Blockchain Goes Solar

A recent New York Times article reported on an early-stage, solar energy microgrid being formed in Brooklyn, called the Brooklyn Microgrid, that relies on blockchain technology, the innovative database technology used by cryptocurrencies like Bitcoin that promises to transform industries as diverse as financial services, health care, retail, and manufacturing.  The blockchain-based microgrid enables neighboring residents and businesses to join an electronic trading platform and allows residents with solar rooftop panels to sell their excess electricity directly to neighbors within the microgrid.  The use of blockchain technology facilitates secure and verifiable peer-to-peer energy trading, without involving the local electric utility in administering the microgrid.

Blockchain is a type of distributed ledger technology that creates and maintains a complete sale-purchase-delivery transaction history for a commodity, such as currency or, in this case, electricity.  With a blockchain distributed ledger, identical, immutable copies of the ledger are available to multiple participants in the network, not just to a single intermediary, such as the local utility.  The use of blockchain in an electricity microgrid gives participants the ability to meter surplus electricity production from rooftop solar panels and to document securely the sale and use of that electricity by other members of the connected microgrid.  The transaction chain would omit the local utility, which would account for net flows in or out of the collective microgrid, but not for the real-time purchase and sale of surplus solar energy.  The ultimate goal for blockchain-based microgrids may be to build a microgrid with energy generation and storage components that can function largely independently of the local electric utility company’s system, even during widespread power failures.

The project is one example of how the marriage of solar energy and blockchain distributed ledger technologies can redefine the relationship between energy producers and energy consumers, promote solar energy, and create alternatives to the traditional centralized power grid.  That said, creative, light-handed regulatory solutions may be needed from public service commissions to allow blockchain-based sales and purchases of surplus solar electricity, within a microgrid, to occur without causing each seller to become a regulated retail seller of electricity.

FERC Gets Comments on Electric Storage Proposal

Electric storage resources such as batteries and flywheels are shaping the grid of the future. The ability of these resources to absorb and discharge electricity gives the resources operational flexibility that allows them to provide a variety of services to help keep the power grid in balance.  Energy storage installations in the U.S. grew 100% in 2016Most of the new resources were utility scale but 25% were commercial and residential systems.

As discussed previously in this blog, FERC issued a Notice of Proposed Rulemaking (NOPR) intended to knock down barriers to storage resource participation in the organized wholesale electricity markets administered by Regional Transmission Organizations (RTOs) and Independent System Operators (ISOs).[1]  FERC’s proposal would require each RTO to revise its tariff in two ways:

  • Establish market rules that recognize the physical and operational characteristics of storage resources and accommodate their participation. Storage resources that participate in wholesale markets must do so under rules designed for other types of resources.
  • Allow distributed energy resource aggregators to participate in the markets. Individual distributed energy resources may be too small to meet minimum size requirements or have difficulty satisfying operational performance requirements of the markets. Allowing these resources to participate through aggregations can enable them to satisfy requirements that they could not meet on a stand-alone basis.

FERC received comments on its proposal from more than seventy entities across a broad  spectrum of the industry.  This post summarizes the major issues raised in the comments.

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NY ISO Outlines Steps For Integrating Distributed Resources

The NY Independent System Operator recently issued a plan for addressing the nuts-and-bolts issues associated with integrating distributed energy resources (DERs) into the wholesale electricity market.  The NYISO says its Distributed Energy Resources Roadmap for New York’s Wholesale Electricity Markets is “the first step in building (the) grid of the future” and seamless transition “from a primarily central station-based grid to a diverse bi-directional grid.”


New York is implementing a sweeping “Restoring the Energy Vision” initiative (REV) aimed at a substantial transformation of electric utility practices to empower customer choice and encourage greater penetration of clean generation and behind-the-meter resources.  To help accomplish these objectives, the NY Public Service Commission  adopted a comprehensive policy framework for a reformed retail electric industry aimed at increasing distributed energy resources and dramatically changing the role of utilities.  DERs will become integral tools in the planning, management and operation of the electric system, placing them on a competitive par with centralized options.  The current retail utilities will serve as a platform to provide uniform market access to customers, distributed resources and aggregators.

 The NYISO Roadmap 

The Roadmap’s primary goals are to integrate DERs into the NYISO’s wholesale electricity markets and to align with the goal of New York’s REV initiative.  The document sets out a framework for developing market design elements, functional requirements and tariff language to integrate dispatchable (i.e., controllable) DERs into the wholesale electricity market.

The Roadmap identifies the following concepts and issues to be addressed through the NYISO’s  stakeholder process and offers initial proposals on some of them.

            Aggregation.  Individual DERs  will be allowed to aggregate so they can meet wholesale market eligibility and performance requirements.  The rules related to DER aggregation will be the foundation upon which the remaining rules are built, and will be the first concept developed in the market design process.

  • Aggregation rules will be technology agnostic. A single DER aggregation could include a heterogeneous mix of different technologies, such as load reduction, generation, and storage technologies that, when combined, can meet dispatch instructions. However, the NYISO will explore whether homogenous aggregations can provide additional or different services than heterogeneous aggregations and therefore be valued differently.
  • The geographical footprint of DER aggregations will be limited to those resources connected to the same bulk transmission node. This limit will help ensure DER compensation in the wholesale markets reflects the aggregation’s locational and temporal value on the bulk power system.
  • Aggregations must be a minimum of 100 kW in total size. However, the NYISO is not proposing a minimum size restriction for individual DERs that are part of an aggregation.
  • The market participant interfacing with the NYISO on behalf of an aggregation will be a DER Coordination Entity (DCE), which may be customer, a third-party aggregator, or a distribution system platform provider. Coordination practices among the DCEs, the utilities and the NYISO will be developed.

            Measurement and verification.  DERs will be scheduled and dispatched in a manner comparable to traditional generators. DERs will also be held to compliance obligations comparable to those of traditional generators. The NYISO will develop performance criteria and compliance metrics for dispatchable DERs.

  • Aggregations must provide real-time telemetry data for operations and monitoring, and after-the-fact meter data for settlement and billing on the same basis as traditional generators. However, the NYISO may allow small aggregations (of less than 1 MW) to provide real-time data from a sample set (at least 30%) of DERs in the aggregation.

            Performance obligations.  In general, DERs will be expected to have the same obligations as traditional generators.

  • In capacity markets, DERs desiring full capacity payments will be expected to be capable of delivering capacity for a full 24 hour period, comparable to what is expected of traditional generators. However, some DERs are unable to deliver capacity in all 24 hours due to their physical characteristics but are still valuable to the system.  The NYISO intends to develop additional service tiers for those DERs.
  • DERs selected in the day-ahead market auction will have an obligation to offer into the real-time market, just as do traditional generators.
  • Performance obligations will be set at the aggregation level, not at the individual resource level. Thus, an aggregation will be allowed to meet its obligations from various resource types.  For example, if an aggregation is scheduled for four hours, the aggregation may meet its obligation by discharging storage devices for two hours and by load curtailment for the remaining two hours.

            Dual participation in retail and wholesale markets.  Many DERs will be connected to the distribution networks and would like to provide both wholesale service and retail service, thereby accessing multiple revenue streams.  However, except for certain existing demand response programs, simultaneous participation is a new concept to the NYISO.  According to the Roadmap, the issues that need to be addressed include:

  • Whether the NYISO or the distribution system platform provider has operational control over a DER in a given interval, and whether that changes depending on the services provided.
  • The appropriate communications paths for a DER when participating in wholesale and retail programs.
  • How do the NYISO and utilities address conflicting market signals? A market signal from NYISO may conflict with the market signal from the distribution system platform provider and vice versa.  The DER’s response to multiple signals could lead to operational and reliability issues.
  • Can individual DERs in an aggregation participate in both wholesale and retail markets, or is participation on an aggregation-wide basis?
  • If a storage resource charges at a wholesale rate and discharges to an end-use customer through a retail program, does the electric storage resource become an LSE by engaging in sales for resale? What regulatory issues are implicated by occasional sales for resale?
  • What is the FERC’s view of simultaneous participation in wholesale and retail markets?

            Pilot program.  The NYISO has a 2017 initiative to develop a framework to enable small, limited scope pilot projects to be tested in the wholesale markets.  These will help the NYISO understand how integrating various new technologies will affect NYISO systems.  The pilot projects will not be eligible to set market prices.

            Granular pricing.  Accurate prices are a critical element of encouraging efficient decision-making.  The NYISO now delivers real-time price signals at a zonal level.  However, areas within a zone may experience conditions that are not fully reflected in the zonal price. Thus, pricing at the zonal level dilutes incentives for DER to locate in areas that could provide significant benefits to the grid and the market.  Accordingly, in a pilot project, the NYISO currently posts more granular price signals reflecting location specific system conditions at select locations.

According to the Roadmap, market designs for all of these concepts are expected to be completed in 2018, to be followed by software development and implementation.  A target date of 2021 is set for implementing dispatchable DER rules.

NYISO’s CEO, Brad Jones, said the Roadmap would help to  “highlight opportunities for more emerging resources to participate in our markets. It will guide developers, communities and others as they seek to invest in a more flexible and dynamic grid.”

FERC Addresses Electric Storage Complaint

A previous post on this blog reported a complaint by an electric storage resource owner that FERC must reform a Regional Transmission Organization’s (RTO’s) tariff with respect to the treatment of storage batteries.  In response, FERC issued an Order that requires the RTO to adopt rules that allow storage resources to participate in all of its markets and that account for those resources’ physical and operational characteristics.  The Order is significant because it breaks down barriers to the participation of storage resources in energy, capacity and ancillary services markets in an RTO whose rules are shown to violate the policies proposed in FERC’s Storage NOPR.

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President Trump Establishes Regulatory Budgets by Executive Order

Amid  all of the controversy surrounding President Trump’s Executive Order suspending immigration from seven countries, and his nomination of Judge Neil Gorsuch to the Supreme Court, another executive order that may be at least as significant in the long run to reining in the administrative state has not received much attention.  The Executive Order on “Reducing Regulation and Controlling Regulatory Costs,” issued on January 30 without much fanfare, did three things: (1) required every agency promulgating any new regulation to get rid of two existing regulations; (2) required that the projected cost to the economy of the regulations being eliminated must be at least as great as the costs of the new one, as computed under standard Office of Management and Budget (OMB) guidelines, and (3) authorized OMB to impose a regulatory budget on each agency.

The first point, sometimes called “one in, two out,” has garnered some media attention, but in the long run, the other two provisions limiting regulatory costs may be at least as significant, particularly for the Environmental Protection Agency, which has historically imposed about half the costs of federal government regulation on the economy.  But this Executive Order also takes us into new territory and raises a host of legal questions.

The idea of a “regulatory budget” to constrain the costs government imposes on the economy  has been discussed since the 1970’s.  The basic idea is to adopt Madison’s constitutional concept of “balancing ambition with ambition” to regulate the regulators.  However, in the past, establishing a regulatory budget has generally been thought to require legislation.  Although proposed on numerous occasions, statutory authority to impose regulatory budgets has never been enacted.  It remains to be seen whether the courts will allow a binding regulatory budget to be imposed on agencies by the White House acting alone.

The Administrative Procedure Act specifically creates a cause of action to “compel agency action unlawfully withheld” as well as a right to petition for new rules.  How will the courts react when agencies begin to turn down petitions for new rules because there is no room for them in the agency’s regulatory budget, or because the agency judges them to be less important than existing rules that would have to be eliminated to pay for the new regulations?

In Motor Vehicle Manufacturers Ass’n. v. State Farm Mutual Automobile Insurance Co., 463 U.S. 29 (1983), the Supreme Court rejected an attempt by the Reagan Administration unilaterally to rescind an existing rule requiring automatic seat belts.  That precedent appears to require not only notice and comment but also a rational basis in the record that will survive judicial review in order to eliminate a legislative rule previously promulgated through notice and comment procedures.  What weight will the courts give to agency proposals to eliminate existing rules because they are required to do so in order to promulgate new ones under the Trump Executive Order?  And what about emergency rules or rules required by statute?  Do those also require elimination of two existing regulations?

Even assuming that the courts do uphold President Trump’s authority to impose the requirements discussed above on agencies and departments “in” the Executive Branch, what about the “independent” agencies, such as the Federal Energy Regulatory Commission (FERC), the Consumer Product Safety Commission (CPSC) or the Federal Trade Commission (FTC)?   These agencies often consist of multi-member commissions, sometimes with staggered terms and members of different political parties and a statutory prohibition on firing except for good cause.  On its face, the Executive Order does not exempt them, but the President’s power to direct them is unclear.  In Humphrey’s Executor v. United States, 295 U.S. 602 (1935), the Supreme Court held that President Roosevelt could not fire the Chairman of the FTC for policy differences.  More recently, the Obama Administration issued an Executive Order stating that independent agencies “should” comply with prior executive directives regarding public participation, scientific integrity in the rule making process, and retrospective analyses.  A number of independent agencies followed President Obama’s Order, but have been careful to characterize it as “ask[ing]” or “request[ing],” not mandating, agency action.

There are also a host of implementation questions that will presumably have to be answered by the OMB guidance implementing the recent Executive Order.  Many regulations, particularly in the environmental area, require large initial capital costs, but much lower costs for on-going operation and maintenance expenses; for example, when installing new pollution control equipment.  In assessing whether the costs of the eliminated regulations balances the costs of the new regulations, may the agency take into account the historic costs that have already been incurred (what economists call “sunk costs”), or only the current on-going costs that would be eliminated if those regulations were rescinded (what economists call “avoided costs”)?

More broadly, this Executive Order, as well as prior executive actions relating to the Keystone and Dakota Access Pipelines and Infrastructure Permitting, provides insight into the strategy that the Trump Administration appears to intend to use to control the so-called “Administrative State.”  For years, Presidents have struggled to impose policy direction and control on the actions of agency bureaucrats whom they generally cannot fire due to civil service protections. Past approaches have included the creation of the Senior Executive Service who are subject to dismissal, the OIRA review process for new rules, and the White House “czars” created by the Obama Administration.  It is becoming increasingly clear that the Trump Administration intends to try to manage the agencies by Executive Order, a strategy that some legal scholars have questioned as constitutionally dubious if the President directs particular actions as opposed to establishing general principles.

The New Administration Releases An Executive Order and A Series of Memoranda On Energy and Environmental Issues

The Trump administration has issued an Executive Order and a series of memoranda relating to energy and the environment.

The goal of the Executive Order–Expediting Environmental Reviews and Approvals for High Priority Infrastructure Projects–is to expedite environmental reviews and approvals.  It provides that action by the Chair of the Counsel of Environmental Quality to designate an infrastructure project as high priority would trigger an expedited review and approval process, as described in the memorandum Streamlining Permitting and Reducing Regulatory Burdens for Domestic Manufacturing.

Prior to the inauguration, the transition team released a list of 50 emergency and national security infrastructure projects that would be candidates for funding.  Such projects would presumably be candidates for priority review under the recent Executive Order.

Two other memoranda–those addressing the construction of the Keystone Pipeline and construction of the Dakota Access Pipeline–are intended to clear the way for approval of these two controversial pipelines.  The President also stated that he wants pipe for U.S. pipelines to be made with American steel.  “High Priority Infrastructure Projects” are defined in the Executive Order to include pipelines, which would thus be candidates for expedited environmental reviews.

Finally, the White House issued a memorandum providing for a regulatory freeze of regulations that have not taken effect and withdrawal of regulations that have not yet been published in the Federal Register.  In accordance with this directive, EPA has issued a notice  postponing to March 21, 2017 the effective date of 30 regulations that were published by EPA after October 28, 2016.  The delay is intended to provide further review of these regulations by the new Administration.

The Order and memoranda do not change the requirements of relevant environmental statutes.  It remains to be seen to what extent these policies will affect  future permitting or regulatory decisions.  Interested parties will wish to carefully monitor how these developments unfold.

FERC Clarifies Cost Recovery Flexibility for Electric Storage Resources

As part of an ongoing effort to address issues raised by, and encourage the entry of, distributed energy resources, the Federal Energy Regulatory Commission (FERC) last week issued a Policy Statement clarifying the flexibility electric storage resources have regarding rate designs to recover their costs.  FERC earlier proposed rules to remove barriers to the participation of storage and other distributed resources in the organized wholesale electricity markets administered by Regional Transmission Organizations (RTOs).  These policies and rules are of interest to storage operators and investors, grid managers, other participants in RTO markets and consumers of storage services.

Storage resources, such as large-scale batteries and flywheels, are able to both absorb and discharge electricity.  These resources can provide multiple services almost instantaneously and thus may fit into more than one of the traditional asset functions of generation, transmission, and distribution.  The Policy Statement provides guidance for storage resources that want to charge rates for providing multiple types of services. Continue Reading

Trump Executive Order Labels “Improving the U.S. Electric Grid” as a “High Priority Infrastructure Project”

Moving forward, in part, on a campaign promise to adopt an infrastructure plan to “transform America’s crumbling infrastructure,” today President Trump issued an Executive Order titled “Expediting Environmental Reviews and Approvals for High Priority Infrastructure Projects.” Continue Reading

New Administration’s “America First Energy Plan” Touts Fossil Energy Production; Omits Plans for Electricity Sector

As expected, with the inauguration of President Trump all Obama Administration content on the White House website has been replaced with content of the new Administration. The new content includes “An America First Energy Plan”, the entire focus of which is national security and job creation benefits of the Administration’s “embrace” and promotion of greater domestic fossil energy production.

The new plan makes no specific mention of electricity generation, transmission or distribution, grid modernization, energy efficiency, renewables, or energy storage. The plan only indirectly addresses the electricity sector with references to “eliminating harmful and unnecessary policies such as the Climate Action Plan” and the Administration’s commitment to “clean coal technology, and to reviving America’s coal industry.”

As noted in our previous post, the new Administration must flesh out its heretofore abbreviated and incomplete policy hints for the electric power sector. Secretary of Energy nominee, Governor Rick Perry, acknowledged during his nomination hearing the importance of grid modernization, renewable energy, energy efficiency, and security and resiliency of the electricity system. He also committed to make decisions based on science, including in relation to climate change. It remains to be seen whether Gov. Perry’s remarks reflect a departure from the America First Energy Plan or an approved effort to begin to flesh out the Administration’s policies for the power sector. But as of now, the White House pronouncements on the power sector remain obscure.

Watching for Initiatives from the Trump Administration and Congress Affecting the Power Sector

The Trump Administration will take office intent on reversing many Obama Administration policies. Although the Trump Administration’s publicly released 100-day plan does not announce a new energy policy, campaign promises and priorities of the Republican-controlled Congress suggest a number of early initiatives that will impact the power sector.  Moreover, the Trump transition team for the Department of Energy signaled a variety of potential energy policy priorities in requesting information from the outgoing Obama Administration.  The impacts of these regulatory and legislative initiatives will need to be evaluated against the backdrop of market, technology, international, and consumer driven dynamics that are transforming the power sector independent of federal law and policy.  The Covington Energy Group will be watching closely the new Administration’s and Congress’ initiatives and evaluating their significance in altering or reinforcing the transformative changes sweeping the power sector.  Below, we identify the more prominent expected initiatives from the new Administration. Continue Reading