by Julia Pyper
August 24, 2018

There are many ways for states to support increased transportation electrification. In Part One of this State Bulletin series, we looked at the need for state action and steps states can take in the legislature and at government agencies. State utility regulators are also key stakeholders, as we’ll explore further in Part Two.

Utilities have the opportunity to play an outsized role in the electric vehicle revolution, but their involvement is the subject of heated debate and regulators have the responsibility of ensuring the program design is appropriate. 

A new report by the Lawrence Berkeley National Laboratory grapples with some of the tough questions facing utility commissions, such as: What roles should utilities versus competitive providers play in accelerating deployment of EV infrastructure? What types of utility infrastructure will be needed to serve EV users, who should pay for it, and how will utilities recover their fixed costs? What incentives should EV customers face to encourage right-time charging and discharging?

Part of the report is focused on “what's in the regulatory toolbox,” said Philip Jones, executive director of the Alliance for Transportation Electrification and report co-author. His section examines what commissions can do on EVs under existing regulatory authorities and how commissioners' staffs can be more proactive in addressing the coming EV wave, “because we really believe it's coming more quickly than you think,” he said.

This week’s column looks at the utility role in providing EV charging and regulatory tools available to guide the process. In Part Three we’ll take a closer look at what some utilities are already doing to encourage — and take advantage of — EV adoption.

(Click here to read Part 1 and Part 3)

The case for utility EV charging infrastructure

Actions such as state EV mandates, tax credits, preferential lane access and government EV procurement policies represent effective ways to get more plug-in vehicles on the road. States generally need to pass laws to put these measures in place. To address how utility programs or tariffs can be used to accelerate EV adoption, state legislatures typically kick things over to state utility commissions.  

Utilities can deploy EV infrastructure without regulatory approval. They have the option to build out EV infrastructure through their deregulated subsidiaries, or on the regulated side with shareholder funds (as Kansas City Power & Light decided to do several years ago after being denied rate recovery). However, Jones argues that “the best approach is to pursue deployments on the regulated utility side, in order that the process be transparent, be fair to all rate classes, address the issues of disadvantaged communities, and be consistent with the just and reasonable precedents in ratemaking with each specific commission.”

To earn a rate of return on an investment, a utility generally needs to prove the project provides a benefit. In the case of EVs, there are emissions reductions benefits and economic development benefits, but there are also direct benefits for the grid.

For one thing, increased use of EV charging equipment leads to the more efficient utilization of the distribution grid, if the utility is successful in moving charging sessions to off-peak hours. EV charging also maximizes the higher utilization of a variety of distribution assets that have already been paid for by the rate base and may now be underutilized. “Through dynamic pricing schemes, such as off-peak and super-off-peak rates at night and higher peak rates during the daytime, the consumer should be able to benefit from these rate differentials as well,” Jones wrote.

As technology matures and is able to provide more operational certainty in managing bidirectional power flows, V2G (vehicle-to-grid) will offer additional benefits and services to both the EV owner and the grid. Nearer-term, EV charging can provide demand response (DR) services. And with proper program design and market structures, it’s possible that DR can help to defer additional capacity and related investments.

Fostering consumer choice is another benefit of deploying EV infrastructure. “Due to the rapid proliferation of new technology that consumers can use to manage their energy usage and other DERs such as distributed storage and DR, it appears that consumer engagement is a force that is growing in importance, which utilities and commissions need to address,” the report states. “If the utilities do not take on this challenge seriously, a large number of innovative and aggressive non-utility competitors are prepared to fill this role.” 

The potential risks

Several U.S. utilities are already building out EV charging infrastructure, such as National Grid, and some are already involved in more advanced use cases, such as Pacific Gas & Electric. But it’s still early days, and even the most progressive utilities are still in the pilot phase. For that reason, the business case is tricky to prove.

“In terms of revenue requirements and overall rates, several studies have demonstrated that there should be downward pressure on rates over time as EV infrastructure is deployed, as managed charging facilitates better utilize the grid, time-of-use rates are implemented, and these loads result in increased marginal revenues to the utility,” according to the LBNL report. “Unfortunately, most utilities and commissions still do not have a great deal of data to verify such downward pressure on rates, and the impact on revenue requirements, and many of the utility programs approved by commissions, are in early stages of development.”

The potential risks, meanwhile, are very real. The most obvious risk is to overbuild the charging system before the market is ready. If the EV market doesn’t grow according to projections, the utility may suffer the risk of stranded assets. There’s also an issue of technological obsolescence of certain EV charging technology, given the rapid pace of technological change in the industry. 

In addition, as with all other utility projects where a third-party developer is involved, there is execution risk of building out the equipment on time and within budget. Then there’s the risk that utility participation in the EV market could blow back if not well managed. Utilities will have to dedicate resources to maintenance and operations, they’ll also have to respond quickly to consumer needs, or else skeptics will argue that regulated utilities are stifling innovation in this field.  

On top of all this, public utility commissions often lack adequate information on the EV charging landscape and various risks and benefits, and don’t have enough personnel to get up to speed, said Jones. “So there is a hell of a lot of education that should be done — so that's number one.”

Taking a collaborative approach

Groups like the Alliance for Transportation Electrification, as well as automakers, environmental groups, national labs and others, can step in to take on the educational role that regulators and utilities need. Jones said his first task upon engaging with a PUC is to set up a workshop, and that this process can actually solve or avoid a lot of the problems outlined above.

For instance, utilities can explore a variety of ownership or joint venture possibilities where a third-party EV charging firm can bring technology, software and network management experience to the table, while the utility can bring its scale, engineering experience and detailed knowledge of the grid to the table, the LBNL report explains. There are various other ways of dividing up responsibilities among both parties — the key takeaway is that a variety of business structures are possible in order to develop the EV infrastructure market.

“A collaborative approach addressing the needs of all stakeholders in a fair manner is the best way to show tangible signs of success at this stage of market development,” the report states.

If a utility goes ahead and files a proposal to build out EV charging, it can quickly turn into litigation, Jones said, where outside stakeholders weigh in and challenge the plan. By starting with a workshop or a stakeholder meeting, as opposed to an official filing — including regulators, utilities, private companies, consumer groups, environmental groups and others — it can avoid conflict and ensure that the utility is designing the right kind of program from the get-go.

“We're trying to encourage utilities not to file and to set up a collaborative discussion,” Jones said. He also encourages regulators to issue some kind of policy guidance to provide utilities some direction. Requiring interoperability and open standards, for instance, can help utilities avoid the issue of technology becoming obsolete.

Two Michigan EV proposals

Michigan offers a good example of how this process could work, according to Jones. Proposals recently filed by CMS Energy and DTE Energy are the product of stakeholder engagement, and as a result they have garnered strong support — or at least less opposition — than previous plans.

DTE’s proposed EV pilot includes:

  • $13 million over three years for investments in residential, commercial and fleet EV charging infrastructure.
  • Rebates to support approximately 32 fast chargers, 1,000 Level 2 commercial chargers and 2,600 home smart chargers.
  • A requirement that customers enroll in a time-of-use rate to qualify for a smart charging rebate.
  • Focus on workplace and multi-unit dwelling for Level 2 charging.
  • A customer education and outreach program.

CMS’ proposed EV pilot includes:

  • $7.5 million over three years to provide additional public electric vehicle charging stations. 
  • Rebates of up to $5,000 for as many as 200 Level 2 public chargers and $70,000 for 24 DC fast-charging stations.  
  • EV owners could qualify for rebates of up to $500 for installing charging equipment at home.  
  • Creates special off-peak charging rates for EV owners who charge overnight, with the potential to save customers 25 percent in winter and up to 45 percent in the summer.

Jones acknowledged that these programs are relatively small compared to those proposed in California, but that’s intentional so that they're more palatable. Plus, they’re designed with the ability to scale. “Because of the work we’ve done upfront with all stakeholders, I think the pilots can change during the three- or four-year period,” he said

The two Michigan utility proposals are currently being considered by the PUC. The outcome isn’t guaranteed, but Jones is optimistic. “[We’ve] been working very hard in Michigan for the past nine months to create a framework or an environment in which these hopefully can be considered favorably,” he said.