Opinionated: Remaking the Grid Part 2

10 Apr 2019

Q & A with Lorenzo Kristov

The California Independent System Operator’s former principal of market design and infrastructure policy

Editor’s Note: In a recent editorial in the San Francisco Chronicle, Lorenzo Kristov and Mark Ferron, former CAISO board member, advocated for an “open access” distribution system and indicated that local planning increasingly is “where the action is.” This is the second part of Current’s two-part question and answer series with Kristov. Part one ran last week.

Current: Who would be involved in creating an open access distribution system and how would it work?

Kristov: I suggest legislative direction to set the basic framework, and then the CPUC would develop details through public proceedings. A big part of making it work well is to address how the distribution system operator will interface with other key actors: the CAISO, community choice, direct access providers, the local governments, the distributed energy resource providers.

Current: Jon Wellinghoff, former Federal Energy Regulatory Commission chair, for instance, said that distribution system operators, similar to CAISO, but acting at the local level, would be needed in the future to balance local distribution systems as distributed generation, storage, and electric vehicles become more common.

My ideas align well with what Wellinghoff has written on this. The main difference is that he proposes an independent distributed system operator, in particular to be separate from the distribution utility that owns, operates and maintains the physical distribution assets — the poles, wires, substations, etc. I’m open to this idea, but for the present in California I recommend that policy makers focus on the core design elements. And give Pacific Gas & Electric and other private utilities the opportunity to fulfill those responsibilities and adhere to open-access principles.

It’s a simpler way to move forward because it builds on the distribution and transmission functions PG&E performs today, retaining all the work force that performs those functions, rather than trying to design and implement a new, separate entity. Moving to an independent distribution system operator should remain on the table if we find that greater independence is necessary.

Current: What role would CCAs play in an open access distribution environment with an increasingly distributed generation system?

Kristov: A CCA takes on the responsibility to provide retail kilowatt hours to all customers in the local government footprint, and for that purpose must procure supply resources. When we start to bring urban planning together with energy planning, with the goals of decarbonization and local resilience, we’ll be developing local resources to meet new energy demands as well as support the power grid. CCAs acting as procurement arms of their local governments, would be the buyers of the capacity and energy provided by the local resources, typically through power purchase agreements that enable the project developers to get financing. The CCAs can also set innovative rate structures to reflect local goals, such as accelerating adoption of rooftop solar, incentives for adopting energy storage, etc.

Community energy thus fills a critical gap because they are local government entities, not for profit, subject to the governance and supporting the goals of the jurisdictions they serve. In contrast an investor-owned utility tends to prioritize profit, and with a large service area like PG&E will procure supply to meet the needs of its area as a whole, with no ability or incentive to develop local resources to meet a community’s needs. This is an artifact of the top-down power system framework created early in the last century.

Community energy is a relatively young development in California, so they have their critics and room to mature and improve. But underneath many of the criticisms is the fact that entities used to exercising top-down control will resist giving that up and will contrive arguments they think will make their case — fear of repeating the 2000 energy crisis is typically the first go-to tactic.

CCAs have been under assault from the beginning, when Marin Clean Energy was first starting up and PG&E mounted a well-funded initiative campaign to abort it. Since then, community choice has had to expend considerable resources fighting off existential threats, mainly by participating in multiple, complex California Public Utilities Commission proceedings and following legislative actions that could affect them.

Even in this environment, the Silicon Valley and Monterey Bay community energy organizations recently signed as joint buyers of a new solar plus storage project. Imagine what they might do if the state were to genuinely support local energy and the CCA role in electrification and resilience.

The growth of distributed resources and the role of local governments in energy planning are key necessary elements of achieving California’s climate policy goals and creating more resilient communities to face a more turbulent future climate.  Local governments need a practical way to procure energy resources that align with their needs and objectives. If policy makers decide they must kill community aggregation, they will leave local governments little choice but to form municipal electric utilities.

Current:  CPUC President Mike Picker says he’s concerned that somebody ultimately needs to be the provider of last resort to assure reliability and universal service. New York and Texas have done away with that requirement. How did they do it, and could California do away with the concept?

Kristov: The provider of last resort is to ensure customers are not left without power or subject to exorbitant prices if their retail kilowatt provider goes under. It is an important policy question and must be addressed. Right now the investor-owned utilities play that role, and if the state unbundles the distribution system operation function for any or all of the IOUs, they may decide to exit the retail space and we’ll need a new construct for provider of last resort.

It might make sense to divide the private utility service areas into a number of smaller zones and select a provider of last resort for each zone through an open solicitation process. The bidders all would be all load serving entities, including community energy and electricity service providers.

For an entity to be certified as an ESP or CCA, the state could require that they participate in the solicitation and be willing and qualified to serve as provider of last resort. This addresses the universal service need because each of the winning bidders would be required to serve all customers in its zone, just as a CCA must serve all customers in the local jurisdictions it serves.

It is important to note that this is not a reliability issue. If a customer’s provider suddenly goes under and cannot perform, the customer is still connected to the grid — that’s part of the distribution utility or distribution system operator function — and the CAISO market still provides energy to balance all load.

It’s misleading to invoke reliability fears and the 2000 energy crisis as scare tactics to discredit community energy.

The market design flaws adopted in the 1990s have been corrected by the CAISO’s Location Margin Pricing market redesign and the Resource Adequacy program. While these need to be enhanced and updated to accommodate community energy, they are not fatally flawed or under threat by CCAs.

These scare tactics distract from the much more real threat from climate disruption growing more extreme year after year. For that threat California must focus more deliberately and quickly on local energy systems and local resilience for communities across the state, especially the most vulnerable communities. The state should create a structured statewide program to develop community-level energy resources by providing funding and technical expertise, establishing guidelines and bringing together the key actors and stakeholders to work in a collaborative manner. Otherwise too many California communities will remain vulnerable to extreme events.

Current: New technologies, CCAs, climate change and climate change policy are creating changes in how energy is supplied. Looking ahead 20 or 30 years, what do you see on the horizon when it comes to how power will be supplied and used in California?

Kristov: Not just in California, but more generally, I see the system becoming layered, adopting a grid architecture that emphasizes resilience by enabling subsystems at various levels to separate and function as electrical islands when necessary. An individual house or a larger building can employ a mix of generation, storage devices and electric loads, with an energy management system that coordinates everything inside the building to maintain an optimal relationship to the grid, to provide grid services at times, or to separate into island mode when needed and then reconnect again. In the near future this capability will be increasingly valuable both to the building itself and to the grid.

Applying layered architecture principles, the building may be part of a larger microgrid, like a campus or military base that functions in much the same way, coordinating operation of all the buildings and resources that comprise the microgrid, maintaining its interface with the grid and islanding at times.

The idea of layering means the campus microgrid manager does not need to see or control any devices inside any of the buildings; it just has to interface with the building management systems. Some of these systems may serve entire neighborhoods or sections of a larger city.

At a higher level, a distribution system operator operates a local energy system and market for services comprised of all the distribution facilities connected to a single bulk system interface. The DSO has several ‘smart’ buildings and a campus microgrid in the local area, but like the layers described above, the DSO only needs to interface with the management systems at each point of interconnection and does not need to see or control anything inside the buildings or the microgrid.

But the biggest paradigm shift is from the distribution system operator in the upward direction to the grid operator.

In the longer-term future, the same relationship governs the transmission-distribution interface as the lower level interfaces. The ISO and the DSO maintain the required technical and performance limits at the interface, and the ISO does not need to have visibility to or control any of the resources inside the local DSO area. This kind of layered system may be thoughtfully planned and developed by policy over the next few years, or it may evolve naturally as a response to resilience needs.

There is one lesson we might learn from the 2000 energy crisis: prudent management of risks.

In the set-up of the California market system in the 1990s, the IOUs in their procurement role were required to procure all energy needs from the Power Exchange, without the benefit of long-term hedging contracts to insulate them from spot price volatility in the CAISO market. At one point prior to 2000 the IOUs came to the CPUC to propose hedging contracts, but they and the CPUC were unable to reach agreement on whether or not the IOUs would be exposed to ex post prudency review on their contracts, so no contracts were signed. Then when market conditions drove up wholesale prices, the utilities were fully exposed to those prices. So while one can attribute market price spikes to the behavior of bad actors, the huge impact of those spikes was the result of a policy failure.

Similarly today, we may not be able to predict, much less mitigate, the disruptive climate events that will occur in the coming years, but we can begin now to develop resilient communities throughout the state, to build their abilities to maintain critical services and reduce the harm done when such events occur.

To do that, we need distribution utilities with some new roles and responsibilities, new functional capabilities, and profit incentives that align performance with societal needs. The proposed open access distribution system operator framework is intended to meet that need.

Lorenzo Kristov, as the CAISO market design and infrastructure principal from 1999-2017, worked on initiatives to integrate distributed resources into markets, operations and planning and to advance transmission-distribution coordination between the distribution utilities and the ISO.

The following items will help provide a fuller understanding of the ideas discussed above:






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