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The Future Of Electric Power

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As Small And Private Solar Generation Becomes Increasingly Widespread, Public Utilities And The Arizona Corporation Commission Are Taking Aim At New Regulations That May Also Include Fuel Cells, Batteries And Other Technologies

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By Chris G. Braswell
Modern Times Magazine

June 22, 2014 — As more people integrate solar power infrastructure with their homes and businesses, Arizona utility operators and regulators are discussing how best to meet the paradigm shift in terms of grid management.

On Friday, the Arizona Corporation Commission held its second “Workshop About Value and Cost of Distributed Generation Including Net Metering." The first workshop was on May 7, and the presentations made can be downloaded at http://www.azcc.gov/Divisions/Utilities
/Electric/Value&Cost_default.asp
. Friday's presentations will be posted soon.

Last July, Arizona Public Service Corporation filed for approval for net metering cost shift solution, said Rick Lloyd, a utility analyst for the Arizona Corporation Commission. Subsequently, a distributed generation initiative was formed by the commission, and Arizona Public Service implemented a 70,000 kilowatt-hour per month adjustment, which became effective on December 31, 2013, for all residential distributed generation infrastructure. (http://en.wikipedia.org
/wiki/Distributed_generation
) The commission also ordered an estimate of non-monetized distributed generation assets.

The net metering cost issue will be faced by all Arizona utilities as distributed generation continues to occur more frequently, Lloyd said. The focus of the commission's investigation is on all forms of distributed generation, although at this time, roof-top solar is the most prominent form of distributed generation technology in Arizona and the greater U.S. Southwest.

For example, on any given day in California, utility power derived from solar infrastructure surpasses the historical peak levels of the state's nuclear-powered utilities, said Bob Stump, commission chairman.

Distributed Generation
“Arizona is a national leader, not just in distributed generation, but in utility-scale solar," said Jeff Goldner, senior vice president of public policy at Arizona Public Service. “While society has evolved toward distributed generation at an increasingly rapid pace, these rate designs have not."

Arizona Public Service is regulated by the Arizona Corporation Commission, which regulates energy utilities in Arizona except the Salt River Project and the rural electrical districts. The company is the principal subsidiary of Pinnacle West Capital Corporation, which had a net operating revenue of $24.7 million during the first quarter of this year.

The residential distributed generation rate adjustment implemented at the end of last year “was a meaningful step forward in the national discussion," about how America can transition to solar while maintaining a functional grid, Goldner said.

A new residential rate was implemented in the 1970s, which included a mandatory fee for all residential customers who installed air conditioning. Historical analysis illuminates an ongoing, progressive advancement in customer-sided technology such as distributed generation, but, “our customer prices today simply do not match the service our customers use," said Meghan Grabel, general manager of rates, pricing, and revenue at Arizona Public Service.

Currently, rather than having the customer's APS bill consist of mainly the power purchased, approximately 60 percent of it is fixed infrastructure cost, 30 percent is the cost of making the product, and 10 percent is service-based infrastructure, Grabel said.

“As long as the grid is still needed, we still need to fix that rate design," Grabel said.

In 2014, at the current rate of applications, Tucson Electric Power anticipates receiving 1,600 applications for a total of 12 megawatts of distributed generation, said Carmine Tilghman, the company's senior director of wholesale, fuels, and renewable resources.

He noted that solar distributed generation is not in line with system peak and customer usage, and that the existing infrastructure is not properly configured at this time to address the problem. Net metering (http://en.wikipedia.org/wiki/Net_metering) is still necessary from an economic perspective, Tilghman said.

Commercial and industrial customers are the primary drivers of system usage peaks, but residential clients do still see the correlated fixed cost-recovery fee as they are also hooked up to the utility grid, Tilgham said.

Tucson Electric Power serves southern Arizona and is a subsidiary of UniSource Energy Corporation, which acquired Citzens Communications' Arizona gas and electric operations in 2003 and renamed it UniSource Energy Services, which is owned by Canada's Fortis Inc. Fortis had a net income of $159 million during the first quarter of this year.

Power Distribution
In addition to the pricing and power transmission aspects of the issue, the subject of power distribution also needs consideration, said John Coggins, manager of resource planning and development for the Salt River Project.

Solar energy is gathered as direct current, so an inverter is needed to translate the current into alternating current, which is how the grid functions. Meanwhile, solar availability is intermittent due to such variables as cloud cover, and an inverter can exacerbate that variability of the current as well, Coggins said.

Typically, a load-tap mechanism helps manage such variability, and load-tap units are usually located among the transmission system, not the distribution system. Load tapping at the transmission point is less flexible and is a particularly obtuse configuration when it comes to handling distributed generation infrastructure, Coggins said.

Also, distribution data communications are usually between the control room and the substation, but in order to properly accommodate distributed generation arrays, communication needs to be arranged between the substation and the home or business. This would call for some new infrastructure for the “last mile" of wireless or fiber, as distributed generation requires two-way data communication.

Currently the inverters are owned by the distributed generation clients. Storage and grid management beg the same question as does the issue of accommodating distributed generation with a utility's inverter infrastructure, that is, does the utility or the customer own the storage, Coggins said.

The Salt River Project comprises the Salt River Project Agricultural Improvement and Power District electrical utility for the Phoenix metro, which is an agency of the state of Arizona, and the Salt River Valley Water Users' Association, which is a central Arizona water utility cooperative. Total operating revenue for the SRP was about $119.8 million during the first quarter of 2014.

A Cooperative Viewpoint
Sulphur Springs Valley Electric, which serves the southeast corner of the state, has about 60,000 customers, but it is not vertically aligned and does not own power generation assets. SSVEC is a non-profit, member-owned electricity distribution cooperative.

“You have got to be careful not to look for a silver bullet that might help utility investors but not co-ops," said David Bane, key account manager at SSVEC.

Before November 2013, its fixed infrastructure cost amounted to about 46 percent of customers' bills, now it is 51 percent, Bane said. The current low-demand fee is less than $5; it was $4.38 before last November, and now is $4.52.

At the end of last year, SSVEC's system included about 6,926 kilowatts of photovoltaic solar infrastructure, which is estimated to produce about 12.69 million kilowatt-hours per year, however those clients are not net zero customers, Bane said.

The cooperative lost an approximate net of $465,000 last year by not selling that 12.69 million kilowatt-hours, Bane said. That “loss" could potentially be recovered by adding $31 per month to the cooperative's 1,200 solar photovoltaic distributed generation clients, or by adding a $5.04 kilowatt surcharge, he said.

Is net metering the root of the problem, or does it lie among the historic rate design where the fixed cost kilowatt-hour is a pass-through expense, Bane suggested. Or, could a solution be reached by non-solar grid clients no longer subsidizing the solar customers.

Bane noted that APS has half of its customer base on a time use rate, and that such a protocol would be completely irrelevant to his cooperative. “We are different and we just hope that everybody would remember that as we travel down this path," he said.

Chris G. Braswell is the managing editor of Modern Times Magazine. He can be reached at cgbraswell@moderntimesmagazine.com.
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