&quot; Bridging the Gap - How Regulation Doesn't Have to Prevent Innovation&quot; <ul><li>David O'Brien </li></ul><ul><li>...
Topics <ul><li>Status Quo Regulation, Status Quo Electric System </li></ul><ul><li>Cost of Service & Innovation </li></ul>...
Briefly on Bridge <ul><li>Focus: Utility / Power Industry </li></ul><ul><li>Offices: HQ in Marlboro, Mass. </li></ul><ul><...
Status Quo Regulation <ul><li>A Social Compact </li></ul><ul><li>Retail Rates Expected to be Stable </li></ul><ul><li>Rate...
Limitations of Traditional Utility Regulation <ul><li>Goal of Rate Stability Hinders Price Discipline of Consumers </li></...
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 <ul><li>Rewards Investment in Hard Grid Assets, but not IT </li></ul><ul><li>Rate Cases Seek ...
How Regulation Has to Change <ul><li>Not just rates, but the entire regulatory process needs to be dynamic… </li></ul><ul>...
Elements Utility Success <ul><li>Must be a Complete Adoption of the Technology i.e. DA & AMI </li></ul><ul><li>Global Comp...
New Regulatory Framework <ul><li>Old </li></ul><ul><li>Stable “Least Cost “Rates </li></ul><ul><li>Variable  Cost of Servi...
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Innovation &amp; Regulation Session 304 Roadshow

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This is a presentation I made at the SG Roadshow in Montreal CA on Wednesday August 31st. The topic is how can innovation, risk taking, occur in a tightly regulated industry..

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  • This slide should bring home the point that traditional ratemaking does not drive operational excellence, or economic investment.
  • This slide should bring home the point that traditional ratemaking does not drive operational excellence, or economic investment.
  • This slide should bring home the point that traditional ratemaking does not drive operational excellence, or economic investment.
  • This slide should bring home the point that traditional ratemaking does not drive operational excellence, or economic investment.
  • This slide should bring home the point that traditional ratemaking does not drive operational excellence, or economic investment.
  • This slide should bring home the point that traditional ratemaking does not drive operational excellence, or economic investment.
  • Transcript of "Innovation &amp; Regulation Session 304 Roadshow"

    1. 1. &quot; Bridging the Gap - How Regulation Doesn't Have to Prevent Innovation&quot; <ul><li>David O'Brien </li></ul><ul><li>Director of Regulatory Strategy & Compliance </li></ul><ul><li>Bridge Energy Group </li></ul>
    2. 2. Topics <ul><li>Status Quo Regulation, Status Quo Electric System </li></ul><ul><li>Cost of Service & Innovation </li></ul><ul><li>How Regulation has to Change </li></ul><ul><li>Elements of Utility Success </li></ul><ul><li>New Regulatory Framework </li></ul>
    3. 3. Briefly on Bridge <ul><li>Focus: Utility / Power Industry </li></ul><ul><li>Offices: HQ in Marlboro, Mass. </li></ul><ul><ul><li>Albany, Austin, Rutland, Sacramento, Ottawa/Canada, New Delhi/India </li></ul></ul><ul><li>Est. 2005, 80 people, Financially Stable </li></ul><ul><li>Clients: Power Transmission & Distribution Utilities and ISOs </li></ul><ul><li>Currently working on several Smart Grid Projects across the US </li></ul><ul><li>Delivering Smart Grid & Utility Solutions </li></ul><ul><ul><li>openSGRA Reference Architecture, GridStar™ Platform, eFAME™ Methodology </li></ul></ul><ul><li>Practices built around IT (Architecture & Integration), OT (EMS/SCADA & Distribution Automation) and Regulatory & Compliance </li></ul><ul><li>Not aligned with any Tool, Product, Technology vendor or a Standard </li></ul>
    4. 4. Status Quo Regulation <ul><li>A Social Compact </li></ul><ul><li>Retail Rates Expected to be Stable </li></ul><ul><li>Rate Design More Art than Science </li></ul><ul><li>Rate Setting is often Infrequent </li></ul><ul><li>Investment in Long Lived, Predictable Assets for Society’s “collective benefit” </li></ul>
    5. 5. Limitations of Traditional Utility Regulation <ul><li>Goal of Rate Stability Hinders Price Discipline of Consumers </li></ul><ul><ul><li>Consumers Do Not See Implications of How Much Energy They Use & When </li></ul></ul><ul><ul><li>Leads to Inefficient Grid Investment </li></ul></ul><ul><li>“ Art” in Rate Design Deadens Price Efficiency </li></ul><ul><ul><li>Cost Allocation not Entirely According Cost Causation </li></ul></ul><ul><ul><li>Simplistic Rate Classes Do Not Accurately Group Cost Causation </li></ul></ul><ul><li>Cost of Service Regulation Does Not Encourage Operational Efficiency </li></ul><ul><ul><li>Rates Based on Demonstrated Costs, Not Lowest Possible </li></ul></ul><ul><ul><li>Emphasis on the Known, Stability Not Conducive to Innovation </li></ul></ul>
    6. 6. Source: The Brattle Group, March 2010
    7. 7. Source: The Brattle Group, March 2010
    8. 8. Source: The Brattle Group, March 2010
    9. 9. Electric Grid is a Wasted Resource
    10. 10. Cost of Service & Innovation <ul><li>Rewards Investment in Hard Grid Assets, but not IT </li></ul><ul><li>Rate Cases Seek to Lower Costs, but not Operational Efficiency </li></ul><ul><li>Rate Design not Structured to Deliver Economic Efficiency </li></ul>
    11. 11. How Regulation Has to Change <ul><li>Not just rates, but the entire regulatory process needs to be dynamic… </li></ul><ul><li>Regulatory Culture </li></ul><ul><ul><li>No more “gotcha”, Trust but Verify </li></ul></ul><ul><li>Rate Design </li></ul><ul><ul><li>Less Social Policy, More Cost Causation </li></ul></ul><ul><li>Ratemaking </li></ul><ul><ul><li>Performance Based </li></ul></ul>
    12. 12. Elements Utility Success <ul><li>Must be a Complete Adoption of the Technology i.e. DA & AMI </li></ul><ul><li>Global Competition Mindset </li></ul><ul><li>Robust Information to Customers and Dynamic Pricing </li></ul><ul><li>Performance Based, Reciprocal Regulatory Compacts </li></ul>
    13. 13. New Regulatory Framework <ul><li>Old </li></ul><ul><li>Stable “Least Cost “Rates </li></ul><ul><li>Variable Cost of Service, </li></ul><ul><li>Coin Flip ROE </li></ul><ul><li>Sporadic System Investment </li></ul><ul><li>Discourage Revenue Growth </li></ul><ul><li>New </li></ul><ul><li>Economic Rates </li></ul><ul><li>Multi Year Performance Based </li></ul><ul><li>Performance Based </li></ul><ul><li>Continuous Asset Management </li></ul><ul><li>Revenue Growth Rewarded </li></ul>
    14. 14. Questions?
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