In April, Commissioner Florio of the California Public Utilities Commission introduced a draft regulatory incentive proposal that seeks to keep the shareholder value steady for investor-owned utilities (IOUs), all while investing in distributed energy resources (DERs). This is revolutionary in that most California regulators know that IOUs currently stand to lose money when they choose to invest in DERs.
For the last one hundred years utilities have made investments in the energy grid through installing, maintaining and replacing equipment: substations, poles, wires, and transformers. Those investment costs are then passed onto the user in addition to the normal rate of usage: a process called, “cost-of-service regulation”. Now with the arrival of new energy producers – privately-owned solar panels, wind farms, and battery storage to name a few — the traditional business model for utilities that supports utilities’ investments in the grid is changing.
Commissioner Florio’s proposal is meant to, “offer a shareholder incentive for the deployment of cost-effective DERs that displace or defer a utility expenditure, based on a fixed percentage of the payment made to the DER provider (customer or vendor).” Florio said he hopes that the utilities would be aggressive in identifying DER deployment opportunities so that they are proposing one every six months.
The California Public Utilities Commission sought comments and reply comments on the proposal by September 9th and 16th respectively. A decision on Commissioner Florio’s proposal is expected by the end of the year.
As California is the leader in solar PV panels, plug-in electric vehicles, grid-scale energy storage and home automation technologies, Florio’s proposal is seeking to change the mindset of utilities and instead of seeing DERs as a threat to its bottom line and way of doing business, it can see it as a strong investment in its companies future, all while maintaining its business model. This will inevitably run over into other states as they look to California’s leadership on DERs. Many states may see this as a great opportunity to get their own utility companies to begin investing in and embracing DERs without needing to design a new business plan.