White paper sees vertical utilities as more accommodating to DERS and other renewables

Utilities that still operate under the tried-and-true vertical integration model will have an easier time accommodating a potential influx of distributed energy resources (DERs) into their markets as a result of the Federal Energy Regulatory Commission’s (FERC) Order 2222, a former federal regulator said.

Tony Clark, a FERC commissioner from 2012 to 2016, told Daily Energy Insider that vertically integrated utilities (VIUs) appeared to have an advantage when it comes to working with DERs because when it comes to lining up adequate power supplies for their individual grids, they have a higher level of authority than a “restructured” utility might have.

“Because VIUs have ultimate responsibility for resource adequacy, unlike restructured utilities, they may be better positioned to help ensure there aren’t operational hiccups as DERS are brought on-line in bigger numbers,” Clark said in an email. “The fractured nature of resource-adequacy responsibility in restructured markets increases the chance that resource adequacy could fall through the cracks.”

Clark is among the experts behind a new website called “Power for Tomorrow,” which was launched in October by three energy thought leaders affiliated with the law firm Wilkinson Barker Knauer, LLP (WBK), as a source of information and insights on how regulated utilities can position themselves to effectively fit a growing and more diverse number of renewable energy generators into their power mixes.

A white paper released in conjunction with the virtual platform, takes the position that the VIU model is a more efficient way for states to implement their sometimes-aggressive plans to build up renewable energy. That is because VIUs control their own generation, transmission and distribution systems. On the other hand, according to Clark and the paper’s co-authors, restructured utilities take part in regional wholesale electricity markets and regional transmission organizations (RTO) that are under federal jurisdictions and may have a tougher time adhering to state energy policies due to the added layer of authority and regulation.

Clark said bolstering the budding role of DERs in lowering the carbon footprint of the grid could be an easier task for a VIU because of “an under-appreciated unintended consequence of Order 2222.”

“Right now, if a state is outside an RTO, they have the ability to plan their state’s clean energy grid transition with minimal federal interference, but FERC has taken an increasingly hard line against state flexibility in the RTOs,” Clark said. “States outside of the RTOs see actions like Order 2222 and the recent Minimum Offer Price Rule orders, and it makes them nervous about the jurisdictional authority they cede when their utilities join RTOs.”

Clark added that Order 2222 did not include the level of flexibility that states had requested, such as an opt-out/opt-in mechanism, which could “have a chilling effect on states’ willingness to join an RTO.”

The idea of utilities owning their generation assets could sound counterintuitive when it comes to driving the expansion of renewables since they have long depended on fossil fuels for dependable flows of power, and an RTO makes it possible to tap into merchant power plants and renewable resources in other states.

But the WBK authors contend that having more control over energy resources is a valuable asset in the more-fluid current situation. States, therefore, might be wise to hang onto their market authority and play it conservatively when it comes to building out a new regulatory rulebook and market regime as part of their carbon-reduction strategy. “State legislatures can enact any variety of clean generation requirements, which are then administered by state commissions, without having to trouble with the complexity added by the interaction with an administrative market,” the paper said.

The WBK white paper was released around the same time that the Trump administration announced it was seeking comments on current plans for the West-wide Energy Corridor, a proposed web of power lines and natural gas pipelines that would connect urban areas with renewable resources in other western states, “while also considering other sources of generation in order to balance the renewable sources and to ensure the safety and reliability of electricity transmission.”

“We have reached a moment in time where the old regulatory discussions surrounding retail and wholesale markets, planned utilities and appropriate regulatory institutions are new again,” said co-author Ray Gifford, former chairman of the Colorado Public Utilities Commission. “The added imperatives of de-carbonization and grid transformation make the issues of federalism, emergent markets and institutional design crucial for energy policy going forward.”