Regulators in states like New York, California and Hawaii are trying to build policy that pushes utilities toward better integration of distributed generation, renewables and consumer control. But it's still regulators driving the effort, with the utilities in their usual high-inertia, reactive mode.
But what if the driver of regulatory change toward DG, technical innovation, grid modernization and intelligent consumer rates was the regulated utility itself? That's the utility that Twenty-First Century Utilities wants to create.
Last week we reported on the acquisition of GridPoint by Twenty-First Century Utilities, a "company formed to invest in and own regulated utilities and infrastructure to create an entirely new model for delivering energy."
TFC is headed by Larry Kellerman, a former GridPoint board member and employee of regulated utilities Portland General Electric and Southern California Edison. Kellerman was a managing director at Goldman Sachs when it invested in GridPoint nearly 10 years ago.
GTM's Jeff St. John summed up the GridPoint story: "In its first decade of existence, GridPoint raised more than $300 million in VC funding, bought a half-dozen smaller startups -- and then ousted CEO Peter Corsell, laid off much of its staff, and more or less disappeared from view in the smart grid, EV charging and home energy analytics fields it had sought to command. At that point, many industry observers, including GTM, wrote it off as a has-been from the go-go green technology fundraising days of the prior decade."
But the Arlington, Va.-based startup won more funding, hired a new CEO, and rebuilt itself as a commercial building energy management player, expanding on the business it acquired when it bought startup ADMMicro. GridPoint has about 11,000 commercial building sites under its management, with a combination of energy monitoring hardware, portfolio management software, and a services arm to help meet efficiency improvements for customers like big-box retail, fast-food restaurants and pharmacy chains.
TFC's Kellerman told GTM, "We see GridPoint as a very important initial piece of the entire value proposition that we are aiming to create as an institution."
"Our long-term objective is to own, operate, and optimize regulated electric utilities throughout North America. We are an operating company that is designed to bring the business model of the utilities that we own and operate much more into the 21st century. What do we mean by that? We believe that some of the most transformational and most customer-friendly tools, products, and services that have been created by the explosion of new technology products and services over the past 5+ years have been customer-facing initiatives.
"Whether we are talking about rooftop solar or Tesla battery walls, whether we're talking about building energy management systems that can help consumers to save 20+ percent on their energy bills, like GridPoint, or other LEED-grade HVAC and energy-conserving, end-use applications, we see the best product services and tools in the energy industry existing on a side of the meter that utilities historically have not been interested, willing, or had a business model that allowed them to engage in."
But how do you work with regulators with outdated rulebooks to develop new utility models?
"We actually think regulators are pretty smart," said Kellerman. "We think the regulators understand that this industry is at a very critical transition point. Clearly, we're going to have to work very closely, very constructively, on an open-book level, with any regulators and any of the jurisdictions in which we buy our utilities. At the core, at the heart of our business proposition, is a notion that we call the Million Rate Base Construct.
"There's always going to be the one rate base, writ large, for all of the assets on the utility side of the grid -- the long transmission lines, the distribution substations, etc. There's always going to be a need for that, but, increasingly, customers are facing opportunities for a number of assets that only benefit an individual customer, and not the ratepayer group as a whole. Right now, it doesn't make sense for a utility to put a solar rooftop installation on your roof because you benefit from it, but why should a utility be able to charge your neighbor for something that you yourself are predominantly benefiting from?
"We are willing to go to the regulators and say, 'We are willing to impose on [the firm] the cost of service regulation for what otherwise would be viewed as non-rate-based services."
He added, "We will impose upon ourselves the same regulated rate of return in our rate case. We will accept that for the ability to install rooftop solar, for the ability to install energy-saving devices, for the ability to install low-energy consumption products and services on our customer's sites, for the ability to install electric-vehicle charging infrastructure, etc. All of these things that exist on the customer's side, we would like to be able to offer to the customers on a cost-of-service basis."
Kellerman suggested that TFC "will be the Wal-Mart of our service territory. We will bring in all the vendors. We will bring them into our equivalent of Bentonville, Arkansas, and we will negotiate the best possible deal we can with those vendors. We will make those deals available on a voluntary basis to all of our consumers, rich and poor, at all levels of the income and credit stream. We will then, if they accept any of those propositions, we will charge them at our cost of service associated with its known wholesale price that we have negotiated with the vendor without any markup, and we will finance it for them based on our regulated, blended cost of capital approved by our regulators."
"That is, to us, innovation. Over time, it will result in the shifting of the rate base more and more from the grid as a whole to more energy-efficient consumptive and energy-producing devices on the customer side of the equation as we move from the megagrid to a series of interconnected microgrids."