2019 Workshop Summary

We covered a lot of material over only a few days in the IRLE Workshop, from the history of regulation in the railroad industry in the 19^th century to the Internet of Things (IoT) and the effects of digitization in the modern distribution system.  From a double auction icebreaker to simulating an electric power market; neoclassical economics to public choice theory; and the hush-a-phone to the rollout of 5G.  In short, there is waytoo much material to cover it all in a (relatively) short blog post; instead I will try to highlight a few of my key takeaways from the presentations and especially the discussions throughout the weekend.

One topic that generated some discussion, thanks in no small part to their inherently competitive nature, were the experiments carried out over the weekend. We started with a double auction, where we saw how even with little to no information about the other participants, efficiency levels close to 100% were quickly achievable in our market. We moved on to acting as electric power suppliers in a simulation of RTO markets with the sealed bid, uniform price complex offer auction versus the simple offer auction.  As sellers, the group overwhelming preferred the complex offer auction with start-up fee recovery – it not only ensured full recovery of costs with a margin for profits, but allowed for gaming behavior through overstating your start-up fee.  In contrast, the simple offer auction converged fairly rapidly to the competitive market price outcome by eliminating this gaming behavior at the cost of low/no profits that could restrict market entry.  Finally, Rim discussed his work on the implementation of real-time pricing: not only did people who were previously apprehensive prefer real-time pricing to standard pricing after experiencing it, but adding information to real-time pricing was found in his lab work to achieve near 100% efficiency. 

Discussion surrounding real-time pricing ties in closely with the other primary topic of conversation – digitization.  Lynne already outlined how digitization reduces transaction costs, and innovation in the distribution sector and the IoT can be viewed as a form of creative destruction. Several attendees noted that the recent focus of utilities on digitization and investment in the distribution side is becoming a primary impetus for both capital investments and innovation. Distributional flexibility and the ability to add automation to the grid was of key interest, as well as ensuring that new market participants would be able to innovate on the distribution level. Part of this flexibility needs to account for the projected increase in electric vehicle (EV) market penetration, and whether or not EV charging stations should be viewed as utilities under the purview of the state PUC.  Last but not least, we discussed privacy concerns surrounding the IoT in terms of not only system security but also how to determine who should control the vast troves of data that the IoT will produce.  The question of who owns customer device-generated data is important, and its lack of resolution is a source of transaction costs in the system.

Which distribution system investments to incentivize is likely to depend on the final area of discussion – the rate case.  Eric provided a “smell test” regarding some corporate finance practices in rate cases, for example in terms of bounds on expected future cash flows or adders for non-financial risk.  Aside from the many pure finance insights, there was also considerable discussion about ways to improve the competitive process of utility vs. consumer advocate in rate cases, with suggestions ranging from implementing baseball arbitration or expert “hot tubbing”. 

Numerous other topics of interest came up over the course of our days in Aspen which could have been featured in this summary post, such as the usefulness of soft law in the regulator’s toolbox or concerns about real-time pricing volatility and its potential effect on reliability. As we move forward post-workshop, I hope to explore topics like these in future blog posts - linking current issues in the news with the latest academic research.