e.g. coal- and natural gas-burning power plants, hydroelectric dams, nuclear power plants, wind turbines, solar panels, …
Certain types of power plants (coal and nuclear power plants) have little short-term flexibility in adjusting their electricity output because it takes a long time to ramp up or down their electricity output → often used as “baseload” plants turned on all the time
Other power plants (natural gas fired) can turn on and off in minutes and are more economical to use as “peaker” plants
Transmission lines carry high-voltage electricity over long distances, connecting generators with consumers
High voltages → less electricity lost during transit, but are greater than what you need in your home, so once the electricity gets close to end users, a transformer converts it back to a lower voltage before it enters the distribution network
Transmission lines can be overground or underground, each with their own pros and cons
The bulk power (large-scale generators and transmission infrastructure) and distribution segments of the grid interact, but they are managed mostly independently of one another, such that the real-time balance of electricity generation and consumption effectively happens at two levels. Grid managers at each level have limited access to detailed, real-time information about operations on the other level.
These terms are defined for the electricity grid, but the gas infrastructure is relatively similar. Gas is carried long distances through larger interstate pipelines (like electric transmission lines), and to customers via smaller distribution pipelines.
¶ “Traditional” model = one utility company owns the generation and distribution
NY “deregulated” (or “restructured”) in the ‘90s to introduce competition into the market, which made its utility companies decide whether they wanted to sell their generation or distribution assets.
e.g. Con Ed sold (most of) its generation but still owns all of the wires to distribute electricity to customers (green lines in the above graphic)
Today, nearly half of the generation in the US is owned by non-utilities, although much of the non-utility generation is under long-term contracts to utilities
¶ “Grid of the future” is expected to be multidirectional, more complicated than the above model
Distributed energy resources, smart meters
NY state grid is connected to other states (nothing happens in isolation because very interconnected, everything affects everything)
Capacity markets help utilities secure bulk electricity for the future, based on expected maximum energy needs..
On the capacity market, utilities don't purchase electricity itself. Instead, they purchase commitments from generators to have a certain amount of energy available (capacity) for the utility to use when they need it.
This allows generators to earn revenue even when they aren't producing energy, incentivizing investment in generation.
Capacity markets were designed for large scale, non-intermittent, environmentally destructive resources — coal, nuclear, gas, and hydro.
Renewables are entirely different, requiring at the very least redesign of capacity markets.
Some working group members believe capacity markets are incompatible with a transition to renewables and should be abolished.
Energy Markets
Day-ahead: Utilities book electricity in a day or more in advance, based on minimum demand expected.
Intraday/real-time: Utilities purchase electricity real-time to fill the gap between energy bought on the day-ahead market and actual demand.
Buyer Side Mitigation
NYISO weeds out artificially low bids and ensures that prices accurately reflect demand and the actual costs of supply...According to FERC, because renewables receive … subsidies… they are required to bid into NYISO’s capacity market at a price that pretends that these subsidies don’t exist…a price that is too high to be accepted Source
New York generates about one-third of its electricity from nuclear power plants, and the state includes nuclear power as a zero emissions resource that counts toward New York's 2040 emissions reduction goals (but Indian Point is set to close in a few years)
About one-fourth of New York households are heated with petroleum products, primarily fuel oil
Although some public services, like fire protection and drinking water, are provided by government without many direct charges to users, utilities (even when government-owned) are almost always operated as self-supporting enterprises, with regulations dictating the terms of service and prices
A for-profit electric utility is given a monopoly to provide service in a specific location in exchange for being regulated by a state or city
Insull believed you can regulate in the public interest by granting utilities a monopoly, which allows them to build at scale with a transparent and consistent system of regulations; this stable and transparent regulatory environment means utility can borrow capital at cheap rates to serve customers at low cost of service
Became the dominant form of providing electricity service in the US by the early part of the 20th century
About 75% of US population is served by investor-owned utilities
Capital bias as a result of regulatory compact → Outdated incentives to invest in new capital-heavy infrastructure today (Averch-Johnson Effect)
¶REV proceedings initiated in NY to remake the utility business model
¶ There are also publicly owned utilities across the country
NY Power Authority (NYPA) is the largest state public power utility in the US
City-owned or municipal utilities; public utility districts; cooperatives; and more
LAWDP in Los Angeles is a famous example of a municipal utility
Nebraska is the only state served solely by publicly owned utilities
Established in NY by Public Service Law (PSL) § 4 and their powers are defined in PSL § 5
PSC has really broad authority. This was reiterated when opening REV proceedings
Every state has their own version (often called a state’s Public Utility Commission, but could be called something else too, e.g. Maine PUC, New Jersey BPU)
Start with utility petition for change in rates → discovery (essentially Q&A to get more info from company) → testimony by parties (the 2 main/guaranteed parties are Staff and the Company, then additional parties include anyone who wants to intervene) → settlement (or decision by Administrative Law Judge, but in practice in NY it always goes into settlement)
¶ (Proceedings could be started by legislative action, petitions, … )
¶ PSC oversees more than just energy (telecom, water, … )
They are cumulative; every unchallenged increase lifts the cost from which the next case’s increase begins (even though, legally, during a rate case the PSC is not supposed to operate under the presumption that the current rates are “just and reasonable”)
Service list: Email notifications of filings in the case docket
Party status: Right to file testimony, engage in discovery
NY has relatively wide/loose laws for who can intervene compared to other states (defined by 16 NYCRR Part 4.3(c)(1))
Public comments: Written or oral
16 New York Code of Rules of Regulations Parts 1-8 → process guidelines for people who want to be involved (e.g. all parties are held to NY attorney code of ethics even if you aren’t an attorney)
Rate cases vary immensely from case to case, so there are very few uniform guidelines from the PSC, the only rule of universal application in rate proceedings = “the burden of proof is on the utility” (16 NYCRR Part 61.1)
Rates are calculated through the rate formula
Rate formula calculates the revenue requirement (total amount of $ the utility gets to make)
Revenue requirement = [(tangible and intangible property - accrued depreciation) x rate of return] + operating expenses
Tangible property ex. power plants, lines and pipelines
What falls into each property/operating expense category is defined in the Federal Power Act and by FERC in the Uniform System of Accounts
This list/language was adopted by the NY PSC (and every state)
Defines what expenses a utility can earn a rate of return (profit) on versus what they can just recover the exact costs
Company doesn’t earn rate of return on operating expenses like staff wages, office supplies (spelled out in FERC chart of accounts)
PSC must decide which operating expenses shareholders pay for vs. ratepayers pay for (...often falls on ratepayers)
Other notable questions PSC gets to decide: who pays for the company’s attorneys fees, advertisements to grow their business, executive benefits, …
Property must have been “used and useful” and a “prudent” investment
Utility doesn’t earn a rate of return on accrued depreciation but they still get $ recovered because although accrued depreciation is subtracted in the first part of the rate formula they add accrued depreciation to operating expenses
Age, use, and regulations can all → accelerated depreciation
The rate of return has to be sufficient for the interest the company has to pay on its capital
Two types of capital: debt (bonds) and equity (shareholder stock purchases)
A higher debt:equity ratio is better for ratepayers because debt costs less
(Municipal utilities cost less because immediately → 0% equity and 100% debt; and even better because government debt costs less than corporate debt too)
Calculated based on the Weighted Average Cost of Capital
The rate of return is not guaranteed to the company (depends on the market). The rate of return that is determined by the PSC is the maximum permissible (so if they do go over it they have to return that $ to customers)
NJ company that rates how friendly each state PSC is to their utilities and then those rating affect S&P rating of a given utility. Credit agency rating then affects price of debt/equity for that utility, which affects costs to ratepayers. (! yikes)
Rates are created after:
Determining cost of service
Embedded/Electric (or Gas) Cost of Service Study
Classifies costs as commodity/energy-based; demand-based; or customer-based
Entire system built around meeting load on moment in entire year of highest demand
Minimum System Methodology (essentially plan for build out even if you don’t have any customers! yikes)
The ECOSS has the greatest impact on final rates but is hardest to understand
If a cost is classified during this study as a customer-based cost then it is most likely to be allocated under a fixed customer charge, even though there is no written requirement that costs must be recovered from the categories that they’re classified under
Incentive to categorize costs as customer-based
Allocating costs among customer classes (residential, commercial, and industrial)
“Since the 1980s, the more obvious it has become that fossil fuel consumption needs to be reduced to avert dangerous global warming, the clearer it has become that possibilities for non-fossil generation, and for energy conservation, are constrained by the way that electricity is owned and controlled.” - Trade Unions for Energy Democracy
Primarily refers to transferring your space and water heating from systems using onsite gas combustion (or fuel oil) to technology that uses electricity (primarily heat pumps)
Impact on monthly bills is high under current rate structures (more expensive) - need to change these kind of incentives
Impact on grid → strain since grid isn’t ready for all of the new load - need to invest in grid infrastructure that is ready for mass electrification
Impact on emissions is equal or negative until we improve our generation mix in the state to have our electric grid powered by renewables (e.g. offshore wind, community solar instead of so much gas-fired electricity generation) - state is mandated to aggressively pursue this transition under the CLCPA
“A new generation of advanced air source heat pumps (ASHPs) makes it possible to efficiently displace the use of fossil fuel-fired boilers, furnaces and water heaters for space and water heating, even in cold climates. Coupled with building shell energy efficiency upgrades and smart controls responsive to peak grid use signals, advanced heat pumps make building decarbonization through efficient electrification the next major step to a low-carbon economy.” (see this article)
Refrigerant leakage rate ~ 10% → concern (refrigerant has a high global warming potential) but its still better than gas heating
Technology for cold-weather heat pumps is rapidly improving, assuaging some fears
District heating options
Gas infrastructure → stranded assets
Con Ed and National Grid moratoria scare tactic to pressure pipeline approvals (lots of press coverage)
Part of “climate mobilization act” package that passed City Council in 2019
Sets emissions caps for large buildings (press coverage here)
Carve outs where retrofits to comply with the law would have increased rents in rent regulated housing
(NYC-DSA worked in coalition with NYCC and other groups to get this passed)
¶ Climate Leadership and Communities Protection Act (CLCPA)
70% of electricity from renewable resources by 2030, and 100% by 2040
CLCPA allocates planning responsibilities to a 22-member “Climate Action Council” (NYCAC) and further stipulates that the Council’s forthcoming “scoping plan” must include specific elements such as:
6 gigawatts (GW) of distributed solar energy capacity by 2025
9 GW of offshore wind capacity installed by 2035
3 GW of statewide energy storage capacity by 2030
Cut 85% of emissions by 2050, while offsetting or capturing the other 15% (economywide) (press coverage here)
There are several subcategories of DERs, which are each comprised of a variety of physical devices and techniques (sometimes enabled by software and communications technology).
Subcategory
Examples
Distributed generation
· solar PV
· small-scale wind
· CHP
· fuel cell
· microturbine
· small reciprocating engine
Energy storage
· chemical batteries (lithium-ion, nickel-cadmium, flow, others)
· battery-powered electric vehicles
· chilled water heating/cooling systems
Demand response
· curtailable residential water heaters and pool pumps
· appliances and programmable thermostats that respond to signals from the grid