New Energy Service Delivery Models: Implications for the Regulatory System Mike Cleland CAMPUT, Kingston June 23, 2015

Outline The changing energy landscape The players and their roles Changing technology –potentials and pressures Driving change – options for governments 2

Part 1 The Changing Energy landscape 3

Energy in the community 4

Energy services – energy in our lives 5

Pressures on the system Economic – slow growing economy, need for infrastructure renewal, competitive pressures Environmental – climate, air quality, water, land and habitat Societal - trust, siting, cost, tax aversion, equity concerns Technology – impacts of social media, IT, storage, renewables, cost of gas 6

Part 2 The players and their roles 7

The Players Demanding results – Customers, neighbours, citizens and voters – Public policy makers Delivering results – Competitive suppliers – Utilities The referees – Regulators 8

Customers – the value proposition Then – Energy boring – Service analogous to a commodity – product differentiation not possible, suppliers compete on price and supply security – Priorities: safety reliability, non-intrusiveness, cost – Risk aversion, high implicit discount rates, very high info acquisition and transaction costs Now Still boring Limited potential to differentiate? Priorities similar - plus environmental results How much new appetite for risk, long paybacks, time spent on energy choices? 9

Neighbours – the back yard owners Then Passive communities High deference, trust in authority Local communities kept informed (maybe) Infrastructure got built Now Evidence that resistance to facility siting will grow Authorities – including regulators – not trusted Local communities wanting more say, more control Big infrastructure harder and harder to site – esp linear infrastructure 10

Citizens and voters Then Customers plus neighbours plus citizens = voters Who quietly absorbed tax increases (but often reacted to price increases) Who were passive about intrusions in their communities And relatively indifferent to engagement outside the ballot box. Now Still true Who say no to tax increases as well as energy price increases Who say no to intrusions in their communities Who will have to be constructively engaged outside electoral processes. 11

The private, regulatory and policy spaces 12

Part 3 Changing technology –potentials and pressures 13

Changing technology – potentials and pressures Energy efficiency Distributed stationary energy Mobility 14

Energy intensity (E/GDP) falling 15

Efficiency – the energy workhorse 16

Distributed stationary energy: technology scan Potential ScaleMarket Readiness Environmental & Social Acceptability Contribution to System Integrity Renewable Power Renewable thermal and waste District energy and CHP Storage 17

Clean mobility: technology scan Potential ScaleMarket Readiness Environmental & Social Acceptability Contribution to System Integrity Natural Gas Biofuels Hybrids Plug-in Hybrids Battery Electrics Fuel Cell Electrics 18

Part 4 Driving change – options for governments 19

Policy instruments: options for governments Private markets Prices – real costs of energy including carbon Minimum standards eg EE on energy using equipment Mandates such as RPS Subsidies such as FIT’s, DSM programs Infrastructure investment Technology investment 20

Reminder – the players The customer – narrow, local and short (with apologies to Thomas Hobbes) The (utility) investor: risk averse, patient, narrow in outlook The (competitive supplier) investor: impatient, mistrustful of utilities, narrow in outlook Public policy needs: often at odds with the others on geographic scope, breadth, time horizon 21

And economic regulators? Core mission is to stand in place of markets where natural monopoly prevails Fair and reasonable rates for consumers/fair return on investment for investors Emphasis on transparency, fair cost allocation and avoidance of cross-subsidy, avoidance of rate shock But Touched by or potentially shaping or delivering virtually all of the available policy instruments 22

Conclusion Societal forces create pressures (economic, environmental, social) And opportunities (technological change and business innovation) Public policy makers will try to meet more global, broader and longer term objectives – because they will be forced to. What is the role of economic regulators in meeting these objectives? 23