 This is Stink Tech Hawaii, Community Matters here. Okay, we're back. We're live. I'm Jay Fidel. This is Stink Tech. It's actually, it's Hawaii the State of Clean Energy. It's a special energy report. Sharon Moriwaki and me, she's the co-chair of the Hawaii Energy Policy Forum and my co-host in this show. And we have a special guest from Hawaii Electric Company. It's Richard Barone and he is the manager of DR. Demand response. I knew that. Okay. Welcome to the show, Richard. Thanks, Jay. You've had big news. Let's talk about it. Big news. Yes, on the 25th of January, we were awarded a decision in order, a very favorable one on our demand response portfolio application. Okay, I guess the first question is, what actually is demand response? Yeah, demand response sounds a little pushy. I demand a response. But to begin with, it's actually a lot nicer than that. Demand response, if you look at the electric utility paradigm, you have typically the supply resource, which have always been generators for the most part. And then you've got the demand side of the equation. So how much electricity, for example, do customers in that environment, do they need? Do they consume? Do they demand? And demand response is a mechanism by which you manipulate, if you can, the demand. You either move it around, you lessen it, you grow it as need be, in an attempt to help balance the overall system. How do you do that electronically or in some other way? Well, historically demand response was really just hitting on certain devices in the home and saying, we're going to stop using that for a while. You do that in commercial instances as well and that helps the demand reduce on the overall system. But increasingly these days, you've got a lot more demand flexibility on the customers. The customers are producing electricity now. They've got storage to hold onto it, EVs, and other much more dynamic devices. So what we're really able to do now is we have a situation on the grid. We're sending out signals to collections of devices and they're acting in accordance with what we need them to do. So you can control demand? Yes, we can. You can have a little black box that says, you agreed, customer, that we're going to let us control your gizmo. So we're going to turn your gizmo off for a few minutes while we deal with other demands and respond accordingly, right? The customers have to say, I'm in or I'm opting in or opting out or does that just happen? Yeah, it's offered to them as a programmatic opportunity and they don't just do this for good will. We pay them correspondingly for their efforts. Give them a break on their bill? Yeah, and historically it'll show up as a rebate on their bill for some level of commitment that they're willing to do. Okay, so the application that PUC was, we have this program and it helps us balance the load and it requires opt in by customers and we give them some consideration for that and then we'll have a better time on the grid. Sort of. Sort of. Okay, go ahead. It's a little bit more complicated and in the old days we would have just said, here's a program we want to do and we want customers to sign up and we think it can generate this much benefit for a system in dollars and it costs this much. It's cost favorable so all customers benefit from this. Everybody's happy. This is new in the sense that we actually propose something that looks a lot more like the foundation for a marketplace. We went from simpler services to more complex, more dynamic services and we, instead of doing them as a program by program basis, we just said the system itself needs these technical services. We don't care what devices on your side can deliver them. You have to meet the requirements of the service. So we opened up the playing field and opened up the market and what the commission said was, we think this tariff structure is very scalable, very extensible to a broader market implication here. We like it. You need to refile some of the details but we're going to give you the go ahead to move forward with it. And here's the other ingredient that's different. In addition to this, which is normal company to customer programs, we also introduced this idea of creating an opportunity for third parties, intermediaries or what we would call aggregators to go out and get a bunch of these commitments from customers. And then we will sign contracts called grid service purchase agreements multi-year contracts with the aggregators. So they go and interact directly with the customers, they get contracts signed, they bring us the services in a firm and reliable way so that not only can our planners incorporate these into our resource plan for years to come, but our operators on a daily basis can see what's going to be available and use those like they would use any other operating resource. Very interesting. So it's leveraged there. The aggregator, well he gets a piece of the action certainly for his effort, but is he part of the transmission of energy too? Does it go through him? What is his role in actually delivering the message or delivering the energy? There's no energy per se services specifically that an aggregator will deliver, but they'll take responsibility for the intelligent management of portfolios of stuff and then presenting us what the forecast and availability is. They'll also be responsible for taking signals from us, from our operators and dispatching those out to the devices that they're managing. We try to make this seamless, unobtrusive, abstracted and simple for the customers. Intermediary takes on kind of the heavy lifting they make sure that they're delivering what they owe us and our operators don't have to muck around with any constraints and variability. Does the aggregator go by geographic area or does he just sort of go out and beat the bushes and get customers? How does that work? Yeah, for now it's the latter, right? It's, you know, go get as many customers as you can. Right now the services we're talking about are for the bulk system, so you don't have geographic specificity. But eventually as we get more visibility into our networks and we have certain hotspots here and there, there will be a second tier where you start to look at additional value add for locational targeting. At that point there's probably going to be market signals to the aggregators that says guess what, there's greater value here, here, here, here. You might want to be more targeted. But for now just go and get as many resources as you can. And does he or she, the aggregator, also listen to the customer and say hey, you know, they're asking for A, B or C that you don't currently have. How does that work coming back in to you? Normally, I mean, since we set the bar on what the services we need, it's really in this context, it's the aggregator's responsibility to figure out a way to put a value proposition to customers. It doesn't have to be exclusive to our services. I mean there may be a company that talks to commercial customers and sells them batteries and those batteries are used to reduce certain demand charges, which is a nature of some of the tariffs. And so that's a primary economic opportunity for that aggregator and that customer. They may also say in addition to this agreement we have and we have a good economic arrangement, you can also deliver certain services back to the company. So somebody already in the business, already in the industry, so to speak. Yeah, and folks that already have put prints and have these bilateral relations with customers, this is an opportunity for bring them more value. An existing mailing list, easy for them to do that. Yeah, and then they could deliver more value back down to the customer. And what about the pricing of the numbers? Did the PUC approve certain numbers or is that open for further discussion? Yeah, they did not. They said we want you to refile all these things. And like I said, we filed it with this tariff structure. The grid service purchase agreement contract is effectively a multilateral conversation we're having right now. So what we do is we file the whole portfolio with the bottoms up cost assessment. What if we just did this ourselves and we pay just a amount? How much would the whole thing cost? Now we kind of know what that cost line is and we'll be looking to come in underneath that as we get into contractual arrangements with the aggregators. So is this a long term thing? You suggest that maybe utility could do itself if it finds a way to do it cheaper or cheaper price to the customer. Could you ultimately decide that thanks very much for the aggregators but we'll do it ourselves? Or is this a permanent kind of thing? Well, it's to be determined. The guidance we got in our orders from the commission from 2014, you may remember there was these inclinations and four orders. This was one of those. They said go check the market. Test the market. We see third party aggregators working in other jurisdictions. See what you can find out. We think this would be a good deal for customers. And we're giving guidance to pursue that first. But we have the construct now that we can do it ourselves. We may find a couple of things. We might find that aggregators are still just very expensive, surprisingly, and we can do it for less. We may find that aggregator relationships can get us 80%, 90% of the services we need. We might have to do very targeted programs to augment that. Or who knows what the mix will look like. But this is a way to sort of good faith effort, build the market, see what you can get, and then open it up to confer the competition. That may be on the company side. Build the industry. I hate to sound trite about it. Build jobs, actually. Build those companies that may be struggling, especially in solar. Well, I think this is great. So are you happy? Is Hawaiian Electric happy about this approval? It's a very favorable approval. I tell my team be careful what you wish for. Because we have a lot of work in front of us. We initially filed our first version of this application at the end of 2015, December 30th. We filed a revised version of this February 10th, 2017. So we can see we've been waiting for a long time to get the clearance to go ahead. We're moving and the order was really positive. That's a good sign that we're building trust and we're moving in the direction that the commission is guiding us to move. And then we'll see how it goes. I hate to ask this question, but when will it actually be in operation? Okay, so the interesting part is we're going to proceed with the grid service purchase agreement first. The order indicated that they want a very formal and protracted and thorough process. We want that grid service purchase agreement to be a model contract that doesn't have to be negotiated and approved. That is now rebooted to be filed on March of 2019. But we do have a stable of shortlisted vendors we've been engaged in this process since 2015. They said we want you to move forward with a best and final offer with those nine shortlisted vendors. You don't need the final grid service purchase agreement, but we want an agreement with those guys. We want your selection and contracting done by June. And we want first customer improvements to be taking place in the fall. So you can pilot this. Effectively, you call it a first implementation phase or experimentation, but a way to start to build and test that market. We're going to get going. That's what they say. And we're going to be gunning for it. You have to come back here and tell us more about it. Richard Marrone, thank you very much for coming down. Director and manager of DR Demand Response. Thank you Richard. You're very welcome. Thanks for coming. Come back again. I will. As long as you'll have me.