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New York State Continues its Push to Reform State Utility Markets

Posted in Renewable Energy

Collage of Power and energy concepts

On May 19, 2016, the New York State Public Service Commission (the “PSC”) released Filing No. 749 entitled “Order Adopting a Ratemaking and Utility Revenue Model Policy Framework,” [Link] which was made in furtherance of the State’s focus on utility operations increasing their renewable sources of energy in the State.  The main element of the restructuring centers on the establishment of financial mechanisms through retail markets for Distributed Energy Resources (“DERs”), which will provide consumers a more integrated way of overseeing their energy use, and consequently, their energy costs.

The PSC’s action is another step in implementing Governor Cuomo’s Reforming the Energy Vision (“REV”) initiative. [Link]  The REV is one of the most ambitious State plans in the country targeted at clean energy, and calls for, amongst other things, New York’s energy generation to be at least 50% renewable by 2030, a 40% reduction in greenhouse gas emission from 1990 levels, and a 23% reduction in energy consumption in buildings.  A series of programs have been instituted across New York to assist in meeting REV goals, including the NY-SUN program (financing solar projects across the State), BuildSmart NY (requiring a 20% reduction in energy use in State buildings by 2020), and the NY Green Bank (public-private financing for clean energy programs).

Under the terms of the PSC’s order, by no later than December 1, 2016 each of the major State utilities will be required to file a system efficiency proposal focused on reducing high-cost energy generation during peak demand times.  Certain other financial benefits are to be offered to utilities for meeting these regulatory changes, as outlined by the PSC’s, and consistent with the REV.

This filing will be considered in conjunction with the already established filing deadline of June 30, 2016 for State utilities to submit Distributed System Implementation Plans (“DSIPs”) focused on DER coordination in the utility markets, and necessary planning activities to ensure proper integration of the same. A supplemental DISP submission is to be developed jointly by the utilities after the June 30 submission, and filed by September 1, 2016.

As a frame of reference, the REV initiative was separated into two specific tracks – Track 1 concentrates on the development of DER markets and utilities as an integrated Distribution System Platform (“DSP”); Track 2 concentrates on reforms to ratemaking and revenue streams for DSP providers to foster and develop the DSP provider network.  PSC’s ultimate goal is that, upon completion of the 2 step process, a stronger and more diverse utility market will exist that is focused more on consumer-based considerations and benefits, and less on utility markets operating in the context of large existing energy production platforms.

Track 2 is expected to be of the most interest to followers of the State energy market, as the intent is to align the financial interests of both the utilities and other interested third parties under a decoupled revenue scheme. Although the intention of Track 2 makes a lot of sense, it may be problematic from an implementation perspective. Such an alignment of interests will necessarily require a great deal of massaging in order to develop standards and incentives that can efficiently do so, and it’s still an open question as to how effective the process will be in that regard.  In furtherance of this process, the PSC has proposed a series of financial reforms to address utility business models in the State via the use of Market Based Earnings (“MBEs”), further ratemaking reforms (including through the use of targeted incentives), and rate design reforms.

Stay tuned for further blog posts discussing the PSC’s actions as this process moves forward.