Regulations and Policies
Investor-owned, vertically integrated energy companies have built, operated and maintained the power grid from end-to-end for many years. A key principle of how these companies operate is known as the Regulatory Compact, which is the traditional model of regulation, where customers in each customer class are treated equally and regulators judge the prudency of investments and allow recovery of these costs of service along with a reasonable return on capital. AEP is engaging with regulators and policymakers at the state and federal levels to explore how regulatory models can evolve as we modernize the grid to respond to new paradigms in meeting customer needs.
Modernizing the Rules
Today’s customers are always plugged in and want the convenience of easy access to information, 24/7, from any device. The investments in new technology and infrastructure to reconfigure the power grid and the systems that deliver what customers want are critical to building the next-generation energy company.
Today’s growing demands on the power grid to ensure reliability and resiliency at a time of unprecedented growth of variable resources, the slowing of load growth, mandates to mitigate risk from cyber and physical threats, as well as ongoing environmental mandates make that model extremely challenging. Technology is constantly evolving but the regulations and public policies that currently govern the electric power industry are not keeping pace.
Modernizing the power grid is a prerequisite to realizing the full value from innovations – from energy efficiency, demand response, new electro-technologies such as electric vehicles, renewables and local generation, energy storage and programs and offerings that allow customers to optimize their energy use. It will take time to obtain state or federal regulatory approvals to develop the infrastructure and systems needed to manage this new transactional grid. In addition, the regulatory recovery model will need to evolve to provide accurate pricing signals that ensure fairness to all customers. To achieve this, we must keep sustainability and fairness at the center of the dialogue.