IEEE Power & Energy Magazine - May/June 2016 - 104

in my view

Gerald Shebleˆ

decades of disconnect
proper pricing is important

FOR ANY COMPANY'S SURvIvAl,
the proper pricing of electric energy has
to include future expenses. Using marginal pricing ignores future expenses
and constant expenses. Pricing without
including all expenses is offering "tidbits today to offset the megatons of tomorrow's profits."

Enter the Third Parties/
Following Proper Price
Signals
Transactive energy (TE) is another
step in reregulation. The source for the
regulatory and financial viewpoints expressed here are from a January 2016
Advanced Energy Economy (AEE)
webinar, "What Does it (Really) Take
to Modernize the Grid?" [the webinar
presented overviews on regulatory and
financial perspectives, and participants
were lisa Frantzis, AEE moderator;
Audrey Zibelman, New York State
Public Service Commission (NYPSC);
James Tong, Spruce Finance; and Michael Ferguson, Standard & Poor's],
the articles within this issue, and previous "In My view" columns. The aim
of TE, prototyped in New York, is to
satisfy grid neutrality tenets: consumer
empowerment, the commons, risk rewards, transparency, and open access.
The lure of the Internet of Things has
extended to all appliances, and transportation, distributed storage, and distributed generation (DG) is similarly

Digital Object Identifier 10.1109/MPE.2016.2525242
Date of publication: 19 April 2016

104

ieee power & energy magazine

explosive. The inclusion of demand response (DR) and DG are not news.
The headline should be "NYPSC
moves from monopoly to third party
for new project funding." The intent is
to use price signals better, react to customer demands for environmentally
sustainable resources, and less risky solutions when compared to coal (subject
to pollution) and nuclear power (subject to long-term storage). The NYPSC
desires a response to
climate change, to
reach 50% renewable
energy by 2030, and
have markets support
fuel diversity based on
proper price signals. It
is noted that customers
want an environmentally sound grid. The
goal is to enable nonutility finance to offer
advances from which
the customers could choose. The financial goal is a reduced price to customers compared to the present price trajectory. It is hoped that utilities should
see third parties as an advantage just as
Apple feels that companies providing
apps are a benefit.
The financial viewpoint centered
on the trends within the industry and
which utilities are responding to those
trends. The financial industry notes that
there is a move to a decentralized grid,
more renewable resources, more natural
gas (especially by micro turbines at residences), that an intermittent grid exists
due to congestion and to other ancillary

service contracts, and that risks need to
be mitigated locally. The financial view
is that markets are aware of these economic forces, new market participants
are responding, market-based transmission is changing the grid, and the credit
for reliability to resources on the supply
and demand side.
Renewables are the main concern
for the traditional utility from the
financial viewpoint. The new environmental rules and
the cost, mak ing traditional units a must
for reliability, is questioned. How long can
distributed resources
rely on tax credits? Improvements in battery
storage heighten the
viability of local storage, dramatically improving reliability. The
financial key variables
include the cost of battery storage, environmental rules, state/regional rules
and policies, the impact of commodity
pricing volatility and trends, the speed
of decentralization, and the impact of
energy efficiency especially at the demand end.
The sense is that infrastructure changes are cheaper than continuing with the
status quo over time (an implied real
option analysis) as change is inevitable
in a global economy. The transition cost
is expected to be more expensive as
one waits.

The goal is to
enable nonutility
finance to offer
advances from
which the
customers could
choose.

(continued on p. 101)
may/june 2016

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