Noah Garcia is a policy principal at Advanced Energy Economy, an industry association for clean energy companies across technologies.
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In September, we published a list of the top 10 utility regulation trends of 2020 so far. With a tumultuous 2020 largely in the rearview mirror, we now look back on the 10 trends that defined the utility regulatory arena this year. Below is an executive summary of the complete roundup. (You can read AEE’s full version here, with links to specific proceedings.)
1. A tale of two FERCs
With President-elect Joe Biden and Vice President-elect Kamala Harris certain to make sweeping changes to federal energy policy, all eyes are on the Federal Energy Regulation Commission as a crucial lever to ensure that wholesale electricity markets and the transmission grid are poised to support Biden’s promised “clean energy future.” This heightened spotlight on FERC comes after a 2020 in which the agency made moves that erected new barriers to the development of advanced energy resources in wholesale markets and removed others.
FERC continued in 2020 to double down on new wholesale market rules challenging states’ ability to implement clean energy and environmental policies. In late 2019, FERC ordered PJM Interconnection to implement the minimum offer price rule (MOPR), which sets a price floor on resources that benefit from state policies, making it more difficult for these resources to compete. FERC did approve provisions of PJM’s compliance plan that could mitigate some of the MOPR’s anticipated negative effects without eliminating them entirely, but it also rejected requests to reconsider a similar policy it imposed in 2018 in ISO New England and even expanded the application of it in the New York ISO. As a result, some PJM states with strong clean energy commitments, including Illinois, Maryland, New Jersey and Virginia, are considering whether to leave the PJM capacity market.
On the other hand, 2020 also saw FERC order wholesale market operators to open their markets to distributed energy resources (DERs) in Order 2222. This long-awaited order builds on Order 841, which opened markets to energy storage, by requiring that DERs have the ability to aggregate and participate on a level playing field in wholesale markets. This effectively opens the door for new revenue streams for DER owners, new business models for DER aggregators, and new flexibility for the grid.
2. Regulators rush to contain the fallout from COVID-19
The COVID-19 pandemic has fundamentally altered the outlook for many economic sectors in 2020 and beyond. Energy is no different: Over 13,000 dockets mention the coronavirus, underscoring the myriad ways the pandemic has touched all aspects of utilities’ core business. First, whether they liked it or not, public utility commissions (PUCs) were thrust further into the digital age. Virtually all aspects of regular commission business moved online, with varying degrees of success. Second, many PUCs responded to the economic impact of COVID-19 by putting disconnection moratoria into effect, putting utility customers on more stable footing as they navigate the financial challenges of the pandemic. However, by the fall, 26 states allowed disconnections to resume and another 15 left it to utilities whether to adopt voluntary moratoria. Only 10 states now have active disconnection restrictions in place.
3. PUC elections favor incumbents
In most states, commissioners are appointed by governors. However, in 10 states — Alabama, Arizona, Georgia, Oklahoma, Louisiana, Mississippi, Montana, New Mexico, North Dakota and South Dakota — commissioners are elected by voters. All but Mississippi held elections for PUC commissioners in November 2020, with every incumbent that ran for reelection reclaiming their seat. Only where commissioners were termed out or declined to run for reelection did commissions see a shakeup. In Arizona, newcomers Anna Tovar (D) and Jim O’Connor (R) picked up two open seats.
Also as a result of the election, the number of publicly elected commissions will drop from 10 to nine as New Mexico voters approved Constitutional Amendment 1. Passing with over 55% approval, the amendment transforms the New Mexico Public Regulation Commission from an elected body to an appointed one and reduces the number of commissioners from five to three, with commissioners appointed by the governor from among candidates nominated by a bipartisan nomination committee and then confirmed by the New Mexico Senate.
4. More states reach for 100% clean energy
From coast to coast, the momentum behind 100% clean and renewable energy targets has continued to grow. Now, 18 states, Puerto Rico and the District of Columbia have established 100% clean or renewable energy targets.
The latest state to do is Arizona, with an announcement of a goal of 100% clean energy by 2050. Receiving a 4-1 vote at the Arizona Corporation Commission in November, the rules formally direct the state’s investor-owned utilities to retire fossil generation by midcentury while also establishing targets for energy storage deployment. The decision will be released for public comment with a final ACC vote in early 2021. Nevada voters reaffirmed that state’s commitment to renewables this November by approving Question 6, the second vote on a constitutional amendment that directs utilities to source at least 50% of their electricity from renewable generation by 2030. The state legislature passed an identical standard into law in the 2019 legislative session, but with approval of Question 6 the 2030 RPS requirement cannot be easily repealed by a future legislature. Meanwhile, Virginia became the first state in the Southeast to join the 100% clean energy club by passing the Virginia Clean Economy Act in March, which puts it on a path to 100% carbon-free electric power by 2045.
5. Transportation electrification charges ahead
Momentum on transportation electrification grew throughout the year in spite of the COVID-19 pandemic. Well over $1 billion in new utility transportation electrification programs were approved, positioning electric vehicles for continued growth in a post-pandemic economy. California, the country’s undisputed EV leader, continued to push the industry forward with Governor Newsom’s September Executive Order N-79-20, which establishes nation-leading goals to achieve 100% zero-emission light-duty vehicle sales by 2035 and a full transition of the state’s medium- and heavy-duty vehicle fleet to zero-emission models by 2045 wherever feasible. California also approved the largest individual utility EV program to date in the form of Southern California Edison’s $436 million Charge Ready 2 program. New York then approved the largest suite of utility EV programs outside of California: $701 million spread across the state’s six investor-owned utilities. North Carolina and South Carolina also both approved substantial EV charging station pilot programs.
6. Regulators grapple with self-scheduling of coal plants
Over the past few years, the practice of “self-scheduling” coal plants has come under increased scrutiny, especially in the MISO and SPP markets. In some states, vertically integrated utilities have taken advantage of self-scheduling rules to run their uneconomic coal units and then charge ratepayers for the difference between the price they get in the energy market and the actual cost of running the plant. In Missouri, the commission has ordered all utilities to provide information during fuel adjustment and cost-recovery dockets to get more transparency into utility commitment and dispatch practices.
Going one step further, in Minnesota, Xcel filed a plan, approved by the commission in July, to limit the use of its remaining two coal plants by moving to seasonal operations instead of relying on year-round self-scheduling. But Indiana was the place where self-scheduling really came into focus this year. In a fuel adjustment clause proceeding, the Indiana Utility Regulatory Commission decided to investigate Duke Energy Indiana’s coal plant operational practices. The IURC concluded its hearings in November, and parties filed their proposed orders and briefs before the holidays, for final action in early 2021.
7. PUCs push the envelope on utility business-model innovation
Several states continue to push forward with efforts to examine how the utility business model should evolve to meet changing customer and grid needs. In particular, there are a number of ongoing proceedings on performance-based regulation (PBR), which seeks to better align utility financial incentives with desired outcomes and state policy goals. State interest in PBR is driven in part by a recognition that the prevailing cost-of-service utility business model needs to evolve to better reward outcomes rather than growing capital and containing expenses, and to increase compatibility with a future in which customer and third-party investments in distributed energy resources need to be better integrated for maximum benefit to the system as a whole. Colorado, Nevada and Michigan are among the states exploring PBR this year.
8. Distribution system planning gets a hard look
Distribution system planning continued to gain momentum throughout 2020 as policymakers encouraged utilities to increase reliability and DER integration on the grid. While utility investments in their distribution system have traditionally been a black box, PUCs across the country are striving to make these planning processes more transparent, more inclusive of DER deployment, and better aligned with utility customer interests. California, Colorado and Michigan took noteworthy action on distribution system planning this year.
9. Storage prospects continue to glow
The decline in the costs of batteries and hydrogen production is fueling an increasing interest in storage, which may be critical for the deployment of renewable energy and distributed generation assets at greater scale. State legislatures continued to raise the bar this year, tasking regulators with the implementation of programs to procure and leverage storage in a manner that facilitates investment in non-wires alternatives, peaking capacity and ancillary services. Maryland approved six storage projects for utilities this year, the Virginia State Corporation Commission opened a docket to adopt regulations to achieve the deployment of energy storage as required by the Virginia Clean Economy Act, and the New York Public Service Commission aligned existing dynamic load management program rules with the state’s energy storage goal and ordered the state’s investor-owned utilities to issue solicitations for dynamic load management resources, including storage.
Beyond batteries, hydrogen energy storage has increasingly been attracting the attention of regulators and utility companies as a potential pathway to decarbonization targets. Some states, including California, are exploring setting standards for hydrogen in gas pipelines, and others are exploring alternatives to gas. In Massachusetts, as part of the sale of the assets of Columbia Gas, buyer Eversource agreed to conduct a business case analysis of potential decarbonization strategies in July, including the use of hydrogen. The Massachusetts attorney general’s office also called upon the Department of Public Utilities to proactively manage the transition away from natural gas to help achieve the state’s net-zero greenhouse gas goals in a new investigation.
10. Data platforms take shape
Several states are considering the development of statewide data platforms to provide easier access to energy use data for customers and market participants. In 2019, New Hampshire’s General Court passed a bill directing the state’s Public Utilities Commission to establish a statewide “Multi-Use Energy Data Platform” to be built and administered by the state’s utilities. Intervenors have filed testimony and the proceeding is scheduled to head to hearing or settlement in February. In New York, the Public Service Commission is considering two separate initiatives. One is a Data Access Framework that is meant to consolidate policies across a number of existing programs and establish a single certification process. The second proposes the development of a state-run and -administered data platform, dubbed the Integrated Energy Data Resource. The IEDR goes further than the platform proposed in New Hampshire by consolidating both customer usage data and utility system data in a single location. Minnesota also clarified policy surrounding customer energy usage data with a November order approving the use of common open data access standards for customers of large utilities in the state.
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Hannah Polikov, Ryan Katofsky, Danny Waggoner, Jeff Dennis, Matt Stanberry and Sarah Steinberg contributed to this blog post.