Advisory Committee on Innovation - Ontario Energy Board Meeting... · Ontario Energy Board 18 Value Proposition Profit Formula Key Resources / Process the job to be done how to monetise

Advisory Committee on Innovation

Second Meeting: April 3, 2018

Thanks to McCarthy Tétrault for Hosting

For Committee’s use only

Not for further distribution

Agenda

Ontario Energy Board 2

8:30 – 9:00 am Continental breakfast (provided)

9:00 – 9:30 Introduction, Overview and Review of Agenda

9:30 – 10:00Member presentation

Insights on Innovations

10:00 – 11:00

Roundtable discussion: New Services, Value & Prices

Scenarios

Implications

Potential actions

11:00 – 11:15 Break

11:15 – 12:30 Roundtable discussion: New Services, Value & Prices (con’t)

12:30 – 1:00 Reflection & next steps

1:00 pm Adjourn

April 3, 2018

Introduction, Overview and Review of Agenda… including Committee Roadmap

Ontario Energy Board 3April 3, 2018

Charge to the Advisory Committee

The Committee will focus on identifying actions that a regulator can take to support and enable cost effective innovation, grid modernization, and consumer choice to help inform regulatory policy development

• It will assist the OEB by:• Providing insight into what, if anything, is inhibiting cost

effective innovation today

• Providing advice on potential regulatory approaches, initiatives and other actions that should be considered

• Participating in prioritizing and sequencing of action

• Helping scope the work needed to take action, and

• Advising on additional opportunities that arise as work to take action is carried out


Refresher from 1st Meeting

April 3, 2018

Focus for Discussions: Key Questions Based on the Blueprint

Utility Remuneration - How should utilities be remunerated in order to encourage them to be more cost effective and innovative in service delivery?

System of Rates & Prices - How should utility rates and commodity prices be designed to provide appropriate signals to consumers to guide their own consumption and investment decisions?

Impacts of Sector Transformation- What measures are needed to protect consumers or particular subsets of consumers from some of the impacts of sector transformation, such as cost shifting?

Risk Allocation - How should the risk regarding underutilized or stranded assets be allocated between utilities and their customers, and are there any steps that can or should be taken to mitigate that risk?

New Utility Services - Does sector transformation create new utility services that need to be assessed and remunerated appropriately?

Incumbents and 3rd Parties - What role should incumbent utilities play in the emerging market for distributed energy resources and related services?

Barriers to Innovation & New Business Models - How can regulators identify and address regulatory barriers to innovation and new business models that benefit consumers?


Refresher from 1st Meeting

April 3, 2018

Future Discussions

What may be the implications to network regulation as to:

• when, where, how fast and by whom (Incumbents & 3rd

Parties) innovations in technology and services, networks, and novel business models roll out in Ontario?

• the design of an efficient/comprehensive system of rates and prices that provide appropriate signals to consumers to guide their consumption and investment decisions?

• ensuring effective planning and coordinating in a more distributed future?

• ensuring network services are remunerated properly to promote efficient network use and allocate any risk regarding underutilized or stranded assets between utilities and ratepayers)?

• protect consumers from unintended negative impacts of sector transformation?


New Services

Value & Price

Integrated Planning

Utility Remuneration

Consumer Protection

Refresher from 1st MeetingApril 3, 2018

Committee Road Map

New Services, Value & Price

What’s expected? Diffuse benefits?

• List of services

•Set of business scenarios

•Diffuse benefits mapping

•List of potential actions, in light of current regime

Integrated Planning How should planning be done

in a distributed future?

Utility Remuneration How should utilities be

remunerated?

•List of potential OEB actions expanded

•List of further research needs

Review & Refine

•Prioritized list of potential OEB actions

•Interrelationships and dependencies identified

Reflect & OrganizeCommittee’s Work to

Date (draft)

Summarize, Evaluate & Prioritize

Committee’s advice


Ap

r 3

&M

ay 3

May

22

May

28

Jun

e TB

D

Fall

generate ideas with scenarios

jurisdictional review available

Incumbents & 3rd Parties and Consumer Protection will be common threads throughout

Sum

mer

Output

Step

April 3, 2018

Insights on InnovationMember-led Discussion: What are you doing, what issues have you encountered, and what actions might be taken to facilitate?


New Services, Value & Prices


Approach to Discussions

Over the next two meetings, we will explore implications to network regulation of:

• when, where, how fast and by whom innovations in technology and services (including DERs), networks, and novel business models roll out in Ontario; and

• the design of an efficient/comprehensive system of rates and prices that provide appropriate signals to consumers to guide their consumption and investment decisions

Using the following approach:

• Step 1: Identify and describe new service scenarios, including current regulatory requirements

• Step 2: Discuss implications and identify potential actions, acknowledging diffusion of benefits


11

Step 1: Identify “New” Services in Context

Residential

Commercial

Institutional

Industrial

Community Energy

Distributor

Retailer

Generator

Energy Services

Aggregator

DistributionRetailer

GenerationTransmission

Energy applications /

solutions

City / Town

Township

Municipal

Region

Inter-provincial

Provincial

National

International

Biomass

Geothermal

Wind

Biofuels

Hydroelectric

Natural gas

Deep water

Solar

Nuclear

Energy efficiency services/consulting

Energy management services (including load control)

Engineering and consulting

Joint construction (e.g., phone and cable)

Power quality services

Customer-owned distribution facilities

Equipment sales and installation

Gas

Steam(Co-gen)

Electricity

Installation

Product Sales

Software and IT solutions

Product development

Smart EV Charging

ElectricityDistribution

Gas Utility

Data access

Financing

Land development

TelephoneFiber

Waste/water utility

Cable

WirelessSatellite

Shaded areas

illustrate scope

of activities

today

Not intended to be

exhaustive

April 3, 2018 Ontario Energy Board


Are there other emerging products or services that we haven’t captured?

When, where, and how fast will they roll-out in Ontario?

April 3, 2018

Step 1: Describe “New” Service Scenarios

• To help us understand innovations, grid modernizations, and consumer choices coming to Ontario, describe potential customer value propositions in terms of:

• The job to be done

• How it may be monetized

• Things needed to make it happen

• Doing so will help us to articulate opportunities, potential barriers and how value is/is not being compensated


Step 1: Key Elements of a Scenario

Value Proposition Profit Formula Key Resources /

Process

What’s the job to be

done?

How’s it monetised? What things are

needed?

Who are the customers (target

market)?

What are their needs?

What’s being offered in

response (i.e., services or

products)?

What’s the revenue model

(pricing, purchase frequency,

value added services)?

What’s the cost structure (cost

allocation: direct / indirect

costs, economies of scale)?

What’s the margin model

(related to the desired profit

levels)?

To deliver the value to

customers (value proposition)

and to the companies (profit

formula)…

What resources (people,

technology, equipment,

information, alliances /

partnerships, brand) are

needed?

What processes

(rules/standards, OEB

regulation, metrics) are

needed?


Adapted from Johnson, M., Christensen, C., Kagermann, H. (2008), ‘Reinventing your Business Model’, Harvard Business Review 86(12): 50-59

Step 2: To Identify Potential Actions…

Considering each scenario from various perspectives (customer, business, technology, market, regulation, etc):

• How does the customer engage the services and/or products? Is there a market?

• Who is involved and what value do they contribute (i.e., roles of incumbents & third parties)? Who benefits and how? Is value being appropriately compensated?

• How might the OEB contribute to the success of this customer value proposition?

• Do any elements need to be regulated? Why? What role, if any, might the OEB have?

Is there a need for guidelines or rules in relation to seams issues (e.g., conduct matters / customer relationship issues / business relationship issues / network connection and access issues) and/or consumer protections?

If prices/charges need to be regulated, how should they be determined / set?


Step 2: Current Regulatory Elements

• Conditions of Licence Set Out Minimum Requirements

• Service Quality Regulation

• Rate Regulation Rate Rebasing Incentive Regulation

• Empirical Tools Regulatory Reporting and Record-Keeping Benchmarking

• Performance Reviews Audit Reviews Compliance and Enforcement Policy and Process Regulatory Policy Development Application-Specific Proceedings


List provided for reference purposes

Three illustrative scenarios prepared using this approach provided for discussionSelf-Supply, Multi-purpose Storage, and The Smart Home

Please note further analysis is contained in the meeting materials package


Scenario: Self-supply Behind-the-meter


Value Proposition Profit Formula Key Resources / Processthe job to be done how to monetise it things needed to make it possible

Self-supply of electricity in

a multi-residential complex

(80% self, 20% from grid)

Maximum use of generation facilities

for energy bill savings from reduced

system load and associated

distribution fees paid

Owns and operates a behind-the-meter (BTM)

generation facility, no intermediaries

Generation licence, if nameplate capacity

exceeds that set out in the exemption regulation

Retailer licence required, but EPCA protections

do not apply because the customer is a large

volume consumer

Subject to distributor’s conditions of service

Selling electricity to

tenants through a unit sub-

metering arrangement

Price charged that is the same or

lower than RPP

The customer can make a profit from

the difference between what it cost to

self-generate the supply and what

they charge tenants. (E.g. – what it

would have cost to purchase the

supply from the distributor.)

The total consumption will be measured and

billed by a unit sub-meter provider. The tenants

will be billed for their own usage, based on the

price of supply from the distributor and the price

of supply from the BTM generator

Unit sub-metering licence required

Additional information provided separately

April 3, 2018

Scenario: Multi-purpose Storage Behind-the-meter



Customer stores energy at off-

peak periods and uses stored

energy to offset on-peak

consumption

Bill reduction (cost

avoidance)

Owns and operates the storage facility; system

intelligence to enable automated response to

signals/ prescribed conditions

Customer provides storage

capacity to distributor to

enhance capability to meet peak

load

Bilateral agreement with

distributor

Use of market-based mechanisms and bilateral

agreements for allocating storage capacity and

setting commercial terms and conditions of

service; system intelligence to enable automated

response to signals/prescribed conditions

Subject to distributor conditions of service

Storage licence if capacity exceeds OEB minimum

Customer provides ancillary

services to IESO through

distributor

Market participation or

bilateral agreement

Intermediary needed to access bulk system

ancillary services market. Market-based

mechanisms and bilateral agreements for

allocating storage capacity and setting commercial

terms and conditions of service; system

intelligence to enable automated response to

signals/prescribed conditions

Additional information provided separately

April 3, 2018

Scenario: The Smart Home


Customer programs

appliances, thermostat, and

EV charger to shift

consumption to off-peak

times, in accordance with

customer preferences

Bill reduction Installation of smart devices and system

intelligence to enable pre-programmed or

automated response to


Customer programs dual-

fuel home heating system to

use lowest cost

fuel/maximize efficiency

Bill reduction Installation of dual-fuel home heating

system to enable pre-programmed or

automated response to


Customer participates in

demand response for EV

charging and home heating

and cooling

Contract with an

aggregator (receives

some form of incentive

payment)

Installation of smart devices and system

intelligence to enable automated

response to demand response signals

Aggregation to facilitate requisite amount

of demand response at the distribution

or, with enough participants, bulk system

level. Active system management that

makes effective use of flexible demand

Ontario Energy Board 20Additional information provided separately

April 3, 2018


How might the OEB contribute to the success of this customer value proposition?

Is value being appropriately compensated? How and why?

Do any elements need to be regulated? Why? What role, if any, might the OEB have?

April 3, 2018

Potential Principles for Value and Price

Some literature suggests need for a comprehensive and cost-reflective system of prices and charges that is:

• Symmetrical – injection & withdrawal valued equally at a given location

• Non-discriminatory – suppliers (service providers?) & consumers treated fairly and consistently

• Technology neutral – value is based on service provided rather than technology used

• Reasonably reflective of temporal & locational value – level of granularity reflects balance of potential benefits against cost and complexity of administration

• Minimally distortive – policy & regulatory costs collected elsewhere

• Optimal – value from existing resources is maximized, economies of scale are not ignored

Do these principles seem appropriate for Ontario? Why?


Mowat’s December, 2016 Emerging Energy Trends Regulatory Responses to Ontario’s Energy FutureMIT’s December, 2016 Report Utility of the Future

April 3, 2018

https://mowatcentre.ca/wp-content/uploads/publications/141_emerging_energy_trends.pdf

http://energy.mit.edu/wp-content/uploads/2016/12/Utility-of-the-Future-Full-Report.pdf

Reflection & Next Steps

23April 3, 2018 Ontario Energy Board

Documents

Advisory Committee on Innovation - Ontario Energy Board Meeting... · Ontario Energy Board 18 Value Proposition Profit Formula Key Resources / Process the job to be done how to monetise