'Regulatory sandboxes' gain traction as states push for utility innovation

As climate pressures intensify and technological change accelerates, a growing number of US states are embracing "regulatory sandboxes" to enable experimentation and innovation in utility regulation, according to a report.

A recent report from the Lawrence Berkeley National Laboratory analyzes how states are using this approach to foster utility-led pilots in clean energy, grid modernization and customer engagement, Grace Relf, a policy researcher at the lab and lead author of the report, said July 27 at the National Association of Regulatory Utility Commissioners' summer policy summit in Boston.

"A regulatory sandbox is a mechanism that aims to modify or adapt rules and regulations in order to promote innovation and speed the scale of adoption of [advanced] technologies," Relf said.

The report contends that advanced grid technologies -- such as dynamic line rating, advanced power flow control and advanced flexible transformers -- could help US electric utilities enhance reliability, improve resilience to severe weather and expand grid capacity to meet load growth, but current regulatory structures have slowed the pace of their adoption.

Traditional cost-of-service regulation incentivizes capital-intensive projects, often disincentivizing utilities from exploring innovative solutions that do not guarantee a return on investment, the report said. Further, lengthy regulatory processes and risk-averse cultures within utilities create additional hurdles, stifling the procurement of advanced technologies essential for meeting evolving electricity demands.

Regulatory sandboxes are one approach to bridging "that gap between the opportunity to adopt these innovative technologies and programs and the need for regulatory change and innovation," Relf said. They provide a structured environment for testing new technologies and business models under modified rules, aiming to mitigate regulatory barriers that hinder innovation within the utility sector.

Other sandbox-type mechanisms include funding opportunities for innovative grid transformation projects; modified pilot processes with expedited reviews and regulatory exemptions; and rate cases and rulemakings that support broader innovation efforts.

Twelve sandbox programs have been adopted across the US. The programs are in California, Connecticut, Hawaii, Michigan, North Carolina, New Jersey, New York, Oregon, Vermont, Washington, DC, Wisconsin, and a national program established by the American Public Power Association.

The states involved do not appear to share any specific commonalities, but Relf told The Energy Daily on the sidelines of the conference that a driving factor for delving into sandboxes may be a state's desire to meet ambitious energy goals.

Examples from the field

While sandboxes have demonstrated value, utilities still struggle to scale pilots successfully, a challenge Relf said is being worked through.

But Relf highlighted Connecticut's Innovative Energy Solutions program as a strong example of a regulatory sandbox, allowing utilities and third parties to propose projects vetted by an Innovation Advisory Council. Selected pilots run for 18 months, with a "fail fast" mentality to quickly assess success and scalability.

Among the successful projects is a noteworthy artificial intelligence program that mounts cameras on the utility vehicle fleet and uses AI to assess the state of the distribution grid based on data collected passively from the cameras.

Relf also noted New York's "demos" under its Reforming the Energy Vision initiative. The demos focus on testing new utility revenue models and third-party partnerships to support innovation during the energy transition. They have included efforts to improve access to distributed energy resources, using storage as a virtual power plant, smart inverter functions and curbside EV charging.

Maddy Murray-Clasen, innovation and resiliency project manager at Green Mountain Power, said at the NARUC summit that the utility used its sandbox framework to pilot battery storage programs for residential customers. GMP also tested bundled electric vehicle chargers and dynamic rate designs.

GMP's projects were run under Vermont's Innovative Pilot Program, which allows the utility to test new offerings for customers without undergoing fully regulated tariff proceedings. Pilots are filed with the Vermont Public Utility Commission, undergo a 15-day waiting period and then begin without needing approval from the PUC.

"Pilots run for 18 months, so we have the ability to very quickly launch pilots and then iterate them in 2.0, 3.0 versions before they have to be fully tariffed," Murray-Clasen said. "Success does not necessarily mean that you're moving from pilot to tariff, it's that you're able to move through several pilots and gain insights."

Framework for the future

Relf and Murray-Clasen agreed that best practices for implementing sandboxes include clear articulation of objectives, strong leadership from regulators and utilities, transparent evaluation processes and public reporting.

They also emphasized the need for candid discussions between innovators and regulators so projects can make adjustments and pivot without fear of penalty.

"The hope is that these sandbox mechanisms would include robust data sharing and transparent reporting requirements in order to document that success and build the evidence bank so that we don't have to pilot things over and over again," Relf said, adding that several sandboxes have online project databases with a plethora of information.

The hope is that regulators will encourage utilities to look at what other jurisdictions have done, Relf said, though she acknowledged that different regions have different grid configurations, operational tools and challenges.

"I think the sandbox can be helpful" in allowing utilities to trial and prove out technologies that worked elsewhere, and more quickly move forward with adoption, she said.