Utilities are facing some difficult decisions about how to invest in electric vehicle (EV) infrastructure.

In 2014, the Edison Electric Institute outlined the importance of the EV sector. “Stagnant growth, rising costs, and a need for even greater infrastructure investment represent major challenges to the utility industry,” concluded the organization. But “leading the charge on electrification will help the electric utility industry control its own destiny and meet future regulations on its terms.”

Electrification of the transportation sector is one of the biggest opportunities to secure new revenue for utilities -- and many are moving forward with related initiatives. Utility Dive’s recent State of the Electric Utility survey found 52 percent of power companies pursuing EV charging as a revenue stream.

By 2050, analysts at the Rocky Mountain Institute project that half of America's vehicle fleet could be electric. This could add an additional 2,900 gigawatt-hours ofstorageand generation capacity to the grid.

But how best to build out this infrastructure? The decisions utilities and regulators make today will reverberate long into the future.

Right now, it is a challenge for utilities across the country to push EVs as a pressing issue with regulators in light of low oil (gasoline) and natural-gas (natural-gas vehicles) prices. However, in California, low commodity prices are not as much of an issue, as state goals and mandates are driving EV investment.

Thus, it’s natural to assume that California will be the main highway for utilities looking to invest in this sector. Home to half of all EVs on the road, regulatory approval of two major investor-owned utility pilot projects, and an even larger IOU proposal under review, the Golden State is once again shaping policy.

Securing early approval through learning

Since California established goals of getting 1.5 million EVs on the road and deploying charging infrastructure to support up to 1 million EVs by 2020, the first major business model discussions are happening out West. The state’s three investor-owned utilities have responded accordingly, with pilot program proposals to install chargers using public funding from ratepayers.

Since January, the California Public Utility Commission (CPUC) approved proposals by Southern California Edison (SCE) and San Diego Gas & Electric (SDG&E) to spend $67 million deploying 5,000 EV chargers -- with both utilities stressing the need to meet expected demand and government targets.

“Both IOUs have done a good job in framing justification with the need to meet Governor Brown’s 2025 target and demand for new charging infrastructure,” said Alex Pischalnikov, energy and utilities expert at PA Consulting Group. “If you look at current projections and progress, it’s just not going to be achieved by the private sector. This underpins their proposals.”

The two utilities both proposed modest programs focused on gathering customer interaction data. Both CPUC-approved pilots were smaller than their initial proposals and are designed to gauge public reaction to varying approaches to charging infrastructure.  

“The commission wants to see a pilot, wants it to be a learning experience, and wants to see how people will react before committing a lot of money,” said Jon Jacobs, energy and utilities expert at PA Consulting Group. “Before they take a leap, they want to dip their toes in the water.”

SDG&E will enable hosts to select the specific charging equipment, while also testing EV host and owner reactions to time-of-use rates. SCE will go a step further by building all the transmission and distribution infrastructure, but will use third parties to build and own a station in exchange for revenue from power sold at the charger. In essence, this is the beginning of a franchise model.

“In this case, Edison has opened up a larger space to independent enterprise than the other utilities have,” said Jacobs. “The space for private enterprise has to be created, and this is the beginning of creating it.”

Big investments may be too risky for regulators

Things haven’t moved as smoothly a few hundred miles north, however. In 2015 Pacific Gas & Electric (PG&E) proposed building 25,000 EV charging stations for $654 million, mostly funded with ratepayer dollars. PG&E reports over 60,000 EVs registered in its service territory -- more than one-fifth of all EVs in America -- and forecasts it needs to support 400,000 EVs for California’s 2025 goal.

However, in September of last year, the CPUC rejected PG&E’s proposal, saying “PG&E’s request is the largest of the three investor-owned utilities and the commission needs to be mindful of the size and implications of such a program.” The CPUC limited PG&E’s proposal to 2,500 chargers over two years, and the utility responded in October with two revised proposals -- a plan for 2,510 chargers at a cost of $87 million, and a second plan that would include an additional 7,500 chargers over three years.

PG&E’s revised proposals differed from SCE's and SDG&E’s by controlling procurement and customer charging rates. The utility urged approval of the two-phase plan to generate enough customer data to guide a larger program.

Faced with so many options, what will regulators and utilities do in California?

“I think they’ll take some lessons learned and apply them to future programs,” said Pischalnikov. He said it would make sense to see PG&E potentially adopt a proposal similar to the two parts that were viewed favorably by the CPUC.   

Competitive markets offer more complications

California’s IOUs are some of the first to figure out utility revenue models from EV charging. But they’re not alone. An under-the-radar regulatory proceeding at the New Hampshire Public Utilities Commission could have major ramifications for utilities in competitive electricity markets nationwide.

In January, the PUC ordered a staff inquiry into the legal and regulatory issues surrounding resale of electricity by EV-charging stations after a tariff amendment filing by Liberty Utilities sought permission to resell power at charging stations. The PUC directed staff to determine if station operators are public utilities or competitive electric power suppliers. It is also considering how to design rates for EV charging, and whether it should change distribution utility tariffs.       

New Hampshire’s decision could have a broad impact on the market. The PUC considers this an issue affecting all utilities statewide and across New England, and “expects that all electric distribution utilities will be affected by the resolution of these issues.”  

What can utilities realistically expect when the staff issues recommendations in late February?

“States with established retail electric choice programs will be more apt to support a competitive electric supplier model,” said Pischalnikov. “Vertically integrated states will likely continue allowing utilities to rate-base programs where utilities can do this most cost-effectively and provide the lowest rate.”

As more EVs hit the road, utilities are experimenting with rate-basing charging stations, investing in infrastructure with their own money, or trying hybrid approaches.

“Utilities have to find new customers to serve in order to drive innovation,” concluded Jacobs.

“Electrification of the transportation system is the new field to be conquered by electricity in America,” said Jacobs, adding that he expects EVs to be one of the drivers of innovation now and in the future. 

This article is part of a Next Generation Utility series at GTM supported by PA Consulting. Find more news and analysis on the subject here.