The document discusses upcoming regulatory challenges for utilities due to three waves of disruption: grid investments, system decentralization, and digitalization/new technologies. It argues that incentive regulation needs upgrades to properly frame efficient grid investments, account for decentralized power systems with local/retail markets, and incentivize monopoly innovation. International cooperation on data sharing and market coupling between transmission and distribution system operators is also needed. Emerging issues like electric vehicle charging and energy storage require clarifying the roles and involvement of distribution system operators. Overall, the debate on regulatory upgrades has been ongoing for a decade to develop efficient frameworks for investments and coherence across a decentralized power landscape with radical new technologies.

1. A regulation upgrade for utilities
disruption?
New York– KAPSARC Workshop
Jean-Michel Glachant
Director “Florence School of Regulation”
@ European University Institute – Florence (Italy)

2. NO!
From the
future!
If any…

3. 1/ The EU context
What was it about?
Two decades to build kind of Market based power industry
“Unbundling” did cut the industry into two areas:
• 1- The “market area” has: market incentives, open entry,
competition watchdog
• 2- The “monopoly area” has: incentive regulation, monopoly
franchise, energy regulator
Core of EU incentive regulation was within low demand growth -
then incentive regulation targeted:
*lowering costs of “grid & system” operation (OPEX)
**linking “grid & system Op.” to wholesale market trade
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4. 2/ Today&Future: 3 waves of disruption
What was it about?
• Wave of grid investment (said Euro “100bn” from 2015 to
2030) Continental scale internal market + EU common RES
energy Policy (20% RES in year 2020)
• Wave of system decentralization EU RES are local or
individual & not “Utility RES Portfolio obligation” + many grids
are unbundled (TSOs from DSOs; both grids from supply)
• Wave of full “digitalization” smart grids, smart metering, big
data + disruptive technologies storage, “market platforms”,
“internet of things”
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5. 3/ 3 waves of regulation disruption
What was it about?
• Wave of grid investment Incentive Regulation was to lower
OPEX; with CAPEX being ROR > not framing efficient invest.
• Wave of system decentralization TSOs are few & regulators
did learn; DSOs are hundreds & very heterogeneous –
Markets were designed for national / wholesale; not local or
retail markets // new services + locally produced & valued
• Wave of full “digitalization” + disruptive technologies
1/Designing right incentives for monopoly innovation into
their “own system disruptions” is   ;
2/Reducing asymmetry of information & knowledge
production “Regulator / Operators” via “pilots & experiments”
is  , fuzzy & slow
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6. 4/ 3 waves of regulation upgrade
What was it about?
• Wave of grid investment EU energy regulators (CEER) & EU
Agency (ACER) + EU Commission are already working on an EU
upgrade > will clarify a lot this year
• Wave of system decentralization End(?) 2016 CEER & ACER
will issue first comments or recommendations + Commission
a proposal new Market & Grids legislation > will clarify more
in 2017? Or only in 2018?
• Wave of full “digitalization” + disruptive technologies Much
more fuzzy??? Even not clear if it could be made by “Energy
regulation & policy” and not from “Digital economy & society
regulation & policy”
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7. T&T experience for sharing data, assumptions & calculus
• Issue: almost black-out of the entire continental power system in 2006
because grid operators made wrong assumptions about the state of
neighboring systems when taking corrective actions
• Remedy: Regional Network Security Coordination Initiatives (Coreso, PSCI)
T&D relevance
• Issue: if/when DSOs act as system operator to foresee & prepare for
congestion in distribution grids
• Remedy: DSOs join these Reg. centers data, assumptions, & calculation
5/ Decentralization:
from T&T to T&D cooperation (1)

8. T&T for coordinating allocation of grid with energy trade
• Issue: inefficient use of border capacity because of separate clearing of
trade for (network capacity) and trade (energy markets)
• Remedy: “coupling” of trade in adjacent energy markets with ex ante firm
grid capacity offered to energy trade
T&D coordinating allocation of grid with energy trade
• Issue: if/when the T&D boundary would become a structural congested
bottleneck in the energy system that requires separate energy prices
• Remedy: DSOs build “T&D market coupling” algorithm
6/ Decentralization:
from T&T to T&D cooperation (2)

9. Unbundling
7/ Emerging businesses:
Market Approaches
 Old issue: unbundling TSO stricter than DSO, especially for small DSOs (TSOs will run
data-hub in Nordic countries; proposal in D)
 New issue: DSOs unbundled from utilities entering into new business (e.g. Alliander
statups and Eandis energy efficiency advice and coordination for municipalities)
Market design
Public service regulation
 Is an issue for competition in the market, but let for competition for the market,
e.g. city tendering for EC charging infrastructure and third party market facilitation
 Electric vehicle charging infrastructure: issue of roaming (with contract of other
supplier), and fuel station billing (without contract)
 Storage: price regulation in the market or competition for the market in case of
locational market power
 Market facilitation: assigned to third party in UK (Data Communication Company)
and Italy (Acquirente Unico)

10. Scope of involvement (& third party access)
 General principles: pilots with R&D budget (IR, NL, Italy), included in
RAB in motivated cases (UK, NL “proven long-term market failures”)
 Storage: max 50/100 MW and auctioning of capacity not used by
DSO (UK pilot); separate business (SE)
 Electric vehicle charging: assets financed by DSO R&D budget, but
separated from RAB to allow transition towards market (IR)
 Market facilitation: providing data to data hub and validation of data
(Italy), data hub operator (BE), smart meter without “after the meter
device functionalities, like display” (IR, NL)
8/ Emerging businesses:
Role for DSO

11. www.florence-school.eu
To conclude? A decade long regulatory upgrade debate
(efficient frame for investment wave) + (coherence for
decentralized power systems) + (keeping doors, brains &
wallets open to radical innovation)…

12. www.florence-school.eu 12
Thank you for your attention
Email contact: jean-michel.glachant@eui.eu
on Twitter: @JMGlachant already >15 000 tweets
My web site: http://www.florence-school.eu