The prospect of large grid modernization investment triggers a key question – is it worth it? As different states consider upfront investments in modernizing the grid, regulators need ways to ensure utilities maximize the potential benefits of grid modernization. This white paper provides program design considerations and metrics that can guide utility investment and increase the chances that customers get the most out of grid modernization efforts. A version of the paper was also published in Electricity Policy, and can be found here.
Electric Power Sector
This paper explores which regulatory models align utility profit with societal value under scenarios in which traditional, utility-owned solutions may not be optimal for customers. The cases in this paper offer insight into whether and how cost-of-service regulation and its alternatives (performance incentive mechanisms and revenue caps) can align utility shareholder values with societal values.
The grid will require a substantial transformation as more renewable sources come online. Some critics argue technological, financial, and institutional barriers will prevent significant decarbonization of the power sector, but four common clean energy myths are easily debunked by facts and real-world experiences showing the feasibility of a low-carbon energy future.
New York Public Service Commission (NYPSC) released a new order as part of its Reforming the Energy Vision, which includes ambitious language on performance-based compensation and improved rate design. Specifically, the NYPSC adopts an outcome-based approach to measuring performance, focusing on peak demand reduction and energy efficiency as key metrics to tie to revenue in the short term.
This review offers a comprehensive meta-analysis of utility programs and industry research on time-based and demand charge rates. The research identifies key design decisions and their effect on outcomes such as peak reduction, total load reduction, and customer acceptance. The review provides detailed and broad empirical evidence to guide conversations as different regulators consider changes to net energy metering or other peak reduction programs.
Utility Regulatory and Business Model Reforms for Addressing the Financial Impacts of Distributed Solar on Utilities
This study highlights some of the challenges and opportunities for the distributed solar PV (DPV) market arising from recent rate reform efforts, particularly demand charges and fixed charges. For example, it finds that immediate elimination of net energy metering (NEM) in all states could reduce residential DPV deployment 30 percent by 2050, while universal availability of NEM would increase residential deployment by roughtly 40 percent.
Performance-based regulation shifts utility focus away from capital investment and sales volume, putting focus instead on delivering value for customers—in the form of an affordable, reliable, and clean power system. Performance-based regulation has been gaining momentum in several states. To support those states and others considering this regulatory change, we have produced several papers and briefs that offer perspective on more of the details of performance-based regulation.
This white paper is the first in our Incentive Mechanism Design series, which offers perspective on how regulators might decide to design performance incentive mechanisms for success. The paper examines a straw proposal for a new performance incentive to motivate utilities to reduce peak demand–a driver of investment in the electricity system–improving the affordability and environmental performance of the electricity system.
This white paper is the second in our Incentive Mechanism Design series, which offers perspective on how regulators might decide to design performance incentive mechanisms for success. The paper explores different approaches to simplify the measurement of energy efficiency savings to better align utility incentives with efficiency outcomes. These metrics can be helpful for many states where utility revenue is linked to energy efficiency, but their programs are bogged down in tedious and controversial evaluation, measurement, and verification requirements.
This white paper is the first in our Incentive Mechanism Design series, which offers perspective on how regulators might decide to design performance incentive mechanisms for success. The paper examines California’s Risk-Reward Incentive Mechanism (RRIM) as a case study to show that, while counterfactuals may be appropriate as an adjustment mechanism, they can also lead to unfair outcomes and unnecessary regulatory conflict.