This piece was originally published in Energy Biz Magazine's Spring 2015 edition. It is available here on Energy Biz Magazine's Website.
A PROCESS OF TRANSFORMATION is taking place in the U.S. electric power sector. Dynamic changes in technology, policy and markets propel the transformation. Costs for technologies such as wind and solar power have dropped as markets have grown. Energy efficiency and demand response save energy and money and reduce stress on the grid. Advanced metering generates data and insight into how we can manage electricity even better.
Customer expectations are changing. From Nest learning thermostats to rooftop solar, consumers want more. They want greater control over their electricity use and spending. They want the kinds of options and functionality they have come to expect from their smartphones. They want to be as connected with energy as they are with information, with communication that goes two ways.
These developments push utilities in new directions. Utilities recognize their need to adapt, and they want guidance from regulators. They need to learn how to change and remain successful as regulated businesses. They want clarity and stability.
The process will only gain momentum under the U.S. Environmental Protection Agency's proposed Clean Power Plan to reduce carbon emissions from the electric power sector. The process also will provide the clarity utilities need to invest for the future.
Advanced Energy Economy is a national business association representing companies that provide a wide range of technologies, products and services to make the energy consumers use secure, clean and affordable. AEE works with all stakeholders in this process of change to maximize benefits for customers and the U.S. economy.
Through our Advanced Energy Economy Institute, AEE has been engaging utility executives, state regulators and our member companies in a series of dialogues on the new utility business and regulatory models required to give us a 21st-century electricity system. In forums held all over the country, we have explored the implications of distributed energy resources, the need for greater reliability and resilience, and the demand for new consumer services.
States such as California, Massachusetts, Minnesota and Hawaii are turning the ferment over utility reform into regulatory action. In New York, AEE is deeply involved in Gov. Andrew Cuomo's Reforming the Energy Vision initiative and Public Service Commission proceeding where these issues are being discussed.
As a contribution to that proceeding, the AEE Institute commissioned a white paper from Synapse Energy Economics outlining a new framework for valuing distributed energy resources that reflects all sources of cost and benefit.
Against this backdrop of our evolving electricity system comes the proposed Clean Power Plan. The contours of EPA's plan closely track what's already happening in the electric power system. As a result, states will find they are able to develop compliance plans that both capitalize on changes that have already been made and accelerate them.
Unlike previous air regulations, the Clean Power Plan treats the electric power sector as a system, rather than a collection of generating facilities regulated plant by plant. In setting emission standards for individual states, EPA considered a range of ways that carbon emissions associated with electricity generation could be reduced. These include ways to lower emissions from regulated facilities - namely, increasing the efficiency of existing coal-fired power plants - along with making more use of lower-emitting natural gas plants, which are underused in many locations. EPA also identified measures "outside the fence line" of power plants as part of its best system for reducing emissions. These include expanding zero-emission renewable energy and maintaining existing nuclear power capacity while reducing electricity consumption through energy efficiency and demand management improvements.
These elements of the Clean Power Plan mirror changes that have already begun. Dispatch is shifting from coal to natural gas based on price and air quality requirements. Deployment of renewable energy is growing because of rising state policy goals and falling prices. Demand-side measures encouraged by states and grid operators are slowing load growth and managing demand peaks. As complicated as compliance plans may be, the Clean Power Plan doesn't require anything new, just more of it.
There is still the question of whether the Clean Power Plan requires the electric power system to change too much, too fast. That worry is generally expressed in terms of reliability. Last November, the North American Electric Reliability Corp. (NERC) issued its initial reliability review of the Clean Power Plan. In that review, NERC expressed doubts about each of the components used by EPA to set state targets. It then raised specific concerns about maintaining reliable electric power service should states be required to meet expectations they considered unrealistic.
Reliability is NERC's mandate, and flagging such concerns is its duty. Yet, in a detailed assessment of NERC's reliability review commissioned by the AEE Institute, the Brattle Group found that NERC's doubts about the feasibility of achieving the overall targets are largely unfounded because NERC failed to consider the many ways - technical, operational and market-based - that any reliability concerns could be addressed.
"Following a review of the reliability concerns raised and the options for mitigating them, we find that compliance with the CPP is unlikely to materially affect reliability," the Brattle Group asserted. "The combination of the ongoing transformation of the power sector, the steps already taken by system operators, the large and expanding set of technological and operational tools available and the flexibility [provided to states for compliance] under the CPP are likely sufficient to ensure that compliance will not come at the cost of reliability."
Implementation of the Clean Power Plan will require states that have done little to begin the transition to a 21st-century electricity system to get started. Even those states where change is well underway will have to do more. As a result, what has begun as a dialogue about the future of the electric utility will become an imperative to find new ways of doing business.
Utilities and their regulators will have to update their business models and regulatory frameworks to accommodate this transition from the electric power sector of the 20th century to a 21st-century platform - one that truly manages central and distributed energy resources as a system, meeting environmental goals and meeting customer needs in new ways.
