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This is a presentation I made at the SG Roadshow in Montreal CA on Wednesday August 31st. The topic is how can innovation, risk taking, occur in a tightly regulated industry..
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"Bridging the Gap - How Regulation Doesn't Have to Prevent Innovation"
David O'Brien
Director of Regulatory Strategy & Compliance
Bridge Energy Group
Topics
Status Quo Regulation, Status Quo Electric
System
Cost of Service & Innovation
How Regulation has to Change
Elements of Utility Success
New Regulatory Framework
Briefly on BridgeFocus: Utility / Power Industry
Offices: HQ in Marlboro, Mass.
Albany, Austin, Rutland, Sacramento, Ottawa/Canada, New Delhi/India
Est. 2005, 80 people, Financially Stable
Clients: Power Transmission & Distribution Utilities and ISOs
Currently working on several Smart Grid Projects across the US
Delivering Smart Grid & Utility Solutions
openSGRA Reference Architecture, GridStar™ Platform, eFAME™ Methodology
Practices built around IT (Architecture & Integration), OT (EMS/SCADA & Distribution Automation) and Regulatory & Compliance
Not aligned with any Tool, Product, Technology vendor or a Standard
Status Quo Regulation
• A Social Compact
• Retail Rates Expected to be Stable
• Rate Design More Art than Science
• Rate Setting is often Infrequent
• Investment in Long Lived, Predictable Assets for
Society’s “collective benefit”
Limitations of Traditional Utility Regulation
Goal of Rate Stability Hinders Price Discipline of Consumers
1. Consumers Do Not See Implications of How Much Energy They Use & When
2. Leads to Inefficient Grid Investment
“Art” in Rate Design Deadens Price Efficiency
1. Cost Allocation not Entirely According Cost Causation
2. Simplistic Rate Classes Do Not Accurately Group Cost Causation
Cost of Service Regulation Does Not Encourage Operational Efficiency
1. Rates Based on Demonstrated Costs, Not Lowest Possible
2. Emphasis on the Known, Stability Not Conducive to Innovation
Source: The Brattle Group, March 2010
Source: The Brattle Group, March 2010
Source: The Brattle Group, March 2010
Electric Grid is a Wasted Resource
Cost of Service & Innovation
Rewards Investment in Hard Grid Assets, but not IT
Rate Cases Seek to Lower Costs, but not Operational Efficiency
Rate Design not Structured to Deliver Economic Efficiency
How Regulation Has to Change
Not just rates, but the entire regulatory process needs to be dynamic…
Regulatory Culture
No more “gotcha”, Trust but Verify
Rate Design
Less Social Policy, More Cost Causation
Ratemaking
Performance Based
Elements Utility Success
Must be a Complete Adoption of the Technology i.e. DA & AMI
Global Competition Mindset
Robust Information to Customers and Dynamic Pricing
Performance Based, Reciprocal Regulatory Compacts
New Regulatory Framework
OldStable “Least Cost “Rates
Variable Cost of Service,
Coin Flip ROE
Sporadic System Investment
Discourage Revenue Growth
NewEconomic Rates
Multi Year Performance Based
Performance Based
Continuous Asset Management
Revenue Growth Rewarded
Questions?
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