Berkeley Lab has released a new report that discusses who should supply the new value-added services that are emerging in the electricity market – and what policies and regulations are needed to nurture this new market. The report applies to the U.S., but includes lots of lessons for Europe as well.
The report, Value-Added Electricity Services: New Roles for Utilities and Third-Party Providers, discusses new value-added services that grid modernization enables, their impact on roles for utilities and third-party providers, and the policy and regulatory questions they raise.
The value proposition of modernizing electric power distribution grids rests in part on harnessing the control and communications capabilities of new energy generation, storage, delivery, and consumption technologies to offer a broad range of value-added electricity services to retail electricity customers — for example:
- Sophisticated energy management services for homes and businesses
- Integrated distributed energy resource (DER) services that comprehensively address energy efficiency, demand response, distributed generation and energy storage options
- Electric vehicle (EV)-related services, such as charging stations, fleet management and EVs as storage
- DER aggregation and market participation
- Special power quality services
In its Grid Modernization Initiative, the U.S. Department of Energy further highlights the importance of “adapting the existing regulatory system to give load-serving entities the opportunity to create sustainable business models while incorporating emerging technologies that provide value-added energy services to customers and the nation.”
But opinions differ on what constitutes a basic electricity service versus a value-added service. Also subject to debate is who should provide value-added services — utilities or third parties, or both, under what conditions, and how to treat utility costs for enabling these services.
Views diverge on whether utility provision of a new value-added service is dependent on whether the service is an extension of its natural monopoly functions or is independent of those functions. State law may dictate what additional services a utility may provide or, conversely, statutes may restrict participation by third parties.
The new report from Berkeley Lab presents differing viewpoints on the following questions:
- What new value-added services does grid modernization enable, and what are the appropriate roles for utilities and third-party service providers? Should utilities directly compete with competitive providers of new value-added services, or provide new platforms and procurement mechanisms to enable third-party services?
- What policy and regulatory changes may be needed in the face of increasing competition for electricity services from third-party providers?
- How should regulators address utility costs for new value-added services, considering customers who do not participate in these offerings?
- What policy and regulatory approaches best balance promoting innovation with consumer protection?
The report is written by authors representing the perspectives of: 1) utilities, 2) third-party service providers, and 3) consumers.
Jonathan Blansfield and Lisa Wood of the Institute for Electric Innovation (IEI) make the case that electric companies should be able to offer value-added services directly to customers, in partnership with technology companies, or both. From IEI’s perspective, utilities are best positioned to grow the market for these services and have the ability, willingness and mandate to serve all customers, regardless of income, location or class. Utilities also can optimize value-added services, such as targeting DERs for specific locations, as well as deploy services at scale, leading to lower cost for consumers.
In contrast, Ryan Katofsky, Benjamin Stafford and Danny Waggoner of Advanced Energy Economy (AEE) maintain that regulated utilities and competitive suppliers should not be competing head to head to provide the same value-added services to the same customers. In AEE’s view, services that can be competitive — those that do not exhibit monopoly characteristics — should be competitive in order to achieve the greatest benefits for consumers in the long run.
Nevertheless, AEE also concludes that utilities have an essential role to play in the provision of value-added services and should be rewarded for doing so. Further, AEE finds that value-added services based on technology deployed on the customer side of the meter should generally be the domain of the competitive market, subject to specific exceptions that utility regulators make on a case by case basis. This does not preclude the utility from engaging in revenue-producing activities that are connected to services delivered on customer premises. The organization emphasizes a market facilitation and development role for utilities as platform providers and avoiding utility advantages that could be achieved by shifting to ratepayers the financial risk of offering value-added services.
Generally, most National Association of State Utility Consumer Advocates (NASUCA) members believe that utilities should participate in providing potential competitive offerings, with certain regulations in place. These members recognize that utilities may be able to provide value-added services at lower costs to consumers. But not all NASUCA members agree. For example, in restructured states, some consumer advocates argue that utilities should not compete because they may be prohibited by law or should not be allowed to grow rate base by entering into new businesses.
In addition, NASUCA points out that regulated utilities have state oversight, whereas competitive providers may not be subject to similar regulations. Consumer advocates also envision possibilities for utilities to act as a system planner that maintains and builds infrastructure to enable a platform for certain value-added services offered by third-party providers. For example, utilities could connect buyers and sellers or act as independent distribution system operators.
The authors anticipate policy and regulatory changes needed in light of value-added services that modern grids enable, such as the following:
- Rules to facilitate third-party engagement and a level playing field for all providers
- Accurate and transparent price signals that separately price three distinct services: (1) energy grid, (2) electricity supply and (3) value-added services
- Ensure consumers access to value-added services, set a performance floor, reinforce consumer protections, promote innovation and minimize barriers to entry for providers
- Rules to maintain strong competition to spur innovation
- Financial incentives for utilities to facilitate collaboration with third-party providers and to give utilities more options for revenue and earnings as they evolve away from a traditional business model based largely on capital investment
- Pricing for any value-added services offered by regulated utilities should account for use of resources that customers pay for under basic service, and ensure the utility does not subsidize value-added services or earn outsized profits on them
- Marketing flexibility or other allowances for utilities to help keep consumers connected to the grid and contributing to fixed costs
- Strong, transparent codes of conduct and transaction rules for nonregulated utility affiliates
- Third-party access to consumer data, with privacy protections
- Consumer protections for new offerings, including the prohibition of unfair, false, misleading or deceptive advertising or marketing practices.
- Uniform industry standards for the marketplace which promote equitable treatment and safety of consumers
- Effective and fair competition for services whenever applicable
The authors will discuss the findings of the report on a free webinar on November 6, 2017, at 10:30 PST / 1:30 EST. Participants should register in advance at: https://cc.readytalk.com/r/whsank2r7teg&eom
The webinar will be recorded and archived at FEUR.lbl.gov along with the report and slides.
The report is the ninth in the Future Electric Utility Regulation series from Berkeley Lab. Additional reports are forthcoming. Subscribe to our mailing list at FEUR.lbl.gov and follow us on Twitter at @BerkeleyLabEMP.
The report was funded by the U.S. Department of Energy’s Office of Electricity Delivery and Energy Reliability – Electricity Policy Technical Assistance Program, and the Office of Energy Efficiency and Renewable Energy – Solar Energy Technologies Office, through DOE’s Grid Modernization Initiative. Lisa Schwartz, Berkeley Lab’s Electricity Markets and Policy Group, is the project manager and technical editor.