mich sg symposium 5 18 11

BRIDGE Energy Group, Inc.

Effective Regulatory Issues for Smart Grid

Topics

• Who is Bridge Energy Group

• Smart Grid is a “Game Changer” for Traditional Utility Regulation

• Applied Regulatory Issues with Smart Grid

• Regulatory Roles, State Versus Federal

• How Should Utility Commissions Address Cost/Benefit?8/19/2010

Bridge Energy Group, Inc.

• Focused on the Energy Industry• HQ in Marlborough, Mass• Regional Offices: Albany, Austin, Rutland, Sacramento • 6 year old, 110+ people• Clients: ISO, Small to Medium - T&D, Utilities, Coops, Munis• Currently working on many Smart Grid Projects

BRIDGE is Not Aligned with any Tool, Product or Technology VendorAdvantage: BRIDGE works for the client’s cause.

BRIDGE coordinates as neutral third party with all vendors without conflict of interest.

BRIDGE will be Your Trusted Advisor and Implementation Partner.

8/19/2010

The Traditional Regulated Utility

• Bundled Investment Made on Behalf of Consumers & Society

• Investment in Long Lived, Predictable Assets• Retail Rates Expected to be Stable• Utilities Manage a Centrally Controlled

Network• Utility Planners Focus on Stability and are

Responsible for Reliability

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The National Electric System

• Historically Central Station Driven• Since Restructuring Focused on a National

Transmission Superhighway• Top Down Resource Planning via Utilities,

Regulators and RTO’s• Since 2003 Blackout Accountability for

Reliability Raised Significantly

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National Energy Policy

• Starting with PURPA in 1978, Efficiency & Resource Diversity (Renewables)

• EPAct 1992 Increased Emphasis on Efficiency, Launch of EWG’s, Restructuring

• Increasing Emphasis on Environmental Attributes in Light of Climate Change

• BUT Most Solutions are Instituted via Mandates to Utilities

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A Macro Picture of the NE System

2/21/11

Old Ratepayer Profile

• All Set, Taken Care of• Disengaged, Uninterested• Content that the Lights Come On, Flat Screen

Works• Occasionally Awakened When Rates Increase

or a Transmission Line is Proposed• Pays their Bill via the U.S. mail

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New Ratepayer Profile

• Banks, Christmas Shops, Plans Vacation & Has a Garage Sale (eBay) all online

• Has at least one cell phone• Owns not just a DVR, But Streams Movies, Even

Netflix in the Mailbox is Old Already• Very aware of and cares about the environment• Has installed or is thinking about installing their

own solar panels, or wind turbine

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Smart Grid as a Game Changer

Steep Technological Curve, asset selection uncertainty, accelerated asset amortization

Dynamic Rate Environment Replaces Static One

Central Station Driven System Becomes More Distributive

Smart Grid as a Game Changer

Digital Automation Dictates Changed Utility Business

Model

Utility Relationship w/ Consumers Less “Paternalistic”

Increased Electric Sales Can be a Good Thing

Many Regulatory Principles Remain Valid, But Not All

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Big Picture Issues/Questions

Regulators and Utilities Both Need to Revisit Their Assumptions

Inventory Energy Policy Objectives, Are They Being Met?

What Has Worked Well What Has Not? Should Established Regulatory Scheme Be

Preeminent?

Applied Regulatory Issues

Ratemaking

Known & Measureable, Used & Useful• Are SG project costs well defined, will the solutions remain

useful over their projected lives?Prudence

• Was management prudent in their asset/technology selection?

Asset Amortization• Shorter amortization periods place upward pressure on retail

rates

Applied Regulatory Issues

Ratemaking Rate Design

Principle of stable rates must be revisited Reward Conservation & Load Shifting

Big Picture we Must Facilitate an Atmosphere of Trust & Shared Responsibility between Utility and Regulator

Traditional Cost of Service vs. Alternative or Performance Based Regulation ROE, How to Allocate Risk & Benefit

State Versus Federal Role

SG is Predominantly a Distribution System & Retail Play

The SG “Line of Scrimmage” is the State Utility Commission

Federal SG Role Has Been one of Vision & Certainly Stimulus $$

However FERC Must Engage on Price Responsive Demand Development within Wholesale Power Markets

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Determining SG Cost/Benefit

• Cost and benefit extends well beyond AMI

• Distribution Automation a Major Driver of

Ratepayer Benefit

• Measuring Ratepayer Benefit Greatest

Challenge

• Uniformity of Approach Should Be Explored

Resources

“Principles of Public Utility Rates”, James C. Bonbright, Albert L. Danielsen , David R. Kamerschen

“Advanced Metering Initiatives and Residential Feedback Programs: A Meta-Review for Household Electric- Saving Opportunities”, Karen Ehrhardt-Martinez, Kat A. Donnelly, John A. “Skip Laitner, June 2010

http://www.aceee.org/research-report/e105

“Smart Grid Strategy: How Can State Commission Procedures Produce the Necessary Utility Performance?” Tom Stanton of NRRI, February 2011

http://www.nrri.org/pubs/electricity/NRRI_smart_grid_strategy_feb11-05.pdf

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Resources

“THE ETHICS OF DYNAMIC PRICING”, Ahmad Faruqui, Ph. D. The Brattle Group, March 30, 2010

“Rethinking ‘Dumb’ Rates, Achieving the Smart Grid’s Potential Requires a Revolution in Electricity Pricing.” Rick Morgan, Public Utilities Fortnightly, March 2009.

http://www.fortnightly.com/exclusive.cfm?o_id=158

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Questions ?

David J. O'BrienDirector of Regulatory Strategy & ComplianceBRIDGE Energy Group Inc.

508.281.7133 x210 | M: 802.522.0917 DOBrien@bridgeenergygroup.com www.BridgeEnergyGroup.com