What are the implications of the Public Utilities Commission of Ohio’s recent PowerForward report?

Standard

In 2018, the Public Utilities Commission of Ohio (PUCO), the state’s regulatory entity for electric utilities, commenced a multi-month research initiative entitled “PowerForward: A Roadmap to Ohio’s Electricity Future.” The intent of the PowerForward project was to review the status of Ohio’s electricity distribution grid and gather feedback on innovative technologies and policies from informed stakeholders. Consequently, PowerForward aimed to develop a “roadmap” to propel the state and its grid infrastructure toward modernization efforts and a better consumer experience. The report was released on August 29, 2018, after a series of topic-specific presentations by experts from March to July (i.e., “A Glimpse of the Future,” “Exploring Technologies,” and “Ratemaking and Regulation”) in the state’s capital of Columbus.

Ultimately, the PUCO heard from more than 100 speakers throughout this process, from a wide variety of perspectives (e.g., policymakers, electric utilities, engineers, industry, academia, environmental groups, and many others). Given the changing electricity generation mix (i.e., coal plants being decommissioned and more natural gas and renewables coming online), as well as new technologies and data demands on the consumer side, the report aimed to better discern the future of Ohio’s grid to meet the needs of businesses and residents alike. Historically, Ohio has not formally done much in the way of studying grid modernization issues, and, nationwide, grid modernization efforts have usually focused solely on updating aging infrastructure. Yet, considering the ever-changing nature of consumer demands, coupled with technological advancements, the time was ripe for the PUCO to cultivate a blueprint for the advanced grid which will encompass more electric vehicles (EVs), distributed generation, microgrids, and storage efforts.

Beyond the interesting case study of transparency and collaborative planning that the PowerForward process provided, the report itself did provide a solid overview of Ohio’s electricity grid, and how modernization and upgrade efforts were needed to provide flexibility and security in light of advancements in technology. Increasingly, consumers are adopting programmable thermostats, smart phone apps, and even their own onsite electricity generation, all of which necessitate enhanced two-way grid interaction. The report itself discussed the logistical components of an open platform and modernized grid, such as its architecture, storage, EVs, distribution system markets, ratemaking, and cost recovery and design. These Ohio-specific considerations were also intended to coordinate the four major investor-owned electric utilities in the state on approaches and electric security planning for the future, all of which have already filed grid modernization riders in PUCO dockets.

However, the report was intentionally brief, which inherently excluded other core considerations of interest, such as the pending gubernatorial election and impacts of the state legislature in guiding the direction of future energy policy for Ohio. This remains an incredibly important issue, given the power of the state legislature and the governor’s office in energy policy matters. This has been most prevalent in Ohio with regard to the renewable portfolio standard (RPS) dispute, where the goals and applicable technologies have been greatly deliberated over the past five years, even resulting in a two-year RPS freeze for additional study from 2014-2016. The PowerForward report only mentions Ohio’s RPS briefly as part of a rate design discussion, and, taken as a whole, seems to neglect state policy (e.g., net metering) and political considerations. This is an interesting oversight given the current, heated gubernatorial race between Republican Mike DeWine and Democrat Richard Cordray. As increased renewable energy, distributed generation and related efforts have a key interrelationship with the advancement of the integrated grid network, a deeper dive into the potential changes (or lack thereof) with state policy mechanisms seems like an unfortunate omission.

Nevertheless, a core topic that is discussed in the PowerForward report is energy storage, albeit in a broad stroke capacity. Energy storage has been shown both in academic literature and in practice to provide operational benefits to the electricity distribution system, especially with declining battery costs. Ohio ought to seize such technologies as a critical market accelerant to this transformation, particularly in terms of EV charging stations and virtual power plants in smart cities. Moreover, the PUCO should leverage the recent Federal Energy Regulatory Commission (FERC) energy storage rules adopted earlier this year to develop adequate state policies. The current challenge for the entire storage industry has been the lack of a reliable and scalable business plan with stable revenue sources. However, energy storage now has a federal regulatory backstop to be paid for their services. As a more tangible action step moving forward from PowerForward, Ohio should start to devise an effective payment plan for energy storage as a matter of state regulation. There is a need to clearly establish a steady revenue stream that would attract capital and support the cleantech industry within Ohio, as well as advance research and development on energy storage from the state’s utilities and institutions of higher education.

Further, storage ought to be supported to enhance grid reliability, particularly for intermittent renewables, given the decline in coal-based generation and the uncertain future for nuclear energy. Several pilot programs should be initiated to deploy modular nuclear capacity in Ohio within the next decade, principally to support energy parks, data centers, military installations and new load growth. Storage and renewables are co-dependent and could be co-located. The increasing deployment of renewables on the grid, on both sides of the meter, accelerates the need for more storage, while more availability of storage on the grid makes renewables, combined heat and power (CHP) systems, fuel cells, and demand management more attractive for future integrated resource planning.

Increased energy storage should also be integrated with EV charging and EV planning, as PowerForward does not drive this point home. This is a new and attractive growth market in the automotive sector in which Ohio remains a laggard state. One out of every seven jobs in the state has a direct or indirect linkage to the automotive industry, and therefore Ohio ought to protect this comparative advantage by adapting to new technologies entering this industry’s market. The prospect of energy storage also enhances the competitive nature of Ohio, especially as a deregulated electricity state, and wholesale electricity markets. Advanced storage would also offer protection from the declining reliance on coal-based generation and is a market ordering device for independent power producer (IPP) owned plants already struggling with flat electricity prices.

The importance of smart rate design needs additional attention, both in and beyond the report. This framework is vital for price setting for electricity services, and more is needed to encourage consumers to respond to price signals for behavior modifications. Moreover, regulatory reform for microgrids and the upgrading of current franchises would be a welcome change. Microgrids, in addition to renewables and clean technology, have also suffered from Ohio’s historic policy decisions. Moving forward, the uniqueness of community choice aggregation (CCA) laws offers a leadership opportunity for the state to allow more democracy and flexibility in rate structures, as well as the deployment or procurement of renewable energy sources. These unique electric service providers are key players in meeting shifting consumer demands for renewables, for instance, which have an obvious relationship to PowerForward-related issues such as consumer choice, electricity cost considerations, and grid modernization efforts; yet CCAs, enabled by the state’s market restructuring, are not mentioned as a key player in the report. Aggregation policies need to be advanced and harmonized with generation and PowerForward initiatives to create a stronger Ohio market grounded in customer service.

The State of Ohio is already a member of the PJM Interconnection market structure, which requires regional participation and strategies that will impact access and prices. The PowerForward report briefly mentions PJM as a key partner in this grid modernization discussion, but their operational and energy market planning efforts could be better utilized, as exemplified in their 2014 Renewable Integration Study with General Electric International. As more additions for generation occur behind the electric meter and increasing deployment of distributed generation appears requiring T&D modernization, the possibility of transformation increases. Ohio needs to dive deeper in the topics noted in the report and be a leader in supporting their citizenry, industries, cleantech sector, and manufacturers.

Through the themes of energy storage, EVs, rate design, and renewable energy integration, among others, PowerForward outlines the key issues Ohio needs to consider moving forward. It is apparent that Ohio is lagging behind other U.S. states with regard to these transformative electric power issues, such as smart grid, energy storage, microgrids, distribution energy platforms, performance-based ratemaking and transactive energy, cost recovery, rate design and rate base reform, and future electric modernization investments. One of the most interesting takeaways from the PowerForward report is the recommended next steps. Among suggesting additional planning assessments and grid investments by Ohio’s utilities, PowerForward pushes for the creation of collaborative workgroups (e.g., the Data and the Modern Grid Workgroup) to more narrowly focus on each of the important topics brought forth. However, many studies, and other states in a practical sense, have already investigated these issues ad nauseam. While focus on the desirability of local utility management of their distribution platform and the surrounding grid is interesting, more studies and taskforces seem unnecessary to postpone in Ohio, by years, the confrontation of known major market changes.

Instead, pilot demonstration projects utilizing various technologies, increased technical assistance to communities, customers, and end-users, and the use of PowerForward to foster economic development and a more modern Ohio grid is a strong strategy to progress in a shorter timeframe. Market forces, competition, environmental degradation, advanced manufacturing, workforce training and education, and international and domestic companies will not wait much longer for Ohio, which is the 7th largest energy user in the U.S., to speak with confidence and a sense of direction to move these grid modernization efforts into the 21st century. Additional taskforces and collaborative workgroups can be an integral part of these efforts, but more applied and actionable steps could truly help propel Ohio beyond the status quo and stimulate investment in the cleantech industry, smart cities, and EVs and autonomous vehicles, all of which will positively impact the state’s ability to attract international, human, and financial capital for the future.

To be specific, the best integrated outcome looking beyond PowerForward would leverage Ohio’s gas, renewables, storage, and EV strategies. Ohio has indigenous natural gas resources which will be part of the energy mix for decades, largely contingent upon at what price levels the markets will clear. Certainly, in the future, combustion turbine peakers, Public Utility Regulatory Policies Act (PURPA) qualifying facilities, IPPs, and coal-fired generation are likely to decline as they are replaced with grid and supply strategies of the 21st century. This transition is already beginning to happen, with more distributed renewables coming online and electric utility investments, such as American Electric Power’s 900-MW renewables initiative. In fact, it is this very juxtaposition that provides an opportunity for energy advancement by repurposing former plant sites to new technologies of the future, especially since the necessary grid infrastructure is already nearby. Utilities ought to be encouraged by financial mechanisms for investing in distributed grid infrastructure and the expansion of smart grid and energy storage technologies. Relatedly, building codes, and building energy management initiatives, would better address where a majority of electricity is used today.

Certainly, these are ambitious thoughts and tasks emerging from the PowerForward research project and resulting report, but such strategies are necessary if Ohio wants to remain competitive with its peer states with regard to capital and economic development from an energy lens. Grid modernization efforts are commencing in nearly every state across the U.S., including various strategies such as developing new business models, rate reform, etc., but Ohio needs to understand its unique attributes, barriers, and opportunities to move forward in a strategic and intelligent manner. Properly addressing these issues with applied steps, perhaps led by the state’s electric utilities, can truly prepare the state for energy storage, demand response, smart grid technologies, and beyond, and this diversity and transformation is forthcoming in the short term, if not already happening. Given the fact that energy-related institutions and processes are not static, Ohio needs to act now on the momentum built by the PUCO and the PowerForward buzz and enact pilot programs to accelerate a more secure and advanced energy future that is more resilient, responsive to customer demands, sustainable, and less disruptive, to enhance everyone’s well-being.

Blog by Michael J. Zimmer, Executive in Residence and Senior Fellow, Ohio University Voinovich School of Leadership and Public Affairs & Russ College of Engineering and Technology, and Gilbert Michaud, Assistant Professor of Practice, Ohio University Voinovich School of Leadership and Public Affairs. Edited by Elissa E. Welch, Project Manager, Ohio University Voinovich School. October 2018.

Advertisements