By Michael Kuser and Rich Heidorn Jr.

The New York Public Service Commission on Thursday adopted a new “value stack” pricing mechanism for solar and other distributed energy resources, along with two other orders to transition utilities into “distributed system platforms” and align their incentives with DER providers.

The Value of Distributed Energy Resources order approved March 9 (Case 15-E-0751) begins the transition away from net energy metering and toward an approach that aggregates specific value components. The number of those components will be raised over time to increase the granularity and accuracy of the valuation.

“This order achieves a major milestone in the Reforming the Energy Vision (REV) initiative by beginning the actual transition to a distributed, transactive and integrated electric system,” the commission wrote.

It would replace existing DER business models based on net energy metering, which the commission called “inaccurate mechanisms of the past that operate as blunt instruments to obscure value and are incapable of taking into account locational, environmental and temporal values of projects.”

“By failing to accurately reflect the values provided by and to the DER they compensate, these mechanisms will neither encourage the high level of DER development necessary for developing a clean, distributed grid nor incentivize the location, design and operation of DER in a way that maximizes overall value to all utility customers,” it said.

Continuing NEM, which can overcompensate distributed resources by transferring their share of fixed costs to other customers, would prevent wide-scale DER deployment “as the inherent subsidies reach a level that is oppressive to non-participants,” the order said.

“The system obeys not the law of contracts, but the laws of physics,” said PSC Chair Audrey Zibelman, in her final commission meeting. “Following those, that’s how you’ll get the best outcome. DER, rather than being a problem, can be a solution to where we want to get to, which is a clean energy future.”

Transition Period

The order initiates a transition period with a VDER Phase One tariff in which projects currently in “advanced stages of development” will receive NEM compensation, but for only their first 20 years.

“While Phase One NEM contains inefficiencies similar to NEM as a compensation methodology, the term limitation will offer some incentives for developers and customers to consider the impacts of the location, design and operation of DER on the electric system,” the commission said.

The order directs Department of Public Service staff to work with utilities and other stakeholders to develop the new value stack compensation “based on monetary crediting for net hourly injections,” which the commission hopes to act on as early as this summer.

Value stack compensation would include:

• Energy value, based on the day-ahead hourly zonal LMPs, including losses;
• Capacity value, based on retail capacity rates for intermittent technologies and the capacity tag approach for dispatchable technologies based on performance during the peak hour in the previous year;
• Environmental value, based on the higher of the latest Clean Energy Standard Tier 1 renewable energy certificate procurement price or the federal government’s social cost of carbon; and
• Demand reduction value and locational system relief value, based largely on utility marginal cost of service studies and performance during 10 peak hours.

Decision Draws Praise from Solar Advocates

Clean energy supporters and solar industry advocates hailed the decision.

“The order will provide a framework for more precisely valuing new clean energy while balancing the need for a predictable price,” said Anne Reynolds, director of the Alliance for Clean Energy New York. “This is the right approach and can serve to support the market for solar and other emerging clean technologies.”

In a blog post, Natural Resources Defense Council attorney Miles Farmer called the order “a bold experiment.”

“Rather than offsetting the retail rate, projects will generate credits according to an estimate of the value they provide to New York customers,” he wrote.

Sean Garren, a regional director for Vote Solar, a nonprofit solar advocacy organization, lauded the “consumer savings, local jobs and a healthier environment” implied in the decision. “While this order has yet to fully expand clean energy access to all New Yorkers, we look forward to doubling down on that commitment to make community solar work throughout the state,” he said.

Incentives for Utilities to Collaborate

The PSC also approved an order (Case 16-M-0411) on utilities’ transition to the distributed system platform combining planning and operations with enabling markets.

The order directs Central Hudson Gas & Electric, Consolidated Edison of New York, New York State Electric and Gas, Niagara Mohawk Power (National Grid), Orange and Rockland Utilities, and Rochester Gas & Electric to submit filings by Oct. 1 documenting that they have completed their analyses of the hosting capacity for all circuits at and above 12 kV and implemented Phase 1 of their online portal for DER developers seeking to access the grid.

The companies also were ordered to submit filings within 60 days describing how the “suitability criteria” — a framework for identifying distribution infrastructure projects most suitable for non-wires alternatives — will be incorporated into their planning procedures and applied to current capital plans.

It set a Dec. 31, 2018, deadline for documenting that each utility has deployed at least two energy storage projects at separate distribution substations or feeders.

Tammy Mitchell, PSC chief for electric distribution systems, said, “The phased approach is right but too slow. This order directs hosting utilities to provide the hosting capacity data needed to manage the variable DER inputs.”

“Today the advanced energy economy industry is worth $200 billion in the U.S.,” Zibelman said. “This order points in the right direction, gives utilities the right incentives, and gives investors the transparency and data they need to put money at risk.”

Helping Utilities See DERs as Customers

In its third and last vote on its regular agenda, the PSC approved an order (Case 16-M-0429) for an interconnection earnings adjustment mechanism, which aims to change the way utilities earn revenues.

The order requires the utilities to build on their previous filings with additional proposals within 60 days on customer service surveys and other metrics that will determine their future compensation.

“This is a good start to change the business model so that DER providers are customers of the utility, which want to attract them and not see them as competitors,” said Zibelman. “Utilities should look at DERs as customers and see how they can exceed customer expectations.”

Department of Public Service Deputy Director Michael Worden said the order “addresses the market in four categories: system efficiency, energy efficiency, consumer engagement and interconnection.”

Depending on how they perform against targets in those categories, said Worden, the PSC will either “reward them with a carrot, or show the stick.”

Zibelman’s Swan Song

Thursday’s meeting marked the end of Zibelman’s more than three-year tenure, as she has accepted an offer to lead the operator of Australia’s largest gas and electricity markets. (See NY REV Won’t Lose Momentum, Departing Zibelman Says.)

Gov. Andrew Cuomo on March 8 appointed Commissioner Gregg C. Sayre as interim chair. The only other commissioner is Diane X. Burman.

Zibelman’s departure, the recent retirement of Commissioner Patricia Acampora and a two-year-long vacancy means the commission now has three openings for new members.