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State Policy Alternatives for DG
Evolving industry structure, technology and economics are profoundly changing the way power is likely to be generated and delivered to consumers in the future. Advocates of distributed generation (DG) often present it as a solution to rising wholesale market prices, price volatility and transmission system constraints. State utility and energy commissions face the challenge of ensuring a fair and level playing field that will:
 | Lower costs for both energy producers and consumers, |
| Improve reliability, |
| Reduce emissions, and |
| Improve customer choice. |
Governors, legislators, environmental regulators and consumers are relying on state utility and energy commissions to resolve conflicting claims of DG developers, environmentalists and utilities regarding the connection of DG to electric systems. Distribution companies are concerned about cost recovery in the face of increased DG use; public policies need to balance short-term cost recovery issues with the potential long-term benefits of DG. Decisions must be made that address concerns without stifling a potential new solution to meet future energy needs.
State utility commissions need to know about DG technologies, their economics, and their impacts to address these issues. Can DG really help their state meet these challenges? What are the opportunities for DG in their state? Can DG help with reliability? What is likely to happen? How soon? How will DG impact consumer electric costs? How will DG impact existing rate structures? How will this play out in their state? Above all, how will policy alternatives affect diverse and sometimes conflicting constituent concerns?
Resource Dynamics Corporation, with more than two decades of providing advice on small-scale power production, can provide you with the information and credible data required to formulate appropriate regulations and to respond to governors, legislators, environmental regulators, distribution companies and public concerns. This data can be prepared at varying levels of detail, specifically covering your state’s power market.
Defining the Role of Distributed Generation
The Resource Dynamics Corporation (RDC) can help state utility commissions answer these questions. We can help you understand emerging DG technologies and economics, the most likely consumer applications for DG, and how regulations affect market adoption. We offer the five services described below.
1. Provide Briefings on Key Distributed Generation Issues
RDC offers full-day briefings designed specifically to introduce state regulatory commissions to DG. This briefing can be tailored to specific needs and can be held in conjunction with a technical session sponsored by the PUC or state energy office. Topics covered include:
| DG technologies, |
| Status and outlook for DG, |
| Economic principles and drivers, |
| Stakeholders, their roles and positions, |
| Regulatory issues, and |
| Key uncertainties. |
2. Examine Restructuring Issues in Your State That Influence DG
This service examines how DG will influence your state’s power generation, transmission and consumption. It also describes how electric restructuring issues and barriers affect DG. It addresses critical factors such as:
| Exit fees, |
| Backup (standby) charges levied by utilities, |
| Interconnection fees, |
| State and national interconnection policies, |
| State metering policies and procedures including net metering laws, |
| Utility rate structures throughout the state, |
| Reliability requirements, |
| Environmental regulations, |
| Influence of performance based ratemaking (PBR) on DG adoption, |
| Total cost of electricity to consumers, and |
| How other states are handling DG issues. |
After this analysis, in consultation with utility commission staff, RDC will identify and evaluate those issues and barriers that most directly affect DG in your state. This analysis will enable the commission to focus on those policy alternatives with the most positive impact on electric prices, power reliability and clean air issues.
3. Assess Policy and Process Alternatives
Once the issues and barriers are identified, policy and process alternatives can be developed. In this service, qualitative market impacts of specific policy alternatives in your state will be identified. For example, policies that reduce capital and/or energy costs will be evaluated to measure their impact on DG market potential. These assessments will be based on the available options, how other states have already responded to the issues, review of what DG experts are saying about these policy barriers, and DG spreadsheet screening models.
Detailed assessments may be performed that analyze:
| The relationships between PBR and DG for regulated distribution companies. |
| How net metering for renewables might be extended to DG technologies, and what impact this would have on the electric market, especially in meeting peak demands. |
| The impact on DG market adoption of allowing pre-certification and prototype programs. |
| Processes used to reach state interconnection standards, and how to establish a cost-effective and easy-to-administer process for adopting a state interconnection standard. |
| State-developed interconnection standards considering the perspectives of manufacturers, utilities and energy users, to ensure the standards are both fair and workable. |
| The impact competitive metering programs and DG have on each other. |
| Options for exit fees and backup charges for DG applications. |
4. Analyze Potential Market Impacts and Develop Recommendations for Your State
The potential market impact of leading policy alternatives will be quantitatively estimated using RDC’s DIstributed Power Economic Rationale SElection (DISPERSE) model. DISPERSE is the leading tool used to forecast the potential for distributed generation technologies. Using DISPERSE, the costs and benefits of DG to energy users and the impacts of policy alternatives on DG can be estimated, while considering multiple parameter changes. DISPERSE was extensively vetted and peer-reviewed for the critical role it played in estimating DG impacts for the Administration’s Clean Energy Futures Study (April 2000).
DISPERSE will be used to estimate state-level market impacts (both their extent and expected timing) for specific policy alternatives being considered. These may include:
| The likely DG market penetration and how this will influence electric pricing and emissions. |
| How much alternative policies for stranded cost recovery, utility DG fee structures, PBR, competitive metering, or DG pre-certification programs might influence the DG market. |
| How much peak demand might be met by DG, and the likely market uptake if net metering were adopted, or how the Clean Air Act may influence the use of DG. |
| The impact of a national interconnection standard on the rate of DG adoption, suggesting when state standards may or may not be cost-effective. |
| An estimate of the impact of allowing distribution company ownership or operation of DG. |
5. Assist with Ongoing Implementation of DG Policies
As you implement policies you should anticipate myriad responses from various constituencies. Communication materials, public hearings, and various committees will need technical input. RDC can assist you with the technical support, presentation preparation, or expert testimony you need during this process. Finally, after DG policies have been promulgated, RDC can help you monitor marketplace reaction to the policies, and compare it with what happened in other states.
Cost
The costs of these services depend on the exact scope of the effort. Typical costs range from $5,000 for a full-day briefing on DG to a state commission to $125,000 for a comprehensive DG regulatory analysis package consisting of all five services for a state.
For More Information, Please Contact
E.J. Honton
Director
Resource Dynamics Corporation
2046 NW Flanders
Suite 24
Portland, OR 97209
415-845-1076 (p)
707-788-3594 (f)
ejh@or.rdcnet.com