NewEnergyNews: ORIGINAL REPORTING: The regulatory two-step and the new, performance-based dance

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    Wednesday, December 12, 2018

    ORIGINAL REPORTING: The regulatory two-step and the new, performance-based dance

    Should the regulatory two-step give way to a new, performance-based dance? Critics say traditional cost-of-service ratemaking is behind the times, but newer models require a complex production from a variety of industry players.

    Herman K. Trabish, June 18, 2018 (Utility Dive)

    Editor’s note: Advocates for more advanced rate design have become more active in regulatory and policymaking arenas since this story ran.

    Is the process used to set the prices customers pay for electricity biased against new energy technologies? Regulated utilities traditionally go through two separate processes to arrive at the rates they charge customers for electricity — long term Integrated Resource Plans and short term revenue requirements based on Cost-of-service ratemaking. Some stakeholders say the disconnect between those two processes creates an unfair disadvantage for new technologies now becoming available to utilities and system operators, like distributed solar, energy storage and advanced demand management.

    Several states, utilities and policymakers are trying to address the slant against these distributed energy resources (DERs) with a different ratemaking model. Traditional ratemaking, they say, fails to attribute long-term value to new technologies located on the distribution system, leaving those benefits out of IRP planning. The disadvantage is furthered if the new technologies are customer-owned, not offering return-on-investment opportunities for utilities. The power system is evolving and customer demand is emerging as its central driver, according to Energy Innovations VP Sonia Aggarwal said. As utilities face this new reality, today’s ratemaking two-step is giving way to a newer, performance-based ratemaking model built around a new business paradigm for electric utilities… click here for more

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