Collaborating our way to energy market transition: Building trust and communication must come first

By John Sterling, Christine Stearn and Tanuj Deora

Editorial note: The following article is adapted from the Executive Summary of a soon-to-be-released report, “The 51st State: Blueprints for Energy Market Reform.” For full information on the 51st State Initiative, visit www.sepa51.org.

Colorado, Texas, Minnesota and New York — across the country, debates around net metering, rate reform and other solar issues that once appeared stalemated have recently been settled through collaborative negotiations between utilities, solar organizations and other industry stakeholders. Tradeoffs have been made and compromises crafted to maintain continued growth of solar and other distributed energy resources (DERs), while also ensuring utilities have the revenues they need to provide all customers with safe, reliable, affordable and increasingly clean power.

Media headlines have quickly proclaimed collaboration as a new industry trend producing victories for solar and, in particular, the near-term preservation of retail-rate net metering, the compensation solar owners receive for the power they put on the grid. But the settlements are also laying the groundwork for grid and market transformation. In Colorado, for example, pilot programs for introducing time-of-use rates were a key part of the settlement package.

While these instances of consensus are promising, they are simply first steps. They create a foundation for future compromise, but they are still limited in the extent to which they can resolve core issues, such as —

• What, if any, value DERs can provide to the grid?

• Who is best suited to deploy them, and how might they be compensated?

• How should the resulting impacts on utility business models and the power sector in general be handled?

The Smart Electric Power Alliance (SEPA) has long viewed collaboration and cross-industry partnerships as critical building blocks for both the growth of solar and other distributed technologies, and the energy transition now underway in the United States. In the past two years, we have intensified our focus on studying and creating replicable models to promote these processes through which industry stakeholders with apparently opposing interests can build the communication and trust needed to forge compromise solutions.

This work has been theoretical and conceptual — creating visions and roadmaps for industry transition through our 51st State Initiative — as well as practical and very hands-on, through our role as utility consultants, facilitating cross-industry working groups for a number of initiatives.

What we have learned from these efforts — and also can be seen across the recent settlements in Colorado, Minnesota, New York and Texas — is that technological innovation invariably outpaces utility and regulatory decision-making, and solutions will be tied to local markets and policies. The economic and policy trade-offs in one market may not be a good fit in another jurisdiction.

At the same time, SEPA believes that basic principles or understandings about the desired outcomes of change can be formulated, as can thoughtful, pragmatic approaches for opening up conversations about sensitive or potentially divisive issues. By reframing the debates in ways that are more broadly accessible, but more focused on practical approaches, a sense of shared values can be forged. Our goal is to create both a community of expert stakeholders and a toolkit for policymakers and utility strategists, which together can foster a smart transition to a power system in which DERs are integrated for optimal benefits to customers and the grid.

The ideas presented here are another step in moving toward this clean energy future. They have been formulated not only from SEPA’s own work and analysis but from the insights and feedback received from hundreds of industry thought leaders and partners who have participated in the 51st State Initiative and other collaborative forums we have organized. The perspective is purposefully high level, focusing on areas of potential agreement rather than detailed and possibly contentious discussions of specific policies or solutions.

Building a foundation of communication and trust first, through common understandings, can prepare the ground for productive conversations on more sensitive or divisive issues. Mastering the skills and concepts underlying this process will be critical as the growth of solar and other DERs, along with rising customer demand, continue to drive industry change.

Common ground for collaboration: The four doctrines

SEPA launched the 51st State Initiative in 2014, at a time when state-level debates over net metering and rate reform were often being framed, at least in the mass media, as a basic conflict between utilities and the solar industry. With our membership composed of organizations on both sides of the debate, we recognized the complexity and depth of the issues, and the initiative was started as a vehicle for moving beyond the immediate, adversarial nature of these discussions.

Over the past two years, the 51st State has generated a range of visions of future energy markets, and roadmaps to structure potential transitions — whether in rates, technology or policy. The more than two dozen papers submitted for successive phases of the initiative ranged from plans for slow, incremental change to proposals for paradigm-shifting leaps. These ideas were explored and debated — in spirited, but respectful discussions — at yearly 51st State summits attended by industry stakeholders ranging from utility and trade association executives, to industry analysts and researchers, to tech-start-up entrepreneurs and visionaries.

The takeaways from this process emerged not from any specific papers or individuals, but from the interaction of ideas the initiative produced as areas of commonality were found across different points of view. Rather than goals, these takeaways should be seen as basic, common understandings or doctrines that can be used to anchor and focus cross-industry conversations when obstacles to compromise or consensus emerge.

These four doctrines are:

1. Future electricity markets should promote efficiencies in the production consumption, and investment in energy and related technologies.

Energy markets of the future should promote the most efficient outcomes possible — across a range of economic, business, technological and operational values. Long-term planners should be encouraged to make the most efficient investments possible for generation, transmission and distribution assets to meet the long-term needs of their customers. Similarly, consumers should be encouraged to adopt cost-effective, energy-efficient technologies and solutions, whether through utility-sponsored, utility-led or independently run programs.

2. The role of utilities — as entities providing a public service — should be clearly defined so that all market participants can define their roles in creating and promoting consumer options in a fair, transparent, and nondiscriminatory manner.

The wide adoption of DERs is putting the historical role of utilities as providers of a critical public service — electricity — into question. What roles should utilities and third-parties providers play, and in what situations should overlap of those roles be allowed or even encouraged? Clear definitions of the roles and responsibilities of individual market participants will make it easier to determine fair, transparent and nondiscriminatory regulations that will allow the market to flourish.

3. Rate structures should provide transparent cost allocation that supports a sustainable revenue model for utilities providing electricity as a public service.

The way utilities recover their costs of doing business is changing and may be drastically different in the future than it is today. Regardless of the structure adopted — the volumetric status quo, time-varying or some other design — future electric systems should strive to eliminate inequities across and within customer classes to the greatest extent possible.

4. Customers should have access to a variety of rate and program options that are streamlined, easy to understand, and transparent; expand their choices for energy-related products and services; and create stable value propositions.

Future energy systems should provide platforms where rooftop solar ownership, rooftop leases, community solar, demand response and other energy-saving alternatives can compete in a clear and transparent manner, increase customer satisfaction and adoption. However, the technology-enabled, dynamic choices that interest one set of customers may not be appropriate for others, and those customers should be shielded from the costs of deploying such technology. At either end of the spectrum, electric products and services should provide consumers with streamlined, transparent and stable value propositions.

Roadmapping: A structured process for change

Local markets will likely determine how these doctrines are turned into more tangible transition plans. Based on our experience in facilitating stakeholder engagement groups, SEPA recommends following a formal structure, a process we call “roadmapping,” which combines the conceptual common ground provided by the doctrines with a functional, feasible schedule.

The purpose of roadmapping is fourfold:

1. To build a core team of engaged industry stakeholders with a baseline understanding of the interdependent nature of the electric industry

2. To identify areas of where consensus-based, “least-regrets” decisions can be made to address near-term changes occurring in the electric industry

3. To develop a proactive understanding of future decisions that will need to be made

4. To create a platform to harness and build on best practices, which can then serve as replicable models on a national level

Using this approach will allow the market restructuring process – or any part of it — to be completed in a reasonable timeframe. Again details of the roadmapping process will likely vary across jurisdictions, but a set of essential steps should be followed.

• Create a working group that includes a cross-section of viewpoints and affected stakeholders, along with a neutral facilitator with a reasonable depth of industry knowledge.

• Once the working group is created, communicate in advance the purpose of the group, the schedule of the process, the commitment of time and resources participants will be expected to make. For roadmapping, the group should produce both a long-term plan outlining the major stages of change and how they will fit together, and a shorter-term action plan setting out specific, interim steps toward roadmap goals over a one- to five-year period.

• Both the long-term and action plans should encompass the main elements of the electricity market affected by transformation. As part of the 51st State Initiative, SEPA designated these elements as “swimlanes” to be addressed in individual roadmaps, including designs for both retail and wholesale electricity markets, utility business models, asset deployment, information technology and rates and regulation.

• Ground conversations in the FIAT concept. FIAT stands for flexibility, incrementality, affordability, and transparency. Are the solutions discussed flexible, so that plans can easily be modified or adapted if major shifts in technology occur? Can the changes be implemented in incremental steps to mitigate major shocks to consumers and market participants? Will the decisions made be affordable and will any added costs to ratepayers be demonstrably prudent, necessary, and in the public interest? And finally, are the activities adequately transparent, so that any party outside the working group can easily understand why decisions have been made and track the progress?

• Do not expect universal consensus on all issues; rather, thoroughly document both progress made toward agreement, and divergent points of view on key, contentious issues, to be passed on to policy makers or regulators who may make final decisions.

SEPA recognizes that building a foundation for ongoing collaboration is neither quick nor easy — and requires commitment to a process of open and respectful communication on all sides. That utilities, solar organizations and other industry stakeholders across the country are attempting to reach out to each other, create new partnerships and find common ground reflects a significant shift in the industry’s internal culture.

Beyond technology and customer demand, it is this internal cultural shift that will power energy market transition — and transform the roles of all stakeholders.

John Sterling is SEPA’s Senior Director of Research and Advisory Services; he can be reached at [email protected].

Christine Stearn is a Utility Strategy Analyst with SEPA and can be reached at [email protected].

Tanuj Deora is SEPA’s Executive Vice President and Chief Strategy Officer; he can be reached at [email protected].