Pursuing Grid Modernization In A Monopoly Model

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Originally published on ilsr.org.

How can a state modernize its electric system when it’s in the hands of vertically integrated monopolies? We offer some thoughts via recent comments on a grid modernization docket being reviewed by the Minnesota Public Utilities Commission.

Background: the grid modernization docket is a relatively new requirement, asking the state’s largest investor-owned utility to explain how it will make investments in the distribution system to accommodate more decentralized energy generation and also plan effectively for resources on the distribution level in concert with its traditional large-scale power generation.

In the docket, Xcel Energy requested cost recovery for two new projects, an advanced distribution management system (mostly software) and a solar-plus-energy-storage project. Our comments follow, but highlight two issues: 1) how can a ratepayer-funded investment in the distribution grid also provide more information to those customers about where to most effectively build new distributed generation? 2) how do we balance the utility’s desire to learn about distributed energy (on the ratepayer dime) with an increasing need to learn how to manage relationships with third parties as the grid becomes more democratic?

The Advanced Distribution Management System

We support the utility’s request for certification of the Advanced Distribution Management System (ADMS) because we believe it can and should aid the utility in providing transparency for customers interested in the choice to manage their energy costs through deployment of distributed energy resources. In particular, we believe the Commission should certify the ADMS with the intention that it be one of the tools used by Xcel to provide publicly available information about distribution system capacity. This would extend the ADMS benefits to:

  • Direct distributed energy resource deployment into areas of the distribution grid with the lowest interconnection costs and highest value opportunity (such as the Belle Plaine substation location).
  • Reduce administrative costs to the utility responding to developer requests for preliminary interconnection information.

We also recommend that the Commission direct Xcel to make substation hosting capacity analysis publicly available as a condition of the ADMS project approval.  This information, combined with published interconnection queues, will save ratepayer resources through the efficient deployment of distributed generation.

Note: the statement in bold above is a key issue of making a utility’s electric grid more transparent for investment by individual or business customers in power generation. Without such data, distributed energy projects have much higher risk of acquiring a site for a solar or wind project that becomes infeasible because of grid constraints.

The Belle Plaine Solar and Storage Project

We also support certification of the storage and solar project in Belle Plaine but believe the Commission should carefully weigh two issues with the proposal.

The first is the relative value of utility control against the experience of managing third party relationships on the distribution system that are increasingly likely as customers have more choice in distributed energy solutions. As Xcel and other commenters have noted, the process of grid modernization takes place in an environment of rapidly expanding options for customers for energy services, from on-site power generation to energy storage to shared solar. Xcel is increasingly going to be interfacing with third party providers of service, even if Minnesota retains a system of vertically integrated monopolies. Requiring [a request for proposal] for this solar and storage system may provide valuable experience to the utility in managing third party resources on the distribution system. Contractual language between the third party and Xcel could accommodate the utility’s desire for control over and information about the system operation.

The second issue is the access to system operation and cost-benefit data as a condition of cost recovery. The valuable information provided by this pilot project should be publicly available in service to several outcomes:

  • Important context for the state’s value of solar formula, including how and how much energy storage can enhance that value.
  • Illustrating potential value streams for energy storage in the Minnesota market, including currently available markets (e.g. MISO) and opportunities for pricing these values on the distribution grid.
  • Providing an illustration of how distributed energy resources can alleviate capacity constraints on the distribution system (and how to reflect that value in publicly available data on distribution hosting capacity)

Public availability of this information should be required regardless of the ownership structure of the solar and storage project, either as a contractual obligation for a third party or a contingent for cost recovery by the utility.

Distribution Study

Minn. Stat. §216B.2425, Subd. 8 requires that utilities operating until a multi-year rate plan to  “conduct a distribution study to identify interconnection points on its distribution system for small-scale distributed generation resources and (to) identify necessary distribution upgrades to support the continued development of distributed generation resources”.  If Xcel’s multi-year rate plan is approved, the Commission should direct the Company to file a publicly-available distribution study with hosting capacity analysis at the earliest reasonably possible date after the completion of the rate case, and no later than November 1, 2017 as required by  Minn. Stat. §216B.2425.

Note: this last item re-iterates one from the ADMS section: if utility customers pay for a system to make the distribution system easier to manage in an era of decentralized energy, they should have access to information about how to best invest their own money in reducing their energy costs in a way most compatible with the grid.

Photo Credit: Tyler Wilson via Flickr (CC BY-NC-SA 2.0 license)

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John Farrell

John directs the Democratic Energy program at ILSR and he focuses on energy policy developments that best expand the benefits of local ownership and dispersed generation of renewable energy. His seminal paper, Democratizing the Electricity System, describes how to blast the roadblocks to distributed renewable energy generation, and how such small-scale renewable energy projects are the key to the biggest strides in renewable energy development.   Farrell also authored the landmark report Energy Self-Reliant States, which serves as the definitive energy atlas for the United States, detailing the state-by-state renewable electricity generation potential. Farrell regularly provides discussion and analysis of distributed renewable energy policy on his blog, Energy Self-Reliant States (energyselfreliantstates.org), and articles are regularly syndicated on Grist and Renewable Energy World.   John Farrell can also be found on Twitter @johnffarrell, or at jfarrell@ilsr.org.

John Farrell has 518 posts and counting. See all posts by John Farrell

14 thoughts on “Pursuing Grid Modernization In A Monopoly Model

  • Why assume the survival of the silo monopoly model? The UK, Texas, Germany, China, and India all show that splitting generation from transmission works fine and is clearly the way forward.

    • I always find it weird that “socialist” Europe is much further in liberalising the electricity market than the free-market idolising US. My guess is that in the US corporate socialism counts as capitalism.

      • Don’t forget how much cheaper electricity is in the US.

        • Max residential rate in Palm Springs (Tier 5) is -/+ 50 cents per watt (hour). In Memphis that maximum rate is 12 cents.
          Cheapest (from memory) rates are 12 cents (CA) and 4 cents (TN)

        • Do you mean:
          a) this removes the incentive to the public to make this an issue


          b) the monopoly model makes electricity cheap?

          In case you mean b): The price difference is mainly due to higher taxes and higher investments in grid infrastructure resulting in a much more reliable grid.

          Also higher electricity prices are not necessarily a bad thing. Average monthly German electricity bills are about the same as the US ones, without compromising the standard of living. So apparently these prices help to make people more efficient.

          • Don’t read too much into this, based on some chart showing average US fuel costs about half Europe’s. I just dropped it in to remind that the much maligned preoccupation with commercialisation and competition, with all its flaws often results in American price levels and a standard of living which are the envy of the rest of us.

          • Sorry, am am not envious. I am very happy with my European affordable health care, well taken care off infrastructure, affordable education etc.

          • Europe is a very varied continent .

      • There are a few countries around that have governments whose primary purpose is to take care of the people and they do it with great facility. At least if you compare their results to others. Two are in Scandinavia. They do studies that aren’t funded by those with financial interest in the studies’ stories. They spend a lot of time analyzing their social systems to make them both productive and cost effective. Recidivism rates in jails is less than 10%. Not 90% (USA after 3 years)
        Teachers are trained, paid and respected more than lawyers or public administrators. Students get individual attention and the results after a generation make most other systems look weak or obsolete. I could go one but these are socialist programs. They exist without impeding the capitalist culture in the land. They are both tools of government that have to be applied in everyone’s best interest, according to a mercurial situation. They’ve figured that out, we haven’t.

        (They pay more taxes, live longer, travel internationally more, and are far healthier)

  • “How can a state modernize its electric system when it’s in the hands of vertically integrated monopolies? ”

    By fiat, of course. Monopoly utilities exist at the beck and call of legislatures and the Executive branch. And, lest we forget, they received monopoly status because they are chartered to act in the public interest.

    When we have utility monopolies working against the public interest, ie, working against renewables – they have broken their contracts. They should be dissolved, ie, made property of the state, nationalized, whatever. Sooner or later they will be begging for it anyway, as they will have too much stranded fossil fuel assets, too many fleeing shareholders, and not much value to anybody.

    • That about nails it, I’d add (that) their long term debt and other financial responsibilities make them as attractive as Greece. SoCalEdison has at least one Nuclear reactor it just borrowed and spent a few $100 million on, (twice, still didn’t work) and now are spending untold thousands on estimates, of how much it’s going to cost to rid the beach of it’s presence. We’re still paying a monthly stipend to cover what was stolen during the Enron scandal. Would you buy a used car from these people?

    • Problem is of course your political system with legalised corruption in the form of campaign contributions. Legislators tend to defend the status quo, because they get money to do so.

      • This is why I keep talking about it. Even Tea Partiers get pissed off when they see Republican policy against PV incentives.

        Government has a legitimate and major role to play in the development of our energy future and that needs to be shouted repeatedly – even here at CleanTechnica as most commenters – and at times the authors as well – seem trained by neocon policy that corporations and the “free” market are the only answer.

        • The thing is that having a a vertically integrated monopoly in the hands of a commercial party has little to do with free-markets but also little to do with having the people (by means of the government) decide over the energy future.

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