So-called distribution system operator (DSO) models, which introduce retail-level controls on integrating distributed generation and other energy resources, could have broad implications for the way electric cooperatives do business.

“This won’t happen overnight, but over time, it could represent a sizable shift in how distribution grids are managed and how electric cooperatives figure into that management,” says Jim Spiers, NRECA vice president for Business and Technology Strategies. “We’re working now to ensure that any DSO structures take into account the ground-breaking work co-ops are already doing to integrate renewables and other distributed resources.”

Electric cooperatives have a long history of integrating and optimizing grid resources, with decades of experience building load-control and energy-efficiency programs that reduce member costs. But new technologies are shifting what have been one-way functions, like communications and operations, into real-time, two-way activities.

“These new capabilities have allowed co-ops to make the leap from energy efficiency and load management to demand response, where consumers can play a role in power flow on the grid without compromising their lifestyle or comfort,” says Lee Ragsdale, vice president for asset management at North Carolina Electric Cooperatives (statewide).

This experience, Spiers says, will be a critical asset as the DSO debate unfolds.

Fundamental Change

At the generation level, renewable energy and other DER, like efficiency regimes and battery storage, have fundamentally changed the electric utility industry and the shape of the grid, Ragsdale says. These changes, which are being felt well beyond cooperative territories, are facilitating dramatic shifts in the way consumers use power and the way the grid operates.

DSO concepts, which are being advanced in a handful of states and discussed at the national level, aim to facilitate and expand the integration of these resources into the distribution grid, Spiers says.

There are two predominant DSO models, he notes: one a policy-driven regime and the other a system-driven structure.

The policy-driven DSO model would create a retail market controlled by a third party that would integrate distributed generation and other energy resources into the grid.

In the system-driven structure, the existing utility would maintain its traditional responsibilities and also serve as the DSO, integrating and optimizing DER into the distribution system.

NRECA Senior Regulatory Affairs Specialist Jan Ahlen says there are advantages to the cooperative assuming the DSO role, specifically in meeting consumer-members’ expectations and providing or enabling cost-effective energy services in partnership with third parties. The alternative approach with an independent entity has potential pitfalls, he says, including putting a third party between the co-op and their members; additional challenges to reliability and power quality; and consumer risk in dealing with third parties.

“We don’t know where this is all going at the moment,” Ahlen says. “But if DSO is to be the future of utilities, we’ll work to ensure that the unique strengths and capabilities of electric co-ops are enhanced and aren’t compromised.”

The New York Experiment

As of yet, no electric cooperatives have come under a policy mandate of a DSO. New York state, however, has instituted a DSO structure for regulated utilities, and California, Connecticut, Hawaii, Massachusetts, and Minnesota are at various stages of initiating programs.

In April 2014, the New York State Public Service Commission (NYSPSC) ordered the transition to a “distributed system platform” for investor-owned utilities (IOUs) and a portion of municipal-owned utilities as part of the “Reforming the Energy Vision” initiative.

Co-ops in the state are regulated under the New York Power Authority, not the NYSPSC, but ripple effects from the new structure are expected, Ahlen says.

One New York co-op manager is worried that the burden of paying into a large power market created by the New York policy could have negative consequences for small utilities like his.

“If we are to implement this model, the per-member cost could be very high,” says Keith Pitman, general manager and CEO of Oneida-Madison Electric Cooperative, a 2,000-member co-op based in Bouckville, N.Y. “Our members expect and demand very reasonable rates. They would not be pleased to see a big addition to their bill for something that they were not requesting.”

Pitman says he trusts his co-op to meet his members’ distributed energy needs more than the third parties a policy-based DSO would attract. Oneida- Madison Electric has long relied on hydropower for most of its supply and now is considering a community solar or utility-scale solar project. They also offer a residential load-control program involving water heaters.

“We like our local solutions,” Pitman says. “We’ve been providing them to members for decades.”

He worries their state’s DSO regulations—written for large, market-driven IOUs—would compromise his co-op.

“We have proven we can accomplish the renewable energy objectives, customer service objectives, access to market, demand-side management, and aggregation,” Pitman says. “We can accomplish all these good ideas ahead of the curve, but not necessarily the same way other big utilities can or will. The only fear we have is [to be required] to comply with a rigid blueprint that is cut out for New York’s IOUs.”

Ahlen says the NYSPSC has a number of dockets underway to further define all these issues, which will take some time to resolve and implement.

Right Pace, Right Approach

Spiers says a changing regulatory landscape, new technologies, and broadening consumer expectations will continue to drive structural changes like DSO. As co-op leaders wait to see how the DSO movement unfolds, he adds, they will do well to double down on their commitment to meeting their consumers’ evolving needs.

“Whatever the future is, the consumer needs a trusted energy advisor and someone to knit all this together—how to get value out of solar, how to add demand response and energy storage,” he says. “A co-op puts the consumer first—that is our history—but NRECA members do it at the right pace and with the right approach for each cooperative and their consumer-members.”

North Carolina has no DSO mandate, but Ragsdale says co-ops there are exploring the concept of a system-enabled DSO structure that would focus on providing energy services to their consumers and identify opportunities to integrate new technologies to continue to meet members’ changing needs.

“Co-ops are looking at what it means to be a DSO, how they stack up to DSO models out there, and how to transition through that spectrum,” Ragsdale says. “We need to be actively involved in those conversations and understand what it means to our consumers and how to continue to provide reliable and affordable power to them.”

He says North Carolina co-ops can be successful within a DSO structure provided that structure allows co-ops to do what they do best.

“We embrace the idea that our co-ops are currently functioning in certain capacities as DSOs. It seems to fit very well with the distribution co-op and their mission to improve the quality of life for their members while being the trusted energy advisor,” Ragsdale says. “Co-ops remain consumer-focused, so as long as the DSO is also consumer-focused, I don’t see a cause for concern.”

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