Transitioning to Transactive Cost of Service

The proliferation of DERs and the emerging “prosumer” are rapidly changing the way electricity is generated, distributed and consumed.   This transformational shift in physical power delivery is beginning to turn the utility business model of the past century on its head.  For investor-owned utilities (IOUs), the historical, and, for the most part, successful business model has revolved around a cycle of capital spending on system resources supported by a regulated rate of return through rate-based revenues.  This model has been the de-facto standard of the distribution utility since the introduction of “Bonbright’s Rate Design Principles” a half century ago. Regulatory rate setting produced predictable revenue streams. This, in turn, provided utilities access to low-cost capital secured by bonds to fund the development of the largest interconnected machine in the world – the North American electric grid. –