Audrey Zibelman, who chairs the New York Public Service Commission, is moving on next month to run Australia’s electricity grid system. But she will leave an important legacy here: a foundation for the most significant transformation in New York’s electric power system in two decades. When her successors complete the job, New Yorkers will enjoy unprecedented new choices for how they meet their electricity needs—and set an example for the nation on how to build a clean, resilient, and more affordable energy system.
Three years ago, Gov. Andrew Cuomo and Zibelman launched an initiative to address climate change and modernize our electricity system. What followed was a regulatory proceeding called Reforming the Energy Vision, or REV. It is far from done, but REV is leading toward a new role for electric distribution companies that gives customers opportunities to participate in the electric power system in new ways, delivered by innovative companies in the advanced energy industry.
First, some background. In the 1990s, New York and many other states in the Northeast, Atlantic, and Midwest went through “restructuring.” That process, which some called deregulation, resulted in utilities like Con Edison getting out of the electricity generation business, leaving that to independent power plant owners competing in open markets. This allowed regulated utilities to focus on the electric distribution system—the poles, wires and other infrastructure that deliver power to homes and businesses. At the same time, many states, including New York, instituted renewable energy and energy-efficiency requirements to achieve public-policy goals that competitive electricity markets would not otherwise meet.
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Since then, innovation in technology combined with the push toward cleaner energy sources has given rise to a growing range of distributed energy sources—rooftop and community solar, onsite wind, fuel cells, micro-grids, energy storage and sophisticated energy-management systems for large commercial buildings and the home (such as internet-connected Nest thermostats). The pace of change within the energy industry has been rapid. Increasingly, the distribution grid is not just delivering electricity from central power plants, but handling two-way power flow, as well as facilitating products and services that help customers use less electricity, rather than more. To get the most value out of these new distributed-energy resources, for both customers and the utility grid that serves everyone, a new framework for utility regulation is required.
That’s where REV comes in. Its goal is to transition the distribution utility from just delivering electricity to also enabling distributed resources that customers can take advantage of. REV sees the utility of the future operating a “distributed system platform,” where customers large and small can actively participate in electricity markets, if they choose, and connect with a range of service providers that help them manage their electricity consumption (and, in many cases, their electricity generation).
The REV vision has taken time to define and will take longer to implement. The changes ordered by the Public Service Commission so far are incremental, but significant. It’s high time to take stock of them.
REV has made meaningful adjustments to the rules under which utilities operate and earn money, to align financial incentives with their emerging role. Utilities will still be able to earn money for investments that maintain the distribution grid, which remains important. But utilities can also benefit from performance incentives tied to specific state policy goals by facilitating consumer-driven markets and by using distributed resources to meet grid needs at lower cost.
Con Edison’s Brooklyn-Queens Demand Management project provides a concrete example of what a utility can do to bring the REV concepts to life. In late 2014, Con Edison received approval to invest in distributed-energy solutions to handle expected growth in electricity usage in portions of two New York City boroughs. As a result, Con Edison will delay a $1.2 billion infrastructure investment in substations, feeders, and switches by offering incentives for efficiency, peak-time demand reduction, onsite power systems, and energy storage. These measures will cost $200 million but put off the traditional investment for five years.
That’s just the start. Under REV, demonstrations projects are beginning to test new business models; create new relationships between utilities, customers, and third-party service providers; and institutionalize utility innovation. Con Edison is working with distributed energy providers to bundle solar and storage into a “virtual power plant,” and test demand for a premium resiliency service. Con Edison and Orange & Rockland Utilities have created online portals that recommend customized energy products and services. Other utilities have demonstrated similarly innovative projects.
New York is not the only place where utility regulation is being rethought in response to new technologies, new customer demands, and new capabilities on the grid we all rely on. Minnesota, California and Hawaii are just three of the states that see the need to adjust the utility compact to make best use of distributed energy resources while maintaining a universal power grid. But thanks to Reforming the Energy Vision, New York utilities are leading the way toward an electricity system for the 21st century.
Lisa Frantzis is senior vice president of 21st Century Energy System for national business group Advanced Energy Economy. Stuart Nachmias is vice president of energy policy and regulatory affairs at Con Edison.
Audrey Zibelman, who chairs the New York Public Service Commission, is moving on next month to run Australia’s electricity grid system. But she will leave an important legacy here: a foundation for the most significant transformation in New York’s electric power system in two decades. When her successors complete the job, New Yorkers will enjoy unprecedented new choices for how they meet their electricity needs—and set an example for the nation on how to build a clean, resilient, and more affordable energy system.
Three years ago, Gov. Andrew Cuomo and Zibelman launched an initiative to address climate change and modernize our electricity system. What followed was a regulatory proceeding called Reforming the Energy Vision, or REV. It is far from done, but REV is leading toward a new role for electric distribution companies that gives customers opportunities to participate in the electric power system in new ways, delivered by innovative companies in the advanced energy industry.
First, some background. In the 1990s, New York and many other states in the Northeast, Atlantic, and Midwest went through “restructuring.” That process, which some called deregulation, resulted in utilities like Con Edison getting out of the electricity generation business, leaving that to independent power plant owners competing in open markets. This allowed regulated utilities to focus on the electric distribution system—the poles, wires and other infrastructure that deliver power to homes and businesses. At the same time, many states, including New York, instituted renewable energy and energy-efficiency requirements to achieve public-policy goals that competitive electricity markets would not otherwise meet.
Since then, innovation in technology combined with the push toward cleaner energy sources has given rise to a growing range of distributed energy sources—rooftop and community solar, onsite wind, fuel cells, micro-grids, energy storage and sophisticated energy-management systems for large commercial buildings and the home (such as internet-connected Nest thermostats). The pace of change within the energy industry has been rapid. Increasingly, the distribution grid is not just delivering electricity from central power plants, but handling two-way power flow, as well as facilitating products and services that help customers use less electricity, rather than more. To get the most value out of these new distributed-energy resources, for both customers and the utility grid that serves everyone, a new framework for utility regulation is required.
That’s where REV comes in. Its goal is to transition the distribution utility from just delivering electricity to also enabling distributed resources that customers can take advantage of. REV sees the utility of the future operating a “distributed system platform,” where customers large and small can actively participate in electricity markets, if they choose, and connect with a range of service providers that help them manage their electricity consumption (and, in many cases, their electricity generation).
The REV vision has taken time to define and will take longer to implement. The changes ordered by the Public Service Commission so far are incremental, but significant. It’s high time to take stock of them.
REV has made meaningful adjustments to the rules under which utilities operate and earn money, to align financial incentives with their emerging role. Utilities will still be able to earn money for investments that maintain the distribution grid, which remains important. But utilities can also benefit from performance incentives tied to specific state policy goals by facilitating consumer-driven markets and by using distributed resources to meet grid needs at lower cost.
Con Edison’s Brooklyn-Queens Demand Management project provides a concrete example of what a utility can do to bring the REV concepts to life. In late 2014, Con Edison received approval to invest in distributed-energy solutions to handle expected growth in electricity usage in portions of two New York City boroughs. As a result, Con Edison will delay a $1.2 billion infrastructure investment in substations, feeders, and switches by offering incentives for efficiency, peak-time demand reduction, onsite power systems, and energy storage. These measures will cost $200 million but put off the traditional investment for five years.
That’s just the start. Under REV, demonstrations projects are beginning to test new business models; create new relationships between utilities, customers, and third-party service providers; and institutionalize utility innovation. Con Edison is working with distributed energy providers to bundle solar and storage into a “virtual power plant,” and test demand for a premium resiliency service. Con Edison and Orange & Rockland Utilities have created online portals that recommend customized energy products and services. Other utilities have demonstrated similarly innovative projects.
New York is not the only place where utility regulation is being rethought in response to new technologies, new customer demands, and new capabilities on the grid we all rely on. Minnesota, California and Hawaii are just three of the states that see the need to adjust the utility compact to make best use of distributed energy resources while maintaining a universal power grid. But thanks to Reforming the Energy Vision, New York utilities are leading the way toward an electricity system for the 21st century.
Lisa Frantzis is senior vice president of 21st Century Energy System for national business group Advanced Energy Economy. Stuart Nachmias is vice president of energy policy and regulatory affairs at Con Edison.
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