Once upon a time, utilities delivered energy to our homes and offices, and we had nothing to do with it except pay the bills.
Now, business and consumers are becoming mini-utilities, creating, storing and managing their own energy supply and use. The results are savings, reduced risk from price and voltage fluctuations, and the integration of new products that are driving the new economy. The story starts with the ‘grid’ and a change in how utilities make money to stay in business.
What is The Grid?
What many call The Grid is the electric system that transmits electricity to consumers through a series of transmission and distribution lines, and substations. Traditionally, a utility owned and operated all phases of the process, from electricity generation through distribution.
There are two things that have radically changed the traditional grid. They are decoupling, which is changing the way utilities make money, and deregulation, which has changed energy generation.
What is Decoupling?
All utility profits are regulated.
Traditionally, utilities’ profits have been tied — coupled — to how much power is used by consumers. As a result, utilities are incented to push for more generation.
Under decoupling, utilities are guaranteed a profit based on the costs of managing transmission and distribution. A very simplified explanation for a complex topic, the goal is to remove the ‘penalty’ for reducing energy use through energy efficiency, renewables, and so forth. Exactly how decoupling works varies from state to state. The story continues with deregulation, which has brought many new players into the game.
What is Deregulation?
Deregulation separates electricity supply from delivery, reducing monopoly power. It helps introduce new resources to the market, which are purchased through a regulated process.
- 2012 US generation from coal, nuclear, natural gas, renewables (including hydro) and ‘other’. (USEIA)
- Distributed Generation with combined power and heat (CHP): power on-site from diesel, natural gas or bio-fuel. Heat created from generation of electricity is captured and used for hot water or heating. Very efficient. Can provide energy during outage.
- Microgrid: Power generation from distributed generation (see above) or renewable sources such as solar or wind, combined with energy storage from batteries and fuel cells, or mechanisms such as ice. A building management system measures use, regulates demand and controls energy production and storage. Reduces and stabilizes energy prices, and reduces risks from grid failure.
- Residential or small commercial | industrial: On-site generation from solar, wind or other renewable. Energy use to off-set utility costs. Unless combined with storage, use during grid failure can be unreliable.
How deregulation works in New York
A good example of the complexity of deregulation is how it has changed ConEdison. Prior to restructuring, ConEdison presented its vertically integrated electric system plan to the PSC for approval, setting rates for both supply and delivery. Under deregulation, the utility’s primary responsibility is ensuring the adequacy of its distribution system under the PSC’s jurisdiction. Transmission and resource supply adequacy, under the jurisdiction of both the FERC and the PSC, is governed by the New York Independent System Operator (NYISO) planning process, which principally uses the market to send signals to facilitate a robust energy and capacity market, and oversees resource planning. The retail supply market is lightly regulated and retail suppliers compete in the NYISO marketplace. The increasing ability for customers to actively control their own energy supply might prove to be the linchpin in enabling the long-term sustainability of New York’s deregulated retail energy market.
We wish to thank Margarett Jolly, Distributed Generation Manager, Engineering and Planning at ConEdison, and David Logsdon, Specialist Distribution Engineering at ConEdison. Their insight and expertise, along with the generous donation of their time, made this article possible. Any misinterpretations are the sole responsibility of THE GREEN ECONOMY.This article appeared in the 2013 Energy Security magazine.