A version of this post was published by Crain’s New York Business as “A revolution in getting power to the people.”
Audrey Zibelman, who chairs the New York Public Service Commission, is moving on next month to run Australia's electricity grid system. But she will leave an important legacy here: a foundation for the most significant transformation in the state’s electric power system in two decades. When her successors complete the job, New Yorkers will enjoy unprecedented new choices for how they meet their electricity needs—and set an example for the nation on how to build a clean, resilient, and more affordable energy system.
Three years ago, Gov. Andrew Cuomo and Chair Zibelman launched New York’s Reforming the Energy Vision (REV), a regulatory proceeding conducted by the PSC to address climate change and take advantage of technology innovation. New York REV seeks to fundamentally redefine the role of the electric utility. The vision is of a modern utility acting as an enabling platform to facilitate the widespread deployment of distributed energy resources (DERs) like solar, fuel cells, storage, and smarter energy management systems. Almost three years into this pioneering proceeding, it is time to pause and take a look at the progress made so far and what to expect moving forward.
Over the past three years, Advanced Energy Economy’s (AEE’s) member companies, ranging from Fortune 500 companies to startups, have been working with us and our state and regional partners, Alliance for Clean Energy New York (ACE NY) and the Northeast Clean Energy Council (NECEC), to engage with the PSC and other influencers to lend a business voice and drive the conversation forward. AEE, through its Utility Committee, has also engaged with the New York utilities to develop policies that suit all parties involved.
We see New York’s process as an example that other states can look to and learn from. Furthermore, we see the endgame of REV as a win-win for advanced energy companies looking to grow, for utility companies looking for innovative solutions in a changing energy landscape, and for customers looking for more options, cost savings, and flexibility. Here is what REV has accomplished so far:
Establishing Rules for How Utilities Will Operate and Earn Money. REV has made meaningful adjustments to the rules under which utilities operate and how they may better align financial incentives with their new role as the Distributed System Platform operator. First and foremost, utilities will continue to own, operate and maintain the electricity distribution system – the poles, wires, and transformers that deliver electricity to homes and businesses. This is a core function that will continue.
The new rules, currently being implemented, add to that role. Utilities will now earn revenue, through the traditional cost-of-service model, for so-called foundational investments – think of these as technology investments. On top of that, there will be outcome-based performance incentives that are tied to specific state policy goals, revenue earned from facilitating consumer-driven markets, and savings achieved by using DER solutions for meeting grid needs. The new system will allow utilities to create shareholder value by integrating third-party solutions and capital such as DERs that reduce system costs and improve the efficiency, flexibility, and resiliency of the grid, not just by making capital investments themselves.
Access to System Data. REV is also changing the way that utilities plan. As part of a new Distributed System Implementation Plan (DSIP) process, utilities outlined an initial five-year roadmap to meet state energy goals as well as initial plans to modernize the grid, including places on the system where DER could be used to meet system needs. The Initial DSIPs are starting to provide energy suppliers/developers with important location-specific system information regarding grid needs.
A Benefit/Cost Framework: Transparency and a Cost for Carbon. The new Benefit Cost Analysis (BCA) handbooks that each utility filed in the summer of 2016 are important components of the DSIP process. Taken together, the DSIPs and BCA handbooks are aimed at making the planning process more open and transparent by providing details on how utilities quantify the benefits and costs of DER in their planning. Future investments will also need to consider the benefits/costs to society, including a cost for carbon, which will no longer be just an externality.
A New Role for Utilities as Facilitator of Energy Markets. The role of New York utilities is shifting toward one of a “facilitator” of energy markets in NY, and specifically DER markets, for resources such as storage, energy efficiency, demand response, electric vehicles, combined heat and power, and distributed power generation (solar PV, wind, fuel cells, etc.). As an example, utilities like Con Edison are developing, as demonstration projects, online marketplaces to help customers learn about options available to them, in partnership with third party providers.
Utilities Define Problem, Competitive Market Finds Solutions. Historically, when utilities identify a system need in their planning process they propose a traditional solution, such as building a new substation, re-conductoring a feeder, or adding capacitor banks. Now, instead of only proposing a utility solution, utilities will identify the problem, and make it available to the marketplace to propose solutions in competition with utility options. Using the BCA process, utilities will ultimately select the most beneficial project on a competitive basis. This can be a traditional solution, but in many cases a non-traditional solution will be able to meet the need.
This will open up tremendous opportunity for DER providers. As part of the initial DSIP process, utilities already identified several instances where non-wires alternatives (NWAs) could be utilized instead of traditional infrastructure investments to meet a system need. To date, New York utilities have issued requests for proposals (RFPs) for DER NWAs.
The Con Edison Brooklyn-Queens Demand Management (BQDM) project provides a concrete example of the benefits NWAs can bring to the table. In late 2014, Con Edison received approval to invest in non-traditional customer-side and utility-side demand management solutions to postpone the need for distribution system improvements due to the expected overloading of certain sub-transmission feeders. As a result, Con Edison expects to be able to defer for five years $1.2 billion of traditional infrastructure investments with a $200 million combination of traditional solutions and NWAs identified in an all-source solicitation.
Demonstrations as a Means of Institutionalizing Innovation. REV has seen progress in the form of demonstration projects. In the REV process, these projects serve as a vehicle for testing new business models, creating new stakeholder relationships, and institutionalizing innovation within utilities. Con Edison is working with distributed energy providers to bundle solar and storage into a “virtual power plant,” and test demand for a premium resiliency service. Both Con Edison and Orange & Rockland Utilities have created an online portal that recommends customized energy products and services. Other utilities have demonstrated similarly innovative projects.
Much of the groundwork has been laid over the past three years, but looking ahead to 2017 and beyond there is still more to be done. Particularly, the focus will be on several spin-off proceedings to implement the major orders issued in the REV proceeding (14-M-0101). AEE Institute’s focus will be on continuing to engage stakeholders to refine the utility DSIPs (16-M-0411) and BCA Handbooks (16-M-0412) and to ensure implementation does not fall short of the Commission’s vision. Additionally, we are keeping an eye on three proceedings that were opened in August around implementing utility revenue reforms (16-M-0428 and 16-M-0429) and rate design reforms (16-M-0430).
AEE Institute has also been and will continue to be heavily involved in the Value of DER proceeding (15-E-0751). In 2016, we facilitated a transition plan proposed by utilities and solar companies, and developed an approach to valuing DER that captures the wholesale and retail level benefits on a time and location specific basis, and in a manner that is technology neutral. We expect an interim methodology to be adopted in March 2017, so the utilities can implement it by mid-2017, while working on successive iterations and improvements with an eye towards completing development of the full-value methodology in 2018.
Three years into REV, the vision is becoming more clear and progress on implementation is being made. While change may at times feel slow, it is moving in the right direction. Moreover, the framework is set to move us toward a system where advanced energy companies, utilities, and customers are seamlessly working together to make the energy system on which we all depend secure, clean, and affordable.
Stuart Nachmias is Vice President of Energy Policy & Regulatory Affairs at Con Edison. Lisa Frantzis is Senior Vice President, 21st Century Electricity System at AEE. Coley Girouard is an Associate with AEE’s Public Utility Commission Program.