New York State’s Bold New Plan to Restructure Its Electricity System

Electricity is rediscovering its roots by virtue of the advantages that twenty-first century technologies offer. In the transportation sector, cleaner more fuel-efficient electric vehicles recall the early years of the automobile industry, when nearly one-third of cars manufactured in the U.S. had electric motors. And today’s electricity grid is revisiting the embryonic power system of the late eighteen- and early nineteen-hundreds, when electricity generated in small neighborhood plants powered gears and kept the lights on.

Smart web-based technologies now make it possible for the grid to integrate significant levels of clean, efficient electricity generated at homes, businesses and institutions such as universities and hospitals. But the current infrastructure, characterized by large centralized power plants that generate electricity transmitted via high-voltage transmission lines to customers living hundreds of miles away, was not built to optimize these changes. The utility regulations, business plans and practices that evolved over the twentieth century all support the centralized model of power generation, and it is no mean feat to transform a system that has sustained an industry’s technical and economic success.

In its 2014 report Revisioning the Energy Future (REV), New York State’s Public Service Commission (PSC) takes on this challenge by articulating a plan that would incentivize a dramatic shift in direction for electricity generated within its boundaries. REV aims to exploit the grid’s growing ability to integrate local distributed energy resources (DERs) as a way of achieving important policy goals – among them, reducing carbon emissions, improving reliability, increasing energy efficiency, and avoiding, or at least postponing, costly infrastructure upgrades.

Of equal interest to New York’s PSC, the plan would promote the development of market-based products and services that give consumers a more active role in managing their own power use, and make it financially advantageous to do so. Rather than relying on state subsidies and public benefit charges to drive its policy goals, New York hopes to develop markets that will take over much of the work, so long as the benefits of DERs are accurately priced.

The products and services sold on this market would range from rooftop solar panels and microgrids to demand-responsive patterns of electricity consumption that could lessen grid stress when the load on the system peaks. Rather than turning to costly new power plants or expensive transmission upgrades as remedies — what utilities traditionally have done — it becomes possible to integrate cheaper DERs into the system. DERs can relieve congestion problems because customers who have generating capacity don’t need all their power to come from the grid. Congestion is also reduced through demand-response (DR) measures, in which customers agree, when signaled by the grid, to shift their regular consumption patterns.

With the right regulatory framework, either step can be financially advantageous. These customers would draw less power from the grid when high demand elevated the cost of electricity, and in the case of large users such as industries or university campuses that are prime providers of DR services, they would also be paid for shifting their customary usage patterns. Even ratepayers without DERs would benefit because utilities could put off costly infrastructure projects that the public ultimately pays for through their monthly bills.

Attendees at the Council of State Governments/Eastern Regional Conference’s (CSG/ERC) 2014 Annual Meeting in Baltimore, Maryland, last August had an opportunity to hear an overview of REV from Rajendra Addepalli, who directs the Office of Electric, Gas and Water at the New York Public Service Commission. Just after that meeting, the commission took further steps toward realizing the REV vision, with its publication in late August of a straw proposal that fleshes out the direction established in the April report.

The new phase-one document lays out an initial set of “no-regret” steps that aim to increase the number and types of DERs available in New York, in part by reshaping the local distribution of electricity that utilities have handled. In the commission’s model, the distribution system would be expanded to include a new component, called a Distributed System Platform Provider (DSP). Run at least initially by utilities, the DSP would promote retail markets and help to develop the new energy products and services – the DERs- that would be sold on it, some of them by independent energy service companies, or ESCOs. The DSP would also be responsible for integrating these products and services with existing and new grid technologies, and for modernizing the distribution system in the service of New York’s policy goals.

The transformation laid out by the PSC has generated great interest, much of it favorable (for example, here, here and here ). But it has also led to a number of questions.

One set of questions looks at how the goals articulated in REV will harmonize with other parts of New York’s energy policy that come under the authority of the New York State Energy Research and Development Authority (NYSERDA), the organization that has been in charge of New York’s Energy-Efficiency Portfolio Standard. Although NYSERDA has itself submitted a plan to the PSC that aims to align its clean-energy programs with REV provisions, the concern still remains — raised, for example, by the nonprofit Northeast Energy Efficiency Project — that the new market will not succeed in capturing as much of the cost-effective energy efficiency that NYSERDA analyses indicate is possible.

The second set of questions revolves around what type of cost-benefit analyses should be used to compare competing proposals, given the strong policy emphasis involved in REV planning and the centrality of accurately valuing the advantages of DERs in order to achieve them. The issue is not unique to New York, as many energy experts and states are grappling with the question of such valuation, even when not incorporated into a comprehensive restructuring of the sort New York is planning. Examples of this discussion can be seen in publications from academia, nonprofit organizations (here and here), and industry-related think tanks.

In the immediate context of the public comment period related to the PSC’s proposal, a coalition of three nonprofits – the Advanced Energy Economy Institute, the Alliance for Clean Energy and the New England Clean Energy Council – has offered an approach tailored to the New York context, which is centered around a Societal Cost Test that incorporates a wider range of benefits than traditional methods do, so as to appropriately weight the value of policy objectives that drive REV.

The closing date for public comments on the straw proposal has been set for October 24, 2014, and a final version will be released by the end of 2014, according to the timetable Addepalli described in his early August presentation. In the meantime, the PSC is working on a case study for what it calls phase two of the transition to REV. The second proposal will define in greater detail than did the earlier report the complex regulatory reforms that the full transformation will require.

By Eleanor Saunders

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