Governing Green Power II: How should utilities of the future make money?

University of Hawai‘i at Mānoa
Innovation Laboratory — iLab (directions and map)

Growth of renewable energy, reduced economies of scale, rapidly falling storage costs, network communication technologies, plus customer self-generation, load shifting and efficiency options, all have the potential to dramatically change the nature of electricity systems. Underlying this is the eroding viability of incumbent regulatory models that govern utility revenue and profit.

Key issues that this conference will address:

  • Profit of investor-owned utilities is typically tied to rate of return on capital investments, which sets the wrong incentive for utilities to promote less capital-intensive ways of integrating renewables, such as demand response.
  • Current volumetric (i.e., per kWh) rates and demand charges do not reflect underlying marginal costs, creating inefficiencies that will become more severe as renewable penetration grows.
  • As renewables and storage grow, fixed costs will increasingly replace fuel costs, making marginal costs more variable and more difficult to determine.
  • A potentially large shortfall in revenue from efficient volumetric pricing in covering all fixed costs.
  • Alternative ways of covering fixed costs not covered by efficient volumetric pricing.

Thursday – April 12, 2018
Session I
11:00amWelcome & motivation for the conference. Dick Pratt, Professor Emeritus & Governing Green Power Initiative.
11:15Introductory comments by Richard Sedano, President and CEO of the Regulatory Assistance Project.
11:30Brief introductions by all participants.
11:45Lunch in the iLab.
What do you do and why?
Session II: Background Presentations
1:00pmCurrent regulatory structures and the legal precedents guiding them: Carl Freedman, Consultant and member Governing Green Power Initiative. 20 min presentation, 25 minute discussion and Q&A
Presentation Slides
1:45Natural monopoly regulation confronts renewable energy and distributed resources: Michael Roberts, UH Mānoa and Governing Green Power Initiative. 20 min presentation, 25 minute discussion and Q&A
Presentation Slides
2:30-3:00Break & Discussion: How optimistic are you about _____ ?
3:00-3:45Variable pricing and the social cost of renewable energy: Matthias Fripp, UH Mānoa and Governing Green Power Initiative 20 min presentation, 25 minute discussion and Q&A
3:45-4:30Facilitated small group discussion: What in your opinion is the biggest challenge with meeting our renewable energy goals, and how can we overcome it?
5:00-7:30Dinner and Keynote presentation by Richard Sedano, How renewable energy and other technologies are affecting regulation around the world. (East-West Center, Imin Center)
Presentation Slides

Friday – April 13, 2018
Session III: Alternatives to conventional cost-of-service regulation.
9:00-9:30amThe case for an alternative, and three alternatives to motivate discussion:
Performance Based Regulation (PBR): Adding new performance-based metrics to the utility’s allowed revenue. PBR metrics might include: Gross quantity of electricity delivered and consumed Reductions in pollution emissions Greater stability Lower overall costs PBR + lower rate-of-return on capital: More weight on PBR. Pure PBR: same projected revenue if target metrics are achieved. It is clear that some alternatives to cost-of-service regulation involve a change in ownership from the current investor-owned utility. Such a change might involve government-operated municipality, a cooperative, or an independent service operator that manages the system but owns little capital itself. These might be viable and desirable changes over the long run. Regardless of whether such changes are contemplated, we believe there are important opportunities in the near term that could be better exploited if the utility’s current incentives were reconsidered.
Presentation Slides
9:30-10:30Facilitated discussion groups — Sharing views on alternative regulatory structures with goal of clarifying areas of agreement and disagreement.
10:30-10:45Plenary in which each group shares views with all other groups.
10:45-11:15Group facilitators meet to pull together points of agreement and disagreement from across the discussion groups. Other participants are on break.
11:15-11:45Plenary session with reactions to report from facilitators and general feedback.
12:00-1:15pmLunch
Session IV: Rate design in a high-renewable, low-marginal-cost future
1:30-2:00Two views on rate design: Michael Roberts & Rich Sedano:
Do we have a problem?
If so, how big is it?
What are good responses?
Presentation Slides
2:00-3:00Facilitated discussion groups—Sharing views on alternative rate designs with goal of clarifying areas of agreement and disagreement.
3:00-3:15Plenary in which each group shares views with all other groups.
3:15-3:45Group facilitators meet to pull together points of agreement and disagreement from across all discussion groups. Other participants are on break.
3:45-4:15Plenary session with reactions to report from facilitators and general feedback.
4:15-4:45Concluding statements and next steps.
4:45Pau Hana – Sustainability Courtyard near iLab.

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