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Letters to the Editor
March 15, 2003 |
To the Editor:
I want to respond to some of the issues raised by Richard S. Brent ("A Blueprint for DG," Jan. 1, 2003) and then offer some alternative approaches to providing appropriate signals for the development of distributed generation (DG) in the United States.
First, it is commendable that Mr. Brent has offered some thoughts about providing fair and equivalent opportunities for development of DG. There are many barriers to having DG be a larger component of the power and energy supply and delivery system.
Mr. Brent offers what he terms as suggestions to make the regulatory system neutral toward DG facilities and simple in its application of that principal of neutrality. However, Mr. Brent's suggestions are not based on a practical look at our current and future regulatory environment and DG economics, nor would application of his suggestions be simple.
Mr. Brent goes to some length to explain how DG issues are different for vertically integrated utilities versus "unbundled" utilities in restructured markets. I assume he is recommending that these unbundled utilities, or what I would refer to as primarily distribution-only companies, could own DG. That blinkered view of the industry as it is today fails to look at the industry as it will be tomorrow.
The concept of a vertically integrated company that makes decisions about, owns, and operates distribution, transmission, and generation facilities is not where we are headed. Even today, requirements for FERC-regulated vertically integrated utilities to separate wholesale and transmission functions make the direction recommended by Mr. Brent unworkable.
A basic premise in Mr. Brent's article is that zonal DG credits are the answer. Mr. Brent recognizes there are cost differences between different areas of a delivery company's system. However, Mr. Brent fails to acknowledge that:
- Cost differences can be extremely localized;
- Cost differences are dynamic because the system and system operating characteristics are continually changing;
- Determining what constitutes a cost difference and zone will be subject to disagreement; and
- The administration and regulatory burdens of Mr. Brent's approach will be significant and expensive.
Enough of the negativism. DG does need to be a part of our future picture. Here are my suggestions:
- The industry needs to resolve safety and control issues related to DG interconnection. These efforts need to include standby services, but eventually the wholesale and retail markets will competitively price these services, which will take the suspicion out of the equation but will not make the services inexpensive.
- Delivery companies need the right incentives, with some regulatory oversight and nudging, to include bidding out DG to compare to delivery system investment and operating costs. Developers and customers would submit DG bids that would be used to compare against delivery system investment and operating costs on an equivalent basis. These DG projects should be paid based on an analysis of the benefits provided (kW, kWh, VARs, etc.) and would result in a monthly payment to the customer or developer for the term of the benefit (remember, DG may only defer future delivery system investment).
- Delivery companies would need to have staff to manage the bid process.
- To counter disincentives and to recognize the potential environmental and energy mix benefits of having more DG, delivery companies should be given return-on-equity adders for successfully and economically promoting and developing DG. They should also be given dollar-for-dollar recovery of any added expenses.
- Finally, the system needs to work because it makes sense to, and is economically beneficial to, delivery companies. Regulatory oversight is part of the equation, but the best approach will be to let the delivery companies and customer and developer DG owner-operators function within an effective framework.
Sincerely,
Mark W. Roberts
Consultant, Capital Management Associates Inc.
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