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Utility Business Models in a Low Load Growth/High DG Future: Gazing
Utility Business Models in a Low Load Growth/High DG Future: Gazing
Motivation and Context
Motivation and Context
Outline
Outline
Outline
Outline
Renewable Generation Accounts for Increasing Share of U.S. Capacity
Renewable Generation Accounts for Increasing Share of U.S. Capacity
U.S. PV Capacity Increased Substantially Over Past 5 Years
U.S. PV Capacity Increased Substantially Over Past 5 Years
Installed Solar PV Prices Continue to Decline
Installed Solar PV Prices Continue to Decline
Potential Bypass Threats from Distributed Generation are Large
Potential Bypass Threats from Distributed Generation are Large
Electric Savings Could Offset a Large Portion of Projected Load Growth
Electric Savings Could Offset a Large Portion of Projected Load Growth
SPSC High DSM Case would result in nearly flat load growth through
SPSC High DSM Case would result in nearly flat load growth through
Outline
Outline
Impact of Grid Investments due to Public Policy Goals on Retail
Impact of Grid Investments due to Public Policy Goals on Retail
Recent Examples of Major Rate Increases at US Utilities
Recent Examples of Major Rate Increases at US Utilities
PG&E Rates are Expected to Rise Substantially Over the Next 10 Years
PG&E Rates are Expected to Rise Substantially Over the Next 10 Years
Outline
Outline
Ongoing Activity
Ongoing Activity
Position-driven Proposals
Position-driven Proposals
Investment-driven Proposals
Investment-driven Proposals
Crisis-driven Proposals
Crisis-driven Proposals
Outline
Outline
Continuum of Utility Business Models: Profit Motivation vs
Continuum of Utility Business Models: Profit Motivation vs
Continuum of Utility Business Models: Ratemaking Variant
Continuum of Utility Business Models: Ratemaking Variant
Ratemaking Variant: Incremental Changes to Cost of Service Regulation
Ratemaking Variant: Incremental Changes to Cost of Service Regulation
Continuum of Utility Business Models: Performance Based Regulation
Continuum of Utility Business Models: Performance Based Regulation
Performance-Based Regulation: Link Utility Profits to Achievement of
Performance-Based Regulation: Link Utility Profits to Achievement of
UK Approach under RIIO: Role of the Regulator (Ofgem)
UK Approach under RIIO: Role of the Regulator (Ofgem)
Continuum of Utility Business Models: Meter/Wires Company
Continuum of Utility Business Models: Meter/Wires Company
Wires-Only Network Owner/Operator: Utility Divests Generation Assets
Wires-Only Network Owner/Operator: Utility Divests Generation Assets
Continuum of Utility Business Models: Combining Existing Models
Continuum of Utility Business Models: Combining Existing Models
Smart Integrator: Utility as Network Integrator
Smart Integrator: Utility as Network Integrator
Continuum of Utility Business Models: Fundamental Paradigm Shift
Continuum of Utility Business Models: Fundamental Paradigm Shift
Energy Service Utility
Energy Service Utility
Continuum of Utility Business Models: Fundamental Change in Ownership
Continuum of Utility Business Models: Fundamental Change in Ownership
Full Exit for Municipalization
Full Exit for Municipalization
Outline
Outline
Electrification of Transport and Fuel Switching Could Significantly
Electrification of Transport and Fuel Switching Could Significantly
Inertia and Power of Incumbent Utilities May Limit Scope and Rate of
Inertia and Power of Incumbent Utilities May Limit Scope and Rate of
Discussion Questions
Discussion Questions
Gaps & Potential Future Work
Gaps & Potential Future Work
References
References
References (2)
References (2)
References (3)
References (3)
Background Slides
Background Slides
High DSM Load Forecast Requires Explicit Accounting of Energy
High DSM Load Forecast Requires Explicit Accounting of Energy
Politically-Driven Changes to Utility Business Models
Politically-Driven Changes to Utility Business Models
Overseas Examples of Rapid Rate Increases due to Public Policy
Overseas Examples of Rapid Rate Increases due to Public Policy
UK RIIO: Examples of Sample Outputs for UK Transmission Operators
UK RIIO: Examples of Sample Outputs for UK Transmission Operators
UK Approach to PBR: RIIO
UK Approach to PBR: RIIO
UK Approach: RIIO Business Plan Framework
UK Approach: RIIO Business Plan Framework

: Utility Business Models in a Low Load GrowthHigh DG Future: Gazing into the Crystal Ball. : pacappers. : Utility Business Models in a Low Load GrowthHigh DG Future: Gazing into the Crystal Ball.ppt. zip-: 1769 .

Utility Business Models in a Low Load GrowthHigh DG Future: Gazing into the Crystal Ball

Utility Business Models in a Low Load GrowthHigh DG Future: Gazing into the Crystal Ball.ppt
1 Utility Business Models in a Low Load Growth/High DG Future: Gazing

Utility Business Models in a Low Load Growth/High DG Future: Gazing

into the Crystal Ball?

Charles Goldman, Andy Satchwell, Peter Cappers, and Ian Hoffman Lawrence Berkeley National Laboratory Committee on Regional Electric Power Cooperation (CREPC)/State-Provincial Steering Committee (SPSC) Meeting Boise, ID April 10, 2013

1

2 Motivation and Context

Motivation and Context

Framing question: Is there an existential threat to the business model of regulated utilities? Utilities are observing and publicly stating threats from declining demand and lost investment opportunity in supply and energy services Disintermediation Jim Rogers, President and CEO Duke Energy Significant activity across a range of actors in identifying, understanding, and addressing questions related to utility business models Limited experience to date with fundamental changes to regulated utility business models in US; more experience with incremental changes to COS regulation

2

3 Outline

Outline

What does a low load growth, high DG future look like? What are the implications of this future for utility business models? Who is doing what? What is the continuum of utility business models? What are the countervailing forces?

3

4 Outline

Outline

What does a low load growth, high DG future look like? What are the implications of this future for utility business models? Who is doing what? What is the continuum of utility business models? What are the countervailing forces?

4

5 Renewable Generation Accounts for Increasing Share of U.S. Capacity

Renewable Generation Accounts for Increasing Share of U.S. Capacity

Additions

5

Source: Wiser and Bolinger (forthcoming).

6 U.S. PV Capacity Increased Substantially Over Past 5 Years

U.S. PV Capacity Increased Substantially Over Past 5 Years

Starting in 2007, US cumulative PV capacity was ~500 MW. Total installed capacity doubled by 2009, doubled again in 2010 and then doubled again in 2011 Annual growth rate of PV in the U.S. has exceed 30%/yr since 2001

6

Source: Barbose et al. (2012)

7 Installed Solar PV Prices Continue to Decline

Installed Solar PV Prices Continue to Decline

No state incentives needed to compete at retail grid parity in some markets (third-party ownership flourishes) Solar PPAs for 10 MW+ plants in Southwest now well below 10 cents/kWh

7

Source: Feldman et al. (2012)

8 Potential Bypass Threats from Distributed Generation are Large

Potential Bypass Threats from Distributed Generation are Large

WECC-wide Behind-the-Meter DG: 19 GW of solar PV + 7 GW of CHP Distributed PV based on interconnection potential (no back-flow through feeders), with adjustments to reflect relative economics among states CHP additions represent a fixed percentage (~40%) of technical potential in each state

8

Percent of 2032 Peak Demand

Source: E3 (2013).

9 Electric Savings Could Offset a Large Portion of Projected Load Growth

Electric Savings Could Offset a Large Portion of Projected Load Growth

Total electric & gas spending doubles to $9.5B in 2025 in the medium case (low: $6.5B, high: $15.6B) Projected annual incremental savings rise to 0.76% per year by 2025 in medium case Projected EE savings in the medium case would offset much of electric load growth forecasted by EIA

Projected Incremental Annual Electric EE Savings from Customer-Funded Programs (Percent of Retail Sales)

Projected Utility Customer Funding for Electric and Gas EE Programs

9

Source: Barbose et al. (2013)

10 SPSC High DSM Case would result in nearly flat load growth through

SPSC High DSM Case would result in nearly flat load growth through

2032

Historical load growth in WECC: 1.6%/yr (1998-2010) WECC 20-yr reference case forecast with current EE policies = 1.4%/yr, with growth <1% in 5 states SPSC High EE case reduces load growth to 0.3%/yr (WECC-wide), with 6 states projected to have negative load growth

10

Source: LBNL and Itron (2013).

11 Outline

Outline

What does a low load growth, high DG future look like? What are the implications of this future for utility business models? Who is doing what? What is the continuum of utility business models? What are the countervailing forces?

11

12 Impact of Grid Investments due to Public Policy Goals on Retail

Impact of Grid Investments due to Public Policy Goals on Retail

Electric Rates Nationwide

350 TWh new green energy from state RPS by 2030: ~$120B Total generation decarbonization: ~$1T New transmission to integrate renewables and maintain reliability: ~$250B Replace aging distribution system with smart grid: $600B Estimated cumulative investment in customer-funded EE programs due to EERS and other policies in 2025: ~$99.7B

Rate Component

Change in Rate Component

Fuel and Purchased Power

?

Non-Fuel O&M

?

Capital Expenditures

?

Retail Sales

?

Peak Demand

?

Customers

?

- 12 -

Source: Fox-Penner. P and Chang, J. (2012); Barbose et al. (2013)

13 Recent Examples of Major Rate Increases at US Utilities

Recent Examples of Major Rate Increases at US Utilities

AEP customers in parts of Virginia, Kentucky, Ohio and West Virginia have seen their rates increase between 48 and 88% over the past several years; expected to continue rising by 10-35% in the next several years Rocky Mountain Power in Wyoming raised rates twice in 2011: by 2% in April and then 8% in September Duke Energy in South Carolina requested a 17% residential rate increase in 2011 Alaska Electric Light and Power got a 24% increase in residential rates Residential customers in New Mexico were looking at a 21% rate hike but the state PUC capped it at 9%

13

14 PG&E Rates are Expected to Rise Substantially Over the Next 10 Years

PG&E Rates are Expected to Rise Substantially Over the Next 10 Years

14

Source: PG&E (2013)

15 Outline

Outline

What does a low load growth, high DG future look like? What are the implications of this future for utility business models? Who is doing what? What is the continuum of utility business models? What are the countervailing forces?

15

16 Ongoing Activity

Ongoing Activity

There is a considerable amount of ongoing research and advocacy aimed at defining, analyzing, and promoting alternative utility business models across various entities: Academia Several universities with dedicated electricity/energy research centers work on regulatory theory and practice of utility business models, and providing training in partnership with NARUC Advocacy organizations Efficiency and environmental advocates are producing numerous reports and convening dialogues with industry experts Utility industry associations Trade associations host conferences for utilities and other industry stakeholders, and support advocacy efforts Consultants Provide technical expertise and conduct quantitative analysis on alternative utility business models for utility clients National Labs Provide technical assistance to state regulators and policymakers on alternative utility business models

16

17 Position-driven Proposals

Position-driven Proposals

Efficiency and environmental advocates and foundations: Existing utility business model poses significant challenges to certain types of clean energy futures driven by technology innovation and customer access

Entity (Project)

Scope of Issues

Expected Outcomes and/or Process

17

RMI (eLab)

Costs and benefits to electric system from distributed resources Aligning regulatory frameworks, business models, and pricing structures Acceleration of distributed resource adoption

Multi-year, discussion-based project Annual working group meetings Summary report

Ron Binz/Ron Lehr (Utility 2020)

Considers supply- and demand-side forces (e.g., aging infrastructure, new technologies, environmental compliance, EE/DR) Encompasses new regulatory options and approaches

12-month feasibility study (completed) Interviews of utility CEOs and regulators Advisory council and development of longer-term project

Energy Futures Coalition (Utility 2.0 Pilot)

Outgrowth of testimony before Maryland Grid Resiliency Task Force supporting transition of utility to new business model Developing pilot project with new business model elements (e.g., customer technology, enhanced service reliability, and customer relationship and communication)

Collaboration with utilities (BGE and PEPCO), and other stakeholders Pilot project design document (March, 2013)

18 Investment-driven Proposals

Investment-driven Proposals

Utilities and investors are concerned with managing risks of regulatory uncertainty, maintaining revenue sufficiency, and addressing reliability concerns from under-investment in infrastructure

Entity (Project)

Scope of Issues

Expected Outcomes and/or Process

18

Edison Electric Institute (Critical Consumer Issues Forum)

Considers financial risks and investor implications of changing business model (e.g., declining bond ratings, declining sales and revenues) User groups focused on energy efficiency business models

Host/sponsor conferences and events on related topics Publish reports (e.g., Disruptive Challenges, January, 2013)

IEE (Focus on the Future)

Track developments in regulatory frameworks to support energy efficiency Focus on the Future project considers interaction of new technologies and the electric industry

Host/sponsor conferences and events on related topics Regularly publish issue briefs and updates on state regulatory frameworks

CERES (The 21st Century Electric Utility)

Guided by sustainability and low-carbon objectives, the project identifies key utility business model elements and provides recommendations for utility transitions to new business models

Report to identify and define best practices (July 2010) Ongoing organization of investors and utilities on increased transparency and sustainability practices

19 Crisis-driven Proposals

Crisis-driven Proposals

Some state policymakers and regulators are considering new approaches to elicit improvements in the electric system, given reliability and grid restoration problems during recent weather-related crisis events

Entity (Project)

Scope of Issues

Expected Outcomes and/or Process

19

Maryland (Grid Resiliency Task Force)

Governor OMalley created Grid Resiliency Task Force in response to poor service reliability during Summer 2012 weather events Considers incentives based on reliability criteria and penalties if criteria are not achieved

Task Force Report (September, 2012)

New York (Moreland Commission)

Governor Cuomo created Moreland Commission in response to extended power outages after Hurricanes Sandy and Irene Commission is considering oversight and reform of utility regulation

Public hearings across state Interim Commission Report (January, 2013) Final Commission Report with recommendations (Spring 2013)

20 Outline

Outline

What does a low load growth, high DG future look like? What are the implications of this future for utility business models? Who is doing what? What is the continuum of utility business models? What are the countervailing forces?

20

21 Continuum of Utility Business Models: Profit Motivation vs

Continuum of Utility Business Models: Profit Motivation vs

Profit Achievement

Achievement

Services

Motivation

Value

Assets

Commodity

21

22 Continuum of Utility Business Models: Ratemaking Variant

Continuum of Utility Business Models: Ratemaking Variant

Achievement

Services

Motivation

Value

Assets

Commodity

22

23 Ratemaking Variant: Incremental Changes to Cost of Service Regulation

Ratemaking Variant: Incremental Changes to Cost of Service Regulation

All core functions of the utility are unchanged but fundamentally alter the way revenue is collected to better align utility and policy makers goals Institute lost revenue mechanisms to eliminate the throughput incentive Apply shareholder incentives to create positive profit motive for IOU to achieve policymakers goals

Alter ratemaking to align COS model with public policy values and aims

Model Element

Value

Assets Owned

(G,) T & D

Commodity Supplier

IOU

Service Provider

IOU

Network Access

Closed

Profit Motive

ROR (insulated from exogenous factors) + Incentives

23

24 Continuum of Utility Business Models: Performance Based Regulation

Continuum of Utility Business Models: Performance Based Regulation

Achievement

Services

Motivation

Value

Assets

Commodity

24

25 Performance-Based Regulation: Link Utility Profits to Achievement of

Performance-Based Regulation: Link Utility Profits to Achievement of

Policy Goals

Economists perceive it as better than COS/ROR because of stronger incentives for cost containment and innovation But can lead to dissatisfaction with audits, prudence and used & useful reviews Can take many forms and has a variety of design issues that make creating a system time-consuming and challenging for the uninitiated

Link utility profits to achievement of public policy goals

Model Element

Value

Assets Owned

(G,) T & D

Commodity Supplier

IOU

Service Provider

IOU

Network Access

Closed

Profit Motive

ROR +/- Incentives (achieved level based on achieved policy

25

26 UK Approach under RIIO: Role of the Regulator (Ofgem)

UK Approach under RIIO: Role of the Regulator (Ofgem)

Significant role of the regulator in multiple parts of the process Regulatory sets primary outputs and baseline performance, reviews and approve business plans, performs inspections, and ultimately decides on incentives and penalties to be awarded May revoke distribution company (DISTCO) license to operate Ofgem will develop a report card for performance of all 14 DISTCOs

26

Source: Fox-Penner (2010)

27 Continuum of Utility Business Models: Meter/Wires Company

Continuum of Utility Business Models: Meter/Wires Company

Achievement

Services

Motivation

Value

Assets

Commodity

27

28 Wires-Only Network Owner/Operator: Utility Divests Generation Assets

Wires-Only Network Owner/Operator: Utility Divests Generation Assets

Removing generation assets from IOUs portfolio means utility is indifferent to public policy that affects timing and quantity of generation expansion All other disincentives associated with traditional IOU business model still remain (i.e., throughput) and no new positive financial incentives are provided

Continue COS regulation where achieved profits based on cutting costs and/or growing billing determinants between rate cases

Model Element

Value

Assets Owned

T & D

Commodity Supplier

IOU(?)/Other

Service Provider

IOU/Other

Network Access

Closed

Profit Motive

ROR

28

29 Continuum of Utility Business Models: Combining Existing Models

Continuum of Utility Business Models: Combining Existing Models

Achievement

Services

Motivation

Value

Assets

Commodity

29

30 Smart Integrator: Utility as Network Integrator

Smart Integrator: Utility as Network Integrator

Utility responsible for creating the infrastructure so all entities can readily integrate into all aspects of the smart grid network To maximize value of smart grid, utility will need to make smart grid network open to all other service providers Unclear how traditional business model is changed to motivate the utility to play this role

Continue COS regulation on utility assets plus alter ratemaking and include profit in price of services

Model Element

Value

Assets Owned

T & D

Commodity Supplier

Other

Service Provider

IOU(?)/Other

Network Access

Open(?)

Profit Motive

ROR (insulated from exogenous factors?) + Incentives (in price of services offered)

30

Source: Fox-Penner (2010)

31 Continuum of Utility Business Models: Fundamental Paradigm Shift

Continuum of Utility Business Models: Fundamental Paradigm Shift

Achievement

Services

Motivation

Value

Assets

Commodity

31

32 Energy Service Utility

Energy Service Utility

Extension of the SI model with utility owning and operating means to provide ALL services Fundamental shift in pricing away from commodity sales (?/kWh) towards services offered (e.g., cooling) Requires paradigm shift in the way utilities are rate regulated, what a utility offers to customers, and how utility measures what it offers to customers

Services are priced to ensure adequate rate of return on investments to provide those services

Model Element

Value

Assets Owned

G, T & D

Commodity Supplier

IOU/Other

Service Provider

IOU/Other

Network Access

Open(?)

Profit Motive

Incentives (in price of services offered)

32

Source: Fox-Penner (2010)

33 Continuum of Utility Business Models: Fundamental Change in Ownership

Continuum of Utility Business Models: Fundamental Change in Ownership

Achievement

Services

Motivation

Value

Assets

Commodity

33

34 Full Exit for Municipalization

Full Exit for Municipalization

Proliferation of public power and coop models when goals of utility and community not in sync Desire for local control, more accountability Customer service Munis employ more linemen and recovered more quickly after Hurricane Irene Environmental objectives Latest examples: Winter Park, FL Boulder Following ballot initiative disfavoring 20-year PSCo franchise and disallowal of smart-grid cost overruns Santa Fe & Minneapolis

34

Sources: New York Times (2013); Public Utilities Fortnightly (2013).

35 Outline

Outline

What does a low load growth, high DG future look like? What are the implications of this future for utility business models? Who is doing what? What is the continuum of utility business models? What are the countervailing forces?

35

36 Electrification of Transport and Fuel Switching Could Significantly

Electrification of Transport and Fuel Switching Could Significantly

Increase Electric Loads Over Long Term

Uncertainty in adoption of electric vehicles and market growth Fuel switching may be limited to only certain end-uses

36

Sources: Olson (2012); ECF (2010); Williams et al. (2012)

37 Inertia and Power of Incumbent Utilities May Limit Scope and Rate of

Inertia and Power of Incumbent Utilities May Limit Scope and Rate of

Changes to Utility Business Model

Utilities likely to pursue other (incremental) strategies to mitigate threats to their business model/revenues (e.g., high customer charges, limit net metering) before proposing fundamental changes to regulatory compact Many proposals would require a fundamental change to the regulatory compact and natural monopolies What situations would prompt such changes? Crisis and catastrophic events Unmistakeable climate change signal Death spiral for utility Relative merits and utility characterization of alternative business models (e.g., government-run utilities)

37

38 Discussion Questions

Discussion Questions

What do you think are the biggest/most significant drivers that are changing the utility business model? How do you envision the transition from traditional utility business models to something fundamentally different? Are those transitions incremental or comprehensive? What suggestions do you have for regulators and policymakers? Where are the venues and places most important for regulator and policymaker participation?

38

39 Gaps & Potential Future Work

Gaps & Potential Future Work

Information & Education Monitor forums where future business models are discussed or tested (UK) Track dockets where shifts in fixed-cost allocations are at issue How is PBR working at home and abroad? Actions/Studies Define a threshold at which rates (or rate increases) become a problem in your state: What would be a plausible response? At what point do increases in customer charges conflict with incentives and public policy goals concerning EE & RE?

39

40 References

References

Barbose, G., Darghouth, N. and Wiser, R. (2012) Tracking the Sun V: An Historical Summary of the Installed Price of Photovoltaics in the United States from 1998 to 2011. Berkeley, CA. November, 2012. LBNL-5919e. Barbose, G. L., Goldman, C. A., Hoffman, I. M. and Billingsley, M. (2013) The Future of Utility Customer-Funded Energy Efficiency Programs in the United States: Projected Spending and Savings to 2025. Berkeley, CA. January 2013. LBNL-5803E. Burr, M. Franchise Fracas: Will Boulder Be the Last City to Go Muni? Dont Bet On It. Public Utilities Fortnightly. February 2013 Cardwell, D. Cities Weigh Taking Over From Private Utilities New York Times. March 13, 2013. E3 (2013). Distributed generation projections for the SPSC 20-Year High DSM/DG study case. European Climate Foundation. Roadmap 2050: A Practical Guide to a Prosperous, Low-Carbon Europe. 2010

40

41 References (2)

References (2)

Feldman, D., Barbose, G., Margolis, R., Wiser, R., Dargouth, N. and Goodrich, A. (2012) Photovoltaic (PV) Pricing Trends: Historical, Recent and Near-Term Projections. Berkeley, CA. November, 2012. LBNL-6019E. Fox-Penner, P. (2010) Smart Power: Climate Change, the Smart Grid, and the Future of Electric Utilities. Island Press. Fox-Penner, P. and Chang, J. (2012) The Future of Electric Utilities in the U.S. and China. Presented to the State Grid Energy Research Institute. June 25, 2012. LBNL and Itron (2013). Load forecasts for the SPSC 20-Year High DSM/DG study case. Ofgem. Handbook for Implementing the RIIO Model October 4, 2010. Olson, A. SPSC Low Carbon Case Presentation for WECC 20-Year Transmission Planning Process. 2012 Pacific Gas & Electric (2013) Residential Rate Reform. California Legislative Rural Caucus: Informational Briefing on Electricity Rates in the Central Valley. January 18, 2013. Fresno City College, CA.

41

42 References (3)

References (3)

Williams et al, The Technology Path to Deep Greenhouse Gas Emissions Cuts by 2050: The Pivotal Role of Electricity. Science. January 2012 DOI: 10.1126/science.1208365 Wiser, R., and M. Bolinger (forthcoming). 2012 Wind Technologies Market Report. Berkeley, CA.

42

43 Background Slides

Background Slides

43

44 High DSM Load Forecast Requires Explicit Accounting of Energy

High DSM Load Forecast Requires Explicit Accounting of Energy

Efficiency Impacts

Load forecasts submitted to WECC by balancing authorities include some amount of embedded EE Adjustments made for Reference Case load forecast, to fully account for current policies and program plans Further adjustments made for High DSM case to reflect more aggressive EE assumptions

44

45 Politically-Driven Changes to Utility Business Models

Politically-Driven Changes to Utility Business Models

Gov. Cuomo created Moreland Commission in response to extended power outages after Hurricanes Sandy & Irene

Gov. OMalley created this Task force after the derecho thunderstorms in the summer of 2012

- 45 -

46 Overseas Examples of Rapid Rate Increases due to Public Policy

Overseas Examples of Rapid Rate Increases due to Public Policy

Decisions

Australia Installation of domestic solar PV has increased seven fold, doubling every nine months between 2010 and 2011 due to ever falling module prices Afternoon average demand was down by ~8% in 2011/2012 National Electricity Market revenues in 2011/2012 dropped by 35% Queensland Competition Authority is recommending a 20% rate increase for 2013/2014

46

47 UK RIIO: Examples of Sample Outputs for UK Transmission Operators

UK RIIO: Examples of Sample Outputs for UK Transmission Operators

Whats being delivered?

How it will be secured through outputs framework?

How it will be secured through outputs framework?

Primary Outputs

Secondary Deliverables

47

Facilitate the energy sector's contribution to decarbonisation & renewables targets

Contribution to targets, timeliness of connections, customer relations and reliable networks. Customer relations gauged by surveys, expert evaluations of stakeholder engagement and complaints.

Encourage efficient & timely delivery of infrastructure to enable sustainable delivery against targets. Monitoring the percentage of low carbon/renewables connected as proportion of low low-carbon/renewables seeking connection.

Secure supply

Energy not supplied, timely connections and customer relations.

Indices for asset health, risk, wider infrastructure

Development of the grid throughout the control period in a timely and efficient way (electric only)

Supported by primary outputs on customer satisfaction and timely connections

Specific metrics on capacity and/or project milestones

Future network development (gas only)

Specific indicators. Also supported by primary outputs on customer satisfaction

A safe network

Safety obligations that reflect legislative requirements

Supported by secondary deliverables on asset health and risk indices

48 UK Approach to PBR: RIIO

UK Approach to PBR: RIIO

Revenue = Incentives + Innovation + Outputs A Regulatory Contract Measure of certainty for investors and consumers 8 Year up-front price control regime with elaborate system of incentives, penalties and adjustment mechanisms to account for uncertainties Regulator sets outputs that reflect what consumers want and enables a sustainable energy sector Similar to US, UK faces large future investments: ?32 Billion in next decade or twice the historical pace of investments. RIIO projected to save ?1 Billion.

48

49 UK Approach: RIIO Business Plan Framework

UK Approach: RIIO Business Plan Framework

49

Ofgem

Source: Fox-Penner (2010)

Utility Business Models in a Low Load GrowthHigh DG Future: Gazing into the Crystal Ball
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