The electricity grid is in the beginning stages of a fateful evolution.
For a century or so, the model for the grid has been "hub and spoke" — electricity has been generated in large central power plants and spilled through wires into customer buildings. It works like water flowing downhill through canals and channels into basins; the basins are passive recipients, and the water only flows one way.
In the grid of the future, electricity will behave less like water and more like information. Everyone will consume it, produce it, store it, and share it. The customers at the ends of the wires will become active participants — producer/consumers, or "prosumers," in the awful jargon — and hub-and-spoke will give way to a multidirectional network.
In short, the grid will become less like a public water system and more like the internet, a networked platform upon which all sorts of innovations and markets can grow.
The internet is blessed with a community of thinkers, advocates, and activists who recognize that the full benefits of the web will only be unlocked if it is open to everyone, with no barriers to full, equal access. That's what the net neutrality movement is about.
As the power grid evolves into a network, it needs the same protections, for many of the same reasons. It needs a grid neutrality movement.
Nerds to the rescue!
The five core tenets of grid neutrality
In this month's issue of Public Utilities Fortnightly, a group of electricity analysts — Jenny Hu, an analyst at Clean Power Finance, Shayle Kann, head of GTM Research, James Tong, VP for strategy and government affairs at Clean Power Finance, and Jon Wellinghoff, lawyer for Stoel Rives and former chair of the Federal Energy Regulatory Commission — have issued a call for grid neutrality, offering five broad tenets they say should guide coming efforts at grid reform.
Here are the tenets:
Here they are as text, with a little explanation (quoted from the graphic above):
- The consumer empowerment principle: Empower the consumer while maintaining universal access to safe, reliable electricity at reasonable cost. (Maximize consumers’ ability to achieve their individual energy needs and the needs of the grid without compromising the universal right of all consumers to access a safe, reliable energy service at reasonable cost.)
- The commons principle: Demarcate and protect the "commons." (Establish clear operational and jurisdictional boundaries for public and private interests.)
- The risk/reward principle: Align risks and rewards across the industry. (Allocate financial risks to stakeholders who are most willing and able to assume them. Safeguard the public interest by containing the risks undertaken by private parties to those participants.)
- The transparency principle: Create a transparent, level playing field. (Promote and protect open standards, data access, and transparency to encourage sustainable innovation on the grid. Prevent any single party — public or private — from abusing its influence.)
- The open access principle: Foster open access to the grid. (Allow all parties who meet system-wide standards the opportunity to add value to the grid. Apply all standards evenly and prevent any non-merit-based discrimination.)
Using the five tenets to analyze a recent utility case
These principles are a bit abstract, so to show how they work in action, the authors use them to analyze a recent bit of hot utility action in New York.
As you recall, New York is in the midst of a hugely ambitious rethink of its energy systems, including its power utilities (I wrote posts about it: one, two), but the authors hone in on a particular episode, an early harbinger of those reforms.
It begins with New York utility Con Edison:
Con Edison faced a situation common to many utilities. Electricity demand growth in Brooklyn and Queens had increased significantly, threatening by the year 2018 to overload the capabilities of feeders serving two substations (Brownsville 1 & 2) by 69 MW. Historically, utilities in Con Edison’s position met similar grid needs by constructing new substations, feeders and switching stations, which in this case would result in an aggregate cost of over $1 billion. But this time, in July 2014, Con Edison solicited offers to fill this need not only in the traditional way, but also by non-traditional resources.
The plot thickens!
So Con Edison needed 69 MW of new grid capacity to handle the rising load. What it proposed was novel: It would get 17 MW of that capacity the traditional way, by investing in grid infrastructure, but it would get the other 52 MW by soliciting help from third-party suppliers of distributed energy resources (DERs). It would put out a request for proposals (RFP) saying, in effect, "We have a problem; help us solve it."
Most of the responses to the RFP came in the form of "demand management." The goal of demand management is to make demand a controllable ("dispatchable") resource. Each customer is paid a small amount to allow his demand to be slightly dialed back during peak hours; those customers are aggregated together (by a third-party "demand response aggregator") until the cumulative demand is enough to make a difference to grid congestion.
Thus was born the Brooklyn/Queens Demand Management (BQDM) program.
The total cost of ConEd's proposal was $200 million, which is ... considerably less than a billion. The New York Public Service Commission (PSC) approved it.
So let's look at how this case stacks up to the five tenets of grid neutrality.
1) Empowering customers: By making some traditional infrastructure investments just in case, ConEd fulfilled its responsibility to assure reliable service. But by filling most of the need with DERs, it drew in private companies and empowered customers to lower grid-wide costs.
That's the dual mandate: reliable service and empowering customers.
2) Demarcating the commons: The idea here is to clearly separate monopoly activities from market activities, and to keep the utility out of the latter. So in this case, ConEd made some traditional grid investments and will own the infrastructure; those investments will be "rate based," i.e., charged to customers through rates.
But the nontraditional portion of the proposal, the demand-management products and services, will be owned by third parties. ConEd will procure it, but not own any of it, so as not to wield undue influence on market competition.
Thus: regulated monopoly on one side, market on the other.
3) Risk and reward: ConEd made money on the deal in two ways. It got the traditional rate-based returns on its traditional grid investments. And, through "performance-based regulation," it got a bonus for encouraging DERs. But the PSC turned down ConEd's request to also capture 50 percent of the savings from the nontraditional, customer-side programs. The PSC doesn't want ConEd to have any stake in what products and services the market offers up. And it wants market participants to capture the full market value. So all the savings from the BQDM program went straight to customers.
The utility makes noncompetitive investments, for rate-based returns; market participants make competitive investments, for market-based returns; never the twain shall meet. Or at least never the twain should meet.
4) Transparency: The PSC insisted that everything be upfront. A third party oversaw the issuance of the RFP and reported the results to the PSC. The RFP was clear about grid needs and what kind of DERs could meet them. ConEd will issue public reports on the new programs, quarterly. Everyone had all the information at every stage.
The more information is clear and shared, the more neutral the grid is for prospective market participants.
5) Open access: The cool thing about ConEd's RFP is that it didn't specify how the grid need was to be met. It was neutral among technologies and solutions. That meant that any company with an idea for how to shift or reduce demand could jump in. And sure enough, it elicited 78 responses, ranging from demand management to energy efficiency to distributed generation.
That's what open access means: a level playing field for any participant with a product or service that meets grid needs.
Using grid neutrality as a guide for future utility reform
So the ConEd deal serves as a sterling example of the five tenets of grid neutrality in action. It empowers customers, keeps monopoly activities and returns separate from market activities and returns, makes all relevant information public, and provides a neutral platform that can be accessed by anyone with a grid solution. Good show, New York.
However, as the authors stress, these principles are quite general; they can be adapted as a guide to a whole variety of utility proceedings or reforms.
That's a good thing, because utility reform is only going to gain steam. A lot of states are going to be grappling with a lot of difficult questions soon; it will be nice to have a clear, simple set of principles they can consult for guidance.
The grid is becoming a network. Ideally, it will become an open-access platform that enables distributed innovation. But there's every bit as much chance it could become a balkanized, tiered-access, incumbent-dominated, inefficient mess (even more so than it is today, that is).
Vested interests and path dependency lurk around every corner. Here's hoping a citizen-driven grid neutrality movement arises, as organized and committed as the one now defending the internet, to make sure the grid of the future delivers on its potential.