N.Y. gets to work on ‘grid of the future’ with sweeping changes to come

Source: Colin Sullivan, E&E reporter • Posted: Wednesday, April 30, 2014

NEW YORK — Energy regulators in Albany have been tasked by Gov. Andrew Cuomo with a daunting job over the next year: to fundamentally reshape how power is bought, sold and distributed in a high-cost, high-profile state that is quickly adjusting to new market realities.

Last week, the Democratic governor directed the New York Public Service Commission — which oversees the private power sector and the grid — to begin a proceeding meant to pave the way for distributed energy, smart-grid technologies, demand response, electric vehicles and, ultimately, the prospect of less hard infrastructure.The proposal comes as the Empire State emerges from one of the coldest winters on record and, by some accounts, faces more than $1 billion in consumer debt linked to power bills people have been unable to pay. Also on the horizon is the loss of coal-fired power as well as the sunset of 2,000 megawatts in baseload generation provided by the Indian Point nuclear plant.

The prospect of having to invent a more resilient grid to avoid blackouts seen during Superstorm Sandy and to withstand other extreme weather events also looms over the process, which is likely to shape how other states approach new regulations. Another vexing issue is just how much should be spent on transmission upgrades, in particular to Canadian hydropower.

The PSC is calling the proceeding “Reforming the Energy Vision,” or REV. Put broadly, it is meant to overhaul all things electricity in an attempt to get ahead of an economy in transition — but not necessarily build new generation and transmission to arrive there.

The REV process is expected to result in major policy realignment on a fast track by the end of the year and early in 2015. In a 91-page report about the whole picture, PSC officials said the plan is to enact regulatory changes “that promote more efficient use of energy, deeper penetration of renewable energy resources such as wind and solar, wider deployment of ‘distributed’ energy resources, such as micro grids, on-site power supplies, and storage.”

Also on the table are incentives for “energy management products” that target demand elasticity and efficiency. The PSC says the unprecedented changes will give customers more choice and more control over how they manage and consume power.

“The commission has identified six core policy outcomes relating to customer knowledge: market animation, system-wide efficiency, fuels and resource diversity, system reliability and resiliency, and carbon reduction,” a summary of the report states, explaining that aggressive reforms on utility ratemaking in particular will be forthcoming.

In a statement attached to the REV report, Cuomo said he wants the PSC to embrace information technology and cleaner energy as part of this plan to revamp the regulatory model and build away from infrastructure that is old and often crumbling. Audrey Zibelman, head of the PSC, added in a statement: “The existing ratemaking structure falls far short of the pace of technology development that defines many parts of our economy. By fundamentally restructuring the way utilities and energy companies sell electricity, New York can maximize the utilization of resources, and reduce the need for new infrastructure.”

Big shift for utilities

Because the plan does not pick and choose among regulatory changes at this point, PSC officials sought to provide a few examples of what REV would address. Among the major problems is how a less-centralized grid would be able to handle peak demand for electricity during a heat spell during the summer.

Under the current model, enough power has to be available to meet the projected peak, but the PSC called that approach “inefficient and costly” because peak supply is available only temporarily and at a premium.

“Consumers are now forced to spend hundreds of millions annually to maintain the full capabilities of a system that is needed only on the very hottest days,” the report said. “Finding ways to reduce peak demand represents the single largest savings opportunity for consumers in New York.”

As part of ending that peak-demand cycle, the PSC will look at how its rules should be changed to help utilities to manage and coordinate distributed generation. These rules would move away from the old approach, which compensated utilities based on the total amount of power they sold, and create incentives to lower demand and reward innovation.

Utilities would effectively serve a new purpose under the shifting umbrella of rules and market obligations, acting as “distributed system platform providers” to help move along a side market with tariffs “to enable behind-the-meter resource providers to monetize products and services.”

Rates attached to that new role (to provide utilities with a revenue stream) would apparently be performance-based and not held flat for a given period of time. The idea is to kick-start new technologies by enacting “a greater unbundling” of services, the report said.

“The most effective outcome paradigm may be one that creates a network of incentives with an enterprise-wide effect,” the report said.

Dealing with high prices

Observers were mostly positive about the proposal but hesitant to examine what is still an open-ended process in much detail. Yet one watcher said he is worried the PSC has embarked on a kind of quasi-activist regime change that could end up making some of the most expensive power bills in the country even more expensive.

Gerald Norlander, head of the Public Utility Law Project in Albany, argued that the New York PSC has done too little to stop utilities from making as much money as they wanted since deregulating power markets in the 1990s. Norlander cited “huge price spikes” over the last three months as evidence that the PSC doesn’t have a firm grip on its market, for one.

Hundreds of thousands of New York residents, he said, are currently being threatened with having their lights turned off because they can’t pay their bills. He argued this is partly the result of ineptness at the PSC.

“The commission has not policed the purchasing practices and allowed these customers to get hosed,” Norlander said. “If we look at the tea leaves [of REV], I don’t think it’s good for ordinary consumers.”

Norlander added that what Cuomo and the PSC have proposed is another way of saying, “You can deal with unreasonable prices with gadgets and new demand response distributed generation.”

“They’re saying, ‘We can fight back by spending more money on these things,’” he said. “But who’s going to get that, who’s going to put solar panels on their houses? Not the poor.

“It is a diversion,” Norlander added. “It’s foolish, and it’s not really going to work.”

On the other end of the spectrum was Rory Christian, director of the Environmental Defense Fund’s New York clean energy program. Christian in a blog post wrote that the rollout would likely have national implications as states look for answers to “rapidly evolving” markets.

“The order is the beginning of a discussion that will focus on how best to prepare for a future in which electric vehicles, rooftop solar panels, and other types of local, on-site power generation are commonplace,” he wrote.

In an interview, Christian said the orders to come are better than doing nothing, which would ensure New York continues to pay higher rates than most.

When asked to address Norlander’s criticism, Christian said the points raised demonstrate how important it will be to get control at the state level for technologies that are reinventing a very old wheel rather quickly.

“They’re trying to figure out a way to bring everyone along for the ride,” he said. “The people that are going to be left on the old grid are going to be paying higher costs.”

On the industry end, a recent working group paper prepared by the group Advanced Energy Economy — with input from regional utilities — lauded New York for embarking on the forward-looking process and urged rules that would attract investment to more flexible infrastructure.

The paper backed the PSC for envisioning “a future electric industry model in New York in which a modernized grid serves as a platform for enabling new capabilities.”

Click here to see the PSC’s website on the REV process.