Electricity System Needs New Framework for 2030

Utility-industry working group says California’s goals, changing technologies call for new utility business models, new products for customers

[San Francisco – August 11, 2015] – New regulatory frameworks are needed to move California toward a 21st century electricity system, a broad working group of utility and advanced energy company executives said in a position paper released today by the Advanced Energy Economy Institute. Regulators need to assess the pros and cons of different models for operations, pricing, and revenue to provide a platform for new technologies, products, and services for customers while maintaining the viability of investor-owned utilities to provide reliable and affordable electric service for all, the paper said.

Toward a 21^st Century Electricity System for California is available for download at: http://info.aee.net/toward-a-21st-century-electricity-system-for-california 

Participants in the joint utility-industry working group included representatives of Southern California Edison, Pacific Gas and Electric, and the California Independent System Operator, along with more than a dozen companies active in California: Bosch, BRIDGE Energy Group, Chargepoint, EnergySavvy, EnerNOC, Enphase Energy, FirstFuel Software, General Electric, Gridco Systems, Itron, Navigant Consulting, Siemens, Simple Energy, SolarCity, Stem, SunEdison, and SunPower Corp.

In addition, 11 other member companies of Advanced Energy Economy, a national business association, with which the AEE Institute is affiliated, also endorsed the position paper: Ambri, Bergey Windpower Co., Brightenergy, Clean Fuel Partners, Landis+Gyr, Next Step Living, Opower, Regatta Solutions, RES Americas, Smart Wires, and Vestas. 

According to the position paper, California’s portfolio of policies, statutes, and regulatory actions, existing and proposed, has set the state on a path to a dramatically different electric power system in the future. In a vision developed by the working group, the role and functions of the electric grid will be significantly different by 2030, driven by changes in customer expectations, environmental and other policy objectives, and the rapid advancement and deployment of new technologies. This vision is the culmination of trends already underway:

• Innovation in product and service delivery: Customers now have many more options to manage their energy costs and where their electricity comes from. These include energy efficiency, demand response, rooftop solar, electric vehicles, on-site batteries, control technology for air conditioning and lighting, and building energy management systems. Enabled by these technologies, customers are able to provide services to the grid. Utilities will need analytical constructs to determine the value of such services and customers will need innovative products as they play an increasingly important role in grid management.

• System design and technology: The 21^st century grid will require management of significant amounts of utility-scale renewables, more holistic integration of distributed energy resources, and increasing third-party (non-utility) solutions that help maximize value to customers. The grid must be designed to accommodate rapid evolution in available technologies as well as emerging technologies. Utilities will need to increase investment in hardware and analytics, as well as develop tools to optimize the contribution of customer-side resources. Regulators will need to facilitate these changes by supporting infrastructure investments, allowing experimentation, and requiring development of standards and open protocols to ensure interoperability and integration, while also addressing cybersecurity.

• Regulatory framework, incentives and revenue mechanisms: Regulators will need to determine how to equitably cover and share the costs of essential grid services while also supporting customer-level options and achieving state policy objections. The California Public Utilities Commission (CPUC) has begun to address these issues through individual proceedings. As the changes become more profound, it will become necessary to consider more fundamental changes. Regulators will need to identify issues that currently impede – or could enable – evolution from existing models to new ones; determine what functions and services are most appropriate for the regulated market versus the competitive market; and consider ways to integrate or coordinate the various regulatory proceedings into a comprehensive framework.

Companies engaged in the working group encourage the CPUC and the California Energy Commission to consider these factors as they work to accelerate the transition to a high-performing electricity system in California for the 21st century.

In the position paper, the working group encouraged the CPUC to explore two different operational models for utilities (Distributed System Platform, Independent Distributed System Provider), two different market operation and pricing models (Regional Grid Optimization vs. Distribution Marginal Pricing models), and three different utility revenue models. All of these have significant implications for customer pricing, technology development, and system benefit.

“California is the nation’s leader in climate policy and energy innovation,” said Graham Richard, CEO of Advanced Energy Economy, a national business association. “Now, California has a chance to lead the way in organizing the electric power system to make way for technology innovation and greater customer choice.”

“While California’s agencies have several positive initiatives addressing the 21st Century vision, this report emphasizes the need to even more rapidly evolve the state’s regulatory framework to one that integrates historical silos and more nimbly gives customers access to the latest technologies and services,” said Ted Ko, Director of Policy at Stem, Inc., a leading U.S. provider of intelligent energy storage.

“The grid environment in California is rapidly evolving as Distributed Energy  Resources (DER) and market participants interact across the distribution grid,” said David O’Brien, VP of Grid Transformation, BRIDGE Energy Group, a consulting and systems integration company focused on improving utility operational performance. “Utilities need to increase their visibility to these diverse resources, transform distribution planning processes and deploy the enabling technologies that can optimize DER while maintaining a safe and reliable grid. These collaborative dialogs are vitally important to examine the transformation of our electric system while reconciling diverse interests that come together on today’s distribution grid."  

“It’s clear that fundamental changes are needed to transition to a more reliable, resilient, customer-centric grid,” said Tom Starrs, vice president for market strategy and policy at SunPower Corp., a solar technology and global energy service provider. “We’re pleased with the straightforward discourse underway, which is serving to create a shared understanding of the critical roles that customers, utilities, regulators and the renewable energy industry will play in creating our clean energy future.”

AEE Senior Vice President Steve Chadima and members of the utility-industry working group will present an overview of the position paper and participate in a panel discussion at the CPUC’s Thought Leaders Series on Thurs., Aug. 13, at 2:00 pm.

The utility-industry working group that produced this position paper was an outgrowth of a meeting of senior executives from advanced energy companies and California’s investor-owned utilities (IOUs) held February 25, 2015. The California 21st Century Electricity System CEO Forum was an opportunity for energy industry leaders to discuss the drivers of industry change and to start to examine utility business models and regulatory concepts that can adapt to and thrive in the emerging energy market environment. The forum was part of a series held around the country under AEE’s 21st Century Electricity System initiative. This collaborative, stakeholder-driven process has been utilized most prominently in support of the Reforming the Energy Vision proceeding before the New York Public Service Commission. 

Publication of Toward a 21^st Century Electricity System for California comes nine days before the third annual Pathway to 2050, AEE’s signature gathering of advanced energy industry leaders and California policymakers on Aug. 20 in Sacramento. At Pathway, the paper will be summarized and a panel of utility representatives will discuss how their business models will evolve in the coming years to embrace new technologies, products and customer needs.

About the Advanced Energy Economy Institute
The Advanced Energy Economy Institute is a nonprofit educational and charitable organization whose mission is to raise awareness of the public benefits and opportunities of advanced energy. The AEE Institute is affiliated with Advanced Energy Economy, a national association of businesses that are making the energy we use secure, clean, and affordable. AEE’s mission is to transform public policy to enable the rapid growth of advanced energy companies.

Media Contact: Monique Hanis, 202-391-0884, mhanis@aee.net

###