Cost perspectives inform PUCO’s unfolding PowerForward plan
In exploring prospective high-tech improvements to the state’s electricity distribution grid, the Public Utilities Commission of Ohio (PUCO) learned that what regulators consider beforehand in the process ultimately will dictate outcomes for consumers and providers alike.
“We’ve got to be more collaborative and it starts here,” said PUCO Chairman Asim Haque on Thursday. “We’ve got some thinking to do.”
PUCO launched its PowerForward initiative with a three-day event April 18-20 that featured presentations on the technologies currently available affecting electricity distribution, the benefits to smart grid technology and technological innovations now under development. Two more phases of the initiative will be held at later dates that will be announced by PUCO.
Learning about the different enhancements that could affect different stakeholders hopefully may help PUCO “better frame the grid of the future,” Haque said, and enable commissioners to craft innovative, forward-thinking regulations and policies.
Of course, costs are and will always be an issue, according to panelists who gave presentations on April 20. Any improvements come at a price, they said.
American Municipal Power (AMP), a wholesale power supplier and services provider for 135 member municipal electric systems in nine states — the largest being Ohio’s 84 systems — has spent and made billions diversifying its portfolio, making significant investments in program development and technology, and aggregating meters and communications equipment, among other cost-lowering measures for its members.
And because AMP members are transmission dependent and operate across 15 different transmission zones, the company has undertaken efforts to reduce increasing transmission costs for them through behind the meter generation and managing load, said Michael Beirne, vice president of external affairs for AMP.
However, more tech changes need to come that will cost money but eventually save AMP members money. Regulations and policies, however, shouldn’t contribute to AMP spending more money, he said.
“AMP’s role is to provide our members the tools to best serve their customer-owners and to make sure that state and federal policies recognize the unique nature of municipal electric systems,” Beirne told PUCO.
“We’ll closely continue watching how policies develop at the state and federal levels to protect against cost increases that are imprudent or unfairly impact AMP members,” Beirne said. “A main policy consideration [for PUCO] should be that there are no unfair rate increases.”
Motivating factors
Michael Kurtz, counsel for the Ohio Energy Group (OEG), said that if and when modernization occurs, any direct effect on rates will not be significant on OEG’s membership—which includes AK Steel Corp., General Motors LLC, Ford Motor Co., GE Aviation, Amsted Rail Co. Inc., Fiat Chrysler Automobile US LLC, and MillerCoors LLC, among many others—because they utilize a small portion of the distribution system.
“However, PUCO should understand the motives of the Ohio utilities,” Kurtz told the commissioners.
The utilities grow their earnings three ways: improving sales, cutting costs and growing rate base, he explained. When sales are flat, the utilities can only grow earnings by cutting costs or growing rate base and they focus on the latter, he said.
Distribution modernization is a key way to grow rate base, he said, especially since generation rate base opportunities are limited due to state law and the PJM minimum offer price rule. “So PUCO should be sensitive to cost-benefit analysis supporting grid modernization,” Kurtz pointed out.
PUCO should ensure ratepayers receive a utility’s promised benefits of grid modernization, Kurtz said. He suggested the commissioners consider holding them accountable through regulations for their cost-benefit analyses, for example.
Chris Healey, energy resource planning counsel for the Ohio Consumers’ Counsel, offered similar recommendations for PUCO’s basic principles to balance costs and benefits: provide as many benefits to as many customers as possible.
“Commit to make sure that the benefits actually materialize and then actually find a way back to the customers—or if they don’t, if they didn’t come to fruition, that there’s some accountability,” Healey said. “Ask the utilities to bear the risk of potential cost overruns and technology. Hold them accountable for the business decisions they make.”
Other ideas to think about
Doug Miller, vice president of statewide services for Ohio Rural Electric Cooperatives Inc. (OREC), told PUCO that the electric coop business model works well because each of the 24 independent and autonomous coops is headed by a locally elected board of trustees that approve policies, rates and terms, and conditions of service.
“They are the regulatory body of rural electric cooperatives,” Miller said. “They are members and they listen to the other members. They try not to increase costs or compromise the integrity of the distribution grid. It’s a mode that’s worked for 82 years.”
To get a handle on changes in the electric industry, including the related policy, financial and operational considerations, AMP in 2016 established its Focus Forward initiative, Beirne told PUCO.
One of the products thus far is the 75-page AMP Focus Forward Toolkit, which includes a rate design guide, interconnection checklist, case studies and a stakeholder engagement guide.
“The toolkit helps our members answer questions from their customer base about their changing and evolving needs,” Beirne said. “An established rate guide in particular can be really helpful.”
