Moeller explains factors changing grid at SEPA Town Meeting

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Smart meters have been rolled out to 65 million customers nationwide – about half of the customer base, EEI Senior VP of Energy Delivery & Chief Customer Solutions Officer Philip Moeller told the National Town Meeting on DR & the Smart Grid yesterday, put on by the Smart Electric Power Alliance (SEPA). The former FERC commissioner said such developments are making the power system run two ways, rather than from a central station outward.

Not just smart meters are changing the grid, but other factors such as the flat demand growth in most of the country, which Moeller credited to energy-efficiency programs. That low demand growth means utilities will have to move away from a rate system where the costs of the grid are recovered from volumetric commodity costs.

SEPA Chief Strategy Officer Tanuj Deora asked whether moving away from that volumetric system might actually start to harm efficiency efforts. “I think if we take it to a new level, something like time-of-use rates would be even more appropriate to incentivize proper consumption,” Moeller said.

Under flat rates, it can be argued lower income customers are subsidizing higher income ones as at peak times, a consumer cooling a 4,000 square foot house is paying the same as one cooling a 400 square foot apartment, he added. That example obviously shows a cost shift is happening.

While Moeller has always been a big believer in TOU rates at retail, he was not that supportive of Order 745, which was partially sold as a way of getting around state regulators’ reluctance to implement them. Moeller was the lone dissenter on FERC at the time the order was issued, which required full-LMP payments for DR in ISO/RTO energy markets.

“My evolution has been such that I wish the jurisdictional issue had never been raised because that to me, particularly at the Supreme Court, it seemed to be the focus,” Moeller said. “To me it was all about compensation.”

He always contended FERC had jurisdiction over DR in wholesale markets, but the argument became a “big distraction.” Whoever wrote the majority decision for Justice Elena Kagan probably looked at the net-benefits test in the rule and saw that as “reasoned decision making.

“But I take a different view when I hear from the organized markets that the best mathematicians in the world can’t figure out how to do it,” Moeller said. “Nevertheless, I support demand response.”

The Supreme Court has put the DR debate to rest for now and the markets have moved onto other efforts including how to transition from an old central-station generation model to one with more renewables and distributed resources. But in that process, it is important not to lose economic assets that are just not being paid enough.

Markets have done well at what they were designed to but they were not designed to reflect a diversity of supply. That includes nuclear plants, which saw a wave of closures in organized markets – some of which were directly impacted by large-scale renewables nearby that drive down the price of power, he added.

“If our nation’s goal is to reduce carbon and then we lose 20% of the nuclear fleet – it’s going to be much, much more challenging to do that,” Moeller said.

Moeller on natural gas

After his talk, Moeller told us that natural gas plays a factor in the issue with nuclear plants shutting down or being at risk of early retirement. Shale gas has lowered the price of that fuel and that helped to drive the retirement issue and some of the responses to it – such as the capacity performance rules in PJM, Moeller said.

But when it comes to the situations of individual plants, their woes vary.

“It depends on where you are – it’s locational,” Moeller said. “There are certain areas where the gas is essentially trapped because of a lack of pipeline capacity to get it out. It’s going to sell for much lower – you saw that in the last capacity auction.”

Transmission constraints happen on the power system, too, and they can trap wind power into a smaller market and that can drive down power prices there, he added.

© 2016 Modern Markets Intelligence Inc.