It may come as a surprise to some, but David Owens, executive VP of the Edison Electric Institute, and Ralph Cavanagh, co-director of the Natural Resources Defense Council’s energy program, seem to have a lot in common.
Owens leads the trade group representing the nation's investor-owned utilities; Cavanagh is an attorney with an environmental organization that heavily influenced the new EPA carbon rules. But the two do share similar perspectives on certain contentious issues.
“I’m sometimes surprised that he and I do agree on many things,” said Owens, speaking at a PJM Interconnection grid event this week in Washington, D.C.
Both men argued in favor of decoupling utilities' rates of return from electricity sales, agreed that utilities should be distribution system operators managing distributed generation, and also advocated for policies that ensure solar customers pay their fair share of grid costs.
The two also agree about the need to evolve the grid and enable customers to generate and sell their own energy generation or energy efficiency.
“The utility business model is a model that’s got to understand and deal with the changes that are taking place, because the customer wants the ability to reduce energy, the customer wants green energy, and the utility has the responsibility of keeping the lines open,” said Owens.
As the adoption of distributed energy resources and energy efficiency increase, both Owens and Cavanagh said there’s a vital need for regulatory policies that support fair and adequate cost recovery to support the emerging grid.
The first step is to decouple utilities’ revenues from volumetric energy sales so they can focus on meeting customers' energy service needs, rather than just selling more electricity. The recovery of utilities’ non-fuel costs, therefore, should also reflect the costs of maintaining and improving the electricity grid.
The next step is for regulators to break the linkage between fuel and non-fuel costs. As more customers go solar, there still needs to be spinning reserve available to fulfill customer demand when the power supply is not available. Monitors, sensors and other technologies are also required to make sure that power supply is reliable. Electricity prices need to be unbundled to properly reflect those grid-related services to consumers, said Owens.
As generation assets on the grid become more diffuse, there also needs to be some entity designated to oversee integration and reliability. That entity has to understand the existing network, be able to make decisions quickly at a systems level, and also attract institutional investment for grid enhancements.
“I call that 'the distribution system operator,'” said Owens. “I think the utilities are in the best position to do that.”
Cavanagh agreed that utilities are best suited to manage the evolving grid. “I am actually glad to see utilities aiming for this role,” he said. “Most of them are performing it already.”
But when it comes to distributed resources and energy efficiency, he added, it will be critical that the utility avoids favoring its own products at the expense of competitors.
Because of that risk, some stakeholders in the power industry are pushing to create an independent body in New York that operates like a regional transmission operator. Without it, some believe utilities might still have an incentive to prevent third parties from accessing the grid.
However, Cavanaugh disagreed. “Some think the alternative is bypass the utilities, isolate them and destroy them,” he said.
But, Cavanagh argued, “You’ll get more energy efficiency; you’ll get more distributed resources if utilities are motivated to promote them."
While that may be true in theory, clashes over solar net metering prove that the reality is far more complicated. And this is where the consensus between Owens and Cavanagh started to break down.
According to Cavanagh, a minimum bill is the most attractive way to make up for utility grid costs. High fixed charges, for which utilities are generally advocating, erode the benefits from saving energy and potentially kill the economics of rooftop solar, he said.
But Owens wasn’t sold on the minimum bill idea. “I don’t know whether I can fully agree that a minimum bill is fully compensatory to the investment [utilities are] making in enhancing the grid,” he said.
For Owens, it comes down to the individual customer. If a rooftop solar facility is producing power at peak times, it should be compensated for it, he said. But if that facility is using the grid for significant backup, or if the project requires major new investments in the grid, then the customer needs to pay more than others.
“I don’t agree [that you should] say to a rooftop facility, ‘You’re reducing carbon, so let me pay you for that externality.’ I have great difficulty with that concept,” he added. “And with all due respect, most of the value-of-solar tariffs I’ve looked at -- that’s really what they do.”
“It turns out that the retail rate is lower than the value-of-solar rate. I think that’s totally absurd,” said Owens. “That’s a false and a distorted price signal that you’re giving to the customer, and you’re not making any contribution to the grid. And more importantly, you’re unreasonably shifting costs to those who do not have rooftop solar.”
However, others at the PJM event argued that the solar industry could help customers better understand the value of the grid.
“We’ve had very, very good success at getting people to recognize the value of the grid, primarily because [the solar industry] is the facilitator of them having their distributed energy resource,” said Richard Rosenblum, the recently retired president and CEO of Hawaiian Electric.
In Hawaii, many customers come into contact with solar installers far more often than with the utility. No matter how many people Rosenblum said he dispatched to deal with customers, solar companies always had ten times more -- all because they have a profit motive. By partnering with the solar industry, Hawaiian Electric was able to educate customers about how the grid works, the problems facing the grid, and what the grid can offer them.
“It’s surprising how well and how easily it’s been picked up,” said Rosenblum.
As mumbles of skepticism broke out in the audience, he added, “It may seem odd, but it works.”
When asked whether he thought the solar industry could help customers come to better appreciate the value of the grid, Owens said, “I think so too.”