In a presentation to the OEB Stakeholder Conference on DERs on September 17, APPrO Executive Director Jake Brooks made the case for a market-based approach to the growing DER sector.
APPrO’s comments were delivered as part of an energy supplier panel that included representatives of the Canadian Solar Industries Association (CanSIA) and the Advanced Energy Management Alliance (AEMA).
APPrO began by stressing that, “Properly applied, DER technology has many benefits. In addition to being a great source of economic development and local self-reliance, in general it:
1. Supports the grid
2. Delivers value to customers
3. Reduces the long term costs of delivering energy to all customers
4. Enables the adoption of beneficial innovation.”
Noting that it’s been a regular message from APPrO and other organizations for years, Mr. Brooks said that the major obstacle to economic solutions in this sector is that “there is currently no systematic method of accounting for system benefits for distributed resources.”
Further comments covered areas such as:
Establish rules that priorize the establishment of a level playing field, transparency and collaboration
• Maintaining a clear separation between competitive and monopoly businesses
• Establishing certainty about future regulatory treatment before investments are made
• Instituting rules to minimize grid costs and project costs
• Establishing a collaborative process to guide and define best practices for DER development and integration over time.
Comparing APPrO’s comments with those of others in the conference, Mr. Brooks noted that common themes seemed to be emerging in the areas of opening up markets, ensuring fair competition, and protecting customers.
For more information on the conference, see the separate article “OEB hosts conference on DERs” elsewhere in this issue of IPPSO FACTO. Excerpts from the APPrO submission are included below.
Excerpts from the APPrO submission
Recommendations
1. Enunciate a clear and unequivocal commitment to maximizing competition in the electricity market
As stressed in the OPG submission of January 25, 2019, encouraging market-based solutions and customer choice is central to achieving customer satisfaction and the efficient evolution of the electric power system. While recognizing that some aspects of the market are not yet suitable for competition, and that administered functions are necessary in those cases, it’s crucial to design rules and regulations that ensure the scope of administered functions are reduced over time and minimized at all times.
Market based growth of the DER sector is a unique opportunity to increase the scope of competition and the level of innovation in the energy sector.
2. Ensure utility planning recognizes the need to adapt to changing conditions
Regulation must evolve towards a framework where Distributors are rewarded for least cost planning rather than relying on return on equity on distribution assets deployed. This will ensure that all customer interests are served when costs are incurred – whether traditional investments or potentially lower cost DER solutions.
In addition, utilities may be able save costs in some instances by systematically considering when and where reliability services may be cost-effectively sourced from DERs.
3. Institute a transparent procedure for estimating benefits of DERs
As stated in the APPrO submission of January 25, 2019:
Mandate a practical, easy-to-use approach for estimating benefits at the LDC level. ….
The Advisory Committee on Innovation (ACI) Report confirms the importance of establishing a methodology for assessing benefits:
“Establish an empirical evaluation methodology for cost-benefit comparison so all proposals are evaluated on a fair and consistent basis.”
— Recommendation 2B, Report of the Advisory Committee on Innovation
It goes further:
“Establish a way to ensure DERs can be compensated for their services commensurate with their value while paying their appropriate share of system costs. The approach should recognize new revenue streams which may be aggregated and allow shared cost recovery.”
— Recommendation 2C, Report of the Advisory Committee on Innovation
Further details on the recognition of benefits are included the APPrO submission cited above.
4. Establish rules that priorize the establishment of a level playing field, transparency and collaboration
The OPG report cited above outlined recommendations in the following areas:
• Providing a transparent and level playing field
• Clear processes and rules enable innovation
• Encourage collaboration where appropriate
• Commitment to competition
• Removing disincentives to innovative solutions
• Fair remuneration for the right solution
• Encouraging innovative use of utility assets
• Open access to information is critical
• Adopt a market-based approach to distribution capital planning
Markets require transparency, a level playing field and the other conditions enumerated above.
5. Separate competitive and monopoly businesses
It is essential to maintain a clear distinction between competitive and regulated businesses in the electricity sector.
Few things will unnecessarily hinder investment more than uncertainty about whether regulated businesses will be allowed to “compete” in a given market. It is therefore essential that a clear and enduring policy be articulated defining the business areas in which market players can have confidence their competitors will consist exclusively of other market participants without access to regulated rate bases.
With respect to separating the wires business from the competitive business, one exception could be made for when DERs are installed purely to meet and/or manage the LDC’s own internal load. However even these installations should be sourced competitively wherever possible. Standard LDC rates of return would normally apply unless the risk was born by an entity unrelated to the wires company.
Regulators should assess appropriate roles for utilities by applying the simple test:
"Is the function or service a natural monopoly that is best delivered by the regulated distributor?"
6. Establish certainty about future regulatory treatment before investments are made
One of the primary challenges for regulators will be to establish a transparent widely accepted methodology for assessing whether a given investment is “economic” and can proceed without uncertainty about triggering distortionary anti-stranding measures in the future. This methodology should be designed to meet two critical standards:
1. Minimize if not eliminate the danger of excess stranded costs requiring mitigation (minimizing social cost of sector transformation)
2. Provide timely assurance to investors, developers and stakeholders as to the viability of a given investment without causing delays that would affect the viability or economics of the proposed project.
7. Recognize that some cost shifting is inevitable during periods of transformation and not all of it requires mitigation
“It is inevitable that some cost shifting will occur as the technology landscape changes. The critical question in this regard is whether each class of customers receives enough net benefit to more than offset any cost shifting. The primary underlying challenge for regulators is establishing rational and transparent tests to determine which investments are economic and which are not, before large amounts of capital are committed, and before investment moves to other jurisdictions.”
— From the APPrO submission on Commercial Industrial rates, April 12 2019
8. Institute rules to minimize grid costs and project costs
One of the OEB’s long term priorities has been to establish consistency of practice in terms of connection rules and procedures. A central objective in this effort must be ensuring that undue costs are not imposed on new and proposed projects. For example, in some cases project proponents have reported unnecessarily high costs for interconnections (studies, protective relaying, lines and transformers, etc.).
At the same time, it will be important to establish rules and procedures for ensuring that upstream costs for adaptation experienced by the utility are kept within reasonable bounds.
9. Establish a collaborative process to guide and define best practices for DER development and integration over time
To ensure a level playing field for the critical process of new connections, it would be timely to organize structured consultations on the design of regulatory encouragements regarding connection speed, completion rate, and cost accuracy. (Adjusting the drivers, duties and expectations for utilities to make sure they give equal opportunities to wires and NWAs or non-wires alternatives.)
At the same time it would be appropriate to initiate consultations with the aim of defining terms for the ongoing operation of a collaborative body focused on best practices for management of distributed resources, to ensure safety and reliability concerns are met while placing the least burden on the emerging market.
It would focus on four major areas:
a) Appropriate systems for management of DERs within an LDC
b) Innovative approaches to connection and operation of DERs
c) Alleviating unnecessary obstacles to distributed energy market activity
d) Defining a reasonable set of service standards for LDCs to use when responding to connection applications from DERs.
One of the key over-riding objectives should be to ensure that energy technology options that are economic and benefit customers are readily accommodated by LDCs, and accessible for adoption by customers. To meet this objective, the regulatory framework, being focused on economic efficiency, should not be designed to systematically confer special benefits on DERs that are not available to other forms of generation. At the same time, cost savings are likely available from the alleviation of unnecessary regulation in certain cases where it is not required for safety or reliability.
With the benefit of advanced LDC control systems and analytical tools appropriate to each site, innovative connection and operation solutions will likely become apparent in some cases. These may allow DERs to be installed with fewer instances of time-consuming impact assessments, unnecessarily costly installations, and/or restricted operation rules, while still meeting overall economic objectives, and maintaining the LDC’s ability to operate a safe and reliable distribution system.
It is timely to establish an industry wide technical standards group to serve as a centre of expertise and guidance, and to help ensure the necessary protections are in place for LDCs and customers, without excessively burdening new projects. This would serve as a form of protection against the potential for unnecessarily lengthy and costly studies, impact assessments, and complicated protection schemes.
There is considerable scope for innovation on the wires side of the business. A great deal of innovation and adaptation is required of LDCs just in figuring out how to manage and balance the myriad of new resources likely to be attached to their systems. The ACI recommendations are reasonably aligned:
“3B. Encourage cost-effective investment by utilities in monitoring and control capabilities to the extent that these enabling investments will help them efficiently manage a more dynamic distribution system.”