NewEnergyNews: TODAY’S STUDY: Reforming Regulation To Open Innovation

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    Tuesday, March 05, 2019

    TODAY’S STUDY: Reforming Regulation To Open Innovation

    Process for Purpose; Reimagining Regulatory Approaches for Power Sector Transformation

    February 2019 Dan Cross-Call Cara Goldenberg Claire Wang

    Executive Summary

    CONTEXT

    • The restrictive and often contentious nature of conventional regulatory processes make them inadequate to manage the scale, speed, and complexity of the historic transformation taking place in the electricity system. In response, regulators, utilities, and related stakeholders are increasingly employing broader, more participatory processes to consider investment decisions and rule changes that go to the core of the utility business.

    • Good process design is a key determinant of the success of utility regulatory reform, yet process approach and design decisions frequently receive less attention than the technical and economic details of the regulatory reforms themselves. As a result, those technical and economic decisions tend to get mired in adversarial debates and often produce inadequate, narrow outcomes.

    • This paper reviews regulatory reform efforts undertaken by 10 states, describes the processes by which reform can proceed, and identifies the most significant factors that impact reform efforts’ effectiveness.

    KEY TAKEAWAYS

    • Successful reform processes typically consist of four stages: initiating the reform process, communicating the vision for reform, conducting the reform process, and delivering reform outcomes.

    • While commissions, state policymakers, utilities, and other stakeholders can all initiate reform processes, utility regulators have particular importance as, in most cases, regulators are ultimately responsible for carrying reform efforts toward policy outcomes.

    • Regulatory processes can be either investigatory or decisional in intent. Investigatory processes engage stakeholders to explore grid needs or potential reform options, whereas decisional processes set out to adopt new rules or programs. States should explore using either or both types of processes depending on their underlying objectives.

    • Regulators interested in fully exploring transformational opportunities for the electric system should set the vision for reform from the outset and provide guidance throughout the process to ensure policy design, implementation, and scaling are consistent…

    CONCLUDING LESSONS

    A well-designed process is a key determinant of the success of utility regulatory reform and deserves significant attention to ensure delivery of intended outcomes. This paper offers the following lessons that may be useful as states and utilities undertake their own power sector transformation initiatives.

    INITIATING REFORM PROCESSES

    • To pursue reform, regulators must feel confident that there is need for reform, there are benefits to creating a proceeding around it, they have the resources to carry out the proceeding, and they are able to appropriately regulate or steward outcomes.

    • Policy directives from a legislature or governor can jump-start action, ensure that efforts take place on a reasonable timeline, galvanize wider support for reform objectives, and provide momentum for efforts to produce beneficial outcomes.

    •In general, policy details should be handled in a way that defers to the expertise of commissions on regulatory issues and should not be overly prescriptive of the specific reform solutions they seek or prohibit.

    • Stakeholder-initiated processes can conduct initial analysis of system and regulatory needs to educate participants, improve collaboration, and demonstrate broader support for reform.

    THE VISION FOR REFORM

    • Every regulatory undertaking should be anchored to a guiding vision.

    • The vision should articulate what opportunity the state or utility is facing, how it benefits customers and the power sector, what the outputs of the effort should be, and how outputs will be utilized by regulators going forward.

    • Leaders of reform efforts should effectively communicate the vision for reform at the start of the process and should reiterate it throughout.

    • When no clear leaders for reform emerge, other stakeholders can elevate reform issues to help galvanize leadership.

    CONDUCTING THE REFORM PROCESS

    •Investigatory processes or exploratory stages of processes should consist of a collaborative, flexible stakeholder discussion to arrive at a common understanding on grid needs and recommendations for solutions.

    • Exploration of needed changes to regulations can be carried out in a nondocketed or a docketed process. Nondocketed processes may have fewer procedural requirements and can be more accessible to stakeholders who are less familiar with utility commission dockets. However, docketed proceedings offer their own advantages, such as credibility and direction.

    • Proceedings with a decisional intent need to take place within a docket for commissions to adopt new rules or approve new programs.

    • Building a reliable record that includes stakeholder comments and outputs from participant discussions can provide greater transparency and accountability into regulatory decision-making.

    • Leaders of reform efforts should leverage lessons from other states to expedite processes (e.g., states exploring more established options such as decoupling or multiyear rate plans).

    • Stakeholder engagement is an important feature of both investigatory and decisional processes to ensure that commissions do not establish new rules or programs in a black box.

    PRODUCING REGULATORY OUTCOMES

    • The shift from investigation to policy implementation can occur through decisional proceedings, utility proposals, or legislative mandates.

    • To familiarize participants in reform efforts with new ideas and approaches, regulators, utilities, and stakeholders can codevelop pilots as regulatory test beds to test specific aspects of regulatory reform that directly tie to a future decision that the commission seeks to make.

    •Implementation of reforms should include performance tracking and mechanisms for review and adaptation, to ensure that outcomes remain aligned with ongoing visions for reform and lessons are captured.

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