The NARUC Lesson: Value of Distributed Energy Resources Affirmed When Regulators Rely on Facts

Anyone following our work at Vote Solar will know that we have been deeply involved in the formal regulatory proceedings in which utilities are attempting to change rates or add fees to solar customers. While many utilities claim these proposals are to protect customers that have not installed solar, we are skeptical of these stated altruistic aims. Rather, more customer solar means less load served by the utility, leading to fewer investments and lower shareholder returns.

One year ago, in recognition of the changing energy environment, particularly the advent and increasingly rapid adoption of new distributed energy resource (DER) technologies, and the implications for utilities and their customers, the National Association of Regulatory Utility Commissioners (NARUC), determined to address these matters in a pointed and comprehensive fashion. A resolution to form a Staff Subcommittee on Rate Design was adopted by NARUC in November 2015, “with the ultimate aim of developing a work product that identifies [a] range of options and makes available scholarly articles, consultancy reports, national laboratories’ efforts, think tank proposals, and other substantive approaches to rate designs that may be tailored to State needs and useful in adopting revised rate design methods.”

Chris Villarreal of the Minnesota Commission staff led a team of some 40 regulatory staff members from Commissions across the country, with support from NARUC’s research arm, the National Regulatory Research Institute, to develop the manual.

Importantly, the resulting manual is not just about current solar concerns, but also other rapidly emerging technologies with enormous promise for enhancing energy services to customers while improving reliability and efficiency of the grid. By NARUC’s own account, these new technologies “allow customers to generate their own electricity, respond to prices, reduce (or increase) demand when useful to the system, or store electricity for use at a later time. Many of these technologies are affordable to the majority of customers, with more technologies coming down in costs over the near term.”

These issues are right in our wheelhouse. We are actively engaged in supporting the development of this manual, providing both initial feedback last spring and extensive comments on the draft released in July. At that time our suggestions centered around seven themes.

While not capturing everything, much of what we and other advocates have recommended was incorporated into the final version released this month.

Notably, the manual is more balanced than the initial draft, and the perspectives and suggested paths provided therein indicate a need for balance between long and short term views, an open and more collaborative regulatory process, and a more expansive view of DER itself — it is more than rooftop solar. For example, the manual concedes that “energy storage can be used as a resource to add stability, control, and reliability to the electric grid” (P. 47). It also acknowledges the economic opportunities that DER can bring to all customers if managed properly by the regulators.

Here are some of the positive forward-looking conclusions in the manual:

“Addressing these [DER] issues will require looking at utility regulation from a new perspective. Indeed, a few states have initiated “utility of the future” proceedings, or similar reevaluations of their regulations partially in response to the changes a DER represents. These processes are at the vanguard of an anticipated shift from centralized control and evaluation at a system-wide level to a more technology-dependent and data-driven focus on more localized effects and situations represents a steep learning curve for everyone involved.” P. 41

“Since all electric systems are affected by DER increases differently, before a jurisdiction embarks on the journey to implement substantive reforms due to the growth of DER adoption, it should look closely at data, analyses, and studies from its particular service area before any such actions are taken.” P. 59

“For the jurisdictions with low DER adoption and growth, there is time to plan and take the appropriate steps and avoid unnecessary policy reforms simply to follow suit with actions other jurisdictions have taken. Reforms that are rushed and not well thought out could set policies and implement rate design mechanisms that have unintended consequences such as potentially discouraging customers from investing in DER or making inefficient investments in DER.” P. 62

Critically, the manual also includes a new section suggesting a path forward for regulators. It outlines high-level questions, data needs, and distribution system planning issues to address prior to consideration of alternative rate designs and compensation options for the various DER technologies. The process described is helpfully methodical and includes assessing the current situation, exploring the role and goals of DER, accessing data and collaborating with stakeholders, among other things.

While the manual does contain some discussion that appear presumptive of issues and perspectives that require data and information to fully understand, we believe the manual will be a useful guidebook for addressing matters related to DER in the future. We hope that regulators take the messages to heart, and we look forward to continuing to work with regulators towards resolution of the utility concerns with DER.