The California Public Utilities Commission (CPUC) held a two-day workshop on rate design principles for commercial and industrial customers. To the the extent possible, rates are designed in California to reflect the temporal changes in underlying costs–the “marginal costs” of power production and delivery.
Professor Severin Borenstein’s opening presentation doesn’t discuss a very important aspect of marginal costs that we have too long ignored in rate making. That’s the issue of “putty/clay” differences. This is an issue of temporal consistency in marginal cost calculation. The “putty” costs are those short term costs of operating the existing infrastructure. The “clay” costs are those of adding infrastructure which are longer term costs. Sometimes the operational costs can be substitutes for infrastructure. However we are now adding infrastructure (clay) in renewables have have negligible operating (putty) costs. The issue we now face is how to transition from focusing on putty to clay costs as the appropriate marginal cost signals.
Carl Linvill from the Regulatory Assistance Project (RAP) made a contrasting presentation that incorporated those differences in temporal perspectives for marginal costs.
Another issue raised by Doug Ledbetter of Opterra is that customers require certainty as well as expected returns to invest in energy-saving projects. We can have certainty for customers if the utilities vintage/grandfather rates and/or structures at the time they make the investment. Then rates / structures for other customers can vary and reflect the benefits that were created by those customers making investments.
Jamie Fine of EDF emphasized that rate design needs to focus on what is actionable by customers more so than on a best reflection of underlying costs. As an intervenor group representative, we are constantly having this discussion with utilities. Often when we make a suggestion about easing customer acceptance, they say “we didn’t think of that,” but then just move along with their original plan. The rise of DERs and CCAs are in part a response to that tone-deaf approach by the incumbent utilities.
The analogy to Netflix is fascinating. As GTM points out, Netflix started out competing with Blockbuster in video DVDs, but then spilled over into video streaming (BTW, a market that Enron famously thought it could corner in the last 1990s.) So Netflix is now competing with both cable and broadcast companies. One can see how renewables could jump out of just electric service to building space conditioning and water heating, and vehicle fueling. Tesla is already developing those options.
Source: Renewables May Become the Netflix of the Energy Sector | Greentech Media
Alison Silverstein, who drafted the technical portions of the DOE grid study, says its summary and recommendations missed key points on grid reliability and resilience.
Source: Silverstein: If I’d written the DOE grid study recommendations | Utility Dive
Bjorn Lomborg, a Danish political scientist who has pushed for focusing spending on other pressing world needs over reducing climate change risk, has criticized the extension of California’s cap and trade program in the LA Times. I found two serious flaws in Lomborg’s analysis that undermine his conclusions.
The study that Lomberg cites about the electricity market impacts has not been reproduced since such extensive “contract reshuffling” can’t occur in the Western Electricity Coordinating Council (WECC) region or in the CAISO market. That’s just a simplistic modeling exercise not tied to reality. The fact is that thousands of megawatts of coal plants are retiring across the WECC at least in part in response to the cap & trade and renewables portfolio standards (RPS) adopted by California.
And then Lomberg writes “A smarter approach to climate policy — and one befitting California’s role as one of the most innovative states in the country — would be to focus on making green energy cheaper. ” Has Lomberg noticed that new solar and wind installations are now cheaper than new fossil-fueled plants? Contracts are being signed for less than 5 cents per kilowatt-hour–PG&E’s average cost for existing generation is close to 9 cents.
It’s as though Lomberg hasn’t updated his understanding of the energy industry since 2009 when the Copenhagen climate accord was signed.
California’s SB 775 would prohibit interaction with other states’ cap and trade programs. The best alternative to a federal program is a network of state markets.
“A cap-and-trade program in Virginia would be the third in the U.S., and buck direction from the White House to pull back on carbon regulation.”
Source: Virginia to establish cap-and-trade program in push to regulate carbon emissions | Utility Dive
Over the last year, various states have introduced subsidies and preferences for different electricity resources that have circumvented the independent system operator (ISO) markets that the Federal Energy Regulatory Commission (FERC) approved in the 1990s. FERC’s intent was that hourly markets would provide all of the price signals needed to induce appropriate investment. As we’ve found out in California, that hasn’t worked out that way. These markets have difficulty conveying the full price information for all services (in part because many utility-owned generators are subsidized through state rate of return regulation) and the environmental and technological benefits that may be difficult to monetize in an hourly price.
FERC has challenged some of these new rules, and both won and lost in the courts. Now the market monitor in the biggest market in the U.S. that covers the Northeast and Midwest is joining the fight. If the market monitor wins, this will raise the salient question of whether FERC needs to rethink its policy, or will states begin to withdraw from the ISOs to pursue their own policy goals?
PJM market monitor opposes Illinois nuclear subsidies | Utility Dive
The market monitor argues the state’s subsidies “unlawfully intruded” on FERC’s authority over wholesale interstate electricity sales.
Source: PJM market monitor opposes Illinois nuclear subsidies | Utility Dive