Navigant Research Blog

Utility Reform Takes Hold in the Rockies

Lauren Callaway — April 6, 2015

A new bill introduced in the Colorado General Assembly is intended to jump-start the state’s efforts to revise its traditional utility ratemaking models. In effect, the bill would contribute to substantial changes in how Colorado utilities plan, upgrade, and operate their grids. The end goal is to align the utility business model with state objectives to promote an environmentally friendly industry through increased adoption of clean/renewable generation and energy efficiency strategies.

Specifically, the bill would require the Colorado Public Utilities Commission to investigate and report its findings on potential measures to encourage customer energy efficiency and engagement, grid efficiency and reliability, technology innovation, and clean energy development and integration. This would guide the restructuring of the Centennial State’s practices around ratemaking, incentivizing, standards development, and approval processes in order to appropriately balance the good of the public, environmental benefits, and the utility business. It’s a tall order, but other states such as Hawaii, New York, and Massachusetts have already laid the groundwork for revising their energy regulation frameworks around similar goals.

For the Long Term

To date, utilities and other stakeholders both within Colorado and nationally have expressed concerns over the loss of revenue, increased grid instability, and cross-subsidizing that can occur in areas with high penetration rates of distributed generation. Notwithstanding the need to lower the greenhouse gas emissions associated with traditional forms of power generation, prices for distributed solar systems are declining, fueling adoption and raising awareness around policies that support growth. So, it’s imperative that regulators enable mechanisms that enable utilities to maintain profitability and provide good service.

One such mechanism that has commonly been discussed is performance-based ratemaking. A somewhat nebulous concept, a performance rate structure essentially rewards utilities based on the level of service they provide to their customers. In theory, utilities are more invested in pursuing long-term improvement strategies instead of squeezing revenue out of their current asset base to meet service requirements.

Past Due

Many observers believe that the traditional regulatory framework is overdue for reform, and I happen to agree. But others see the reform process as potentially over-hasty. This month in Public Utilities Fortnightly, Kenneth W. Costello, principal researcher at the National Regulatory Research Institute, warned readers of the uncertainty around the spread of new technologies and resources in North America. “Decisions that bank on the sureness of the future invite regrettable outcomes,” remarked Costello.

Keeping that in mind, perhaps the slow pace of regulatory reform might actually be a blessing in disguise for Coloradans. Realistically, the state is unlikely to implement any sort of large reform in the near future. HB 1250, the bill under question, was approved by the Energy and Transportation Committee in late March on a party line vote. It still has to pass through financial and appropriations committees before it gets to the GOP-dominated Colorado Senate, which will most likely kill the bill.

Max Tyler, the primary sponsor of the bill, told me that he holds no illusions that this legislation will sail through the Colorado Senate. Nevertheless, he maintains a sense of optimism in regard to state energy reform: “Ideas with big barriers and big changes will take a while.”

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