Ever since the days of Samuel Insull, who created Commonwealth Edison by merging Commonwealth Electric Power & Light with Chicago Edison in 1907, utility regulation has been set up to provide the U.S. with universal access to reliable and affordable electricity.
But Anne Pramaggiore, CEO of ComEd today, says that the regulatory structure Insull helped set up in the early 20th century is getting in the way.
Utility regulation, Pramaggiore told DNV GL’s Utility of the Future Leadership Forum, has struggled to keep utility business models aligned with customers’ evolving expectations and desires.
Utility regulation stuck in the 20th century?
“The need for cohesive policy is larger and stronger than it ever has been,” Pramaggiore said.
In the past, the utility industry “could get away with an operational view,” Pramaggiore said. “The goal was to connect people, to build out the system, to pump juice into big manufacturing and to keep prices low. It was about building this machine.”
But today’s consumers “want personalized service,” she said, which is a significant challenge for utilities.
“We have not provided custom solutions to our customers,” she said. “We’ve given them a one-size-fits-all product – everybody gets roughly the same reliability at the same price.”
Regulation is “keeping us locked into the 20th century,” Pramaggiore said. “Yet we’ve got this technology play that’s overriding where the regulatory structures are allowing us to move.”
“The question that we answered in the 20th century – just get it up there, pump the juice, keep the costs low – is not the question we’re answering in the 21st,” Pramaggiore said. Today, the questions are – “How do we keep clean? How do I get custom solutions from it?”
“With all those challenges facing us, we are in desperate need of a cohesive policy approach across the industry,” Pramaggiore said. “That’s one of our biggest challenges – to define where are we trying to get to and then develop the roadmap.”
Utilities cannot 'live from rate case to rate case'
We need to “reinvent” the utility regulatory model, Pramaggiore said.
Utilities are willing to invest today “to achieve something down the road,” Pramaggiore said. But the industry is in dire need of a clearly articulated endgame in order to get the most out of its capital intensive, long-term investments.
“That is an important dialogue that we have to have but that we tend not to have in our industry,” she explained. “Today, we just point and drive down to the lowest short-term cost.”
The industry cannot “live from rate case to rate case,” Pramaggiore said. “You have a good rate case -- you’re going out and doing some work, some programs. You have a bad rate case and you pull back on everything. That kind of uncertainty is not the way to run a business efficiently.”
ComEd has performance standards in its regulatory model today, Pramaggiore said. “While we resist doing that as utilities, what it’s allowed us to do is say, ‘We all agree this is where we wanted to get. We’re going to hit these performance standards. We all agree we were going to invest in this type of work in order to get there. We all understood it was going to cost more money.’”
Getting pricing right is essential to pulling value out of the grid, she said, because “volumetric pricing is not the future.”
Performance standards “seem like they’re starting to work for us,” she said, “but it’s still very early on.”
Can utilities answer the questions of the 21st century?
Today, more customers want personalized energy solutions not included in basic utility service. But while utilities may not always be able to provide that level of service right now, “everybody sees that there’s opportunity there,” Pramaggiore said.
ComEd has found that “customers will engage more with this product and service if we give them the right tools and make it easy for them,” she said. “Anything you make cumbersome, customers are not going to deal with – energy or anything else. But to the extent you can give them information, make it accessible and give them a pot of gold at the end of the rainbow, customers will engage.”
Despite the emergence of customer choice, Pramaggiore sees the grid as an integral piece moving forward.
“I would start with the premise that you want the grid,” Pramaggiore said, because the industry can optimize efficiency and markets through the grid. “If you want distributed generation and you want to buy and sell into the markets, you’ve got to have a channel to do that.”
Non-traditional partnerships that help utilities provide more personalized solutions to their customers are going to be “signature features of the world going forward,” Pramaggiore said. “These strategic partnerships are really huge. They bring things to the table that we don’t – we’ve got a platform and a channel to the customer, and they’ve got innovative ideas and intellectual capital that we can leverage off of.”
