A lot of new ideas on utility regulatory reform have been proposed lately. But not everyone is convinced that a total rewrite of rules is really necessary.

The Information Technology & Innovation Foundation (ITIF), a Washington, D.C.-based think tank, hosted a panel of electric utility experts yesterday who offered a range of prescriptions for how utilities should prepare themselves for the grid of the future.

It’s a question important to technology providers, utility professionals, and energy consumers as distributed energy technologies are beginning to transform how the electric system operates.

Right now, distribution utilities earn money based on investments to maintain the physical infrastructure of the grid, or based on how much electricity they sell. Under that structure, there’s little incentive to take risks with innovative technologies.

“We’re asking [utilities] to sell fewer and fewer of their products, and they’re willingly going along with it. Everyone sees the handwriting on the wall. It can’t succeed the way it’s set up -- we’ve got to change,” said Phil Davis, senior manager of smart grid solutions at Schneider Electric.

Even if utilities don't want to embrace different business models, new technologies will soon force them to change, said John Jimison, the managing director of the Energy Future Coalition.

“Technology is going to push [regulation] in a direction that it has not been ready to go to,” he said. The Energy Future Coalition earlier this year released a Utility 2.0 study for Maryland governor Martin O’Malley that called for a shift in regulations to meet evolving consumer needs and values.

As consumers become more aware of their energy usage, they’ll likely demand more information services, which will invite third-party companies to compete against utilities in services such as demand response. “I don’t see how that doesn’t fundamentally change how things have been done in the past,” Jimison said.

But a representative from the National Association of Regulatory Utility Commissioners (NARUC) argued that today’s regulations work quite well and that utilities are already innovating within them. NARUC represents the interests of regulators, who, in turn, are in place to advocate for consumers.

Georgia-based utility Southern Company, for instance, is building one of the few new nuclear plants in the U.S., while installing hundreds of megawatts of solar and doing research on carbon capture and sequestration technology at a coal plant.

“Just because you’re not doing trendy stuff doesn’t mean that you’re not doing innovation,” said Miles Keogh, NARUC’s director of grants and research, who noted he was expressing his own opinions. “It’s not necessary to pop the hood on the business model. It’s [more about] sticking with the business model,” he said.

Utility regulations are designed to ensure reliable and cost-effective service, which they do quite effectively, so changes should be undertaken with great care, added Keogh.

“It’s a change to how we play the existing game, not a wholly new game,” he said. “We have a good system, and while it may not be sexy, it is prudent.”

The problem with today’s regulations is that they don’t reward utilities for the right outcomes, said David Malkin, director of government affairs and policy at GE Digital Energy, who co-authored a report on regulations. (See Jeff St. John’s piece on the report here.) The desired outcomes of regulations should be to minimize the impact of faults on the distribution grid, optimize the efficiency of delivering power, better integrate distributed energy, and make assets more productive, he added.

A lot of the technologies to do these tasks, such as distributed automation and demand response, are already being used, but are not yet widespread. Also, utilities could use distributed generation to their advantage much more, Malkin said. For example, utilities should be given incentives to forecast the aggregate output of distributed solar PV and control inverters to manage voltage frequency.

“I would argue that the utility of the future should be one that is able to safely and effectively integrate higher levels of distributed resources on their networks,” he said. “It’s not just to satisfy customers that want the capability to generate their own power. These resources can really serve and help utilities better optimize system operations.”

Whether outside companies will come in with new business models and disrupt utilities is still an open question. Schneider’s Davis noted that utilities know how to invest capital, have a relationship with the customer and are skilled at network operations. That makes them well positioned to invest in several new technologies, such as microgrids and distributed PV.

Certainly, there won’t be one single answer as to how best to accelerate innovation. But we have already seen how quickly things can change. In the wake of Hurricane Sandy, the issue of grid reliability has become a more urgent priority, justifying adoption of more smart grid technologies and distributed energy. Given how policy dictates how utilities operate, the discussion of new models for regulation is one that everyone agrees needs to happen -- no matter what side of the debate they stand on.

Watch the ITIF event on the next-gen electric grid:

Tags: distributed generation, grid edge, regulation, utility business models