In the four years since Bruce Becker opened his groundbreaking apartment building at 360 State Street in New Haven, its most ground-breaking element – a clean-energy, 400-kilowatt fuel cell that can meet nearly all the building’s electricity needs — has been running at half power.
“We’re not being allowed to serve the apartments with the fuel cell,” Becker said. “We’re just supplying power to the common areas.”
Essentially, that’s because the state Public Utilities Regulatory Authority is still trying to figure out whether regulations allow him to sell power from the fuel cell to residents of the 500 individual apartments. While PURA has been pondering that, 360 State has become one of several poster children for what many state officials, clean-energy advocates, and even members of the business community believe is Connecticut’s broken utility system.
They contend it is mired in a 1930s business model in which electricity is distributed from a central source. The more sold, the greater the profit. And even though the state’s two utilities are now deregulated and their revenues don’t rely on the amount of electricity sold – they still are likely to view projects like the one at 360 State as threats.
“The project’s been penalized for being forward thinking,” Becker said.
But plans are in the works to change that. How to modernize the electric grid to integrate systems like that at 360 State St. — and make many other changes — will be a major undertaking of the Department of Energy and Environmental Protection, beginning early next year.
“It is a top priority of ours,” said Rob Klee, DEEP’s commissioner. “Grid 2.0, or whatever name you want to associate with it.”
There is a complex, unwieldy, interconnected morass of concerns to consider. A top one is the rate structure that resulted in the large increases PURA approved earlier this month for Connecticut Light and Power.
Others are the projected power crunch created by inadequate natural gas pipelines and the shutdown of several major power plants. There are questions about how best to integrate individual power systems, like the one at 360 State, into the overall electric system; how to make the grid resilient to climate change; how to make electricity less polluting; and how to help utilities re-invent what they do.
Klee is among many who say developing any new system will involve evaluating intangibles, such as its impact on the environment, not always calculable in dollars and cents. “There’s lots of sides to this coin,” he said, “and not all of them are always upsides.”
Holistic is the term thrown around most, meaning a system that can accommodate changes in technology and other factors far into the future. But implementing that could take years, if not decades, and many feel it’s imperative to make at least small changes soon, before utilities entrench themselves even further in the existing system.
“Doing nothing is not going to hold the status quo, it’s going to make things worse, and it will cost more in the long run,” said Janet Besser, vice president of policy and government affairs for the New England Clean Energy Council (NECEC), which released a report last summer on the need for grid modernization in the Northeast.
“Utilities are spending millions and millions of dollars every day to replace parts in the distribution system and to upgrade, and what we want to do is have the guidance provided by regulators that says to them: ‘OK, as you’re making these decisions about replacing the existing infrastructure, we want you to be thinking about these objectives.’”
How we got here
Many factors pushed Connecticut to take up grid modernization now, but arguably none more than the widespread outrage over CL&P’s most recent rate increases. Those increases — for the per-kilowatt-hour distribution charge and a fixed charge every customer pays regardless of power used — put the state at or near the most expensive electricity in the country.
CL&P and United Illuminating, which also has received hefty rate increases, use the revenue from those charges to build and maintain the distribution system they own – poles, wires, substations, switches. And then they have to pay for everything it takes to run them, right down to trimming trees around power lines.
One reason utilities have been asking for higher rates is a key component of grid modernization — distributed generation. This refers to systems, such as those using solar panels, that provide power to a single structure.
These systems are still attached to the grid, since sometimes they produce no power — a solar system at night, for instance — and sometimes they produce more than the structure needs. At that point the excess power goes into the grid. According to DEEP, systems totaling more than 200 megawatts (1 megawatt can power about 1,000 homes) have been connected to the grid since 2012, with many more still in the approval process.
In Connecticut, owners of such systems pay only for the grid power they use. That’s the total amount of power they use minus what their system provides. It’s a widely employed concept called net metering.
But utilities don’t like it. It means less revenue from the per kilowatt-hour fee. In addition, utilities are receiving less revenue because electricity users have become more efficient. The Independent System Operator that runs the New England power grid predicts that demand in the region will hold steady for the next 10 years.
The utilities, along with the Edison Electric Institute, which represents all U.S. investor-owned utility companies, argue that since their infrastructure costs remain the same regardless of how much power a customer uses, they need higher rates. But they say the customers who caused the reduced usage – those with distributed energy systems – should make up the difference, not all electric customers.
“That’s an inequitable system,” said Michael West, UI’s vice president for corporate communications. “The question becomes, ‘How do you make this a fair and equitable process and system for all ratepayers?,’ and that is a regulatory question for the policymakers to decide.”
A statement provided by Camila Serna, vice president for strategic planning and policy for CL&P’s parent company, Northeast Utilities, said: “We believe this is an opportune time to re-examine rate design, cost allocation, incentives and pricing to ensure that we protect those customers who do not choose solar from unfairly subsidizing those who do.”
The idea of charging those with distributed generation systems higher fees has incensed the environmental community, lawmakers, state officials and renewable energy companies. They argue such a penalty would be a disincentive for renewable energy and point to recent actions in Florida and Wisconsin that made solar energy less competitive. They say the utilities’ real goal is to keep renewable energy systems from taking their traditional electricity business away.
Jamil Khan, deputy director for policy and electricity markets for Solar City, the largest solar energy company in the country, said that’s why the company doesn’t do business in Florida.
“The whole idea of cost shift is false,” he said. “If customers use less energy from the grid, should they continue to pay for services and products they don’t need? What’s really needed is some sort of solution on how to design rates and how to regulate utilities.”
That question was at the core of legislation in Connecticut last session to authorize a concept called shared or community solar. It would have allowed the 80 percent of residences in Connecticut unsuitable for solar to participate in a solar array placed elsewhere. It failed as utilities sought higher rates for participants, and environmental groups objected to the utilities’ stance.
The shared-solar flashpoint
Rep. Lonnie Reed, D-Branford, co-chair of the Energy and Technology Committee, remains a big supporter of shared solar, but she said last year’s battle shows why grid modernization is “absolutely mandatory.”
She said the shared solar legislation will be back this year, but other than that, she said, “I am not promoting any more legislation of those kinds of break-through achievements that are going to be allowed to be punished by the utility companies.”
“The idea that (people) would be punished for that – using less electricity – that is just not going to fly,” she said. “People are not going to put up with that.”
David Owens, executive vice president of business operations and regulatory affairs at the Edison Electric Institute said his organization is not opposed to concepts like shared solar or other renewable endeavors. But, he said, “If a customer imposes a cost on a utility, it’s appropriate that customer should pay.”
Rep. Reed wasn’t buying it. “If their only response is to say ‘give us more money’ while they don’t fix their economic system and figure out a new way to open themselves up to new opportunities and new partnerships and new relationships, that’s crazy.
“This idea that all we need to do is raise rates, and the people will pay higher rates, and it will go on as usual – really?”
Part of the point, Reed said, is that without that distributed generation, we could run short of power.
ISO, we have a problem
DEEP’s 2014 Integrated Resource Plan (IRP), the state’s biennial assessment of future energy needs, released earlier this month, unveiled the grid modernization effort, but it also painted a bleak picture.
With the imminent shutdown of the Vermont Yankee nuclear power plant and several fossil-fuel plants in Massachusetts and Connecticut, and with new generation not yet secured, power in the region could get scarce and expensive, especially in winter, when gas-fired power plants and heating systems compete for the same limited natural gas supply.
That scenario played out during cold snaps last winter, when ISO-New England was forced to use more expensive and dirtier oil- and coal-fired generation. Connecticut’s last coal plant – Harbor Station in Bridgeport – ran continuously from November through March.
The result was dirtier air this year and generation-cost increases that consumers are now feeling. With little hope that new gas pipelines will be built anytime soon, new federal standards for power plant carbon emissions on the horizon, and major sources of renewable power still years away, DEEP stated what the environmental community has long advocated – distributed, renewable generation and energy efficiency will be key to taking pressure off the grid.
And the environmental community struck back at utility assertions that it would raise prices for all customers.
“Distributed generation doesn’t hurt ratepayers – it helps ratepayers. It’s the utility that it hurts – it’s the utility profit margin and the utility investors that it hurts,” said Roger Reynolds, legal director at Connecticut Fund for the Environment. He pointed to studies in Minnesota and North Carolina showing solar lowered overall costs by avoiding the need for infrastructure and other overhead.
“Yes, they’ve got to get paid,” Reynolds said of the utilities. “But do they get paid in a way and in a structure that’s going to encourage them to have a system that clearly isn’t working anymore?
“It’s not the best system for consumers; it’s not the best system for the environment. So we’ve got to re-think it, and a key part of rethinking it is how to incentivize rather than dis-incentivize the most important, most beneficial source of energy, which is clean, distributed generation.”
One of the concepts getting a lot of attention, and likely to be embraced as part of a modernized grid, is something called “value of solar” (or wind or any other clean, renewable energy source). It essentially attempts to determine the value of renewable energy, monetary and otherwise.
“What are the avoided distribution costs of building new substations because you’ve taken load off the grid? What are the avoided line losses because you’re closer, you’re not bringing the power in from way far away?” said Jessie Stratton, DEEP’s director of policy, explaining that power actually leaks from power transmission lines. The longer the lines, the more power lost.
Harder to determine is the value of environmental gains, such as a reduction in greenhouse gas emissions, she said.
“The utilities will value what they are paid to do,” Stratton said. “We saw that when we first set up the energy efficiency program. That was a loss to their bottom line, and they were lukewarm about doing it. They were directed to do it. We now reward them for achieving the goals.
“If we want to, we can develop a model that rewards the utility for integrating X amount of distributed generation into the system. They get paid for it, and they will do it. And they will be very happy to do it, I think.”
The new ideas
Another tactic grid modernization could employ is time-of-use metering, which ties rates to certain times of day. A new grid would likely flow in two directions to accommodate power systems that buy and sell energy. There is already talk that electric vehicle charging could carry cheaper rates as an incentive to purchase more vehicles.
Climate resilience would be a major priority. Part of that includes figuring out ways to divide the grid into smaller, less vulnerable sections. Distributed energy systems could provide critical generation for such systems. Advocates point out that the creation, installation and management of such systems and other new grid services have the potential to add jobs and tax revenue and even create new opportunities for the utilities.
Connecticut is looking carefully at grid modernization in Massachusetts, underway for more than two years, and in New York, begun this summer. And it is following a project in Brooklyn and Queens. Instead of building a new conventional substation for $1 billion, Con Edison is soliciting ideas that it estimates will address the need at a quarter that price.
“These are all components of much larger decisions that need to be made about the future of the energy system, and that needs to be done comprehensively and holistically,” said Jamie Howland, director of Acadia Center’s Climate and Energy Analysis Center, which has offered suggestions to DEEP for integrating distributed generation. “That doesn’t mean individual components wouldn’t be implemented separately, but the vision or the design of what you want the components to look like – THAT needs to be done comprehensively.”
Looking for the big picture
Karl Rabago, the new executive director of the Pace Energy and Climate Center at Pace Law School, who has worked inside utility systems, described what the next step should be in terms of the old adage about what to do when you’re in a hole. “Stop digging,” he said.
“Moving step by step, or pilot by pilot, I get it. That seems really practical, but what I’m really missing is the vision,” he said. “The risk of incrementalism is not that it’s doomed or that it’s flawed. It’s that if it’s taken without a view of the ultimate destination, then it’s just small steps in a random direction.”
One suggestion is what he calls one-for-one-for-one. For every one new megawatt of conventional power, one megawatt of old power should be retired and one megawatt of renewable power should be added.
Utilities, he and others believe, need to shift from a model of commodity sales to one that is about serving customers, and their rates should reflect that through performance-based standards.
“There’s danger in just focusing on individual components and missing the big picture,” warned Kenneth Gillingham, an assistant professor at Yale University who studies energy economics. But he said the system must change, and to those utilities that fight it, his message is: “Watch out.”
“There’s going to be a lot of pressure on the utilities, and it will just be a matter of time,” he said.
There’s no illusion at DEEP about the difficulty of reforming the utility pricing structure. “It’s hard; it’s very hard,” policy director Stratton said. ”You not only have regulators, you have a whole body of people — you have this whole system that’s built around something everybody knows. They may not like it, but you start to change it — they get real nervous.”
In the meantime small steps are in the works, even though some see them as only treating symptoms. Aside from a return engagement on community solar legislation, and legislation that is likely to set low rates for charging electric vehicles, there’s a move to cap the fixed electric charge at about half what it is now.
As for Bruce Becker – PURA is again accepting comments on the 360 State St. situation. “The thing that’s most painful,” he said, “I hate to think about all the tons of pollution that have resulted from the delay.
“There are a lot of people looking at my projects — developers sort of waiting to see if it works for me — and so far every indication is people would be stupid to do what I’m doing.”