New Energy Service Delivery Models: Implications for the Regulatory System

Mike Cleland CAMPUT, Kingston June 23, 2015

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Outline

• The changing energy landscape• The players and their roles• Changing technology –potentials and

pressures• Driving change – options for governments

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Part 1 The Changing Energy landscape

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Energy in the community

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Energy services – energy in our lives

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Pressures on the system

• Economic – slow growing economy, need for infrastructure renewal, competitive pressures

• Environmental – climate, air quality, water, land and habitat• Societal - trust, siting, cost, tax aversion, equity concerns• Technology – impacts of social media, IT, storage, renewables, cost of gas

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Part 2The players and their roles

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The Players

• Demanding results– Customers, neighbours, citizens and voters– Public policy makers

• Delivering results – Competitive suppliers– Utilities

• The referees – Regulators

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Customers – the value proposition

Then – Energy boring– Service analogous to a

commodity – product differentiation not possible, suppliers compete on price and supply security

– Priorities: safety reliability, non-intrusiveness, cost

– Risk aversion, high implicit discount rates, very high info acquisition and transaction costs

Now • Still boring• Limited potential to

differentiate?

• Priorities similar - plus environmental results

• How much new appetite for risk, long paybacks, time spent on energy choices?

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Neighbours – the back yard owners

Then• Passive communities• High deference, trust in

authority• Local communities kept

informed (maybe)• Infrastructure got built

Now• Evidence that resistance to

facility siting will grow• Authorities – including

regulators – not trusted • Local communities wanting

more say, more control• Big infrastructure harder

and harder to site – esp linear infrastructure

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Citizens and voters

Then• Customers plus neighbours

plus citizens = voters• Who quietly absorbed tax

increases (but often reacted to price increases)

• Who were passive about intrusions in their communities

• And relatively indifferent to engagement outside the ballot box.

Now • Still true

• Who say no to tax increases as well as energy price increases

• Who say no to intrusions in their communities

• Who will have to be constructively engaged outside electoral processes.

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The private, regulatory and policy spaces

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Part 3 Changing technology –potentials and pressures

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Changing technology – potentials and pressures

• Energy efficiency• Distributed stationary energy• Mobility

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Energy intensity (E/GDP) falling

-

0.05

0.10

0.15

0.20

0.25

0.30

0.35

0.40

CanadaUnited StatesAustraliaNorwayUnited Kingdom

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Efficiency – the energy workhorse

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Distributed stationary energy: technology scan

Potential Scale Market Readiness Environmental & Social Acceptability

Contribution to System Integrity

Renewable Power

Renewable thermal and waste

District energy and CHP

Storage

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Clean mobility: technology scanPotential Scale Market Readiness Environmental &

Social AcceptabilityContribution to System Integrity

Natural Gas

Biofuels

Hybrids

Plug-in Hybrids

Battery Electrics

Fuel Cell Electrics

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Part 4 Driving change – options for governments

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Policy instruments: options for governments

• Private markets • Prices – real costs of energy including carbon• Minimum standards eg EE on energy using equipment • Mandates such as RPS• Subsidies such as FIT’s, DSM programs• Infrastructure investment • Technology investment

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Reminder – the players

• The customer – narrow, local and short (with apologies to Thomas Hobbes)

• The (utility) investor: risk averse, patient, narrow in outlook

• The (competitive supplier) investor: impatient, mistrustful of utilities, narrow in outlook

• Public policy needs: often at odds with the others on geographic scope, breadth, time horizon

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And economic regulators?

• Core mission is to stand in place of markets where natural monopoly prevails

• Fair and reasonable rates for consumers/fair return on investment for investors

• Emphasis on transparency, fair cost allocation and avoidance of cross-subsidy, avoidance of rate shock

• But........• Touched by or potentially shaping or delivering virtually all

of the available policy instruments

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Conclusion

• Societal forces create pressures (economic, environmental, social)

• And opportunities (technological change and business innovation)

• Public policy makers will try to meet more global, broader and longer term objectives – because they will be forced to.• What is the role of economic regulators in meeting these

objectives?