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12 SEPTEMBER 2017Grid Modernization and New UtilityBusiness ModelsClean Energy Legislative Academy, Breckenridge, ColoradoJanine Migden-OstranderColumbus, Ohio 1 802 498 0740PrincipalUnited [email protected] Regulatory Assistance Project (RAP) raponline.org

About RAP – US RAP provides technical and policy support at the federal, state and regional levels, advisingutility and air regulators and their staffs, legislators, governors, other officials and nationalorganizations. We help states achieve ambitious energy efficiency and renewable energy targets and weprovide tailored analysis and recommendations on topics such as ratemaking, smart grid,decoupling and clean energy resources. RAP publishes papers on emerging regulatory issuesand we conduct state-by-state research that tracks policy implementation.Regulatory Assistance Project (RAP)

About Your Presenter – Janine Migden-Ostrander Janine L. Migden-Ostrander advises regulators and advocates on energyefficiency, renewable energy, demand response, distributed generation, andintegrated resource planning. Recent projects include working closely with theArkansas Public Service Commission on energy efficiency as part of the CleanEnergy Ministerial for the U.S. Department of Energy (DOE), facilitating theMid-Atlantic Distributed Resources Initiative (MADRI), and providingworkshops on energy efficiency policies as part of the SEE Action initiative forDOE. Her projects are predominantly in the U.S., but also overseas. Ms. Migden-Ostrander has worked in public utility law for approximately 35years, most recently as the Ohio Consumers’ Counsel, where she oversaw thestate agency that represents the interests of Ohio’s 4.5 million residentialhouseholds with their investor-owned electric, natural gas, telephone, andwater companies.Regulatory Assistance Project (RAP)

1Role of LegislationDeveloping a range of policy objectives

The Role of Good Legislation Articulation of a clear vision; Define the public interest and the objectives; and Provide Guidance to the Regulators with sufficient directionand authority to carry out the legislative intent. Details should be left to Regulators.Regulatory Assistance Project (RAP) 5

2Grid ModernizationThe Next Frontier in Distribution Planning

Issues to be Covered: Scope of Grid ModernizationoDefinitionsoTechnologies Infrastructure Investments Integrated Distribution Planning Distributed Energy Resources Guidance for legislationRegulatory Assistance Project (RAP) 7

THE CON TEXTFOR GRIDM ODERN IZATIONM IKE O’BOYLECN EE CL EA N EN ERGY L EGI SL ATO R ACA D EM YSEPTEM BER 1 3 , 2 0 1 78

WWW.AM ERICASPOWERPLAN .COM9

TH E P O WER SECTO R H AS EVO LVEDOl d Goal s:New Goal s: Meet growing dem and Build Maintain Build new infrastructure Reliability Resilience Build to deliver universal ser vice Clean power Affordability, Reliability, SafetyOl d Opti ons: Centralized power plants Transm ission lines Distribution system Custom er satisfaction Affordability, SafetyNew Opti ons: Modern replacem ent, plus: Innovative distributed energyresources (EE, DR, PV, EVs, etc.) Advanced IT & rate designs10

WH AT TO YO U WAN T O UT O F GRIDM O DERN IZATIO N ?11

GRID M O DERN IZATIO N TECH N O LO GIES –GRID FACIN G(NOT old with new . . . But avoid “paving the road twice”) Distribution Substation Automation Digital automation, sensing, measurement, and communications (e.g.intelligent switches). Integrated Volt-Var Management Demand Response/DER Management System Telecommunications Cybersecurity12

GRID M O DERN IZATIO N TECH N O LO GIES –CUSTO M ER FACIN G Advanced Metering Infrastructure (AMI) In-home automation hardware Building energy management systems Electric Vehicle charging infrastructure13

GRID M O DERN IZATIO N TECH N O LO GIES –CUSTO M ER FACIN GGe t t in g t h e m o s t fo r c u s t o m e r s – SM UD d y n a m ic p r ic in g p ilo t s14

GRID M O DERN IZATIO N FUN CTIO N S Platform service provider & data management Resilience against severe weather events or attacks Improved reliability Distributed energy resource management Improve system efficiency System awareness & automation Real-time flexibility15

H O W CAN A LEGISLATO R H ELP ?Explicitly state goals – what can grid modernization achieve? Increase resiliency to routine faults, cyber or physical attacks, &severe weather Unlock demand response & reduce system costs Support customer adoption of solar & storage In-state industry development16

H O W CAN A LEGISLATO R H ELP ?Define the Scope of a PUC proceeding Include functions or goals of grid modernization thePUC and utility should investigate & achieve Require the PUC develop metrics for gridmodernization Integrated Distribution Planning17

KEY RESO URCES:Annual Grid Modernization Index –Gridwise AllianceH AW AII ELECTR I C CO M P AN YG R I D M O D ER N I Z ATI O N P LAN18

Infrastructure InvestmentsRegulatory Assistance Project (RAP) 19

Benefits of Smart GridRegulatory Assistance Project (RAP) 20

Benefits of Smart GridRegulatory Assistance Project (RAP) 21

Renewable Integration and FlexibleResources Percentage of Renewable Energy continues togrow New Emphasis is on Flexible capacity as opposedto base load capacity Demand Response and storage are tools enabledthrough a smart gridRegulatory Assistance Project (RAP) 22

The Bulk Power System in ContextBulk Power System Transmits power fromgenerators at extrahigh voltage. The higher the voltage,the greater the amountof power transmitted Some capacity needs tobe reserved in casesomething big fails Transformers stepdown the voltage fordelivery to us.Regulatory Assistance Project (RAP) 23

Vision: One Path–An Integrated GridRegulatory Assistance Project (RAP) 24

Flexible generation is just one piece of the puzzleSource: IEA Energy Technology Perspectives 201425

Choosing the Right TechnologiesCharacteristics of Desired Technologies Compatible with desired outcomes:oTwo-way communicationoStrengthens the grid/resiliency issuesoProvides data that enables third party provider optionsoEnables customer interaction and choiceoEnables multiple value streams like ancillary servicesand distributed energy resourcesoAssists in renewable energy integrationRegulatory Assistance Project (RAP) 26

Infrastructure InvestmentCharacteristics of Desired Technologies Cost-benefit analysis: Long-term benefits outweigh thecost through:oReduction in operating costsoCost avoidance, example – reduced storm damageoEnablement of new technologies that can help lowerdistribution and generation costs such as:Regulatory Assistance Project (RAP) Strategically located DER’s Implementation of Time Varying Rates Facilitates low cost renewable energy and demand response options.27

Infrastructure InvestmentCharacteristics of Desired Technologies Interoperablility - the ability of the system or software to exchange anduse of information Adaptable to upgrades as technology evolves to avoid obsolescenceand stranded costRegulatory Assistance Project (RAP) 28

Infrastructure InvestmentRate Recovery – Managing Ratepayer Impacts Periodic Audit of Costs Net the benefits against costs to reduce sticker shock Reduce project cost by immediate cost savings, OR Reduce rate base to reflect cost is no longer incurred Require enforceable reliability objectives—reducefrequency and duration of outages; reduce customeroutage costs through performance metrics Target distribution investments to provide the mostsignificant impactsRegulatory Assistance Project (RAP) 29

Infrastructure InvestmentCost Recovery Mechanisms Base Rates: Costs are amortized over a period of years Rider: Supplemental charge folded into bill; costs can berecovered more rapidly, with potentially higher billimpactsRegulatory Assistance Project (RAP) 30

Advanced Metering Infrastructure (AMI) A smart meter is an electronic device that recordsconsumption of electric energy in intervals of an houror less and communicates that information at leastdaily back to the utility for monitoring and billing. Thisalso provides the customer with more information tocontrol energy consumption and monthly bills.Regulatory Assistance Project (RAP) 31

Traditional vs. Smart Grid DemandResponseRegulatory Assistance Project (RAP) 32

Benefits of Smart Meters Customer Service Benefits: Eliminates estimated billing and provides bills based onactual readings. The Smart Meter will report back electricity issues (suchas periods of low voltage) to deliver better quality ofsupply. Enables prepaid billing (controversial). Source for slides 29 -31: Sustainable Energy Authority of Ireland http://www.seai.ie/Renewables/Smart Grids/The Smart Grid for the Consumer/Home Consumer/Smart Meter/Advantages of a Smart Meter/Regulatory Assistance Project (RAP) 33

Benefits of Smart Meters Smart Metering permits customers to better manage theircosts and usage: Electricity suppliers can offer new pricing options thatmore closely align actual cost of generating theelectricity during a given period. It provides consumers with precise details of theirconsumption patterns, so that they can better managetheir use of electricity. Use of customer data to target highest energy efficiencyopportunitiesRegulatory Assistance Project (RAP) 34

Benefits of Smart Meters Smart Metering enables new capabilities for consumersby: Facilitating the use of home energy management systems. Enabling remote management of electrical use. Accelerating the development of microgeneration and embeddedstorage. Assisting in the use of electric vehicles.Regulatory Assistance Project (RAP) 35

Drawbacks of Smart Meters Cost – Average cost is 221/meter * Benefits expected over a 15-20 year period, while rateimpacts are more immediate, (but mitigated byamortization) resulting in a lag between cost and benefit. Other methods for residential Demand Response existsuch as direct load control programs Smart grid enables time of use rates but low-incomeadvocates question the elasticity of demand and potentialfor htmlRegulatory Assistance Project (RAP) 36

Drawbacks of Smart Meters Remote disconnections increase frequency ofdisconnections because customers have less time to makepayment. Facilitates prepaid meters about which low-incomeadvocates are wary Privacy Concerns – data on how and when you useelectricity Regulatory Assistance Project (RAP) 37

IN TEGRATEDDISTRIBUTIO NP LAN N IN G38

ASSESS CO STS AN D BEN EFITS VIAIN TEGRATED P LAN N IN G What is Integrated Distribution Planning (IDP)? MNPUC 2016 Staff Repor t: “planning effor ts will be an integralpar t of a system atic approach to grid m odernization.”Outcom es: Understanding the potential contribution of distributed energyresources and utility-led m odernization investm ents Produce data regulators & stakeholders need to set targets; thisalso allows DER providers to develop business m odels.39

WH Y N O W? Addressing changes to planning proactively – not after DER adoptionhas accelerated. Ensure infrastructure is truly needed in a rapidly changing technologyenvironm ent It is a prerequisite, no-regrets step to m axim izing the value ofcustom er-side resources Unpredictable clim ate events40

IDP ’S RELATIO N SH IP TO DER ADO P TIO N41

IDP IN STAGES42

EXAM P LE: SO UTH ERN CALIFO RN IAEDISO NDistribution system mapping– hosting capacity43

WH AT CAN A LEGISLATURE DO ? Require a PUC to begin a proceeding in IDP Authorize the PUC to hire consultants to bring regulators, stakeholdersup the learning cur ve Ar ticulate the goals of IDP44

KEY DO CUM EN TICF, I N TEGRATEDDI STRI BUTI ONPLANNI NG, P REP AREDFO R TH E M IN N ESO TAP U C, 2 0 1 645

Third Party/Load Aggregator Third Party Aggregators aggregate customer load to respondto utility needs for demand reductions. Third partyaggregators will market to customers, either independently orin working with a utility.Regulatory Assistance Project (RAP) 46

Arkansas LegislationSec. 23-18-1003 of the Arkansas Code, authorizes theCommission to “ establish the terms and conditions forthe marketing, selling, or marketing and selling ofdemand response by electric public utilities oraggregators of retail customers to retail customers or byelectric public utilities, aggregators of retail customers, orretail customers into wholesale electricity markets ”Regulatory Assistance Project (RAP) 47

Examples of AggregationRule 24 in California permits third-party aggregators to solicitPG&E customers to participate in their demand responseprograms and to then "bid in" the electricity reduction into thewholesale electricity market administered by the CaliforniaIndependent System Operator (CAISO). The California PublicUtilities Commission approved Electric Rule 24 with the goal ofpromoting demand response participation in CAISO markets.Regulatory Assistance Project (RAP) 48

Some Lessons Learned from Pilots Enabling technology enhances the beneficial impactsof time-varying rates. Examples are SMUD andOGE&E pilots that demonstrated all groups ofresidential across age groupings saved money. Peak savings in some pilots persisted for several years Low-income customers can respond to price signals,although not necessarily to the degree or in thenumbers that other customer classes canRegulatory Assistance Project (RAP) 49

Guidance for Legislation Define public interest benefits Provide broad statutory language to enable Commission toimplement the public policies Consider requiring utilities to demonstrate and theCommission to find that the smart grid proposal:oAdequately demonstrates significant benefits that exceed costsover the long-term;oProvides a mechanism to net the benefits against the costs;oProvides sufficient detail to demonstrate the reasonableness of thetechnology chosen – consider a competitive bid componentRegulatory Assistance Project (RAP) 50

Guidance for Legislation Consider requiring utilities to demonstrate and theCommission to find that the smart grid proposal: Includes a robust program to implement voluntary time-varyingrates within a year of the rollout of the first AMI meters; Includes a plan to enable Distributed Energy Resources; Provides accountability for achieving the benefits set forth in itsproposals; Allows for periodic audits of the costs and the implementation of thetechnologies; and, Requires periodic publication of the audit to help hone in on thebenefits and public objectives.Regulatory Assistance Project (RAP) 51

3Utility Business ModelsPower Sector TransformationRegulatory Assistance Project (RAP)

Issues to be Covered Defining the Business Model Decoupling and Lost Revenues Performance RegulationRegulatory Assistance Project (RAP) 53

WHAT’S WRO N GWITH THE UTILITYREGULATO RYMO DEL WE’VE GOT?54

1 .WHY2 .HOW3 .EXAM PLES4 .N EXT STEPS55

TH E P O WER SECTO R H AS EVO LVEDOl d Goal s: Meet growing dem and Build new infrastructure Build to deliver universal ser vice Affordability, Reliability, SafetyOl d Opti ons: Centralized power plants Transm ission lines Distribution system56

TH E P O WER SECTO R H AS EVO LVEDOl d Goal s:New Goal s: Meet growing dem and Build Maintain Build new infrastructure Reliability Resilience Build to deliver universal ser vice Clean power Affordability, Reliability, SafetyOl d Opti ons: Centralized power plants Transm ission lines Distribution system Custom er satisfaction Affordability, SafetyNew Opti ons: All the old stuff, plus: Innovative distributed energyresources (EE, DR, PV, EVs, etc.) Advanced IT & rate designs57

N EW GO ALS FO R TH E P O WER SYSTEMResi l i entCl eanCustomer-ori entedAffordabl e, Safe58

TH IS CREATES TWO N EW ISSUES1. Increasing options for power system optim ization leads togreater infor m ation asym m etr y between utility and regulator2. New goals for the power system m ean regulators m ust reexam ineexisting incentives to build m ore capital and m aintain existinginvestm ents59

REGULATIO N CAN EVO LVE TO OOl d Methods:New Methods: Line-by-line investm ent review Capital investm ent and salesgrowth drive shareholder value Focus on outcom es to help sor tthrough com plexity Infrequent rate cases Operational expenses largely apass-through not subject toreview Create incentives to optim ize thesystem including custom er-sideresources, third-par ty providers Revenue regulation withefficiency incentives Meet custom er dem ands forclean energy60

IN CEN TIVE-BASED REGULATIO N CANALIGN FIN AN CIAL IN CEN TIVESALIGN FINANCIAL INCENTIVES OF:Uti l i ti esCustomer sIndependent Power Producer s3 rd par ty ser vi ce provi der sWITH THESE GOALS: Resi l i entCl eanCustomer-ori entedAffordabl e, Safe61

IN CEN TIVE-BASED REGULATIO NCha nges the centra l q ues tion From: “Did we pay the right am ount forwhat we got?”To:“Are we payi ng (the ri ght amount)for what we want?”Util ity andRegul ator yModel s for theModern Eraby Ron Lehr62

Decoupling and Lost RevenuesRegulatory Assistance Project (RAP) 63

Energy Efficiency Isthe Lowest-Cost ResourceSource: Lazard, 2014Regulatory Assistance Project (RAP)

Regulatory Assistance Project (RAP) 65

The Utility Business Model Decoupling is an important tool to ensure utilitieshave adequate revenues Prevents utilities blocking activities that reducesales. Examples of activities include:oEnergy EfficiencyoDemand ResponseoDistributed GenerationRegulatory Assistance Project (RAP) 66

Rate of Return RegulationUnder rate of returnregulation, utilities canincrease earnings by: Increasing operationalefficiency (reducing costs) Selling more energy(“throughput incentive”) Building infrastructure(earning a return on theinvestment)Regulatory Assistance Project (RAP)

Rate of Return Regulation RefresherRevenue Requirement Test Year Expenses Depreciation Taxes (Rate of Return * Rate Base)Revenue Requirement is recovered from (#Customers *Customer Charge) (Projected Sales * Price/kWh)Or Price/kWh Revenue Requirement – (CustomerService Charge Revenue/Projected Sales)– Price/kWh collects all fuel costs and, generally, non-customer-specific fixed costsRegulatory Assistance Project (RAP) 5

How Changes in Sales Affect EarningsRevenue Change% Changein SalesRegulatory Assistance Project (RAP) Pre-taxImpact on EarningsAfter-taxNet Earnings% ChangeActual ROE5.00% 9,047,538 5,880,900 15,780,90059.40%17.53%4.00% 7,238,031 4,704,720 14,604,72047.52%16.23%3.00% 5,428,523 3,528,540 13,428,54035.64%14.92%2.00% 3,619,015 2,352,360 12,252,36023.76%13.61%1.00% 1,809,508 1,176,180 11,076,18011.88%12.31%0.00% 0 0 9,900,0000.00%11.00%-1.00%- 1,809,508- 1,176,180 8,723,820-11.88%9.69%-2.00%- 3,619,015- 2,352,360 7,547,640-23.76%8.39%-3.00%- 5,428,523- 3,528,540 6,371,460-35.64%7.08%-4.00%- 7,238,031- 4,704,720 5,195,280-47.52%5.77%-5.00%- 9,047,538- 5,880,900 4,019,100-59.40%4.47%9

Decoupling Decoupling is designed to address the throughput incentive bybreaking the link between utility sales and revenue With decoupling, the Commission, in a rate case proceeding,determines the distribution revenue requirements which become thebasis for determining the revenue the utility will receive in rates At the end of an agreed upon period, the utility’s authorized revenuerequirements are measured against actual revenues Rates are then reconciled to allow the utility to recover (positive ornegative) the difference between revenues authorized and revenuesreceivedRegulatory Assistance Project (RAP)

How Decoupling WorksPeriodic Decoupling CalculationFrom the Rate CaseTarget Revenues 10,000,000Test Year Unit Sales100,000,000Price 0.10000Post Rate Case CalculationRegulatory Assistance Project (RAP) Actual Unit Sales99,500,000Required Total Price 0.1005025Decoupling Price "Adjustment" 0.0005025

Decoupling Rate Adjustments HaveGenerally Been Very SmallSource: Lesh, 2009Regulatory Assistance Project (RAP)

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What’s Covered?Regulatory Assistance Project (RAP)

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Design Approaches to ProtectCustomers Symmetry – ensure that credits are provided. Stability: cap on rate changes or bands around size ofrate adjustment, (e.g. plus or minus 3%) Provisions for carry-over of over or underrecoveries Bill simplificationRegulatory Assistance Project (RAP)

Decoupling: Key Take-Aways It’s flexible, customizable It’s been done before, so models exist It can serve the policy goals of most states It can be designed to protect consumersRegulatory Assistance Project (RAP)

StraightFixed/Variable:100% ofDistributionSystemClassified asCustomerrelatedRegulatory Assistance Project (RAP) 79

Straight Fixed/Variable Rates (SFV) SFV allows the utility to recover its distribution revenuerequirements through a monthly fixed charge. Addresses the throughput incentive, but creates other problems Reduces the volumetric component of rates to just fuel (or short runmarginal) costs.Regulatory Assistance Project (RAP) 80

Considerations with SFV SFV fails to provide price signals to conserve SFV increases the payback for consumers investing in energy efficiency SFV creates social justice problems as customers living in a smallapartment pay the same rate as customers living in a large McMansion SFV sometimes referred to as the “all you can eat” rate Utility keeps any over-recovery of revenuesRegulatory Assistance Project (RAP) 14

Other Considerations withHigh Customer Charges Results in low usage customers (often low-income) subsidizing high usage customers (oftenhigher income) Impact on utility investments – If the Volumetric Charge is less than the Long Run MarginalCost, then customers will behave as if their incremental usage has less of a cost effect than itdoes. This can result in greater customer usage which means utilities need to invest in morefacilities, hence raising rates. High customer charges may hasten customers exiting the grid, rather than maintaining aconnection to it, which further exacerbates the situation.Regulatory Assistance Project (RAP) 82

PAYIN GUTILITIES FO RP ERFO RMAN CE83

1 .WHY2 .HOW3 .EXAM PLES4 .N EXT STEPS84

FIVE STEP S TO GET TH E M O ST O U T O F GRIDM O DERN IZATIO N1. Assess the costs and benefits of a m odern grid in the context ofexisting and planned generation and transm ission.2. Clearly define policy goals based on that assessm ent – focus ondesired outcom es.3. Tie quantifiable and independently verifiable m etrics closely to thosegoals and outcom es as is feasible. Avoid reliance on counterfactualswhen m easuring perfor m ance.4. Set realistic targets that balance costs and benefits and incorporatestakeholder input.5. Consider tying utility revenue to perfor m ance against these targets.Steps adapted from Aggarwal, Sonia & Eddie Burgess, “New Regulatory Models,” Am erica’s Power Plan a nd The Utility of the Future Center , Ma rch 2 0 1 4 ; a nd fromWoolf, Tim & Melis s a Whited , “Utility P erform a nce Incentive Mecha nis m s : A Ha nd b ook for Regula tors ,” Synapse Energy Econom ics, Ma rch 2 0 1 5 .85

STEP 2 – DEFIN E GO ALS O F A GRIDM O DERN IZATIO N P RO GRAM Adaptable for different states & utilities Focus on 3 goals1. Affordability2. Reliability/ resilience3. Environm ental Perfor m ance Focus on m easurable OUTCOMES86

STEP 3 - M EASURIN G P ERFO RM AN CEKey Question – what are the m etrics to achieve new goals for gridm odernization?87

P RIN CIP LES FO R M ETRIC DEVELO P M EN TMetrics should be:1.2.3.4.Tied to the policy goal (outcom e oriented)Clearly definedAble to be quantified using reasonably available dataSufficiently objective and free from externalinfluences5. Easily interpreted6. Easily verified(adapted from Synapse Handbook on Perfor m ancebased Regulation)88

M AKE IT P U BLIC!Exampl e: Ontari o Energy Board Perfor mance Scorecards89

KEY DO CUM EN T:Rhode Island PUC Initial Considerations onUtility Com pensation90

STEP 4 – CREATE AN O P EN P RO CESS TOSET TARGETSExample: Minnesota e21 Process Transparency Tim e for stakeholder input Process for collaboration &periodic revision Share data from IDP Balance stringency with reality91

STEP 5 – CO N SIDER TYIN G U TILITYREVEN U E TO O U TCO M ESOption 1: Conditional rate of retur n or cash incentive Req u ire p erfor m a nce a s a p recond ition, s ca le with p erfor m a nce, orcom b ine b oth a p p roa chesOp tion 2 : Revenue Cap Allow utilities to reta in s om e op era tiona l s avings (a fford a b ility)Ca n com b ine b oth a p p roa ches , e.g. U.K.’s RIIO m od el92

1 .WHY2 .HOW3 .EXAM PLES4 .N EXT STEPS93

EXAM P LES O F CO M M O N P BR M ECH AN ISM SALREADY IN U SEPerfor mance AreaPerfor mance IncentiveAffordability Multi-year rate plans Revenue decouplingSustainability RPS alternative com pliance paym ents Efficiency perfor m ance incentivesReliability Reliability standards and penalties94

1 .WHY2 .HOW3 .EXAM PLES4 .N EXT STEPS95

N EXT STEP S FO R LEGISLATO RS TOCO N SIDER1. Make sure the PUC has authority & direction to do all 5 steps2. Ar ticulate goals for grid m odernization or other regulatoryrefor m s3. Require developm ent of outcom e-oriented perfor m ancem etrics96

THE EN D STATE –WHAT ARE UTILITYBUSIN ESS MO DELSO F THE FUTURE?97

UTILITIES AS SYSTEM O P TIM IZERST& DPl anningWhol esal eMarketRetailExchangesCompetitionSYSTEM NEEDSolar created by Cornelius Danger, Noun ProjectNuclear created by EliRatus, Noun ProjectNatural Gas created by Thomas Uede, Noun ProjectBattery created by Anstey Design, Noun ProjectHydro Dam created by Co-effect Creative, Noun ProjectInst it ut e for Energy Research, 2014Acadia Ut ilit yVision, 201598

SEVERAL M ARKET STRUCTURES CANWO RK, UN DER TH ESE P RIN CIP LES1. Create a l evel pl aying fiel d for competition between al l resources, toprovide energy ser vices.2. Al l ow infrastructure owner s and grid operator s to capture a fairpor tion of the val ue of optimizing new technol ogies.3. Foster innovation in energy ser vices del iver y by encouragingexperimentation and al l owing procurement to adapt quickly totechnol ogical innovation.4. Maximize the transparency of energy procurement and markets.99

SP ECTRUM O F UTILITY BUSIN ESS M O DELSUtility owned& operatedDERsUtility as aplatformproviderIncreasing competition & complexitySeparate nonutility entityoperatesdistributionsystem100

WH ERE DO ES YO UR STATE FIT?MTHIWAMIUtility owned& operatedDERsNCMNNVAZUtility as aplatformproviderIncreasing competition & complexityDESeparate nonutility entityoperatesdistributionsystem101

Codes of Conduct In order to create a fair and functioning market devoid ofcross-subsidies from captive customers, some form ofcorporate separation and strict enforcement of codes ofconduct are paramount to protect ratepayers. If the utility is going to compete to offer any services, thencodes of conduct are important to ensure that all serviceproviders are on equal footing. If the utility is a platform service provider and not offeringany competitive services, codes of conduct are less critical.Regulatory Assistance Project (RAP) 102

Separation of the Distribution Company From theCompetitive Entity Divestiture – Requires the disposition or sale of an assetby a company. Corporate Separation – Requires the EDU to separate itscompetitive enterprise from its regulated enterprise bycreating a separate affiliated company. Functional Separation – Maintains the competitive armwithin the EDU as a separate division with its ownaccounting system, staff, and servicesRegulatory Assistance Project (RAP) 103

Codes of Conduct: General Pitfalls to Avoid Discrimination in providing access to essentialservices should be prohibited. There should be no sharing of competitiveinformation among affiliates. Cross- subsidization by the EDU to benefit thecompetitive enterprise should be prohibited andcarefully monitored by regulators.Regulatory Assistance Project (RAP) 104

Codes of Conduct Nondiscrimination; Information Sharing and Disclosures; Corporate Identification and Logo Record-keeping Transfer of goods and services Sharing of Facilities, Equipment and Costs Joint Purchases Corporate Support EmployeesRegulatory Assistance Project (RAP) 105

Codes of Conduct: Regulatory Oversight Compliance Plan - The EDU should be required to file a complianceplan detailing the implementation of the code of conduct. Compliance Audit – There should be annual compliance audits by anindependent auditor, filed with the commission, and made available topublic. Complaint Procedure and Log - To allow for informal complaintresolution, the EDU should establish a complaint process that includesa defined number of days to record, investigate and respond to thecomplainant regarding the EDU’s findings and any corrective action. Penalties - The commission should have the authority to levy fines forviolations of the code of conduct.Regulatory Assistance Project (RAP) 106

Code of Conduct: Ring Fencing Ring-fencing applies when a regulated public utilitybusiness financially separates from a parent company thatis engaged in non-regulated businesses. The purpose of ring-fencing is to protect the EDU and itscustomers from the risks associated with unregulatedenterprises and to protect the delivery of essential utilityservices in the event of financial instability or bankruptcy ofthe unregulated affiliateRegulatory Assistance Project (RAP) 107

MIKE O’BOYLETHAN K YOU!108Copyright 2017 Energy Innovation LLC.

About RAPThe Regulatory Assista

The Next Frontier in Distribution Planning. . Enables prepaid billing (controversial). Source for slides 29 -31: Sustainable Energy Authority of Ireland - . demand response by electric public utilities or