New York’s REV is an Experiment in Market-Based Resource Planning
By Patrick McKinney “This initiative aims to align electric utility practices and our regulatory paradigm with technological advances in information management and power generation and distribution.”
NY Public Service Commission, April 24, 2014, Order Instituting Proceeding
Today's electricity sector is defined by the struggle to assess the true value of suddenly relevant distributed energy resources (DER). Traditionally, Public Service Commissions have served as a check on utilities making sure they provide reliable and affordable service. More recently, PSCs have been refereeing hyper-partisan, well-funded battles between incumbent power providers and emerging DER companies, with frequent fights over rooftop solar policy commanding the most attention. Regulatory and policy decisions can make or break solar markets, and dictate utilities’ growth opportunities. The inability of regulators to solidify long-term market conditions prevents energy companies from strategic longrange planning.
In a situation such as this, we might expect California to take the lead on finding an innovative solution. But while California is focusing on bolstering advanced energy technology one mandate at a time, New York is completely redefining the utility regulator relationship. Backed by broad public support for utility reform following Superstorm Sandy, New York Governor Andrew Cuomo set in motion the aptly named Reforming the Energy Vision (REV) proceeding. Through REV, utilities will be incentivized to self -regulate their resource planning making impartial calls on which energy solutions are best for New Yorkers.
The REV program will transform investor owned distribution utilities into investor-owned "Distributed Service Platform Providers" (DSPPs). DSPPs will operate distribution lines, but won't own (with few exceptions) grid-connected assets such as power plants, solar panels, battery storage, or any other means of generating/managing the power supply. Acting as platforms, DSPPs will be responsible for identifying and accommodating the most effective generation and ancillary service providers, as well as empowering end-users.
DSPPs will be compensated based on how well they're able to meet New York's reliability, environmental, and customer choice goals. By incentivizing DSPPs in this way, the PSC will be able to avoid refereeing every conflict among competing energy companies. Putting the ball in the DSPPs’ court allows the market to determine which companies and technologies will serve New York most cost effectively. If REV architects design congruous incentives they will reduce the need for PSC oversight.
Significant groundwork will be required before the PSC can reduce oversight. Designing the framework of "Utility 2.0" will be an extraordinarily complex and arduous process. It represents a major paradigm shift that is unprecedented in the US, and many influential voices have strong opinions.
Cuomo has appointed lauded industry expert Audrey Zibelman to lead the New York PSC through this uncharted territory. Zibelman is the former chief operating officer of PJM Interconnection, which operates a transmission grid that spans fourteen states -- the world’s largest wholesale power market. She subsequently served as president of Viridity Energy, a software developer of demand response and power market solutions.
Zibelman’s experience at PJM is especially relevant, because parallels exist between Regional Transmission Organizations (RTOs), such as PJM, and the proposed DSPPs. RTOs are designed to create an equitable marketplace among utilities. The proposed DSPPs will play a similar role at the distribution level, providing a platform for all stakeholders. Serving as platforms will enable DSPPs to evaluate billion dollar energy assets and smaller-scale DER with the same parameters.
Zibelman considers customer engagement to be paramount in making the transition as cost effective as possible. Con Edison’s cool NYC program, currently in its fourth year, serves as a preliminary example of how targeted customer engagement can reduce power system costs. Participating New Yorkers receive a free smart phone-enabled thermostat that controls window AC units. Rather than high -low-off controls, the “smart-AC Kit” allows for temperature scheduling, and allows user to precool spaces when they’re on the way home. Con Edison is permitted to adjust users’ temperature a few degrees during peak demand events, and participants receive a $25 gift card at the end of the summer. Enabled by trends in big data and connectivity, this innovative form of DER asks customers to play a critical role in reducing utility costs.
The customer engagement plan also includes the introduction of DSPP-designed web-based tools that “enable customers to shop for, and purchase DER and other energy related value-added services.” These value-added services are expected to include things like solar panels and/or battery backup for customers who would like to ensure their lights never go out.
"... two years down the road, if New York consumers' experience around energy is fundamentally different, and they say 'Hey, I kind of like this. I get more information, I feel more control, there are more products and services'... we'll feel like we're on the way."
Zibelman is wasting no time (by PSC standards). The latest report issued on February 26, 2015 indicates a tight timeline for upcoming checkpoints. Highlights include:
March 26, 2015: The Market Design Platform Technology (MDPT) group files its work plan.
May 1, 2015: Staff issues a Benefit Cost framework proposal.
July 1, 2015: Staff issues a Consumer Protection Proposal.
August 3, 2015: Staff issues guidance for Distributed System Implementation Plans.
December 15, 2015: Each utility files an initial Distributed System Implementation Plan.
The hurried nature of the timeline was evidenced on Thursday, March 26th, when the MDPT group requested a five-day extension on the first scheduled deadline. The MDPT group is essentially responsible for outlining how this new type of utility is to function. The “core” MDPT membership includes the New York Department of Public Service which oversees telecommunications for the state, as well as progressive energyfocused think tanks Rocky Mountain Institute and the New York Smart Grid Consortium.
The MDPT work plan, filed yesterday includes an updated scope of the topics they are to address in the coming months, and updated member lists of the two subgroups. The Market Design and the Platform Technology subgroup members were carefully selected by the “core” members to represent a diverse set of interests. They include experts representing energy generators, distributors, transmission grid operators, solar installers and manufacturers, government, academics, smart grid solutions companies, customer advocacy organizations, and real estate.
Keeping with the theme of openness, Zibelman’s team is considering hundreds documents submitted publicly by interested parties. The hope is that the public discourse will help address divisive issues early, and establish common understanding, thus avoiding lengthy legal battles.
Any delay could put REV in the hands of the next administration, which might have a different agenda. Still, being too hasty could result in a flawed market structure, which would be vulnerable to manipulation. A smooth implementation is crucial if New York is to set a nationwide precedent. The collective energy industry is watching attentively as the REV initiative takes form.