Report makes case for electric companies offering services beyond energy supply directly to customers
A report from the Edison Foundation’s Institute for Electric Innovation (IEI) released this week makes the case that electric companies are well positioned to expand distributed energy resources (DERs), but that rules and regulations need to be put in place to provide the most value for customers and a level playing field for all market participants.
The report by IEI Executive Director Lisa Wood and Jonathan Blansfield, senior manager of Strategic Alliances at IEI, laid out the argument that not only can electric companies potentially expand customer access to energy services, but their participation will lead to greater competition and lower costs for customers.
“… Allowing electric companies to offer energy services helps to advance the market, provides more options to customers, expands customer access, extracts more value from these services, and lowers costs,” the report said.
Energy efficiency, private solar photovoltaic (PV) devices and battery energy storage were all highlighted as modern efforts changing the scope of the system. Calling for different thinking in the realm of regulation, the report points out continued evolution requires a need to ensure pricing of retail electricity supply and energy grid services are transparent and cost-based, that rules and regulations are put in place to guarantee equal grounds for all electric providers big or small, and to ensure that energy services are paid for by those customers who benefit from them.
Three distinct types of energy services were cited: distribution grid service — typical power line-driven electricity distribution — electricity supply services, and DERs. DERs include energy products and services tailored to meet customer demand for renewable energy, such as electric vehicle charging, energy management solutions, microgrids and other services.
Electric companies are currently providing some of those types of energy services through mandates in state laws or from public utility commissions, the report noted. However, electric companies should have the option to more fully participate in the DER and energy services markets for a variety of reasons.
“Electric companies have the ability, willingness and historical mandate to serve all customers, regardless of income, geographic location, or type of customer,” the authors wrote. “This sets electric companies apart from third-party providers that have no obligation to serve.”
The report found that when electric companies offer energy services, they target a far larger group of customers than third parties tend to. Further, they have a brand customers recognize and typically trust — not to mention that third parties tend to reach out to electric companies anyway for help in reaching customers and providing services. Because there are also large portions of the country from which third parties are absent, opening the door to electric companies would expand options nationwide.
What’s more, turning to electric companies is something which, according to the report, would benefit low-income customers.
“Electric companies are uniquely suited to provide energy services, especially to those customers whom third-party providers might ignore, such as those who are in good standing with their electric companies but may have low credit scores,” the report says. “Segments of the population that are not prime targets for many service providers today, such as low to moderate-income households, represent a significant portion of U.S. households.”
Market evolution requires broader spectrum participation, meaning that wider expansion of market participants is a potentially good thing. Yet the report also contends that these companies could work with customers to best optimize resources and gain visibility into what those customers are doing with DERs though their roles as distribution grid owners, operators and reliability guarantors. As such, they are also well-positioned to lower costs.
“To date, electric company participation in the market for solar PV and battery storage has helped to drive down the costs of these technologies,” the report said. “Today, electric companies either own or contract for most of the solar energy in the United States, which has resulted in a tremendous decrease in cost; a trajectory that continues today.”
In California and New York especially, DERs are being deployed more frequently as alternative methods to meet demand. In California, Pacific Gas & Electric (PG&E), San Diego Gas & Electric (SDG&E), and Southern California Edison (SCE) are implementing pilot programs to install infrastructure to support electric vehicle charging. In Oregon, Portland General Electric and PacifiCorp have a legislatively demanded 5 MWh energy storage procurement target and the Oregon Public Utility Commission gave them the option to own or to contract for the storage. And in Arizona, the Arizona Corporation Commission approved Tucson Electric Power’s 3.5 MW residential solar program, which involves the company installing and maintaining a private solar PV system for its 25-year life.
Amid a changing landscape marked by efforts to modernize the energy grid, electric companies are expanding their offerings to customers. They are pushing for market rules that focus more heavily on providing customers access to services and guaranteed minimum performance capabilities, flexible and transparent rules, and the categorization of energy services rather than pursuit of a one-size-fits-all solution for the industry.
However, regulations would need some changes to make this possible. Noting that regulators have a duty to ensure the best economic outcome for all, the report nevertheless found that most fixed costs for the energy grid are being recovered through retail electricity charges, and labeled those both non-transparent and inefficient.
“The current cost-of-service regulatory model is out of step with the rapid pace of technological innovation and customer expectation,” the report said.
This is compounded by the fact that most retail tariffs in the United States don’t separately price the three types of energy services, and that in some states, affiliate rules are overly strict to the point that they wipe out any potential benefits to their customers. Flexibility is being called for as a result — and transparent flexibility at that.
