Future Electric Utility Regulation Series Future Electric Utility

Future Electric Utility Regulation Series: Future Electric Utility Regulation Advisory Group Meeting Value-Added Electricity Services: New Roles for Utilities and Third-Party Providers NASUCA Meeting June 6, 2017 March 27, 2014 Lisa Schwartz Berkeley Lab, Electricity Markets and Policy Group

Future Electric Utility Regulation Series • A series of reports from Berkeley Lab taps leading thinkers to grapple with complex regulatory issues for electricity • Unique multi-perspective approach highlights different views on the future of electric utility regulation and business models and achieving a reliable, affordable, and flexible power system to inform ongoing discussion and debate • Primary funder of initial six reports: U. S. Department of Energy’s Office of Electricity Delivery and Energy Reliability - Electricity Policy Technical Assistance Program • Office of Energy Efficiency and Renewable Energy’s Solar Energy Technologies Office is co-funding new reports under DOE’s Grid Modernization Initiative • Expert advisory group provides guidance and review (see extra slides) feur. lbl. gov 2

Reports published so far 1. Distributed Energy Resources (DERs), Industry Structure and Regulatory Responses 2. Distribution Systems in a High DER Future: Planning, Market Design, Operation and Oversight 3. Performance-Based Regulation in a High DER Future 4. Distribution System Pricing With DERs 5. Recovery of Utility Fixed Costs: Utility, Consumer, Environmental and Economist Perspectives 6. The Future of Electricity Resource Planning 7. The Future of Centrally-Organized Wholesale Electricity Markets 8. Regulatory Incentives and Disincentives for Utility Investments in Grid Modernization Reports, webinar slides and recordings at feur. lbl. gov 3

One example: Report #5 Recovery of Utility Fixed Costs: Utility, Consumer, Environmental and Economist Perspectives • Utility - Lisa Wood, Institute for Electric Innovation/The Edison Foundation, and Ross Hemphill, RCHemphill Solutions (former Com. Ed VP) • Consumer - John Howat, National Consumer Law Center • Environmental - Ralph Cavanagh, Natural Resources Defense Council • Economist - Severin Borenstein, University of California, Berkeley 5

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Four Perspectives on Fixed Cost Recovery* Wood/Hemphill Favored approaches and why • Formula ratemaking – • Time-varying rates – Properly streamlined, enables investments designed and optional, some in critical infrastructure customers can reduce bills • Higher fixed charges – cost-based, • Decoupling – With consumer provides transparency in pricing protections, enables EE grid services • Formula rate plans – With • Demand charges – cost-based, performance standards and may incent more EE and DR consumer protections • Minimum bills – But in most cases won’t effectively address fixed cost recovery shortfall Least favored • Decoupling and LRAM – Work well for EE, but too much costapproaches shifting with high levels of and why distributed solar • Minimum bills – Level of minimum bill unlikely to recover *See footnotes full cost of grid services on prior slide & report at feur. lbl. gov Howat • Higher fixed charges – Shifts costs from high- to low-volume customers (low-income & elder), reduces EE incentives & control over bills • Demand charges – Consumers lack ability to respond • LRAM – Incentive for utility to overstate savings and weaken EE program effectiveness 6

Cavanagh Borenstein Environmental and Economist Views* Favored approaches and why • Minimum bills – Ensure that all • Time-varying rates – Should customers make a reasonable reflect full social marginal cost contribution to maintaining critical (SMC), with remaining revenue infrastructure from higher volumetric rates • Time-varying rates – Economically and higher fixed charges efficient, support EE & distributed • Higher fixed charges – Use with resources time-varying rates (see above). • Decoupling – Necessary but not Concerns remain re: large vs. sufficient to recover fixed costs & small users and low-income enable EE households. “Claim that ‘Fixed • Formula rate plans – Facilitates costs should be recovered with recovery of escalating multi-year fixed charges’ has no basis in costs of grid upgrades, use with economics. ” decoupling • Demand charges – Works with EE & solar, link to system-wide peak Least favored • Higher fixed charges – Reduce customers’ incentive for EE and approaches distributed resources and why • LRAM – Creates incentive for utility to promote EE programs with little savings, incentive to increase energy sales remains • Minimum bills – “identical to fixed charge plus free electricity, ” not cost-based • Demand charges – inefficient, more volatile than dynamic pricing, not cost-based • Others – Don’t fix problem 7

Another example: The Future of Centrally-Organized Wholesale Electricity Markets Four perspectives: • Craig Glazer, PJM • Jay Morrison and Paul Breakman, National Rural Electric Cooperative Association • Allison Clements, Natural Resources Defense Council • National Association of State Utility Consumer Advocates Four questions: 1. Are today’s centrally-organized market designs adequate to accommodate state public policy goals, and what potential design changes would further enable deployment of resources that achieve the goals of reliability, affordability and resource mix? 2. What are the market impacts of environmental regulations further constraining the deployment of fossil fuel resources? 3. What are the market impacts of integrating increasingly higher levels of renewable resources with zero marginal cost? 4. Are today’s market designs adequate to acquire the flexible resources needed to better integrate increasing levels of variable energy resources at least cost? 9

New Report: Value-Added Electricity Services: New Roles for Utilities and Third-Party Providers (1) • Questions report will address – What new value-added services does grid modernization enable, and what are the appropriate roles for utilities and third-party service providers? Should utilities directly compete with competitive providers of new value-added services, or provide new platforms and procurement mechanisms to enable third-party services? – What policy and regulatory changes may be needed in the face of increasing competition for electricity services from third-party providers? – How should regulators address utility costs for new value-added services, considering customers who do not participate in these offerings? – What policy and regulatory approaches best balance promoting innovation with consumer protection? 9

New Report: Value-Added Electricity Services: New Roles for Utilities and Third-Party Providers (2) • Perspectives – Consumers: National Association of State Utility Consumer Advocates – Utilities: Jon Blansfield and Lisa Wood, Institute for Electric Innovation – Third-party providers: Ryan Katofsky, Advanced Energy Economy • Timeline – – June - Draft perspectives due to Berkeley Lab July – Revisions by authors and presentation at NARUC meeting (July 17) August – Review by Advisory Group and DOE September – Final report published, public webinar 10

For More Information Lisa Schwartz Electricity Markets and Policy Group Lawrence Berkeley National Laboratory (510) 486 -6315 lcschwartz@lbl. gov Join Berkeley Lab’s Electricity Markets and Policy Group mailing list (https: //emp. lbl. gov/mailing-list) and stay up to date on our publications, webinars and other events. Follow the Electricity Markets & Policy Group on Twitter @Berkeley. Lab. EMP 11

Future Electric Utility Regulation Advisory Group • • • • • • Commissioner Lorraine Akiba, Hawaii Public Utilities Commission Janice Beecher, Institute of Public Utilities, Michigan State University Doug Benevento, Xcel Energy Ashley Brown, Harvard Electricity Policy Group Paula Carmody, Maryland Office of People’s Counsel Ralph Cavanagh, Natural Resources Defense Council Steve Corneli, consultant Tim Duff, Duke Energy Peter Fox-Penner, Boston University Questrom School of Business Scott Hempling, attorney Val Jensen, Commonwealth Edison Commissioner Travis Kavulla, Montana Public Service Commission Steve Kihm, Seventhwave Chair Nancy Lange, Minnesota Public Utilities Commission Lori Lybolt, Consolidated Edison Sergej Mahnovski, Edison International Kris Mayes, Arizona State University College of Law/Utility of the Future Center Jay Morrison, National Rural Electric Cooperative Association Delia Patterson, American Public Power Association Commissioner Carla Peterman, California Public Utilities Commission Sonny Popowsky, Former consumer advocate of Pennsylvania Karl Rábago, Pace Energy & Climate Center, Pace University School of Law Rich Sedano, Regulatory Assistance Project Peter Zschokke, National Grid 12