The Regulatory Assistance Project (RAP)®

Approaches to Integrating Distributed Energy Resources

Workshop with the ConnecticutPublic Utilities Regulatory Authority

Presented by David Littell

August 30, 2016

RAP – the Regulatory Assistance Project

RAP is a non-profit organization providing technical and educational assistance to government officials on energy and environmental issues. RAP staff have extensive utility regulatory experience. RAP technical assistance to states is supported by US DOE, US EPA and foundations.

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Smart Technology Will Allow Decentralized Consumer Level Solutions: How to Integrate?

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Energy companies and consumers will increasingly make energy cost and risk management choices at the consumer and local levels

Power Sector Transformation: Demand Side Management

• For 100 years, we’ve managed supply only• We can now manage electricity demand too• Further, “supply” ≠ centralized generation• Likely will evolve into series of “markets”• What role for regulators, the regulatory

compact, in these uncharted waters?

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Before and After Energy Storage: Grid View

Source: RMI, The Economics of Battery Energy Storage, Fig. 1, p. 15 (Oct. 2015)

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Before and After Energy Storage: Customer View

Source: RMI, The Economics of Battery Energy Storage, Fig. 4, p. 25 (Oct. 2015)

The Transition in the Customer/Company Relationship

• Technology is making customer resources less expensive

• Technology is enabling customer resource participation

• Power sector institutions are evolving• What constitutes fair compensation in a

time of transition?

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0.8%

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Costs Continue to Decline

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Distributed Generation is Growing

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More than 30% growth/year since 2001;

Cumulative: More than 11 GW

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Net Metering Growth

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50,000

100,000

150,000

200,000

250,000

2003 2004 2005 2006 2007 2008 2009 2010 2011

Num

bero

fnetm

etered

custom

rsinth

eU.S.

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Demand – Side Management

Demand Response

Energy Efficiency

Distributed Generation

Utility Administered

Third-PartyAdministrator

ActiveDemand

Response

Dynamic Pricing

CustomerRenewables

Others

CombinedHeat & Power

Demand-Side Management

Grid Value from DER – Differentiate by:

• Time– Peaks and managing generation and

consumption patterns, solar, wind . . .• Location

– High marginal cost places• Attribute

– Unbundled energy, capacity, ancillary, RE

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Geo-Targeting of Energy Efficiency

• Vermont PSB annually determines specific areas to target with EE investment to avoid transmission capacity costs.

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Get Additional Benefits Right

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Energy Efficiency, Solar, and Gas are the Lowest Cost Resources

Source: Lazard, 2015

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Energy Storage Valuation Studies

Source: RMI, The Economics of Battery Energy Storage, Fig. 3, p. 22 (Oct. 2015)

Energy Resource Decisions are About Benefits, Costs, and System Risks

There are varied risks to consider in transmission and distribution system resiliency and reliability:• Inability to serve peak load• Inability to serve load (peak and otherwise) due to non-

performance of generation or transmission • Failure of generation or transmission due to extreme

weather or malicious acts• Recognize bias toward control room command-and

control versus decentralized solutions

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Bulk Transmission Needs Assessment Sensitivities Vary Widely

In 2013, NESCOE analysis examined the probabilities of the 19 base case sensitivities used in one New England transmission needs assessment:• The calculated probabilities are low• The difference in probability between the most and

least likely sensitivities was as great as 4 x 1017

• This does not seem “reasonable” or “credible”

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Source: NESCOE, Enhancing Consistency in Regional Planning, presented to NPCC Regulatory/Governmental Affairs Advisory Group, Dec. 3, 2013

Base Case Failure Probabilities New England Transmission Project Planning

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Source: NESCOE, Enhancing Consistency in Regional Planning, presented to NPCC Regulatory/Governmental Affairs Advisory Group, Dec. 3, 2013

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Non-Transmission Pilot in Maine

What is aNon-Transmission Alternative Project?

• Non-transmission alternatives projects (NTAs) attempt to meet peak load through a combination of smart grid DERs such as energy efficiency, demand response, distributed solar and other generation . . .

• NTAs are part of an integrated grid as opposed to microgrids with islanding capacity from the grid• But a microgrid can be part of an NTA

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kW RFP$I RFP$II Totals Pct. $/kW$M

Conservation 237.0 111.3 348.3 19% 10.47$.Solar 168.8 106.8 275.6 15% 13.19$.BUGS 500.0 0.0 500.0 27% 20.63$.Demand$Response 0.0 250.0 250.0 13% 57.65$.Battery 0.0 500.0 500.0 27% 75.99$.

Totals 905.8 968.0 1,873.8 100%

19%.

15%.

27%.13%.

27%.

NTA$Resources$By$Category$

Conserva:on.

Solar.

BUGS.

Demand.Response.

BaEery.

Maine Non-Transmission Alternative Competitive Bids Selected in Two Rounds

Source: The Grid Solar Project for Grid Reliability, Feb. 8, 2016

Maine NTA Pilot Lessons Learned to Meet Circuit Load Requirements

• Passive resources (energy efficiency) are extremely reliable andavailable

• Storage resources (ice bears) performed at 98% availability in the summer of 2015

• Commissioning period is advisable for active NTA resources • Active NTA resources like all generators are not 100% reliable• Smart grid not proposed due to lack of system to measure, report

and bill based on AMI meters (despite near 100% AMI deployment)• With no way to use AMI data, there was essentially no economic

value to customer supply-side NTAs and home smart grid technologies cannot currently interact with the utility system making home smart grid far less attractive to consumers

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Expensive Infrastructure to Address Low Probabilities of System Failure

• Socialized transmission cost and deterministic planning leads to very expensive transmission infrastructure– Projects add billions to rate base + earnings of 11% to 12%

annually on rate base– No flexibility to reverse deployment if load changes >>

these are sunk costs– Many times the cost of equivalent reliability improvements

from distribution upgrades• Planning tools and cost allocation mechanisms for non-

transmission alternative DERs are virtually non-existent• Regional allocation of T; local assignment of NTA

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Transmission Costs Dwarf NTA Costs

• Transmission solution had both higher capital costs and higher rate of return so ratepayers pay more

• Even accounting for start-up and initial investment in NTA, its costs are far below the transmission solution

• Little Resilience Benefit from Transmission solution

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$0

$5,000,000

$10,000,000

$15,000,000

$20,000,000

$25,000,000

$30,000,000

2012

2014

2016

2018

2020

2022

2024

ComparisonoftheCumulativeCostsoftheTransmissionandNTASolutionsforthe

BoothbayPilotRegion

TransmissionSolution

NTASolution

Source: The Grid Solar Project for Grid Reliability, Feb. 8, 2016

Flexibility: Scaleability and Modular DER Design Can Change with Time, Need

• Initial NTA elements can be scaled and scaled back

• NTAs can be modular: elements abandoned and added based on need, necessity, performance & costs

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$0

$200,000

$400,000

$600,000

$800,000

$1,000,000

$1,200,000

$1,400,000

$1,600,000

$1,800,000

$2,000,000

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

AnnualExpensesfortheBoothbayPilot

GridSolarCosts

NTAPayments

Current System Problem: Peak Load Projections Have Been Overstated

• Energy efficiency and DERs are flattening load growth

• Both transmission and distribution may be built on erroneous peak load projections

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Source: Acadia Center: The Hidden Costs of Energy: Overpaying for an Outdated System (2016), http://acadiacenter.org/wp-content/uploads/2016/06/AC_transmissionmemo_spreads_finalforweb.pdf

Air Conditioning Storage?A/C is ~30% of Peak Demand

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• Commercial load doubles

• Residential load up 4X

• Option:– Appliance standards– Service standards– Retrofit incentives

Air Conditioning Storage is aProven Technology

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Kapi’oloani Medical Center, Honolulu Kohl’s Store, Redding, CA

Water Heaters: The Hidden Battery• 2 million electric

water heaters in New England

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

• Curtailment goes un-noticed by consumers.

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Enabling Technology and ServicesReal cost rates work best with enabling

technology – “Set and Forget”

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Role of energy service companies?

Aggregators?

Electric Vehicles• New Utility Market

But to encourage efficiency, EVs should be charged off-peak

• Provide multiple ancillary services• Potential source of on-peak power (V2G)

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San Diego’s Off-Peak Charging

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DSM: A Measurable Impact on Demand

Including DSM in the forecast reduces peak demand growth by 35% over next 5 years

Source: Rebecca Craft, Consolidated Edison, Con Edison’s Use of Targeted Demand-Side Resource, May 14, 2015.

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Brooklyn Queens Demand Management (BQDM) Program

• Subtransmission feeders serving two networks in Brooklyn and one network in Queens overloaded

• Company developed multi-faceted solution to address forecasted overloads including:– Traditional utility solutions (e.g. load transfers)– Non-traditional customer and utility solutions (BQDM)

• BQDM filing on July 15, 2014 Order received on December 12, 2014– Commission approved $200m

• Customer Sided 41 MW ($150m) and Utility Sided 11 MW ($50m)• Expenditures treated as 10 year capital assets with regulated return• Includes a 100 basis points bonus incentive per 3 performance metrics

Source: Rebecca Craft, Consolidated Edison, Con Edison’s Use of Targeted Demand-Side Resource, May 14, 2015.

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Three major changes being considered to the utility business model in NY

Market-BasedEarnings(MBEs)

• Platformservicesrevenue(monopolyfunctions)• Value-addedservices• Replacelostrevenuesfromshrinkingratebase

• Performance-basedincentives• Mostlytotheupside• FocusedonoutcomesfromenablingDERmarket

• AllowsutilitytokeepearningsfromavoidedCAPEXifcanshowDERwasusedinstead

• AllowsROEtobeearnedonOPEXrelatedtoDER• Resetsatnextratecase

Modified“Clawback”Mechanism

EarningsImpactMechanisms

(EIMs)

Near term

Long term

These changes are all designed to encourage DERSource: R. Katofsky, AEEI, Clean Energy Integration- AEEI Perspectives on NY REV Proceeding, Oct. 15-16, 2016.

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NY PSC REV OrderCase 14-M-0101 (May 19, 2016)

Establishes guidelines for earnings adjustment mechanisms (EAM) that look like Performance Incentives for: • System efficiency (peak reduction and load factor improvement targets) to

be proposed by each utility and may include complementary strategies to build load, improve load factor, reduce carbon emissions (including EVs, geothermal heat pumps, etc.)

• EE to be set by NY’s Clean Energy Advisory Council and allow positive earnings opportunities for utilities that exceed the developed EE targets

• Customer engagement• Interconnection earning opportunity based on satisfaction surveys of DER

providers and baseline interconnection timing requirements• Affordability metrics and scorecards (not EAMs) with financial incentives to

be established in each rate case. (p. 25)

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Storage Can Provide up to 13 Services

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Source: RMI, The Economics of Battery Energy Storage, Fig. 2, p. 19 (Oct. 2015)

In Most Places …

• DG customers have a net load profile that in most places that is complementary to system needs

• DG avoids net distribution investment in places where there is congestion during day light hours

• If the net value proposition for all customers is positive, DG customers are underpaid

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Separate Rate Classes Can Be Economically Inefficient …

• The long term marginal cost of grid service (T, D and G) should compete against the marginal cost of DER

• DER includes DG, DR (of various types), EE (of various types) and storage

• Marginal value of saving energy by EE should compete against the marginal value of DG, so the price offered should be the same

• 2 tariffs with 2 marginal cost incidence can introduce economic inefficiency

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A Separate Rate Class Can Impede Cost-Effective Private Capital Formation …

• A common tariff (w/ TOU, locational cost and a very small demand charge) ensures that DG will be compensated fairly relative to other DERs

• Capital formation depends on stability and fairness, introducing a new rate class signals an intent to under compensate DG

• Failure to build private capital will cause utility capital formation (i.e., increase rate base)

• It is to ratepayers’ benefit to have DERs fairly competed against utility-built projects

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A Separate Rate Class Impedes Cost-Effective Integration Solutions …

• Consistent price signals between DERs and among DERs and Generation options necessary to ensure economically efficient integration solutions

• All DERs need to be qualified to “play” in energy, capacity, and A/S markets

• All DERs compete against the marginal long run cost of meeting the perceived system need (for energy, capacity, A/S)

• Failure to set price signal implies higher cost

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All Kilowatt-Hours are Not Equal

Local Organic Tomatoes $3.00/lb.

Supermarket Tomatoes $2.00lb.

Local Organic Tomatoes may have different value to consumers.

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Maine Office of Public Advocate on Boothbay NTA

“Had CMP rebuilt Line as it proposed, the revenue requirement would have exceed[ed] $75M over the 45 year life of the project. These amounts would already be in rates, and a new load forecast, were it even to be performed, would not affect those rates.”

“NTA costs, on the other hand, can follow load growth and, to some extent, load reduction as it occurs . . . This is impossible in a transmission solution.”

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Source: Rebuttal Comments of the Maine OPA, Request for Approval of NTA Pilot Projects for the Mid-Coast and Portland Areas, Dock. No. 2011-00138, March. 18, 2016

Utility Comments on Maine NTA Pilot• Load and peak projections are lower: suggest

discontinuing the NTA pilots as unnecessary to meet new 10-year load projections

• Emphasize start-up issues and RE time-of-day• Utility says it could dispatch and control the NTA

resources rather than an independent company• NY PSC gave 100 basis point ROR adder on the

Brooklyn/Queens Demand Management Program – specific milestones

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Source: Reply Comments of Central Maine Power Company, Request for Approval of NTA Pilot Projects for the Mid-Coast and Portland Areas, Dock. No. 2011-00138, Feb. 9, 2016

CA DER Approaches I

• CA NEM revisions align NEM customers more with non-NEM– pay interconnection fee of $75 to $150– non-bypassable charge for energy consumers of 2-3¢/kWh– must be on a time of use (TOU) rate

• Identifying location value for DERs – DRP proceeding (R.14-08-003) is focused on identifying optimal

locations for DERs– Location net benefits analysis– Integrated capacity analysis for “hosting capacity”– Demonstration pilots (high DER penetrations, microgrids,

storage)

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CA DER Approaches II

• Using nodal bidding model for DERs – DRP proceeding (R.14-10-003) is focused on

procuring cost effective DERs– “Sourcing” of cost-effective DERs initially

through competitive solicitations– Would allow ROR on DER contracts if cost

less than the alternative

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Transmission versus Decentralized Solutions

• Transmission solutions built to bring power, often from outside a local area, zone or node to local circuits– Increase utility rate base– Raise revenue to support utility revenue requirements– Reliability: T&D failure risk defined by load and peak projections– Price risk of unnecessary infrastructure borne by ratepayers– No Price signal for ratepayer/customer response

• NTA solutions build DER capacity to manage load within a local area, zone or node – Scaleable if load and peak projections are wrong– Reliability: T&D failure risk defined by DER adequacy and failure– Support for DERs often characterized as subsidy to specific

technology and threat to utility revenue recovery– Resiliency benefits

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Distribution-ISO (D-ISO)?• Consider independent entity to procure and control

DER resources to provide for grid reliability at the distribution level

• Similar RTO function at wholesale market level in procuring Demand Response but would operate at retail/distribution level

• Ownership of NTA resources?• Utility could procure and control resources – but how to

deal with utility preference for rate base and higher ROR?

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Some Trends are Clear

• Advanced grid technology deploying• More valuable consumer choices

– Consumer interest in energy services growing– Distributed Energy Resources – Moore’s Law?– What happens if storage becomes more

accessible to consumers?– Clean energy resources proliferating

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Big Questions for States• Who will pay and how? • Who will benefit and how?• What to do?

– Work with utilities to re-engineer their power sector for the future

• CA, NY REV, MN e21, Ontario, British Columbia• Issue: state jurisdiction and ability to work regionally

– Set policy/regulation/incentives in the right direction and get out of the way

• EE/RE/DER leadership today => competitive advantage tomorrow (lower costs, lower emissions, fewer risks, greater scalability, less infrastructure, multiple co-benefits, etc.)

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About RAP

The Regulatory Assistance Project (RAP) is a global, non-profit team of experts that focuses on the long-term economic and environmental sustainability of the power sector. RAP has deep expertise in regulatory and market policies that:

§ Promote economic efficiency§ Protect the environment§ Ensure system reliability§ Allocate system benefits fairly among all consumers

Learn more about RAP at www.raponline.org

David Littelldlittell@raponline.org

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Maine Non-Transmission Alternative Hybrid and Targets

• Transmission upgrades addressed frequency and voltage support under N-1

• Estimated 2 MW of NTA Resources to meet peak on a 30 MW circuit

• Resource type targets for evaluation:– Efficiency– Renewable distributed generation – Non-renewable DG– Demand Response

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Maine Non-Transmission Alternative Hybrid and Targets

• Transmission upgrades addressed frequency and voltage support under N-1

• Estimated 2 MW of NTA Resources to meet peak on a 30 MW circuit

• Resource type targets for evaluation:– Efficiency– Renewable distributed generation – Non-renewable DG– Demand Response

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Maine Non-Transmission Pilot Mechanics

• Dispatch (SCADA) System- Direct/Cellular Link to Active NTAs- Data loggers at Passive NTAs

• Command Interface- Utility requests load reduction and duration- GridSolar dispatches resources following utility

request- Real time monitoring & data logging- Utility collects data at substations

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Source: The Grid Solar Project for Grid Reliability, Feb. 8, 2016

Maine Non-Transmission Pilot Results

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Source: The Grid Solar Project for Grid Reliability, Feb. 8, 2016