Distributed Energy Resources & Utility Business Models Moving toward Value in Utility Compensation Workshop CPUC IDER Proceeding Charles Goldman, Director Energy Analysis and Environmental Impacts Division June 13, 2016

LBNL Work at the Intersection of Distributed Resources and Utility Business Models Quantifying the Financial Impact of Distributed Energy Resources on Utility Rates and Profitability Impacts of Retail Rate Design and Net Metering on PV Economics EE Business Models Analysis and Technical Assistance Solar Valuation at High PenetrationFuture Electric Utility Regulation: Concept papers 2 Publications available at: emp.lbl.gov

Future Electric Utility Regulation Project Innovative series of LBNL reports designed to inform ongoing discussions and decisions by utility regulators, policymakers and the electric industry Point-counterpoint approach sharpens debate on tradeoffs in achieving multiple objectives—e.g., reliability, affordability, clean, flexibility Report authors are a diverse group of thought-leaders in electric industry Primary funder: DOE Office of Electricity Delivery and Energy Reliability Advisory Group Recognized experts including state regulators, utilities, stakeholders and academia Prioritizes topics Reviews issues, evaluation criteria, approaches and draft reports 3

Future Electric Utility Regulation: Work Products 1. Distributed Energy Resources (DERs), Industry Structure and Regulatory Responses. Steve Corneli & Steve Kihm 2. Distribution Systems in a High DER Future: Planning, Market Design, Operation and Oversight. Paul De Martini & Lorenzo Kristov (CAISO) 4. Distribution System Pricing for DERs. Ryan Hledik & Jim Lazar (RAP) 5. Future of Resource Planning. E3 and LBNL 6. Recovery of Utility Fixed Costs: Utility, Consumer, Environmental and Economist Perspectives. LBNL, Lisa Wood, John Howat (NCLC), Ralph Cavanagh, Severin Borenstein (UC) 3. Performance-Based Regulation in a High DER Future. Tim Woolf & Mark Lowry

Background:

Future Electric Utility Regulation Advisory Group Janice Beecher, Institute of Public Utilities, Michigan State University Ashley Brown, Harvard Electricity Policy Group Paula Carmody, Maryland Office of People’s Counsel Ralph Cavanagh, Natural Resources Defense Council Commissioner Michael Champley, Hawaii Public Utilities Commission Steve Corneli, NRG Commissioner Mike Florio, California Public Utilities Commission Peter Fox-Penner, The Brattle Group Scott Hempling, attorney Val Jensen, Commonwealth Edison Steve Kihm, Seventhwave Commissioner Nancy Lange, Minnesota Public Utilities Commission Ben Lowe, Duke Energy Sergej Mahnovski, Consolidated Edison Kris Mayes, Arizona State University College of Law/Utility of the Future Center Jay Morrison, National Rural Electric Cooperative Association Allen Mosher, American Public Power Association Sonny Popowsky, Former consumer advocate of Pennsylvania Karl Rábago, Pace Energy & Climate Center, Pace University School of Law Rich Sedano, Regulatory Assistance Project Chair Audrey Zibelman, New York State Public Service Commission Peter Zschokke, National Grid 6

Electric Utility Regulatory and Business Models 7 Quantifying the Financial Impacts of EE, DR, and DERs on Utility Shareholders and Customers Developed FINDER Model to quantify and better understand financial implications of EE, DR, and DERs on utility shareholders and ratepayers TA to state PUCs and utilities (e.g., AZ, KS, MA, IL, and NV, two regional workshops) Case Studies: Financial impacts of net- metered PV on prototypical investor-owned utility in Southwest and northeast DISCO Results: Impacts could be mitigated through various ratemaking and policy approaches Southwest Utility

Quantifying the Financial Impact of Distributed Energy Resources (DERs) on Utility Rates and Profitability 8 FINDER Model can assess participant and non-participant bill impacts, apply various rate designs at the customer class level (e.g., residential and non- residential), and quantify detailed impact of DERs on distribution system investments

Connecting Valuation to Rate Design and Utility Planning Retail rate design (tiered rates, demand charges, time-varying prices, fixed charges) dramatically impact the customer-economics of net-metered PV. As PV penetrations increase, and under other future conditions, retail rates will change, causing further changes to the customer- economics of PV. Retail rate design and net metering policies also impact future distributed PV deployment, in turn impacting utility IRP and T&D planning. Complementary emerging technologies (storage, demand flexibility, smart inverters, etc.) influence all of these dynamics 9