Advanced Energy Perspectives

Standby and Buyback Rates Can Hurt the Economics of Distributed Generation. New York Just Took Action to Fix That.

Posted by Ryan Katofsky and Danny Waggoner

Jun 26, 2019 3:59:07 PM

NY standby rates order-500

Rate designs for distributed energy resources (DERs) remains a hot topic. States are taking different approaches, but some are better than others. Some states are making adjustments (typically reductions) to flat kilowatt-hour rates, such as net metering and buy-back rates, or adding/raising fixed charges that often focus exclusively on utility revenue without looking at DER from a total value perspective. DER can impose costs on the system, but it can also provide value, both to the utility and more broadly to the public, and rates and compensation should take both into account. In its continuing effort to comprehensively assess the value of DER and design rates accordingly, New York recently made some landmark adjustments that should provide fairer treatment for customers that have significant distributed generation facilities, such as combined heat and power (CHP) systems. The improved rate is also available as an option for all customers, including residential customers without DG, and is likely to be a good choice for customers with electric vehicles and certain types of DER.

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Topics: 21st Century Electricity System, Regulation, Highlights

UK RIIO Sets Out to Demonstrate How a Performance-Based Regulatory Model Can Deliver Value

Posted by Coley Girouard

Jun 6, 2019 11:00:00 AM

RIIO case study-500

This case study, originally published by Utility Dive, is the final installment in a six-part series on utility business model reform produced by Rocky Mountain Institute, America's Power Plan, and Advanced Energy Economy Institute.

In the United States, the traditional utility business model has served us well for many years, but it is increasingly out of step with a new set of market conditions — aging infrastructure, advances in technology and flat-to-declining load growth driven by rising deployment of energy efficiency, demand response and other distributed energy resources. Traditional cost-of-service regulation favors utility capital investment in long-lived assets rather than rewarding utilities for their performance against desired policy objectives and it discourages utilities from taking advantage of the general shift in the economy to service-based solutions provided by third parties. A decade ago, the United Kingdom's Office of Gas and Electricity Markets, known as Ofgem, set out on a mission to develop a new regulatory framework that would reward utilities for innovation and for meeting the changing expectations of consumers and society. The culmination of that process was the development of a framework referred to as RIIO.

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Topics: 21st Century Electricity System, Regulation, Utility Business Model Reform Case Studies

Making Cloud Computing and Other Services Pay for Utilities and Customers

Posted by Coley Girouard

Apr 17, 2019 12:45:17 PM

CLOUDCOMPUTING IMAGE - 500

This is the fifth in a six-part series on utility business model reform provided by Rocky Mountain Institute, America's Power Plan, and Advanced Energy Economy Institute, originally published by Utility Dive.

Technologies are quickly advancing, providing a wide array of industries from transportation to healthcare to financial services with tools to modernize their products and services, while utility regulation has struggled to keep up. A key stumbling block is that many solutions are only offered as services rather than capital investments that a utility owns and operates. Utilities earn a rate of return on capital equipment, such as poles, wires, transformers and on-premise IT systems. By contrast, operating expenses, such as salaries, maintenance and payments for services, come out of a limited budget, so utilities manage these expenses to avoid overspending and eroding their earnings. The net effect is a significant disincentive for utilities to procure service-based solutions provided by private advanced energy companies. This limits utilities from taking advantage of many new technologies that are solely offered through service contracts, such as cloud computing, since these services displace an earnings opportunity.

In order to encourage utilities to make IT investments that are in the best interests of both them and their customers, two states — New York and Illinois — have looked at changes in how cloud services are treated for accounting purposes. These accounting innovations could potentially be applied to other utility needs that could be met more cheaply or flexibly as services than as capital assets.

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Topics: 21st Century Electricity System, Regulation, Utility Business Model Reform Case Studies

BQDM Program Demonstrates Benefits of Non-Traditional Utility Investments

Posted by Coley Girouard

Mar 19, 2019 1:14:24 PM

BQDM Blog Image_3.19.19

This is the fourth in a six-part series on utility business model reform provided by Rocky Mountain Institute, America's Power Plan, and Advanced Energy Economy Institute, originally published by Utility Dive.

Incentives inherent in the traditional cost-of-service utility revenue model discourage utilities from investing in non-traditional solutions. This is because non-traditional solutions, such as demand management programs and distributed energy resources (DER), are normally treated as operating expenses, which are passed through to customers without earning a return. Instead, if a utility invests in a traditional "poles and wires" solution, it is given the opportunity to earn a rate of return — creating a profit motive. But it doesn't have to be this way.

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Topics: 21st Century Electricity System, Regulation, Utility Business Model Reform Case Studies

Oklahoma's Energy Efficiency Incentives Give Utilities a Business Reason to Save Customers Money

Posted by Coley Girouard

Feb 27, 2019 1:01:52 PM

Copy of Case Studies in Utility Business Model - FINAL (1)

This is the third in a six-part series on utility business model reform provided by Rocky Mountain Institute, America's Power Plan and Advanced Energy Economy Institute, originally published by Utility Dive

Incentives under the traditional cost-of-service utility revenue model are fundamentally misaligned with the implementation of energy efficiency programs. This is because, traditionally, utilities collect revenues based on the amount of energy they sell, whereas energy efficiency programs attempt to reduce energy consumption, thereby reducing utility revenues and profits.

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Topics: 21st Century Electricity System, Regulation, Utility Business Model Reform Case Studies

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