Utility of the Future: or What to Think When Everyone Says Your World is Turning Upside Down

[Originally published in Energy Biz]

As the red-eye jet made its way toward the airport with dawn breaking, street lights still on and house lights coming on, I watched first the farms with long roads, then the small clusters of towns, then the vast suburban outreach of Washington, DC. I had been thinking a lot about the evolution of the electric grid. From above, one could see how electricity, whether urban or rural, connected all of these people and businesses into one enormous system, sometimes dense and sometimes sparse, but always on. Now the next generation of innovation is poised to change the way we think about and use this system.

Many of these innovations are more than just information flow—they are real energy resources like solar and energy storage, demand response, and energy efficiency—that affect both the operations and business of utilities. At a recent conference in Hawaii—a state that has been undergoing such tremendous and real-time alterations to their grid that I have likened it to changing the tires while the car is moving—state regulatory Commissioner Lorraine Akiba said, “The integrated grid of the future is one that requires strategic actions to realize the full value of central power and distributed energy resources.” [1]

Akiba touches the key here to the future of our utility model: integration. The term came up again at a recent energy storage conference in California when a utility representative said, “Our job is not to simply connect, but to integrate.” The integration will need to be both physical—which has always been the operating premise—but also digital. Moreover, this integration does not need to rely on a centralized system of power generation plants connected by long transmission lines, but rather can allow for disaggregation of flexible and distributed resources.

One case to watch is the New York REV proceeding[2] where utilities—already decoupled from generation—are being asked to become consumer-service platform providers. As the commission Chair Audrey Zibelman has said, “By fundamentally restructuring the way utilities and energy companies sell electricity, New York can maximize the utilization of resources, and reduce the need for new infrastructure through expanded demand management, energy efficiency, renewable energy, distributed generation, and energy storage programs.”[3] The key here will be whether the utilities will be able to perform all these services, operate their system, and remain cost-competitive at the same time.

Utilities that see this integration with disrupters as a business opportunity stand to benefit. As in the case of New York, utilities could start thinking of themselves as service providers or, at least, integrators. What the Federal Energy Regulatory Commission has done on the bulk-power side by allowing compensation for characteristics and services provided to the transmission side of the system, state regulators could do on the distribution grid by allowing compensation for a wider range of values.

Another potential construct–proposed in the REV proceeding with Jon Wellinghoff, former Chairman of the FERC and Jeff Cramer, one of my business partners—would be for distribution utilities to adopt what FERC put into place when it issued Orders 888 and 2000[4], enabling the creation of competitive wholesale markets and Independent System Operators. This would be a comparable system on the distribution side, or Independent Distribution System Operator (IDSO).[5] The IDSO would enable distributed energy resource integration, greater consumer choice and participation, and allow for a more efficient and transactive energy framework.

Yet another option might be that utilities and others could be compensated for increased efficiency, for decreased energy intensity, and for lower-carbon resources (especially as the EPA Clean Power Plan is finalized and states begin implementation). State RPSs already give utilities credit for renewables, and in decoupled constructs, utilities are given credit for efficiency programs. What could be new is a more holistic set of metrics—going beyond but not totally dissimilar from the Value of Solar model.[6] That new set of metrics could: take into consideration what we want out of our system; put rules in place to compensate for those services; incentivize entities to provide those services; and then allow all participants to compete to provide services. Utilities could be winners in that model, but so could consumers and innovators.

It would be helpful to have a national policy that sets goals and objectives for our electric grid that could be the basis for a new compensation model. But states can set their own policies, as California has, that drive innovation in resources that can help meet state goals. The impetus does not need to be limited to state leadership, either. Vision can come from utilities and innovators collaborating to offer a set of services that are presented to commissions and allow them to see (and compensate) myriad benefits of that integration.

To keep those lights on that dot the landscape, whether in clusters or singly, utilities can join forces with “disrupters” to ensure that everyone benefits from a cleaner and more efficient system. They key is to move beyond simple connection to integration.