New, emerging, and expanding technologies offer opportunities to improve the reliability and performance of the electric grid, unlock efficiencies, and deliver valuable services to customers. Many state utility regulators (including those in Massachusetts, New York, and California) are investigating and implementing policies aimed at modernizing their electric grids to enable the provision of improved and expanded services. But to realize the full promise of new technologies, regulators (and policy stakeholders more broadly) will have to get the policies right.
On Friday, the New England Clean Energy Council released a white paper that provides valuable thought-leadership on the critical elements of a successful grid modernization policy. In short, NECEC focuses on four priorities: utility investment plans that move utilities towards providing a broader set of services; a forward-looking and outcome-based regulatory approach that incentivizes both delivering value to customers and enabling third parties to deliver such value; rates that send accurate signals regarding the value of services consumed or provided while allowing for fair and appropriate cost recovery; and mechanisms for utilities to promote innovation through demonstration and testing of new strategies and technologies. Elements of these priorities are clearly visible in the approach to grid modernization being taken in Massachusetts and can be seen in the processes underway in New York and California as well.
As grid modernization efforts pick up steam on a state-by-state basis, we will see variation in the policies that states choose to implement. Each state will independently grapple with the difficult policy issues associated with grid modernization in the context of its own unique regulatory and infrastructure starting point. Implementing grid modernization policies will be a long-term process, but important policy decisions, such as the types of investments to be encouraged, the timeline for those investments, the extent to which certain utility investments might be eligible for favorable cost-recovery processes, and even the extent to which some states may revisit the fundamentals of their regulatory approaches, may be made early on in state processes and may not be easily revisited. It would therefore behoove stakeholders to get involved early in decision-making processes at the state level.