©2016 E&E Publishing, LLC
Republished with permission
By Jeffrey Tomich
Michigan Gov. Rick Snyder showed little concern that the state’s legislature adjourned last week without passing energy reforms that have been debated for more than a year.
“We’re still working on this legislation, but that’s OK,” Snyder said during a keynote address at the Midcontinent Independent System Operator’s annual meeting in Detroit.
The second-term Republican compared long-term investments in energy and transportation infrastructure to a mortgage. The price tag is daunting, but paid for in monthly installments over decades, it is affordable and can yield long-term benefits.
In crafting policies to support multiyear investments, Snyder stressed the importance of flexibility. Laws and regulations must be able to be adapted to continual changes in federal energy policy, “or lack thereof,” and the evolution of technology and markets, he said.
Perhaps no state is undergoing as significant a change in fuel mix right now as Michigan, where dozens of coal plants are being retired. Jackson, Mich.-based Consumers Energy just shut down its Classic Seven coal units in April, and DTE Electric, the largest utility in Michigan, will turn over half its generating fleet during the next seven years.
The challenge of replacing infrastructure was among the issues in a panel discussion among utility executives that followed Snyder’s speech.
The electric industry faces a wave of capital investments in the coming years, from cleaner forms of generation to replace aging coal plants to new transmission lines that link them to cities. At the same time, utilities are having to modernize their distribution grids to accommodate more rooftop solar and energy storage.
Nationwide, hundreds of billions of dollars of investment is needed. And those costs must be passed through to consumers at a time when electricity demand is flat or declining.
For most utilities, which recover at least a portion of their investments in the grid through volumetric energy charges, those costs will spread over fewer units of energy.
That challenge has utilities looking at the future of how rates are designed, and it has exacerbated a simmering debate over solar net metering.
In some states, regulators and legislatures are being asked by utilities to change net-metering policies that provide credits at retail rates for excess generation put back onto the grid.
Solar installers say retail net metering is fair and essential to help jump-start markets where solar penetration is minimal. Many utilities say the policies jeopardize fixed cost recovery and lead to cross subsidization among customers.
“We want to make sure that those who are able to afford these distributed resources aren’t doing so on the backs of those who can’t,” said Melody Birmingham-Byrd, president of Duke Energy Indiana.
Trevor Lauer, president of Detroit-based DTE Electric, said the utility industry should embrace disruptive technologies like rooftop solar but that any subsidies put in place should be made clear.
“I don’t think we need to be at war with solar advocates, but we do need to fairly recognize the value of what different generation is bringing to the grid and who ultimately does have the responsibility to pay for it,” Lauer said. “Under today’s tariffs, we have a lot of subsidization that goes on.”
The transformation of the utility industry is not only being pushed by technological innovation but also by an upheaval in energy markets thanks to the surge in shale gas production. Changes in federal policies are also helping accelerate the shift away from coal.
Key among those federal policies is U.S. EPA’s Clean Power Plan. The rule, if it survives legal challenges, requires a one-third reduction in 2012 power plant carbon dioxide emissions over the next decade and a half.
Utility executives said the emissions reductions required in the rule are not an issue.
“Clean Power Plan or no Clean Power Plan, the resource evolution is underway,” said Teresa Mogensen, senior vice president of transmission at Minneapolis-based Xcel Energy Inc.
But the rate at which the transition occurs could be a source of tension.
“We need to pay attention to the pace, because pace defines affordability,” Lauer said.