NY Reforming the Energy Vision – an update
Catherine Mitchell, IGov Team, 19th August 2015
The USA is a very interesting place for energy at the moment. Last year, IGov produced a series of blogs on the USA called Lessons from America. One of those was about the New York Reforming the Energy Vision – arguably the most progressive thing happening in energy policy in the US at the moment. This blog is an update on that first blog about NY – and a detailed working paper about its substance will be published in November 2015. This blog is also the first of another series of blogs to do with America, and they will be published in the coming weeks.
Overview of the NY REV Process
New York State (NYS) Reforming the Energy Vision (REV) was first formally put forward on 24 May 2014 by the NYS Department of Public Service (The Public Service Commission (PSC, Case 14-M-0101), and the first NY REV blog describes this.
A Green Paper, fleshing out the REV Vision, was published in February 2015 (known as Track 1). The White Paper was published on 28 July 2015 (sometimes known as Track 2). This latter paper set out the regulatory details – how stakeholders can make money from the process, and the costs of doing so. On 25 July 2015, the overarching NY State Energy Plan was published which has targets to reduce greenhouse gas emissions by 40% from 1990 levels by 2030; for renewables to provide 50% of electricity by 2030; and to reduce total energy use by 23% from 2012 levels by 2030. There are multiple sub papers on the REV Homepage, and numerous submissions to each stage/discussion of the process – and these are also available either on the REV homepage or under the REV-related proceedings Tab. A trial for the REV started in December 2014 – the Brooklyn-Queens Demand Management Programme (BQMP).
As the REV Vision said: its role was to question the two assumptions of the traditional utility paradigm: (1) that there is little or no role for customers to play in addressing system needs; and (2) that the centralised generation and bulk transmission model is invariably cost effective due to economies of scale. It argued that the traditional utility model should be challenged and it also argued that: the role of a utility; the role of a regulator; the role of an innovator (or innovation); and the role of a customer should be re-thought. The Vision concluded that the PSC expected that the regulatory paradigm and the PSC’s expectation of utility performance will have to change to a more outcome-based regulation. For further background see my previous IGov blog.
The Green Paper (Track 1)
Track 1 enlarged upon the REV Vision and was written around 6 sections: 1) Enhanced customer knowledge and tools that will support effective management of the total energy bill; 2) Market animation and leverage of customer contributions; 3) System wide efficiency; 4) Fuel and resource diversity; 5) System reliability and resiliency; and 6) Reduction of carbon emissions.
These areas all brought up questions but there were particular issues around: (1) a new, and central, actor within the NY REV known as the Distributed System Platform (DSP), sometimes called the Distribution System Platform Provider; (2) the future of the New York State Energy Research and Development Authority (NYSERDA); and (3) the future of the Clean Energy Fund. Track 1 was always only going to introduce the REV discussions – and there has been vigorous debates about what the REV should do in the intervening time between its publication and The White Paper’s publication (sometimes referred to as Track 2) at the end of July (see below). All the Track 1 submissions can be viewed on the REV website.
Thinking creatively, the nearest idea to a DSP in GB is a DNO acting as a market facilitator, or a series of local energy markets (LEM) which join with neighbouring LEMs to become an entity, essentially made up of smaller LEMs all inter-linking to buy net deficits or sell net over supply. The Track 1 requires New York’s electric utilities to provide DSP services to enable third-party providers of distributed energy resources (DER) to create value for both customers and the system. Track 1 envisages the DSP as the local equivalent of the New York Independent System Operator (NYISO). The DSP is to serve as a retail-level dispatcher to the grid (distribution and transmission) supplied not only by traditional power plants, but also by a vastly expanded fleet of Distributed Energy Resources (DER). These resources are defined in Track 1 as including end-use energy efficiency, demand response, distributed storage, and distributed generation. DER will principally be located on customer premises, but may also be located on distribution system facilities. This is a whole new value proposition inserted into the current system.
Within the Track I order, local service providers i.e. the utilities such as Con Edison and National Grid (which are combined distribution and supply) were envisioned to do the job of the DSP. Utilities were not expected to own DERs. An interlocking shift was that NYSERDA was to have a more market transformation role. Under such an approach, NYSERDA would work more in an upstream environment, doing things like facilitating the funding of energy efficiency, and helping create the market conditions that can deliver it, rather than procuring energy efficiency resources directly as it currently does.
The White Paper on Ratemaking and Utility Business Models (sometimes known as Track 2)
The White Paper (Track 2) was always intended to be a straw proposal for a suite of regulatory issues including, but not limited to, performance based ratemaking reforms. These are options for fundamentally changing the way utilities make money so that they: develop clean energy resources; incentivise efficient operation; open up the retail market; and restructure the ways consumers receive and use electricity. The reforms fall into three categories: 1) utility business model reforms including opportunities for market-based earnings; 2) incremental ratemaking reforms to the utility revenue model; and 3) rate design reforms to reflect the needs of the evolving energy marketplace.
The White Paper is a comprehensive document. It explains why current utilities may not wish to transfer to this new vision. By making the utilities responsible for the DSP – the PSC is enabling a new revenue stream for the utilities – provided they re-organise themselves into being market facilitators and take up the opportunities. At the same time, the PSC is placing the non-traditional business models (NTBM) at the centre of the new energy system so the utilities have, in effect, been placed in a position where they compete with these NTBM. In theory therefore they should be able to survive and, if they grasp the opportunities, prosper. On the other hand, they have to change their mind set if they are to do so. The White Paper focuses on trying to take these 2 intertwined areas (utilities and the DSP basis) forward with as little tension as possible.
As with all areas of the REV, the PSC has advisors. In the case of the DSP, there is a Market Design and Platform Technology (MDPT) working group (see their July 2015 draft) advising on utility Distributed System Implementation Plans (DSIPs) i.e. what should be in them; targets; key issues and so on.
The NYS Energy Plan 2015
The NY Energy Plan and the finalised US Clean Energy Plan were announced on the same day. The NY Energy Plan is signed off by Richard Kauffman, who is Chairman of NYSERDA and responsible for energy and finance for NY. It has 6 themes: affordability; environment; reliability and resilience; regulatory reform; environmental justice; and clean, environmental transportation (mainly electric vehicles, also used as storage). Its three key planks are (1) the NY REV; (2) NYSERDA’s Clean Energy Fund and NY Green Energy Bank (with $150m advanced for it and the intention to get to $1bn); and (3) the New York Power Authority (NYPA, the US’s largest State Power organisation) leading by example (amongst others).
What does this mean for practice change?
The proposed changes are far reaching – and their success or failure will come down to the details of the regulatory rules and incentives, and a lot is left to be worked out: it is still only 18 months into a 4 year process.
There are four big issues.
Firstly, in the GB situation – there are many distribution network operators (DNOs) which have been arguing since the Embedded Generation Working Group in 2000 that they should become market facilitators and would relish the opportunities to be a DSP. Moreover, a DSP would fit in with the current arguments for local energy markets in GB. However, there are also some DNOs in GB which might not be so pleased to be put in such a position – and the question for me is – whilst I like the DSP concept a lot – what are the REV regulatory incentives and conditions going to be to make sure that the utilities are a positive actor, and are not able to use their positions to undermine the DSP?
Secondly, the DSP is a new value proposition within the NY electricity system. It is up front in clearing a space for DER to be bought and sold – and this is very welcome. One goal of the NY REV is to reduce total energy use. The combination of reducing energy and a new value proposition should (as is wanted) lead to new business models, practices and services – as well as winners and losers. Quite who those winners and losers are is not clear yet. However, the PSC – by envisaging the utilities being the DSPs is in some way reducing or blunting their opposition – since they should be able to gain a new market. This is in some ways similar to Germany and the exemption of major users from the costs of the FITs – thereby allowing the FITs law to sidestep the conventional utilities, which did not stop their resistance entirely but certainly blunted it early on. However, this is only one dimension of the changes – and it will be interesting to see if resistance from the ‘losers’ grows and what impact it might have.
Thirdly, the NY REV is engendering an in-depth, transparent discussion about the needs of a 21st century energy system where customers are placed at the centre of it. It is, for example, possible to find out what any stakeholder, that has submitted any thoughts to any part of the NY REV process, has said from the NY REV homepage. Because it takes a broad view of the overall costs and benefits of different energy systems to NY customers – it is trying to establish not only what is good for the economy but also what customers want and what are the ways which will most connect them to their energy use – given that they are the ones who pay and who get their energy from the system. This has shifted the debate from the interests of companies to one of public interest. America has always maintained this element within their energy provision more than GB. What is interesting about the NY REV is that it is essentially arguing that an energy policy built around public interest is likely to be more successful in meetings its goals than the old ‘private’ interest model.
Fourthly, the politics i.e. the power of those pushing this – remains credible and is holding up well. The environmental groups are so far supportive. It is also part of the ‘zeitgeist’ movement within global electricity systems. NY has joined California and Germany as a place which is being watched by the rest of the world to see what will happen. As explained elsewhere, the NY REV did not just come out of anywhere. It has occurred on the back of progressive policies for the best part of the last decade. In the same way that it was possible to say this time last year: ‘it looks like the politics are strong and hence there is some chance will be pushed through’. So again this year, the politics are still looking strong and so, again, it seems likely that whilst there will, no doubt, be big fights, it is still looking like fundamental regulatory change will occur.
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