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Utility Business Model - Regulatory Chronicles

Policy makers shape our electric revolution - and utilities

EDITOR’S NOTE: The Energy Times recently discussed the most pressing energy issues of the day with a panel of state regulators, including the top leadership of the National Association of Regulatory Utility Commissioners, at their summer meeting in Nashville. The exchange, edited for style and length, was sponsored by Oracle Utilities. This concludes a five-part series.

Participants

Philip Jones – Washington Utilities and Transportation Commission, past president of NARUC

Travis Kavulla – Montana Public Service Commission, president of the NARUC

Richard Mroz – New Jersey Board of Public Utilities

Robert Powelson – Pennsylvania Public Utility Commission, incoming president of the NARUC in 2017

Scott Rupp – Missouri Public Service Commission

Greg White – National Association of Regulatory Utility Commissioners, executive director

ENERGY TIMES: What kind of world will utilities inherit – and shape?  And how can utilities best prepare for it? 

POWELSON: Let's start with the basic premise that the way we generate, distribute, and transmit power is going to change radically in the next decade.  That is energy efficiency. That is integration of renewables, and yes, home automation.  The customers now are empowered by the meter to do things that they couldn't do a decade ago.  Technology is driving that.  With all the technology changes, there are customers that are still going to be that vanilla, plain service customer.  Millennials are focused on the Internet economy and real time pricing of energy, and prepay.  Technology - is it going to make energy cheaper?  I don't know. How do we get to the future?  Is it the role of the regulator?  I don't know that.  Is it the role of the federal government?  Certainly not. 

RUPP: I see energy evolving just like the iPhone.  When it first came out, you had your first movers and the people that wanted to get that new technology. Others were happy with flip-phones.

ENERGY TIMES:   To what extent do you as regulators facilitate the gamble on this transition to a new era, a new business model and new technology? 

KAVULLA: The regulatory infrastructure should be open to encouraging the investments. But good regulation acknowledges that these management decisions for procurement should be on the shoulders of utilities.  What is difficult, is having a cost of service regulatory model where it is difficult to capitalize and earn a return on certain investments, even if they unlock efficiencies.  Given that setting, it is reasonable to wonder why utilities would invest in them.  That should change.  If there are indeed promises that these technologies can make, utilities should be able to, as they can now, take the risk of investing in that. They should actually be able to earn a reward for their risk if indeed the technology pans out.  But that risk should be on them, and they should be rewarded for it either way. 

POWELSON: If we polled states, a CIS system is recoverable in a rate preceding.  A cloud-based investment, as I understand it, is not.  There lies the problem.  Fortune 500 companies are on a cloud-based system.  The last ones to the dance are the utilities.  We need to set a pathway forward to get them there.  We have to get recognition for cloud-based investments in this old regulatory paradigm of cost recovery in rate base. 

POWELSON: If you talk to most utilities, they know full well that you will not put a cloud-based software recovery program in front of a state regulatory commission because you cannot recover the cost. 

RUPP: You have to get away from the 100 years of traditional rate making and focusing on least cost.  You have are reward value.  As regulators, if we can reward value-based decisions by our utilities and allow them the ability to recover that with the rate of return, those are the types of things that we really need to be looking at. 

ENERGY TIMES: New York and California are pushing bold new policies on the energy front. How does that affect you? 

MROZ: We in New Jersey have taken a more deliberate approach to both ratemaking, what the utilities will deploy and distributed energy resources.  I give our colleagues in California and New York the greatest credit.  We don't know what the technology is that will evolve.  We have encouraged the industry to come in, explain to us what they want to do with distributed energy resources, AMI and the like.  We don't want to end up in the same situation that occurred with smart meters over the last five to six years when they were deployed in certain states that didn't have the technological backbone to utilize the technology. 

ENERGY TIMES: But don't you in New Jersey have a lot of folks saying, ‘We want what's going on across the Hudson in New York?’ 

MROZ: No.  Actually, we don't.  I have industry executives say, ‘Thank you for not moving so fast.’

JONES: We benefit from California.  We watch California very closely, but we do more things a little more gradually and more sensibly.  They are doing lots of good things to integrate renewables and make the grid more efficient. California in my view has done a great thing in storage.  They have a target. They are really stimulating the market, so our commission is going to kind of go behind California and push that a little bit more.  The last issue is distribution resource planning.  Wherever the grid goes, and we are going more distributed, we need to plan the grid.  Instead of just doing it at a system-wide level, you need to do it on a feeder-by-feeder, much more granular level.  California is doing a great job.  We are benefiting from that. 

RUPP: Being in Missouri, the heartland of America, looking at both the coasts, we are not going to play keep up with the Joneses.  We are going to sit there and listen to what the people want.  If they start to drive more innovation and change, that's how we will move as a state.

ALSO IN THIS SERIES:

Grid Security

Generation

Politics & Energy

Energy Efficiency

EDITOR'S NOTE: Regulatory policy and the future of utilities and energy in America are front and center at Empowering Customers & Cities, the cutting edge executive conference of The Energy Times, set for November 1-2 in Chicago.

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