POWER February 2013 - 47

POWER VIEWS
DERs to offset electricity consumption at
multiple points that do not require a two-way
meter (for example, apartments). Virtual net
metering may require the use of distribution,
as well transmission systems, in new ways,
which may add more costs and subsidies.
Net metering also errs in treating all DERs
equally, regardless of their value to the utility
system. For example, DERs located in areas of
a utility system with constrained capacity may
reduce congestion on the distribution network
and result in utility cost savings. In addition,
DERs that can generate during a utility's peak
demand periods have more value than DERs
that produce during off-peak periods.
Utility Participation. Whether or not
electric utilities can participate in DER markets
is another issue being raised. In many
cases, electric utilities or their affiliates have
either been prohibited from or limited in their
ability to participate in these emerging markets.
The concerns have been that utility participation
might hinder, rather than augment,
market development in the most efficient and
cost-effective manner possible.
Other limitations have been put in place because
of concerns raised by other DER developers.
Additionally, state tax credits, grants,
and loans that are available to third-party
owners of DER are sometimes not available
to utilities, which creates indirect barriers to
utility participation in DER markets.
Although not all utilities may wish to own
DERs-either on a regulated or unregulated
basis-the ability to participate or partner in
DER markets will not only give them an additional
avenue for fulfilling their mission of
providing reliable and quality electricity service
at reasonable cost, but, where they serve
as competitive providers of these resources,
they'll also be promoting innovation and efficiency
in their development.
Backup Rates. DERs raise the question
of how to handle backup electricity service as
well. When customers install their own DERs,
the power output won't always exactly match
their power needs. This is especially true
with the variable nature of renewable DERs.
Other forms of DERs, even those with steady
output, aren't always available because they
may fail or be taken off-line for maintenance
or repairs. As a result, DER customers must
be backed up by grid-supplied power.
If the customer is connected to the grid, this
backup (or standby) service is provided automatically.
Regardless of who provides backup
service, the provider incurs a cost by agreeing
to maintain available generating capacity and
not sell it elsewhere. The transmission and distribution
costs incurred in providing backup
service must be considered as well.
The cost, terms, and conditions of providing
this backup service are key determinants
February 2013 | POWER
in deciding the economic feasibility of DERs.
During utility regulatory proceedings, it's often
been argued that backup rates are too high
because utilities ignore the benefits provided
by the DERs, such as deferred or avoided
generation, transmission, and/or distribution
capacity, reduced line losses that naturally occur
along distribution and transmission lines,
as well as reduced air emissions. Customers
with DERs also argue that backup rates are
discriminatory because they pay charges that
are different from charges that apply to customers
who do not self-generate.
The reality behind these claims, however,
is that utilities frequently cannot defer or
avoid generation due to the unreliable nature
of DERs. In addition, proposed DERs often
are never actually built. Utilities, however,
have to account for this uncertainty.
In fact, DERs often trigger distribution and/
or transmission upgrades as opposed to deferring
them. Additionally, DER developers are
often provided numerous carve-outs and subsidies
that are not available to other systems.
Lastly, backup rates are often embedded in
rates of customers who do not self-generate
and do not represent discriminatory charges.
Despite these facts, some states have exempted
self-generators from backup service
charges based on varying criteria. Other
states have set backup rates in a manner that
does not enable the utility provider to recover
the full costs of providing the service.
Do DERs benefit all customers?
The electric utility industry shares and supports
the desire of customers to adopt DERs. It's critical,
though, that it be done right. DERs must be
added to the system in a way that protects reliability,
ensures the safety of the public and utility
employees, and is fair to all customers.
One of the key public policy issues arising
from DERs is how they will affect low-usage
customers (for example, apartment renters)
and low-income customers-both of whom
are the least likely to take advantage of DERs.
Such customers are often the most vulnerable
and likely will bear the financial burden of
cost shifting that can occur with the increased
installation and use of DERs and the associated
departure of more affluent customers
from the utility's distribution system, and they
should be a focus of public policy.
Looking ahead, given the many public
policy issues surrounding DERs, collaborative
efforts between utilities, state regulators,
and customers will be invaluable in arriving
at solutions that benefit each group. ■
-Dr. Robert Peltier, PE, POWER's editor-inchief,
conducted and edited this interview.
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POWER February 2013

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