We are now a little over four months into the landmark regulatory proceeding in New York State called “Reforming the Energy Vision,” or REV. With REV, the New York Public Service Commission (PSC) is seeking to fundamentally transform the way the state’s electric distribution utilities are regulated and how they do business – changing the way electricity is generated, bought and sold in New York. The REV proceeding is arguably the most comprehensive yet to tackle what is variously known as “Utility of the Future,” “Utility 2.0,” or as we at AEE call it, the “21st Century Electricity System.” (Users of PowerSuite can track and collaborate on this vital regulatory proceeding here.) Whatever you call it, the idea is to create a high-performing electricity system that runs on advanced energy. With the release of a new straw proposal on August 22, the PSC is moving the vision toward reality.
In brief, REV seeks to unlock the potential of distributed energy resources (DER) to improve system efficiency, give customers more control over energy use and costs, and help meet New York State’s energy and environmental policy goals, such as improved resiliency (think Hurricane Sandy) and greenhouse gas reduction. DER is shorthand for a range of advanced energy technologies and products such as energy efficiency, demand response, energy storage and distributed generation, including renewable energy systems, fuel cells, combined heat and power and other clean, efficient power generation options.
Central to REV is the creation of the Distributed System Platform (DSP), a new entity that will create the technology and market platforms upon which DER can be widely deployed. The initial assumption of the PSC is that the existing distribution utilities will also be the DSPs, but there is the potential for this new role to be carried out by independent entities, somewhat akin to how many wholesale power markets operate in the United States today, with independent system operators (ISOs) – a concept that former Federal Energy Regulatory Commission (FERC) chairman Jon Wellinghoff has been promoting recently.
Regardless of the final market structure, achieving REV will entail making new investments in an intelligent, flexible distribution network that can readily integrate DER and take full advantage of the desirable attributes of DER while minimizing the potentially disruptive effects of high DER penetration. It will also require fundamental regulatory changes that incent utilities/DSPs to seek out new solutions, instead of continuing to invest in traditional “poles and wires” solutions that add to the rate base and perpetuate the status quo.
While it is not possible here to go into all the issues covered by REV, some of the key ones we have been actively addressing include:
- Performance-based regulation: Changing the way utilities are remunerated, from inputs (a regulated return on invested capital) to outputs (performance against defined metrics) is critical to achieving REV. This will create the right set of incentives for utilities/DSPs to seek out the most cost-effective solutions that meet the overall goals of REV, not the solution that grows their rate base the most. Within this framework it is important that utilities have both incentives for exceeding targets and penalties for missing them.
- Basic (essential) vs. value-added (optional, enhanced) services: Central to REV is the notion that the utility/DSP will provide a set of basic, essential services to all customers, but that customers will also be able to choose from a set of value-added services for an additional fee. Basic services will be the domain of the regulated utility/DSP, whereas value-added services may be provided by either the utility/DSP or non-utility companies. On the one hand, if the utility/DSP can provide some value-added services for a fee, this can provide added revenue to the utility. On the other hand, this is the bread and butter of non-utility companies, and if a regulated entity can offer products and services that are also available from the competitive marketplace, this raises a host of issues around ensuring fair competition for non-utility companies. AEE and its members have been addressing this issue in detail.
- DER ownership: Who can own DER, and under what circumstances, is a critical issue for the advanced energy industry, many of whom are providers of DER products and services. In general, the advanced energy industry believes that the role of the utility/DSP is to create the platform and programs that facilitate DER deployment. In addition, under most circumstances, the advanced energy industry believes that the actual deployment and ownership of DER should be by non-utility companies, either acting on behalf of the utility/DSP or by participating in the competitive marketplace. This is how most energy efficiency and demand response is implemented today.
- Valuation and monetization of DER benefits and costs: For REV to work, New York State needs to revamp the way it evaluates costs and benefits, particularly for DER technologies and services. The framework for a benefit-cost assessment needs to move beyond individual measures and look at DER programs and portfolios of deployments, especially given that DER technologies will interact with each other and the grid in new ways. Moreover, benefit-cost assessments need to go beyond traditional economic metrics to include a wide range of benefits that are considered in the public interest. This is core to achieving the outcomes envisioned in REV. In its recently released straw proposal, which outlines the basic features of REV, the PSC noted that putting in place such a system will take time. The AEE Institute has commissioned a study to define a new benefit-cost analysis framework suitable for application to REV.
- Access to data: Timely access to granular energy usage and price data by customers and their designated third-party providers is critical to enabling many of the products and services envisioned for REV. These data may come from smart meters or other devices. Also, making real time data available to non-utility companies in a timely manner will be important for enabling these companies to design products and services that will be of value to the utility/DSP.
It is not an overstatement to say that the success of REV is critical to the advanced energy industry. While New York is just one state, success (or failure) will reverberate across the country as other states seek to address the same underlying technology, market and policy drivers that are at work. Because of this, AEE and its state and regional partners, the Alliance for Clean Energy New York (ACE NY) and the New England Clean Energy Council (NECEC), have been active participants in the REV proceeding, filing joint written comments (see them on PowerSuite) and participating in stakeholder working groups. As REV continues to unfold well into 2015, we expect to remain heavily involved in this critical proceeding. Many states and countries are paying close attention to the REV proceeding and our organizations are working diligently to help make it a success.
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