New Report Series Tackles Challenges Facing the Electric Industry and its Regulation

 By Lisa Schwartz

As the U.S. electric industry undergoes significant changes in response to shifting market dynamics and regulations, a new series of reports by the Electricity Markets and Policy Group at Lawrence Berkeley National Laboratory is advancing the discussion by examining issues related to electric industry regulation and utility business models.

The U.S. electric industry is undergoing significant changes with new and improved technologies, changing customer desires, low load growth in some regions, and changes in federal and state policies and regulations.

A new series of reports by the Electricity Markets and Policy Group at Lawrence Berkeley National Laboratory (Berkeley Lab) taps leading thinkers to present diverse views on the tradeoffs in achieving multiple objectives for the electric system, including reliability, affordability and flexibility. A unique point-counterpoint approach sharpens the debate.

Among the reports in the Future Electric Utility Regulation series is a deep look at designing the future grid. Six reports in the series are completed or underway, with additional reports to follow. The U.S. Department of Energy’s Office of Electricity Delivery and Energy Reliability, National Electricity Delivery Division, sponsors the series. An advisory group of state regulators, utilities, stakeholders and national experts provides guidance.

In Distribution Systems in a High Distributed Energy Resources Future: Planning, Market Design, Operation and Oversight, authors Paul De Martini of CalTech and Lorenzo Kristov of California ISO offer a practical, three-stage framework that utility regulators and policy makers can use to assess options and develop a preferred grid tailored to their jurisdiction, in line with overarching regulatory and public policy objectives.

Among the key questions are how best to define the value of the distribution network and related operational structure, and how to structure the regulatory rules to enable that future. The goal is reliable, safe and efficient operation of the whole system, from regional interconnections to customer premises, while allowing for the maximum degree of flexibility for individual customers and local areas to adopt solutions that best meet their needs.

The authors also compare three operational models for the future and discuss the pros and cons of an independent Distribution System Operator versus the distribution utility serving that function.

Other reports in the series include:

Electric Industry Structure and Regulatory Responses in a Distributed Energy Resources Future - Steve Corneli (formerly of NRG) and Steve Kihm (Seventhwave)

The report envisions potential structural and business model changes in a future where distributed energy resources (DERs) are competitive with grid power in price and performance. It describes two competing views. In one, utilities play a major role in sourcing, financing and optimizing DERs. In the other, competitive firms increasingly perform these functions. In that future, the utility focuses on delivering basic energy and capacity services, while facilitating DERs to create value for the utility and grid, lower the utility's costs, and encourage customers to remain connected to the distribution system rather than defect from it.

Performance-Based Regulation in a High Distributed Energy Resources Future - Tim Woolf (Synapse Energy Economics) and Mark Lowry (Pacific Economics Group Research)

The report explores key elements and variations of comprehensive performance-based regulation (PBR) and its advantages and disadvantages from the perspectives of utilities and customers. The report explains the components of PBR, including multi-year rate plans and performance incentive mechanisms, and how they can be applied to a potential future with a high reliance on energy efficiency, demand response, distributed generation and storage.

Distribution System Pricing With Distributed Energy Resources - Ryan Hledik (The Brattle Group) and Jim Lazar (Regulatory Assistance Project)

Utilities will likely continue to provide backup power and other grid services to customers that adopt DERs. At the same time, utilities may buy services from customers with DERs, such as energy, capacity and balancing. In this kind of two-way future, how should these services be priced? This report explores four options for pricing distribution services in the future: (1) rates tailored for each type of service; (2) rates tailored to each type of customer; (3) a buy/sell arrangement where DER customers pay for their use of the distribution grid and get paid separately for services they provide; and (4) a competitive solicitation for buying grid services from DER customers. The authors evaluate these options from utility and consumer perspectives based on economic efficiency, equity and fairness, customer satisfaction, utility revenue impacts and customer price impacts.

Recovery of Utility Fixed Costs: Utility, Consumer, Environmental and Economist Perspectives (June 2016) - Lisa Wood (Institute for Electric Innovation) and Ross Hemphill (RCHemphill Solutions), John Howat (National Consumer Law Center), Ralph Cavanagh (Natural Resources Defense Council), and Severin Borenstein (University of California, Berkeley), with a literature review by Jeff Deason and Lisa Schwartz, Berkeley Lab.

Electric utilities are proposing a variety of changes to retail rate designs, particularly for residential customers, to recover so-called “fixed costs” to serve customers — generally, costs that do not vary over the course of a year regardless of electricity usage. Today, most residential customers pay a small monthly fixed charge plus a payment for each kilowatt-hour of electricity they consume. The less power they use, the less they pay. Proposals to address the potential gap between fixed utility costs and revenues, particularly where loads are flat or declining, include significantly increasing the fixed charge, adding a demand charge based on the customer’s highest energy usage in the billing period, formula rates that automatically adjust rates when earnings fall above or below a set level, and time-varying rates. Four essays and a literature review discuss these and other options for recovery of fixed utility costs.

The Future of Resource Planning (July 2016) - Fredrich Kahrl (E3), Andrew Mills (Berkeley Lab), Arne Olsen and Nancy Ryan (E3)

For a downloadable copy of  June 2016 eNewsletter which includes this article, please visit the IEEE Smart Grid Resource Center




Lisa Schwartz leads Lawrence Berkeley National Laboratory’s energy efficiency team and utility regulation work in the Electricity Markets and Policy Group. Before that, she was director of the Oregon Department of Energy, where earlier in her career she served as a senior policy analyst. At the Oregon Public Utility Commission for seven years, she led staff work on resource planning and procurement, demand response, and distributed and renewable resources. She also worked for several years with the Regulatory Assistance Project, a global nonprofit team of experts providing assistance to government officials on energy and environmental issues.

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