Will an Energy Proposal in New York Institutionalize Power Monopolies?

Co-written with Natara Feller.

On August 22, the New York Public Service Commission (NY PSC) issued a proposed rule on the Reforming the Energy Vision (REV) initiative and comments were submitted throughout September. In short, the PSC intends to transform NY’s utilities into Distributed System Platform Providers (DSPPs), which will create, operate, plan, and police new markets for distributed energy resources (DER) and demand response (DR), in addition to acting as a local balancing authority (like a distribution level RTO). Retail Energy Providers (REPs aka ESCOs in NY) are asking, who will police the DSPPs and what will stop utility-affiliated generation from getting preferential treatment?

In our last post on this matter, we highlighted that REV may serve as one of the main driver’s of NY’s compliance efforts under the EPA’s Clean Power Plan. Now that REV’s form is taking shape, it’s being asked whether New York is sacrificing its freedom from monopoly control over the energy industry for the sake of expedience.  The question is whether utilities, rather than a third party, should take on this role, as the argument follows that utilities have the resources and ability to more easily expand into becoming DSPPs.

The Proposed Rule

The NY PSC’s August 22 proposal was focused on Track 1 issues, namely the design of DSPPs and how to get customers engaged. REV is moving in two tracks, with Track 2 focused on regulatory and ratemaking changes that will implement Track 1. Among other issues, the proposed rule focused on data access and customer awareness, as ESCOs and DER providers need to have access to consumer information and usage data in order to provide targeted demand management products to consumers.

Part of REV’s means for success is an information exchange that would provide energy use data to the provider, and information about energy services and costs to the customer. Further, an information exchange between ESCOs and customers has the added benefit of increasing customer awareness and engagement in their energy options.

Customer electricity usage data is not readily available to ESCOs due to existing privacy regulations, data acquisition technology limitations, data acquisition costs, and data hosting costs, which makes it impractical for ESCOs to offer time-of-use and targeted demand management products. The August 22 proposal identified recommendations to fix this:

  • First, customers and energy service providers should have access to energy usage information. This adds an element of transparency and affords the customer an opportunity to assess the economic value of time and location variable usage. Customers are given the option to opt-out, in order to preserve customer privacy and security. Further, customers will have access to their own energy usage data in a secure and standard format.
  • Second, to support ESCOs’ ability to develop customer offerings, Track 1 recommends a bi-directional electricity data information exchange. Through analysis of customer data, ESCOs will be able to offer opportunities for DER products and services. To better communicate this to the customer, Track 1 proposes that utilities make available approximately 1000 characters on their bills for ESCO bill messages concerning DER or other energy-related value-added products. ESCOs can therefore market directly to the consumer, based on their energy needs.

ESCO Industry Reacts: REV’s Ideas Are Great, Anti-Competitive Monopolies Aren’t

In addition to the above, the proposed rule generally confirmed that utilities will serve as DSPPs going forward, that they should be subject to performance reviews, that utilities can only own generation under specific circumstances, and that market protections must be in place where utility affiliates are operating as DER providers.

At the end of September numerous comments were submitted to the NY PSC on its August 22 proposal to institute REV. The National Energy Marketers Association (NEM) submitted that REV may create an environment for market power abuse and that, “measures should be considered so that regulated utilities are not allowed to exercise discriminatory or otherwise anticompetitive behavior that would stifle competition. One tool the Commission could consider is instituting a market cap limiting the degree of market penetration of a regulated utility.” The Retail Energy Supply Association (RESA) submitted that “[t]he Straw Proposal expands and solidifies the utility monopoly position with respect to DER. In its role as DSP the regulated utility should limit its activities to facilitating, promoting and operation of the DER market.”

Former FERC Chair Jon Wellinghoff, now partner at Stoel Rives, in conjunction with Katherine Hamilton and Jeffrey Cramer of 38 North Solutions, LLC, submitted six recommendations:

  1. “Oversight of the [utility] should be comprehensive and diligent to prevent anti-competitive practices.”
  2. “The [utility]  should not participate as a competitor to sell or install in DER market.”
  3. “The interconnection process for distributed resources should be open and transparent.”
  4. “There should be a clear delineation between market and operations sides of the DSP[P].”
  5. “The planning process should be open and transparent.”
  6. “Utilities should develop and submit a contingency plan to turn over operations to an independent [Distributed System Operator].”

The near-term priority at this point for many ESCOs is having direct access to customer data, which would allow ESCOs to offer DER products and expand the DER market. As the rule stands, ESCOs would only be able to access customer data in a second hand data exchange controlled by the utility. NYISO noted that lowering the need for peak capacity plants to stay online will require heavy planning integration between the PSC and NYISO. Utilities are generally enthusiastic and argue that their knowledge of the distribution system and their relationship with customers puts them in the ideal position.

Reply comments on Staff’s straw proposal are due on October 24, and a second technical conference on Track 1 will be held on November 6.

Lead image: New York map via Shutterstock

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