ORIGINAL REPORTING: 3 state commissions upending the way utilities do business

3 state commissions upending the way utilities do business; Oregon, Illinois and Hawaii regulators are disrupting the traditional utility cost-of-service model to incentivize bringing more distributed energy resources online.

Herman K. Trabish, Oct. 2, 2019 (Utility Dive)

Editor’s note: As debates expand for bringing distributed resources into the power system, regulators more frequently stress the need for advocates to build a record on which they can make the right decisions.

State utility commissions across the country are working on innovations for the regulatory process to better respond to the rise of variable renewable generation and distributed energy resources (DER). Dockets are seeking ways to change the way utilities do business. Illinois and Oregon commissions are shifting away from traditional cost of service (COS) valuation, and Hawaii's performance-based regulation (PBR) proceeding would transform the regulatory paradigm, regulators told an audience last week at the 2019 Solar Power International (SPI) conference in Salt Lake City, Utah.

"The business of generating, distributing and using electricity is at a crossroads," Commissioner Brien Sheahan of the Illinois Commerce Commission said. Policymakers, regulators and utilities must respond to "the game changing trends" of the sector without losing sight of "public interest, consumer cost, and overall value." Sheahan, as well as Hawaii's and Oregon's commissioners, spoke about how their states are targeting utility compensation to address the growing impacts of new customer demand for renewables and DER. And they are seeking stakeholder voices to guide them.

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To optimize the modern grid, "computing power will be needed on a scale that's only economically feasible through cloud computing," Sheahan said at SPI. In response, the Illinois commission is working to allow utilities to be compensated for using cloud computing in the same way they are compensated for investments in on-premises computer technology. But more innovation is needed.

"Innovation in the regulatory space is not an oxymoron," Oregon Commissioner Letha Tawney told the SPI audience. "It cannot produce Silicon Valley disruption because a stable and transparent regulatory environment is crucial, but it can reduce risk for innovators, investors and early adopters, and help eliminate the information asymmetry between incumbents and new entrants.

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Oregon is working "on how to step back from individual pricing for individual technology solutions and start thinking about pricing around value," Tawney said. "Because we don't know which technologies will be winners, price signals that compensate their services to the grid can stimulate competition between technologies, which will be better for customers." It will also allow customers to bring value to the system, she said. "The multi-billion-dollar question is what the price signal is that compensates the service as opposed to the technology."

Hawaii's unique challenges make regulatory innovation more urgent, Commissioner Jennifer Potter said at SPI. Its isolated island grids are stressed by especially large and rapidly growing penetrations of new clean energy technologies driven by electricity prices twice as high as any other state and dependence on imported bunker oil. Mechanisms to address these challenges, like an energy efficiency standard, a mandate for utility competitive solicitations, and performance-based ratemaking have had varying success, she said. Hawaii’s answer is the leading U.S. effort to institute performance-based regulation… click here for more

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