While energy wonks across America start talking about the “disruptive challenge” of new technologies on the grid edge, nowhere is it more real than right now in California.
California has the most of practically everything: solar panels, electric vehicles, smart meters, and microgrids, as well as tech-savvy early adopters. This is backed up by a host of aggressive policies like a 33 percent RPS, the largest efficiency program in the nation, and, of course, carbon cap and trade.
The impact of the American Energiewende will be felt there first. So earlier this month, the state utility and energy commissions convened a joint en banc session to hear from consultants and utility executives about “The Business Model for the Electric Utility of the Future.”
Or as Commissioner Ferron renamed it, “the regulatory model of the utility of the future.”
The following day, Vote Solar hosted a webinar on America’s Power Plan, covering similar ground with former Colorado commission chair Ron Lehr and Rocky Mountain Institute’s James Newcomb.
Both sessions underscored the need for greater flexibility in the relationship between regulators and utilities. The typically adversarial proceedings of a utility commission are not well suited to figuring out new approaches, according to Newcomb.
“It has to be an off-the-record, leave-your-weapons-at-the-door kind of conversation,” he said.
The four utility leaders at the hearing uniformly expressed a desire for flexibility, simple regulation, and the opportunity to experiment -- all of which could help leverage new business opportunities in the power sector.
San Diego Gas & Electric CEO Jessie Knight lamented the restrictions on his company.
“It can take two years for the PUC to approve a new product,” he said, citing slow progress on building EV charging stations. “Utilities need greater flexibility to be full-service energy companies, not just commodity providers.”
Lehr has discovered similar attitudes in other regions from his work on America’s Power Plan. Through interviews with utility CEOs, he found that some have “poisonous” relationships with regulators.
“If we do anything to save money, they just take it away from us,” Lehr said was a common utility complaint. Regulators are just as tied up, sometimes unable to talk to their colleagues outside of formal public proceedings.
Not slowing down
While there are many drivers of change in the power sector right now, said Joseph Scalise of Bain, most of them are not yet disruptive to the utility business model. Cheap gas, energy efficiency, environmental regulations and smart grid programs are all compatible with a regulated power system so far.
But distributed technologies are different. “They are forcing the creation of a new market that the current regulatory system is not optimized for,” said Scalise.
New technologies and services are causing a shift “from a one-way customer mindset to a two-way consumer mindset,” said to Greg Guthridge of Accenture. “What consumers really want is control, which is different than choice.”
Guthridge’s research identified that about one-third of customers are interested and ready to buy new products and services today -- and that number is growing. The rest he puts in the “less is best” group, who want less cost, less choice, and less interaction with their power company.
Ronald Litzinger, President of Southern California Edison, agreed. “The distribution grid will need more functionality. We will need more of a network approach than a radial approach to facilitate DG and EVs in two-way flows.”
The drivers of change and consumer choice are not letting up. California legislators just approved a batch of new energy laws covering renewables and storage. The biggest, AB 327, signed only the day before by Governor Brown, makes the RPS a 33 percent floor instead of a ceiling, raises net metering caps, and extends the program, among other things. At the hearing, Commission chair Michael Peevey called it “the most important energy legislation since the California Solar Initiative was created.”
But the law also pushed back a very important decision at the PUC. The commission will have to grapple with underlying issues of self-generation, including fixed charges and rate design. These issues get at the fundamental revenue flows for utilities. The rulemaking proceedings for AB327, and other dockets, will be an ongoing process of shaping the utility of the future.
During the PUC meeting, there was some pushback against the notion that change is urgently needed.
“This topic has taken over the conference circuit,” said Commissioner Mike Florio. “You can’t go anywhere without talking about the utility of the future, the death spiral, the end of grid. Personally, I like the grid. It’s the backbone of our economy.”
PUC Chair Michael Peevey pointed out that the introduction of competition caused California utilities to lose 13 percent of their market in only eight months. He doesn’t see the same from distributed generation.
“I’m not sure I agree about the rapidity of change in the next ten years,” he said. “Even the Soviet Union at their peak did only five-year plans.”
Anne Smith, Chair and CEO of SoCal Gas, questioned the market readiness of new technologies. “Many new technologies are not market-driven, but rather are policy-driven. Utilities are in a better position to implement policies than competitive companies,” she said.
But most were hedging their bets.
“Rather than predict the future, we are positioning ourselves to plan for the future,” said Chris Johns, President of PG&E, “regardless of what it looks like.”
Bentham Paulos is the project manager for America’s Power Plan.