e21 Forum Convenes Stakeholders to Explore Consumer-Centric Rates and Performance-Based Compensation
On Friday July 14, more than 50 people convened in St. Paul to learn about and discuss innovations towards a more customer-centric regulatory framework and utility business model for the 21st century. The event was the second of several e21 Forums in 2017, which are convened by the Great Plains Institute and Center for Energy and Environment and designed to provide an opportunity for interested parties in Minnesota to hear about and discuss important issues facing the electric sector. Below is a recap of the event along with links to slides and resources.
Introducing e21 Phase 3:
Rolf Nordstrom kicked off the event with a primer on the e21 Initiative, which was launched in 2014 to provide a collaborative forum outside of the formal regulatory process to respond to profound changes in the electric sector. e21 has moved forward in three phases: Phase 1 convened a broad group of stakeholders to create a vision for a more consumer-centric, performance-based regulatory approach and utility business model; Phase 2 then detailed the next steps for that vision in a series of three white papers; Phase 3, the current and final phase, is focused on shortening the distance between good ideas and implementation by enabling constructive stakeholder engagement in utility pilot projects.
Designing Consumer-Centric Rates:
With both Xcel Energy and Minnesota Power exploring additional time-based rate designs, the July 14th Forum sought to frame up a conversation on how to design advanced utility rates with consideration to the consumers that will be affected by them.
To begin the conversation, Jim Lazar from the Regulatory Assistance Project shared his expertise and opinions on designing consumer-centric utility rates. Lazar proposed three guiding principles to advanced rate design that he argued, through a series of examples, could be upheld for a diversity of rate offerings and customer classes:
- A customer should be allowed to connect to the grid for no more than the cost of connecting to the grid
- Customers should pay for grid services and power supply in proportion to how much they use and when they use it
- Customers delivering services to the grid should receive full and fair compensation — no and more no less
The Forum then shifted to a panel discussion with Lazar, John Howat of the National Consumer Law Center, Dave Kolata of the Citizens Utility Board of Illinois, and Annie Levenson-Falk of the Citizens Utility Board of Minnesota as moderator. An emergent theme of the discussion was that Minnesota should not blindly allocate resources to smart grids but should strive for ‘smart grids done right,’ including education to align rate changes with behavioral changes, soft transitions so that rates do not peak in the short run for vulnerable customers, and prioritizing low-income community concerns through upfront collaborative stakeholder engagement.
The Financial Implications of Performance-Based Compensation:
The second half of Friday’s forum focused on a new project by Seventhwave and Berkeley Lab to better understand the financial implications associated with incrementally or fundamentally shifting the utility business model to performance-based compensation — a key recommendation from e21 Phase 1 and explored in a white paper in Phase 2. Project leaders Steve Kihm (Seventhwave), Peter Cappers, and Andrew Satchwell (Berkeley Lab) presented on the project, which will use financial valuation techniques to develop spreadsheet models quantifying changes in utility profitability under alternative regulatory and business models, ultimately helping to inform the nature and pace of implementation for new utility compensation approaches.
The third e21 Forum of 2017 will take place on Friday, September 8, and will focus on gathering stakeholder input on Xcel Energy’s Time-of-Use rate design pilot in Minnesota, which is expected to be implemented in 2019.
e21 is convened by the Great Plains Institute and the Center for Energy and Environment and made possible by generous funding from the McKnight Foundation.
About co-author Sophia Krohn: Sophia Krohn is a GPI Sustainable Communities Associate Intern for the 2017 summer and is an undergraduate student at Yale University.