Credit https wwwwsjcom articles energy-pinching-americans-pose-threat-to-power-grid-1422910187 Some of the biggest investor-owned utilities in the country have in recent years had ambitious urgently-needed grid modernization proposals rejected by regulators But utilities may be able to avoid such rejection by answering three basic but critical questions Regulators for Dominion Virginia Duke Carolinas and others have spurned billion-dollar grid modernization proposals that would prepare the power system for 21st century renewable and distributed technologies because the expenditures were inadequately justified Utilities can avoid that fate by adopting a Why-What-How framework that can keep them from being mired in details and chasing shiny objects according to a November paper from Boston Consulting Group BCG With the framework utilities first set a vision and objectives by asking Why are we modernizing our grid BCG recommended This naturally leads to the next question What are the solutions that will help us achieve our vision and objectives After the what is defined utilities are ready to address the how Nearly every state is exploring policies pertaining to new technologies foundational to the emerging customer-centric low carbon power system Few stakeholders debate the need for investing in the grid but the critical question is which expenditures to prioritize and BCGs framework may help them answer the question state regulators and grid modernization proceeding participants told Utility Dive Modernization of the distribution system is largely done through deployment of distributed energy resources DER and technologies that monitor and control them like advanced metering infrastructure AMI according to the North Carolina Clean Energy Technology Center NCCETC which tracks grid modernization policy quarterly The need for modernization is being driven by customer demand for DER to lower their electricity bills and the opportunities utilities see in DER to flatten peak demand and protect reliability according to both NCCETC and BCG Data show they are right AMI installations were at almost 87 million and growing at the end of 2018 according to the Energy Information Administration Todays two million distributed solar installations are expected to double by 2023 Wood Mackenzie WoodMac and the Solar Energy Industries Association reported in mid-2019 And US energy storage annual capacity additions are projected to grow twelve times by 2024 WoodMac and the Energy Storage Association reported in December When we asked why they were doing grid modernization and what they wanted to achieve they often struggled to answer or just named technologiesThat is a red flag that there is no guiding star and they could get mired in details DER could meet an estimated 20 of peak load by 2030 according to a June 2019 Brattle Group study With a modernized grids situational awareness and controls that flexible load could deliver over 15 billion per year in avoided system costs Brattle estimated Get electric utility news like this in your inbox daily Subscribe to Utility Dive To achieve those benefits regulators utilities along with environmental consumer and renewable energy advocates are working on regulatory and legislative initiatives to plan and fund grid modernization In Q3 2019 there were 383 regulatory and legislative actions in 45 states and the District of Columbia on grid modernization according to NCCETC Grid modernization actions jumped from 288 in 2017 to 480 in 2018 and with Q3 2019s 39 increase from Q3 2018 there was likely another substantial year-over-year increase There is wide agreement on the need for investment NCCETC Senior Manager for Policy Research Autumn Proudlove told Utility Dive in August But there is still no agreement on what investments are or are not appropriate Recent filings from Dominion Virginia and Duke Energy are examples of the disagreement on utilities proposed grid modernization expenditures Proudlove said They also show how approaches like those suggested by BCG can help utilities get beyond the disagreement Grid modernization efforts are growing Most utilities want to modernize their systems but struggle with the sheer complexity BCG reported Their proposals are rejected because the decision to do grid modernization is too often driven by a vague popular sentiment or to avoid power outages This lack of a clear rationale for upgrading prevents effectively articulating the reasons for their proposed investments BCG added The framework changes this by developing clarity and unity of purpose better agreement among internal and external stakeholders and more effective execution from conception through delivery When we asked why they were doing grid modernization and what they wanted to achieve they often struggled to answer or just named technologies BCG Partner Sameer Agrawal told Utility Dive That is a red flag that there is no guiding star and they could get mired in details Well-known examples of utilities moving too fast are the many cases of AMI deployments that did not deliver value Agrawal said In proposals BCG has evaluated which he did not identify because of non-disclosure agreements data on usage went unused because the utilities had no way to use it without the processing technologies they had failed to include in their deployment plans The Why and What elements begin with a vision that addresses evolving customer demands and include quantifiable targets BCG reported That vision determines key needed functions like distribution planning and real-time monitoring that lead to the most useful enabling solutions based on a cost-benefit analysis to ensure that the solutions generate value for all stakeholders Aligning solutions with the utilitys objectives from the beginning can avoid chasing shiny objects and the newest technologies and investing capital counter-productively Agrawal said That is important because capital is constrained in utilities facing rate pressure With these elements defined the How element that utilities too often begin with can be usefully raised BCG reported It should be about implementing solutions and capturing value and is built around changing how a company operates internally so that inter-departmental evaluations of the plan can identify solution interdependencies and avoid duplicative expenditures How requires an organizational structure built around a culture that supports the modernization plan and includes clear accountability for all decisions BCG said There must be a plan for recovering investment costs and tools that track and measure execution and value creation Grid modernization involves planning hundred-million-dollar or billion-dollar projects usually over years Agrawal said It is a journey not a destination and addressing cultural change and regulatory and stakeholder engagement should be part of the upfront planning Dominion Virginia learned that the hard way Proudlove observed Its initial 149 billion grid modernization proposal was rejected by the Virginia Corporation Commission VCC because the utility had not sufficiently demonstrated that the benefits of its AMI proposals outweighed the costs Cost-effective AMI investment can enable policy objectives but Dominion requested approval for cost recovery on AMI without a plan to maximize the potential the January 19 2019 VCC final order reported This we will not do In response Dominion added multiple specific actions to address the VCC guidance its September 30 2019 refiling reported They included a detailed cost-benefit analysis and extensive customer feedback on the proposed expenditures The new plan begins with technological advances that can serve customer preferences through new business models and will deliver reliability and resiliency along with a reduction in carbon emissions Dominion Energy spokesperson Audrey Cannon emailed Utility Dive It was the product of multiple Dominion departments and feedback from consumer advocates renewable energy advocates and environmental groups Cannon said It prioritized understanding by all interested parties of operational constraints new technology and the need for modernization It remains to be seen whether Dominions regulators will find the new and more carefully thought through proposal adequate but it appears the utility has moved in the direction described by BCG Utilities need assurance from regulators that they will not suffer financially from a misalignment of their objectives with the objectives of customers and regulators That requires a more enabling alternative regulatory model The mixed results for Duke Energys recent grid modernization proposals also seem to substantiate BCGs report Its initial 23 billion Power Forward Carolinas proposal was rejected by regulators because of an approach to cost recovery that became controversial when stakeholders argued many of the expenditures were not adequately justified The AMI portion of Dukes proposal was however approved because additional 2019 utility filings included programs and technical specifications that answered regulatory and stakeholder concerns according to the North Carolina commissions November 2019 ruling Duke convincingly argued that dynamic rate designs used on a real-time basis are only enabled with the deployment of smart meter technology the commission reported Utility grid modernization proposals that promise unspecified new rate structures and programs only after AMI deployment is complete are apparently not good enough for a lot of commissions NCCETCs Proudlove observed again substantiating BCGs approach But such a framework may not be the only advance needed The framework Credit From BCG used with permission The BCG framework seems valuable but it is important to also understand the need for regulators to provide clear expectations to inform the Why Pace Energy and Climate Center Executive Director Karl Rabago a former Texas electric utility commissioner emailed Utility Dive A BCG-like framework might have been necessary for more utilities five years ago when ideas about grid modernization technologies and costs were more nebulous Brattle Group Principal and regulatory proceeding expert witness Sanem Sergici agreed But utility hesitation now is over cost recovery Sergici told Utility Dive They need assurance from regulators that they will not suffer financially from a misalignment of their objectives with the objectives of customers and regulators That requires a more enabling alternative regulatory model Traditional cost of service regulation creates the misalignment by rewarding utilities for capital investment she said But multiyear rate plans and performance incentive mechanisms improve the alignment of revenue recovery to utility costs and reduce utilities disincentives for engaging in grid modernization efforts Illinoiss ten-year rate plan enabled significant modernization by Commonwealth Edison and a Minnesota five-year rate plan helped enable multiple Xcel Energy initiatives on rate design and new technologies Sergici said New Yorks Consolidated Edison has taken a nation-leading position in non-wires alternatives as a result of regulatory approval for increased returns she added Fewer utilities are without modernization plans BCGs Agrawal agreed But some utilities may have gone little further than AMI proposals because they were unsure their plans were robust enough to propose or implement he said The utilities BCG has worked with have used the consulting firms framework to more clearly and thoroughly define the Why to better fulfill regulators expectations and earn approvals from stakeholder groups Other grid modernization frameworks encourage doing grid modernization in stages Regulatory Assistance Project Principal and former Nevada utility commissioner Carl Linvill told Utility Dive BCGs Why encourages a critical two-way conversation between the distribution utility and customers third-party service providers and stakeholders that can drive mutual understanding But if development of the Why fails to open up the process to all stakeholders the BCG recommended process will not work well Linvill said It will limit the opportunity for innovation and the diversity of options that meet all customers where they are Plans that include renewables DER advanced technologies and protections for customers like Ameren Missouris grid modernization proposal tend to meet less opposition NCCETCs Proudlove agreed Another positive example of stakeholder engagement was Rhode Islands Power Sector Transformation initiative she added A statewide process created objectives and goals that the commission could see reflected in National Grids plan As a result theres a strong path forward that includes collaboration and stakeholder engagement As BCG suggested utilities must present the business case for their proposals and the imperative for each investment Rhode Island Electric Utility Commissioner Abigail Anthony emailed Utility Dive The Commission needs the same level of detail that the utilitys Chief Financial Officer would require before approving a major investment using utility shareholder dollars The key feature that BCGs framework and the Rhode Island framework share is that grid modernization investments should be in support of a clear and defined need Commissioner Anthony added Both focus on allowing regulators to understand the utilitys reasoning and justification for its grid modernization investment proposals Grid modernization is a means not an end which is the power in the Why question Paces Rabago added It focuses the process on the fundamental statement that new technologies can make the system more efficient less expensive and capable of operating at a high quality with very high penetrations of renewables after high levels of engagement for and by all customers of all incomes