In August, we published the top 10 utility regulation trends of 2019 — so far. With 2019 wrapping up, we look at the 10 trends and actions that stand out above the rest.
From the falling cost of renewables and storage driving utilities' resource planning, to the realignment of utility performance incentives with evolving policy goals, it was a busy year.
Below is an executive summary of the complete roundup, which has specific examples of state public utility commission action. (You can read AEE's full version with details and links to proceedings here.)
1. Implementing 100% clean energy commitments
As renewable energy and energy storage resources become increasingly cost-competitive, states have become more ambitious in their clean energy targets. At least 13 states plus Puerto Rico and Washington, D.C. have now set 100 percent clean energy targets.
Washington, D.C. codified the most aggressive target, setting 2032 as the deadline for powering its grid with 100 percent renewable energy. A few others, including Illinois, Maryland, Michigan and Oregon, have announced initial plans to transition to 100 percent clean energy.
In addition, at least six investor-owned utilities — Avista, Duke Energy, Green Mountain Power, Idaho Power, Public Service Co. of New Mexico and Xcel Energy — operating in 12 other states have committed to 100 percent clean energy targets.
While the requirements, timelines and implementation mechanisms may differ, one trend is clear: There’s nothing alternative about advanced energy anymore.
2. Falling cost of renewables and storage drives resource plans
In most states, it is now often cheaper to build new wind and solar plants (in some cases even when paired with storage) than to operate existing fossil-fuel power plants.
The data bears this out. The average levelized cost of energy for large-scale solar PV and onshore wind without subsidies is now as low as $32 and $28 per megawatt-hour, respectively. This compares favorably to the marginal cost of operating existing coal plants — now at about $33 per megawatt-hour. Falling costs have led to an estimated $2.6 trillion in new investments in clean energy, as defined by Bloomberg New Energy Finance, in the past decade.
Renewables are now dominating utility long-term planning, as we saw this year in Colorado, Georgia, Indiana, Michigan, Mississippi, New Mexico and Utah.
3. Aligning utility performance with policy goals
Traditional cost-of-service regulation favors utility capital investment in long-lived assets rather than rewarding utilities for performance against desired policy objectives. But as utilities grapple with a changing energy landscape, many state public utility commissions have started to look at performance metrics and incentives to spur utility innovation in meeting policy goals.
A range of proceedings this year tackled setting metrics, mechanisms, and other guidance in Colorado, Hawaii, Minnesota, and Pennsylvania. A New York rate case was expected to be the implementation of earnings adjustment mechanisms (EAMs), related to the NY REV proceeding, but in a comment on the proposed settlement of the case, Advanced Energy Economy Institute raised concerns about EAMs being too heavily tied to program performance, rather than outcomes, thereby doing little to spur utility innovation.
4. Utilities planning for electric transportation
Electric vehicle charging infrastructure and EV integration have continued to dominate conversations before state public utility commissions as improvements in technology and model offerings have dramatically expanded the market.
EVs will soon be at purchase-price parity with traditional internal combustion vehicles (they are already at lifetime cost parity when accounting for lower maintenance and fuel costs). Commission and utility actions in a long list of states this year included statewide foundational EV investigations, widespread infrastructure deployments and a range of demonstration projects.
5. DER integration and investments in a modern grid
In 2019, an increasing number of utilities and regulators considered how DERs can be more fully integrated into the electric power system.
Optimizing DER interconnection processes and making investments in the distribution grid that unlock the multiple value streams that DERs can provide will enhance the customer experience and lead to a more flexible and cost-effective grid.
In addition, and often overlooked, are the reliability and resiliency benefits, which are of increasing importance as the intensity and occurrence of severe weather events persist. The distribution grid is the backbone of a reliable electric system, and utilities are investing accordingly.
6. Energy efficiency, load-shifting and building decarbonization
Energy efficiency has undergone significant changes in response to developments in technologies, markets and public policies, but states are continuing to see its value.
Energy efficiency is most commonly thought of as reducing energy use by replacing traditional technologies with new ones, such as LED lighting, high-efficiency appliances and heating and cooling equipment. But today, energy efficiency can be accomplished, and its value derived, through a variety of means, including the use of sophisticated energy management systems, internet-connected thermostats and data analytics.
The growing differential between average and peak demand has also led some states to rethink the value of demand-side management at different times of the day. We saw a range of examples this year, from California’s continued leading efforts, to Florida’s review of utility's conservation goals, to actions strengthening efficiency gains in Arkansas, Maine, New Mexico and Nevada.
7. Valuing DERs for their contributions to the grid
For decades, net energy metering (NEM) has been successful in spurring the adoption of distributed generation across the country, with Minnesota the first state to adopt a NEM law in 1983. However, as the penetration of distributed generation increases, most notably rooftop solar, pressure has been building to develop an alternative way to value the costs and benefits of distributed generation.
In 2019, several states took various approaches to successor tariffs to NEM, ranging from straight reductions in net metering rates for exported electricity to the development of granular methodologies for determining the value of distributed generation on the grid.
8. Wildfire prevention and protection
In January, the largest investor-owned utility in California — Pacific Gas & Electric — filed for Chapter 11 bankruptcy because of accrued liabilities stemming from the devastating wildfires in the West over the past couple of years.
One of the most important questions for the advanced energy industry was whether PG&E would be allowed to renegotiate a portion of its $34.5 billion in renewable energy contracts to help pay down debts. PG&E agreed in September to honor its legacy PPA contracts.
The CPUC initiated a stakeholder process to review PG&E’s proposed bankruptcy plan and is expected to issue a decision on both financial and non-financial issues by June 2020, although there is still some uncertainty, as the estimation of wildfire claims is not complete.
Outside of the bankruptcy process, the wildfires also kick-started wide-ranging investigations into wildfire prevention and cost recovery plans. Gov. Gavin Newsom signed a historic wildfire fund package seeking to balance the welfare of wildfire victims, investor-owned utilities and utility employees with a commitment to uphold California’s advanced energy leadership.
9. Customers making their own energy choices
As renewable energy has become more competitive on price and more corporations have set sustainability targets, large customers are increasingly looking for ways not only to power their operations with 100 percent renewable energy but also to reduce their price volatility and reduce their energy costs. For this, they are seeking to enter into long-term contracts either through their utility or with independent power producers.
To give these customers the renewable energy they want, utilities in vertically integrated markets are developing new direct access programs and renewable energy tariffs. This year saw actions to reassess and improve program offerings across the nation, from Arizona and California to Michigan, Minnesota, Florida and Virginia.
Commissions also weighed in on community-choice aggregation, which has risen in popularity the past couple of years, driven in large part by communities wanting more control over how their energy is generated.
10. Non-wires alternative mechanisms
In a business-as-usual scenario, if a utility has an infrastructure need — usually the result of new load growth or the deterioration of an existing asset — it will choose to invest in new poles-and-wires solutions. For example, a utility will replace a transformer, upgrade the feeder or build a new substation. The utility would then earn a profit on the newly invested capital.
Non-wires alternatives (NWAs), like targeted energy efficiency, demand response programs or energy storage, are increasingly seen as viable options in several key states — and may meet utilities' needs at a lower cost. But if the NWA is classified as an operating expenditure, it will not present an earning opportunity for the utility.
Many states are starting to recognize this disincentive and are exploring potential solutions. Perhaps the most well-known example is Con Edison’s Brooklyn-Queens Demand Management Program.
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Coley Girouard is a principal at Advanced Energy Economy. Read his complete roundup with more details on state PUC action here.