Utilities’ pursuit of a modern grid to maintain the reliability and safety pillars of electricity delivery has raised a lot of questions about the third pillar — affordability.

Utilities are seeing rising penetrations of emerging technologies like distributed solar, behind-the-meter battery storage, and electric vehicles. These new distributed energy resources (DER) do not eliminate utilities' need to keep distribution systems safe and reliable.

But the need for modern tools to manage DER imposes costs on utilities that some regulators, lawmakers and policymakers are concerned could drive up electricity rates.

The result is an increasing number of legislative and regulatory grid modernization actions aimed at identifying what is necessary to serve the coming power sector transformation.

The rise of grid modernization

Grid modernization, which is supported by both conservatives and distributed energy resources advocates, got a lot of attention last year. According to the 2017 review of grid modernization policy by the North Carolina Clean Energy Technology Center (NCCETC), 288 grid modernization policy actions were proposed, pending or enacted in 39 states.

These numbers from NCCETC's first annual review of policy activity set a benchmark against which future years' activity can be measured. 

The most common type of state actions, by far, were those that focused on the deployment of advanced metering infrastructure (AMI) and battery energy storage. Those are two of the 2017 trends identified in NCCETC’s 50 States of Grid Modernization report. But deployment of those technologies, while foundational to an updated grid, only begins to prepare distribution systems for the coming power sector transformation.

Bigger advances, including the newest energy system management tools, are being held back by 2017’s other policy actions requiring more deliberation and fact-finding. Utilities’ proposals to more fully prepare their grids to deliver 21st century technologies are being met with questions about completeness and cost.

Utilities are being asked to address these questions in comprehensive, public utility commission-led cost-benefit analyses and studies. This is also one of NCCETC’s top 2017 policy action trends for grid modernization. The outcome to date appears to be an increased, but still incomplete, understanding of what is needed to build a 21st century grid.

Among the top objectives of those driving the policy actions are resolving questions about private sector participation in grid modernizaton buildouts and developing new rate designs to protect and support customer-owned distributed energy resources. Actions on those topics are also on NCCETC’s list of 2017 policy trends.

Altogether, the trend list is dominated by actions that do not lead to completion of grid modernization but to more work on it.

“In 2017, we saw a huge amount of grid modernization activity across the country, but it is a work in progress,” NCCETC Manager of Policy Research and report lead author Autumn Proudlove told Utility Dive. “It is new, and many states are at very early stages. Others are more modernized, but no state has checked it off the list."

What is grid modernization and where are they doing it?

NCCETC defines grid modernization broadly as “actions making the electricity system more resilient, responsive, and interactive.” The review covers legislative and regulatory actions that address smart grid and AMI, reforms of the utility business model, and rates, and the deployment of energy storage, microgrids and demand response.

These actions can lead to new distribution system planning efforts, new ways for DER and energy management tool providers to access markets, or new deployments of the tools and resources.

The report says there were 63 state or utility proposals pending or decided in 29 states on deployment of grid modernization technologies, 61 actions in 26 states and the District of Columbia on new grid modernization policy approaches, and there were 45 actions on planning and market access in 18 states and by five transmission system operators.

There were also 44 actions in D.C. and 24 states on studies and investigations, 40 actions on business model and rate reform in D.C. and 17 states, and 35 actions on financial incentives in 14 states.

As this is the first complete year of NCCETC's groundbreaking catalog of grid modernization efforts, the review offers no insight into which way these numbers are going. It is, instead, a vital foundation on which the rise and fall of future numbers can be determined.

Covering all the bases

The trend toward studies and investigations is to assure a comprehensive approach, because there is no grid modernization template, Proudlove said. The New York and California proceedings lead this trend.

In New York's Reforming the Energy Vision proceeding, studies address “distribution system planning, non-wires alternatives, and storage compensation rules,” NCCETC reports.

California is studying distribution system planning, a new energy storage target, and a $2.1 billion grid modernization investment proposal in the Southern California Edison (SCE) general rate case. It is also considering new and altered rules for self-generation incentives, demand response, and using storage in its wholesale market.

Shenjini Menon, director of SCE's general rate case, told Utility Dive the utility's goal is “a cleaner grid with much more distributed generation.” Ed Smeloff, regulatory issues managing director for DER advocates Vote Solar, argued SCE's goal may be more cost-effectively accomplished by third-party providers.

Marcel Hawiger, attorney for ratepayer advocacy group The Utility Reform Network, told Utility Dive neither advocate's claims about costs are “justified by facts.” The California Public Utilities Commission (CPUC) DER Action Plan, released in 2017, is a roadmap to obtain those facts through multiple studies and investigations, CPUC President Michael Picker told Utility Dive.

Such broad-based grid modernization activity is not limited to New York and California, NCCETC reports. Two other states did similarly broad-based work in 2017.

The Michigan Public Service Commission, in compliance with Public Acts 341 and 342, initiated studies of demand response, alternative utility business models, and solar-plus-storage compensation. It also developed new integrated resource planning (IRP) rules. Draft grid modernization investment proposals filed by Consumers Energy and DTE Electric, the state’s dominant IOUs, are under investigation.

The Maryland Public Service Commission’s broad ongoing proceeding to transform its distribution system addressed data access, electric vehicles, interconnection and rate design, NCCETC reports. In compliance with House Bill 773, it initiated an energy storage study and adopted the nation’s first state tax credit for energy storage systems.

NCCETC’s Proudlove said approaches to grid modernization vary by region and by regulation. The needs in areas with wholesale markets differ from those in vertically integrated utility territories, but utilities in both types of areas are working to modernize with similar technologies.

Where utilities are regulated, their attention tends to be on cost recovery. Where they work through wholesale markets, their attention tends to be on how to protect customers. “The business model drives the way utilities invest,” she said.

Where utilities have dominated, there is often debate about whether third parties should have equal access to ownership of distribution system assets, she added. There were aspects of this type of debate in​ Minnesota, Arkansas and Illinois.

Interstate Renewable Energy Council Policy Program Director Sara Baldwin Auck said Minnesota’s comprehensive grid modernization work includes part of the important broader debate about interconnection rules. Stakeholders and the utility are at odds over who should set the standards.

In Arkansas, a debate has emerged over data access. Entergy Arkansas has been granted approval to deploy AMI. Mission:Data and Environmental Defense Fund (EDF) want access to the AMI data for private sector DER providers, through Green Button Connect, according to EDF Senior Attorney John Finnigan. Entergy, concerned about protecting customer energy usage information, is resisting.

Chris Vlahoplus, partner and clean tech practice leader at ScottMadden, said the Illinois NextGrid Initiative is “the best-kept secret in grid modernization.” The state laid a foundation with “targeted infrastructure and customer-focused investments” like its ongoing state-wide AMI buildout, he emailed Utility Dive.

The Illinois Commerce Commission’s NextGrid proceeding, launched in 2017, will address a wide range of modernization issues, NCCETC reports. They include the integration of new technologies and markets, customer engagement, distribution system metering, communications, and data collection hardware, system hardening, and rate design.

Proudlove said rate design is a crucial component of grid modernization, though there is no particular grid modernization rate design yet identified. “As price signals to customers, rates are key to customer adoption of modernization technologies,” she said.

The Vermont Public Utility Commission’s Act 53-mandated investigatory proceeding produced a range of policy recommendations and an energy storage study in 2017, NCCETC reports. In response, Green Mountain Power (GMP) filed applications for three energy storage projects and announced a breakthrough resilience-as-a-service program to lease residential battery storage systems.

GMP President and CEO Mary Powell told Utility Dive, “We feel like we're all part of work to accelerate a consumer-led revolution to a very different energy environment.”

These broad-based approaches differ in many ways but they have one thing in common: The more work the utility proposes, the higher the price burden on ratepayers. This tends to shift the debate from what should be included to what should be excluded because of the price tag.

But is it worth it?

Few guiding principles on spending for grid modernization are established. One came out of the proposal by Eversource Energy in Massachusetts.

The potential importance of grid modernization described by GMP's Powell is one reason the Massachusetts Department of Public Utilities deferred some decisions on Eversource's general rate case spending proposals, Proudlove said. It wants to consider that spending in a dedicated grid modernization proceeding. 

Testimony on the Eversource filings by Karl Rabago, executive director of the Pace Energy and Climate Center and a former Texas public utility commissioner, proposed a central principle for utility grid modernization investment. Expenditures should not only “give the utility visibility and control of spending,” he told Utility Dive. “It should also be aimed at customer engagement.”

Eversource offered “a limited, utility-centric vision of the modern grid,” Rabago wrote. It did not focus “on evolving the grid into a system where highly controllable and manageable load and [distributed generation] are integrated into the resource base for Eversource as a grid platform operator and optimizer.”

Instead, Eversource offered “new, expensive technology” and “the last century’s top-down model of the distribution system operator,” he added.

Following guidelines similar to these, Hawaii’s regulators approved a 2017 grid modernization proposal from the Hawaiian Electric Companies only after the price tag was lowered from $340 million to $200 million.

But there is a much bigger debate in North Carolina over Duke Energy’s $13 billion grid modernization proposal, Proudlove said. It shows how cost is “becoming a sticking point for stakeholders." 

It is not the importance of the investments. It is the fact that they could cause rates to "skyrocket," she added.  "They want regulators to do the math and see if the benefits outweigh the costs.”

Duke’s proposal includes investments in AMI and smart grid self-optimization technologies. But $8.4 billion would go to undergrounding of lines and other types of spending that stakeholders in the North Carolina Utilities Commission proceeding oppose.

Duke has not shown the plan is other than “standard utility operations” and deserving of higher rates or has “quantifiable benefits” that are “cost effective,” according to the North Carolina Sustainable Energy Association (NCSEA).

These and other shortcomings in Duke’s proposal show “commission oversight is warranted and necessary,” NCSEA spokesperson Allison Eckley emailed Utility Dive. 

Duke spokesperson Jeff Brooks argued the investments are "based on extensive data analytics." They will "improve reliability" and "take advantage of emerging technologies," he emailed Utility Dive.

The Duke proposal has also met with pushback partly because an investigatory proceeding to lay out a comprehensive and coordinated approach did not precede it, ​Proudlove said. Studies and investigations could produce the data missing from Duke’s proposal, she added.

Aiming for consensus

Stakeholder-based study processes tend to begin by identifying the state’s grid modernization goals, she said. “This allows them to start at consensus before moving to the more controversial investment issues and the question of whether benefits to ratepayers will be worth the spending.”

A just-filed Dominion Virginia grid modernization proposal may be the next “is it worth it?” battleground, Proudlove noted.

The utility wants to spend “between $2.4 billion and $3.5 billion, and regulators say the company wants to fund the upgrade in a way that makes customers pay twice for some of the costs,” the Associated Press reported.

Rhode Island showed in 2017 how states can do things to minimize cost debates.

Proudlove said Rhode Island is going through the “big process” that can avoid stakeholder and commission pushback. Its 2017 Power Sector Transformation Initiative addressed data access, distribution system planning, utility business models, and transportation electrification, she said. It also took up evaluation of non-wires alternatives and solar-plus-storage compensation.

The effort resulted in a phase one report to the governor on grid modernization and National Grid’s Power Sector Transformation investment plan filing. Stakeholder response is not yet clear but may reveal new information about the value of a comprehensive investigation, Proudlove said.

A settlement in an associated New Hampshire docket on various DER and grid modernization questions early last year offered further insight into how broad, stakeholder-based work can be valuable. Despite months of meetings and discussions, the parties to the settlement did not reach full agreement. But with mediation by the public utilities commission, stakeholders laid out a plan to execute several pilots and trials and move to a next phase.

Attorney Melissa Birchard, of proceeding intervenor Conservation Law Foundation, told Utility Dive the effort will have been “worth it” if the result is a modern grid and power system.

Proudlove said stakeholder-based planning “can be quite time-consuming and expensive and not every state has the resources to do it.” But, she added, taking the time to do it helps clarify the state’s grid modernization goals, identify the opportunities, and determine whether the benefits of reaching those goals is worth the cost.