Electric utilities are often criticized for their risk-adverse nature and being perceived as a roadblock to efforts that will modernize or “green up” the grid. For stakeholders advocating change, it can feel as though they’re waiting for a tanker to quickly change course. And even when utilities are perceived as moving in the right overall direction, proponents of renewable energy, smart grid technologies, distributed generation, and other “modernizing” technologies may disagree with the deployment, investment, or program rollout options that are chosen.
For utilities, business challenges are increasing, including questions over traditional utility rate recovery mechanisms and planning for long-term investments that are needed to improve reliability and deliver cleaner generation sources. Declining or flat energy usage and reduced return-on-equity (ROE) decisions by utility commissions add pressure on many utilities, including the possibility that risks can increase with a drawn-out decision-making process.
But…what’s the best policymaking process to balance these perspectives?
Legislation adopted on Monday in Nevada, S.B. 123, has reignited the debate over the proper balance between legislative and regulatory approaches when efforts to “green the grid” are being pursued. Provisions in the bill will speed up and simplify regulatory steps for natural gas and renewable energy generation projects – 550 MW and 350 MW, respectively – to replace generation from coal. From a high-level perspective, it could be argued that expediting the retirement of coal-fired generation with cleaner-burning natural gas and emissions-free renewable energy sources is more than enough reason to support the legislative effort, but it’s been contentious.
Looking back, it’s not uncommon for legislative bodies to specify certain investment options that meet public policy goals. Florida – while not having a renewables’ mandate – provided legislative assurances for “full cost recovery” in 2008 for 110 MW of solar energy projects by Florida Power & Light (FP&L) in order to promote a balanced energy portfolio and combat climate change.
In Illinois, reliability and modernization benefits have been a prime motivator for legislative action supporting utility efforts to make numerous improvements to the grid and incorporate smart grid technologies into utility operations. Over the past couple of years, multiple bills have become law – overriding gubernatorial vetoes – to provide greater certainty for billions of dollars of investments in exchange for specific performance measures being met.
Now…to be frank, these examples have plenty of political and stakeholder conflict over the direction taken – vetoes and legal actions in Illinois and commissioner objections in Nevada – and there’s certainly an argument to be made against using the legislative process to shortchange the authority and deliberations traditionally done by state utility commissions. But, in a broader light, if we accept the obvious observation that it’s critical to increase stakeholder engagement and consensus building to gain support, can we also reflect on environmental, energy, and economic benefits that could result from legislative actions focused on agreed-to end-objectives with risk mitigation and certainty being provided to the utility for their investments?
At the end of the day, our mental exercise should not be focused on having the legislative process be a panacea for expediting renewable energy or grid modernization projects. We should recognize, however, that the urgency to accelerate policymaking for public energy policy goals will “follow the (policy) path of least resistance” – legislative, regulatory, or stakeholder engagement – if it provides greater business certainty and efficiency. Regulatory bodies remain the bedrock for resource planning decisions and ratemaking. But if we remain focused on the end goal we are trying to achieve, it may be possible to engage stakeholders further and find ways to realize needed grid modernization projects and expand renewable energy investments – in whatever policy arena that may be.