The NYPSC issued its Track One Order in the Reforming the Energy Vision (REV) proceeding yesterday. In the Order, the Commission formally concludes that requiring utilities to serve as Distributed System Platform Providers (DSPs) is in the best of interest of consumers. The concept of traditional utility service is to be expanded to include the development and support of Distributed Energy Resources (DER). In their DSP role, utilities will offer DER tariffs.

The Commission expressed its overall reformed regulatory vision as follows:

"The reformed electric system will be driven by consumers and non-utility providers, and it will be enabled by utilities acting as Distributed System Platform (DSP) providers. Utilities are responsible for reliability, and the functions needed to enable distributed markets are integrally bound to the functions needed to ensure reliability. Technology innovators and third party aggregators (energy service companies, retail suppliers and demand-management companies) will develop products and services that enable full customer engagement. The utilities acting in concert will constitute a statewide platform that will provide uniform market access to customers and DER providers. Each utility will serve as the platform for interface among its customers, aggregators, and the distribution system. Utilities will respond to new trends by adding value, thereby retaining customer base and the ability to raise capital on reasonable terms.

Simultaneously the utility will serve as a seamless interface between aggregated customers and the NYISO. The NYISO will be able to reflect the impact of active load management in grid planning and operations, and the wholesale supply markets will evolve to properly value dynamic load management. The objective of system optimization extends beyond the physical integration of distributed resources. Central generation, large-scale renewable resources, and transmission are critical system components. Efficient integration of DER will require consistent treatment of market dynamics and values across all segments of the grid.

Reforming the Commission’s ratemaking practices will be critical to the success of the REV vision. Under current ratemaking, utilities have little or no incentive to enable markets and third parties in creating value for customers. Rather, utilities’ earnings are tied primarily to their ability to increase their own capital investments, and secondarily to their ability to cut operating costs, even at the expense of customer value. Utility earnings should depend more on creating value for customers and achieving policy objectives. Rather than simply building infrastructure, utilities could find earning opportunities in enhanced performance and in transactional revenues. We intend to address these issues in detail in a “Track Two” order and in subsequent rate proceedings."

The Commission acknowledged concerns with utility market power, which it said would be addressed through the following market structures: 1) utilities will not be DER owners when a market participant can and will provide the service; 2) ratemaking reforms; 3) Commission monitoring of utility performance; 4) development of a dispute resolution mechanism regarding activities that deter DER investments; and 5) Commission consideration of functional separation of DSP functions from standard utility operations.

Regarding information and customer engagement, declined to adopt suggested improvements to utility consolidated billing, but ordered a collaborative be formed to study consolidated ESCO billing. Staff must also develop a proposed on increasing the informational value of energy bills. Staff was directed to consult with industry on possible design of a standard digital REV marketplace for consumers. Utilities must make system data available to market participants. Details for sharing this data are subject to further study.

The Commission found that utility ownership of DER should not be permitted unless markets had an opportunity and failed to provide the service in a cost-effective manner. The Commission stated, “A basic tenet underlying REV is to use competitive markets and risk based capital as opposed to ratepayer funding as the source of asset development.” Utility DER ownership will however be allowed under the following circumstances:

"1) procurement of DER has been solicited to meet a system need, and a utility has demonstrated that competitive alternatives proposed by nonutility parties are clearly inadequate or more costly than a traditional utility infrastructure alternative;
2) a project consists of energy storage integrated into distribution system architecture;
3) a project will enable low or moderate income residential customers to benefit from DER where markets are not likely to satisfy the need; or
4) a project is being sponsored for demonstration purposes."

The Commission found that affiliate ownership of DER outside of a utility service territory is allowed, but presents a risk of discriminatory treatment within a utility service territory. In this regard, Staff must proposed refinements to utility codes of conduct. Possible market share caps may also be considered.

The Commission approved utility engagement in energy efficiency programs. Staff is directed to prepare a large-scale renewables options paper for comment. Utilities must improve efficiency and timeliness of interconnections, including use of uniform contract terms and procedures. The threshold for Standardized Interconnection Requirements was increased to 5MW.

Rather than directing a full roll out of AMI, the Commission was persuaded that Advanced Metering Functionality as a basis for analyzing system needs may be more efficient and cost-effective. It opined that “to the extent that the value of AMI or AMF consists in enabling market participation, it may be more reasonable to require market participants to bear the initial costs or, alternatively, to allow utilities to offset costs by recovering usage fees. An AMF approach could resolve this issue by spreading investment risk across market participants, versus leaving it entirely with utility ratepayers.”

The Commission found that DER providers are “electric corporations” under the Public service Law to the extent that they “furnish” electricity. It intends to exercise oversight over DER providers on that basis. Consumer protection rules for DER providers will be established. DER providers that requests consumer data or furnish services via DSP or other utility functions will be subject to a certification requirement.

The Commission also seeks to encourage REV demonstration projects by the utilities in partnership with third party market participants that demonstrate new business models and consumer engagement.

Staff is to develop a Benefit Cost Analysis (BCA) framework focused on four categories of utility expenditures: (i) utility investments to build DSP capabilities; (ii) procurements of DER via selective processes; (iii) procurement of DER via tariffs; and (iv) energy efficiency programs.

Track Two of REV will entail adoption of ratemaking reforms, “secure equitable allocation of benefits and costs among customers and to align utilities' financial interests with the objectives of reform.”

The Order includes a detailed timeline of next steps in the proceeding.

The full text of the REV Order is available on the NEM Website.

As directed by the Commission in its recent Order on Rehearing in the Retail Markets Investigation proceeding, Staff will convene a collaborative regarding issues associated with ESCO service to assistance program participants (APPs). Issues to be discussed at the collaborative include: "defin[ing] the energy-related value-added products and services that must be provided to Assistance Program Participants (APP); consider[ing] available technologies and mechanisms for implementing point-of-sale confirmation of APP customers; and consider[ing] how best to protect existing APP customers." The collaborative will take place March 19, 2015, at 10:30AM at the Commission's Albany office. The full text of the Notice of Collaborative is available on the NEM Website.