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Power SystemPlanning and Investment

• Richard Sedano and Richard Cowart
• NEDRI
• March 26, 2003

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Demand Side Solutions Have Value

• But there are barriers
• Solving Structural Barriers to Demand Response
• Involves addressing planning and investment
  practices
• Also removes some barriers affecting energy
  efficiency and distributed generation

3
Priorities and Realities

• Electric Market is Regional
• Public Policy Involved, Just a Matter of When
• Potential to improve investment decisions or slow
  them down
• Resource Parity Assures Least Cost
• Principles apply throughout power system

4
Objectives

• Market oriented decisions with competitive forces
  at work
• Cost causation has merit
• Socialization granted only after passing a test
• Cost recover mechanisms comparable for all
  resource solutions

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Demand Resources in Grid Planning and Investment

• Demand resources have a role in three areas
• Regional System Planning
• Regional Grid Investment Policy
• Distribution Utility Planning

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(A) Symptoms of Regional Electric Market Problems

• Lack of timely transmission line proposals
• Generation construction that causes congestion
• Lack 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

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System Planning Recommendations

• Regional cooperation by states
• Continuing regional planning process
• Driven by system needs
• All solutions available

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Multi-StateCoordination

• Recommendation 1 Increase coordination among the
  states and between states and the ISO
• Efficiency to regulatory decision-making
• Certainty to the marketplace
• Guide ISO toward more efficient planning
• Avoid duplication of effort
• Support authority, independence of states

How far will States Go?
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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

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Regional Power System Planning Process

• Formal Role for State Governments if states want
  it
• Focus on areas of interest
• Involve more stakeholders
• Attract all solutions

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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

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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 parity
• Least cost standard
• Cost recovery comparability

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(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.

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(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.

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(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.

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(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.

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(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.

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(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

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Distribution needs distinct from regional system
needs

• Localized
• Distinct performance of individual circuits
• Timing driven by specific events or customers
• Shorter time horizons

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Redefinition of Distribution Planning

• Focus on wire solutions to address growth-related
  challenges
• Challenge to distribution planners
• A distinct source of value from customer
  resources avoided distribution costs
• Construction
• Losses, voltage support
• Full menu of customer resources

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Distributed Utility Planning

• Focus on circuits
• Factor in cost of incremental customer resources
  (societal test)
• Regulatory Policy matters
• Expect DUP to consider customer resources
• Pricing
• Break link between net income and sales
• Staffing
• Pilot

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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

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RTEP Process Flow with observations
Need longer horizon
Opportunity to engage more rings of interested
people
Meetings throughout region are good
Public Policy input is inconsistent, not reliable
Unequal treatment for cost recovery among
resources is too large a barrier to get best
choices
Non-transmission alternatives not permitted to
compete (planning, cost recovery) here unclear
how any distributed resource options are
considered
Declaration of appropriate projects lacks weight
Queueing remains a problem
No effect on state decision-making on pricing,
metering, siting, distributed resources