Former Federal Energy Regulatory Commission Chairman Jon Wellinghoff discusses the challenges facing regulators on distributed generation.
Monica Trauzzi: Chairman Wellinghoff, thank you for speaking with me today.
Jon Wellinghoff: Thank you for having me, Monica, it's good to see you again.
Monica Trauzzi: Good to see you as well. In your view, does distributed generation in the United States provide a net positive or negative to the changing landscape of the electric power sector?
Jon Wellinghoff: Well, I think it's definitely a net positive in the sense that what it's adding to reliability of the overall system, providing for more distributed discrete resources throughout the distribution utility system is extremely beneficial from a security and reliability standpoint. It's also beneficial from a standpoint of providing consumers with more control and more ability to have instant control of their own systems within their own purview, whether it be at their residence or the commercial facility or even on a microgrid system within a community. And I think it's certainly something that's going to continue to grow because we're seeing a market pull for it and consumers' large desire to continue to expand distributed resources.
Monica Trauzzi: There are many challenges, are the challenges greater for regulators or utilities?
Jon Wellinghoff: Well, I think the regulators certainly have significant challenges because they have to consider their process of approval of utility investments, to the extent that utilities are continuing to make central station investments that at some time in the future could become stranded and could become no longer useful. Then there are very hard decisions to be made as to how you allocate those costs and how you ensure that the system is maintained in a reliable and efficient and cost-effective way overall. So regulators I think are going to have some very hard choices to make in the future.
Monica Trauzzi: And how much of a role are regulators going to be playing in actually preserving the future of utilities?
Jon Wellinghoff: I don't think anybody should necessarily be preserving the role of the future of utilities. What we should be doing as entities that are concerned about consumers' well-being and society as a whole is ensuring that we preserve the delivery of efficient and cost-effective and reliable energy services. Utilities, I think, are going to have to change and have to evolve, and evolve in ways that they can restructure their business models to be accommodating to and consistent with this new distributed world.
Monica Trauzzi: How closely should regulators and utilities be working together on creating a road map?
Jon Wellinghoff: I think they should be working very closely together. I think the utilities have an obligation to inform their regulators as to how they're going to transform their business models in ways that can be consistent with and aligned with the desires of consumers to have more distributed systems, to have more control, and better reliability and security of systems.
Monica Trauzzi: But on the flip side, how much flexibility should regulators be giving to utilities?
Jon Wellinghoff: I think they should be given a great deal of flexibility. I think they should be allowing utilities to move into more competitive areas and allow utilities to be much more flexible and competitive and nimble to be able to compete with all the other entrepreneurs and various providers of these solar and distributed resources that are being sold to consumers. So utilities are going to have to have the ability to morph into those roles of entrepreneurs and marketers and deliverers of these energy services to be able to effectively compete with all the other people in the space.
Monica Trauzzi: How do you think experiences with what happened in the telecom industry might shape and influence how regulators approach distributed generation?
Jon Wellinghoff: Well I think it should shape their overall perspective significantly, especially with the new advances that we're seeing in mobile communications technologies and all the applications we're seeing going on smartphones and tablets and all the sensing equipment that's coming in that allow those devices to become much more communication devices. I think we're going to have a similar situation in the integration of energy service devices that will be much more than simply energy service devices; they will also be communications devices and vice versa. So there's going to be much more of a morphing of these things together in a way that the two worlds are going to come together very rapidly.
Monica Trauzzi: What can FERC do to improve the storage process?
Jon Wellinghoff: Well, I think FERC can continue to open up markets, ensure that market structures are in place that fully compensate those technologies like storage for the value that they can bring to the system, value that includes not only energy and capacity, but also ancillary services and voltage and VAR support and other types of grid services that have traditionally been provided by more traditional central station resources. So FERC, in my opinion, should continue on the road that we started when I was there, and that is to ensure that we have as many market products as possible to fit the different types of resources that can participate in those markets and provide value to the markets.
Monica Trauzzi: We've seen many headlines pointing to the end of utilities, do you think there's such a thing and that distributed generation could lead to that?
Jon Wellinghoff: Yes, I do. I think ultimately we're going to see a much more market-based system where we'll have multiple providers of energy service products, just like we have now in telecom, now we have in Internet service provision, Internet service and security services for homes and businesses, all of those different types of services now are extremely competitive and are provided by multiple parties. And I think it's going to be the same thing in the energy services world. We're going to see multiple parties in a competitive world providing those services. And I think that's the way to go, because ultimately it will provide consumers with more choices and will also provide consumers with potentially lower costs overall.
Monica Trauzzi: So if you had to write up a framework for utilities on how they should be handling the challenges associated with distributed generation coming online, what would you prescribe for them?
Jon Wellinghoff: I would prescribe them looking at what are the prospective technologies, things like storage, things like solar PV, things like new software systems and devices that ultimately can provide more information and data about how consumers are using the energy and how to help them use energy smarter and in a more efficient way. And I would encourage the traditional distribution utility to move into that space and to start doing what they can working with their consumers to start delivering those types of services side by side with the more competitive providers that are doing it right now.
Monica Trauzzi: How does natural gas factor into the success of distributed generation, particularly in certain regions of the country?
Jon Wellinghoff: I think natural gas is certainly going to be a primary fuel for distributed generation. I think we're going to see more and more expansion of distributed micro-turbines, fuel cells, reciprocating engines and other devices that will use natural gas at the local level to provide multiple services. To provide energy services, to provide heating, hot water, cooling. All those services can be provided by natural gas as a primary fuel and used in conjunction with other distributed resources like solar and like storage that will all be part of the system that consumers will ultimately be installing in their residential and commercial premises to provide the services that they desire.
Monica Trauzzi: This all seems to be moving very quickly, how are you expecting distributed generation to develop over 2014?
Jon Wellinghoff: Well, I think what we're going to see in 2014 with distributed generation is a much more accelerated integration of that generation with storage. We're starting to see storage come on now. Battery storage especially, a number of perspective companies like Eos of New Jersey, Ambri out of Massachusetts, Aquion out of Pittsburgh, are on the edge of commercializing some very cost-effective battery technologies that could revolutionize the use of distributed generation, especially solar, for example, that could allow it to be much more flexible and much more effective for consumers overall.
Monica Trauzzi: What do you predict the utility sector will look like in a decade?
Jon Wellinghoff: In a decade I think it will be totally competitive. I think you'll see a competitive system where all types of services will be competitive. The only one that may not be may be the local distribution lines, and that still may be in a monopoly service or it may be in a municipal service, and there'll be a fixed fee for providing access to those lines. But aside from that, everything else, generation, large transmission, ancillary services, capacity and all the other attending services and energy efficiency services, demand response services, all those things will be in the competitive realm and there'll be multiple competitors providing those individually, unbundled or bundled in packages like we have packages now with the cable company gives you Internet and phone, they bundle the packages together. I think you'll see a similar type of thing with a number of energy service providers doing that as well in a very competitive world.
Monica Trauzzi: Before we close, is there anything you wanted to add on distributed generation? Anything we missed?
Jon Wellinghoff: Well, I think one thing we need to look at is hopefully solving this ongoing war between the distribution utilities and the solar distribution providers on the net metering issue. I think that's a very disruptive engagement that I think needs to be brought together in a cooperative sense to figure out a solution so that the utilities can be satisfied that they're recovering their fixed costs on the one hand; on the other hand, the net metering customers and the solar providers can feel that they're being provided adequate compensation and value for the services in essence those distributed resources are bringing to the grid. So I think we need to get those two sides together and resolve that issue.
Monica Trauzzi: All right, Mr. Chairman, we'll end it right there.
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