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Renewable Generation Accounts for Increasing Share of U.S. Capacity
Renewable Generation Accounts for Increasing Share of U.S. Capacity
U.S. PV Capacity Increased Substantially Over Past 5 Years
U.S. PV Capacity Increased Substantially Over Past 5 Years
Installed Solar PV Prices Continue to Decline
Installed Solar PV Prices Continue to Decline
Potential Bypass Threats from Distributed Generation are Large
Potential Bypass Threats from Distributed Generation are Large
Electric Savings Could Offset a Large Portion of Projected Load Growth
Electric Savings Could Offset a Large Portion of Projected Load Growth
Electric Savings Could Offset a Large Portion of Projected Load Growth
Electric Savings Could Offset a Large Portion of Projected Load Growth
SPSC High DSM Case would result in nearly flat load growth through
SPSC High DSM Case would result in nearly flat load growth through
PG&E Rates are Expected to Rise Substantially Over the Next 10 Years
PG&E Rates are Expected to Rise Substantially Over the Next 10 Years
UK Approach under RIIO: Role of the Regulator (Ofgem)
UK Approach under RIIO: Role of the Regulator (Ofgem)
High DSM Load Forecast Requires Explicit Accounting of Energy
High DSM Load Forecast Requires Explicit Accounting of Energy
Politically-Driven Changes to Utility Business Models
Politically-Driven Changes to Utility Business Models
Politically-Driven Changes to Utility Business Models
Politically-Driven Changes to Utility Business Models
UK Approach: RIIO Business Plan Framework
UK Approach: RIIO Business Plan Framework
Utility Business Models in a Low Load GrowthHigh DG Future: Gazing into the Crystal Ball

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Utility Business Models in a Low Load GrowthHigh DG Future: Gazing into the Crystal Ball

Utility Business Models in a Low Load GrowthHigh DG Future: Gazing into the Crystal Ball.ppt
1Utility Business Models in a Low Load 25with audits, prudence and used &
Growth/High DG Future: Gazing into the useful reviews Can take many forms and has
Crystal Ball? Charles Goldman, Andy a variety of design issues that make
Satchwell, Peter Cappers, and Ian Hoffman creating a system time-consuming and
Lawrence Berkeley National Laboratory challenging for the uninitiated. Link
Committee on Regional Electric Power utility profits to achievement of public
Cooperation (CREPC)/State-Provincial policy goals. Model Element. Value. Assets
Steering Committee (SPSC) Meeting Boise, Owned. (G,) T & D. Commodity Supplier.
ID April 10, 2013. 1. IOU. Service Provider. IOU. Network
2Motivation and Context. Framing Access. Closed. Profit Motive. ROR +/-
question: Is there an existential threat Incentives (achieved level based on
to the business model of regulated achieved policy. 25.
utilities? Utilities are observing and 26UK Approach under RIIO: Role of the
publicly stating threats from declining Regulator (Ofgem). Significant role of the
demand and lost investment opportunity in regulator in multiple parts of the process
supply and energy services Regulatory sets primary outputs and
Disintermediation Jim Rogers, baseline performance, reviews and approve
President and CEO Duke Energy Significant business plans, performs inspections, and
activity across a range of actors in ultimately decides on incentives and
identifying, understanding, and addressing penalties to be awarded May revoke
questions related to utility business distribution company (DISTCO) license to
models Limited experience to date with operate Ofgem will develop a report card
fundamental changes to regulated utility for performance of all 14 DISTCOs. 26.
business models in US; more experience Source: Fox-Penner (2010).
with incremental changes to COS 27Continuum of Utility Business Models:
regulation. 2. Meter/Wires Company. Achievement.
3Outline. What does a low load growth, Services. Motivation. Value. Assets.
high DG future look like? What are the Commodity. 27.
implications of this future for utility 28Wires-Only Network Owner/Operator:
business models? Who is doing what? What Utility Divests Generation Assets.
is the continuum of utility business Removing generation assets from IOUs
models? What are the countervailing portfolio means utility is indifferent to
forces? 3. public policy that affects timing and
4Outline. What does a low load growth, quantity of generation expansion All other
high DG future look like? What are the disincentives associated with traditional
implications of this future for utility IOU business model still remain (i.e.,
business models? Who is doing what? What throughput) and no new positive financial
is the continuum of utility business incentives are provided. Continue COS
models? What are the countervailing regulation where achieved profits based on
forces? 4. cutting costs and/or growing billing
5Renewable Generation Accounts for determinants between rate cases. Model
Increasing Share of U.S. Capacity Element. Value. Assets Owned. T & D.
Additions. 5. Source: Wiser and Bolinger Commodity Supplier. IOU(?)/Other. Service
(forthcoming). Provider. IOU/Other. Network Access.
6U.S. PV Capacity Increased Closed. Profit Motive. ROR. 28.
Substantially Over Past 5 Years. Starting 29Continuum of Utility Business Models:
in 2007, US cumulative PV capacity was Combining Existing Models. Achievement.
~500 MW. Total installed capacity doubled Services. Motivation. Value. Assets.
by 2009, doubled again in 2010 and then Commodity. 29.
doubled again in 2011 Annual growth rate 30Smart Integrator: Utility as Network
of PV in the U.S. has exceed 30%/yr since Integrator. Utility responsible for
2001. 6. Source: Barbose et al. (2012). creating the infrastructure so all
7Installed Solar PV Prices Continue to entities can readily integrate into all
Decline. No state incentives needed to aspects of the smart grid network To
compete at retail grid parity in some maximize value of smart grid, utility will
markets (third-party ownership flourishes) need to make smart grid network open to
Solar PPAs for 10 MW+ plants in Southwest all other service providers Unclear how
now well below 10 cents/kWh. 7. Source: traditional business model is changed to
Feldman et al. (2012). motivate the utility to play this role.
8Potential Bypass Threats from Continue COS regulation on utility assets
Distributed Generation are Large. plus alter ratemaking and include profit
WECC-wide Behind-the-Meter DG: 19 GW of in price of services. Model Element.
solar PV + 7 GW of CHP Distributed PV Value. Assets Owned. T & D. Commodity
based on interconnection potential (no Supplier. Other. Service Provider.
back-flow through feeders), with IOU(?)/Other. Network Access. Open(?).
adjustments to reflect relative economics Profit Motive. ROR (insulated from
among states CHP additions represent a exogenous factors?) + Incentives (in price
fixed percentage (~40%) of technical of services offered). 30. Source:
potential in each state. 8. Percent of Fox-Penner (2010).
2032 Peak Demand. Source: E3 (2013). 31Continuum of Utility Business Models:
9Electric Savings Could Offset a Large Fundamental Paradigm Shift. Achievement.
Portion of Projected Load Growth. Total Services. Motivation. Value. Assets.
electric & gas spending doubles to Commodity. 31.
$9.5B in 2025 in the medium case (low: 32Energy Service Utility. Extension of
$6.5B, high: $15.6B) Projected annual the SI model with utility owning and
incremental savings rise to 0.76% per year operating means to provide ALL services
by 2025 in medium case Projected EE Fundamental shift in pricing away from
savings in the medium case would offset commodity sales (?/kWh) towards services
much of electric load growth forecasted by offered (e.g., cooling) Requires paradigm
EIA. Projected Incremental Annual Electric shift in the way utilities are rate
EE Savings from Customer-Funded Programs regulated, what a utility offers to
(Percent of Retail Sales). Projected customers, and how utility measures what
Utility Customer Funding for Electric and it offers to customers. Services are
Gas EE Programs. 9. Source: Barbose et al. priced to ensure adequate rate of return
(2013). on investments to provide those services.
10SPSC High DSM Case would result in Model Element. Value. Assets Owned. G, T
nearly flat load growth through 2032. & D. Commodity Supplier. IOU/Other.
Historical load growth in WECC: 1.6%/yr Service Provider. IOU/Other. Network
(1998-2010) WECC 20-yr reference case Access. Open(?). Profit Motive. Incentives
forecast with current EE policies = (in price of services offered). 32.
1.4%/yr, with growth <1% in 5 states Source: Fox-Penner (2010).
SPSC High EE case reduces load growth to 33Continuum of Utility Business Models:
0.3%/yr (WECC-wide), with 6 states Fundamental Change in Ownership.
projected to have negative load growth. Achievement. Services. Motivation. Value.
10. Source: LBNL and Itron (2013). Assets. Commodity. 33.
11Outline. What does a low load growth, 34Full Exit for Municipalization.
high DG future look like? What are the Proliferation of public power and coop
implications of this future for utility models when goals of utility and community
business models? Who is doing what? What not in sync Desire for local control, more
is the continuum of utility business accountability Customer service Munis
models? What are the countervailing employ more linemen and recovered more
forces? 11. quickly after Hurricane Irene
12Impact of Grid Investments due to Environmental objectives Latest examples:
Public Policy Goals on Retail Electric Winter Park, FL Boulder Following ballot
Rates Nationwide. 350 TWh new green initiative disfavoring 20-year PSCo
energy from state RPS by 2030: ~$120B franchise and disallowal of smart-grid
Total generation decarbonization: ~$1T New cost overruns Santa Fe & Minneapolis.
transmission to integrate renewables and 34. Sources: New York Times (2013); Public
maintain reliability: ~$250B Replace aging Utilities Fortnightly (2013).
distribution system with smart grid: $600B 35Outline. What does a low load growth,
Estimated cumulative investment in high DG future look like? What are the
customer-funded EE programs due to EERS implications of this future for utility
and other policies in 2025: ~$99.7B. Rate business models? Who is doing what? What
Component. Change in Rate Component. Fuel is the continuum of utility business
and Purchased Power. ? Non-Fuel O&M. ? models? What are the countervailing
Capital Expenditures. ? Retail Sales. ? forces? 35.
Peak Demand. ? Customers. ? - 12 -. 36Electrification of Transport and Fuel
Source: Fox-Penner. P and Chang, J. Switching Could Significantly Increase
(2012); Barbose et al. (2013). Electric Loads Over Long Term. Uncertainty
13Recent Examples of Major Rate in adoption of electric vehicles and
Increases at US Utilities. AEP customers market growth Fuel switching may be
in parts of Virginia, Kentucky, Ohio and limited to only certain end-uses. 36.
West Virginia have seen their rates Sources: Olson (2012); ECF (2010);
increase between 48 and 88% over the past Williams et al. (2012).
several years; expected to continue rising 37Inertia and Power of Incumbent
by 10-35% in the next several years Rocky Utilities May Limit Scope and Rate of
Mountain Power in Wyoming raised rates Changes to Utility Business Model.
twice in 2011: by 2% in April and then 8% Utilities likely to pursue other
in September Duke Energy in South Carolina (incremental) strategies to mitigate
requested a 17% residential rate increase threats to their business model/revenues
in 2011 Alaska Electric Light and Power (e.g., high customer charges, limit net
got a 24% increase in residential rates metering) before proposing fundamental
Residential customers in New Mexico were changes to regulatory compact Many
looking at a 21% rate hike but the state proposals would require a fundamental
PUC capped it at 9%. 13. change to the regulatory compact and
14PG&E Rates are Expected to Rise natural monopolies What situations would
Substantially Over the Next 10 Years. 14. prompt such changes? Crisis and
Source: PG&E (2013). catastrophic events Unmistakeable climate
15Outline. What does a low load growth, change signal Death spiral for utility
high DG future look like? What are the Relative merits and utility
implications of this future for utility characterization of alternative business
business models? Who is doing what? What models (e.g., government-run utilities).
is the continuum of utility business 37.
models? What are the countervailing 38Discussion Questions. What do you
forces? 15. think are the biggest/most significant
16Ongoing Activity. There is a drivers that are changing the utility
considerable amount of ongoing research business model? How do you envision the
and advocacy aimed at defining, analyzing, transition from traditional utility
and promoting alternative utility business business models to something fundamentally
models across various entities: Academia different? Are those transitions
Several universities with dedicated incremental or comprehensive? What
electricity/energy research centers work suggestions do you have for regulators and
on regulatory theory and practice of policymakers? Where are the venues and
utility business models, and providing places most important for regulator and
training in partnership with NARUC policymaker participation? 38.
Advocacy organizations Efficiency and 39Gaps & Potential Future Work.
environmental advocates are producing Information & Education Monitor forums
numerous reports and convening dialogues where future business models are discussed
with industry experts Utility industry or tested (UK) Track dockets where shifts
associations Trade associations host in fixed-cost allocations are at issue How
conferences for utilities and other is PBR working at home and abroad?
industry stakeholders, and support Actions/Studies Define a threshold at
advocacy efforts Consultants Provide which rates (or rate increases) become a
technical expertise and conduct problem in your state: What would be a
quantitative analysis on alternative plausible response? At what point do
utility business models for utility increases in customer charges conflict
clients National Labs Provide technical with incentives and public policy goals
assistance to state regulators and concerning EE & RE? 39.
policymakers on alternative utility 40References. Barbose, G., Darghouth, N.
business models. 16. and Wiser, R. (2012) Tracking the Sun V:
17Position-driven Proposals. Efficiency An Historical Summary of the Installed
and environmental advocates and Price of Photovoltaics in the United
foundations: Existing utility business States from 1998 to 2011. Berkeley, CA.
model poses significant challenges to November, 2012. LBNL-5919e. Barbose, G.
certain types of clean energy futures L., Goldman, C. A., Hoffman, I. M. and
driven by technology innovation and Billingsley, M. (2013) The Future of
customer access. Entity (Project). Scope Utility Customer-Funded Energy Efficiency
of Issues. Expected Outcomes and/or Programs in the United States: Projected
Process. 17. RMI (eLab). Costs and Spending and Savings to 2025. Berkeley,
benefits to electric system from CA. January 2013. LBNL-5803E. Burr, M.
distributed resources Aligning regulatory Franchise Fracas: Will Boulder Be the
frameworks, business models, and pricing Last City to Go Muni? Dont Bet On It.
structures Acceleration of distributed Public Utilities Fortnightly. February
resource adoption. Multi-year, 2013 Cardwell, D. Cities Weigh Taking
discussion-based project Annual working Over From Private Utilities New York
group meetings Summary report. Ron Times. March 13, 2013. E3 (2013).
Binz/Ron Lehr (Utility 2020). Considers Distributed generation projections for the
supply- and demand-side forces (e.g., SPSC 20-Year High DSM/DG study case.
aging infrastructure, new technologies, European Climate Foundation. Roadmap 2050:
environmental compliance, EE/DR) A Practical Guide to a Prosperous,
Encompasses new regulatory options and Low-Carbon Europe. 2010. 40.
approaches. 12-month feasibility study 41References (2). Feldman, D., Barbose,
(completed) Interviews of utility CEOs and G., Margolis, R., Wiser, R., Dargouth, N.
regulators Advisory council and and Goodrich, A. (2012) Photovoltaic (PV)
development of longer-term project. Energy Pricing Trends: Historical, Recent and
Futures Coalition (Utility 2.0 Pilot). Near-Term Projections. Berkeley, CA.
Outgrowth of testimony before Maryland November, 2012. LBNL-6019E. Fox-Penner, P.
Grid Resiliency Task Force supporting (2010) Smart Power: Climate Change, the
transition of utility to new business Smart Grid, and the Future of Electric
model Developing pilot project with new Utilities. Island Press. Fox-Penner, P.
business model elements (e.g., customer and Chang, J. (2012) The Future of
technology, enhanced service reliability, Electric Utilities in the U.S. and China.
and customer relationship and Presented to the State Grid Energy
communication). Collaboration with Research Institute. June 25, 2012. LBNL
utilities (BGE and PEPCO), and other and Itron (2013). Load forecasts for the
stakeholders Pilot project design document SPSC 20-Year High DSM/DG study case.
(March, 2013). Ofgem. Handbook for Implementing the RIIO
18Investment-driven Proposals. Utilities Model October 4, 2010. Olson, A. SPSC
and investors are concerned with managing Low Carbon Case Presentation for WECC
risks of regulatory uncertainty, 20-Year Transmission Planning Process.
maintaining revenue sufficiency, and 2012 Pacific Gas & Electric (2013)
addressing reliability concerns from Residential Rate Reform. California
under-investment in infrastructure. Entity Legislative Rural Caucus: Informational
(Project). Scope of Issues. Expected Briefing on Electricity Rates in the
Outcomes and/or Process. 18. Edison Central Valley. January 18, 2013. Fresno
Electric Institute (Critical Consumer City College, CA. 41.
Issues Forum). Considers financial risks 42References (3). Williams et al, The
and investor implications of changing Technology Path to Deep Greenhouse Gas
business model (e.g., declining bond Emissions Cuts by 2050: The Pivotal Role
ratings, declining sales and revenues) of Electricity. Science. January 2012 DOI:
User groups focused on energy efficiency 10.1126/science.1208365 Wiser, R., and M.
business models. Host/sponsor conferences Bolinger (forthcoming). 2012 Wind
and events on related topics Publish Technologies Market Report. Berkeley, CA.
reports (e.g., Disruptive Challenges, 42.
January, 2013). IEE (Focus on the Future). 43Background Slides. 43.
Track developments in regulatory 44High DSM Load Forecast Requires
frameworks to support energy efficiency Explicit Accounting of Energy Efficiency
Focus on the Future project considers Impacts. Load forecasts submitted to WECC
interaction of new technologies and the by balancing authorities include some
electric industry. Host/sponsor amount of embedded EE Adjustments made for
conferences and events on related topics Reference Case load forecast, to fully
Regularly publish issue briefs and updates account for current policies and program
on state regulatory frameworks. CERES (The plans Further adjustments made for High
21st Century Electric Utility). Guided by DSM case to reflect more aggressive EE
sustainability and low-carbon objectives, assumptions. 44.
the project identifies key utility 45Politically-Driven Changes to Utility
business model elements and provides Business Models. Gov. Cuomo created
recommendations for utility transitions to Moreland Commission in response to
new business models. Report to identify extended power outages after Hurricanes
and define best practices (July 2010) Sandy & Irene. Gov. OMalley created
Ongoing organization of investors and this Task force after the derecho
utilities on increased transparency and thunderstorms in the summer of 2012. - 45
sustainability practices. -.
19Crisis-driven Proposals. Some state 46Overseas Examples of Rapid Rate
policymakers and regulators are Increases due to Public Policy Decisions.
considering new approaches to elicit Australia Installation of domestic solar
improvements in the electric system, given PV has increased seven fold, doubling
reliability and grid restoration problems every nine months between 2010 and 2011
during recent weather-related crisis due to ever falling module prices
events. Entity (Project). Scope of Issues. Afternoon average demand was down by ~8%
Expected Outcomes and/or Process. 19. in 2011/2012 National Electricity Market
Maryland (Grid Resiliency Task Force). revenues in 2011/2012 dropped by 35%
Governor OMalley created Grid Resiliency Queensland Competition Authority is
Task Force in response to poor service recommending a 20% rate increase for
reliability during Summer 2012 weather 2013/2014. 46.
events Considers incentives based on 47UK RIIO: Examples of Sample Outputs
reliability criteria and penalties if for UK Transmission Operators. Whats
criteria are not achieved. Task Force being delivered? How it will be secured
Report (September, 2012). New York through outputs framework? How it will be
(Moreland Commission). Governor Cuomo secured through outputs framework? Primary
created Moreland Commission in response to Outputs. Secondary Deliverables. 47.
extended power outages after Hurricanes Facilitate the energy sector's
Sandy and Irene Commission is considering contribution to decarbonisation &
oversight and reform of utility renewables targets. Contribution to
regulation. Public hearings across state targets, timeliness of connections,
Interim Commission Report (January, 2013) customer relations and reliable networks.
Final Commission Report with Customer relations gauged by surveys,
recommendations (Spring 2013). expert evaluations of stakeholder
20Outline. What does a low load growth, engagement and complaints. Encourage
high DG future look like? What are the efficient & timely delivery of
implications of this future for utility infrastructure to enable sustainable
business models? Who is doing what? What delivery against targets. Monitoring the
is the continuum of utility business percentage of low carbon/renewables
models? What are the countervailing connected as proportion of low
forces? 20. low-carbon/renewables seeking connection.
21Continuum of Utility Business Models: Secure supply. Energy not supplied, timely
Profit Motivation vs. Profit Achievement. connections and customer relations.
Achievement. Services. Motivation. Value. Indices for asset health, risk, wider
Assets. Commodity. 21. infrastructure. Development of the grid
22Continuum of Utility Business Models: throughout the control period in a timely
Ratemaking Variant. Achievement. Services. and efficient way (electric only).
Motivation. Value. Assets. Commodity. 22. Supported by primary outputs on customer
23Ratemaking Variant: Incremental satisfaction and timely connections.
Changes to Cost of Service Regulation. All Specific metrics on capacity and/or
core functions of the utility are project milestones. Future network
unchanged but fundamentally alter the way development (gas only). Specific
revenue is collected to better align indicators. Also supported by primary
utility and policy makers goals Institute outputs on customer satisfaction. A safe
lost revenue mechanisms to eliminate the network. Safety obligations that reflect
throughput incentive Apply shareholder legislative requirements. Supported by
incentives to create positive profit secondary deliverables on asset health and
motive for IOU to achieve policymakers risk indices.
goals. Alter ratemaking to align COS model 48UK Approach to PBR: RIIO. Revenue =
with public policy values and aims. Model Incentives + Innovation + Outputs A
Element. Value. Assets Owned. (G,) T & Regulatory Contract Measure of
D. Commodity Supplier. IOU. Service certainty for investors and consumers 8
Provider. IOU. Network Access. Closed. Year up-front price control regime with
Profit Motive. ROR (insulated from elaborate system of incentives, penalties
exogenous factors) + Incentives. 23. and adjustment mechanisms to account for
24Continuum of Utility Business Models: uncertainties Regulator sets outputs that
Performance Based Regulation. Achievement. reflect what consumers want and enables a
Services. Motivation. Value. Assets. sustainable energy sector Similar to US,
Commodity. 24. UK faces large future investments: ?32
25Performance-Based Regulation: Link Billion in next decade or twice the
Utility Profits to Achievement of Policy historical pace of investments. RIIO
Goals. Economists perceive it as better projected to save ?1 Billion. 48.
than COS/ROR because of stronger 49UK Approach: RIIO Business Plan
incentives for cost containment and Framework. 49. Ofgem. Source: Fox-Penner
innovation But can lead to dissatisfaction (2010).
Utility Business Models in a Low Load GrowthHigh DG Future: Gazing into the Crystal Ball.ppt
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Utility Business Models in a Low Load GrowthHigh DG Future: Gazing into the Crystal Ball

Utility Business Models in a Low Load GrowthHigh DG Future: Gazing into the Crystal Ball

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