Public Policy and Issue Management
Similar to other companies, AEP has a public policy strategy that seeks to influence decisions being made at Congress, FERC, state legislatures and regulatory commissions. We do this to mitigate our risk exposure and to help us achieve our business objectives.
In 2017, AEP formed the Policy Advisory Team (PAT) to better manage public policy issues. This team is composed of senior executives across AEP, including some of those who represent the company in Washington, D.C., and the state capitals in our service territory.
The PAT considers policy options on issues of relevance to the company. The multi-departmental, cross-function structure of the PAT supports internal policy analysis and debate. The approach helps ensure that AEP is speaking with one voice on important public policy considerations and that all employees, and ultimately external stakeholders, are clear on our policy positions and objectives. The goal of the PAT is to ensure a smoother, more consistent policy strategy across the company.
In strategic discussions about how we can best align ourselves to maximize the customer benefits of new technologies, we talk about “future-proofing” our company. The pace and scope of change underway in the utility sector is indisputable. In order to adapt and bring the most value to customers, utilities require a regulatory and legislative framework that allows them the flexibility to incorporate new technologies, including those we’ve not even envisioned yet. We need a regulatory paradigm that fosters rapid deployment of creative energy solutions.
Currently, there are two models at play in this country – one in which the utility is transformed into a platform provider at the distribution level, effectively turning over the customer relationship to the energy market, rather than with the utility. This model is playing out in New York with its Reforming the Energy Vision (REV). The second model, which we believe is the better approach, is the utility as a platform that works in concert with the customer relationship and technology providers (e.g., charging stations). This important to ensure universal access for all customers to clean energy resources and new technologies and to provide the scope and scale that technology providers need – that a utility can offer – to accelerate environmental, operational and efficiency benefits from new technologies.
One example of the need for change is unfolding in Texas. In 2016, AEP Texas sought approval to install lithium-ion batteries on its distribution system in a rural area that experiences more outages, for longer periods of time, compared with the rest of the service territory. Battery installation would be a more cost-effective solution than traditional transmission and distribution upgrades.
In January 2018, Texas regulators rejected our request. However, they acknowledged that the docket raised important issues about the use of technology to cost-effectively address reliability. They agreed to open a separate rulemaking to develop a framework that takes these options into account. We support the commission’s opening a rulemaking because it paves the way for the type of rule changes we believe are needed to cost-effectively and efficiently use non-traditional technologies to solve reliability issues. But we also have to ask ourselves: “What about the customer? Do they have to wait longer for a solution? What do they do in the meantime?” We must center our decisions and timing on a framework that works for all customers.
Some commissions are becoming more curious. In 2017, the Public Utilities Commission of Ohio (PUCO) launched an initiative called PowerForward to study grid modernization in the state. The PUCO is focusing on new technologies and regulatory innovation that could benefit customers in the future while modernizing the grid. Through this process, the PUCO has acknowledged customers’ desire for more technology and innovation in the electric sector, along with the need for a modern regulatory road map to make it happen. This is the type of structured stakeholder conversation that is needed to enable the paradigm shift to occur.
Traditionally, distribution service has been totally within the purview of the local electric utility. This is true whether the retail model in a state is regulated or competitive. It provides the utility with a direct customer relationship. AEP thinks that relationship is invaluable for both assuring universal service and in optimizing service delivery; therefore, we want to do everything we can to preserve it.
New models, however, have arisen. New York and California have led the way in creating energy market platforms at the retail level very similar to regional wholesale markets. By doing so, these models allow entrants other than utilities to have full retail access to the customer. This includes those areas that traditionally have been preserved for the distribution/wires utility. It is clear that technology and potentially competitive opportunities for new entrants are challenging the existing regulatory paradigm. As distributive, non-wires and behind-the-meter technologies evolve, so will competition where appropriate. It is imperative however that the traditional utility not be precluded from participating in these new markets, thereby ensuring that that these technologies are available to all and are deployed consistent with customer demands.
States within the AEP footprint are exploring other models, such as Ohio with its PowerForward Initiative. AEP believes conversations between the utility and regulators early in the process, similar to those ongoing as part of PowerForward, provide for an optimal model design to seamlessly enable these technologies to customers’ benefit.