At the BPA Conference in Portland (Feb 2), one of the distinct highlights was a presentation by Pamela Lesh, VP Rates & Regulatory Affairs at Portland General Electric. She outlined a remarkable new approach for regulating distribution utilities that goes well beyond “performance based rates”. It was the first public airing of ideas she’s been developing for some time.

The real conceptual breakthrough is to separate the basis on which the utility gets paid from the way the customer is billed, so the right incentives can be presented to each one. Here’s the next to last slide (the complete text appears below):

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– Price to the utility to align success so that the more effectively the utility achieves the results, the better it does, i.e., unit-based, not usage-based, pricing.

– Price to the customer to encourage conservation and prevent abrupt shifts in cost, e.g., usage or demand-based, not flat, pricing.

– Yes we can price differently to the utility and to the customers! We will just need to balance collections with payments.
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Contact Pamela Lesh,
VP Rates & Regulatory Affairs, Portland General Electric.
503-464-7353, pamela_lesh@pgn.com

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“What If’s, Why Not’s, and So What’s”

What If?
– Distribution utilities could become the drivers of new distribution technology, including distributed energy resources?

– The best and the brightest came to work in distribution utilities because, at these companies, commercial success was synonymous with innovative solutions, customer focus, and value, value, value?

Why Not?
– Because words like rate base, cost of service, disallowance, and prudence comprise our vocabulary and constrain our actions

– Because we reward increased electricity sales in the short term and increased rate base in the long term

– Because we are still using the system built to drive the finance, construction, and use of electric infrastructure even though we have long since achieved this purpose

Why not CHANGE?
Change the “frame” — change the framework

From a regulatory compact to one or more regulatory contracts
– make explicit that which is implicit
– pay for performance, not investment
– price on value and what, not on cost and how

Why not get what we–utilities, commissions, public interest representatives– want from distribution directly and up front in the same way that commercial parties bargain?

From a regulated entity to one or more regulated services, at regulated prices
– Distribution services
– Demand-side services
– Supply services
Why not free utility organizations to look for other ways to give and
receive value in the communities they serve and know so well?

The new framework
– A series of “regulated” contracts between a utility and a Public Utility Commission that express and price the values of those who use and/or are affected by a regulated service.

– Times at which the contracts expire, followed by extension, re-negotiation, and the possibility of termination and replacement.

– A permanent abandonment of rate base and cost-plus ratemaking.

What the heck is a “regulatory contract”?

A document with the following key terms:
– Scope
– Performance commitments
– Restrictions on how
– Consequences for non-performance
– Change orders and change process
– Term, termination and “unwind”
– Pricing

What is Scope?

Scope identifies the activities and facilities from which the service provider produces the committed results, e.g.,
– Design – Finance – Construction – Maintenance
– Restoration – Replacement – Access

What are performance commitments?

Measurable results based on what the buyer values, e.g.,
– Reliability – Power quality – Safety – Environmental responsibility
– Information accessibility

What’s all that other stuff?

Everything else except price affects price!
– Constraints are specific means the utility may not use to meet its commitments.

– Consequences are the penalties or damages for failure to meet commitments.

– The change process is the way the parties anticipate and cope with
uncertainty.

– Term is the length of the initial bargain and the process by which a new bargain is struck — or not, and what happens then.

How would you price this?

– Price to the utility to align success so that the more effectively the utility achieves the results, the better it does, i.e., unit-based, not usage-based, pricing.

– Price to the customer to encourage conservation and prevent abrupt shifts in cost, e.g., usage or demand-based, not flat, pricing.

– Yes we can price differently to the utility and to the customers! We will just need to balance collections with payments.

So what?

– So we remove the obstacles to deployment of distributed energy resources that the current regulatory system forces on us
? displacement of rate base
? displacement of utility kWh sales
? utilities precluded from participation because of concerns about
cross-subsidization

– So we enable utilities and others alike to compete to provide customers energy solutions, with the same distribution service available to all

So why not START NOW ??