The recent “Rhode Island Power Sector Transformation Phase One Report to Governor Gina M. Raimondo,” includes several recommendations to advance certain policy goals, including a call to leverage distribution system information to increase system efficiency through such actions as improving forecasting and compensating locational value.
The utility should include detailed information on distribution system planning forecasts in annual System Reliability Procurement/Infrastructure, Safety, and Reliability (ISR) filings and implement a stakeholder engagement plan during forecast development, according to the report from the state Division of Public Utilities & Carriers, Office of Energy Resources (OER), and Public Utilities Commission. On compensating locational value, the report noted that state regulators and policymakers should develop a strategy to compensate the value of distributed energy resources based, in part, on their location on the distribution system.
As noted on the commission’s website, in response to the continuing modernization of Rhode Island’s electric system, Rhode Island Gov. Gina Raimondo asked the commission, OER, and the Division to design a new regulatory framework for the state’s electric system.
According to the report, from February through September, staff from the Division, commission, and OER worked together to address topics related to the state’s future electricity system, according to the report. The interagency team collaborated closely and managed the Power Sector Transformation (PST) Initiative with four work streams: utility business models; grid connectivity and functionality; distribution system planning; and beneficial electrification.
The report noted that the demands on the state’s electric distribution system are rapidly evolving, driven by consumer choice, technological advancement and transformative information.
The state’s electric utility and regulatory framework were developed in an era in which demand for electricity consistently increased, technology changed incrementally, customers exerted little control over their electricity demand, electricity flowed one way from the utility to customers, and the risks of climate change were unknown, the report said.
Today, none of those factors is true as demand for electricity has plateaued, many customers generate their own power, electricity flows to and from customers, technologies are being introduced at rapid pace, and the need to mitigate and adapt to climate change is real, the report said.
In these new circumstances, the traditional regulatory framework will not continue to serve the public interest, and will continue to push consumer prices upward without a corresponding increase in value for customers, the report noted.
The report said that the new regulatory framework should seek to achieve these goals:
- Control the long-term costs of the electric system – the regulatory framework should promote a broad range of resources to help right-size the electric system and control costs for Rhode Islanders
- Give customers more energy choices and information – the regulatory framework should allow customers to use commercial products and services to reduce energy expenses, increase renewable energy, and increase resilience in the face of storm outages
- Build a flexible grid to integrate more clean energy generation – the regulatory framework should promote the flexibility needed to incorporate more clean energy resources into the electric grid
The report noted that building on the “Energy 2035 Rhode Island State Energy Plan,” and the work of stakeholders in the commission’s Docket 4600, the blueprint for regulatory reform has identified certain levers of reform, including:
- Pay for performance – the report recommends shifting the traditional utility business model away from a system that rewards the utility for investment without regard to outcomes towards one that relies more upon performance-based compensation, which relies on a set of regulatory tools to improve the utility’s performance based on outcomes aligned with the public interest and ties that performance to financial incentives
- Replace ratepayer funds with new sources of utility revenue – there is an opportunity for the utility to better realize the value inherent to the existing distribution network by providing new kinds of services and entering in to new kinds of partnerships. The revenue from those new services and partnerships has the potential to lower the amount of revenue needed to be recovered directly from ratepayers to operate the system
Those policy goals can be advanced by certain recommendations, including modernizing the utility business model through certain actions, such as creating a multi-year rate plan and budget with a revenue cap to incent cost savings, the report said. The utility should submit a multi-year rate plan with a revenue cap that incents cost saving and shares those savings with ratepayers, the report said, noting that that would better align the utility’s financial incentives with economic efficiency and sound investments in capital and non-capital expenditures, as well as ultimately pass reduced costs on to customers.
Another recommendation calls for building a connected distribution grid through certain actions, including by proactively managing cyber resilience. The report added that the utility should provide annual cybersecurity briefings to the commission on threats, responses, and proactive measures.
On implementation, the report noted that transforming the power sector will not occur overnight. During the coming year, the recommendations of the report will begin the evolution of the power sector through various regulatory vehicles. Regulatory dockets that will be used to implement the recommendations may include the ISR Plan, the report said.
The report noted that it calls for a higher degree of stakeholder engagement with key issues related to utility planning, operations, and investment decision-making.