By William Opalka and Rich Heidorn Jr.

New York’s overhaul of the electric industry, which seeks increased reliance on distributed energy resources, will largely bar utility ownership of those assets.

The state Public Service Commission on Thursday took another step in its Reforming the Energy Vision process with a 133-page order establishing a “policy framework” for the development of markets for distributed energy resources (14-M-0101).

The framework envisions utilities serving a central role in the transition as distributed system platform (DSP) providers, responsible for integrated system planning and grid and market operations.

In most cases, however, utilities will be barred from owning distributed energy resources (DER): demand response, distributed generation, distributed storage and end-use energy efficiency.

The planning function will be reflected in the utilities’ distributed system implementation plan (DSIP), a multi-year forecast proposing capital and operating expenditures to serve the DSP functions and provide third parties the system information they need to plan for market participation. The first plans will be due Dec. 15 from Central Hudson Gas & Electric, Consolidated Edison of New York, Orange & Rockland Utilities, Rochester Gas & Electric, New York State Electric and Gas and Niagara Mohawk Power. (See related story, Timeline for New York’s ‘Reforming the Energy Vision’.)

Grid Integration

From their place between NYISO wholesale markets and market participants and end-users, the utilities will integrate distributed resources by balancing supply and demand-side resources through real-time load and network monitoring, enhanced fault detection, automated feeder and line switching, and automated voltage and reactive power control.

“It is anticipated that over time, DSPs will increasingly rely on [distributed resources] to maintain reliable system operations during both ‘blue sky’ days and significant system events,” the order said.

Markets

The plan envisions procurement evolving from a near-term approach based on requests for proposals and load-modifying tariffs to “a more sophisticated auction approach.”

Although there will be room for geographically unique products, there will be a standard market platform for the entire state to ensure efficiency for providers and multi-site customers. “This requirement extends beyond the ‘common look and feel’ of customer orientation, into the technical protocols and market rules to which aggregators and service providers must conform,” the PSC said.

NYISO could accept demand reduction bids directly from DER providers, dispatching demand-side reductions in competition with supply-side resources, or accept bids from a utility acting as an “aggregator of aggregators.” Alternatively, utilities could use contracted DER to modify its load shape when it bids into the wholesale market to serve its load.

“Demand is becoming an integral resource in the operation of the grid and we have to change regulation to do that,” PSC Chair Audrey Zibelman said at the commission meeting.

Utility Ownership

To address market power concerns, the commission said that utility ownership of distributed resources “will be the exception rather than the rule.”

“Because of their incumbent advantages, even the potential for utility ownership risks discouraging potential investment from competitive providers,” the order said. “Markets will thrive best where there is both the perception and the reality of a level playing field, and that is best accomplished by restricting the ability of utilities to participate.”

The commission said utility ownership would be permitted under three exceptions:

• Energy storage integrated into distribution systems. “Storage technologies integrated into grid architecture can be used for reliability and to enable the optimal deployment of other distributed resources, and we agree with staff that this application of storage technology should be permitted without the need for a market power analysis. REV will support a greater understanding of how storage strategically used on the grid can support greater penetration of intermittent renewable resources without compromise to system reliability. It will be advantageous for utilities to gain this experience and, as part of their DSIP plans and rate plans, utilities should develop information on optimal locations and levels of storage either on the system or behind the customer’s meter.”
• Projects enabling low- or moderate-income residential customers to benefit from DER where markets are not likely to satisfy the need. “This potential is particularly acute in the case of rental customers that cannot control improvements to premises.”
• Demonstration projects. “We recognize that demonstration partnerships with utilities and third parties can accelerate market understanding and the development of sustainable business models. In limited circumstances, utility investment and ownership of assets to support such demonstrations is warranted.”

“In the limited situation that utilities will be allowed to own DER as a regulated asset, they will be restricted to recovery of their actual costs,” the commission said.

Consumer Protections, Energy Efficiency

To increase penetration of energy efficiency, utilities will also be required to expand their programs — currently based on direct rebates and subsidies — to include third-party companies. “The state’s greenhouse gas reduction goals demand that we achieve significantly more efficiency than is practical to achieve through current ratepayer-funded direct subsidy programs,” the commission said.

The commission said it will protect consumers by requiring certification of any DER provider that requests consumer data, or that furnishes services via DSP or other utility functions. “Warranty and disclosure requirements will also be considered,” the commission said.

The steps are consistent with the draft State Energy Plan, which calls for the use of markets and reformed regulatory techniques to improve system efficiency and customer empowerment and reduce carbon emissions, the PSC said.

“By requiring utilities to modernize their business models and meet evolving customer demands, New York is committed to forging a new path to develop a dynamic, customer-oriented power grid able to drive clean energy markets to scale,” Richard Kauffman, chairman of energy and finance for New York, said in a statement.

Two Tracks

The proceeding was separated into two tracks, with Track One focused on developing distributed resource markets, and Track Two on reforming utility ratemaking.

The PSC’s staff says that utility financial incentives should be structured “to reward utilities for the efficient development of DER on their systems in a manner that either makes them indifferent to ownership, or favors ownership by third parties.” Staff will provide a straw ratemaking proposal by June 1.

In related orders Thursday the PSC also:

• Approved the first community choice aggregation pilot program in New York. It will allow Westchester County municipalities to issue solicitations for natural gas or electricity supplies for local residents and small businesses (14-M-0564).
• Stayed its December decision that restricted how customers with multiple locations could participate in net metering programs and postponed its rule requiring utilities to file new tariffs to resolve concerns about how such customers are compensated. The ruling, which gives renewable energy developers and utilities more time to transition away from existing net metering rules, means solar projects already under way will be eligible to receive net metering credits (14-E-0151, 14-E-0422).