As part of its review of Distributed Generation rates and connection policies, on September 22 2008 the Ontario Energy Board invited comments on a paper that outlined a model for assessing the benefits of Distributed Generation in Ontario. APPrO submitted comments in October 2008, and a few excerpts from those comments are included below. For the full submission and related information see the OEB website under the heading of “Distributed Generation: Rates and Connection (EB-2007-0630).
APPrO recommends that the OEB consider three main sources of cost savings when assessing the benefits that distributed generation provides to distributors, transmitters and electricity consumers:
• Capital cost savings from deferred/avoided distribution investment;
• Capital cost savings from deferred/avoided transmission investment; and
• Lower cost of delivered power to electricity consumers in Ontario.
The first two categories are included in the methodology recommended in the Power Advisory Report (“the Report”), but the savings from lower delivered power costs are only partially recognized through expected line losses on the electricity T&D systems. Energy savings for consumers should also include the cost savings from avoided voltage transformation charges and reduced reliance on high-cost peak power. There are also improvements in reliability and power quality that should be taken into consideration.
APPrO recommends that DG benefit values be calculated and paid separately from the connection charges and standby rates to provide transparency, ensure efficient price signals, and to reflect the province-wide nature of some of the benefits. In addition, the separation of DG benefits will ensure that the connection costs are appropriately recognized in the determination of rate base.
An amount equal to the fair value of the DG benefits should be collected from ratepayers through the Ontario Power Authority (“OPA”) charge or utility specific rate riders and paid to the generator at the same time the generator is required to pay the connection or standby charges in order to reflect the net impact on the system and a fair payment of the net costs. Fixed cost benefits related to deferred investment in T&D facilities can be calculated as a net present value and paid in a lump sum when the connection charge is collected, while the cost savings associated with ongoing benefits from lower power costs could be paid concurrently with the standby charges.
… Until a more accurate method of setting standby rates is developed, APPrO recommends that the OEB approve a standard default payment that would be paid to DG, based on the average system benefits until the actual incremental cost of the benefits and the standby rates can be determined. It would not be reasonable for the Board to allow standby rates to be billed at the same average costs as full distribution service (which is the current practice in many LDCs), while requiring DG benefits (as suggested in the Report) to be based on a precise calculation of incremental avoided costs.
By developing a standard methodology that is easy to administer and fairly estimates the value of the DG benefits, Ontario can improve the cost, efficiency and reliability of its T&D systems while supporting provincial policy on renewable power and DG development. APPrO believes that it is appropriate to use financial signals to encourage the siting of new generation in the most beneficial locations. To be successful, cooperation is required from local distributors to identify optimal locations and the potential capacity for new DG and provide a fair assessment of the value of the DG benefits. Given the number of system providers and the varying degrees of acceptance to DG development, regulatory policy guidance and a standard approach to quantification and payment are required.
APPrO’s overall conclusion is that DG benefits are significant and should be recognized financially to encourage the development of optimally located facilities that will benefit electricity consumers. To the extent that generation can be located closer to load, line losses can be reduced and capital investments in grid infrastructure and voltage regulation can be deferred or avoided. In addition, DG has the ability to improve system reliability, lower the peak cost of electricity and reduce environmental impact.
… The Report excluded congestion relief as a benefit on the assumption that the impact would be negligible and difficult to measure despite the fact that the IESO produces shadow prices and the cost is reflected in the congestion management settlement credits (“CMSCs”). APPrO does not agree with the exclusion of this DG benefit as generators at this scale of operation do not benefit from CMSCs.
… APPrO recommends that both transmission and distribution losses be included in a calculation of these loss-reduction benefits, with such benefits being paid to the DG owner. As some of these benefits have been included in an inconsistent manner in past OPA procurement processes, it is further recommended that a corrected net benefit be applied and paid to the DG owner to reflect the particular OPA procurement (if applicable) that a DG owner may be participating in.
… The Report excludes improved system reliability simply because evaluating the impacts and quantifying the benefits would be difficult. In APPrO’s view benefits that are generally acknowledged and can be estimated should not be excluded to due to measurement difficulty. At a minimum the benefit should be recognized by using a reasonable estimate. APPrO recommends that improved system reliability be included as a DG benefit and estimated as a component of the benefit of lower cost delivered power using the distributors’ service quality indicators and outage costs.
… Electricity consumers stand to benefit significantly from optimally located DG through a long list of potential benefits, which include reduced line losses, power factor corrections, voltage stabilization and improvement, reduced T&D capital expenditures, improved outage response times, improved power reliability, security and quality; avoided transformation costs; reduced exposure to peak prices; smaller environmental footprint and improved energy efficiency via increased use of cogeneration. To the extent that these avoided costs and benefits can be identified, a fair estimate of the value provided should be included in the payment that generators receive for locating their facilities in areas which will maximize system and consumer benefits.
… APPrO recommends that DG benefits be collected from all customers on the same basis that benefits from any other system improvements are recovered from ratepayers. The need to differentiate between regional and local benefits would depend on whether the benefits would accrue to all electricity consumers (system wide benefits) or the benefits are contained within a specific distribution service area (local utility benefits).
… While a certain amount of accuracy is required, the main objective should be to ensure that the benefits are recognized and either quantified or estimated fairly within a range of reasonableness so that they can be paid concurrently with the connection and standby charges. To keep the evaluation process simple, fair and cost effective, standard approximations should be used to estimate benefits.
In APPrO’s opinion, a high degree of accuracy is not as important as providing a fair reflection of the consumer value in the benefit payment and appropriate price signals to encourage DG development in optimal locations that maximize consumer benefits. In some cases, efforts to achieve extreme accuracy could complicate the process, creating significant additional costs for minimal additional benefit. Rather than negating potential benefits through costly measurement processes, APPrO recommends using standard estimates.
For smaller facilities, simpler standard values or a set of generic formulae can be used to estimate benefits. For larger facilities, site specific impacts are necessary and feasible to calculate.
APPrO has no objection to the 10MW threshold recommended in the Report being used as the division point between small and large facilities for the purposes of deciding which method to use when quantifying DG benefits.
… In order to facilitate optimal DG development, APPrO believes that utilities should be held harmless from volume reduction, stranded costs and capital investments associated with DG installations that provide a least-cost option and consumer benefits.
… While APPrO appreciates the need to develop a standard approach that is easy to implement, it does not agree that legitimate benefits should be excluded from the assessment simply because they are difficult to measure accurately. At a minimum, recognizable benefits should be considered qualitatively when estimating the total benefit for a DG facility and the estimate of the measurable benefits should be moved higher within a range of reasonableness. Rather than worrying about the precise measurements, APPrO believes it is more important to develop a quantification model that can be implemented without further delay relying on available information or approximations and on-going improvement of the accuracy of the data and the model over time.
… APPrO commends the Board for moving this important issue forward and is prepared to work with the Board Staff and other parties to develop a fair method of benefit recognition expeditiously.