Thursday, January 24, 2019

Overheard at MARC: Renewables, Rates, Seams and Pilots

By Amanda Durish Cook

KANSAS CITY, Mo. — Midwestern regulators must not overlook the transformative effects of renewable energy and the pace of advancing grid technologies in their decisions — all while ensuring that electricity rates stay affordable, panelists speaking at a regional regulatory conference advised last week.

The 2018 Mid-America Regulatory Conference took place in Kansas City | © RTO Insider

Those themes cropped up during several panel discussions at the June 4-6 Mid-America Regulatory Conference. Here’s some of what we heard.

Build Large Tx Projects for Wind

Industry experts agreed that new, large-scale transmission is necessary to facilitate a growing influx of wind power, and many said RTOs’ current seams processes pose an obstacle.

Luckey | © RTO Insider

Nicole Luckey, Invenergy director of regulatory and government affairs, stressed that transmission must be built to unlock the benefits of low-cost wind energy.

RTOs must fix their interregional project processes, Luckey said, pointing out that no major interregional lines have ever been approved between SPP, MISO and PJM.

“Something is clearly going wrong,” Luckey said. “Today’s transmission planning is reactive rather than proactive.”

She added that it’s imperative for RTOs to focus on aging and degraded transmission, citing the American Society of Civil Engineers’ 2017 Infrastructure Report Card that gave U.S. energy infrastructure an overall grade of D+.

“My company’s biggest challenge is not siting interstate transmission lines. Siting is laborious … but it’s not the biggest challenge,” said ITC Great Plains President Brett Leopold. Instead, the RTOs’ differing interregional planning processes can hamper “higher-voltage backbone projects” and leave companies with only “piecemeal lower-voltage reliability projects.”

Gaw | © RTO Insider

Steve Gaw, consultant for the Wind Coalition and the American Wind Energy Association, agreed that RTO seams represent a stumbling block for building large transmission. “To me, the big hurdle we have today is seams. … We have all this wind generation in the Midwest, but we have these artificial barriers,” he said.

Gaw would like to see FERC intervene on the “intensifying” problem of interregional transmission planning. FERC’s “interregional piece is so weak that it really hasn’t produced anything. I’d like to see FERC weigh back in,” he said. “If we don’t have somebody applying pressure on this, it’s going to continue as it has.” He added that he’d like to see a cost study performed on the inefficiencies in deploying resources along the seams.

“I don’t think the seams involve a mountain range or an ocean. It’s worse — they’re political in nature,” said ITC Transmission Director of Public Affairs Tom Petersen.

Energy consultant Will Kaul, also chair of the Great Plains Institute, said RTOs have done well in transmission planning. “I think they have a lot to show for it,” he said.

But even Kaul wasn’t sure if planned transmission buildout by 2030 would be enough to facilitate the renewable energy goals of municipalities and companies. He said insufficient transmission can constrain the full capability of renewable sources.

Nick Wagner, incoming National Association of Regulatory Utility Commissioners president, and co-vice chair of the Iowa Utilities Board, said commissioners in RTO states may “finally be at point where they’re tired of” ongoing seams issues. He suggested that regulators may begin initiating meetings with RTO officials and ask for solutions.

Gaw also pointed out that while energy prices continue to decline, the costs to upgrade transmission and distribution are on the rise and need to be properly recovered.

“There is story here that needs to be told. We’re moving to a new system,” Gaw said.

Russell Feingold, vice president of management consulting at Black & Veatch, said it’s time to rethink traditional ratemaking, especially considering low energy demand.

“The problem is that the old regulatory compact does not work in the 21st century,” Feingold said. “The traditional volumetric structure, while it served its purpose in the past, perhaps it’s not the best practice for recovering utilities’ costs.”

Feingold said riders like infrastructure trackers can help utilities recover their total cost of service, but he added that it’s difficult to arrive at numbers everyone can agree on.

“I often say that if you get five analysts in a room, you’ll get five different answers on what costs should be for residential customers,” Feingold said.

Trump’s Bailout

A few panelists said if President Trump’s recent order directing Energy Secretary Rick Perry to prevent further nuclear and coal plant retirements takes effect, it will muddy market signals and infrastructure investment. (See More Questions than Answers for FERC, RTOs on Bailout.)

“The wind industry will not like this,” Gaw said of the order.

The fact that coal and nuclear generation are on the brink of retirement demonstrates that the “marketplace is working,” Gaw said.

“Cars get old, they get replaced with more efficient models — that’s what happening today on the grid,” he said. “This approach is going backward and ignoring consumers and market signals.”

“The good news is it’s easier to keep the status quo than change,” Petersen offered grimly, adding a disclaimer that ITC is “agnostic to what the generation source is.” Nevertheless, Petersen predicted that the order, if realized, will create “uncertainty and mixed signals” in transmission planning.

“It makes it hard to plan for the future,” he said.

Renewables in Demand

General Motors Global Manager of Renewable Energy Rob Threlkeld said his company will achieve 100% renewable energy usage by implementing more energy efficiency measures, addressing erratic renewable generation times through battery storage and influencing public policy.

Kidwell (left) and-Threlkeld | © RTO Insider

But Iowa Consumer Advocate Mark Schuling said he had concerns with renewable power purchase agreements when large industrial customers go outside utilities to obtain them, which may leave other customers with higher bills.

“We need to make sure we’re not impacting the utility model,” he said.

Schuling said utilities should offer environmentally conscious, reliable and affordable energy, appealing to a broad class of customers. He said he often hears residential customers explaining that they can’t afford rate hikes because they’ve been on the “same Social Security income for 20 years.”

“There’s not a customer comment period where we don’t get those type of comments,” Schuling said.

He said pilot projects are a good method for testing the effectiveness of new ideas, especially when considering how new energy programs will affect low-income ratepayers.

“I think storage is the change that’s coming that’s going to impact generation,” Schuling predicted. “We have a lot of wind in Iowa, and when storage comes online, it’s going to change” how energy is delivered, he said.

Andy Zellers, Brightergy’s vice president of development and general counsel, said the company’s current 5-MW solar pilot project with Entergy New Orleans could become a 50-MW project if it tests well. The project still requires approval and is under a non-disclosure agreement, he said.

“I can’t say much about [the project], but it’s literally on an island. Transmission is bottlenecked getting it in and out of the parish,” Zellers said.

Zellers facilitates solar projects for utilities when commercial customers approach them for renewable sources. He said at some point, utilities will have to change their business plans to factor in the green desires of commercial customers.

“Customers with means are coming to the utilities saying, ‘We need this,’” Zellers said. “If the utilities are not providing this, they’ll go somewhere else.”

Zellers said distributed energy-friendly policies can be sold to conservative regulators and politicians if they’re marketed using their reliability-enhancing potential and entrepreneurial opportunities.

“These arguments will win eventually,” he said, adding it will take “patience and pressure.”

David O’Brien, Navigant director of strategy and operations, said the market becomes more contested in nature as distributed energy resources multiply in regulated utilities’ territories.

“Increasingly, you can see utilities and third parties competing with one another,” O’Brien said.

MARC Renewable Energy Rate Design

Heart | © RTO Insider

Sunrun Director of Public Policy Amy Heart, whose company focuses exclusively on residential rooftop solar, said she discourages the notion among customers that they’ll become independent of the grid after installing solar. Rather, she wants to introduce more diversity into the grid.

But SPP Vice President of Engineering Lanny Nickell said his RTO’s 84-GW queue currently contains more renewables than its load can consume. “[SPP] has been called the Saudi Arabia of wind,” Nickell said.

Nickell said during one interval in April, approximately 64% of SPP load was served by wind generation.

“If you would have told me 10 years ago that this was doable, I wouldn’t have believed it,” Nickell said.

If SPP “had the right transmission and the right resources,” he said, it could reliably use a generation mix that includes 75% wind generation.

Electric vehicles could snap up excess wind generation, other panelists pointed out.

“There’s a lovely relationship between charging your electric vehicle at night and the surplus of wind energy at night,” Luckey agreed.

Luckey (left) and Nickell | © RTO Insider

“We need more EVs. We need more load to be able to absorb all of these renewables,” Petersen said.

MISO President and Chief Operating Officer Clair Moeller said his staff talk “about the possibility of a post-capacity world,” considering the influx of new non-firm resources.

He noted that MISO is also managing a renewables-heavy queue that — if all projects are realized — will add 93 GW to the its portfolio.

“If we don’t solve the queue problem, the solar is going to move to rooftops because the demand is there,” Moeller said.

But Luckey said that study delays plague both MISO’s and SPP’s interconnection queues and can leave new wind projects in a holding pattern.

“Timelines have to be tightened up, studies have to make sense, and studies have to be completed on time,” Luckey said.

Rate Design

MARC Renewable Energy Rate Design

Williams | © RTO Insider

Samantha Williams, Midwest director of the National Resources Defense Council’s Climate and Clean Energy Program, said utilities and regulators should look for ways to encourage DER use in rate design.

“There’s an opportunity here to use rate design as an enabler … to get utilities to open opportunities for clean energy for customers,” she said.

But she added that rate design should protect low-income vulnerable customers, especially those on fixed incomes.

“Novel and untested rate design should be tested and vetted by credible data,” Williams said.

She warned against utilities seeking high fixed charges on utility bills, saying most increase requests are rejected outright or scaled back by state regulators. “Most of the bill should be volumetric.”

Williams said she prefers time-of-use rates over mandatory demand charges, adding that residential customers would have to be educated to understand their energy use and pinpoint which household actions cause a high demand charge.

“We’re going to have a whole community of people that need education on what triggered the charge. The fact that it’s all backward-looking is very challenging as well. I think demand charges are the least understood,” Williams said.

“What you can’t do is address a demand charge after the fact,” Heart said.

Lon Huber, a head of consulting with Strategen, said utilities and regulators should not shake up rates simply to accommodate DERs.

“Rates should avoid rocking the boat for 98% of customers for the sake of 2%,” he said. One of the rate designers on Xcel Energy Minnesota’s new residential time-of-use program, Huber said he worked to assign an energy cost for every hour of the year. The utility last month won approval from the Minnesota Public Utilities Commission to test a two-year time-of-use pilot program that charges residential customers more for energy consumed during the 3-8 p.m. peak, with the most inexpensive rates occurring at night. The program is set to begin in 2020 for about 10,000 customers.

Huber said utilities developing their own time-of-use programs must make several decisions, including deciding on peak time rebates or a critical baseline rates.

“You’re basing a rate design on calling a certain number of critical events per year. If a utility plans for 10, but calls two, does there need to be a rebate?” Huber asked. “It gets really tricky really fast.”

Ryan Prescott, Tradewind Energy director of market analysis, said that customers choosing not to participate in new energy programs should be shielded from the costs of implementing them.

MARC Renewable Energy Rate Design

Schuling (left) and Prescott | © RTO Insider

Prescott pointed to Dominion Energy’s recently rejected 100% renewable energy program intended for its large customers as an example of the need for utilities to carefully vet programs.

“Costs weren’t very well known,” Prescott said of Dominion’s program.

“Low-income customers are customers first. They’re low-income second,” Ameren Vice President of Corporate Planning Steve Kidwell said in a later panel.

Kidwell predicted that Ameren’s steady coal retirements will not raise rates, in large part because of inexpensive wind energy coming online. He said it’s a “huge opportunity” to be able to keep customer bills low while gradually increasing Ameren’s renewable component.