By Tom Kleckner

ORLANDO, Fla. — The National Association of Regulatory Utility Commissioners’ annual meeting attracted about 1,000 regulators, industry representatives, consumer advocates and other stakeholders.

Attendees participated in discussions on the energy-water nexus, physical and cyber challenges to the nation’s critical infrastructure and EPA’s Affordable Clean Energy Rule proposed in August.

Here are some highlights.

RTOs Agree They are Policy Takers, not Makers

A panel of grid operators engaged in a lively discussion over the balance between states’ rights and market operations.

PJM CEO Andy Ott referred to his RTO as a “referee,” balancing resource adequacy requirements with other states’ integrated resource plans.

“Somebody has to step up and say there’s a cost shift here, and unfortunately, now that seems to fall on us,” Ott said. “The big debate is when you start to have competitive states take action to preserve competitive generation or favor certain generation, the crowd on the other side says, ‘Hey, I’m putting my money at risk. It’s unfair.’

“One of the big disappointments of the past year was our proposal to accommodate states and still have competition and integrity in the market. Folks are taking that proposal as being against green, anti-environmental, which is absolutely not the case. We’ve got to create a balance and make sure states’ interests are accommodated or respected.”

“We’re policy takers, not policymakers,” MISO COO Clair Moeller said. “All of the states maintain their statutory obligation to resource adequacy.”

Moeller said MISO’s problems are different from PJM’s because MISO’s residual capacity market is less volatile.

“The economics are between the asset owner and the regulator, predominantly,” he said. “The policy of whether we retire this coal plant or don’t is policy-driven. The predictability of those retirements is better because of that regulatory compact. It’s less volatile on the capacity side because the states maintain that obligation. Our obligation is to maintain the assets people bring to the market.”

Kathleen Spees, a principal with The Brattle Group, said she saw another mission for grid operators: help the states achieve their policy objectives.

“First and foremost is a carbon-free policy. Every decision the markets make helps or doesn’t help the state meet those goals,” Spees said, referring to Moeller’s comment on RTOs being policy takers. “I didn’t hear a solution for how you guys can use the markets to achieve the states’ objectives. Markets have proven to be really effective in achieving reliability.”

“We had a successful tranche of transmission construction to accommodate renewable portfolio standards,” Moeller said. “No one should confuse the construction to achieve those standards with what got built. What got built was to achieve the economic goals of those states. We’re charged with doing things in the public interest. It’s not up to us to pick between generation owners and the states. It’s up to us to decide this is the best path forward in the consumers’ interest.”

“We’ve tried to ensure we’re not putting up barriers to what state policies are trying to achieve,” said Anne George, ISO-NE’s vice president of external affairs. “The states have seen a lot of their environmental policies achieve what they were hoping to achieve. Because they had success, now we’re looking at more aggressive targets. They’re taking actions to move forward. Our job is to look at the marketplace and see how we have the market facilitate what the states are looking to achieve, and to see that others’ part of that regulatory compact have the revenues to provide reliability to the region.”

In the end, Ott said, maintaining confidence in the markets is the best way to ensure open competition.

“If we can’t have a viable market, then Plan B is to flip back to something like competitive procurement, where it’s almost like a synthetic reregulation at a regional level,” he said.

Panel: Flexible Resources not Being Fully Used

Speaking on a panel on flexible resources, Grid Strategies Vice President Michael Goggin said grid operators are not benefiting from all the capabilities renewable energy and distributed generation offer. Were RTOs to remove barriers to full market participation, he said, flexible resources would be able to provide ancillary services and operating reserves.

“All U.S. ISOs have rules that are either directly or indirectly preventing wind and solar from providing services they never thought they were capable of doing,” Goggin said. “Capacity markets are not ideal for bringing out the best of these resources. They’re focused on megawatts, not procuring flexibility. Real-time incentives, through operating reserves and ancillary services and energy markets, provide a much better way of procuring that service when it’s needed. Self-scheduled resources aren’t fully participating in the centralized dispatch, an impediment to bringing about the full capability of these resources.”

David Nemtzow, director of the Department of Energy’s Building Technologies Office, suggested buildings provide another resource that can be tapped. He noted there are 124 million buildings, 118 million of which are homes, in the U.S. They account for 40% of the country’s energy usage, at a cost of $380 billion per year.

“Buildings are an integral part of the electric system. The challenge is to make them flexible without any degradation of the services they provide,” Nemtzow said. In addition to reducing demand through LED lighting and sophisticated sensors that adapt cooling/heating systems and lighting to the number of people present, buildings can be “interoperable, integrated systems … that are grid-responsive,” he said.

“Buildings can signal the utilities, so when the system is stressed or needs resources, a signal can be sent to the building owner or operator and they can make voluntary decisions and participate with the grid,” Nemtzow said.

Ric O’Connell, executive director of GridLab, said the two most significant trends he sees in the industry are the adoption of large, central renewable generation by utilities and policymakers, and the adoption of distributed energy resources by customers.

“The real question is, how do these two major changes interact?” he said. “Do they complement each other, or do they frustrate each other?”

Answering his own question, O’Connell cited a paper he recently published that found the two trends do complement each other. “Part of that is because DERs add flexibility to the grid and enable the addition of more renewables,” he said.

“On a utility-scale system, think of wind and solar as must-take. Sometimes, the rest of the system needs to be there for them. DERs are that thing your system operators are constantly grumbling about. This technology isn’t actually that new. We’re just allowing these resources to expose these characteristics.”

O’Connell referred to Minnesota, where he said modeling revealed that DERs’ flexibility is key to unlocking higher renewable penetrations, and that limiting DERs would dramatically increase the cost to decarbonize the system. “We have to start thinking about how we connect these new technologies,” he said.

Minnesota Public Utilities Commission Chair Nancy Lange, speaking on a separate panel, said the state is doing just that.

Quoting Wayne Gretzky’s strategy of skating to where the puck will be, not where it’s been, Lange said that in distribution planning, the commission thinks it knows where the puck is going.

“We have 4,500 [electric vehicles] in Minnesota. Are we going to have 10,000 in a year, or 7,000 in a year, or 20,000?” she asked. “Those are some of the skate-to-where-the-puck-is-going questions.”

Commissioners Share Their Market Concerns

During an Electricity Committee devoted to market issues, Western regulators shared with their peers the latest developments in the Western Interconnection: CAISO’s expansion of its real-time balancing market; CAISO’s and SPP’s offerings of reliability coordination services as Peak Reliability enters its last year of business; and SPP’s life-support effort to integrate some of the Mountain West Transmission Group.

Utah Public Service Commissioner David Clark quoted NERC CEO Jim Robb, the former Western Electricity Coordinating Council CEO: “The transition that will occur in reliability coordination services in the West is the single most important reliability coordination effort facing the U.S. in the next two years. We have our eye carefully on this transition process.”

Clark said Western states outside of California are concerned about CAISO’s “further extension” of market services.

“The principal challenge for many is the area of governance,” he said. “In Utah, we have a great desire to retain our self-determination, with respect to our energy policy. If we ever become involved in a market being served by vertically integrated utilities, we would want a voice in the government. We would want the operations of that market to be transparent.”

“There’s still skepticism with states and utilities in the West when it comes to take that step to join an RTO,” New Mexico Public Regulation Commissioner Cynthia Hall said. “There’s a growing concern relative to the problems created by seams issues. There’s a reticence to becoming a[n RTO] member. The reasons are multiple, not the least of which is if they have to pay to play — they would have to pay a greenhouse gas adder in California.”

Illinois Commerce Commissioner John Rosales discussed his problems with PJM’s capacity market construct, which he said has succeeded in lowering wholesale prices and the cost of operating reserves.

“What’s been somewhat contentious are the parts that don’t work well, which is pretty much everything else,” he said. “For me, it’s inherently flawed and extremely complex. The capacity construct is constantly being revised. … There have been well over 30 revisions, which becomes very frustrating for the states. We don’t call it a market, because there are so many features that are administratively determined … price caps, the cost of new energy fluctuates, performance requirements. Most of us agree that generally, this construct fails to send the proper price signals to ensure the proper fuel mix.”

Competitive markets have a supporter in Michigan Public Service Commission Chair Sally Talberg, who said, “Whether deregulated or fully regulated or something in between … at the end of the day, we want affordable, reliable service. We all have a common goal in fostering those competitive environments. I feel like we’re dancing around with a patchwork of dos and don’ts at the state level, and that creates uncertainty.”

Indiana Utility Regulatory Commissioner Sarah Freeman said her concern is with a rapidly changing fuel mix. She said her state expects four coal-fired units to retire by 2023, and she noted there are no new builds on the horizon.

“If it’s happening in Indiana, it’s happening bigger and faster somewhere else,” she said. “Once RTOs become involved, we need to maximize our cooperation and avoid any protectionist tendencies we have.”

Seams issues topped Illinois Commissioner Sadzi Oliva’s lists of concerns. She said market inefficiencies show up on the seam, “typically as a result of incompatible market rules.”

“This increases the ultimate cost to the ratepayers,” Oliva said. “The seam between MISO and SPP will be the concern for the majority of us. Illinois’ concern is receiving an unwarranted cost allocation.”