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Modernizing the Electric Grid: State Role and Policy Options by GLEN ANDERSEN, MEGAN CLEVELAND and DANIEL SHEA

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Modernizing the Electric Grid: State Role and Policy Options by GLEN ANDERSEN, MEGAN CLEVELAND and DANIEL SHEA NCSL TASK FORCE ON ENERGY SUPPLY Modernizing the Electric Grid State Role and Policy Options NOVEMBER | 2019 Modernizing the Electric Grid: State Role and Policy Options BY GLEN ANDERSEN, MEGAN CLEVELAND AND DANIEL SHEA The National Conference of State Legislatures is the bipartisan organization dedicated to serving the lawmakers and staffs of the nation’s 50 states, its commonwealths and territories. NCSL provides research, technical assistance and opportunities for policymakers to exchange ideas on the most pressing state issues, and is an effective and respected advocate for the interests of the states in the American federal system. Its objectives are: • Improve the quality and effectiveness of state legislatures. • Promote policy innovation and communication among state legislatures. • Ensure state legislatures a strong, cohesive voice in the federal system. The conference operates from offices in Denver, Colorado and Washington, D.C. NATIONAL CONFERENCE OF STATE LEGISLATURES © 2019 iii NATIONAL CONFERENCE OF STATE LEGISLATURES Table of Contents The NCSL Task Force on Energy Supply ........................................................................................................... vi Acknowledgments ............................................................................................................................................ vi Glossary ............................................................................................................................................................. vii Introduction ........................................................................................................................................................1 Components of the Modern Grid .....................................................................................................................5 Distributed Generation ..................................................................................................................................5 Advanced Controls and Communications ....................................................................................................7 Advanced Metering and Smart Devices .......................................................................................................8 Energy Storage ..............................................................................................................................................8 Electric Vehicles............................................................................................................................................10 Microgrids ....................................................................................................................................................10 Demand Management and Energy Efficiency ...........................................................................................11 Securing a Modern Grid ...................................................................................................................................15 Data Access and Privacy ..............................................................................................................................15 Cybersecurity ...............................................................................................................................................16 Cyber and Physical Challenges ...............................................................................................................16 Utility Actions, Federal and State Policy Solutions ...............................................................................17 Policy and Regulatory Approaches for a Modern Energy System ...............................................................21 Vertical Integration and Competitive Markets ...........................................................................................21 Public Power and Cooperative Utilities ......................................................................................................22 State Policies for Grid Modernization .........................................................................................................23 Renewable Portfolio Standards .............................................................................................................23 Energy Efficiency Resource Standards ...................................................................................................25 Demand Response .................................................................................................................................25 Energy Storage Targets and Mandates ..................................................................................................26 Net Metering ..........................................................................................................................................27 Non-wires Alternatives ..........................................................................................................................28 Utility Regulatory Options ...............................................................................................................................31 Utility Business Models ...............................................................................................................................31 Performance-Based Regulation ..................................................................................................................32 Utility Actions and Case Studies..................................................................................................................33 Determining the Economic Benefits of Grid Improvements .....................................................................36 Rate Design for a Modern Grid ...................................................................................................................36 Challenges to Traditional Rate Design ...................................................................................................37 Policy Considerations .............................................................................................................................37 Fixed Charges and Minimum Bills ..........................................................................................................37 Time-Based Rates ...................................................................................................................................38 Demand Charges ....................................................................................................................................40 Location-Based Valuation ......................................................................................................................41 Federal Action on Grid Modernization ...........................................................................................................43 Regulations ...................................................................................................................................................43 Support for States ........................................................................................................................................43 Conclusion .........................................................................................................................................................44 Resources ..........................................................................................................................................................45 Notes .................................................................................................................................................................48 v NATIONAL CONFERENCE OF STATE LEGISLATURES The NCSL Task Force on Energy Supply Co-Chairs State Representative Mary Mushinsky, Senator Eric A. Koch, Indiana Connecticut Senator David Koehler, Illinois State Senator Marc Pacheco, Massachusetts State Representative Don Parsons, Georgia Members State Senator Sue Rezin, Illinois State Representative Patty Acomb, Minnesota State Representative Chris Rabb, Pennsylvania Assembly Member Michael Cusick, New York State Representative Mark Schreiber, Kansas State Senator Brian Feldman, Maryland State Senator Bob Smith, New Jersey State Representative Mark Finchem, Arizona State Senator Patricia Spearman, Nevada State Representative Pat Garofalo, Minnesota State Representative Dick Stein, Ohio State Representative Stephen Handy, Utah State Representative Vicky Steiner, North Dakota State Representative Chris Hansen, Colorado State Representative Larry Zikmund, State Representative Ken Helm, Oregon South Dakota State Senator Stephen Hershey, Maryland State Representative Daniel Zolnikov, Montana State Senator Eric Koch, Indiana Legislative Staff State Senator David Koehler, Illinois State Representative Chris Lee, Hawaii Heather Anderson, Senate Judiciary Committee State Representative Nicole Lowen, Hawaii South Carolina State Representative Stephen Meeks, Arkansas NCSL Task Force Staff State Representative Rocky Miller, Missouri Glen Andersen State Representative Jeff Morris, Washington Kristy Hartman Acknowledgments Special thanks to the following for providing comments on the many revisions of this document. Steve Hauser, Gridwise Alliance Lisa Schwartz, Lawrence Berkley Tom Sloan, retired Kansas Representative National Laboratory Joe Paladino, U.S. Department of Energy Rich Sedano, Regulatory Assistance Project Autumn
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