Two weeks ago New York State came one step closer to creating the electricity system of the future when the New York Public Service Commission (PSC) adopted its first major Order as part of the Reforming the Energy Vision (REV) proceeding. This is a significant milestone on the path to create a cleaner, more affordable, more modern, and more efficient energy system in New York by harnessing distributed energy resources (DERs) such as demand response, rooftop solar, energy efficiency, and microgrids.
The Track 1 Order lays out the regulatory policy framework and implementation plan to achieve REV. There are at least two important themes:
1. THE ELECTRICITY INDUSTRY IS EVOLVING AND REGULATION MUST EVOLVE WITH IT
The PSC recognizes that the electricity industry must evolve in the face of multiple converging challenges and opportunities. Assumptions that have long guided the electric industry—including inelastic demand, natural monopoly, and economies of scale—no longer hold in their entirety, and REV is needed to ensure the fulfillment of the PSC’s statutory responsibility for reliable, safe, affordable, and environmentally responsible electricity. In the Order, the PSC notes:
“Utilities, and this Commission, could respond to [the challenges facing the industry] by clinging to the traditional business model for as long as possible, relying on protective tariffs, regulatory delay, and other defenses against innovation…Alternatively, we can identify and build regulatory, utility, and market models that create new value for consumers and support market entrants and this new form of intermodal competition—in other words, embrace the changes that are shaking the traditional system and turn them to New York’s economic and environmental advantage. We decisively take the latter approach.”
2. DERS CAN CREATE VALUE AND UTILITIES HAVE A ROLE IN OPTIMIZING THAT VALUE
The vision put forth in REV is one in which DERs are the first resource chosen, not the last. The Order notes,“Distributed energy resources will become integral tools in the planning, management, and operation of the electric system. The system values of distributed resources will be monetized in a market, placing DERs on a competitive par with centralized options.”
With the appropriate regulatory and business model changes started in this Track 1 Order—and to be further defined in Track 2—utilities should take the role of integrator and system optimizer to leverage DERs as a resource to drive system efficiency and affordability. To do so, New York’s utilities have a new role: to develop and operate the platform needed to empower customers and enable distributed energy markets, or distributed system platforms (DSPs). Recognizing potential market power risks, utilities will not be able to own DERs except in exceptional circumstances such as when a particular market segment is being underserved, or when energy storage is located on utility property.
To help facilitate customer engagement and third-party participation, system data will be made transparent and available to DER providers, with the details to be determined by an ongoing stakeholder process. Further, a web-based DER marketplace platform will be created (imagine a Kayak for DERs) to provide customers with information on DER choices and allow for comparison shopping.
BEYOND TRACK ONE
Significant work remains to be done to facilitate the transition to the electric system REV envisions. A number of near-term actions and next steps are specified in the Order, including the creation of market design and platform technology working groups to further specify the DSP market requirements; and the requirement that utilities file distributed system implementation plans (DSIPs) by the end of 2015.
The Order also acknowledges several activities already under way to drive near-term impact, including a requirement for utilities to develop demand response tariffs and to propose demonstration projects to explore and rapidly evolve approaches to enact REV.
Finally, ongoing work under Track 2 will propose specific regulatory reforms to the utility business model, rate-making approaches, and rate design to achieve REV policy goals.
Rocky Mountain Institute serves as a strategic advisor to New York’s Department of Public Service on the REV proceeding.
Image courtesy of Shutterstock.