Innovation & Regulation Session 304 Roadshow

"Bridging the Gap - How Regulation Doesn't Have to Prevent Innovation"

David O'Brien

Director of Regulatory Strategy & Compliance

Bridge Energy Group

Topics

Status Quo Regulation, Status Quo Electric

System

Cost of Service & Innovation

How Regulation has to Change

Elements of Utility Success

New Regulatory Framework

Briefly on BridgeFocus: Utility / Power Industry

Offices: HQ in Marlboro, Mass.

Albany, Austin, Rutland, Sacramento, Ottawa/Canada, New Delhi/India

Est. 2005, 80 people, Financially Stable

Clients: Power Transmission & Distribution Utilities and ISOs

Currently working on several Smart Grid Projects across the US

Delivering Smart Grid & Utility Solutions

openSGRA Reference Architecture, GridStar™ Platform, eFAME™ Methodology

Practices built around IT (Architecture & Integration), OT (EMS/SCADA & Distribution Automation) and Regulatory & Compliance

Not aligned with any Tool, Product, Technology vendor or a Standard

Status Quo Regulation

• A Social Compact

• Retail Rates Expected to be Stable

• Rate Design More Art than Science

• Rate Setting is often Infrequent

• Investment in Long Lived, Predictable Assets for

Society’s “collective benefit”

Limitations of Traditional Utility Regulation

Goal of Rate Stability Hinders Price Discipline of Consumers

1. Consumers Do Not See Implications of How Much Energy They Use & When

2. Leads to Inefficient Grid Investment

“Art” in Rate Design Deadens Price Efficiency

1. Cost Allocation not Entirely According Cost Causation

2. Simplistic Rate Classes Do Not Accurately Group Cost Causation

Cost of Service Regulation Does Not Encourage Operational Efficiency

1. Rates Based on Demonstrated Costs, Not Lowest Possible

2. Emphasis on the Known, Stability Not Conducive to Innovation

Source: The Brattle Group, March 2010

Source: The Brattle Group, March 2010

Source: The Brattle Group, March 2010

Electric Grid is a Wasted Resource

Cost of Service & Innovation

Rewards Investment in Hard Grid Assets, but not IT

Rate Cases Seek to Lower Costs, but not Operational Efficiency

Rate Design not Structured to Deliver Economic Efficiency

How Regulation Has to Change

Not just rates, but the entire regulatory process needs to be dynamic…

Regulatory Culture

No more “gotcha”, Trust but Verify

Rate Design

Less Social Policy, More Cost Causation

Ratemaking

Performance Based

Elements Utility Success

Must be a Complete Adoption of the Technology i.e. DA & AMI

Global Competition Mindset

Robust Information to Customers and Dynamic Pricing

Performance Based, Reciprocal Regulatory Compacts

New Regulatory Framework

OldStable “Least Cost “Rates

Variable Cost of Service,

Coin Flip ROE

Sporadic System Investment

Discourage Revenue Growth

NewEconomic Rates

Multi Year Performance Based

Performance Based

Continuous Asset Management

Revenue Growth Rewarded

Questions?