By - Jim Vess

Can the Distribution System Be Operated Like an RTO?

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The distribution grid is in a state of change with the increased use of smart grid technologies, the expansion of distributed generation sources, such as rooftop solar systems, and new energy efficiency and reliability standards. These changes have gotten states and regulators to take a new look at the current ownership and operation model for the distribution grid.

In the current distribution grid model, which some believe to be outdated, the utility owns and operates the system – from the substation to the meter on the home or business. Third party distributed generation is connected to the utility-owned grid. There is little incentive for utilities to invest in new smart grid technologies as part of a long-term growth strategy.

One idea proposed by a group led by Jon Wellinghoff, a partner at Stoel Rives and former FERC chairman, is the Independent Distribution System Operator (IDSO) model. Under this model, the utilities would still own the assets on the distribution grid, but the IDSO operate the system, similar to an RTO on the transmission grid. The IDSO would be under the jurisdiction of the state regulators and would operate and plan for the distribution system.

The idea is that by making the IDSO responsible for maintaining system reliability, dispatching distributed resources, setting fair incentive mechanisms and opening up the grid to third-party competition, the independent operator would take over the most complicated tasks, enabling the utilities to focus their efforts on selling electricity and building new projects.

Wellinghoff believes that an IDSO model would enhance investments in distributed generation from both utilities and third party vendors by providing a neutral grid arbiter. He says that to sell states on the idea, regulators and legislators need to be made aware of the success of the RTO/ISO model on the transmission system.

As promising as an IDSO may look on paper, the utilities may not be very enthusiastic about giving up operational control of their distribution assets. Many feel they are the best equipped to operate the distribution grid and to make the necessary investments and value them correctly.

New York State has a different approach to distribution grid reform with its Reforming the Energy Vision (REV) initiative, which keeps distribution system operations in the hands of the utilities, but effectively prohibiting them from owning distributed generation sources. California has also started to investigate how best to operate the distribution system and plan for the growth of distributed generation. Other states should soon follow suit.

Whatever distribution grid model results – an IDSO, New York’s REV, or a hybrid of these and others – the motivation to keep distributed generation ownership separate from utilities is to ensure fair competition. Vendors of distributed energy fear the utilities will not be neutral arbiters if they own and operate the distribution system and are allowed to own distributed generation resources on it.

As power generation moves from a primarily centralized generation model to one which includes significant amounts of distributed generation, the distribution grid model must be reformed to address these changes and remained equitable for all involved.

For an in-depth discussion about New York’s REV initiative, join us in New York April 20-21, 2015 for EUCI’s New York Power Summit.

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