The Regulatory Assistance Project177 Water St.
Gardiner, Maine USA 04345Tel: 207.582.1135
Fax: 207.582.1176
50 State Street, Suite 3Montpelier, Vermont USA 05602Tel: 802.223.8199Fax: 802.223.8172
Power SystemPlanning and Investment
Richard Sedano and Richard CowartNEDRI
March 26, 2003
Demand Side Solutions Have Value
But there are barriersSolving Structural Barriers to Demand
Response:Involves addressing planning and investment
practicesAlso removes some barriers affecting energy
efficiency and distributed generation
Priorities and Realities
Electric Market is RegionalPublic Policy Involved, Just a Matter of
WhenPotential to improve investment decisions
or slow them downResource Parity Assures Least CostPrinciples apply throughout power system
Objectives
Market oriented decisions with competitive forces at work
Cost causation has meritSocialization granted only after passing a
testCost recover mechanisms comparable for
all resource solutions
Demand Resources in Grid Planning and Investment
Demand resources have a role in three areas:Regional System PlanningRegional Grid Investment PolicyDistribution Utility Planning
(A) Symptoms of Regional Electric Market Problems
Lack of timely transmission line proposalsGeneration construction that causes congestionLack of connection between electricity
investment decisions and environmental implications
Lack of consideration of customer resources to solve grid problems
Lack of co-ordination of investment plans by monopoly and competitive companies
System Planning Recommendations
Regional cooperation by statesContinuing regional planning process
Driven by system needsAll solutions available
Multi-StateCoordination
Recommendation 1: Increase coordination among the states and between states and the ISO
Efficiency to regulatory decision-makingCertainty to the marketplaceGuide ISO toward more efficient planningAvoid duplication of effortSupport authority, independence of states
How far will States Go?
Regional Power System Planning Process
Recommendation 2: Conduct a continuing regional power system planning process to identify system needs and alternative strategies to meet them.
Cyclical Transparent System needs treated over time Maximum planning horizon Maintain responsiveness to emergent conditions Improve public confidence
Regional Power System Planning Process
Formal Role for State Governments if states want it
Focus on areas of interestInvolve more stakeholdersAttract all solutions
ComprehensiveSolution Set
Recommendation 3: The outcome of a regional power system planning process should be an evaluation on an even-handed basis of a wide range of feasible solutions to emerging problems, including investments in generation, transmission, and demand-side options.
Regardless of the planning process, all reasonable solutions should be considered and evaluated similarly
Candidate solutions come from competitive and regulated entities State regulation would have to support solutions coming from
regulated entities Implementing a solution affects the economics of the others
System Investment Recommendations
Market oriented investments preferred State authority remains Cost causation is appropriate Socialization is appropriate for some reliability-
oriented investments Efficient Reliability Standard should apply
Resource parityLeast cost standard
Cost recovery comparability
(B) Grid Investment Policies Recommendation 4: Leave investment and siting decisions in the
hands of market participants and state regulators wherever possible, assigning cost responsibility to those who create the need for system upgrades, and those who benefit from them.
After grid problems and potential solutions are identified in the system planning process, these results should be posted publicly so that market participants can consider what actions they might take within the existing market structure to meet emerging needs. Wherever possible, RSAC should permit market-based and state-based responses to emerge.
Public, regional intervention to promote or pay for grid solutions should be taken only where it is evident that adequate resolution is not forthcoming in the market, or that the investment in question is one that, as a matter of equity, ought to be undertaken by grid managers with cost recovery imposed through tariffs.
(5) Efficient Reliability Test
Recommendation 5: ISO-New England, NEPOOL, and FERC
should apply an Efficient Reliability test, based on principles of least-cost analysis and resource parity, when considering proposals to socialize the costs of system improvements through wholesale rules and transmission tariffs.
(5a)Two principles Resource parity: Energy efficiency, load management,
demand-side bidding, and distributed resources – in addition to traditional generation and transmission resources -- are all potentially cost-effective means of meeting reliability needs identified by system operators and power pool managers. NEDRI recommends that when socialized cost recovery is sought, that demand-side resources be treated comparably to supply-side and wires options both in analysis and in access to funding.
Least-cost standard: A principal criterion for selecting a solution that is qualified to receive socialized support should be whether it is the lowest-cost, reasonably available solution to an unmet system need, considered on a total cost basis.
(5b) Screening proposals to socialize grid costs
NEDRI recommends that NEPOOL, ISO-New England, and FERC adopt the following standard as a means of screening proposals to socialize grid enhancements:
Before “socializing” the costs of a proposed reliability-enhancing investment through tariff, uplift, or other cost-sharing requirement, ISO-NE (and FERC) should require the applicant to demonstrate: (1) That the relevant market is fully open to demand-side as well
as supply-side resources; (2) That the proposed investment is the lowest cost, reasonably-
available means to correct a remaining market failure; and (3) That benefits from the investment will be widespread, and thus
appropriate for support through broad-based funding.
(6) Comparable cost recovery opportunities
Recommendation 6: Ensure comparable cost recovery opportunities for transmission and non-transmission resource solutions
Whether a grid problem is resolved through a transmission or non-transmission solution, or a combination of them, the solution should qualify for cost recovery through transmission tariffs or wholesale uplift charges on the same basis.
(C) Distribution System Planning and Demand Resources
Recommendation 7: Distribution companies can and should apply recommendations 1-6
Distribution needs distinct from regional system needs
Many circuits, shorter horizons Practices focus on traditional solutions Demand opportunities significant All resource planning focus requires a new
perspective
Distribution needs distinct from regional system needs
LocalizedDistinct performance of individual circuits
Timing driven by specific events or customers
Shorter time horizons
Redefinition of Distribution Planning
Focus on wire solutions to address growth-related challengesChallenge to distribution planners
A distinct source of value from customer resources: avoided distribution costsConstructionLosses, voltage support
Full menu of customer resources
Distributed Utility PlanningFocus on circuitsFactor in cost of incremental customer
resources (societal test)Regulatory Policy matters
Expect DUP to consider customer resourcesPricingBreak link between net income and sales
StaffingPilot
Possible Roles of the Multi-State Entity
Transmission Siting Advice
Regional Resource Adequacy
Congestion Monitoring Market Power
Monitoring Gas Supply Co-
ordination
Environmental Issue Integration
Technical Potential Assessments
Innovative Solutions Advice
Public Benefits Co-ordination
Need longer horizon
Meetings throughout region are good
Public Policy input is inconsistent, not reliable
Non-transmission alternatives not permitted to compete (planning, cost recovery) here; unclear how any distributed resource options are considered
Unequal treatment for cost recovery among resources is too large a barrier to get best choices
Opportunity to engage more “rings” of interested people
RTEP Process Flow with observations
Declaration of appropriate projects lacks weight
Queueing remains a problem
No effect on state decision-making on pricing, metering, siting, distributed resources
