New York’s Public Service Commission has provided some of the first details of how it plans to transform the state’s electric grid and energy markets, with proposals to turn the state’s utilities into distributed system platform providers, identify use cases for replacing grid upgrades with distributed generation, and create open markets for third-party competition.
Those are some of the highlights of the straw proposal (PDF) for New York’s Reforming the Energy Vision (REV) initiative, released late last month. The 81-page report is the first big step in a process launched by Gov. Andrew Cuomo in April to create distribution grid planning, utility ratemaking and competitive energy markets that brings distributed energy resources to the forefront.
The REV process calls for turning the state’s utilities into “distribution system platform providers” (DSPPs), able to track, trade and forecast assets like rooftop solar PV, customer-sited cogeneration and CHP systems, demand response and energy efficiency, behind-the-meter energy storage, and other grid edge systems — many of them outside utility control.
Much like California, New York is tackling both the way the distribution grid is operated from day to day and how investments in it will be allocated for decades to come. (I will be leading a discussion with Tony Brunello, executive director of the Greentech Leadership Group, and Patty Durand, executive director of the Smart Grid Consumer Collaborative, about the grid and consumer implications of these kinds of broad policy and economic restructurings at tomorrow’s Soft Grid 2014 conference in Menlo Park, California.)
Here are the key things to know about the new proposal, which is now open for public comment, in terms of what it’s asking utilities to do as soon as possible, and what it’s envisioning for the next steps.
1) Find savings through “no regrets” distributed investments. PSC staff identified a number of “near-term ‘no regrets’ actions to be immediately implemented” by utilities, starting with a calculation of what portion of the state’s $30 billion in planned transmission and distribution system upgrades over the next ten years might be deferred through distributed energy resources, both utility-controlled and customer-owned.
“Based on capital plans filed with the Commission, each utility should determine and indicate which of the most significant capital projects are likely candidates for deferral or avoidance through the procurement of DER alternatives. This proposal should include a plan for a competitive DER procurement process and for making available customer usage data sufficient to allow potential DER providers to effectively participate and offer viable solutions.”
We’ve already seen New York utilities propose capital projects with distributed resources. Con Ed wants permission to invest about $500 million in customer load management and grid upgrades to defer $1 billion in substation repairs, and Central Hudson Gas & Electric filed a $46 million plan with the PSC that includes community solar, demand response and a “microgrid as a service” program.
Expect more of these types of filings if this straw proposal makes it into the REV rules. As Cameron Brooks, president of E9 Insights and former vice president of policy at Tendril Networks, noted in an interview last week, “One of the central things they’re trying to do [in New York] is reorient their entire regulatory structure, so that distributed energy resources will be made the core of their operating portfolio going forward.”
2) Transition demand-side resources to the distribution grid. Most of today’s energy efficiency and demand response programs aren’t fine-tuned enough to serve the localized needs being identified in the New York REV process. But truly smart, networked efficiency and DR could be an important part of the grid edge landscape, giving utilities the ability to modify load on a system-wide or pinpoint scale.
The new straw proposal jump-starts that process by asking utilities to file an Efficiency Transition Implementation Plan laying out how they’re going to “optimize and monitor their energy efficiency portfolio in support of improved system efficiency and operation.” That’s something traditional light bulb giveaways and appliance rebate-type programs don’t do, and it will require a lot of data collection and verification.
Each utility will also be asked to file new demand response tariffs, “including tariffs for storage and energy efficiency” — again, these are nontraditional assets that need new models to fit into grid operations and planning. As Brooks put it, the end process is meant to challenge “one of the core assumptions embedded in the regulatory framework in most states — that demand is inelastic.”
3) Get customers and third parties online for the distributed energy future. Another “no regrets” line item calls for the state’s utilities to “jointly design and develop web-based tools to enable customers to shop for, and purchase, DER and other energy-related value-added services.” PSC staff hopes that this platform can help consumers:
• Understand what distributed energy products, renewable energy products, home/business energy management products, and commodity services are available
• Filter and sort available products according to different criteria, including price
• Learn more about products and services that they’re interested in
• Easily comparison-shop and make informed purchase decisions
Likewise, energy services companies (ESCOs) that sell commodity energy to retail customers should have a chance to participate. The straw proposal calls for the PSC to “adopt measures enabling ESCOs to provide value-added service, as well as measures holding ESCOs to certification standards” for getting into this marketplace.
4) Build distribution system platforms (DSP) from the utilities on up. As one of its “transitional steps,” the straw proposal lays out just what it envisions for the DSP functions it’s asking the state’s utilities to provide. And while it wants to open this platform up to multiple parties, it isn’t yet asking utilities to give up control of the core operations features that such a platform entails.
“Each utility should be required to file a Distributed System Implementation Plan (DSIP) that lays out its investment plans over a five-year period, including alternative demand and supply resource portfolios considered, its proposed resource portfolio, how it proposes to procure needed DERs,” the report states, along with a benefit-cost analysis for the whole thing.
As for what the end result should be, here’s a definition:
The DSP is an intelligent network platform that will provide safe, reliable and efficient electric services by integrating diverse resources to meet customers’ and society’s evolving needs. The DSP fosters broad market activity that monetizes system and social values, by enabling active customer and third-party engagement that is aligned with the wholesale market and bulk power system.
Former FERC Commissioner Jon Wellinghoff has suggested that New York should create an independent distribution systems operator (IDSO) to handle these tasks. The PSC’s straw proposal considers this, but finds that “the potential benefits of an independent DSP are countered by numerous drawbacks,” with lots of duplication of existing areas of utility expertise.
5) Competition is central to New York’s vision. Despite this reliance on utilities as DSP providers during the early stages, the PSC’s straw proposal makes clear that the state’s future energy structure needs to be a level playing field for new entrants. That includes calls for limits on how much distributed energy utilities can own on the system, as well as defining the terms according to which non-utility actors can participate.
“The Commission will maintain a critical oversight role in the market,” the proposal notes. “This will include establishing guidance and processes for market rule-making, approving investment plans and rate designs by regulated utilities, and reviewing the activities of ESCOs, third-party service providers, and utilities for compliance with market rules. The Commission’s oversight role will be most pronounced during the earlier transitional phases, as markets and market rules are developed and improved.”
Paul Alvarez, president of the utility consultancy Wired Group, notes that regulators, utilities and third-party providers will have a lot to talk over in this process. “How much do utilities get paid for doing this? How do you measure that, and translate those measurements into increased profits, while making sure you’re not making power too expensive? You don’t want to do things that reduce [utilities’] capacity to make money when they’re investing in all these projects. On the other hand, you don’t want them to make any windfall profits, and you want to allow third-party players to compete.”