In 2009 Maine passed its Smart Grid Policy Act. One of its many provisions not implemented was the creation of a Nonwires Alternative Coordinator within the Public Utilities Commission. In 2017 the PUC chose to put this responsibility with the utilites themselves and asked them how they would do it. They have not yet answered. The following is testimony given in support of LD 1181, An Act to Reduce Electricity Costs Through Nonwires Alternatives, which would require the Coordinator be established immediately, but places the function within the Public Advocate’s office.
March 27, 2019
Senator Lawrence, Representative Berry, members of the Joint Committee, my name is Gerry Runte. I am a constituent of Senator Lawrence and live in York. Thank you for the opportunity to testify today in support of LD 1181.
Advocacy for innovative rate regulatory structures that acknowledge and value the benefits of demand reduction and distributed generation, aka, Nonwires Alternatives, has occupied a major portion of my 44-year professional career, a career almost equally divided between senior management positions at investor owned electric utilities and at private firms in the alternative energy technology sector. Presently I operate a private consulting firm, Worthington Sawtelle LLC, assisting startups with their go-to-market strategies. I am also a senior consultant with CMG Consulting, a national firm specializing in smart grid and wholesale energy market development. I am here today as a private citizen and my comments do not represent the views of CMG Consulting.
Our electricity delivery systems have been rapidly evolving from the electric utility business models of the early 20th century when energy delivery was a one-way path from central generating stations to the end user. New technologies have and will continue to emerge that are transforming this model of energy delivery, one that looks much more like the multiple path connections of computer networks than the one-way pipelines of the past. The best and most reliable and economical solution to serve new demand is no longer limited to the construction of more generation carried over more wire capacity: the optimum solution could include mitigating demand growth through efficiency and demand response programs, serving it with local distributed generation, energy storage, and managing the grid in real time.
Consider distributed generation (DG). In addition to making electricity, DG can also be an important component of the electricity delivery system. DG can be used to enhance reliability, resiliency and efficiency, as well as maximize capital utilization. The notion of local distributed generation benefiting distribution infrastructure is not a new concept. Pacific Gas & Electric’s research department identified a number of benefits to the distribution and transmission system in the late 1980’s and ultimately conducted a full-scale test by collocating a 500 kW solar array at their Kerman Substation to measure its benefits to their distribution infrastructure. The Kerman project demonstrated that the solar installation enhanced reliability through voltage support, reduced transformer maintenance by lowering required cooling at peak hours, deferred transmission capacity increases; offset peaking plant dispatch; deferred capital investments in substation upgrades; and enhanced system reliability by reducing capacity margins. While in the utility industry, I was involved with projects that used solar installations to prove similar benefits and large fuel cells to provide services to commercial users looking for significantly higher reliability and resiliency.
Yet where are we now, 26 years later? The benefits of Nonwires Alternatives have been quantified in detail in several utility systems and are well understood by the utilities themselves. Why, then, is distributed generation, not an integral component of transmission and distribution system planning options, except perhaps in California, Minnesota, District of Columbia, New York, and Massachusetts?
The answer is simple. Most electric utilities, including Maine’s two IOUs, operate within a regulatory structure that was designed to compensate monopolies delivering power in that one way, 20th century system I described earlier. This is a system purposely constructed to reward large capital investments in wires and large central generating stations to always be available to support economic growth. This system worked well for many years. Growth was met, electricity was abundant and available when needed to fuel the economy. But this system did not contemplate the rise of local generation or storage that could be discharged back into the system. Or technology with the ability to monitor, in real time, flows throughout the system or manage two-way power distribution. Utility business models are defined by the regulatory rules in which they operate. Investing capital in a new line or reinforcing an old one to meet growing peak demand is the only option in the playbook because that investment is recognized in rate base; buying locally generated electricity mitigate that peak would accomplish the same end, however the cost of buying that service is not recognized in rates and therefore that option has zero benefit to the utility because it is a benefit that it cannot value.
In addition to constraining utility planning to less optimum operation and costs, this regulatory structure has also limited the growth of distributed generation markets. Yes, solar and wind have grown considerably in the last several years, but primarily as surrogates for large central generation using the old paradigm. I can speak from experience that developers and marketers of distributed generation systems see additional markets for their products in those jurisdictions that are undergoing innovative regulatory reform.
There are many models that are currently in implementation or design to move utilities into 21st century regulatory structures that solve this problem. Some states have instituted comprehensive rate regulatory reform which completely realign utility business models such that they can benefit from and value these new generation and communication technologies while lowering costs and increasing reliability. They are redesigning electricity delivery systems that are far more analogous to computer network that the old, one-way pipeline. Other states have instituted partial realignments through the creation of Distribution System Operators (NY) or a Distribution Power Authority (DC) who have jurisdiction over wired company plans and manage local market platforms that trade capacity, grid support and ancillary services, as well as demand reduction. In so doing, the utilities have been transformed from strong opponents to advocates of this new utility system paradigm because they have been able to alter their business models to take full advantage.
Change the rules and the business model will follow.
As you are aware, Maine began to address the design of a 21st century electricity system with its Smart Grid Policy Act in 2009. One element of that Act required the creation of a Nonwires Alternative Coordinator function within the Public Utilities Commission to ensure options using Nonwires Alternatives were given full consideration in system plans as an option, along with traditional wires investments. Unfortunately, the Nonwires Alternative Coordinator requirement was ignored for 8 years and then the function was effectively delegated to the IOU’s for implementation at some later date. Consequently, it appears that by abdicating this responsibility, the PUC is not a suitable governing body for the placement of the Nonwires Alternative Coordinator.
Make no mistake, changing the rules is no simple. Matter. However, Maine can make up for lost time and begin the process of reforming how its electricity delivery system is regulated by taking this first step by establishing a Nonwires Alternative Coordinator. The Coordinator could be the source of guidance for the siting of new DG that optimize their enhancement of the distribution network. It could also pilot ways to incent utility leverage DG, with direct benefit to GHG reduction goals. This new office will be a win-win solution for both rate payers and IOU’s as Maine continues to advance its clean energy economy. The Public Advocate’s Office is a logical place from which the Coordinator to operate.
I urge your support and passage of LD 1181.