Reason for hope department: Time for fundamental change in smart grid regulation

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By: SGN Staff

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By David O'Brien

 

In December, Smart Grid News published an article about the long term regulatory outlook titled: The Next 10 Years: What we can (and can't) expect from regulators and policymakers. The article brought a big-picture view to how the regulatory realm will evolve with grid modernization.

 

I certainly hope that with increased results from projects already underway, that policymakers will see the very real connections between energy policy goals and the advanced functionality of a modernized grid.  But being an impatient sort I thought I would offer some thoughts on what should be in our immediate windshield in 2013. I am thinking about the next, vital steps to make a ten-year vision a reality.

 

Reasons for optimism

I am increasingly optimistic that regulators appreciate the big picture aspects of a smarter grid, consumer empowerment, greater operational control, resiliency, enhanced support for intermittent supply (renewables) and so on. However, what remains a vexing issue is how to pay for grid modernization within established ratemaking practices. I fervently hope that 2013 is a year in which we make great strides in this area. From what I am hearing from friends across the industry, modern performance-based approaches to ratemaking are attracting genuine interest. 

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To say that traditional ratemaking schemes have not allowed grid modernization would be incorrect. Of course billions are being invested in advanced metering, distribution automation and the like. A considerable amount was helped by ARRA funding 50% of the bill, but there have been quite a few states that pursued smart grid investment as a pure ratepayer funded proposition. Texas, California and Arizona are good examples of early entries into grid modernization. The recently released FERC Staff Report on Demand Response & Advanced Metering indicates that these states have very high penetrations of AMI. 

 

States are being left behind

However the FERC Staff Report also illustrates that there are numerous states where little to no grid modernization has occurred. In my estimation, these are jurisdictions that have not made a policy call that advanced grid investment should be made by their utilities and one particular barrier is how to recover the investment in rates.

2013 is a year for proponents of a modernized grid to roll up our sleeves and get under the ratemaking hood so the next wave of grid modernization can become a reality. I believe that we have the proper tools, knowledge and vision, but we must be willing to do a complete engine overhaul, not just refill the fluids and swap out the plugs. We must accept the age old maxim that “you cannot repeat the same approach and expect a different result.” Here are some key areas that I believe should win serious consideration:

·         A thorough examination of the connections between energy policy goals and mandates and the capabilities of advanced infrastructure.
Like the Six Degrees of Kevin Bacon, we can readily connect energy goals to smart grid functions – for instance, like shaving peak energy use requires AMI + dynamic pricing, or reducing carbon emissions means facilitating EVs and more renewables. However, you need a much more intelligent grid to make that possible.

·         Lots of constructive dialogue, and not just amongst the “friendlies.”
I see a concerted effort taking hold among industry leaders, utility leadership and regulators for a meaningful discussion of how the regulatory process can change in ways that benefit all.

·         More aggressive business cases that deliver value to ratepayers.
Most smart grid business cases have focused on financial benefits that are most easy to monetize. In the face of uncertainty, both technically and from a rate perspective, reliability and environmental benefits have been treated qualitatively, limiting the scope of monetized benefits for customers and society. The conundrum is that regulators are uninspired, understandably, by the thin value equation. It’s time to start hitting the cover off the ball.

·         Business case “value streams” that become measured performance for utilities.
This is where the rubber meets the road on delivering value while remaining transparent and accountable.

·         Incentive mechanisms for utilities that measure and deliver value.
With increased accountability and value should come reward and we need to mimic the competitive marketplace here.

·         Risk-sharing solutions that support innovation.
It’s time to end the hot potato issue of prudency.

 

These are just some headlines as there is a lot more to be done and by no means will this be easy.  However, it is clear at the beginning of 2013, as the ARRA-funded projects near completion, we need to fundamentally change the way in which we have treated utility capital investment to secure the promise that the digital age represents for consumers and society as a whole.

 

David O'Brien is Director of Regulatory Strategy and Compliance at Bridge Energy Group where he works with utility clients to help them develop regulatory petitions for grid modernization projects. Mr. O’Brien was Commissioner of Public Service in Vermont from 2003-2011.