I. INTRODUCTION. Renewable Northwest thanks the Oregon Public Utility Commission ( Commission ) for this

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1 July 10, 2018 Public Utility Commission of Oregon 201 High Street SE Salem, OR Attn: Julie Peacock Re: SB 978 Written Comments (Due July 10, 2018). I. INTRODUCTION Renewable Northwest thanks the Oregon Public Utility Commission ( Commission ) for this opportunity to comment as the Commission prepares its report on potential changes to the regulatory system governing investor-owned electric utilities ( IOUs ). The Oregon Legislature charged the Commission with preparing this report in Senate Bill 978 of 2017 ( SB 978 ). 1 Renewable Northwest appreciates the value of Oregon s current regulatory system and recognizes the challenges and opportunities in adapting our current regulatory system to a rapidly changing electricity grid and an evolving policy landscape. As these comments discuss, this report provides the Commission with an opportunity to identify how potential changes to the regulatory system could better align utility incentives with the goals of customers and the Oregon s energy policy. Renewable Northwest is a non-profit advocacy organization that works to facilitate the expansion of responsibly developed renewable resources in the Northwest. Our membership includes consumer advocates, environmental groups, academic institutions, renewable energy developers and manufacturers, and other industry advisers. The common goal of Renewable Northwest s members is to promote the development of a cost-effective, reliable, and clean energy system for the betterment of the Northwest economy and environment. We have participated in the Commission s SB 978 stakeholder process since its inception. 1 Senate Bill 978 of 2017, available at Renewable Northwest s SB 978 Comments Page 1 of 7

2 II. COMMENTS SB 978 directs the Commission to investigate how industry trends, technological advances, and evolving public policy goals interact with the existing regulatory system under which the Commission regulates IOUs. 2 The Commission is to use the results of that investigation to explore changes to the existing regulatory system. 3 Following its investigation, the Commission must report to the legislature on its findings, possibly including recommendations for legislation, by September 15, Specific topics raised by the legislature for inclusion in the Commission s report include: The increasing presence of cost-effective utility-scale and distributed renewable resources on IOUs systems; Expanding customer demand for a cleaner and more sophisticated grid; The need to align electric utility regulation with public policy goals; and The use of performance-based incentives in other jurisdictions to modernize utility performance and regulation. 5 In these comments, we outline our view of the best possible outcomes of the SB 978 process in the hope that we can help inform the Commission s report. Specifically, we recommend that the Commission: (1) explore ways it can use its existing authority to better align utility incentives with public policy goals; (2) consider establishing policy guidance for near-term development of IOU performancebased ratemaking ( PBR ) pilots while undertaking a longer-term investigation; and (3) adopt decarbonization as a core goal and function. 2 SB 978 1(1)-(4). 3 Id. 4 Id. 1(6). 5 Id. 3. Renewable Northwest s SB 978 Comments Page 2 of 7

3 1. The Commission likely has existing untapped legal authority to drive regulatory change. The Commission has traditionally held a view of its own power that is constrained as much by historical practice as by the bounds of its legislative authority. As the Commission undertakes its day-today activities, this predictable regulatory oversight supports the Commission s overarching goal to assure reliable and cost-effective electric service to Oregon utility customers. However, SB 978 represents an opportunity for the Commission to reassess the bounds of its statutory authority and after SB 978 s comprehensive, transparent public process adopt new ways of using its existing authority. In our April comments, we wrote that the Commission s authority goes beyond ensuring reliable and cost-effective electric service: The Commission s legal mandate also includes overseeing the transition of Oregon s electricity sector away from fossil fuel dependence and toward a cleaner, more flexible system that relies on renewable energy generation, energy efficiency, demand side management, demand response and storage all while driving down greenhouse gas emissions and maintaining reliability. This mandate, already apparent from existing chapters of the Oregon Revised Statutes, 6 was clarified when the Oregon Legislature passed SB 1547 in The Commission already has tools it can use to begin directing IOUs implementation of that electricitysector transition. While we encourage the Commission s legal Staff to review the bounds of that authority, we offer one example that may have significant potential. The Commission presently has the authority to approve an alternative form of regulation plan that sets rates and revenues and a method for changes in rates and revenues using alternatives to cost-of-service rate regulation. 8 The Commission could harness the broad stakeholder feedback it has received throughout the SB 978 process and use its report to the legislature as an opportunity to provide the IOUs with policy direction regarding alternative rate approaches. Participants have suggested ways that IOU incentives 6 See, e.g., ORS ch. 469A (establishing Commission s oversight of Renewable Portfolio Standards); (establishing Commission s obligation to protect electricity ratepayers and oversee rates); (establishing Commission s oversight of IOU rates); (establishing Commission s role regarding compliance with state greenhouse-gas emission reduction goals). 7 See generally Senate Bill 1547, available at 8 ORS (2)(b) & (c), Alternative Regulation Plan. Renewable Northwest s SB 978 Comments Page 3 of 7

4 might better align with Oregon s public policy preferences (including aggressive decarbonization of the electricity sector). A similar stakeholder process at the Rhode Island Public Utility Commission led quickly from a Power Sector Transformation report in November 2017 to a utility filing with several new rate elements: utility compensation for achieving metrics related to peak shaving, storage procurement, and various means of reducing or avoiding CO 2 emissions. 9 The filing was settled just last month (June, 2018) and is currently pending Commission approval. 10 It is important for the Commission not to prejudge the specifics of any possible alternative form of regulation filing by an IOU. However, the SB 978 report affords the Commission a unique opportunity to offer policy guidance regarding alternative ratemaking approaches that may be worth consideration as the old cost-of-service regulatory model appears increasingly strained under a rapidly changing electricity sector. 2. Performance-based ratemaking has significant potential to realign utility incentives with Oregon s public policy goals. From the passage of SB 978 through all the Commission process that followed, one thread has been consistent: performance-based ratemaking ( PBR ) has significant potential to positively change Oregon s utility regulatory structure and better align utility incentives with public policy goals. The text of SB 978 directs the Commission to consider [u]se of performance-based incentives used by other states in addressing... industry trends, technologies and policy drivers. 11 Renewable Northwest supported this element of SB 978 in its comments to the legislature, noting that the issue of the utility s incentive to own assets could be addressed by some form of performance-based ratemaking, where IOUs may profit 9 See Rhode Island Power Sector Transformation Phase One Report to Governor Gina M. Raimondo (Nov. 2017), available at While the Rhode Island Public Utility Commission was careful to avoid discussions of actual implementation pathways and decisions as part of the Power Sector Transformation process, it did provide broad utility guidance as to what elements might be considered for inclusion in a post-power Sector Transformation rate case. Id. 10 See The Narragansett Electric Company d/b/a National Grid, Settlement Agreement Docket Nos and 4780 (Jun. 6, 2018), available at Signed(6-6-18).pdf. 11 SB 978 1(3)(j). Renewable Northwest s SB 978 Comments Page 4 of 7

5 when policy goals are attained within the IOUs service territory regardless of asset ownership status. 12 The Commission s Summary Memo, distributed to stakeholders on June 22, 2018, acknowledges the possibility of compensating utilities based on their performance in meeting certain metrics rather than based on invested capital i.e., using Performance Based Ratemaking (PBR). 13 Renewable Northwest joins other stakeholders in continuing to support PBR in Oregon. We encourage the Commission to consider the streamlined implementation of a PBR pilot that could inform an exploratory docket run in parallel. 14 A pilot could allow the Commission to collect data on utility performance relative to public policy goals and to initiate the process of shifting away from the utility s capital-investment incentive a shift broadly recognized as necessary throughout the country. The Public Service Commission in New York a PBR pioneer found as much in its 2016 order establishing policy direction for PBR: Efficient markets will require more precise value signals and access to system and customer data. In the interim, and while the market is developing, outcome-based incentives are required to encourage growth of markets, the efficient use of capital toward lower total system costs, and achievement of State policy goals. 15 Through this and other orders, the New York Public Service Commission has driven a host of demonstration projects that are not only informing that state s PBR efforts, but are also creating immediate benefits for New York utility customers. 16 As other states throughout the country work on shifting from cost-of-service ratemaking to PBR, data that supports Oregon s PBR efforts will likely 12 Rikki Seguin, Renewable Northwest, Comments on SB 978A (Jun. 27, 2017), available at 13 Commission Summary Memo at 4 (Jun. 22, 2018). 14 The Commission s Summary Memo suggests that [i]n order to better understand the value of a performance based approach, the Commission would need to begin to collect data on metrics around utility performance against desired outcomes and whether or not economic efficiency and performance against other goals could be improved with a change in the utility incentive structure. We respectfully disagree with the need for such additional process. 15 New York Public Service Commission, Order Adopting a Ratemaking and Utility Revenue Mdoel Policy Framework at 24 (May 19, 2016), available at B79CF0A71BF0%7D; see also id. at 22 ( [T]he actions ordered here will include near-term measures oriented toward foundational elements of REV, and longer-term initiatives that will include extensive additional public involvement and party scrutiny. ). 16 For a list of projects, see REV Demonstration Projects, available at Renewable Northwest s SB 978 Comments Page 5 of 7

6 become increasingly abundant. Oregon too can contribute to this national effort and achieve near-term benefits by leveraging the Commission s existing authority to promote PBR pilots now. 3. SB 978 provides a unique opportunity to include greenhouse gas emissions as a core element of the Commission s regulatory processes. Renewable Northwest appreciates the Commission s willingness to consider a PUC role in decarbonization beyond planning, compliance oversight, and implementation of specific state policy. 17 Like many SB 978 stakeholders, we accept that climate change is a serious issue that needs to be addressed in Oregon. 18 We further agree that the Commission will need to play a central role in Oregon s efforts to reduce greenhouse gas ( GHG ) emissions and mitigate climate change. 19 There are several ways the Commission could lead decarbonization efforts beyond the traditional roles identified in the Commission s summary memo. First, as has been discussed above, the Commission could issue policy direction to IOUs encouraging them to propose PBR with GHG reduction as a metric on which the utilities could earn a return. It appears that the Commission could issue such guidance now without further action by the legislature. Second, the Commission would be ideally suited to enforce any GHG emission-reduction requirements established by the legislature in IOUs IRPs. The Commission s focus on IOUs could ensure that generation that serves Oregon customers is consistent with Oregon s climate goals. Renewable Northwest is open to supporting other mechanisms for the Commission to have a greater role in reducing Oregon s GHG emissions, and we again thank the Commission for proactively considering how it might undertake such a role. 17 Commission Summary Memo at Id. at Id. at 2-3. Renewable Northwest s SB 978 Comments Page 6 of 7

7 III. CONCLUSION The SB 978 process provides a unique opportunity for the Commission to consider how better to use its existing authority and to recommend legislative changes in order to update Oregon utility regulation in a time of rapid change in the electricity sector. Renewable Northwest encourages the Commission to think creatively and to consider all viable approaches to reducing GHG emissions from Oregon s electricity sector. In the short term, we see particularly strong potential in PBR that incentivizes decarbonization. In the long term, additional approaches may be worthy of consideration as Oregon moves from traditional cost-of-service regulation to new approaches for ensuring cost-effective, reliable, GHG free electricity service to customers. /s/ Silvia Tanner Silvia Tanner Senior Counsel and Analyst Renewable Northwest 421 SW Sixth Ave. 975 Portland OR (503) /s/ Michael H. O Brien Michael H. O Brien Regulatory Director Renewable Northwest 421 SW Sixth Ave. 975 Portland OR (503) /s/ Max Greene Max Greene Staff Counsel and Analyst Renewable Northwest 421 SW Sixth Ave. 975 Portland OR (503) Renewable Northwest s SB 978 Comments Page 7 of 7