NewEnergyNews: TODAY’S STUDY: The 51st State – Getting to the future of electricity


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    Thursday, September 15, 2016

    TODAY’S STUDY: The 51st State – Getting to the future of electricity

    The 51st State

    September 2016 (The Smart Electric Power Alliance)


    SEPA launched the 51st State Initiative at a time when state-level debates over net metering and rate reform were often being framed, at least in the mass media, as a conflict between utilities and the solar industry. Since that time, many state debates have become more heated. Some recent collaborations between utilities, solar organizations, and other industry stakeholders have resulted in encouraging agreements. These promising negotiated settlements create a foundation for future compromise, but are still limited in resolving core issues, such as:

    • What, if any, value can DERs, such as rooftop solar, provide to the grid?

    • What entities are best suited to deploy them, and how might they be compensated?

    • What changes, if any, should be made to residential electricity rate structures?

    • How should the resulting impacts on utility business models and the power sector in general be handled?

    SEPA views collaboration and cross-industry partnerships as critical building blocks for both the growth of solar and other distributed technologies, as well as for potential changes in the electricity utility sector. As a result, SEPA has intensified its focus on studying and creating replicable models to promote discourse through which industry stakeholders with competing interests can build the communication and trust needed to forge compromise solutions. The 51st State Initiative was started as a vehicle for moving beyond the immediate, adversarial nature of current debates to find long-term, workable solutions, with two goals:

    1. Creating economically sustainable business models and integrated grid structures to ensure that electricity can continue to be provided safely, reliably, efficiently, affordably and cleanly.

    2. Meeting customer demand in the near and long term for solar, storage, and other distributed energy resources. The concept paper and roadmap submissions resulted in a range of options, ranging from incremental change to the status quo to implementing wholesale, transactive energy business models within retail residential markets.

    What follows is a compendium of ideas, formulated not only from SEPA’s own work and analysis but also from the insights and feedback received from hundreds of industry thought leaders and partners who have participated in the 51st State Initiative and other collaborative forums SEPA has organized. The perspective is purposefully high level, focusing on areas of potential agreement rather than detailed and possibly contentious discussions.

    First and foremost, a series of doctrines has been crafted, representing core, foundation-building areas of focus related to promoting efficiencies, clearly defining roles, outlining the principles of ratemaking, and creating customer choice. Our intent here is that stakeholders can use these doctrines to establish commonly agreed-upon, “least-regrets” anchors at the outset of conversations regarding market transformation.

    The doctrines are also the foundation for the “swimlanes” created in Phase II of the 51st State to encompass all aspects of electricity market structures, roles, and responsibilities.

    The six swimlanes – retail market design, wholesale market design, utility business models, rates and regulation, asset deployment, and information technology – create a structured and logical breakdown of the intricacies involved in our industry. By examining each of these aspects of the marketplace individually, stakeholders can foster a more well-rounded and holistic conversation about how to incrementally revamp today’s constructs into something new.

    Lastly, the stakeholder process itself will become critical in taking the work conducted to date in the 51st State Initiative and turning it into actionable roadmaps adapted to the needs of specific jurisdictions. To that end, SEPA has outlined a suggested process and four strategic guidelines that can help stakeholders maintain focus: flexibility, incrementality, affordability and transparency, also known as FIAT. If the plans being laid out do not align with FIAT concepts, then the approach being designed may face obstacles in its own implementation.

    The doctrines, guidelines and strategies laid out here emerged not from any specific papers or individuals, but from the interaction of ideas the 51st State Initiative produced, as areas of commonality emerged across different points of view. Leveraging these ideas in a structured manner can – hopefully – create a platform for understanding, common purpose and consensus building as individual regions and jurisdictions embark upon market reform in the future.

    Four Doctrines Of 51st State Marketplace

    Throughout the 51st State Initiative, a wide variety of starting points and outcomes for the evolution of the U.S. electricity industry were generated and discussed. When read in a vacuum, one might assume that these disparate viewpoints were emblematic of the DER-related electricity discussions underway across the country; and that this lack of consensus, while intellectually stimulating, would prove that agreement could never be reached on the hard decisions facing the industry.

    The 51st State, however, has never been about the destination; rather, the initiative has always focused on the journey. When reading all of the Phase II roadmaps within that context, a series of common perspectives begin to emerge. These core tenets, while not explicitly stated in any individual paper, permeate the thinking of the broad group of industry stakeholders that participated in the 51st State Initiative, whether as submission authors, or other initiative participants (see Appendix A).

    These four doctrines should be viewed as the foundation for market reform conversations between utilities, regulators, policy makers, customer groups, and other market participants, forming a safe harbor for all stakeholders in the face of major obstacles. In shorthand, the four doctrines can be summarized as follows: promote efficiencies; clearly define roles; identify principles of ratemaking; and, foster customer choice.

    These doctrines are not meant to be all-encompassing precepts. Rather, they are meant to be starting points for focusing conversations aimed at reaching commonality and agreement, which can, in turn, provide a foundation for consensus building in more contentious areas of discussion.

    The following sections lay out a description of each doctrine, along with direct quotations from 51st State submissions over the past two years. In addition, a series of potential solution sets and application strategies are identified (for a sampling of real world examples, see Appendix B). Many solution sets are mutually exclusive, and therefore not intended to be implemented en masse; rather, they represent potential least-regrets strategies that, depending on the current state of an electricity market and desired outcome of change, could be adopted to help move a market forward.

    Similarly, these alternatives are not intended to be requirements for a future-proof system, nor should they be interpreted as being endorsed by SEPA or as representing the consensus of the 51st State community. They are suggested starting points for conversations around the future of the grid.

    Doctrine 1: A Primary Goal Of The Market Should Be To Promote Efficiencies In The Production, Consumption, And Investment In Energy And Related Technologies.

    Doctrine 2: The Role Of The Utility, As A Public Service Entity, Should Be Clearly Defined So That All Market Participants Can Understand Their Roles In Enabling Customer Options In A Fair, Transparent, And Nondiscriminatory Manner.

    Doctrine 3: Rate Structures Should Provide Transparent Cost Allocation That Supports A Sustainable Revenue Model For Utility Services Providing A Public Good.

    Doctrine 4: Customers Should Be Presented With A Variety Of Rate And Program Options That Expand Their Choice Of And Access To Energy-Related Products And Services, And That Are Simple, Transparent, And Create Stable Value Propositions

    Doctrine Summary

    Each of the four doctrines has a direct connection to the swimlanes outlined in Phase II, as they sit at the core of how stakeholders should view discussions in each major area (see Figure 1). Decisions regarding how best to promote energy efficiency will drive conversations on retail markets, utility roles and responsibilities, and effects on ratemaking. Determinations on what the utility can and cannot offer customers can affect who makes key investments in new infrastructure. Agreements on the fundamentals of rate design could impact the relationship between retail and wholesale marketplaces, and how regulators engage at both levels. And the desired levels of consumer choice agreed upon can drive increased utility investments in both IT and communications infrastructure to promulgate increased data access for consumers…

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