Innovation and the Changing Regulation of the Electric Industry

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On November 4, 2013, the Arizona Corporation Commission opened a docket entitled "Inquiry into potential impacts to the current utility model resulting from innovation and technological developments in generation and delivery of energy." (ACC Docket No. E-00000J-13-0375, available here.)

This docket was initiated at the request of Commissioner Bob Burns who is concerned that new innovation and technology will force regulators to change the way they supervise utilities including how rates are set. Specifically, Commissioner Burns identifies six categories of technological innovation that may impact the current utility model providing electric service:

  • Distributed Supply and Storage Resources enabling customer self-supply;
  • Customer load management technology, energy efficiency, major new loads and related services;
  • Utility Scale Storage Technology;
  • Metering Technology and Services;
  • Transmission and Distribution Automation ; and
  • Micro-grids

He encouraged the industry and other interested parties to propose specific topics and expert speakers for upcoming workshops.

Seeing an opportunity to raise virtually any issue that may be of interest or impact, numerous parties responded to Commissioner Burn’s invitation. Utilities, rooftop solar companies, environmental groups, consumer advocates, and myriad industry groups responded. Following is a sample of the variety of issues raised.

Arizona Public Service Company (APS), the state's largest electric utility, focused its comments on a recommendation that "the workshop participants would benefit from an initial overview of the status of deployed technology and innovation in the electric industry today." APS also noted that the experience and new technology adoption demonstrates the importance of flexibility from utilities, stakeholders and regulators and recognition of a continuing need for a reliable grid.

The Residential Utility Consumer Office (RUCO) said that it would like to see the workshop stress how different disruptive technology impacts non-participating ratepayers. In other words, how Arizona should deal with stranded costs stemming from a rapid adoption of a particular technology. RUCO also suggests that this process address how Arizona utilities can properly respond to customer choice, whether Arizona utilities should offer economic development rate to new and expanding businesses, and how Arizona can capitalize on mutually reinforcing technologies. For this last point, RUCO raises the question of whether "virtual power plants" can be formed by connecting customer sited technologies together. RUCO also recommends examining the financial impact of various technologies and whether the technology provides a net benefit to the electric system.

The Alliance for Solar Choice anticipates this proceeding will address the policies, including net metering, that encourage customers to install on-sight solar PV that are central to the Alliance’s members. They also state that the Commission should use the proceeding to determine what access to the utility system is necessary to facility consumer adoption of new technologies, how just and reasonable rates can be set to value the use of the utility system, and how consumer behavior changes can be forecasted and incorporated in utility planning.

Various environmental groups such Western Resource Advocates (WRA) also filed comments. These groups often focus on what they believe will be long-term benefits from technological changes, such as lower air emissions, stable prices that are not subject to uncertain fuel costs, and giving customers more control over production and use of energy. Realistically, these groups often note that the workshop will have to devote some time to utility and regulatory business models that should include the role of entrepreneurs. Specifically, what can the Commission do to encourage entrepreneurship and remove perceived obstacles? Finally, WRA recommends that a discussion on distribution voltage optimization be discussed.

This proceeding will initially include workshops with presentations by experts and open discussion of these issues. Once these workshops are completed, the Commission will address what steps to take as a result of those discussions.