution services is getting increased attention across the nation. Filings have been made in a number of jurisdictions to change the design for residential customers in order to improve recovery of fi xed costs. And there are now many papers, articles and whole conferences devoted to this topic, as well as sessions covering it at NARUC meetings.

Th is is all being prompted by this transformation taking place in the industry with distributed resources, and other alternatives becoming available for customers to enhance their usage of electricity.

Th e deployment of advanced metering is adding more options for measuring and pricing usage of the system.

and utility costs of providing electricity service. This is due to the unavoidable result of set-ting one rate structure for large groups or classes of customers. It’s also due to the result of limits in our technology for measuring

individual customers’ use of the system.This is particularly true for residential customers that have

been billed predominantly by their usage, or volumetrically. When, at the same time, an overwhelmingly predominant part of the distribution system cost is fi xed.1

This misalignment between rates and costs leads to numer-ous consequences. These include inequities between customers, larger customers subsidizing smaller customers, and ineffi cient price signals that result in ineffi cient consumption behavior and choice of resources.

This has long been true. But the consequences have not been as severe in the past.

It is becoming a more serious concern now with the growth of distributed resources. There are equity concerns across customers in addition to concerns over utility fi nancial stability.

When a customer chooses to install distributed generation, she can cut back on the total usage of electricity, but does not necessarily cut back on the reliance for grid services. Because of this, a distributed generation customer avoids her fair share of the fi xed costs of the system.

The utility recovers less fi xed costs even though these were previously approved as prudent by the regulator. And even though the distributed generation customer still relies on the grid for importing power from the grid, exporting power to the grid, and other grid services.

The result is usually that the utility recovers its fi xed costs but from all other customers, all those without distributed generation

The expansion in ways to produce electricity is challenging the historical model of central station generation. As a result, consumers are becoming active participants in electricity, as opposed to passive recipients of the product.

As with any transformation, pricing is a critical factor that can help or hinder this development.

Pricing is key. It can affect adoption of new technologies. And always carries with it implications of equity and fairness across all industry participants: utilities, suppliers, vendors, and, of course, customers.

The movement to demand charges for residential distribution services is a major reform in the industry. It changes the pricing signals that customers see. It ultimately changes the customer specifi c intra-class allocation of revenue recovery.

Now it is getting some stiff opposition in places where the concept is being introduced.

Therefore, serious consideration is warranted by regulatory policy makers facing this decision. In this article we provide discussion, and some answers, on ten questions that should be asked by policy-makers when addressing the issue, as well as some guidance in deriving the answers.

1. Does your current residential rate design have shortcomings that need to be addressed?For many years a mismatch has existed between the rate structure

T

Pricing is key and can affect adoption of new technologies.



A number of approaches were used prior to demand charges. These included fi xed charges based on expected load at the premise.

Now, after decades of being billed through demand charges, it is the preferred rate structure for many customers. It has resulted in a stronger focus on improving load factors with com-mercial and industrial customers. And it has improved overall system load factor.4

3. What are the different types of demand charges?There are many different ways to design a demand charge. A

major choice that must be made is whether to base it on a coincident peak demand, CP, or a non-coincident peak demand, NCP.

The coincident peak demand, CP, mea-sures the individual customer’s demand at the time of some system peak. This could be the system peak for the electric utility or the peak for the independent system operator.

The hour of the system peak is identifi ed. The kilowatt demands of each customer dur-ing that hour are measured.

The sum of these individual customer demands equals the system peak. So the measurement is viewed as each customer’s contribution to the system peak.5

This sets the total demand charge for a year. Until the utility identifi es the next annual system peak and measures custom-ers’ contributions.

The non-coincidence peak demand, NCP, measures the individual customer’s maximum demand during some specifi ed period of time. Not during the single hour set by the system peak.

These time periods could be over all hours in each month. So kilowatt demands would be measured over the average seven hundred and thirty hours in a month. The maximum mea-sured demand during that month would set the demand charge for that month.

Each month the utility would measure it in the same man-ner. So the demand charge portion of the bill will vary from month to month.

The utility could measure non-coincidence peak demand only during certain hours of weekdays. For example, the maximum demand during the hours from 8 a.m. to 6 p.m. of weekdays. Other hours could be designated for the non-coincidence demand measurements.

The differences in these designs are not trivial, with regard to the price signals customers see, to the manner in which customers can and do respond, and to the impacts this change would have on customer bills.

(non-participants). So non-participants pay for services required by participants. This is unfair to non-participants.

This situation aggravates the intra-class cross-subsidies that have always existed with the volumetric structure. But the cross-subsidies become more pronounced with expansion of distributed generation.

As more and more of the unrecovered fi xed costs are passed on to all other customers, through increases in the kilowatt-hour charge, the price signals to customers become more distorted. This growth in the kilowatt-hour charge increases the incentive for more distributed generation. And the uneconomic bypass cycle, the so-called death spiral, continues.2

One reason for the historical reliance on volumetric charges for residential customers has been the limits of metering tech-nology. There were really only two ways to measure and bill for a residential customer’s use of electricity: by month, and by kilowatt-hour throughput.

But with the advent of smart metering technology for resi-dential customers, many other ways are possible to measure and bill a customer.

Now the utility can measure the instantaneous reliance that a customer places on the system, by the maximum kilowatt demand. This is the most effi cient cost-based way to bill customers for their share of the grid.

2. Are demand charges a new concept in the electric utility industry?Although relatively new to residential customers, demand charges are far from a new concept in electricity rate design. Developing the concept in 1892 was one of the many great achievements of Dr. John Hopkinson, a British electrical-utility engineer.3

Using demand charges caught on quickly with large com-mercial and industrial customers. The size of the load and level of cost justifi ed the more expensive metering technology required for that type of rate design.

Residential customers have been billed predominantly volumetrically when the predominant part of distribution system costs is fixed.

– Ross Hemphill

‘‘

’’



It can probably be argued that those who would see bill increases are receiving subsidies under the current rate designs. An example is low load-factor customers.

If the impacts are great, then gradualism may be called for. These are equity issues that should not preclude constructive change, such as rational rate design for the public good.

One could actually take this further. It is inequitable to those customers who are funding subsidies under the status quo.

5. What are the alternatives to demand charges, and how well would they work in overcoming the current rate design problems?A number of approaches to solving these rate design problems have been discussed over the years.6 Straight-Fixed-Variable, or Modifi ed-Fixed-Variable, is simply increasing the fi xed charge to refl ect the level of fi xed costs. There is a sound theoretical founda-

tion for pricing infrastructure services in this manner.

This eliminates any mixed emotions utilities might have in promoting energy eff i-ciency. This is because the volumetric-based revenue pen-alty is eliminated.

This pricing method is an unpopular approach, however, and has drawn red-blooded opposition among many stake-holders. It is perceived by many

as being anti-low income, anti-sun and anti-energy effi cient. Overall, it is a non-starter in many jurisdictions.

Revenue decoupling has been advocated for years as a solu-tion to the rate design dilemma without doing anything with rate design. It separates earning from sales through an external adjustment so that the utility is not affected by energy effi ciency, and not motivated to increase throughput. But the fact that it does not change the rate design is the essence of the problem.

Decoupling not only ignores the problems of the current rate design discussed earlier, it exacerbates them by shifting more of the fi xed cost recovery to the volumetric charge. Revenue decoupling, using a volumetric adjustment factor, would shift the utility’s fi xed costs from energy effi ciency or distributed generation participants to non-participating customers. Demand charges largely avoids this inequitable outcome.

Use of a minimum bill has received attention lately as a way to solve the problem without changing the rate design. This approach keeps the fi xed and volumetric components the same, but introduces a minimum amount each customer must pay each month.

But again, the design is the problem. Ineffi cient signals lead to uneconomic decisions.

4. How would demand charges affect different residential customers and the way in which they consume electricity?There is no denying that a movement towards demand charges is a major change in how residential customers are billed for their use of the system. There would still be a fi xed charge. Arguably, this could or should be decreased somewhat, however.

A volumetric charge will remain to recover the true short-run variable cost of electricity usage. Although this charge will defi nitely be decreased.

But a demand charge adds a third element to the rate structure that residential customers have not experienced before. A demand charge, that is variable, provides yet another pricing signal and an additional opportunity for customers to control their bills.

Just what type of price signal the customer sees, and how the customer can control her bill, depends largely on the specifi c type of demand charge that is implemented. In the answer to question number three above, we described the design differences between a coincidence peak demand and a non-coincidence peak demand charge.

There is quite a stark comparison in what the customer experi-ences with these two alternative approaches. The coincidence peak demand billing determinant effectively sets the total demand charge for each customer for one year. It works very much like a fi xed charge that is reset annually based on the customer’s contribution at the time of the annual system peak.

This limits the ability of the customer to change behavior that would impact the demand charge that is set each year. It is not easy to predict just when the system peak is going to occur.

On the other hand, with a monthly variable non-coincidence peak demand charge, a customer can adjust it monthly through-out each year. Each month, it is simply the maximum demand set by each individual customer, which can be monitored easily by the customer given current technology.

Another issue with moving to any type of demand charge is the immediate bill impact on customers. As with any revenue-neutral rate design change, some customers will see bill reduc-tions while others will see bill increases. Particularly close attention should be given to the distribution of these impacts by customer size and demographics.

This will depend on the make-up of each jurisdiction. The only thing that is known with certainty is that conversion to a demand charge will lower the bills of high load-factor customers and raise them for low load-factor customers. Little is typically known about the distribution of load factors by demographics.

Thus, the premise by some opponents of demand charges, that low-income customers would necessarily be adversely affected by a demand charge, has no theoretical basis. Besides, regulators should not outright oppose a change in rate design because it results in bill impacts.

Demand charges resulted in a stronger focus on improving load factors with commercial and industrial customers.



effi cient and proper price signals.b. They move rate design closer to an ideal rate structure:

volumetric charge based on variable cost, customer charge based on customer-specifi c fi xed costs (billing, metering), and a demand charge based on system-wide fi xed costs, which can vary in the long run.

c. They result in utilities recovering embedded capital costs based on customer demand.

d. They result in an advancement of equity among customers in terms of who should pay for utility’s embedded capacity costs, at least from a retrospective perspective.

e. They provide a better calculation of the capacity value of distributed generation sold back to the utility and energy storage, which helps enable distributed generation.

f. They reduce the cross-subsidies currently provided to low load-factor customers.

g. They provide incentives to increase load factors, via management of kilowatt demand.

7. What are some of the criticisms leveled against demand charges?

The major criticisms of demand charges seem to focus on these areas:

The fi rst concern is the one-time bill impacts that will result from a fl ash-cut change to the demand charge structure.

Opponents will push back arguing that the current volumetric rate structure has worked well for decades. And that the hardship incurred by those customers experiencing bill increases is not worth whatever gains may result.

The second concern is the negative effect that demand charges will have on energy effi ciency and the adoption of renewable resources.

Opponents will argue that reducing the volumetric charge decreases the incentive to conserve, and lowers the credit that distributed generation owners receive. It would challenge the economics of conservation and distributed generation.

The third concern is that customers will not be able to adapt to the demand-based approach. And there will be insuffi cient information to help customers manage their demand.

And fi nally, there are those that claim this is just yet another utility scheme to increase its recovery of fi xed costs and earnings.

8. How can utilities and regulators address these criticisms to the extent that they are legitimate? First, bill impacts are inevitable when changing rate design. Impacts are always a number one concern with the customers.

Some have suggested keeping the volumetric rates, but varying them by time, also known as time-of-use rates. This is a theoreti-cal sound concept to employ for the pricing of the electricity commodity, the juice generated and fl owing through the wires. But not for pricing the wires themselves.

The issue of collecting a fi xed cost through a volumetric charge remains under that approach. A time-varying demand charge is something worthy of consideration, as discussed above.

6. How do demand charges compare with other rate designs in advancing regulatory objectives?One question that regulators will inevitably ask is how demand charges in residential tariffs affect their objectives for ratemaking. As ultimately they will have to decide whether a rate design with demand charges represent just and reasonable rates.

Ratemaking involves decisions based on inevitable trade-offs among regulatory objectives for the purpose of promoting the public good. How demand charges compare with the other alter-natives in accomplishing this is what regulators need to decide.

The major objectives should be to redesign rates so that cus-tomers receive proper price signals and shoulder their fair share of the utility’s fi xed costs, in addition to prudent utilities remaining fi nancially healthy. These are the core objectives that regulators have ascribed to ratemaking over the past several decades.

One desirable outcome is to balance the interests of different stakeholders so as to advance the public interest. Thus, regulation tries not to unduly favor one interest at the expense of others; for example, favoring solar photovoltaic customers at the expense of full requirements customers, or unduly discriminating against solar customers.

Here are some of the ways in which demand charges accom-plish the regulatory objectives and level the fi eld:

a. They divide up the customer-specifi c and system-wide fi xed charges into different rate components, which provides more

Customers should receive proper price signals and shoulder their fair share of the utility’s fixed costs.– Ken Costello

‘‘

’’



education is crucial in gaining customer acceptance.This education should include how customers can manage

their electricity usage at certain times to control their utility bills. Customers will be reluctant to try anything new if they don’t have a good understanding of how a rate design will affect their bills.

Probably the best evidence about demand charges for resi-dential customers comes from Arizona Public Service Company, which has had demand charges since 1981. The utility’s experience has demonstrated that customers are able to understand the rates and have responded by reducing their peak demand.

Arizona Public Service found demand charges to be a win-win for both customers and the utility. The utility also discovered that enabling technology such as load control devices can facilitate customers’ experience and improve the results.7

Certainly, as utilities’ experiences expand, regulators will have better evidence to evaluate whether demand charges benefi t customers. Our expectation is that demand charges are good for customers. They should motivate customers, for example, to

increase their load factors. This would reduce the cost of main-taining the distribution system.

10. What are the best ways to implement demand charges for residential rates? Regulators are more willing to support a new rate design when the public accepts it and no one group of customers is severely harmed. This acceptability stan-

dard requires education by both the utility and the regulators. We cannot overemphasize the importance of education.

We make the argument that demand charges should be the default option, where customers can opt-out if they feel more comfortable with a two-part tariff without demand charges. Vulnerable customers, such as low-income households, could opt-out or not be offered a demand charge if evidence shows that they would be worse off.

Regulators would not likely support a rate design that harms low-income households. Yet they should not reject a rate design outright, because it would hurt low-income households.

Affordability is a legitimate concern. But regulators should strive for the most effi cient and rational rate design, and treat the affordability concern separately. For example, regulators can require utilities to offer a rebate or some lump-sum assistance to low-income households.

Regulators might want to consider fi nancial assistance to customers so that they can purchase enabling technology that

But we should not let one-time bill impacts create a barrier to a better design that will benefi t us all for years to come. This is not being insensitive to those who will see their bills increase as a result of this change. This is just saying we need to fi nd ways to work around it.

As pointed out above, the change is correcting for subsidies and inequities in the current rate structure. Approaches like taking a phase-in approach might help in some cases.

If the concern is with low-income customers, then perhaps consider an opt-out for households that are budget-challenged. Regulators can deal with affordability in more cost-effective ways than by rejecting a rate structure that potentially has the benefi ts that we discussed earlier.

Second, if the demand charge covers only distribution services, then the marginal price signal is not going to be affected to a level that will signifi cantly lessen the incentives for energy effi ciency and renewable resources.

Here we are talking about a fraction of the bill. Volumetric charges on energy, the commodity, will provide suffi cient incen-tives for customers to conserve.

Actually, energy effi ciency may intensify by the customer response to demand charges. Since we are talking about a variable demand charge, there are ample incentives for demand response and energy effi ciency.

It does affect the economics of rooftop solar. But in an effi cient manner. Moving to a demand-based rate will make distribution utilities less resistant.

Third, information and education are key elements for making a demand charge work for residential customers. Utilities will have to get much better at providing this type of information.

But if they do, then the demand rate approach will pay high dividends. It will advance core regulatory objectives by reducing cross subsidies and improving equity in cost recovery.

While utilities also gain, customers stand to benefi t more. For example, demand charges not only stabilize the recovery of fi xed costs over time. Demand charges also provide the correct price signals to residential customers, who can use this information to lower their bills and ultimately lower the cost of the total system.

9. Is there evidence that demonstrates demand charges will benefit residential customers?The short history of demand charges for residential customers precludes the availability of ample evidence on how they affect different demographic and usage groupings of customers.

As of this writing, nineteen utilities offer demand charges for residential customers on a voluntary basis, such as an opt-in basis. Relatively few customers have participated, a level of less than ten percent.

One reason given for the low customer response is poor marketing and design of the rates. As with any new rate design,

Demand charges provide correct price signals to customers, to lower their bills and lower the cost of the total system.

(Cont. on page 74)


BY DAVID MUELLER

Harmonics Studies Needed to Assess Vulnerabilities

Geomagnetic Disturbances and the Grid


1607 FEA6 Mueller-r2.indd 36 6/17/16 9:28 PM


Dave Mueller is the director of Energy Systems Studies with EnerNex, an electric power research, engineering and consulting firm. He is a broadly experienced electric power engineering con-sultant with over twenty-five years of solving power problems for industrial, commercial and utility clients. He has performed many harmonics studies for utilities in North America, and has also done this work in Europe and Asia.

n March 13, 1989, a geomagnetic disturbance, GMD, caused by solar activity aff ected bulk power systems in North America.

Th e most serious impact led to the shutdown of static compensators on a network essential to control of Hydro Québec’s grid. Th is caused voltage to drop, frequency to rise, tripped transmission lines and, seconds later, knocked out power across most of the utility’s grid.

Concerns over GMD events have led the North American Electric Reliability Corporation, NERC, to study GMD’s threat to transmission systems. It also caused NERC to recently issue reliability standards for transmission organiza-tions, in response to the potential for GMDs and geomagnetically induced currents, GIC, to disrupt operations and possibly damage assets.

Transmission utilities and regional transmission organizations have fi ve years to comply. Th e new NERC standards wisely advise transmission organizations to assess the threat to their transformers, expen-

sive assets with long lead times for replacement. But the new standards do not require these organizations to perform detailed harmonic simulations.

Th ese harmonic situations are required to evaluate phenomena similar to the 1989 event that hobbled Hydro Québec. NERC has cited a concern that commercially available harmonic simulation packages do not currently have enough capability for this analysis.

Mitigation strategies discussed by the NERC working group on GMDs include taking a so-called defensive posture, such as minimizing tie-line fl ows to a neighboring control area or utility. A system redesign could mean retuning of capacitor banks or installing harmonic fi lters to address the threat of harmonics to the system. But a defensive posture may prevent the system from doing some of the

routine operational things it needs to do.

Assessing VulnerabilitiesA proper approach to assessing a grid’s vulnerabilities to harmonics is complex. But a high-level view would include two essentials.

First, the transmission organization would need to build a harmonics model of the system.

Second, the organization needs to understand, when its transformers are under a GMD event, how those assets produce harmonic currents, what types of harmonic currents they produce, and in what amounts. Because core-saturated transformers pro-ducing harmonics are the drivers of the resonance phenomenon that poses a risk, they must be accurately represented in the harmonics model.

The next step is to fi nd out which points in the system undergo resonance and therefore, are potentially subject to failure. With those models and the insights they produce in hand, a transmis-sion organization can then assess mitigation strategies.

As noted earlier, there’s a lack of commercially available tools

Compliance with NERC’s new reliability standards is man-datory. But the power industry appears to have placed undue emphasis on GMD’s threat to transformers. Though agreement on this topic remains elusive, it appears that the risk is limited to a relatively small subset of atypical transformer designs.

In contrast, our studies and those by others have underscored the value to transmission organizations in: assessing their vulner-ability to harmonics, developing operational strategies to react to an unfolding GMD/GIC event, and possibly performing modest system redesigns to mitigate related vulnerabilities.

Triple Threat?It’s important to point out that the GMD-induced DC cur-rents that may cause core saturation and thermal events in transformers, also cause harmonics, and exacerbates reactive power, which can lead to voltage collapse. So GMDs can have a three-pronged effect.

Harmonics, magnifi ed by resonance, is an under-appre-ciated threat during GMD events. We need to study where the resonances are coming from, and we have to change those resonance conditions.

O

Harmonics, magnified by resonance, is an under-appreciated threat during GMD events.



Does the third-party have experience in creating very large system harmonic models that include both balanced harmonic currents and unbalanced harmonic currents? Does it possess an in-depth understanding of various and disparate elements of transformer designs: core versus shell type, single phase ver-sus three phase, and how they react under GMDs to produce harmonic currents?

And what is the actual experience in combining these models to understand actual vulnerabilities and to design effective mitigation strategies?

ConclusionI’d like to emphasize that my points about harmonics studies, related potential vulnerabilities and mitigation strategies are not meant to de-emphasize the potential impact of GMDs on

transformers or power gen-eration plants. The NERC mandate to study the poten-tial impacts on transformers is a wise and necessary step.

Also, our own studies show that harmonics can lead to overheating in the rotating equipment or in the

windings in a generator. In the latter case, some sort of harmonic fi ltering may be needed. Or simply the defensive posture of taking them offl ine is indicated as a mitigating step.

Likewise, my emphasis on transmission organizations does not truly represent the entire picture, though they are directly vulnerable to GMD events. We have performed harmonics vulnerability assessments for one utility concerned about their economically critical end-users. In that case, the utility wanted to look upstream and anticipate potential impacts.

The foregoing points on the threat of harmonics must sim-ply be added to a full, system-wide assessment of potential

to study the problem. But various third parties have built and combined such models and data sets to effectively assess such vulnerabilities.

Although a few large utilities have managed to perform such studies, the needed skill sets are not often found within transmission organizations. So they’ll need to assess third party offerings to determine the effi cacy of the approach.

Mitigation StrategiesForecasting GMD events is a work-in-progress and, in any case, they are events that crescendo over hours in time. To generalize, we typically can see an event coming, we can see the effects, and we can see those effects increasing. That profi le provides time for mitigation strategies.

Operational strategies might involve taking capacitor banks and other harmonic fi lters offl ine to avoid resonance conditions. The downside, as alluded to earlier, is that equipment is in place to support system voltage.

So a defensive posture that takes certain equipment out of service has limits. Those limits are best managed by having assessed the system to reveal the most vulnerable aspects of it, to limit mitigation actions and thus limit the downsides of those actions.

The other approach is a system redesign that involves har-monic retuning, based on a harmonics study and performed well before a threat arises. Logically that appears to be a more desirable step. Then the system is already hardened if and when a GMD event occurs.

Such a step would involve either changing the size (Mvar) of a capacitor bank, or retuning that capacitor bank by adding line inductors to change the harmonic resonance.

Assessing ApproachesA transmission organization looking for assistance in harmonics studies should ask hard questions.

GMDs that lead to system-threatening harmonics are low-probability, high-impact events.

WHAT ARE HARMONICS RESONANCE CONCERNS DURING GMD?Resonance occurs at a harmonic fre-quency. The term harmonic frequency is important here. When the system induc-tance caused by the wires and the trans-formers is offset by capacitance caused by capacitor banks and underground cables. At the harmonic frequency where those two systems are, let’s say, offset, a con-dition called resonance occurs and acts as a magnifier to harmonics, leading to

the types of failures as occurred at Hydro Québec in 1989.

A transformer affected by GMD cre-ates harmonic currents that excite the resonance, a condition that we would only see during GMD. Because that condition is only seen during GMD, we tend to be unprepared for it.

High harmonic currents will circulate in and overload the capacitor banks, which

are designed to support system voltage. If capacitor banks fail, voltage support is gone, leading to a cascading effect.

It’s also going to affect filter units on high-voltage DC and FACTS equipment (Flexible AC Transmission Equipment). HVDC links and FACTS rely on harmonic filters to make them work, and if those filters also get overwhelmed by harmonic resonance conditions, they trip offline. –DM



odds of occurrence are relatively low.But the phenomenon is real and could lead to loss of power

for millions of customers, some of whom could be very adversely affected. Or it can have greater impacts on public safety and the economy. And that puts these studies squarely on the to-do list. PUF

vulnerabilities to transmission and distribution systems from GMD events. Such assessments are relatively inexpensive and per-formed entirely off-line and present no disruption to operations.

As to the level of urgency, GMDs that lead to system-threat-ening harmonics are low-probability, high-impact events. The

Supplement to The Edison MonthlyNovember, 1920Panoramic View of Madison Square Garden, Taken During

The Fourth Annual New York Electrical Show

The Ballad of the NARUCThere is across this great land of ours, A band of men and women who labor through the hours“Dedicated to Public Service” is their creed, Serving you and yours is their deedTo impose your will on mighty utilities, And far-fl ung transport facilitiesBy seeing that you have light to fi ll the darkness, And heat to ward off winter’s coldnessCoolness to temper summer’s heat, And pure water to sustain life so sweetTransportation to carry you safely along paths unfurled, And communications to let you talk and listen to the worldThey began in ’89 as a small band, With a mission to harness railroads great and grandTo stamp out excessive rates, And end unfair discrimination between people and StatesThey have fought your fi ght, To make things all rightTheir job will never be fi nished, As long as riders and ratepayers are diminished Paul Rodgers


BY VINCENT DEVITO

Why $3.3 Billion Northeast Energy Direct Pipeline Was Defeated

Energy Company’s Pipe Dream


1607 FEA7 DeVito-r2.indd 40 6/18/16 12:03 PM


Vincent DeVito, an attorney and partner in Bowditch & Dewey L.L.P.’s Boston and Washington, D.C. offices, is recognized for his expertise in energy, regulatory, and corporate matters. Mr. DeVito is a former U.S. Assistant Secretary of Energy for Policy and Inter-national Affairs, and serves as counsel for Northeast Energy Solu-tions, Inc. The views expressed here are his own, not necessarily those of the law firm.

t’s a David and Goliath story. But instead of a slingshot, David in this case fi red off a stiff legal chal-lenge to defeat the giant.

Kinder Morgan, Inc. is North America’s largest energy infrastructure company. In late May, it with-drew an application to the Federal Energy Regulatory Commission. Kinder Morgan will apparently not proceed with the $3.3 billion Northeast Energy Direct natural gas pipeline project.

Th e pipeline was originally slated to become operational in November 2018. It would have had the capacity of handling 1.3 billion cubic feet a day, and was intended to boost the output of natural gas from Pennsylvania’s Marcellus Shale deposits. Th e gas would have been conducted via a 188-mile mainline pipeline through rural areas of New York State, Massachusetts, and New Hampshire.

Kinder Morgan said it was cancelling Northeast Energy Direct strictly because of the failing economics of the project, and cited “inadequate capacity commitments from prospective customers.” To the casual observer, it probably seems that plunging commodity prices, a competitor’s pipeline project, and political notice of broad opposition formed a serious counterweight to the proposed pipeline.

As such, the coalition rec-ognized and quickly dispelled with the notion that the usual not-in-my-backyard strategy was worth its resources. It instead focused on a pure regu-latory strategy that fi t neatly between the parallel lines of FERC’s statutory jurisdiction.

For instance, the coalition did not ignore the pre-fi ling phase of the process. Under-standing that this is a valuable part of the process for FERC

staff, NEES fully engaged in the pre-fi ling process directly with FERC staff and through public comments.

This succeeded on several counts. Primarily by educating FERC staff on dynamics outside of Washington, D.C. And by developing sophisticated analysis of the developer’s fi lings that thoroughly dissected project defi ciencies and defects.

With NEES’s regulatory strategy nipping at their heels, the coalition was surprised when the ultimate formal fi ling by the developer was no better fl eshed out than the few versions of the pre-fi ling documents. This gave NEES a wide-open opportunity.

Immediately, the coalition pounced with a bill of economic, environmental and procedural particulars in documents ulti-mately asking FERC to reject the developer’s application. Within a mere ten days of the fi ling, FERC issued a request for additional information that included the full text of NEES’ fi lings. In the end, the developer never responded to FERC’s request.

NEES strategically participated in regulatory proceedings involving Northeast Energy Direct in Massachusetts, Maine, New York, as well as before FERC and the U.S. Department of Energy.

However, the project’s derailment did not occur in the court of public opinion. But rather through a multi-jurisdictional regulatory strategy waged by a coalition of impacted towns, land owners, and natural resources groups. They used sophisticated legal arguments and data analysis that exposed the defective application presented to FERC for certifi cation.

The outcome, rare in regulatory history, is particularly dra-matic. And arguably it may be seen as an object lesson in how to defeat, or conversely defend, economically and environmentally challenging and otherwise troublesome pipeline proposals.

Contesting project approval in this case was Northeast Energy Solutions. NEES was a coalition of not-for-profi t organizations, towns, and land trusts that would have been impacted by the socioeconomic impression of Northeast Energy Direct on natural resources in Massachusetts.

Early on, the coalition recognized that the applicant, Kinder Morgan, needed approval for its pipeline from FERC. It is an overworked government bureaucracy. The commission had seen only nine pipeline applications nationwide from 2003 to 2013. In two recent years, 2014 and 2015, the number of applications swelled to seventy-two.

FERC was constrained by rules permitting little discretion in considering pipeline applications. And it was statutorily susceptible to approving those applications, as it had been encumbered by antiquated laws enacted by Congress in the 1930s.

I

The coalition pounced with a bill of economic, environmental and procedural particulars asking FERC to reject the developer’s application.

(Cont. on page 84)

1607 FEA7 DeVito-r2.indd 41 6/17/16 9:32 PM

BY ARI PESKOE

Rate design should balance consumer and investor interests.

Campaign against Rooftop Solar

Ratemaking and the


1607 FEA8 Peskoe-r1.indd 42 6/18/16 12:00 PM


Ari Peskoe is the senior fellow in electricity law at the Harvard Environmental Policy Initiative, a non-partisan organization that provides legal analysis on a range of regulatory issues. Previously, Ari was with a law firm in Washington, D.C. where he litigated before the Federal Energy Regulatory Commission about the west-ern energy crisis.

nsuring that rates are just and reasonable and not unduly discriminatory is at the core of regulatory oversight of electric utilities. Th ese ratemaking standards were codifi ed and initially interpreted by public utility commissions during a diff erent era, when the industry’s rapid expansion was the goal that aligned utility profi ts with the public interest.

Th is article examines these terms in the context of ongoing debates about utility rates and rooftop solar, as well as parallel episodes in the industry’s history. It concludes that regulators should ensure that changes to rate design seek to balance consumer and utility interests. Rates that are intended to insulate utilities from economic and technological change while providing no benefi ts to consumers ought to be considered unjust, unreasonable, and unduly discriminatory.

Faced with revenue challenges due to fl at demand, many utilities are arguing that misalignments between their costs and revenue collected from residential consumers must be corrected with revised rate designs. Th ese utilities assert that unfair rate designs enable residential consumers who use less to pay less than the utility’s measure of its cost to serve them.

Th ey are urging regulators to eliminate cross-subsidies in residential rates that allegedly fl ow to consumers who have adopted rooftop solar and other technologies, from those who have not. Th eir proposed remedies include higher fi xed fees and lower rates for distributed generation, which reduce ratepayers’ incentives to adopt new technologies, or to otherwise buy less electricity from their utility.

may neither be too low so as to be considered confi scatory, nor too high to permit the utility to earn monopoly rents.

The prohibition on undue discrimination is a second linchpin connecting rates to

utility costs. A utility may not play favorites among its customers by charging different rates to similarly situated consumers that cost roughly the same to serve.

Connecting rates to costs also provides a framework for setting rates for various classes of ratepayers. So-called cost-of-service studies assign to each class of ratepayers the share of total costs that the utility incurs to serve that class.

The regulatory process allows utilities, ratepayers, and other interested groups to present competing studies that demonstrate that each group’s preferred rate design matches its allocation of utility costs to ratepayer classes.1

Naturally, each study refl ects the fi nancial goals of its spon-sor. Just as each group’s lawyers zealously advocate their client’s position before the commission, so too, engineers and economists fi ne-tune their results to meet client objectives.

The manipulability of these studies is well recognized. Writing in 1961, James Bonbright concluded these studies, “lack any objective standard of rationality,” and an analyst’s choice of cost allocation formula refl ects, “whatever rate structure is advocated for non-cost reasons.”

Thirty years later, NARUC’s Electric Utility Cost Alloca-tion Manual noted that, “costing methodologies have inspired numerous debates on applications, assumptions, and data.” And

The debates about these utility proposals refl ect underlying tensions between regulatory goals. Just and reasonable rates must balance consumer and utility interests. While providing utilities with opportunities to profi t during a period of fl at demand is a legitimate end, increasing fi xed fees weighs in favor of the utility, with little or no benefi t accruing to ratepayers.

Rate regulation is intended to serve as a substitute for competi-tion, but raising fi xed fees and reducing rates for energy provided by alternative sources, such as rooftop solar, only reinforces the incumbents’ position. These reforms blunt technological and business model innovations and consumer behavior trends that are ostensibly incompatible with the industry’s century-old, top-down, cost-based revenue collection system.

The utility rate case is the primary forum for balancing consumer and utility interests. Ratemaking is intended to pro-duce the rate that would result if electricity distribution were not a monopoly. Such a competitive rate permits a utility to recover its operating expenses, plus a reasonable rate of return on its investments.

This amount, commonly called the utility’s revenue require-ment, ties total utility costs to revenue earned from consumer rates. To be considered just and reasonable, the resulting rates

E

The manipulability of cost-of-service studies is well recognized.

© Can Stock Photo Inc. / ArtesiaW

ells



to construct homes wired for increased consumption, utilities offered discounts and incentives, such as lower rates for customers who adopted electric heat and free underground connections for construction of total electric homes.

Utilities recovered the costs of these promotions from all ratepayers. Consumers that did not or could not directly benefi t from these programs, paid through their rates for unrecoverable rebates that benefi ted participating customers or subsidized residential construction.

Competitors that provided oil and natural gas for home use complained that rates that provided for cost recovery of these promotions were unjust, unreasonable, and unduly discriminatory because they included cross-subsidies that fl owed from captive ratepayers. Utilities typically responded that subsidies were benefi cial to all ratepayers because, for example, increasing the use of electric heat would utilize utility assets in the winter that would otherwise sit idle until the summer peak.4

Regulators tended to side with the electric utilities, concluding that there was nothing unduly discriminatory about cross-subsidies. As examples, in approving cost recovery of expenses

to wire new homes, Georgia regulators explained that “the fact must be accepted that seldom will any new action or step taken in the utility busi-ness be of immediate benefi t to a hundred percent of the citizens of Georgia.”

The New Jersey commis-sion noted with approval that promotional incentives date back to the industry’s earliest

days, when companies offered free replacement light bulbs paid for through utility rates. In New York, regulators issued guidelines for future promotions, requiring that costs be recoverable in a reasonable period of time through expected increased sales.

The industry was infused with a culture of growth, exempli-fi ed by these incentives and promotional rate structures. With declining block rate designs, then an industry norm, a ratepayer’s volumetric rate decreased as it consumed more.

With utility sales growing by ten percent per year, and economies of scale still being unlocked, the connection between private profi t and the public interest appeared to be as strong as ever. However, by the 1970s, that connection had to be fundamentally reevaluated. A range of factors, some specifi c to the industry and others affecting the whole economy, created a perfect storm.

Utility costs increased sharply, demand growth slowed, and residential rates ballooned. The industry appeared to be caught off guard. Because utilities had overestimated demand growth,

that results are a function of an analyst’s considerable judgment. Many regulatory commissions and reviewing state courts have

recognized the limitations of cost-of-service studies, fi nding that they are subjective, and useful as a guide only, because they are not accurate enough to establish the precise cost of providing service to any class. Even the U.S. Supreme Court has found that “cost allocation has no claim to an exact science.”

That is why courts reviewing commissions’ rate design deci-sions are particularly deferential. Rate design is more a matter of policy than law.2

Utilities’ recent and pending requests to remedy cross-subsidies are premised on cost allocations that go a step further than usual. Cost-of-service studies typically output cost allocations to each class of ratepayers, resulting in rates for individual consumers that are based on the cost to serve an average ratepayer in that class.

Any claim about a specifi c subsidy between ratepayers in the same class ignores the fact that costs to serve individual ratepayers depart from the mean based on numerous factors. The largest cross-subsidy relates to individual households’ con-sumption patterns.

While economists have been arguing for time-of-use pricing for decades, nearly all residential ratepayers still pay fl at rates. Instead of aiming reforms at on-peak users, utilities portray lower-consuming ratepayers as freeloaders who are not paying their fair share of the utility’s revenue requirement.

Utilities attempt to justify higher fi xed fees by connecting the supposed cross-subsidies to an under recovery of fi xed costs. This result is grounded in an allocation between fi xed and variable costs that is often at odds with the utility’s own past practice3 and an unjustifi ed assumption that fi xed costs ought to be recovered through fi xed fees.

One utility in Missouri candidly admitted to the commis-sion that while it was once indifferent about whether costs were characterized as fi xed or variable, fl at demand has made it “increasingly diffi cult for the company to accept this risk of immediate under-recovery.”

Accepting this utility’s rationale would insulate it from short-term risks while providing no benefi t to ratepayers. Not surprisingly, a range of interest groups, particularly companies marketing rooftop solar, have disputed these studies, and pre-sented alternative cost allocations.

Whichever allocation regulators select, cross-subsidies, an inherent feature of utility rates, will remain. The issue is what the effects are of those subsidies, and whether they appropriately balance the public interest with private profi t. Ironically, utilities have been on both sides of debates about cross-subsidies.

In the 1950s and 1960s, the industry’s golden age, electric utilities competed with oil and natural gas distributors for market share in American homes. To convince people to heat their homes and cook their meals with electricity, and to induce builders

Whichever allocation regulators select, cross-subsidies, an inherent feature of utility rates, will remain.



have long-lasting effects. Commission decisions today could set the industry’s course for decades to come.

Without other reforms, the policy choice to set rates that do not account for the benefi ts of solar fails to meet the classic defi nition of just and reasonable.

If both the utility and residential ratepayers are economically rational actors that respond to price signals communicated by utility rates, the benefi ts of solar would not need to be computed because they will be captured as an inevitable consequence of effi cient market activity. But this textbook result requires, among other things, that ratepayers have perfect information about the costs of consumption and the value of investment self-generation, that there are no signifi cant market barriers or regulatory incen-tives that impede effi cient behavior, and that rates accurately refl ect externalities and utility costs.

Current regulatory structures fall well short of achieving these economic ideals. Simply reducing the rate for solar to a rate that refl ects only short-term utility generation costs protects the utility without providing any benefi t to ratepayers, and is therefore unjust and unreasonable.

That does not suggest that existing rates are necessarily just and reasonable. Rather, as the historical examples illustrate, a just and reasonable rate should capture the value to the utility system. Any cross-subsidies that fl ow to solar adopters will be justifi ed by system-wide benefi ts.

Similarly, fi xed fees protect incumbents and limit ratepayers’ abilities to be more effi cient. They leave the largest cross-subsidies in place and do not move regulation closer to sending meaningful price signals. Regulators would be on solid ground in concluding that high fi xed fees weigh too heavily in favor of utility investors and are therefore not just and reasonable.

Unjust and unreasonable rates that protect the utility from competitive forces are also unduly discriminatory. Undue dis-crimination is historically rooted in preventing anti-competitive practices, such as favoring a particular ratepayer. This connection

they were investing in thousands of megawatts of unneeded and expensive capacity.

In response, and often over utility objections, regulators reformed utility rate designs. As the Wisconsin commission explained in a landmark 1974 decision, the days of encouraging growth are gone, probably forever.

To replace promotional rates, Michigan regulators took a broad view of just and reasonable rates and concluded that they must “look beyond the revenue-producing aspects of a rate structure if it is also to meet the requirements of a sound public policy. Rate structure[s] must be designed to enhance basic public policy objectives in areas of consumerism, environ-mental protection, public health and safety, and conservation of natural resources.”

In many states, utility-run conservation programs comple-mented new rate designs. Like the costs of promotions, the costs of conservation pro-grams were spread across all ratepayers, poten-tially enabling non-participating ratepayers to subsidize participants’ energy savings.

To minimize the harm from this so-called paradox of conservation, regulators developed cost-benefi t analyses, and allowed for cost recovery only of programs that met certain thresholds. Regulators rationalized both promotional and conservation incentives on the grounds that they benefi ted the utility system, even though direct benefi ts fl owed to only a few ratepayers.

Contrast that result with the recent deci-sion in Nevada, now on review in state court, that sharply reduced the rate paid to ratepayers with solar. The commission concluded that rates must be “based on the actual, measureable costs of providing service,” while the “benefi ts/values of [net energy metering] should be evaluated in the resource planning process.”

This policy choice to ignore one side of the cost-benefi t equa-tion in rate design is at odds with how regulators have approached similar issues in the past. However, in general, regulators’ decisions on rate designs are matters of policy, and not clearly compelled by legal doctrine.

The requirement that just and reasonable rates must balance consumer and utility interests typically applies to the revenue requirement, not the rate design. Nonetheless, the classic rate-making standards can, and indeed should, inform rate design.

A principled approach to rate design is warranted because a commission’s rationale for adopting a particular rate design may set precedent that it can reinforce in subsequent rate cases, and that state courts can enshrine into law when tasked with reviewing a rate case.

While facts may change, regulatory and legal decisions can

Ignoring one side of the cost-benefit equation is at odds with how regulators have approached similar issues in the past.

– Ari Peskoe

‘‘

’’



of its short-term costs and its proposed allocation of those costs among customer classes. As discussed, the utility can mold a cost-of-service study to meet its fi nancial goals, and the utility has numerous advantages in these proceedings.

A separate proceeding provides proponents of the resource with an opportunity to frame the issues, rather than being forced to react to utility proposals. It provides for consideration of long-term costs and benefi ts, treats generators and other resources as service providers rather than service takers, and focuses on providing value to ratepayers, not revenue for util-ity shareholders.

The results of such a pro-ceeding can either establish a tariff for distribution-level resources, or can be an input into the utility’s next rate case.6 A non-discriminatory process

guarantees only fairness to nascent entrants, not a particular substantive outcome.

As technology offers new possibilities for ratepayers and utilities, rate designs ought to be just, reasonable, and not unduly discriminatory. These core ratemaking standards are rooted in protection of consumers, not the utility. They require that amidst uncertainty, regulators fi nd a balance between ratepayer and utility interests and be vigilant about remedying anti-competitive practices and procedures. PUF

Endnotes:1. These groups may also dispute the revenue requirement, arguing that certain

utility costs should not be recoverable from ratepayers.2. Historically, courts, economists, and regulators focused on the revenue

requirement determination, and spent far less time and resources evaluating the rate design. Courts use different legal standards when reviewing a com-mission decision about a revenue requirement as compared to a rate design, because the revenue requirement determination involves constitutional considerations.

3. One Connecticut utility recently told state regulators that “all distribution costs are fi xed.” The logical conclusion of that approach, combined with the argument that fi xed fees should refl ect fi xed costs, is that distribution service should be entirely paid for through fi xed fees.

4. While the industry often rationalized promotional expenses because they increased utilization during off-peak seasons, it seems likely that homes receiving subsidies consumed more energy throughout the year. These houses often used electricity for cooking and heating water, and some also included connections for more electrical appliances and lighting. The Department of Energy’s fi rst Residential Energy Consumption Survey, conducted in 1979, found that homes with electric heating also consumed two to three times more electricity for air conditioning as compared to other homes. In total, these homes used nearly three times as much

between discrimination and the economic self-interests of monopolists was a key component of FERC’s argument to advance competition in wholesale generation.

Prior to the wholesale reforms of the 1990s, utilities were using their transmission tariffs, which were approved by regulators, to block competition in generation. FERC concluded that these unduly discriminatory practices were “denying consumers the substantial benefi ts of lower electricity prices.”

The commission found that “utilities owning or controlling transmission facilities possess substantial market power; that, as profi t maximizing fi rms, they have and will continue to exercise that market power in order to maintain and increase market share, and will thus deny their wholesale customers access to competitively priced electric generation.”

Moreover, FERC reasoned that “the incentive to engage in discriminatory practices is increasing signifi cantly as competitive pressures grow in the industry.” FERC’s remedy was to require transmission owners to offer open-access transmission tariffs that provide comparable access to all customers. FERC has since expanded the applicability of its undue discrimination analysis, fi nding that it is necessarily required to take notice of the general developments in the electric industry in deciding what generic reforms may be needed to ensure that tariffs do not unduly discriminate against any class of customers.

Similar logic applies to the distribution system. FERC con-cluded that transmission-owning utilities were monopolists who would “inevitably act in their own self-interest to favor their own generation.” These are the very same utilities that today are using the state regulatory system to insulate themselves from the growth of rooftop solar and the decline in consumer demand, and thus deny captive ratepayers access to competitively priced alternatives.

Following the path blazed by FERC, one remedy at the distribution level is an open-access tariff.5

Like FERC’s version, a distribution-level tariff would allow any person to transact for power on the same terms as any other person and provide transparent information about system conditions and prices.

This new paradigm would reform utility incentives and compensate ratepayers and new market entrants based on prices that vary by time and location for providing services to the grid. While a few states are moving in this direction, some commissions may lack the legal authority to mandate these dramatic reforms without legislative authorization.

Alternatively, the prohibition on undue discrimination can be oriented towards procedures, rather than a specifi c substan-tive remedy. For instance, moving the terms and conditions for distributed generation out of a utility rate case may remedy undue discrimination.

Constrained by decades of past practice and legal precedent, a ratemaking case is designed to scrutinize the utility’s measure

The connection between discrimination and the economic self-interests of monopolists was a key component of FERC’s argument to advance competition.



electricity. This spillover effect was often ignored, and would certainly be diffi cult to measure and account for in designing promotional rates.

5. For further discussion, see Joel Eisen, “An Open Access Distribution Tar-iff: Removing Barriers to Innovation on the Smart Grid,” UCLA Law Review, 2014. Professor Eisen discusses a FERC-regulated, open-access distribution tariff, but similar principles could be applied to state-level tariffs.

6. Many commissions and state courts have adopted prohibitions on single-issue ratemaking. The Illinois Supreme Court has explained that the pro-hibition “recognizes that the revenue formula is designed to determine the utility’s revenue requirement based on the aggregate costs and demand of the utility. Therefore, it would be improper to consider changes to components of the revenue requirement in isolation.” Business & Professional People for the Public Interest v. Illinois Commerce Com-munication, 146 Illinois 2d 175, 244, 1991. If setting a rate for solar vio-lates a state’s single-issue ratemaking prohibition, a proceeding to analyze the costs and benefi ts of a particular technology or service could be styled as an investigation, and set parameters that inform the utility’s next rate case.

Cartoon drawn exclusively for Public Utilities Fortnightly by Tim Kirby

Copyright by Lewis W. Hine

A VETERAN MINER

1607 FEA8 Peskoe-r1.indd 47 6/18/16 10:44 AM

BY DANIEL GABALDON, MATT GUARINI AND JAMIE WIMBERLY

Growing Impacts of Residential Solar on Utility Customer Service

Here Comes the Sun


1607 FEA9 Gabaldon-r3.indd 48 6/18/16 1:00 PM


Daniel Gabaldon is a director at Enovation Partners. The Cleantech Group – and its i3 platform for connecting innovators, corporations, and investors, which served as the source of the proprietary data used in this article – joined Enovation Partners in January 2016.

Matthew Guarini is a director with Enovation Partners. He has more than twenty-five years of experience in energy. For the past ten years, he has added a strong focus on the role of technology in energy addressing the smart grid, distributed energy, architectural and application roadmaps, cloud services, and analytics. This includes his previous role where he served as chief information officer for National Grid US.

Jamie Wimberly has served as chief executive officer of the Distributed Energy Financial Group LLC, DEFG, since it was founded in 2003. With more than twenty years of experience in energy, Jamie has interacted with leading technology innovators, execu-tive teams at major investor-owned utilities and energy retailers, thought leaders, and regulators.

Appreciation to Mike Nolan and Ben Ziser for their research assistance.

he continued growth of photovoltaic solar rooftop installations in the U.S., PV, has resulted in a series of debates. Concerning reforms to utility ratemaking. Concerning the proper form and extent of subsidies for PV. And concerning fundamental changes to the utility business model.

Regulators and policy advocates of various stripes grapple with these questions. But utilities are faced with the immediate reality of serving customers who have already adopted PV systems.

What does PV mean for utilities’ residential customer service operations? From helping customers with supplier selection, through installation and maintenance issues? And with billing?

To begin to address this question, we conducted two sets of surveys of residential electricity customers in the second quarter of 2016.

Th e larger of the two, with a sample of over one thousand respondents, was intended to provide a snapshot of attitudes towards solar held by the overall residential electricity market. We’ll refer to it as the Comprehensive survey.

Th e other survey targeted residential customers that have already adopted PV. In this case, we attempted to ensure the sample included customers with a representative mix of diff erent PV-related subsidies and rates.1 Th e composition of the three hundred respondents to this survey, which we’ll refer to as the PV Adopters survey, are depicted in Figure 1.

processes and capabilities. Our research indicates that solar adopters’ opinion of their utility has actually improved since choosing solar.

Customers who have adopted solar seek more, not less, contact with their utility, throughout the customer journey. We believe utilities that take

a proactive approach to integrating solar customers’ needs into their core customer service operations can achieve improved customer satisfaction and greater customer affi nity. Those who don’t, risk handing this opportunity to redefi ne and deepen their relationship with their customers, to solar installers or others.

Why and How Do Customers Choose Solar?While only a small percentage, approximately fi ve percent, of the respondents to the Comprehensive survey have actually adopted PV solar,2 our survey indicates nearly half of all customers would be extremely interested in solar, putting aside system cost or home ownership.

As expected, younger and wealthier customers tend to be especially interested. See Figure 2.

This is also consistent with the sample for the PV Adopter survey which includes a disproportionately higher income and better educated population than the overall U.S. population.

What’s the relative importance of the perceived environmental benefi ts provided by PV versus the potential for savings, or stability, of their electricity bill? Our surveys indicate that overall, customers consider adopting solar for both sets of reasons, as well as others. Such as a desire to gain control over their energy supply, interest in the technology per se, etc.

However, those that have already adopted solar tend to

In this article we will begin by exploring why residential customers adopt solar and how they go about choosing a supplier. We then turn to how these customers’ needs are being served once they have chosen to obtain solar, and the role of the utility in assisting these customers. We conclude by assessing customers’ satisfaction with their choice of solar and the implications for their current and future relationship with their utility.

Our overall thesis is that the advent of distributed solar represents an overwhelmingly positive opportunity for utilities to increase their level of relevance for residential customers. But only if utilities are prepared to modify their customer support

T

Utilities can achieve improved customer satisfaction.

© Ldam

bies | Dreamstim

e



place a much greater weight on solar’s environmental benefi ts than the gen-eral population. Figure 3 shows that on average, respondents are willing to spend an additional eleven dollars per month for solar, and those who have already adopted solar were willing to pay twice as much, twenty-three dollars a premium, for solar.

Similarly, the Comprehensive survey indicates that customers who have not yet chosen PV place a signifi cantly greater emphasis on the potential for savings on their electricity bill than the environmen-tal merits of PV. It was forty-four percent versus thirty-three percent.

But these considerations are equally balanced among customers who have

Minnesota

New Mexico

Louisiana

Texas

Massachusetts

New York

Colorado

New Jersey

Hawaii

Arizona

California

State Utility

Sacremento Municipal Utility

National Grid

PSEG

New York State Electric & Gas

Salt River Project

Jersey Central P&L

Xcel Energy

Arizona Public Service

SDGE

Hawaii Electric Co

Los Angeles Dept Water/Power

Pacific Gas & Electric

So California Edison

Other

Central Hudson Gas & Electric

CLECO Corp

NSTAR

Oncor Electric Delivery Co

Rocky Mountain Power

Eversource

Niagara Mohawk Power

Atlantic City Electric

Consolidated Edison

Entergy Corporation

Public Service of NM

Tuscon Electric Power

CenterPoint Energy

48 53 43 52

37 50 47 47 52

38 35

40 38

38

36 38 38 37

15 12 16 10 26

14 15 16 10 0

20

40

60

80

100

Total(n=1015)

Male(n=499)

Female(n=516)

18 to 54(n=715)

55 or older(n=300)

Under $50K(n=398)

$50K or more(n=568)

Own(n=644)

Rent(n=310)

Not at all interested Somewhat interested Extremely interested

14

11

14

21

8

21

18

35

17

11

25

103

103

33

$11.1 average $22.3 average $10.5 average

12

35

0

20

40

60

80

100

Total(n=1015)

Have solar power(n=52)

Do not have solar power(n=963)

$50 or more monthly

$25 to less than $50 monthly



Less than $5 monthly

Not willing to pay more

STATE AND UTILITY BREAKDOWN OF RESIDENTIAL SOLAR SURVEY

INTEREST LEVEL IN AN OFFER TO SWITCH TO SOLAR POWER (WITHOUT REGARD FOR COST OR HOME OWNERSHIP)

WILLINGNESS TO PAY

FIG. 1

FIG. 2

FIG. 3

Source: Enovation Partners analysis, DEFG analysis, April 2016 Residential PV Customer Survey, N =

315Source: Enovation Partners analysis, DEFG analysis, Russell Research April 2016 Residential PV Custom

er Survey, N = 1,015

Source: Enovation Partners analysis, DEFG analysis, Russell Research April 2016 Residential PV Customer Survey, N =

1,015

Additional amount would be willing to pay for solar power above current monthly costs ($/month)

1607 FEA9 Gabaldon-r3.indd 50 6/18/16 9:04 AM


customers are satisfi ed with the maintenance of their PV systems, which are both quite reliable, at least in the initial years after installation, and maintained by third-party service providers.

We found that over seventy-fi ve percent of solar adopters either have never experienced an operational problem with their

already adopted PV. See Figure 4.Among solar adopters, we also fi nd a

small but growing share of solar custom-ers who view the environmental benefi ts of PV as unimportant. Instead they have adopted for purely economic reasons. It was about fi ve percent of respondents.

As expected, early adopters of PV have been relatively more motivated by ideological factors. As the economics of solar have improved, a larger share of customers are choosing solar for more narrowly economic reasons.

Economics already seem to play an even more prominent role when it comes to customers who decide to take the plunge and choose a specifi c solar provid-er. The most commonly-cited reason for proceeding with solar is a recent increase in their host utilities’ rates. See Figure 5.

Utilities appear to play a relatively minor role in guiding customers in ana-lyzing the economics of choosing solar, or in assisting them to compare alternative suppliers or contractual options. Instead, customers are much more likely to search the Internet on their own, get advice from friends, or respond to advertise-ments and calls from solar installers.

How do customers choose to obtain solar? The revolution in solar fi nancing is apparent in our PV Adopter survey. See Figure 6. Over the past fi ve years, just as solar installations have been increasing dramatically, the share of customers choosing to purchase solar via a purchase power agreement or lease has also increased dramatically, espe-cially since 2009.

In general, we will see that custom-ers who have chosen to purchase PV, rather than purchase an agreement or lease, have a distinctive set of needs and expectations. There are implications for customer service support for these dif-ferent groups across each phase of the solar customer journey.

Serving Solar CustomersThis shift to third-party ownership of solar is refl ected in custom-ers’ needs for ongoing support after they choose solar. In general,

39%

46%

37%

41%

40%

42%

36%

34%

48%

23%

31%

22%

22%

18%

20%

20%

Recent increase in electricity prices

Advertisement for solar

A friend or neighbor

Poor reliability or other utility issues

Approached by solar installer

News story

Approached by utility or retailer

Other

Important Very important

0

20

40

60

80

100

Total(n=1015)

Have solar power(n=52)

Do not have solar ]ower(n=963)

Public demonstration of my values to my community

More control over what is happening at my home

Improving the value of my home

Independence from my electric utility

Cleaner and more environmentally friendly

Cheaper electricity/ lower bill

44 33

33 33

14

10

4 15

3 8 2 2

45

33

15 3 3 2

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2005 2006 2007 2008 2009 2010 2011 2014 2015 2016

Purchase system

Solar PPA

Solar lease

Community Solar

Solar product from a utility or competitive electricity provider

WHAT INFLUENCED YOU MOST TO CHOOSE SOLAR?

MOST IMPORTANT REASON TO SWITCH TO SOLAR POWER

HOW ACQUIRED PV VS YEAR OF PURCHASE (2005-2016)

FIG. 4

FIG. 5

FIG. 6

Source: Enovation Partners analysis, DEFG analysis, April 2016 Residential PV Customer

Survey, N = 315

Source: Enovation Partners analysis, DEFG analysis, Russell Research April 2016 Residential PV Customer Survey, N =

1,015Source: Enovation Partners analysis, DEFG analysis, April 2016 Residential PV Custom

er Survey, N = 315

No 2012-13 observations



respondents report that their billing issues were resolved on-line, solar related billing problems may be driving an increased volume of calls to utility customer service operations.

Note that fi fteen percent of these incidents require more than three calls to resolve. See the bottom graph of Figure 7. About fi ve percent of residential solar customers reported signifi cant dissatisfaction with billing, either around errors or diffi culty in understanding their bill.

We found statistically signifi cant differences in the incidence of issues by state, by PV supplier, and by utility. We also found that customers who buy their own systems, rather than purchasing

PV system, or are extremely satisfi ed with the level of service they received. Only two percent expressed moderate or intense dissatisfaction.

Those served by original equipment manufacturers tend to be happier than those served by solar installers, energy retailers, or utilities. Owners of larger equipment from manu-facturers, greater than 7.5 kilowatts, tend to experience fewer issues as well.

Unfortunately, billing is another matter. As indicated in the top graph of Figure 7, thirty percent of solar customers experience some type of billing problems. While thirty-seven percent of

3%

3%

3%

4%

5%

6%

7%

10%

70%

Direct billing / autopay error

Inadequate data to validate usage

Inadequate support

Billing issues with home purchase / lease transfer

Other

First month billing error

Billed multiple times

Unanticipated increase(s)

No billing issues

Nature of billing errors

Number of phone calls to resolve issue

1

2

12

26

31

37

>5 and still unresolved

More than 5

3 to 5

1 to 3

None – Resolved another way

None – Resolved online

7%

2%

2%

18%

17%

16%

37%

2%

2%

8%

19%

18%

23%

28%

5%

18%

10%

28%

23%

10%

5%

Costs increased

No savings

0 --5%

6-10%

11-20%

21-30%

>30%

Less than expected Met Exceeded

Perc

ent S

aved

How likely to recommend solar?

How likely to recommend supplier?

0

1

9

32

57

Extremely unlikely

Somewhat unlikely

Neutral

Somewhat likely

Extremely likely

2

3

16

31

49

Extremely unlikely

Somewhat unlikely

Neutral

Somewhat likely

Extremely likely

4.1%

4.8%

5.0%

17.8%

16.5%

16.8%

26.0%

Increased

Percent of Respondents

Perc

ent S

aved

None

<5%

6-10%

11-20%

21-30%

>30%

BILLING ERRORS

SAVINGS REPORTED VS. EXPECTATIONS

LIKELY TO RECOMMEND

HOW MUCH ARE YOU SAVING?FIG. 7

FIG. 10

FIG. 8

FIG. 9


315

Source: Enovation Partners analysis, DEFG analysis, April 2016 Residential PV customer survey, N =

315


315

Source: Enovation Partners analysis, DEFG analysis,

Note: Categories of Less than Expected, Met, and Exceeded each total to ~100%. Don’t know responses were excluded from this chart.



use solar lease or purchase power agreement were more likely to achieve moderate savings, six to thirty percent.

Solar customers also report having achieved a higher level of savings than they had expected.

See Figure 10. Overall, approximately eighty-six percent of customers met or exceeded their expectations of savings. Forty-two percent met their expectations. Forty-four percent exceeded

their expectations.On the other hand, a large

share of customers reporting twen-ty percent or less savings are disap-pointed. This is especially the case among those who only achieved six percent to ten percent.

Twenty-eight percent of these customers achieved signifi cantly lower savings than expected.

Those that purchased outright, versus via a lease or purchase

power agreement, were signifi cantly more like to have met or exceeded savings expectations. We found those with the greatest reported savings had the highest rate of exceeded expectations. Those with price increases achieved less than their expecta-tions of savings.

Utilities’ Evolving Relationship with Solar CustomersMany utility customers are pre-disposed to solar. The majority of customers who choose it are quite satisfi ed with it. So what are the implications for utilities’ relationship with their customers?

First, despite all the controversy surrounding some utili-ties’ opposition to net metering programs as designed in some states, customers generally do not view utilities as actively opposed to solar.

More utility customers believe that their utility supports residential solar, thirty-six percent, than those who believe their utility opposes it, fi fteen percent. The plurality of customers, forty-nine percent, feel their utilities are neutral.

Does adoption of solar tend to distance customers from their

solar via a lease or purchase power agreement, experience a signifi cantly higher incidence of billing-related issues.

Solar Customers’ Satisfaction with Their ChoiceOverall, customers who have chosen to adopt solar are very content with their choice of solar and solar provider. See Figure 8. We found that several factors contributed to the level of customer satisfaction.

Customers who placed greater emphasis on the environmental benefi ts of choosing solar tended to be more pleased. Not surpris-ingly, those who achieved the highest level of savings, both in absolute terms and relative to their expectations, see discussion below, were also most satisfi ed.

We also found signifi cant differences correlated with how customers buy solar. Those who own the system themselves, rather than purchase through leases or purchase power agreements, are slightly more satisfi ed.

And overall we found that customers of the largest solar installers tended to report higher levels of satisfaction.

Those who experienced more diffi culties with their bills or with other aspects of post-installation service were, natu-rally, less pleased.

Interestingly, those who place a higher value on the environ-mental benefi ts of solar were less sensitive to service problems than more economically oriented solar customers.3 One possible implication of this last fi nding is that as a larger share of customers adopt solar for economic reasons, the importance of customer service excellence will increase as well.

Customers claim they would have been willing to pay more for solar. Again, see Figure 3. But adopters report having achieved substantial savings, with a median savings off their previous electricity bill of eleven percent to twenty percent. See Figure 9.

Predictably, we found that a few states, such as Hawaii, were associated with a higher level of reported savings. We found systematic differences in the level of reported savings by installer.

We also found a statistically signifi cant correlation between how solar was purchased and estimated savings.

Those who purchased outright were more likely to achieve higher savings levels, greater than thirty percent. Those that

Those placing higher value on environmental benefits were less sensitive to service problems.

60%

57%

54%

54%

53%

48%

Provide special pricing and other programs to improve your return on solar...

Answer general questions related to solar power and your bill

Provide research on solar vendors and making a good decision

Support choosing the best solar contract terms and pricing

Assist with billing and accounting issues

Provide maintainance of solar equipment

HIGH LEVEL OF CUSTOMER INTEREST IN UTILITY SUPPORT FIG. 11

Source: Enovation Partners analysis, DEFG analysis, April 2016 Residential PV Custom

er Survey, N = 315

* Responded with an 8 or higher on a 1 to 10 scale, with 1 = No support required and 10 = Significant support required



To summarize our fi ndings, many customers are interested in solar, for both ideological and economic reasons. The vast majority of those that choose solar are happy with it. Not surprisingly, when they go solar, there are a host of relatively novel and often complicated billing-related issues to address.

And probably as a result, utilities become more relevant and positively perceived by many of those customers. Perhaps the

broader implication is that in the eyes of their custom-ers, utilities’ real product isn’t just, or even primar-ily, electricity.

Instead it may simply be information about energy

and how customers can best manage their bills. And can best arrive at a trusted solution for resolving issues when they arise.

Could it be that the customer service function will be more central to the utility of the future than generation and distribution? PUF

Endnotes:1. The two surveys were conducted separately, both in April 2016. The Compre-

hensive survey was administered by Russell Research and totaled one thou-sand and fi fteen respondents. The PV Adopters survey included three hundred and fi fteen respondents. About fi ve percent of the Comprehensive survey respondents had already adopted PV. We believe there is no overlap between the two samples.

2. The Solar Electricity Industry Association estimates that about eight hundred thousand U.S. homes and businesses have already adopted solar. So the Com-prehensive survey represents a signifi cant overstatement of the actual underly-ing share of U.S. households that have adopted solar.

3. There was a high degree of multicollinearity in our results. For example, cus-tomers that installed their own systems expressed higher satisfaction than the overall population. But self-installers tended to realize a higher level of savings, both in absolute terms and relative to their expectations. And they also tended to place slightly more emphasis on the environmental benefi ts of solar than the overall population.

utility? One might expect so.Utilities are providing them with less of what would appear to

be utilities’ basic product, electricity. Indeed, among customers who have not adopted solar, more thought their level of contact with utility would decrease, than thought it would increase. It was thirty-one percent versus twenty-one percent.

However, among those that have adopted solar, the reverse is true. We found that fi fty percent of adopters desired an increased level of contact with their utility. Only thirty-one percent desired less contact!

And among PV adopters, customers would welcome their utility’s assistance with a wide array of issues related to solar. See Figure 11.

There is a desire for signifi cant utility support across the entire life cycle of a solar project. Respondents expressed the greatest level of interest in billing-related issues, but also on operations, and on choosing and getting full value from their systems.

Interest in maintenance support was relatively weak overall, as expected. But customers with their own PV system owners expressed greater interest.

Given the increased level of contact with their utility, com-bined with the fact that overall utilities actually do meet their customers’ needs for information and accurate billing, the take-away shouldn’t be surprising. Adopting solar actually improves customers’ opinion of their utility.

Among our survey of over three hundred residential solar customers, forty-eight percent reported their opinion of their local utility was either somewhat or much more positive. Versus fi fteen percent for whom it was somewhat or much more negative. It was nine and six percent respectively.

As expected, we found a signifi cant correlation between this change in attitude and the incidence of billing-related issues. This was both with respect to their frequency and diffi culty in resolving them.

Adopting solar actually improves customers’ opinion of their utility.


JULY 2016 PUBLIC UTILITIES FORTNIGHTLY 55www.fortnightly.com

more or less the vision of the founding of MIT.” … In 1882, one plausible objection to

the introduction of an electrical-engineering curriculum could have been that the underly-ing science wasn’t mature enough … But in forging ahead anyway, [physics department chair Charles] Cross was again thinking like an engineer. “Engineers generally don’t wait around for the science to be fully developed before they want to make use of it,” Penfield says. “They’re basically tinkerers and inventors at heart, and they want to use this stuff. And if the science isn’t there, they’ll go ahead anyway.”

a new polytechnic university. For the legislators, … “it was probably difficult to distinguish the concept of the Institute from the trade schools already in existence.”

But as Penfield puts it, trade schools were intended to educate technicians, while MIT was founded to educate engineers. “Technicians use existing technology, and they do interesting things with it, and they make inventions, and so on,” Penfield says. “And scientists advance science. But the link between those two is engineers, who not only use existing technology but develop new technology using known science. And that was

MIT News, The Birth of Electrical Engineering, Larry Hardesty, March 9, 2011

In September 1882, Thomas Edison opened the first commercial power plant in the United States, serving 59 customers in a square mile of Lower Manhattan. That same fall, MIT made electrical history of its own, with the establishment of the country’s first electrical-engineering curriculum.

… According to Paul Penfield, professor emeritus of electrical engineering, the idea of a technical university “seems so natural now that we tend to forget how radical it was at the time.” [But there was a] 15-year struggle to get the Massachusetts legislature to approve a plan for

Pearl Street Station’s service territory

Nineteenth century MIT

FIRST DOUBLE E’S

1607 ads.indd 55 6/18/16 12:43 PM

BY ANN STOUFFER BISCONTI

Examining the problem for nuclear power shows value in informing the public.

Public Weighs In on Market Conditions Threatening

Nuclear Power Plants


1607 FEA10 Bisconti-r2.indd 56 6/18/16 1:23 PM


Ann Stouffer Bisconti, PhD, is president of Bisconti Research, Inc., a public opinion and communications research company. Before establishing Bisconti Research in 1996, Dr. Bisconti was vice president of research and program evaluation for the Nuclear Energy Institute (NEI). She continues, under contract to NEI, the large-scale program of public opinion and communications research on nuclear energy she initiated in 1983. This body of research, with long-term trends on many questions, provides a unique database for understanding public opinion on nuclear energy topics.

s the price of electricity drops, due largely to abundant natural gas from fracking, some vital electricity resources are being lost and others are threatened.

It started with the shocking announcement in 2013 that Dominion planned to shut down the Kewaunee Power Station in Wisconsin, a well-performing 1,772 megawatt thermal nuclear power plant. Th e low price of electricity in the plant’s market had made the plant non-competitive.

Th at’s a permanent loss. Once a nuclear power plant goes into decommissioning, it can never be restarted. With other nuclear power plants following, the question has to be asked:

What should be done to create market conditions that prevent the loss of the nation’s only zero-carbon large-scale baseload electricity source?

A nationwide public opinion survey this spring took a fi rst step in engaging the public on this dilemma. Th e topic was addressed as part of a survey of a thousand U.S. adults, conducted for the Nuclear Energy Institute, from March 11 to April 11, 2016. Bisconti Research Inc. conducted the survey with Quest Global Research.

Th e survey is part of a robust thirty-four year program of public opinion research on nuclear energy topics sponsored by the Nuclear Energy Institute. In the current survey, fi ve hundred respondents were interviewed by landline and cellphone. Th e other fi ve hundred respondents were surveyed using the Quest Mindshare online panel.

Sooner or later, new power plants will need to be built to replace the electricity lost by shutting down nuclear power plants. The new power plants likely will be fueled by natural gas, but the price of natural gas fl uctuates widely and is unpre-dictable in the long run. A natural gas-fi red power plant provides far fewer jobs and has about half the carbon emissions of a coal plant.”

SolutionsAfter they read the statement, respondents were asked their pre-

ferred solutions. Only twelve percent opted to “provide no assistance, let the nuclear power plants shut down if they can’t compete, and deal with the consequences later.”

Almost everyone else, eighty-eight percent, opted instead for one or more of the following solutions:

■ Set the cost of electricity to consumers at the lowest possible level that also preserves existing nuclear power plants and other alternatives to natural gas (fi fty percent).

■ Treat nuclear power plants like solar, wind, and other zero-carbon sources in the energy portfolio with the same fi nancial incentives to insure a clean-air energy mix (fi fty percent).

■ Offer tax benefi ts to companies that keep their nuclear power plants operating when the cost of producing electricity is greater than the market price (thirty-eight percent).

Essentially, the public fi nds fairness and level playing fi eld solu-tions that preserve the benefi ts of nuclear energy more appealing

The ProblemThe online panel respondents were asked to read detailed informa-tion about the electricity market problem and then were asked about their preferred solutions. The information described the potential shutdown of nuclear power plants due to the current low cost of natural gas.

The following statement was given to the respondents:“Nuclear power plants historically offer low-cost electricity

at a stable, predictable price because they use very little fuel. However, when the price of natural gas is very low, as it is now, the market price for electricity is set below the cost of electricity from nuclear power plants.

Thus, some well-performing nuclear power plants are being shut down and more are at risk of early closure. Shutting down a nuclear power plant prematurely results in the loss of electricity for nearly three-quarters of a million homes and businesses, the loss of hundreds to more than a thousand jobs, and the loss of a zero-carbon clean-air electricity source at a time when we are dedicated to reducing greenhouse gases.

A

Only twelve percent opted to let nuclear power plants shut down if they can’t compete and deal with consequences later.

© Can Stock Photo Inc. / Bum

ann



■ To avoid a rate hike that will come when a new plant has to replace the lost electricity (forty-fi ve percent).

■ Shutting down a well-performing power plant is a waste of an important part of the energy infrastructure (forty-one percent).

Jobs were the most compelling reason for almost all groups and especially for women. Male college graduates’ top reason was to keep a large-scale source of zero-carbon electricity.

Learning about Nuclear Energy’s Distinct Role Changes MindsThe rationale for market solutions from a planning perspective is to assure that the electricity supply mix includes its most essential components. The survey of the complete sample of phone and

online respondents found:■ Ninety-fi ve percent consensus that it’s important to main-

tain a diversity of energy sources.■ Eighty-two percent agreed that we should take advantage

of all low-carbon energy sources, including nuclear, hydro and renewable energy, to produce the electricity we need while limiting greenhouse gas emissions.

■ Forty-eight percent strongly agreed, compared with only fi ve percent who strongly disagreed.

However, previous Nuclear Energy Institute surveys have revealed that many Americans are unaware of nuclear energy’s distinct role as the clean-air baseload electricity source. To understand the impact of new information about this distinct role, the 2016 survey asked the following question:

than tax support to companies. The study did not ask how much extra the public might be willing to pay in setting the cost of electricity or providing fi nancial incentives. The survey showed receptivity conceptually, and the specifi cs would be relevant to local markets.

In all population groups examined in the study, very few respondents selected to let the plants shut down:

Males who are not college graduates, southerners, and conservatives preferred to set the cost to consumers at the lowest level possible that also preserves existing nuclear power plants.

Males who are college graduates, residents of the Northeast and Midwest, and liberals preferred to treat nuclear power plants like solar, wind, and other zero-carbon sources in the energy portfolio with the same fi nan-cial incentives to ensure a diverse clean-air energy mix.

Reasons to Provide AssistanceRespondents were then asked to select any of four statements that they thought were good reasons to provide assistance to preserve existing nuclear power plants. The most popular reason was to preserve thousands of jobs (sixty-two percent).

Other reasons included:■ To keep a large-scale source of zero-carbon electricity

(forty-seven percent).

Percentages

2

6

6

43

43

0 25 50

Don’t know

Not important at all

Not too important

Somewhat important

Very important 86

13

IMPORTANCE OF NUCLEAR ENERGY WITH LEARNINGFIG. 1

Opinion about how important nuclear energy should be, given its distinct role:

Percent saying nuclear energy should be important after learning about nuclear energy’s distinct role:

Initial attitude to nuclearFavor (N=673) 98%Oppose (N=286) 59%Strongly oppose (N=106) 29%

Eighty-six percent said that nuclear energy should be important in the future, including fifty-nine percent of those who initially opposed nuclear.

– Ann Stouffer Bisconti

‘‘

’’



■ Forty-two percent feel somewhat well informed.

■ Twenty-six percent feel not too well informed.

■ Eleven percent feel not well informed at all.

Favorability to nuclear energy is closely correlated with the degree to which people feel informed about the topic. The more informed

people feel, the more they favor nuclear energy.See Figure 2.

A Challenge to InformThe U.S. population gives little thought to where their electric-ity comes from, other than the switch in the wall. This initial exercise in engaging a cross-section of the public in examining an electricity market problem and considering solutions shows value in informing the public.

After all, it is the public that benefi ts from having a well-balanced electricity supply in the years ahead. The challenge is to gain public attention in a time of abundant energy, but it can be done. Surprising facts about the distinct role of nuclear energy are one way to gain attention and raise awareness. PUF

“Nuclear energy produces sixty-three percent of low-carbon electricity in the United States. And given that nuclear energy is the only electricity source that provides both clean air and continuous 24-7 electricity, do you think nuclear energy should be very important, somewhat important, not too important, or not important at all in the future?”

The impact of this information is striking. Eighty-six percent said that nuclear energy should be important in the future, including fi fty-nine percent of those who initially opposed nuclear energy and twenty-nine percent who initially strongly opposed nuclear energy.

See Figure 1.

More Informed about Nuclear Energy, More FavorableA majority of Americans favor nuclear energy but a majority also have changeable opinions on the subject. Sixty-seven percent in the spring 2016 survey said they favor the use of nuclear energy, while twenty-nine percent opposed. Favor-ability to nuclear energy has remained in the mid to upper sixties for most of the past decade, Nuclear Energy Insti-tute surveys show.

However, a small minority of the U.S. public feels very well informed about nuclear energy. In this survey:

■ Twenty-one percent feel very well informed.

Surprising facts about the distinct role of nuclear energy are one way to gain attention and raise awareness.

7

11

26

54

29

49

51

22

28

30

13

7

13

5

10

18

22

5

0% 25% 50% 75% 100%

Not well informed at all (11%)

Not too well informed (26%)

Somewhat well informed (42%)

Very well informed (21%)

Strongly favor Somewhat favor Somewhat oppose Strongly oppose Don't know

FAVORABILITY TO NUCLEAR ENERGY BY LEVEL OF FEELING INFORMED ABOUT NUCLEAR ENERGYFIG. 2


TONY CLARK, WITH PAT MCMURRAY

We talked with FERC Commissioner Tony Clark, who has said he will not seek a second term.

Tony ClarkEnergy People:


1607 FEA11 Clark-r2.indd 60 6/17/16 9:48 PM


ommissioner Clark is serving his fi rst term at FERC, having been nominated by President Obama and sworn in on June 15, 2012. He is likely serving for a few months beyond the term's technical expiration of June 30, 2016.

Commissioner Clark formerly served as a member of the North Dakota Public Service Commis-sion, most recently as chairman. Th e offi ce is a statewide elective offi ce, and Commissioner Clark

was fi rst elected to the PSC in 2000. In November 2010, Commissioner Clark was elected president of NARUC.He was interviewed by Pat McMurray, who has a long background in the energy business. She’s an experienced

public relations consultant, writer and editor and serves as vice president of the Natural Gas Roundtable. PUF’s Pat McMurray: When does your term as a FERC commissioner end?Commissioner Clark: In all likelihood I’ll leave before December. But there is no specifi c date that’s set. Techni-

cally, my term expires June 30. Th e law says I can stay in an expired term and continue to participate until a successor is confi rmed.

Th at’s unlikely this year, given all the dynamics in play, or until Congress adjourns for the year. Whichever comes fi rst.I don’t expect it will be quite that long. But I don’t have a particular date I’ve chosen or a landing spot.

link between affordable energy supplies and infrastructure.

PUF: We look at the federal highway system as a model for infrastructure. Since that system was built, how-ever, it seems we have stalled on what infrastructure should look like. I wonder if you have thoughts on that?

Commissioner Clark: One of the big unan-

swered questions at this point is going to be the tension between entering a time period when we need a lot of infrastructure, versus a time when there is heightened opposition to infrastructure.

For most of the last forty or fi fty years, my lifetime and extending back, the big debate in American energy was all about energy security, energy independence.

You had a string of Presidents, it didn’t matter if they were Republican or Democrat, that would get in front of Congress in their State of the Union address, and would talk about how we are going to make this country energy independent. It was always a nice sentiment. But everyone thought, well, it’s not really going to happen.

But now we are entering a time when we realize we can become fairly, if not [completely] energy independent. Pretty energy secure in terms of the resources that are available both in the U.S. and on the North American continent, with the shale reserves that have opened up. And with renewable energy that we didn’t have access to in the past. As well as our traditional forms of power.

Now the question is, do we have the legal means and the political will to build out the infrastructure that can actually

PUF: What will you miss most about working here? As you look back, are there some important decisions you remember?

Commissioner Clark: You always look back and take pride in certain orders. Within the eleventh fl oor internally, it’s good to know that you were able to make some changes, to move the needle in what you thought was a positive direction. I can look back at a few of those decisions and have that satisfac-tion personally.

It really is one of those rare jobs in Washington these days when you have an ability to make a difference. To just go out and do what you think is right under the law. You are able to get to the end of a work week and say, here are the fi ve things I’ve accomplished.

And to have the ability to do that in a sort of independent way, which is a kind of rare thing in Washington. Especially if you are working on Capitol Hill. Somebody else is setting your calendar for you. Somebody else is setting the agenda.

There is so much gridlock in town. You might get to the end of a week and say, we didn’t get anything accomplished this week. But here at FERC you are working on big issues, very important issues. And you have the independent ability to do good.

PUF: Two or three of those issues, what would they be?Commissioner Clark: It’s always a challenge to answer

that. Of course we don’t comment on the internal workings of a particular order. But I was listening to an interview with [Supreme Court Associate Justice] Stephen Breyer. He said the best dissents that you write are the ones no one reads. That’s because you have, internally, been able to change the order.

If there is anything I hope I was able to bring to the Com-mission, it’s hopefully focused on the issue of infrastructure. Emphasizing the importance of infrastructure both in terms of reliability of energy delivery and affordability. Trying to make that

C

Judge Breyer said the best dissents are the ones no one reads because you have, internally, been able to change the order.



They are less intrusive for the most part.But now, for reasons that really aren’t related to sightline vis-

ibility, I think pipelines are at least as challenging to site. It has to do with anti-fracking activities, which really don’t have anything to do with the pipeline itself. But fi ghting the pipeline is a way to fi ght what people really don’t like, which is hydro fracking.

Some are just sort of against general climate change carbon emissions, hydrocarbon resource production and use. So it’s a larger issue, and a little bit more attenuated. But it’s certainly brought that whole realm into the pipeline certifi cation process, which has never really been the case before.

PUF: It’s certainly been a challenging time because of the protests. Was it a surprise to you when the protests started?

Commissioner Clark: Yes, I suppose a bit. On one hand, no, because we live in a time of heightened activism.

But on the other hand, yes, because no one had ever gone that far before. Maybe a little yes, maybe a little no.

In terms of FERC, the federal protective services are responsible for taking care of the agency itself. In terms of our monthly meetings, there is a heightened presence so that they are always here. Because it’s a pretty frequent event that someone tries to dis-rupt the meetings.

We have FERC security staff as well. They work hand-in-hand to make sure that the people who

attend the meetings can be safe.It’s also for the security of the protesters themselves. They

need to be removed, and we want them to be removed in a way that they are not harmed. And that the people who are there to lawfully attend the meeting are not harmed.

PUF: Do they have a stated goal that they want to achieve at FERC?

Commissioner Clark: This is the most illustrative example of what I think their goal is. One of the protesters was handing out fl yers to the FERC staff as they entered the building. The fl yer said: We are not against this particular infrastructure. We are against all infrastructure.

So I think that is a pretty accurate representation of what their view is. They aren’t saying they don’t like this particular pipeline. Because this route isn’t the appropriate spot for the pipeline, which is the sort of traditional intervention FERC would get in this case.

The protesters are saying, we don’t think this infrastructure belongs in any location whatsoever.

make that happen? That’s where the tension is now. Do we have the capability to get that done? In which case we probably have a fairly secure energy future.

Or do we not build the infrastructure that we need, in which case we are into a cycle of some sort of dependency on less secure forms of energy. And potentially problems with reliability and affordability, which are really two sides of the same coin.

PUF: In Germany, electricity prices are much more expensive now than they were recently because of certain decisions by the government. Is that a good example?

Commissioner Clark: Germany is a useful example. It’s an industrialized economy with a heavy manufacturing base. Parts of the German economy look like parts of the American economy. They went from some of the most affordable electric-ity rates in continental Europe to some of the most expensive electricity rates in continental Europe.

There’s a lot of things we can learn from that example. The primary one being, if you make a rapid transition to some other way of producing energy, away from how you traditionally produced energy, but you do it before the infrastructure is in place to accommodate those changes, you will have impacts. Certainly on cost, potentially on reliability. But certainly on cost.

You don’t even need to go to Germany to see that happen. You can see it here in the U.S., where you’ve got New England, which has a traditionally much higher energy cost than the rest of the country, because of this infrastructure issue.

California has very similar issues playing out potentially this summer, with the Aliso Canyon situation. California has had very rapid changes with where it gets its energy.

Variable energy resources made Aliso Canyon so very impor-tant in terms of its ramping capability [because of the ability of natural gas to back up renewables and ramp up quickly]. It provides capability and fl exibility into the system.

Now that is lost because of the Aliso Canyon leak. We are fi nding out how important infrastructure is in terms of accom-modating the large chunk of the renewables that are coming into the system.

PUF: Do you see the same kind of pushback against trans-mission lines that you do with regard to other infrastructure?

Commissioner Clark: I have to hark back to my time as a state commissioner. Of course I haven’t had to site electric transmission lines since being at FERC. But I did of course as a state commissioner. And for the longest time I always would have said that electric transmission is a lot more diffi cult to site than pipelines.

Primarily because lines are there for the whole world to see. And that landowner who probably didn’t like that line going in, from the fi rst day it goes in has to look at that thing for the next fi fty years or more. It’s just more obtrusive on the landscape. Whereas pipelines for the most part are out of sight, out of mind.

New England, which has a traditionally much higher energy cost than the rest of the country, because of this infrastructure issue.



who become commissioners have usually been active in the regula-tory fi eld at some point throughout their careers. So oftentimes you have a previous relationship with that person when they come on board. Which adds to the feeling of collegiality.

Take somebody like Colette Honorable. She was a commis-sioner in Arkansas when I was a commissioner in North Dakota. We both were very active in NARUC. And were on the board of directors and the executive committee at the same time. So we have known each other for a number of years.

In a similar way, Cheryl LaFleur. I had worked with her when I was a state commissioner and she was a FERC commissioner. I think it’s helpful.

The regulatory community is a small community. You tend to get to know people throughout it and throughout the country. It adds a degree of continuity to the leadership of the agency, which is probably helpful when you have those relationships coming in.

PUF: What about the change from a state to a federal perspective? What is similar? What is very different?

Commissioner Clark: Some of the pro-cesses are similar. I don’t know if there is any particu-lar job that is a perfect back-ground for FERC. I think it’s important for FERC that

it draws from a number of different types of experiences, but the state commissioner training is a pretty good background coming into FERC.

There is no one job that is going to teach you everything that you need to know here. General knowledge of administrative processes and how administrative agencies work. The ability to collaborate and work with other commissioners to craft orders that can be acceptable to a number of different viewpoints. General knowledge of energy industry. All those things are helpful background. So that’s a lot of what is similar.

The biggest difference that I noticed, going from a state commission to FERC, is that for most state commissions, with any particular case that is of any size and scope, you basically live with that case as a state commissioner from the day it comes in the door until it’s decided. If there is a major rate case, you know when it’s going to be fi led, you schedule the hearings, usually you sit fi rst chair, in the hearing room, questioning witnesses and developing the record yourself.

When the record closes, you and your staff are writing the orders. So you really have control of that process from day one until it’s disposed of.

FERC is very different. It’s like an appellate court. The record

It’s NOPE. Not on Planet Earth.And I don’t think it’s being unfair to them to describe it

that way. They don’t think there should be any natural gas infrastructure anywhere. Of course the Natural Gas Act is not written in that way.

What the Act says, is it’s in the national interest that you have certain energy infrastructure projects, if the project can demonstrate the need. And the way we demonstrate need is that people are willing to risk their private capital to go out and sign contracts, to buy the gas that’s coming over the pipeline.

Then it follows that it should be constructed in the following manner, of course mitigating for the environmental impacts – cultural impacts, historical impacts – things like that. But the Natural Gas Act doesn’t say all infrastructure should be denied. Which is really what the protesters want.

PUF: What were some of the more humorous moments during your time at FERC?

Commissioner Clark: The day-to-day interaction with your own staff here in the commissioner’s suite, as well as with your fellow commissioners, is really what you sort of remember. It’s a collegial group. We do get along.

One of the nice things about working on this particular Commission at this particular time, is that although we have dif-ferences of opinion, we really do all consider ourselves colleagues and friends. That makes it a good place to work.

PUF: As a workplace, FERC gets some of the highest marks in the whole federal government. If you look at the list of the best places to work in the federal government, FERC is always in the top ten.

Commissioner Clark: It tends to be. I think it’s because of a few things. One, it’s considered a serious place. It’s a niche. In some ways what we do is technical. That helps build the morale that we have in the agency. Because it adds a certain seriousness to it. My sense is that extends throughout staff.

Surveys seem to indicate that it is a good place to work. Hopefully some of that is set by the tone at the top. You have commissioners that tend to work well together historically. Not just at this Commission, but in the past as well.

In fact, there is a story I will tell. I was testifying in front of one of the Congressional committees, it was a House commit-tee. It was all four or fi ve of us. We testifi ed. And one of the Members of the committee came down and was chatting with us after the hearing.

He said, you all seem to get along pretty well. He was sort of surprised by that. And I said, yes, we get along pretty well. He chuckled and said that’s not often the case with the commissions that come before the Congress. It was nice to hear. It’s too bad it’s not the norm. But it was nice to hear.

PUF: What contributes to the feeling of collegiality?Commissioner Clark: It tends to be a tradition. Folks

We are finding out how important infrastructure is in accommodating the large chunk of renewables coming into the system.



this? Why don’t you think about this? It was very, very helpful.Of course I’ve learned a lot from all the colleagues I served

with at the state level, and at NARUC. Later on you would have say John Hoeven, who was governor of North Dakota for about ten years. He was then elected to the Senate. And he has served here in Washington since 2010. Those are a couple of people who provided good guidance along the way.

PUF: What about North Dakota? It seems like an excit-ing place to be in the energy business. But recently the energy industry has been suffering out there. How is the state managing in the downturn?

Commissioner Clark: There has been a lot of change over the past decade, decade and a half, in the state. Most of it good. If you look at surveys of North Dakotans themselves. They view it positively. Some of it has been challenging.

Any time you have the type of growth the state experienced because of the oil boom, you are going to have challenges that go along with it, many of them infrastructure-related. Both in terms of energy infrastructure but in terms of social infrastructure

as well. Housing and things like that. Mostly it’s been positive, but with challenges that go along with it.

The nice thing about North Dakota is that, for as much change that has happened, it still retains a lot of the charm that makes it North Dakota. Which is why a lot of us love it. It’s a real community. Even with as much development

that’s gone on there, I bypass more traffi c in D.C. in fi ve min-utes than I would see in a month in North Dakota. Even with the oil boom.

The downturn is something that the state was as well prepared for as you can be. You never know when you are going to have that sort of downturn. But it’s a state that has dealt with a commodity economy for a hundred years. Agriculture, always, energy more recently. But the experience of the state and local leaders meant that this time they were as prepared as you can be, because they have lived through it before.

The 1980 – 84 boom, and then the downturn that followed, really hit the state extraordinarily hard. I was coming of age at that time, going through high school, and college in the early nineties.

Those were tough times in North Dakota. You were rolling along through the early eighties. Then you had the farm crisis hit in the mid-eighties. Then you had oil prices bottom out and crash.

Farmers were going bankrupt, and literally having to sell the farm. You had communities in the oil patch that had extended

that’s developed is either a paper record that is developed before staff, or it’s a hearing that is developed in front of an ALJ [admin-istrative law judge]. The ALJ issues an initial decision.

At the Commissioner level, you are only seeing it once. You are getting a fi nal order that’s being circulated for approval. So you are looking at somebody else’s record that they’ve developed. Somebody else’s record where they asked the questions directly, as opposed to you as a commissioner.

If it’s a siting case, really any major siting case at all on the state level, it’s probably the commissioners themselves who are traveling to the local community, hearing from landowners, looking at the maps themselves, and taking direct testimony from the company and the affected landowners.

Whereas at FERC, you are looking at the work someone else has done. And making sure they have done an adequate job to your satisfaction. That the standards have been met.

The best analogy is probably the difference between a district court and an appellate court. You are reviewing somebody else’s work in the case of FERC, for the most part.

PUF: If someone wanted to become a FERC commis-sioner, what are the essential tools or the essential education they would have to have?

Commissioner Clark: In some ways you become a little bit of a jack of all trades. Because you have to know just enough about economics, just enough about law, just enough about engineering, just enough about markets, and how the tariffs work and administrative practices. It’s quasi-judicial, it’s quasi-regulatory, it’s quasi-legislative. So there’s no one perfect background to be a FERC commissioner.

But as long as you’ve got a quick ability to learn a whole bunch of these things, and a relatively solid grounding in all of them, I think you’ll have a chance to thrive.

In terms of just the practical realties of it, you have to gain some level of expertise and visibility within the energy industry, or within government at some point. Through the staff level (Capitol Hill staff), whether it’s through industry experience (a state commission), or the industry itself. Then having some political connections, of course helps, in terms of being familiar with your own Senate delegation. Things like that.

PUF: Who was the most important infl uence in your profes-sional life when you were starting out?

Commissioner Clark: There were a few people that helped with the career path and gave helpful advice. I think back to Ed Schafer, who was governor of North Dakota from 1992 to 2000. And who I had known throughout the entire period when he was governor.

Towards the end of his term, he appointed me as labor com-missioner in the state. So he gave me the fi rst break at a statewide level, administering an agency, serving in his cabinet. He gave great advice along the way. Have you ever thought about doing

One of the protesters was handing out flyers: We are not against this particular infrastructure. We are against all infrastructure.

1607 FEA11 Clark-r2.indd 64 6/18/16 10:19 AM


The Trump speech was generally pretty well received, in terms of the folks who are interested in the infrastructure side of things and the energy security side of things. Folks who are on the environmental left were, I understand, not as excited by it, but that was to be expected.

I hope what comes out of this race is an understanding of what really makes the economy run. And how we deliver energy in this country. At the broadest level, if we talk about where things are moving, clean energy, sign me up. I am on board.

I hope we do have a cleaner energy future. But the reality is that for some period of time, if you look at where we get our energy from, what keeps the country running, you are going to be dependent on certain fuels.

So I get really concerned when I hear broad statements like we need to ban all fracking. Or we need to regulate fracking to the point where it can’t be done anywhere.

When you think it through, what would actually happen to this country if we ban fracking tomorrow? The economic devastation would be tremendous in terms of just the immedi-ate job loss that would happen; number one.

Number two, the ripple effects that would have on the energy prices that Americans pay would be not just felt

through winter heating bills. Because now the electricity markets are basically linked to natural gas markets, your electricity bills would skyrocket. And even putting all the economic harms aside, I think we would have real trouble running the grid without what we are getting from fracking.

So I just hope that the hyperbole of campaigns doesn’t translate into actual policies. Saying that we need to ban fracking. Or that we need to get rid of natural gas altogether.

If you look at where we get energy from, as great as renewables are, as great as some of the clean technologies are, thirty or thirty-fi ve percent comes from coal still. Thirty or thirty-fi ve percent is natural gas. Fifteen to twenty percent is nuclear. If you take all those three baseloads out of the equation, you are minus eighty to ninety percent of where we get our electricity from right there.

If you look at the remainder, half of that is large scale hydro. That has its own problems. We’re not building any large scale hydro any more.

So now you are down to more or less than ten percent of where we get our electricity from. You just can’t change a system like ours over the course of three or four years. It would be a multi-decade process. PUF

their services and infrastructure, at unsustainable levels, in the hope of future growth. And then were completely left out to dry.

So this time, when the boom hit, they were pretty prudent about not overextending themselves. That’s one of the reasons you saw the crew camps that were built out as temporary solutions for oil fi eld workers. Because the cities that were in the state had gone down that path before, of building out systems and roads to developments that never came about. And they just weren’t going to do that again.

Their growth was going to be much more purposeful in terms of its planning. So they are in a much better position this time around that they have been in the past.

The other thing the state did, which is really smart, was set-ting up relatively permanent trust funds for the bulk of that oil money. Those funds are fairly locked away. They are primarily spending interest on it, not the principal. Understanding that many of these are one-time monies.

When spending has been done, it tended to be one-time infrastructure projects that won’t build a structural defi cit into the state. The downturn has had an effect on state revenues in a big way. So there have been some across the board cuts that have taken place. But then there have been budget stabilization funds that come into play at a certain point that help stanch the hemorrhaging.

It’s had an impact on budgets. But I also think it’s been managed about as well as you can manage it.

PUF: Donald Trump decided to give his fi rst energy speech in North Dakota. Any thoughts about why he did that?

Commissioner Clark: On the one hand it’s kind of neat, to see my home state as the center of the political energy world for a day. Of course, because of the boom, we’ve been a part of the energy story for the past few years.

But why did the Trump campaign choose to make his fi rst energy speech in my home state? Part of it speaks to the impor-tance of the shale plays. And what’s happened in certain parts of the country in terms of our energy security.

Part of it is just the logistical issue. There were a lot of people at the particular conference at that particular time. It’s a good forum to talk to. In the Williston Basin, it’s the big conference to attend.

The other issue, you had in that particular case is, my friend Kevin Cramer who served a number of years on the North Dakota Public Service Commission, and is now in Congress. He endorsed Trump fairly early, and has become an energy advisor to the Trump team.

I am sure Kevin had a lot of input that he has given to the cam-paign. So I am sure that’s why that speech was given where it was.

Energy hasn’t been the top issue that’s driving this race by any means. There are a lot bigger trends that are driving the race. But we’ve always had energy as an important issue.

It’s quasi-judicial, it’s quasi-regulatory, it’s quasi-legislative, so there’s no one perfect background to be a FERC commissioner.

1607 FEA11 Clark-r2.indd 65 6/18/16 10:46 AM

JOHN HARGROVE, WITH STEVE MITNICK

We talked with John Hargrove, chief executive officer of the

Association of Energy Services Professionals.

John HargroveEnergy People:


1607 FEA12 Hargrove-r2.indd 66 6/17/16 9:48 PM


ohn Hargrove has led the Association of Energy Professionals since March 2015. Previously, Hargrove was director of renewable programs at NV Energy in Nevada for eleven years, and energy effi ciency program manager at NV Energy for three years prior to that.

PUF’s Steve Mitnick: What is your association about? What kind of people are in it and why are they in it?

John Hargrove: AESP – the Association of Energy Service Professionals – is a twenty-six year old organization. It was started back in the early days of energy effi ciency, by people in the utility industry and the very small but growing effi ciency consulting industry.

It morphed over the years as the effi ciency industry has grown. So too has our organization, dramatically. We’re now around twenty-four hundred members, primarily in North America.

Our membership is diverse, ranging from utility program managers to consultants that work in the effi ciency space, or governmental representatives, or from non-profi ts. As well as manufacturers of energy effi cient products.

from happening.The efficiency industry

has a very robust evaluation, measurement, and verifi cation process. It’s to verify that the predicted energy savings are actually occurring. So cus-tomers and decision makers can rely on it.

Then it’s evaluated. A util-ity or as a state has to deter-mine if it is getting its money’s

worth? Are there more benefi ts than the costs we are expending?PUF’s Steve Mitnick: Compared with renewables?John Hargrove: I am a huge fan of renewable energy,

without question. But a kilowatt-hour generated from a solar panel is not as environmentally benefi cial as one that is never consumed in the fi rst place.

Energy effi ciency should be the fi rst line of defense in improv-ing our environment and the energy industry in general.

We get the same thing accomplished with less environmen-tal impact or with less consumption. It’s really hard to fi nd a down-side to that.

PUF’s Steve Mitnick: There are these two longstand-ing opinions among the public. One is that energy effi ciency is about downgrading your lifestyle. Then there’s this other perception, of not really believing your utility actually wants to sell fewer kilowatt-hours. Has your industry made progress on those two perceptions?

John Hargrove: As your city has more people moving there, your local utility has to build infrastructure to serve those people. If we can use less energy per person or per house, then the utility has to build and operate less infrastructure.

Utilities have made a lot of headway in energy effi ciency. Every utility is interested in having less infrastructure to achieve

PUF’s Steve Mitnick: Is it a dynamic group?John Hargrove: I’ve been in the effi ciency industry

for thirty-fi ve years or so. The makeup of the people that I see versus the makeup that I saw in the early eighties – it’s not even the same industry.

Energy effi ciency is a relatively young industry, certainly compared to the electric utility industry. It developed in response to the energy crises of the late seventies and early eighties.

For an industry to basically start itself, then grow to become so vibrant and far-reaching in such a short period of time. It’s been quite dramatic.

PUF’s Steve Mitnick: When you get together at a con-ference, what do energy effi ciency people do for fun? Do they put in LEDs? Shut off light switches? Check refrigerator effi ciencies?

John Hargrove: No, we’re like any other organiza-tion. But people in the effi ciency industry are very passionate about the work they do. It’s also a thriving industry. You can do well by doing good.

As an organization, a lot of our efforts are around sharing best practices. And to see what is happening in the industry, from those practitioners that are making it happen.

PUF’s Steve Mitnick: One thing that people always think about energy effi ciency is that it’s not that visible. It’s not like solar where you can show people what you do, like solar panels on houses. Doesn’t this make it hard to communicate to the broader public and even the other parts of the industry?

John Hargrove: Without question. Energy effi ciency is not necessarily an intuitive industry.

The electric and natural gas industries have infrastructure to bring energy to us. The power plants in the desert, underground gas lines, power lines that run along highways, the plugs in your wall, the meter reader from the utility company. There are visible signs that the industry exists.

For the general public, energy efficiency is almost the exact opposite of that. What we’re trying to do is keep things

J

A kilowatt-hour generated from a solar panel is not as environmentally beneficial as one that is never consumed in the first place.



where I grew up, in the Sierra Nevada Mountains. I started really young in the utility. Within a year, I was doing energy audits.

Quite often customers would call and ask why their bills were so high. They couldn’t understand why they were consuming so much energy.

One day I got a phone call from a customer, the typical little old lady, that lived in Lake Tahoe. She said, “My bills are just so high. I don’t know what to do. I can’t afford it anymore.”

So I went and visited her. I did my normal energy audit, where you look at the house and at the insulation and windows, and all of the normal things. Then I looked at the electric meter. Sure enough, it was consuming way more energy than I thought the building should.

So I did some snooping around. I fi gured out that there was a hot water leak somewhere. I looked around for leaking faucets,

and those kinds of things, and couldn’t fi nd any.

I could tell by the tempera-ture difference on the pipes going into and out of the water heater that water was moving through the water heater. Even though the lady was not using any hot water at that time. She hadn’t done the laundry, or taken a shower, or anything.

I said, “You know, there’s something wrong here. Let me

go under the house and look and see what I can fi nd.”So I climbed around underneath the house. I was at the

other end of the house, crawling on my stomach in a darkened crawl space with my fl ashlight. I crawled over to the other end and found a cracked water pipe. There was hot water pouring onto the ground.

And at that moment several things kind of hit me.First and foremost was that this lady was a very nice lady. She

was older. And while she may have been a person of fi nancial substance at one point, she wasn’t anymore. Money mattered greatly to her. So it mattered to me.

She was very distressed by the situation and didn’t know what to do. She didn’t know where else to turn. She had called the utility because we were the only ones that could potentially help her understand what was going on.

So I cared about her. And the benefi t that fi xing this problem would bring to her.

I thought, when is it ever a good idea to waste water? There was a huge puddle on the ground underneath this house that had been pouring onto the ground, for what looked like a couple of months. No one was getting any benefi t from that.

I looked at the energy that was being consumed in her electric

the same amount of work. What company and industry isn’t?The second point you brought up was the image of sacrifi ce

portrayed in the seventies, as a result of the oil embargoes.Energy conservation was originally touted as a sacrifi ce.

President Carter wearing a sweater in front of the fi replace was a very strong image of sacrifi ce – not an image of effi ciency.

Energy conservation and energy effi ciency are two very different things. Energy conservation is turning your heater down, and living in a colder home in the winter. Compared to energy effi ciency, which is being able to maintain the same temperature in your home for less energy.

I maintain that the latter, energy effi ciency, is an ethic for us all to have. The former, energy conservation, is something that was done in response to a particular set of circumstances.

PUF’s Steve Mitnick: Isn’t it a challenge, that energy effi ciency is not as sexy as renewables, batteries and other stuff that gets so much attention?

John Hargrove: When you put solar panels on your house, you can stand in the driveway with your neighbors and say, “Look at my new solar panels. I’m doing something to save the environment.”

Now, for the amount of energy that those panels create, our industry can save that same amount of energy for signifi cantly less, in some cases twenty cents on the dollar.

The smartest thing to do is reduce consumption fi rst.The perception problem is, that’s not visible.If you implement energy effi ciency fi rst, you’re going to need

fewer solar panels to do the job. In that case, you might not think you are doing as much. But you are achieving the same outcome, at a signifi cantly lower cost.

Energy effi cient lighting can deliver the same or better lighting quality for seventy-fi ve percent less energy. Where is the downside to that?

But when you compare it to solar panels on your roof, it’s just a light bulb. Not overly glamorous.

PUF’s Steve Mitnick: You all need a cool sign for people to put in front of their houses. To say, I’m super-effi cient, or something like that.

John Hargrove: We do need some sort of a way to show off our achievement.

People in the industry call ourselves energy effi ciency geeks. It’s so much fun for us to try and fi gure out ways to do the same thing, or even more, by using less.

It becomes a lifetime passion. I can point to the moment that I decided on energy effi ciency industry as my career. I know the exact location and time that it happened.

PUF’s Steve Mitnick: This eureka moment, was it a specifi c project?

John Hargrove: I used to work for the electric utility in Nevada. We had service territory in Lake Tahoe, which is

I can point to the moment that I decided on energy efficiency industry as my career, the exact location and time that it happened.

1607 FEA12 Hargrove-r2.indd 68 6/18/16 11:05 AM


the ones I’ve been around, of helping customers to use energy wisely, not just consume energy.

Back to me in that crawl space. I came out and told her what was going on. I said, let’s turn off the hot water valve and get a plumber out here to fi x it. Then I called a plumber in the area that I knew. Within a matter of hours, they were there to fi x the problem.

I went home that night feel-ing good. I felt like I had done something that made the world a better place.

I know that’s a bit of a stretch. That me solving a water leak in a small crawl space made the

world a better place. But the journey of a thousand miles begins with a single step.

I saw at that moment how valuable energy effi ciency is. To use it more effi ciently was very important to me. That was my eureka moment. PUF

water heater. And I thought about the coal-fi red power plant in the desert that’s running that water heater. We’re burning more coal than we need.

And I fi gured that by my being in that crawlspace, I could help improve all of those situations. I could spend my career solving these problems.

PUF’s Steve Mitnick: So that was when you found your path?

John Hargrove: My picture of the energy effi ciency industry was by no means fully formed at that moment. I was thinking very much about specifi c problems and issues that the utility business had.

As I spent my life in the industry, I realized the bigger picture. Utilities have a great opportunity to work with their customers to help them. Not only to use less of their product. But to get more out of it. The bigger picture occurred to me.

I don’t want to see the utility bill customers for energy that is not necessary for customers to achieve their goals. While the utility in those days actually made more money if consumers used more energy, if it was wasted energy, than societally it was a bad idea. Utilities have always been very supportive, at least

I know that’s a bit of a stretch, me solving a water leak in a small crawl space made the world a better place.

Transactive Energy A Sustainable Business and Regulatory Model for ElectricityBy Stephen Barrager, Ph.D. and Edward Cazalet, Ph.D.

Transactive Energy is designed for the full range ofstakeholders in electric power markers, including utility executives, legislators, environmentalists, regulators, economists, and other energy business professionals.The authors apply fundamental business concepts to move electric power markets to a new paradigm -- the use of forward and spot transactions to manage risk, and guide investment and operating decisions.The ideas in this book will spur innovation and enable this evolution to progress more rapidly.

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KEN GERLING, WITH STEVE MITNICK

We talked with Ken Gerling, vice president of transmission projects

at Burns & McDonnell.

Ken GerlingEnergy People:


1607 FEA13 Gerling-r2.indd 70 6/17/16 9:49 PM


uring his twenty-fi ve-years at Burns & McDonnell, Ken Gerling has managed transmission projects with capital costs of nearly two billion dollars, and led teams with as many as three hundred and fi fty members.

PUF’s Steve Mitnick: What’s a typical work day like for you?Ken Gerling: I answer e-mails all day. Life is run by e-mail, right? Seems like it sometimes.

Actually, I don’t know if there is a typical day. I travel a lot around the country. Most of our customers are somewhere else, other than Kansas City, so I spend plenty of time on the road.

I also travel up to Canada occasionally, and overseas to Europe. We’re always looking for the next opportunity to help clients.

PUF’s Steve Mitnick: What do you actually do? Why do people have you on-site? When you enter the room, they say, now we’re set, because this guy really knows how to do what?

Ken Gerling: I hope our clients are saying that but, of course, I can’t speak for them. I have a couple of specialty areas. My title is vice president, and I’m responsible for the transmission business, including overhead and underground transmission. I also head up our eff orts to expand our electric distribution market.

I have a specialty in large program management. And a lot of experience running billion-dollar programs across the country.

Ken Gerling: Yes. We’re bringing in new resources. In addition, we do a lot of training and educat-ing of our personnel, to learn those new skill sets. And par-

ticipating in technical committees, getting on the forefront of new technology.

PUF’s Steve Mitnick: Does that mean your fi rm needs to be more of an intellectual leader as opposed to how to put steel in the ground?

Ken Gerling: Yes, I think it’s important that we become technical experts and thought leaders on where the industry is heading. And provide some of the expertise to our clients. It’s more of a requirement now than it ever has been.

PUF’s Steve Mitnick: How did you start your career?Ken Gerling: I started with Burns & McDonnell twen-

ty-six years ago.I was a junior in college, engineering school, at the time. I

went locally, to the University of Missouri-Kansas City, and worked part time through my senior year. And then went to work immediately full time after that.

PUF’s Steve Mitnick: How is it different and how is it the same as in 1990?

Ken Gerling: We were a transmission and distribution group. It was very small back then. We were just a department in the generation division, and served co-ops primarily. And did a lot of distribution work.

PUF’s Steve Mitnick: There’s not as many transmission projects now, or big transmission projects, but clearly there’s plenty of work in distribution.

Ken Gerling: The high-voltage transmission business has slowed down quite a bit in the last year. Utilities are spending less money on high-voltage transmission and more money on electrical distribution.

We’re retooling our skill sets right now, to serve our clients in the changing distribution market. We do see large spends happening right now with a lot of utilities, on the distribution side of the business.

We’re working to leverage our skills that we gained at the high-voltage transmission side. We think our skills do translate particularly in the areas of program management, project manage-ment, project controls and advanced technologies.

Managing large portfolios of projects, construction man-agement, engineering – a lot of those skill sets translate to the distribution market. But it’s an area that hasn’t required our skill sets in the last twenty years. We need to refocus those skill sets.

There’s also a lot of new technology, of course, in the distribu-tion world today. Everybody has smart meters now. Everybody wants automated distribution systems. They want battery storage capabilities. Everybody is installing renewables.

We’re becoming experts in grid optimization now. That’s a skill set that really wasn’t needed twenty years ago in the distribution market. Now it’s absolutely essential.

PUF’s Steve Mitnick: When you say you’re bringing in new skills, does that mean you’re hiring experts, engineers and labor in those areas?

D

Utilities are spending less money on high-voltage transmission and more money on electrical distribution.

1607 FEA13 Gerling-r2.indd 71 6/18/16 10:22 AM


project. Erickson gave us models of the helicopter. I have one sitting in my offi ce. That’s pretty cool. It says SDG&E on it. Custom paint job on the helicopters. It’s neat.

PUF’s Steve Mitnick: You didn’t get to go up in one of those things, did you?

Ken Gerling: Not in a Aircrane, but some of the other helicopters that they had. The Aircrane is not really set up for passengers. Just for lifting.

PUF’s Steve Mitnick: You must have a strong stomach.Ken Gerling: On Sunrise Powerlink, all of our employees

had to get to the job site every day by helicopter. They all got very accustomed to it as well.

It’s in the mountains. There’s a restriction on building roads in the Cleveland National Forest.

PUF’s Steve Mitnick: What are your toughest chal-lenges that you had to overcome?

Ken Gerling: In the Sunrise project, the distances were long. You couldn’t actually build roads because of parkland or sensitive areas.

With those projects, we needed unique designs that work in very tough topogra-phy. We had to come up with unique foun-dations, for instance.

It’s very diffi cult to fl y concrete into the mountains one yard at a time for founda-tions. We work with a contractor, Crux.

They design micropile foundations that don’t require concrete.Our role was to review those designs on behalf of the owner

and make sure they met the needs of the project. We also took a look at other unique design changes that could make it more effi cient to build in remote areas.

The line was over a hundred and twenty miles long. You couldn’t have a section more than seven miles depending on the elevation.

That has a big impact on the lifting capacity of the tower. You had to balance location of the yards. We preassembled these sections versus the distance they had to fl y, versus the elevation they were fl ying in and weather conditions – and tried strategically to fi gure out how it was going to be built.

That was defi nitely challenging. All the environmental con-straints in California just make it more complicated.

PUF’s Steve Mitnick: You have to always worry about safety?

Ken Gerling: Absolutely. Safety was essential. We had all kinds of safety training requirements.

Helicopter safety, of course, was very important for the project. And we worked in the desert and the mountains. Heat illness is

Things have changed signifi cantly. We went from a very small department to the largest division within our company, mainly doing high-voltage work. We have over a thousand employee-owners now in our transmission and distribution business.

We’re the leader in our market area, either number one or number two in revenue each year.

PUF’s Steve Mitnick: Does that mean back in 1990 the company was focused on power plant construction?

Ken Gerling: Yes. Our largest division back then was our generation group, back when everybody was still building coal-fi red power plants. That was our key market. The coal market as you know has shrunk over the years with growth in gas and renewables, as our transmission business has grown.

Since the 2005 Energy Policy Act, the transmission market has been really strong. And it has grown quite a bit more in recent years. While the big projects are slowing, there is still a lot of aging infrastructure out there.

PUF’s Steve Mitnick: What have been your greatest accomplishments for clients? Can you name one or two or three projects that you’re really proud of? They were great projects, or they delivered tremendous value, or the clients were really happy, or they really made a difference for them.

Ken Gerling: There are three large-scale programs I worked on through my career that I’m very proud of. Northeast Utilities Glenbrook Cables project was a double-circuit, 115 kV transmission line through southwest Connecticut.

Then I managed a program for Southern California Edison, the Tehachapi Renewable Transmission Project, TRTP.

It was a 500 kV transmission project bringing wind energy from the Tehachapi Mountains down to the L.A. basin. That was really a neat project.

PUF’s Steve Mitnick: What was the time frame for Glenbrooks Cable and Tehachapi?

Ken Gerling: Glenbrook Cables was energized in 2008. TRTP 123, phases 1 through 3 of the Tehachapi project, was ener-gized in 2009. The second phase of that program is still going on.

The third accomplishment is the Sunrise Powerlink Project for San Diego Gas & Electric. That’s also a 500 kV transmis-sion line project. It’s the biggest one I’ve worked on. It has a 1.9 billion-dollar capital cost.

PUF’s Steve Mitnick: Wow. You don’t get to sign a transmission pole or substation wall, do you?

Ken Gerling: You do get some souvenirs.PUF’s Steve Mitnick: The investment bankers, if they

close a deal, they get tombstones as deal toys. What do you get to hold onto? Do you get the hard hat?

Ken Gerling: I have little trophies, like pieces of under-ground cable that they cut up. And a model helicopter.

Over fi fty percent of the Sunrise project was built using helicopters. SDG&E bought in an Erickson Aircrane for that

We preassembled sections versus distance they had to fly, versus elevation they were flying in and weather conditions.



For us, those are very big programs. On SDG&E, we had about three hundred fi fty people working at the peak of con-struction. On FirstEnergy, we have a hundred twenty people in Ohio right now working on that program. Then we have another hundred engineers in Kansas City that do the design work to support the program.

PUF’s Steve Mitnick: What kinds of people do you work with within your company?

Ken Gerling: Burns & McDonnell is a one hundred percent employee-owned company. What that means is our people take a personal stake in our projects.

I think it’s really a differentiator between us and our competi-tion, the personal connection that people have in the success of their projects on a day-to-day basis. It’s a direct refl ection of the profi tability of the company that comes back to the employees.

Every employee in our company is a shareholder. Every-one receives dividends. Everyone receives a year-end bonus

based on the profi tability of the company that year.

We’re very highly moti-vated to do a great job. Qual-ity is always at the forefront. Most important is our client satisfaction, and making our client successful.

When people think and act like owners, they are willing to stay late, or work weekends or catch a late fl ight to solve whatever problem the client has. It really is a culture thing for us.

PUF’s Steve Mitnick: I have an image of fi fty- and sixty-year-old old engineers that have been there for thirty years. Is there a wave of new people coming in?

Ken Gerling: Just like a lot of our clients in the utility industry, there’s a generation gap. We have the more experienced people. We have a lot of young people. Not a lot of the mid-range people that I would call the ten- to twenty-year guys.

Many are very young and very smart. At the same time, the energetic staff that we have on board is probably a pretty good mix.

We empower young people at a very young age here. I think that makes a difference in the way we serve our clients.

PUF’s Steve Mitnick: What kinds of people do you work with at your clients?

Ken Gerling: Our clients hire us because we’re like they are. They’re also very hardworking individuals. We see the level of dedication they put into their projects and hard work.

Our clients are faced with a lot of challenges these days – regulatory challenges and otherwise. The FERC Order 1000 competitive environment has put on a whole new twist.

PUF’s Steve Mitnick: How does Order 1000 affect

something we’re always concerned about, that people are properly trained and stay hydrated.

Rattlesnakes were prevalent out there. We had to have training on how to deal with rattlesnakes and mountain lions, and all those things you might encounter out in the wilderness.

And wildfi res. Wildfi res are a huge concern in Southern California. Everyone had to carry special equipment when they were in a truck. And have special training on how to shelter yourself in case you get caught in a wildfi re.

They were all tough on every front. You had building restric-tions during part of the year because of certain environmen-tal constraints.

They had bighorn sheep. You couldn’t build during lambing season. Really constrained your work.

You had the bald eagle that was nesting in a couple of areas. There was a four thousand foot buffer around the nest. Those areas were inaccessible for several months at a time.

PUF’s Steve Mitnick: I hope the people of California appreciate their electricity.

Ken Gerling: I do, too. Certainly a challenge getting anything new built.

PUF’s Steve Mitnick: That sounds like one of your toughest projects ever. Maybe also projects in the East where the area’s very congested, like you said in Connecticut. That must not be that easy either.

Ken Gerling: No, they’re not. Southwest Connecticut is very heavily populated. There’s not much green space left up there. Very limited areas in building right-of-ways.

That’s one of the reasons underground transmission is always an option in the northeast. It becomes feasible.

The program I’m currently working on is for FirstEnergy. It’s a 4.2 billion dollar program called Energizing the Future.

It’s a four-year program, 2014 through 2017. A lot of the work is taking place in Ohio and Pennsylvania right now. We’re actually working in fi ve different states for FirstEnergy.

PUF’s Steve Mitnick: What’s one or two big parts of that? Is it a new high-voltage line? Is it rewiring existing lines?

Ken Gerling: All of the above. It’s rebuilding existing lines. It’s upgrading substations. It’s upgrading equipment.

Upgrading and modernizing equipment to make the grid more reliable and safer in that area is a big part of the initiative – replacing forty-year-old equipment that’s at or past its useful life.

It has a number of projects rolled into it. Also, there were nine coal-fi red power plants in Ohio that no longer meet EPA regulations for emissions, and had to be closed.

They have a system in order to build up the backbone there. A lot of projects were driven by that.

Also, projects were driven by their Marcellus Shale customers, people that are drilling in Pennsylvania. There’s a huge demand for energy to support those types of operations.

We had to have training on how to deal with rattlesnakes and mountain lions.



the work of your clients?Ken Gerling: For us, it certainly puts an additional layer

into winning the work. Now, our client that we work for actually has to win the project and move onto the next stage. That’s a different level of competition that we have to go through to get the entire project.

At the same time, it’s not unusual to be on multiple teams pursuing the same projects for different clients. That puts a huge

challenge on us, to put up fi rewalls between teams.PUF’s Steve Mitnick: Just a personal word. Our indus-

try and our country owes much to you and the guys you work with. You’re the ones that actually keep up our infrastructure. I’m sure many of our readers feel the same way.

Ken Gerling: That’s a very nice thing to say. I don’t think anyone’s ever said that to me before.

PUF’s Steve Mitnick: Well, it needs to be said. PUF

a. Stimulate new technologies, such as energy storage and load control devices, and

b. Prevent uneconomic bypass and uneconomic ener-gy conservation.

That means, for example, if demand charges do impede energy effi ciency, it would do so economically. It would pass a cost-benefi t test.

Demand charges are also more equitable to customers and utility shareholders. They avoid cost-shifting to subgroups of customers. For example, they eliminate cross-subsidies to customers with spikier loads. And they allow utilities to recover their prudent fi xed costs and mitigate fi nancial distress.

Overall, regulators can win the trifecta with residential demand charges. PUF

Endnotes:1. Fixed costs are those that do not change with a small increase or decrease in

the usage of electricity, whereas variable costs are those that do change with each kilowatt-hour change. In the case of distribution service, the utility does not replace plant immediately as a result of a customer increasing or decreasing kilowatt-hour usage from month to month.

2. See Kenneth W. Costello and Ross C. Hemphill, “Electric Utilities’ Death Spiral: Hyperbole or Reality?” Electricity Journal, December 2014.

3. John R. Hopkinson, “On the Cost of Electricity Supply,” Transactions of the Junior Engineering Society, 1892. Explained well in Russell E. Caywood, Elec-tric Utility Rate Economics, McGraw-Hill, 1956.

4. James C. Bonbright, et al., Principles of Public Utility Rates, Public Utilities Reports, Inc., 1988.

5. The CP can be measured over the top several hours instead of a single hour, yet the underlying concept remains the same.

6. A good treatment of these approaches and more will be published in a forth-coming report by Lawrence Berkeley National Laboratory for the U.S. Department of Energy, titled “Recovery of Utility Fixed Costs: Utility, Con-sumer, Environmental and Economist Perspectives.”

7. See, for example, Leland Snook and Meghan Grabel, “There and Back Again,” Public Utilities Fortnightly, November 2015.

would allow them to better manage their demand, and maximize the benefi ts that demand charges offer. Such assistance should pass a cost-benefi t test.

Demand charges will have to address a number of design issues. They include defi ning demand such as coincident demand and billing demand, the time interval of demand manage-ment, and demand ratchets and seasonality. And required enabling technologies.

Final ThoughtsIt is high time to combine today’s advanced technologies with smart pricing, like demand charges for residential customers. The process will be evolutionary, as experience will help overcome initial problems.

Like other innovations, both utilities and regulators will move along a learning curve. The sooner we start with demand charges, the quicker we will settle into a position where customers will be comfortable and benefi ts to them will be maximized.

Demand rates are worth serious consideration by regulators. They have superior features compared with the alternatives, which include volumetric and straight-fi xed-variable rates, and minimum bills.

No rate design is perfect in addressing all problems. Trade-offs are inevitable in choosing one rate design over another. Demand charges seem to have the best chance of advancing the core objectives held dearly by regulators over several decades.

Finally, we have the technology to allow customers to manage their electricity demand. The effi cient pricing signals transmitted by demand charges should:

Residential Demand Charges(Cont. from p. 35)


JULY 2016 PUBLIC UTILITIES FORTNIGHTLY 75www.fortnightly.com

explained: “We are watching the system charge. We are taking power from the grid.”

Wires splay out the back of the railgun, which requires a power plant that generates 25 megawatts – enough electricity to power 18,750 homes…

The siren blared again, and the weapon fired… “This,” Mr. Boucher said, “is a thing of beauty going off.”

neither gunpowder nor explosive. It is powered by electromagnetic rails that accelerate a hardened projectile to staggering velocity – a battlefield meteorite with the power to one day transform military strategy, say supporters, and keep the U.S. ahead of advancing Russian and Chinese weaponry…

Engineer Tom Boucher, program manager for the railgun in the Office of Naval Research,

Wall Street Journal, “Faster Than a Speeding Bullet: A First Look at America’s Supergun,” Julian E. Barnes, May 30, 2016.

NEW DEMAND FOR ELECTRICITY?A warning siren bellowed through the concrete bunker of a top-secret Naval facility where U.S. military engineers prepared to demonstrate a weapon for which there is little defense.

Officials huddled at a video screen for a first look at a deadly new supergun that can fire a 25-pound projectile through seven steel plates and leave a 5-inch hole.

The weapon is called a railgun and requires

1607 ads.indd 75 6/17/16 7:13 PM


Dr. Maria Guimaraes is a principal project manager in the Nuclear Sector at EPRI. Her research focuses on aging management and inspection of concrete structures. She earned a bachelor’s degree in construction engineering from the Universidad Nacional del Nordeste in Argentina, a master’s in mechanics and foundation engineering from the University of Newcastle in the United Kingdom, and a doctorate in civil and environmental engineering from the Georgia Institute of Technology.

Innovating Like Edison

Instead of designing and building a new robot, the EPRI team reviewed commercially available devices. Th e search for a suitable robotic platform focused on devices that would be rug-ged enough for outdoor deployment, have enough battery or other indepen-dent power to last up to four days, be

fl exible enough to carry a variety of inspection devices to identify concrete fl aws, and be able to traverse rough surfaces.

Many robotic inspection ideas were analyzed, including everything from an electro-adhesive wall-climbing robot (think Spider-Man) to a vertical take-off and landing remote-controlled vehicle (think helicopter). In all, forty-nine robots were evaluated for technology readiness, robustness, ruggedness and the potential for deployment.

Th e device best-suited to the job was determined to be the robotic crawler, roughly the size of an electric lawnmower, designed by ICM, based in Ithaca, New York. Th e crawler can negotiate concave, convex, or over-hanging vertical structures, carrying a payload of equipment that weighs more than forty pounds.

A vacuum chamber generates more

A Robotic Concrete CrawlerPlay Station Controls Guide Robot on Concrete Inspection Trips

BY MARIA GUIMARAES

A robotic inspection system, in contrast, would eliminate the need to use scaff olding or rappelling for routine structural evaluations, eliminating the associated setup challenges, time requirements, costs, and safety hazards. Its payload of advanced instrumentation would allow examination of the interior of concrete structures to locate voids, cracks, rebar corrosion, and other inter-nal defects.

To address this need, the Electric Power Research Institute’s lab in Char-lotte, North Carolina, has designed a “robotic concrete crawler” for inspecting hard-to-reach concrete surfaces.

Th e device would apply on-board systems, including advanced instrumen-tation developed for concrete applica-tions, and localization and mapping technology to conduct automated, high-precision inspections. And to capture computer-encoded data and images for maintenance decision-making.

P ower generation infrastructure relies on numerous large concrete structures such as hydroelectric dams, cooling towers, and nuclear containments. Prop-erly maintained concrete cooling, containment, and impoundment structures

are essential for the long-term safety and operation of steam-electric power plants, hydropower facilities, and other industrial sites.

As infrastructure ages, more frequent and thorough inspections are required. Safety, cost, time savings, and the reliability of those inspections are intrinsically related to the method of deployment.

Current inspection methods are labor-intensive and rely on extensive scaff old-ing and rappelling for routine structural evaluations. When inspections need to be performed on large structures, deployment becomes critical in terms of setup chal-lenges, time requirements, costs and safety.

Many ideas were analyzed, from an electro-adhesive wall-climbing robot (think Spider-Man) to a vertical take-off/landing remote-controlled vehicle (think helicopter).

1607 COL1 Guimaraes-r3.indd 76 6/17/16 9:49 PM


Th e initial sensor suite consisted of vision, radar, and an ultrasonic echo sensor. Th e visual technology is used for fast surface inspection. Ground penetrating radar, also a fast scanning technique, can be used for location of

are being utilized, the software fi lters the data from each and provides the best estimate for position.

Concrete structures may need to be inspected for delamination while others may require testing for reinforcement (rebar) corrosion. In order to meet the various inspection requirements, EPRI used a suite of sensors and inspection technologies.

Th e criteria for choosing the sensors included performance, payload and fl ex-ibility of integration with the position-ing system of the device. Commercially available sensors, such as those recom-mended by the American Concrete Institute, were evaluated.

than two hundred and twenty-fi ve pounds of adhesive force, and is sur-rounded by a rolling foam seal that guards against leakage and facilitates propulsion. Th e adhesion requires more than fi fty pounds of force to dislodge the robot from a smooth concrete surface.

EPRI then tackled the task of integrating three critical enabling tech-nologies: the robotic platform, concrete nondestructive evaluation devices, and a tracking and positioning system. Once completed, a demonstration at hydro-electric plants and a nuclear site was per-formed to assess the potential viability of the device.

Eight positioning systems that pro-vide three dimensional positioning to the robot were assessed. Th e solution consists of a combination of three of those systems: a total station, a real time kinematic global positioning system, and an inertial measurement unit.

Each component is capable of pro-viding positioning data at varying levels of accuracy. When all three components

New York Power Authority’s George Wong and EPRI’s Maria Guimaraes get set to put the crawler to the test.

The fully-equipped concrete robotic crawler just prior to a test inspection.

A technician attaches equipment to the crawler prior to a demonstration test.

(Cont. on page 81)

1607 COL1 Guimaraes-r3.indd 77 6/18/16 8:44 PM


Maria Korsnick is chief operating officer of the Nuclear Energy Institute. Previously she served as senior vice president of Exelon’s northeast operations and acting chief exec-utive officer and chief nuclear officer of Constellation Energy Nuclear Group, CENG. Earlier, she held positions of increasing responsibility at Calvert Cliffs Nuclear Power Plant, R.E. Ginna Nuclear Power Plant, and CENG’s headquarters.

Nuclear Notes

their owners cannot recover costs through electricity sales in distorted electricity markets. In Illinois, for example, Exelon has lost eight hundred million dollars over the past seven years at the Quad Cities and Clinton nuclear plants.

Quad Cities produces electricity at 2.8 cents per kilowatt-hour. But it cannot compete in a market fl ooded with natural gas and state-supported renewables.

Ironically, replacement power for these reactors is likely to be more

expensive over the long run.Individually, these closures are

understandable fi nancial decisions. But the cumulative impact endangers any chance of meeting U.S. climate change goals.

Along the way, tens of thousands of jobs are being eliminated. Th e losses will mostly be in rural areas where nuclear energy facilities are the anchors of the community.

Eleven reactors have closed recently or are scheduled to close. Together, they provide electricity to more than 6.6 million homes, create seventy-fi ve hun-dred direct jobs, and represent thirteen percent of the Clean Power Plan’s 2030 carbon reduction goal.

On average, U.S. nuclear plants in 2015 produced electricity for a little less than $36 per megawatt-hour. Th e fi rst quartile of reactors produced electricity at $31 per megawatt-hour.

It might be possible to fi nd cheaper electricity on the grid over the short run,

Action Needed Now To Prevent More Nuclear Plant ClosuresThreat to nearly one-fifth of our nation’s ninety-nine reactors is realBY MARIA KORSNICK

Secretary Moniz is right. Th ere is no single obvious solution. But actionable policy initiatives exist at the state and federal levels.

Th e irony is that we urgently need more, not fewer, nuclear power plants. Th ey’re needed to provide baseload clean air energy, and drive the economic growth and technological advancements that will make life better for future generations.

Th e threat to nearly one-fi fth of our nation’s ninety-nine reactors is real.

Nuclear energy provides more than sixty percent of America’s carbon-free electricity. But nuclear plants have closed, or are likely to, in California, Florida, Wisconsin, Illinois, New Jersey, New York, Massachusetts and Vermont.

Th ey will be replaced mostly by power plants that burn natural gas, emitting more carbon dioxide into the atmosphere.

Nuclear plants are closing because

A t a recent summit on the economics of America’s nuclear power plants, Energy Secretary Ernest Moniz sounded like a man who knows America’s electric sec-tor has entered quicksand.

Despite excellent operations, several nuclear energy facilities in competitive electric markets have closed prematurely, or are at risk of doing so soon. Th is is happening despite the fact that nuclear energy is far and away our largest source of carbon-free power.

“Th e challenge is very clear,” Moniz said in May. “With the economic challenges facing certainly some of our nuclear plants, we’re seeing, as you well know, some closures before license expirations. We’re seeing the prospect of even more. Th e importance of incentivizing continued operation, I think, is very clear, but the solu-tions are less clear.”

Fifteen to twenty more high-performing reactors are vulnerable, some of which will close prematurely.

1607 COL2 Korsnick-r2.indd 78 6/17/16 9:50 PM


3. Eliminate solutions that distort electricity pricing.

4. Avoid out-of-market solutions to ensure all generators receive market-clearing prices.

Lest the electric sector sink deeper into the quicksand, Congress should pursue comprehensive reforms that

will allow states and regional markets to appropriately value all attributes of electricity generation such as zero-carbon emissions. State governments should enact policies that will preserve the continued operation of nuclear power plants. And as states fi nd solu-tions, FERC should defer to these arrangements.

Such an approach lowers the cost of generating electricity by more than ninety-three billion dollars per year, according to an IHS Energy analysis. Otherwise, the result will be an electric system principally dependent on natural gas and subsidized renewables. Th is path will increase, not decrease, carbon dioxide emissions.

We agree with Secretary Moniz that urgent action is needed. Keeping nuclear power plants in our electric-ity mix is essential for a clean energy future. PUF

zero-carbon wind and solar are having the unintended consequence of contrib-uting to the shutdown of zero-carbon nuclear plants.

For this reason, states would be wise to convert renewable portfolio standards to output-based clean energy portfolio standards.

Existing energy policies do not provide a coherent path forward that assures the long-term reliability, price stability and environmental sustain-ability that our country desires and needs. In Congress, at the Environ-mental Protection Agency, Depart-ment of Energy, and Federal Energy Regulatory Commission, and at state capitals and public utility commis-sions, our leaders must put the policy pieces together. Th ey must retain a smart portfolio approach to a cleaner electricity system.

During the Department of Energy nuclear energy summit, panelists identi-fi ed these key issues for policymakers to address:

1. Transform renewable energy stan-dards into zero carbon or clean energy standards.

2. Empower fl exible state-by-state policies.

as long as there’s spare gas-fi red com-bined cycle capacity. And as long as spot gas is available below two dollars per million British thermal units. But this is clearly not sustainable.

When reactors are closed prema-turely, and replaced with new gas-fi red combined cycle capacity, consumers will pay more on a levelized cost basis.

Gas-fi red plants are an important and growing portion of our generation mix. But it makes little sense to shut down a carbon-free $44 per megawatt-hour nuclear plant that provides six hundred-plus direct jobs. And replace it with a $60 to 70 per megawatt-hour gas plant that provides some thirty jobs.

Alarmingly, this trend could con-tinue. Fifteen to twenty more high-performing reactors are vulnerable. It is likely some of them will close prema-turely. Together, these reactors displace emissions equivalent to over twenty percent of the carbon dioxide goal of the Clean Power Plan. It is taking us in the wrong direction in a big way.

Beyond the growth of natural gas, the federal government has spent about fi fty billion dollars of taxpayer money encouraging wind and solar power. It intends to spend about twenty-fi ve bil-lion more by 2019.

We embrace the carbon-free con-tribution of intermittent wind and solar. But we recognize the need for carbon-free baseload electric generation to complement it. Federal and state policies that are being used to promote

Transform renewable energy standards into zero carbon or clean energy standards.

Reddy Kilowatt is a registered trademark of the Reddy Kilowatt Corporation, a subsidiary of Xcel Energy Inc.

1607 COL2 Korsnick-r2.indd 79 6/17/16 9:50 PM


piling up for decades that fossil fuel consumption aff ects climate. Now, vir-tually all scientifi c authorities agree that human activity changes climate.

The new paradigm says operate not to minimize price, but rather to lessen the impact on climate.

Leonard S. Hyman is an economist and financial analyst specializing in the energy and regulated sectors. He was formerly head of utility equity research at Merrill Lynch, and senior advisor to investment banking at Salomon Smith Barney. At one point, he was on a NASA panel investigating the placement of nuclear power plants on the moon. He is author of America’s Electric Utilities: Past, Present and Future.

William I. Tilles is a senior industry advisor and speaker on energy and finance. He worked as a bond analyst and later headed equity utility research at Dean Witter Reynolds and then Smith Barney. He then became a portfolio manager at Angelo, Gordon & Co. and later at Sandell Asset Management. For a time he ran the largest long/short equity book in the world.

Two Power Guys

One hundred and ninety-fi ve nations signed the Paris agreement in December 2015 to reduce global greenhouse gas emissions. Remaining objections come primarily from the fossil fuel industry, which has the most to lose from this new policy.

Th e electric industry is in the cross-hairs of climate policymakers. It pro-duced thirty-seven percent of total U.S. emissions of carbon dioxide, the princi-pal component of greenhouse gases, in 2015. Coal-fi red generation accounted for seventy-one percent of the industry’s emissions.

Th ere are fi ve sectors of the economy most responsible for carbon emissions: power generation, transport, industry, buildings, and agriculture. Of these, power is the most concentrated, easiest to regulate, and off ers the lowest hang-ing fruit.

Burning coal to generate electric-ity produces roughly twice the carbon emissions per kilowatt-hour as burning natural gas. Substituting gas for coal would reduce total U.S. emissions by about thirteen percent. But climate activists want no fossil fuels in the gen-erating mix.

Key investors have become skepti-cal about the future of fossil fuels. Th e world’s largest sovereign wealth fund in Norway plans to sell its coal holdings.

BlackRock, the world’s largest fund manager, has established a low carbon exchange traded fund which owns a

Marginal UtilityThe Carbon Paradigm Shift

BY LEONARD S. HYMAN AND WILLIAM I. TILLES

Let’s start with climate. Under the old paradigm, electric utilities selected options to produce the lowest priced electricity for most consumers. Th ey did not consider externalities, such as costs imposed by climate change or pollution, unless instructed to do so by regulators. Th ey resisted customer pref-erences that did not fi t the model. Th e paradigm produced reliable, increas-ingly clean, and aff ordable service. But times change.

Power companies built an industry around that paradigm, despite evidence

T homas S. Kuhn, the late Berkeley philosopher, conceptualized the paradigm shift. Th e moment when one big idea supplants another.

An example is when Copernicus convinced the world that the earth circled the sun and not vice versa. A shift can take decades. Old and new paradigms co-exist until the old one fades out when its followers retire or die. As the German physicist Max Planck put it, “Science advances one funeral at a time.”

Okay, now let’s cut from the history of science to electricity. Kuhn’s concept can shed light on three electricity paradigm shifts, as the industry adjusts to climate change, transitions from a central station to distributed model, and develops new business and fi nancial structures to replace those that pre-date Samuel Insull.

1607 COL3 Hyman Tilles-r2.indd 80 6/17/16 9:51 PM


land lines for cellular, and prospered, thanks to their size, ability to raise funds, and name recognition. Th ey migrated to a new paradigm. Can’t electricity providers? PUF

instead, consumers desiring leading edge energy services provide a market for companies selling a diff erentiated product instead of a commodity.

Th e telephone companies dumped

wide range of companies, including automobile manufacturers and coal-carrying railroads. But no coal miners, oil companies or fossil-burning utilities.

Google, Microsoft, Coke, Pepsi and a litany of other big name enterprises will spend billions to reduce or elimi-nate their carbon footprints. Th ere is too much money at stake to call these actions greenwash.

Consumers modify purchases to refl ect newly perceived needs or val-ues. Processed foods, sugary fi zzy drinks, and watery beers have lost mar-ket share to natural, local or artisanal, but more expensive, products.

Established manufacturers have had to change their off erings in order to compete. Maybe health food stores will soon sell green and local electricity next to other gluten free, non-genetically modifi ed organisms, as fair trade prod-ucts. It’s not about price, remember.

When electricity was a growing busi-ness, the defection of a few big-name businesses or rich consumers planning to go green would have gone unno-ticed. Th ere was plenty of growth to go around. In today’s static market, electric companies cannot aff ord to lose cus-tomers, especially prosperous ones who choose to take the low-carbon route even if it costs more. Th ey may be the vanguard of a social movement.

Th e new paradigm says operate not to minimize price, but rather to lessen the impact on climate. European gov-ernments have already imposed this template on the electricity industry, thereby raising prices and depressing profi ts of unprepared utilities. Argu-ments that the new paradigm will raise prices, or that the network was not built to support it will become irrelevant, especially if others can furnish the desired product.

Policymakers aiming for an econom-ical transition to a low carbon environ-ment have missed that target, which is society’s loss. Taking a commercial view

embedments and for thickness evaluation. The ultrasonic echo technique can be employed for characterization of internal defects such as voids and delamination with higher resolution.

To date, the crawler has been demonstrated and tested at the two hydroelectric dams, Robert Moses dam in Lewiston, New York, and the Claytor dam in Pulaski, Virginia, and at the decommissioned Crystal River 3 Nuclear Station in Crystal River, Florida.

Th e assessment found that robotic inspections of large vertical concrete structures are feasible, the data col-lected are accurate and reliable, and the inspections can be performed at a fraction of the cost of conventional concrete inspections.

EPRI anticipates that the crawler will be commercialized within the next year or so once licensing agreements are fi nalized. And once the costs and bene-fi ts of it are fully recognized by vendors that perform inspections for utilities and other industrial operations. PUF

The robotic concrete crawler traverses a concrete wall during a test at the Robert Moses dam in Lewiston, New York.

A Robotic Concrete Crawler(Cont. from p. 77)

1607 COL3 Hyman Tilles-r2.indd 81 6/18/16 11:53 AM


Steve Huntoon is the principal of Energy Counsel, LLP. Mr. Huntoon is a former pres-ident of the Energy Bar Association, and for over 30 years of practice in energy regula-tory law he has advised and represented such companies and institutions as Dyn-egy, PECO Energy (now part of Exelon), Florida Power & Light (NextEra Energy), ISO New England, Entergy, PacifiCorp, Wil-liston Basin (MDU Resources) and Conectiv (now part of PHI and Exelon).

Counterflow

SolarCity in Hawaii will install a complete self-supply off -grid system and sell the power under a lease at $0.26 per kilowatt-hour, or sell the system itself for $4.50 per watt.

Th e lease price is more than twice the average residential rate in the U.S., and the system cost is $90,000 for a 20 kw system, about what a large U.S. home would need. HECO, the local Hawaii utility with very high rates, may be worried, but every other utility should buy another round at the bar.

Home solar and home batteries might be more of a threat as part of an integrated supply package. But,

ironically, the two states most intent on creating a brave new world are ruling that out. California doesn’t allow resi-dential retail choice, and New York is running retail marketers out of town. 4

Reports of POPS’ death are greatly exaggerated. Th e electric utility industry provides a homogenous product that has more in common with the natural gas and water utility industries than with telecommunications and the internet. Th e vast majority of electric consumers want reliable, clean, reasonably priced electricity, and little else.

If the industry sticks to its knitting, avoiding catastrophes like the South-ern California Gas storage leak, Flint’s contaminated water, and the Southwest Blackout, then it will be fulfi lling its public service obligation. As NARUC President Kavulla said in the Wall Street Journal a couple of months ago, “Util-ity regulation is pretty boring, and it is meant to be.”

POPS Is Here to StayReports of Plain Old Power Service’s death greatly exaggerated

BY STEVE HUNTOON

With the pushback against net metering, the phase-out of the solar investment tax credit, and low natural gas prices driving down utility rates, home solar has a bleak future. 2

Of course solar itself has a future. But the problem for home solar is that it costs almost three times as much per kilowatt as utility-scale solar, as shown in Figure 1 from GTM Research/Solar Energy Industries Association.

When green energy supporters grasp that we could be installing almost three times as much utility-scale solar for the same dollars if we just went upscale, home solar will be so over.

As for home batteries, they have no economic value in their present vintage. Elon Musk’s Powerwall makes no sense in any application, and is not green. 3

Th ere are some who speculate that elimination of the net metering subsi-dies will lead to signifi cant defection off grid, that is , total disconnection from the grid through combined solar and battery storage systems. We now have price points for that.

POPS, Plain Old Power Service, is here to stay. Forecasts of the impending death of traditional electric utility service

abound. Disrupters are seen everywhere, led by home solar and home batteries, the two horsemen of the utility apocalypse.

Regulators in our two largest states, California and New York, are planning an overhaul of the industry based on these “Distributed Energy Resources.” How real is the threat to POPS? Home solar, as exemplifi ed by SolarCity, doesn’t make eco-nomic sense outside of California and Hawaii with their high utility rates and the net metering that provides distribution and storage services for free. 1

The vast majority of electric consumers want reliable, clean, reasonably priced electricity, and little else.

1607 COL4 Huntoon-r3.indd 82 6/17/16 9:51 PM


future because of effi ciency gains.4. Th e New York Public Service Commission has

decreed that retail marketers must anticipate in advance what utilities will charge as their default rate, and match or beat that rate in their competitive off erings. Hasta la vista Empire State.

Save the Planet,” Bjorn Lomberg, April 6, 2016, and “Unclean at Any Speed,” Ozzie Zehner, IEEE Spectrum, June 30, 2013. And while it is true that electric cars will cause less pollution in the future as power generation becomes cleaner, the internal combustion engine also will cause less pollution in the

And here’s one more apropos line from the Journal, “Investors need to remember that disruption is a lot easier to peddle than it is to actually do.”

Amen to that. PUF

Endnotes:1. Th e economics of home solar were the subject

of my earlier column, “Musk and Me,” Public Utilities Fortnightly, March 2016. Although at one point the received wisdom was that home solar would reduce utility system costs, the reality emerging from California is that home solar is increasing system costs for battery stor-age and for distribution system expansions. See my earlier column, “Just Ducky,” Public Utili-ties Fortnightly, April 2016. Isn’t it ironic, as Ms. Morissette might ask?

2. Sensational reports in the trade press muddy the solar reality. For example, there are trade press reports of an ICF study projecting roof-top solar to cause a “$2 Billion Loss for Gen-erators,” including $754 million in PJM. Th e study doesn’t seem to be available on the ICF website and I can’t replicate the calculation. PJM has made a peak load forecast adjust-ment for rooftop solar of 839 megawatts in the year 2019. Th is amounts to about one large generating plant, and is rounding error relative to PJM’s total peak load of 157,000 megawatts in 2019.

3. My earlier column, “Th e Powerwall Follies,” Public Utilities Fortnightly, May 2016, dis-cusses this. By the way, Elon Musk’s Tesla isn’t particularly green either. See “Don’t be Fooled – Elon Musk’s Electric Cars Aren’t About to

Q4 2014

PV module

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Forming the backbone of a wireless communications system, Central Hudson installed two microwave dishes atop its headquarters in Poughkeepsie as part of a network strategy project. Pictured here is one of the dishes, which communicates with remote dishes that collect data from fixed utility assets.

The microwave dishes at Central Hudson’s head-quarters communicate with remote dishes like these, on commercial communications towers. These towers facilitate communications and relay data from Central Hudson’s fixed assets.

1607 COL4 Huntoon-r4.indd 83 6/18/16 10:30 AM


and challenged the application’s defi ciencies. Such as required data that was missing and outdated information that was included.

Publically, Kinder Morgan would state that Northeast Energy Direct was not an export project. But, NEES contradicted that claim with assertions in other documents fi led at FERC and other regulatory bodies, by potential off-takers.

Without NEES’ FERC fi lings, regulators may not have had access to critical information. And provided government approval without this information.

With regard to future pipelines in the Northeast or anywhere in the country, it is reasonable to say that brownfi eld projects that meet local generation needs will be easier to develop, than those that are greenfi eld projects designed to serve foreign markets. The latter is akin to trying to build a highway through several communities without their having the benefi t of an exit ramp.

Continued energy effi ciency that has enabled Massachusetts and New England in general to reduce energy demand, better planning by utilities to meet winter spikes in demand, and Canadian hydropower, among other alternative sources, paint a fairly bright

energy picture in the region. So lessened need for a project like Northeast Energy Direct.

Perhaps the lesson learned from the Northeast Energy Direct debacle is that future applicants should go to state and fed-eral offi cials only with ready-made solutions. Kinder Morgan’s approach of, if we build it, they will come, was handedly ille-gitimatized when faced with sophisticated scrutiny by a sophis-ticated opponent. PUF

This meant that NEES was uniquely positioned along with the developer to wade into the stream of information with regard to the entire project. The strategy armed the coalition with information that was shared by the developer with certain regulatory agencies and not others.

NEES was sure to undertake a detailed analysis of the devel-oper’s energy and environmental data. And package them in a legal format that was of use to regulators. This was NEES’ vessel to inform regulators of information that was decidedly not shared earlier with those regulators.

Continually, NEES questioned before regulators whether North-east Energy Direct was needed and fi nancially viable, discredited the applicant’s claims that the natural gas would not be exported,

Brownfield projects that meet local generation needs will be easier to develop.

– Vincent DeVito

‘‘

’’

Energy Company’s Pipe Dream(Cont. from p. 41)

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Picture Energy

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A thousand fi res, sixteen hundred looted stores, fi ve hundred and fi fty injured police offi cers, four thousand arrests. All this while the fear of the notorious Son of Sam murders magni-fi ed. A Bronx car dealership had fi fty Pontiacs stolen.

Films and books have recaptured the devastation and desperation. Among them, The Bronx is Burning is about how the internecine battles of the New York Yankees eventually led to a champion-ship and a city’s redemption. And then there was Men in Black, the late-nineties comedy, in which we learn that an alien caused the blackout as a bad joke.

On July 24, 1965, the controversial performance by Bob Dylan at the Newport Folk Festival took place, with electric amps. Th e organizer of the all-acoustic festival had criticized the Paul Butterfi eld Blues Band. Dylan’s reaction: “Well, {expletive} them if they think they can keep electricity out of here, I’ll do it.” On a whim he said he wanted to play electric.

Introduced by legend Peter Yarrow, Dylan’s band performed Maggie’s Farm and Like a Rolling Stone to an audience of boos. It was said that Dylan “elec-trifi ed one half of his audience, and electrocuted the other.” Dylan didn’t return to the Newport festival for thirty-seven years. PUF

electric waves “to make dull students bright.” And at age seventy-two, he received his last patent, for a vertical takeoff and landing airplane, decades before this technology became a reality.

On July 13, 1977, the infamous New York power outage took place. Th e Big Apple was brought to its knees after a lightning storm. For twenty-fi ve hours, nine million people were in the dark as mass looting and rioting broke out across the boroughs.

Page is deservedly credited though for exposing the greatest fraud of the mid 1880s. He investigated the Fox sis-ters who were enriching themselves per-forming public séances. Page publicized that the raps were not from the spirits but from the sisters themselves.

On July 10, 1856, the genius Nikola Tesla was born in Croatia. His many achievements include the fi rst alternat-ing current induction motor and trans-former. George Westinghouse hired Tesla and soon after we had an alternat-ing current grid.

Th e many fascinating episodes in Tesla’s career and life would take years of Public Utility Fortnightlies to sum-marize. For instance, at age fi fty-six, he temporarily convinced the superin-tendent of New York City schools to saturate classrooms with high frequency

July Birthdays

Nikola Tesla and Bob Dylan

O n July 9, 1802, Th omas Davenport was born in Vermont. He built the fi rst direct current motor in the U.S. at age thirty-two.

A blacksmith, Davenport had visited an iron works in New York in 1833 and was intrigued by the electromagnets there. He bought one, took it apart, forged a better iron core, and rewired with silk from his wife’s wedding gown. Emily Dav-enport actually played a large role in the project and was named in the 1837 patent.

Th ree years later, Davenport used his motor to print The Electro-Magnetic and Mechanics Intelligencer. It was the fi rst newspaper printed with electricity.

Th e motor made no money for Davenport. Running motors with batteries was too expensive. Sales didn’t take off until the electric grid developed decades later to power motors.

Davenport was also known for calling out Charles Page who won federal govern-ment dollars to build an electromagnetic locomotive. Th e boondoggle was made clear to all when the test run failed spectacularly.

Dylan “electrified one half of his audience, and electrocuted the other.”

1607 Birthdays-r2.indd 88 6/18/16 8:50 PM


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EXECUTIVE EDITORBruce W. Radford

[email protected]

EDITOR-IN-CHIEFSteve Mitnick

[email protected]

LEGAL EDITORPhillip S. Cross

[email protected]

PUBLISHER & DIRECTOR OF BUSINESS DEVELOPMENTJoseph D. Paparello

[email protected]

ART DIRECTORMichael Eacott

[email protected]

MARKETING MANAGERJean O. Cole

[email protected]

CIRCULATIONTeela Wormley

[email protected]

EXECUTIVE MANAGEMENTBruce Radford, President; Phillip S. Cross, Vice President;

Lewis Turner, Treasurer; James Norris, Secretary

COMING IN NEXT MONTH’S ISSUE■ One-on-one interviews with Jim Rogers, former chief executive

officer of Duke Energy, Stan Garnett, former executive vice president of Florida Progress Corp., and Bill Hederman, finishing his time as senior advisor to the U.S. Secretary of Energy

■ Electricity Market Reform in Japan: the Bumpy Road Ahead, Three-part Series, Part One, by Glenn George, Hans-Martin Ihle and Miura Wataru

■ Strategic Solution to Economically Mitigate Risks of High Impact Events, by Ken Collison, Harjeet Johal, Daniel Rogier, Elliot Roseman, Richard Russell, Jon Staninovski

■ Electricity Storage: Turning a Disruptive Technology into an Opportunity, by Arun Mani

■ Critique of Robert Gordon’s Rise and Fall of American Growth, Two-part Series, Part One, by Roger Bezdek

■ Mobile Substation Technology is FAST, by Joseph Donovan■ Innovating Like Edison: by the Electric Power Research Institute

■ Counterflow: Nice Work If You Can Get It, by Steve Huntoon■ Legislator’s Take: Need for New Electricity Regulatory and

Business Models, by Tom Sloan■ Following FERC: Topping the $1k Offer Cap, by Bruce Radford■ Notable State Orders: by Phil Cross■ PUF Mega-Metrics: Energy Dept.’s Evolving Outlook for U.S.

Electric Power Sector, by Daniel Klein■ PUF Crossword Puzzle: Power’s History■ August Birthdays: Otto Blathy, Bern Dibner, Rene Thury, Philip

Torchio, Travis Kavulla■ Off Peak: Electricity in Warfare■ From the Editor-in-Chief: Legacy and Generations■ Picture Energy: Energy Bar Association’s Annual Conference,

June 7-8■ Marginal Utility: Changing the Electric Utility Financial Paradigm,

Leonard Hyman and William Tilles

1607-Next Month-r2.indd 89 6/17/16 8:48 PM


your bread is? And how about a stencil toaster so you can decorate your toast or even write a message on it?

Getting ready for the big game? You need a keg fridge, that actually keeps a keg cold for when the party arrives.

For the party that your friends will really remember, go buy a soft pretzel machine (with cheese dip warmer), a chocolate fondue fountain, a soft serve or slushy or waffl e bowl maker, or all three. Electricity can be fun.

Th en there’s the mini donut factory. Th e milk frother to make a latte or cap-puchino. Drowsy in the morning? You must have a three in one breakfast sta-tion combining a grill, toaster oven and coff ee maker.

Th ings got messy. It happens. Time to break out the robotic vacuum to clean up, as the Jetsons would have done.

* * *Reasoning that a housewife during

the great depression spent sixty percent of her time in the kitchen, one manufac-turer sold a refrigerator with a built-in radio. In the 1940’s, the Th or combina-tion washer cleaned both your clothes and your dishes. In separate loads one would think. Despite compelling advertising campaigns, neither the radio refrigerator or combination washer suc-ceeded in the marketplace. PUF

around in concert halls, restaurants, hotels, department stores, etc.

Alas, the concept never really took off . Th e telephone companies were none too pleased, as telharmonium signals were so strong that they interfered with adjoining telephone lines carrying caller conversations.

* * *In the fi fties, electronic music

pioneer Raymond Scott patented the Clavivox, with his soon-to-be famous assistant Robert Moog. By the late sixties, Scott built the Electronium which the musician would program to compose and play simultaneously. Th e legendary Berry Gordy bought one for Motown but also hired Scott to run Motown’s electronic music division.

* * *I need one! What about a vision

toaster so you can see how browned

* * *In Japan, the simple toilet is anything

but. It’s an electric experience.Shocking to fi rst-time travelers

from America, a Japanese toilet sprays warm water at your... It also has a dryer. Toilet paper is unnecessary, except during power outages. Brings a whole new meaning to the reliability goal of utilities.

Seventy percent or so of Japanese households have electric toilets, which typically have heated seats as well. As much as four percent of all household electricity consumption is attributable to these toilets.

* * *Before streaming music, before

MTV, before even radio, there was the telharmonium. In 1902, the inventor of the telharmonium, Dr. Th addeus Cahill demonstrated it for the world-famous scientist Lord Kelvin. Yes, a temperature scale was named in Lord Kelvin’s honor.

Th e two-hundred pound telharmo-nium was a rudimentary synthesizer. Pressing a key sent a signal of a certain frequency via telephone lines. Cahill envisioned that four groups of top musi-cians would perform throughout the day and evening at central stations. Th e per-formances would be listened to for miles

Off Peak

Weird Appliances

T he Electric Review reported in 1887 that members of the U.S. Congress “who found themselves lethargic after ‘receptions and suppers all night’ or who had ‘exhausted their brain power by speechmaking’ were retiring to the basement

to be ‘fi lled quietly with electricity.’”Congressmen could get a jolt in the Capitol’s engine room from a live wire. It

“felt like a rapid succession of tiny pinpricks through the hand and up the arm.”Th e shocking device is no longer in the Capitol. Perhaps it’s the missing ingredi-

ent needed to overcome legislative gridlock.Quoting Carolyn Th omas De La Pena. From her hilarious book, The Body Elec-

tric: How Strange Machines Built the Modern American.

As much as four percent of all household electricity consumption in Japan is attributable to electric toilets.

1607 Off Peak-r2.indd 90 6/17/16 8:48 PM

We Must Be Doing Something Right

The Consumer Price Index was published Tuesday for the period through April. Electricity? The CPI for

electricity has fallen 2.1 percent, April 2016 as compared with a year ago, April 2015.

During the same period, the overall CPI has risen 1.1 percent. This means electricity is signifi cantly

less expensive than it was last year.The CPI for food has risen 0.9 percent. The CPI for all items, except food and energy, has risen 2.1

percent. The CPI for all services, except energy services, has risen 3 percent.

Any way you cut it, electricity has become cheaper.

Over the last year, the prices of some items have risen substanti

percent. The price of house moving is up 10.2 pe

respectively. Motor vehicle insurancAside from draph

View in a web page

CPI-Electricity fell 2.1% while overall CPI rose 1.1%

FORTNIGHTLY

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