Some utilities are starting to work proactively with regulators to shorten demand-side management program approval time -- historically a slow, inflexible process.
This more collaborative, conversational approach can yield better demand-side management (DSM) programs, as well as broader benefits for utilities, customers and regulators, say experts.
“There is a new paradigm with DSM, as there is a lot of learning for everyone to do in this space,” said Mason Smith, energy and utility expert at PA Consulting Group.
New technologies for DSM present new opportunities to realize grid and business benefits -- especially in terms of demand flexibility (“flexiwatt”) programs, where utilities use automation to shift some behind-the-meter loads. However, some utility investments in these technologies will pay off, and some will fail. This presents a challenge, since the current program approval process can discourage utilities from experimentation.
The potential upside of demand flexibility is immense. A 2015 Rocky Mountain Institute report, The Economics of Demand Flexibility, estimated that widespread implementation of residential demand flexibility can save 10 percent to 15 percent in grid management costs. Also, customers could cut their electric bills 10 percent to 40 percent through dynamic rates and existing technologies.
The regulatory process hasn’t always supported this potential. Historically, program approval has involved two one-way conversations, with a utility taking six months to put together a lengthy filing for a program, and then regulators taking roughly the same amount of time to develop their own lengthy responding order.
Actively engaging regulators well before a filing happens can significantly cut down on the approval timeframe -- sometimes by as much as half, said Smith.
In 2014, PA Consulting helped Hawaiian Electric Co. develop an integrated demand response portfolio plan that focused on flexiwatt options. In its ensuring order, the Hawaii Public Utilities Commission appointed a special advisor to collaborate with the utility as it further developed and implemented its plan.
“The special advisor can provide the utility with constructive advice on how best to move forward with their ideas. Also, the advisor can keep the PUC apprised of the direction the utility is pursuing before the filing is complete,” said Smith. “Most importantly, the ongoing discourse allows for adjustments or course corrections in real time.”
Some utilities that have successfully engaged regulators around demand flexibility programs include Commonwealth Edison, Duke Energy, and Georgia Power.
“In particular, Georgia Power has done a good job trying out-of-the-box programs and communicating with regulators about how they’re doing it,” said Steve Propper, director of GTM Research’s grid edge practice. “They invite their regulators in and give them under-the-hood access to demonstration projects. This helps regulators understand how utilities actually work with customers in daily interactions. It’s valuable for regulators to spend some time sitting in a control center, seeing all the things that need to happen for utility programs to operate.”
Many regulators are eager for a more proactive conversation around program approval and the resource-planning processes.
“We are constantly asking: Can we do this better, cheaper, in ways that don’t commit us to new power plants with a life span of 25 to 30 years?” said Travis Kavulla, president of the National Association of Regulatory Utility Commissioners and vice chairman of the Montana Public Service Commission. “We want utilities to do more with demand response, as long as it’s reliable.”
Kavulla recommends that utilities start to engage regulators while developing their integrated resource plan -- since these are not contested cases, like a rate case or formal approval of a demand response program.
“The integrated resource plan is a great opportunity to familiarize regulators with new ways of doing things,” said Kavulla. “Utilities tend to be more comfortable explaining their thinking in advance in a less contested setting. And regulators can see various alternatives costed out for comparison.”
In addition to having an independent special advisor act as a liaison between the regulator and the utility, public forums and other transparency efforts can keep ratepayers in the loop.
In early 2015, while HECO was developing its most recent demand response plan, the utility held a two-day summit in order to get all the issues on the table. “As customers take an increasingly larger and more active role in the system, it’s beneficial for utilities to check in with the customers and keep the lines of communication open,” said Smith.
Transparency and engagement can also be effective program marketing. If a utility offers a flexiwatt program, it will need to target participants. Summits and other kinds of outreach efforts during program development can spur participation.
Ultimately, effectively engaging regulators around demand-side management might help regulators be more open to enabling utilities to earn a return not just on capital costs, but also on operations and maintenance costs for developing and deploying innovative programs.
“In most industries, companies earn returns not only on capital investments, but on human capital as well,” said Smith. “In order to drive progress as the grid continues to evolve, it will be important to introduce incentives that effectively compensate utilities for designing and implementing innovative programs as well as capital.”
This article is part of a Next Generation Utility series from PA Consulting. Find more news and analysis on the subject here.