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A Dramatic New Proposal in Utility Regulation

Apr 17, 2018 3 MIN. READ
DC just proposed a first-of-its-kind regulatory body—and utilities should pay close attention.

Two Washington, D.C. City Council members proposed a remarkable change in utility regulation last week. Mary Cheh and Charles Allen introduced a bill to create a Distributed Energy Resource Authority (DER Authority): a first-of-its-kind regulatory body that would be empowered to undertake traditional utility planning functions, and with a specific mandate to assess any proposed utility grid investment greater than $25 million and open it up to competitive bids.

The new DER Authority would have the power to assess any proposed utility grid investment greater than $25 million and open it up to competitive bids

Utilities should pay close attention—if adopted, this bill would create a new model of utility planning, operations, and oversight with far-reaching implications. There are four main issues that bear watching:

  1. The DER Authority, not the utility, would have significant ability to plan the system. The new regulatory body would submit a Distribution Resources Plan (DRP) detailing how the utility should accelerate integration of DER, create efficient “electric company distribution system planning operations,” and reduce rates. Elsewhere, DRPs1 have been utility-led efforts that build on traditional utility planning functions like forecasting and interconnection and advance newer methods in locational value assessment and hosting capacity analysis. Here, the DER Authority would create and submit its own plan for those functions directly to the Commission.
  2. A new form of regulatory review for grid investments. Utility investments proposed through rate cases or Integrated Resource Plans are usually subject to prudency review by public utilities commission, and some jurisdictions have created a separate board to administer program funds (in fact, Washington D.C. already has a separate authority to handle energy efficiency program implementation). Under this bill, the DER Authority would oversee a separate process for all investments over $25 million.
  3. The bill would create a competitive market mechanism for distribution capacity. The DER Authority would have the power to review investments2, determine if NWAs might be viable, issue requests for proposals, solicit offers, and select winners.3 It would in essence administer a market for distribution system investments – one that utilities compete in alongside DER developers.
  4. The regulatory body, not the utility, becomes the platform. There has been much discussion in other states about the future of utilities as “platforms,” with three main functions of 1) integrating DER, 2) sharing information, and 3) providing market services (in fact, much of New York’s REV proceeding is built around this idea of transforming utilities into the distributed system platform or “DSP”). The bill explicitly makes the DER authority the platform4, and by creating a “repository for energy data” so that consumers can “have access to their own data in real time,” and combined with the NWA oversight function, the DC DER Authority would be fulfilling all three platform functions.

Now, before we get ahead of ourselves, a few big caveats. The bill’s prospects are not yet clear, and the council members may have a more limited intent than the language implies. They may be aiming to lay out a set of ideas to shape the local debate. And like all legislation, it could undergo significant changes and refinement.

Still, even a bill that incorporated only a portion of these ideas would represent a substantial step beyond the regulatory processes underway in places like California, Hawaii, and New York, and would go right to the heart of the utility business and operational model. For years, it’s been clear that the growth of DER and grid modernization technologies would eventually force big changes for utilities. But until now, it has been a smaller group of 5-10 states that have really been engaging on this question: usually those with rapid DER (i.e. usually solar) penetration and more proactive regulatory commissions driving changes in market and regulatory structures. Others have pursued more moderate steps relating to policies for net energy metering and grid modernization, sometimes also incorporating integrated distribution planning; but most have not — at least yet — attempted reform of the utility’s basic business model and role in energy infrastructure planning.

But the ideas in the D.C. bill have the potential to be a game-changer. If used as a model for other jurisdictions, the council’s approach could create a fundamental shift in who plans the system, who proposes and approves grid investments, and how utilities earn revenue. Regulators and utilities would need to think differently about who holds the ultimate responsibility for the performance of grid assets and for maintaining grid safety and reliability.

It’s too early to say how this will play out and if other jurisdictions will aim to aim to copy any of the proposals in the D.C. bill. For now, the approach that utilities – and regulators – have adopted elsewhere is to undertake collaborative proceedings with stakeholders and regulators on DRP issues including locational value and NWA suitability criteria, and they have achieved some success. But even if it is intended mostly as a stake in the ground, the discussion around this new proposal bears close attention by utilities, regulators, and other interested stakeholders well beyond the borders of Washington.

  • 1For example, in California, Nevada, Oregon, and New York (where they are called Distributed System Implementation Plans, or DSIPs)
  • 2 This review pertains to investments for which a “notice of construction” has been filed to “expand system capacity or enhance system reliability, with a request to recover costs of at least $25 million.”
  • 3The bill places decision-making power for this function with the DER Authority’s executive director, the Chair of the Public Service Commission, and a technical expert selected by the DER Authority’s board.
  • 4Distributed Energy Resource Authority Act of 2018, p.16.
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