Over the next decade, we will likely witness a redefinition of the role of the electric utility in many parts of our country. New and improved energy technologies, progressive policies, changing consumer sentiment, and the growth of competition will combine to disrupt the tried-and-true utility business model. We are already seeing evidence of change. In some parts of the country, third party energy service providers have had meaningful success connecting with utility residential and business customers and offering distributed energy resources, demand response, energy efficiency, microgrids, and a range of related services. These advances threaten utility growth and profitability and raise serious strategic and tactical issues regarding the utility’s relationship with its customers.
Despite growing competition, utilities are well positioned today to lead the transformation of the energy sector and redefine their role with customers. Utilities own most of the transmission and distribution infrastructure in the U.S. (and in some places, the generation infrastructure), offer services to their customers that are at least partly insulated from competition, and are generally experienced or most knowledgeable about their customers, the emerging technologies and the regulatory environment that are driving change. With the right strategies, utilities should be able to enhance and expand their customer offerings, tap new revenue sources, and deliver strong overall performance over the long term.
One challenge utilities face in developing a transformational strategy is adapting the planning function to address today’s unique challenges. In traditional utility planning, generation and transmission was planned relatively independent of distribution. Generation and transmission planning considered the best set of transmission connected resources to meet customer demand while distribution planning focused primarily on deliverability. Today, the penetration and decreasing cost of distributed energy resources has forced utilities to plan more holistically. Many utilities have identified “integrated planning” as an important area of development for their organizations. This is consistent with guidance from the National Association of Regulated Utility Commissioners (NARUC) and some state mandates that utilities develop integrated system plans. Despite utility interest and regulator urging, in our observation few utilities have achieved the desired end state.
Here are the three main obstacles to implementing an integrated planning function, and tactics utilities can use to move their organizations forward.
Obstacle 1 – The Value Proposition
Utilities need a vision for the future of the industry, which will create a strong value proposition for an integrated (generation, transmission and distribution) planning effort. If management doesn’t see the value of initiating a transformational planning process, utilities risk foregoing the opportunities that industry change creates. Utilities have the burden of not only developing new strategies in this environment, but also the weight of justifying the resulting investments to regulators. Many intervenors and regulators are pushing hard for rapid deployment of DERs and low or net zero carbon futures. Planners need to understand the implication of rapid distributed and utility scale renewable energy resource growth and how this is driving concerns about the reliability and resilience of the grid.
There is a risk associated with setting carbon reduction strategies that outstrip the ability of cost-effective technologies to ensure reliability of the grid at a reasonable price. Until long term storage and other non-wire alternatives are cost effective, there is a risk of retiring the generation plants that provide needed synchronous generation and inertia. The alternative today is to vastly overbuild renewable resources at significantly higher than necessary cost.
Effective planning will show the benefits of balancing wire and non-wire solutions, grid hardening, more decentralized renewable generation, and the maintenance of some synchronous generation until emerging technologies can ensure reliability at reasonable cost. Of course, the only way to justify this to regulators is to have the capability to conduct the analysis necessary to show the cost associated with moving too fast before these technologies are proven and cost effective. The problem is that traditional planning is conducted in a sequenced process that doesn’t lend itself to evaluating generation, transmission, and distribution solutions simultaneously.
Obstacle 2 – Roadmap Development
The path to integrating the utility planning functions can take months or even years depending upon the starting point and the desired end state. Utilities without a clear roadmap can struggle to make meaningful progress as other demands intercede and momentum is lost. A well-constructed planning roadmap will utilize a maturity model that can identify gaps in current planning practices to address key issues today, in the near- to mid-term, and in the longer term. Deficiencies that might need to be addressed include misalignment of planning horizons or assumptions, model limitations, inaccurate data, and cultural differences among planning departments. Near-, mid-, and long-term requirements can be driven by regulatory requirement, stakeholders or managements who want to get ahead of the regulators and drive planning before it is dictated to them by external forces. The roadmap will provide for a clear, well defined program that will achieve near, mid- and long-term objectives in a cost-effective manner.
Developing a roadmap can be challenging. Extensive workshops and interviews may be needed to describe the current processes, identify the desired state, and develop the action plan for change. It is often the case that the individual planning functions know little about each other’s work, especially between distribution planning and the other two functions. Significant time must be spent on education and familiarization.
Complicating matters, there are also typically vast differences in the planning approach taken by the different groups. For instance, distribution plans often only focus on one to three years. Transmission plans may be seven to 10 years with input assumptions often provided by the RTOs, for utilities in organized markets. Generation plans are often 20 to 30 years with inputs developed from entirely different sources. The plans also can differ greatly in terms of how they deal with uncertainty. Generation plans often look at a wide range of long-term uncertainty. Distribution plans may not address uncertainty at all.
Effective generation, transmission, and distribution planning needs to have similar planning horizons, consistent sets of assumptions, quality data sources, consistent approaches to addressing uncertainty, and consistent metrics for the evaluation of options at the generation planning, transmission planning and distribution planning levels, with close communication across all three domains.
Obstacle 3 – No Silver Bullet
Utilities may be attracted by the idea that a single model or tool exists for integrating planning efforts. In our experience, this is fallacy. While the utility and the industry might one day evolve to a point where a single model can handle the task of planning the entire generation, transmission, and distribution system, this does not exist today. Utilities can spend unnecessary time and money in pursuing these solutions.
Integrated planning can be conducted in a relatively short period of time with existing models and databases if a well-structured planning process is put in place. Initially this may involve a manual process of iterating between existing generation, transmission and distribution models. But this approach will yield effective results quickly and more cost effectively than more technology-based solutions. Over time, automation and effective database management can be added to improve efficiency. But incremental steps using existing resources will allow utilities to stay ahead of the regulatory pressures and provide needed insights into a wide range of solutions, including generation plans, capital allocation issues, grid modernization programs and rate design issues.
Despite the industry-wide acknowledgement that integrated utility planning is becoming increasingly important to addressing decentralization of the grid, utilities face significant roadblocks to change. Building an integrated planning function takes time, investment, and serious commitment by many employees in the organization. Utilities should spend the time to clearly articulate the value proposition to gain support from employees, develop a roadmap that sets expectations and milestones, and acknowledge that the solution is not instant, or purely model based. Utilities that take these steps will be much more strategically positioned to address the industry’s transition.
