by Matthew Rose, Enerdynamics’ Instructor

The industry “topic du jour” in 2013 was that utilities are facing dramatic and potentially disastrous changes to their business. These revelations could be traced to the Edison Electric Institute (EEI) assertion that various “disruptive technologies” including distributed generation and rooftop solar poised a direct assault on the financial viability of utility companies (see EEI, Disruptive Challenges: Financial Implications and Strategic Responses to a Changing Retail Electric Business, January 2013.)

EEI stressed concerns that business rules and regulations in place for decades may no longer be relevant to the challenges in supplying and delivering electricity.  So far in 2014, we are seeing less of the dire rhetoric about the industry’s demise and more signs that the industry is addressing its challenges.

The recent meetings of the National Association of Regulatory Utility Commissioners (NARUC) served as the venue for an announced agreement between EEI and the Natural Resources Defense Council (NRDC), one of the industry’s environmental advocacy groups.

The two organizations issued a joint set of recommendations that call for regulators to re-think the traditional utility business model.  The key tenet of the agreement is that customers deserve the opportunity to install new distributed generation technologies as a means of better controlling their energy use while keeping utilities financially whole and able to capture costs to maintain the grid.

A summary of the eight recommendations follows:

1. The retail electricity distribution business should not be viewed or regulated as a commodity business. Instead it should focus on meeting customers’ energy service needs.
2. Regulators should consider breaking the link between cost recovery and commodity sales while providing reasonable and predictable non-fuel revenue requirements.
3. Customers with net metering need to provide reasonable cost-based compensation for relevant utility services used while also being compensated fairly for the services they provide back to the grid.
4. Utilities deserve assurances that recovery of their authorized non-fuel costs will not vary with fluctuations in electricity use. Customers deserve assurances that costs will not be shifted unreasonably to them from other customers.
5. Regulators should consider expanding utilities’ earnings opportunities to include performance-based incentives tied to benefits by cost-effective initiatives that improve energy efficiency, integrate clean energy generation, and improve grids.
6. Effort should be directed to ensure that energy efficiency services reach underserved populations.
7. A measurable goal should be set forth to help ensure electricity users take advantage of all cost-effective energy efficiency opportunities.
8. State regulators should be called upon to reaffirm support of enhanced utility investment in ‘smart meters’ and a ‘smart grid.’

It should come as no surprise that the agreement was announced at the NARUC meetings since state regulators are key stakeholders. The rationale behind the agreement suggests utility acknowledgement that renewable and distributed generation technologies are a legitimate, ongoing opportunity for customers. NRDC also seems to recognize that only utilities have the ability to integrate renewables at scale, and no one benefits from a financially strapped company. Hopefully 2014 holds more opportunities to address these utility challenges.

Want to learn more about how the utility business will change as customers build more distributed generation? Attend Enerdynamics’ seminar Distributed Energy, Renewables and Microgrids in Chicago April 7-8, 2014.