Three Years In, the New York REV Journey is Far From Over

Posted by Ryan Katofsky on Oct 20, 2016 11:03:00 AM


If you would have asked me, back in the fall of 2013, if I thought I would be spending most of the next three years on a regulatory proceeding in New York, I would have answered “no.” Yet here I am, in the fall of 2016, still actively engaged in the Reforming the Energy Vision (REV) proceeding. Although REV didn’t officially begin until the spring of 2014, we at AEE were already working with our member companies and New York’s utilities to articulate a collective vision for what a 21st century electricity system might look like in New York state, so it’s been a full three years for me and my colleagues Lisa Frantzis and Danny Waggoner. One question to ask is, has all that time been worth it? For me, the answer is an unequivocal “yes.” Not only have I reached Select status on Amtrak again this year, but REV remains the most significant proceeding (set of proceedings, really) in the country addressing utility regulatory and business model reform. Our participation has enabled us to bring the business voice to the conversation and, we believe, has contributed to positive outcomes alreadywith, we hope, many more to come.

We’ve blogged several times on REV over the last three years. Today, we’d like to go over some of the recent activity, which you can broadly put into the category of “REV implementation.” With the two major Public Service Commission orders defining the structure of REV out of the way, attention is turning to making the vision a reality. To that end, we’d like to review three closely related “spin-off” proceedings from REV, covering benefit-cost analysis (BCA), distribution planning and tariff design for distributed energy resources (DER).

As part of REV, the PSC implemented a new BCA Framework that is designed to better evaluate the benefits and costs of DER. Since greater, more beneficial use of DER is central to REV, the design and implementation of the BCA Framework can potentially make or break the market for DER. Simply put, will utilities continue to view DER integration purely as a cost, and as antithetical to their business interests, or will DER become an integral part of utility planning and operations?

In June of this year, the utilities filed their BCA Handbooks, which are meant to provide details on how utilities would quantify the benefits and costs of DER, consistent with the BCA Framework Order - for example, the benefits of DER on reducing distribution system losses or avoiding future distribution infrastructure investments. The Handbooks are a necessary step for operationalizing the BCA framework order, and REV more broadly. As did several other parties who have been following this aspect of REV closely, we filed detailed comments on the Handbooks.

In our comments, we recognized that the development of the BCA Handbooks is a complex undertaking, particularly since the approaches must apply to multiple technologies and rely on data that may not be readily available. And although the BCA Handbooks were generally responsive to the BCA Order, we concluded that the utilities were unable to meet the requirement of developing complete methodologies. Instead, the utilities offered possible approaches and illustrative examples and results to provide insight into possible methodologies that could be used, but generally stopped short of providing definitive methods. The PSC is now reviewing the Handbooks and the comments filed by parties and should rule shortly on whether or not they accept the Handbooks as filed, or direct the utilities to make revisions.

The BCA Handbooks were filed along with the utilities’ Initial Distributed System Implementation Plans, or DSIPs. As with the BCA Handbooks, the utilities were required to file these Initial DSIPs as part of the PSC’s goal of transitioning the utilities from their current operational model to that of the Distributed System Platform provider. The Initial DSIPs were meant to serve as a self-assessment as well as the first iteration of a new approach to planning that would start to put REV principles into action, such as using DER solutions to meet system needs. Just the process of preparing the DSIPs represented a step forward, as the utilities engaged with stakeholders in new ways during the preparation of the DSIPs. As with our comments on the BCA Handbooks, we recognized that the Initial DSIPs represented a significant evolution and advancement in utility thinking around distribution planning. Nevertheless, we also felt that the Initial DSIPs fell short of what the PSC had intended them to be. As with the BCA Handbooks, we are awaiting an order from the PSC on the Initial DSIPs.

The third related item currently being tackled in REV is how rate design will evolve for DER customers. The BCA Handbooks and DSIPs will help guide how utilities plan, build and operate the distribution system, which will include procurement of services from DER providers and customers. Tariffs for DER complement these utility-directed approaches by providing a “standard offer” for the output of DER (which includes energy, capacity, environmental attributes and potentially ancillary services). If these tariffs are designed well, they will more fully and fairly compensate DER for the value provided and also encourage DER deployment and operation when and where they are most valuable to the system.

Today, net energy metering (NEM) represents the primary means of compensating distributed generation (a subset of DER). As a policy tool, NEM is very effective at helping to create a market for distributed generation. But NEM has limitations in terms of optimizing where distributed generation is deployed and how it is operated. Moreover, NEM is limited to DG only, and ideally, tariffs that apply to distributed resources would work equally well with other forms of DER such as energy storage, energy efficiency, and demand management as with onsite generation. A kWh avoided is just as valuable to the system as a kWh generated.

This proceeding, which is alternatively referred to as the “Value of DER”, “LMP+D” or the “successor to NEM,” is designed to move DER compensation away from NEM and towards a structure consistent with REV. The ins and outs of this proceeding are complex. AEE has been participating in a collaborative stakeholder process since May, which has been trying to hammer out the structure for an interim methodology - one that will be ruled upon by the PSC in January 2017, to go into force by mid-2017. We submitted our own comments on this valuation process, and also facilitated discussions that led to a breakthrough joint filing by New York utilities and three AEE member solar companies.

The proceeding will then shift to developing “version 2.0” of DER compensation, which will be a more precise approach than is possible for the interim methodology. The interim methodology focuses on how to adjust the valuation for exported energy for technologies that currently receive full retail rate NEM, mainly solar, whether that solar is behind the meter or a community shared resource. While this falls short of our desire to see the interim methodology apply more broadly to all DER technologies, we recognize that this is a step toward a more precise and complete valuation. We are anxiously awaiting the full staff proposal, due out next week, and look forward to providing detailed comments to the PSC.

So where does all this leave us, two and half years into REV? There is arguably some reason to be concerned about the pace of implementation because DER deployment, particularly distributed generation and energy efficiency, could be hampered as we move from one paradigm to another. But at the same time, a lot has been accomplished. Important decisions have been made on how New York’s utilities will operate in the future, and a framework is in place to move ahead with implementation. Now the hard work of turning the vision into reality has begun. AEE will continue to advocate for creating a vibrant market for advanced energy and making REV a success. So I expect to make Select status on Amtrak again next year - and possibly in 2018 as well.

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Topics: State Policy, 21st Century Electricity System