Our Comments on NARUC’s DER Manual: Take the Longview on Rate Design

In late July, a staff subcommittee of the National Association of Regulatory Utility Commissioners (NARUC) released a draft manual that is intended to provide information and guidance to utility regulators across the country on various methods for addressing concerns raised mostly by utilities about the growth of distributed energy resources (DER) and especially rooftop solar. DER represents a variety of technologies, including efficient appliances, electric vehicles, battery storage and rooftop solar.

Vote Solar submitted very detailed comments on this initial draft of the manual, which can be found here (PDF).

Here are our key takeaways:

1. Regulators should take a long-term perspective when considering policies that impact DER deployment. Many benefits to the utility and other customers provided by DER and rooftop solar occur over a 10-20 year horizon and must be taken into account.
2. The design of electricity rates is an art in itself and should be considered separately from DER compensation methods and proposals.
3. DER evaluation should be comprehensive across all customer classes. In other words, focusing only on small customers like residential could leave important benefits uncounted.
4. More focus should be given to developing and applying good regulatory process principles related to the collection and analysis of data, the formulation of pilot projects, and stakeholder collaboration.
5. DER policies should be periodically re-evaluated at predetermined DER penetration threshold levels. Caution should be observed regarding setting policy today based on the impacts of levels that are likely to occur many years in the future.
6. Methods, proposals, and recommendations that create barriers to the deployment of DERs should be avoided.
7. The manual should provide unbiased guidelines and recommendations to regulators.

The draft manual is an excellent start towards the development of comprehensive information and guidelines that will be very useful to regulators, their staffs, utilities, and stakeholders engaged in formal and informal regulatory processes addressing DER.

The technology revolution over the last two decades has both increased demand for electricity for new appliances and services – the internet and EVs among them – and given customers greater control over utility bills through improved efficiency options and with increasing accessibility of power self-generation.

Likewise, customers increasingly recognize the benefit of self-generated power over the value of utility-provided power.

These trends indicate a declining need for additional bulk power generation, and in some regions the need for early retirements.  There is no doubt that continued efficiency efforts and self-generated power will depress load growth in the future.

Source: EIA, Total Energy, Electricity Net Generation, 2014. http://www.eia.gov/totalenergy/data/monthly/index.cfm#electricity.

With little sales growth on the horizon, utilities must find other ways to operate profitably. Increasing revenue or reducing costs have practical limits. The DER manual is well timed to be a catalyst to a discussion of new utility business models that will lead to a transition to a more decentralized, electric system.

NARUC included good insight into these opportunities in the draft manual notes:

Often, discussions on DER are made more difficult due to the regulatory framework and utility incentives that have been in place for decades, or in some respects a century, are being challenged by these new technologies. Traditional means of regulation, rate design, and planning largely assume the utility will meet all demand with generation; with the increase in DER, and the recent lack of load growth, the current regulatory and utility models are a constraint to effectively addressing the growth of DER and its impacts on utility and regulatory frameworks. This is made more difficult by parties in regulatory proceedings often only addressing one aspect of the interaction; either cost recovery for utilities or customer compensation on the part of the advocates. This separates the conversation and makes it harder to reach an agreement that is beneficial for the public interest. Though these specific challenges will lessen with time as knowledge and experience are accumulated, currently one of the biggest issues, if not currently the biggest, is the dearth of empirical data available on the impacts and specific pros and cons of the different ways regulators can address DER and rate design. Identifying and understanding these challenges will assist the regulator in determining an appropriate rate design for its utilities. (page 28)

Vote Solar strongly supports these sentiments, and many of our comments address the need for data and analysis, as well as for a more comprehensive view of DER, customer classes, the utility system, and the utility business and regulatory model. We urge all regulators to consider collaborative data-driven analytic processes for resolution of the DER challenges facing the industry, and look forward towards reviewing the next version of the NARUC DER Manual.