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Dec 16, 2016

Modernizing the Electricity System in Minnesota

The e21 Initiative Charts the State's Energy Transition

 

 

In April 2016, RMI hosted the third annual eLab Accelerator. (Applications are now being accepted for eLab Accelerator 2017.) Described as a boot camp for electricity innovation, the four-day intensive work session brought together 13 teams from across North America—from North Carolina to Ottawa and California to New York—working on new business models, energy innovation districts, and novel ways to value distributed energy resources. Together with RMI facilitators, Reos Partners, and a panel of expert faculty, they sped progress on their respective efforts. This is one of their stories.

The state of Minnesota moves in the vanguard of the U.S. electric grid revolution, but without the visibility of fellow leaders New York, California, and Hawaii. What is it about the North Star State that puts it in this company? One part of the answer is the e21 Initiative, a stakeholder collaborative for charting the state’s energy transition. Last week, e21 reached an important milestone, releasing its Phase II Report: On implementing a framework for a 21st century electric system in Minnesota. The new report builds on Phase I recommendations to reform the utility regulatory system, extending those recommendations to provide a more detailed exploration of the options and needs facing Minnesota. Next, e21 will begin the work of Phase III, focused on moving ideas to implementation. 

e21 grew out of conversations that electricity experts were having about emerging pressures on the utility business model and regulatory framework, including changes in consumer expectations, declines in the cost of emerging distributed energy technologies, and new public policies. In 2014, the Great Plains Institute (GPI) and the Center for Energy and Environment (CEE), two nonprofits based in Minnesota, convened the e21 Initiative with stakeholders from around the state, including utilities, consumer advocates, energy technology companies, environmental and academic organizations, and government. Rolf Nordstrom, president of GPI, explains, “We didn’t start with an answer, we started with a question: Does the utility business model and regulatory framework need to evolve, and if so, how?” Dan Cross-Call, a manager with RMI’s electricity practice and the facilitator for the e21 project team at the 2016 eLab Accelerator meeting, describes e21 as “an effort to address these needs for system reform in an alternative forum than the common adversarial regulatory or legislative proceedings. It’s creating a new culture and mode of operation for imagining a grid future.”
 

Long-Term Commitment Is Key to Success

About two dozen people began meeting at the outset of e21, and the monthly meetings have continued for two and a half years. While many of the same individuals and organizations still participate in e21, the second phase gathered a broader set of interests and invited additional experts to provide guidance on specific, complex topic areas. Nordstrom says, “One of the most encouraging aspects of the e21 process is the degree to which people voted with their feet that this conversation was timely and important enough for them to all spend time having it in advance of any particular crisis.” 

Phase I produced a set of consensus recommendations, released in December 2014. Nordstrom says the recommendations called for a shift in the way Minnesota regulates its utilities and for moving “the business model for investor-owned utilities away from what we’ve dubbed the build-more, sell-more earnings model and toward a performance-based compensation framework in which at least a portion of a utility’s earnings would be tied to achieving an agreed-upon set of performance outcomes. People sometimes get hung up on what performance-based regulation means, but the important feature is simply the idea of aligning utilities’ financial incentives with the outcomes consumers and the public want.” 

They had just begun Phase II when the project team attended their second eLab Accelerator in March 2015. Phase II, as informed by work at Accelerator, addressed top priorities in three areas: integrated system planning, grid modernization, and performance-based compensation. Over the past year and a half, subgroups of eight to 20 participants reviewed best practices and options for Minnesota on each of these topics. Each group structured its own work and their output is presented in different ways in the white papers, including recommendations, potential modifications, and details about the continuum of reform. The papers are now available in a single report, reflecting that the content is “intended as a cohesive package to be taken together.” 

“Each of the papers lays out opportunities for evolving the system to better meet needs in the electric sector and the pressures on the utility business model,” said Mike Bull, director of policy and communications for CEE, and they move toward an “overall pivot to having a system that is more customer focused than it has been or has needed to be in the past.”


Shortening the Distance Between Ideas and Impact

Continuing its commitment to generative, ongoing process improvement, e21 brought a team to the third eLab Accelerator in April to plan a new structure for Phase III. Bull said, “Phase I was about the blueprint; Phase II was about how you might build those buildings; Phase III is getting on our tool belt and going to work.” Nordstrom said that, “if it was to have real impact, we realized we needed to shorten the distance between a potentially good e21 idea and uptake by regulators.” 

Nordstrom said the team’s objectives at the 2016 Accelerator were twofold; “One, kind of ground-truth our own diagnosis of the strengths and weaknesses of e21 to date,” by listening to how other project teams were dealing with the same problems, and seeing what they made of e21’s approaches. The other objective, he said, was, “perhaps most importantly, to chart a course with the right group of people, including some of the regulators, on how this next phase, which is really going to be focused on taking action, could be structured in a way that would most dramatically increase its chances of having the impact that we think it can have.”

Adding greatly to their work, two of Minnesota’s five Public Utilities Commission (PUC) commissioners participated in e21’s 2016 Accelerator team, as did a representative from the Minnesota Department of Commerce, another key regulator. That “made a huge difference because they could really help inform what the structure might look like,” said Nordstrom. 

Through three days of facilitated discussions, coaching from eLab advisors, and peer feedback with other Accelerator participants, the team produced an updated strategy that focuses on emerging needs and opportunities in their state. Now, said Bull, “We’re going to move from idea generation to implementation.” e21 stakeholders working in small project teams, including utilities, will work on “individual action projects, pilots that will implement e21 concepts,” said Bull, “and we will design the output from those projects to be actionable by policy makers.” Central to the new Phase III structure for e21, these pilots will be informed by utilities, local stakeholders, and national experts to help bring forward well-conceived proposals that are right for Minnesota.


Charting Their Own Path

The team’s three visits to Accelerator have played an important role in e21’s evolution. “We view Accelerator as an opportunity to make sure that our work is being leavened by the best thinking going on across the country,” said Nordstrom. “The fact that you’re there with 10 to 12 other teams, you get that natural cross-fertilization.” However, Bull said, “We want to chart our own course for Minnesota, because we’re not like California, we’re not like New York or Hawaii. But we do want to gather the lessons learned and emerging best practices from activities conducted elsewhere.” 

And the learning flows both ways. “There’s been strong interest in what’s happening with e21, including people from Australia wanting to find out what’s going on,” said Nordstrom. Because Minnesota has not deregulated its electricity market and its utilities are vertically integrated, its situation is more like the 20 or so fully regulated states than are New York and California. Minnesota’s experience is answering the question of “how do we design and introduce innovation and customer options within that vertically integrated, fully regulated context,” he said.

Image courtesy of iStock.

 
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