United States: Electricity Policy Shifts Are Gaining Momentum In New York

In what is likely to be a harbinger of changes to status quo retail electricity markets, services and grid planning, the New York State Public Service Commission (New York PSC) adopted a new policy framework that would significantly influence the development of the electricity industry for years to come. In a February order, the New York PSC adopted a policy framework requiring state utilities to submit implementation plans, and that facilitates the evolution of the electricity industry mainly due to technological developments. This initiative is aptly referred to as "Reforming the Energy Vision" (REV).¹

The purpose of the REV is to accommodate, implement and leverage technological developments within the retail electric industry. By harnessing these developments, the New York PSC hopes to accomplish its policy goals of enhancing the customer's role and contributions in a retail energy market, ensuring system efficiency and reliability and achieving carbon emissions reductions.

A foundational component of the REV is a class of resources called distributed energy resources, under which the New York PSC includes consumer-side activities, such as energy efficiency, demand response, distributed storage and distributed generation. As proposed by the REV, distributed energy resources, along with third parties, would have the opportunity to participate in new markets that will facilitate dynamic load management on a system-wide scale, and which would assign a monetary value to the services performed by distributed energy resources.

These new markets would be enabled by utilities acting in a new role of Distributed System Platform providers. It is envisioned that bulk systems, utility customers, distributed energy resources, third-party aggregators, microgrids and the distribution system would interact within the Distributed System Platform, which would seamlessly integrate supply, demand, storage and state mandates. In its broadest form, the aggregation of individual Distributed System Platforms would establish a uniform statewide marketplace. Although the REV emphasis is on distributed energy resources, the New York PSC has not overlooked its obligation to ensure that electric utilities provide safe and adequate retail electric service to their customers, and thus encourages electric utilities to partner with, rather than be competitors of, distributed energy resources.

In addition to the new markets contemplated by the REV, ratemaking practices will need to be reformed to place a monetary value on the services transacted. While traditional ratemaking practices have been based on the cost of providing a particular service or the cost of capital investments, the New York PSC explains that this existing ratemaking paradigm will require certain substantial revisions to account for these new markets and services. Ratemaking revisions should consider the creation of value for customers, satisfaction of policy objectives, performance measures and transactional revenues. Ratemaking practices will be addressed under the REV proceeding throughout this year and will be contained in a future New York PSC order.

The REV framework and policies are not self-implementing, and the New York PSC anticipates this order would mark merely the beginning of a long-term implementation process. The REV proposes carrying out the development and implementation of this framework in phases, using a comprehensive (rather than fragmented) approach—and with the substantial participation by all parties in a collaborative environment. The New York PSC explains that implementation will not take place in a vacuum, and the pace of implementation will depend on many factors: namely, technology development, infrastructure needs and load.

Implementation of the REV abounds with challenges, mainly due to the sheer scope of the initiative. While the REV is framed in a retail setting, there will likely be compatibility hurdles to overcome with respect to the established wholesale markets and those entities regulated by the Federal Energy Regulatory Commission. Nevertheless, the New York PSC appears undaunted, as it states, "[w]here a convergence of problems is clearly foreseeable, and the solution will be years in the making, it is our responsibility to begin without delay."² It is beyond peradventure that the New York PSC action will spur, if not provide the blueprint for, similar actions in multiple states.

Footnotes

1 State of New York Public Service Commission, Proceeding on Motion of the Commission in Regard to Reforming the Energy Vision, Order Adopting Regulatory Policy Framework and Implementation Plan, Case 14-M-0101 (Feb. 26, 2015).

2 Id. at 127.

Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.