Consumers as Partners: Evolving Utility Business Models

With the adoption of electric vehicles, rooftop solar systems, battery storage systems and smart appliances, the role of the electricity consumer is changing. Now able to provide services that support the operation of the local grid, consumers are increasingly becoming important partners to their local electricity distribution companies.

However, Rates, Programs, and Member Satisfaction teams are all designed around delivering arrive Consumers, how utility business models change when purchasing services devout consumer? How are utilities preparing to support this change?

Traditional Utility Business Model

U.S. utilities business models have historically centered on delivering safe, reliable and affordable electricity to consumers, paying through rates and earning regulated returns for utilities based on cost of service.

For investor-owned utilities, regulated returns are passed on to shareholders – utilities have a fiduciary duty to shareholders to maximize value. For publicly owned communities, returns are typically reinvested in the community through capital credits.

The collision of two trends

This business model is increasingly evolving in response to two massive and intertwined changes in the utility sector: the impact of climate change and the rapid adoption of consumer-owned distributed energy resources (DER).

Communities across the United States are facing Increased Frequency and Severity of Weather-Related Resilience ChallengesCommunity members in affected areas have spoken out about their wish for utilities to be better prepared for these events — preventing outages as much as possible and restoring power more quickly when needed.

These community members, and often the state legislators who represent them, are also Driving the Decarbonization of Utilities and avoid worse climate impacts— 20 states supporting emission reduction policies.

Meanwhile, the utility is see their consumers adopt distributed energysuch as rooftop solar, batteries, electric vehicles and smart appliances, Independence from utilities at record speed.

“Consumers will buy EVs and rooftop solar if it’s cost-effective for them, whether or not it benefits the system. Utilities can try to slow that down, or they can create a market opportunity for consumers to work with them.” – Chris Villarreal, insertion strategy

As a result, utilities’ “delivered value” will increasingly include resiliency, decarbonization, and easier adoption of DERs, in addition to safety, reliability, and affordability. Traditional utility business models were not designed to support such scaling goals, and new approaches to how utilities create, deliver and capture value are emerging.

Emerging Distribution System Operators (DSOs)

the concept of Distribution System Operator (or DSO) It has been widely discussed as an attractive model for how electricity is delivered to and supplied by local consumers. Visions of how DSOs actually work vary widely, with utilities, research institutions, and DER advocates in California, New York, the United Kingdom, and Australia all offering different versions.

“Right now, the need for a DSO is more specific than the concept of a DSO.” – Lorenzo Kristov, Climate Central

However, regardless of the exact form a DSO may take, each version of the distribution system operator model enables consumer-owned resources to provide grid support services at the distribution and transmission levels.

Utilities across the country are Try out different ways to use these DER For grid support while still maximizing consumer benefits – often the first step towards a full DSO model. The most common examples include:

Each of these approaches incentivizes consumers to adapt their devices’ interactions with the grid to support our electricity system. As utilities move to large-scale, real-time dispatch and coordination of distributed energy resources, New methods of compensating consumers will emerge, including distribution-level markets – and could have profound implications for how utilities interact with consumers.

Performance-based regulation is gaining momentum

As DSOs, Regulators and Consumer Advocates Emerge 17 states Drive exploration from cost-of-service regulation to performance-based regulation (PBR). PBR is an alternative to cost-of-service that focuses on desired, measurable outcomes rather than returns based on the total installed capital or “rate basis.”

use of something PBR aims to better align utility business modelsespecially for investor-owned utilities, With ever-expanding goals and responsibilities. Nearly every state that has proposed a PBR effort includes a combination of safety, reliability, affordability, resiliency, and decarbonization performance metrics — often also including customer satisfaction and equity.

The shift to PBR may be one of the most significant changes in how investor-owned utilities earn returns for their shareholders and how community-owned utilities interact with their members.From a consumer perspective, increased focus on metrics-driven improvements will encourage utilities to provide A New Way for Distributed Energy to Work and Be Fairly Compensated. Utilities will finally have the means to earn higher returns by deferring decisions such as asset upgrades.

While this change will take years to implement (New York REV since 2014), Forward-looking utilities can get ahead of the transition to PBR By providing new options for consumer engagement and working to develop their relationships with regulators to better align utility returns with positive community outcomes.

ready to change

All of these changes converge into a complex picture of what the future utility business model will look like. But regardless of the exact version that appears, Utilities can and should prepare for change.

At Camus, we believe Bringing together related utility operating systems – SCADA, GIS, DMS, AMI, etc. – DER and customer data are key steps utilities should take today Gain a better understanding of how distributed energy resources can support their grids. DER Orchestration Platform – Adding Grid Awareness and Market Integration to Traditional DERMS Capabilities Can Help Grid Operators Address Today’s Challenges, Evolve Their Business Models to Treat Consumers as Partners, and Move toward a DSO Future important step.

Hear utility executives live at Distributtech

Interested in hearing how leading utility and technology providers are thinking about the changing roles of their customers and members?

join in Audrey Ziberman (former New York PSC Chairman and former CEO of AEMO), james conrad (Director of Power Distribution Operations, PPL Electric), Cyril Brenner (Head of Innovation at Vermont Electric Cooperative), and astrid atkinson (CEO, Camus Energy) live group discussion Tuesday, February 7 at Distributech.

Can’t make it to San Diego? subscription Review after the group.

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