FORTNIGHTLY FOTNIR GHTLY - SullivanAn online database will be established where energy customers and DERs can obtain real-time information, compare and choose energy products and pro-viders,

FORTNIGHTLY FORTNIGHTLYPUBLIC UTILITIES

ENERGY, MONEY, POWER

August 2015

PLUSPLUS■■ NERC, NIST and NERC, NIST and

cyber threatscyber threats■■ A new and A new and

surprising use surprising use for COfor CO22

■■ PGE’s Jim Piro on PGE’s Jim Piro on EPA and beyondEPA and beyond

Dramatic, Disruptive, Dramatic, Disruptive, DestabilizingDestabilizing

DistributedDistributedGenerationGeneration

16 PUBLIC UTILITIES FORTNIGHTLY AUGUST 2015 www.fortnightly.com

Merrill L. Kramer is an attorney based in Washington, D.C. who practices with Sulli-van & Worcester LLP in the firm’s Energy and Project Finance Group.

Sandy and other weather-related events. Subsequent phases will cover rate reforms and utility implementation. Interested parties have an opportunity to participate in and infl uence the rulemaking process.

Independent but related initiatives are ongoing at the New York State Energy Research and Development Authority (NYSERDA), the New York Power Authority (NYPA), the Long Island Power Authority (LIPA) and the New York Independent System Opera-tor (NYISO). The common objective of all of the actions is to secure New York’s energy needs going forward through affordable, resilient, reliable and climate-friendly energy systems.

Managing the Moving Parts Many New York buildings already have power systems installed. These systems are used mostly for back-up or for reducing peak-demand, but are not particularly effi cient. REV seeks to encourage new fuel-effi cient instal-lations and retrofi ts that can be more optimally operated. To achieve this goal, the program opens up the market to allow DERs to buy and sell power into the grid – to share power with others where it is economic to do so. But all this is diffi cult to achieve under the current regulatory framework. That’s because utilities today have little incentive to provide third-party power suppliers with access to the transmis-sion grid. That can prove costly and expose the seller to regulation as a public utility.

To overcome these barriers, a new regulatory entity will be created called a “Distributed System Platform”, or DSP. The DSP will act as a marketing

The far-reaching program is called Reforming the Energy Vision, or “REV.” Its major thrust seeks to decen-tralize power supply by encouraging businesses and retail customers to install small generating resources or “distributed energy” on site. The pro-gram includes incentives for installation of fuel-effi cient power units, renewable resources such as solar and wind, and for development of microgrids and community solar. The NYPSC seeks to create a decentralized and resource diverse power supply system that can prove less susceptible to disruption caused by a single event, and replace it with a more reliable and dynamic system. The proposed reforms redefi ne the role of public utilities while seek-ing to ensure their fi nancial survival in a decentralized power world. The following is a brief summary of the REV initiative.

A More Decentralized SystemThe initial phase spells out the policy considerations underlying the program and proposes an open and transparent market system to encourage installa-tion of distributed energy resources, or

Commission Watch

Understanding New York’s ‘Vision’A roadmap to ‘REV’ and its plan for restructuring.BY MERRILL L. KRAMER

W ith some of the highest electricity prices in the United States, and mindful of the massive disruptions to its electric service caused by Hurricane Sandy, New York has undertaken a major reform of its electric utility industry.

This reform begins with the New York Public Service Commission (NYPSC), which has recently issued a broad-scale initiative to change the way utility service is provided that may serve as an example nationwide. The reforms will radically alter the way electric utility services are provided and priced to customers.

DERs, plus microgrids, and community power. “DERs” includes combined heating and power (CHP) systems, cogeneration, and renewables such as solar, wind and biomass, but also such resources as energy effi ciency, conserva-tion, and demand response systems. The REV program seeks to encourage energy users, and particularly large commercial users such as hospitals, uni-versities, hotels, offi ces and residential buildings, to install DER.

Microgrids and community power refer to the creation of smaller, self-contained electricity systems within the larger utility footprint that allow multiple customers to share locally installed power generators and/or stor-age. Microgrids are seen as an effec-tive response for local communities and businesses that experienced severe power disruptions during Hurricane

New York envisions a more decentralized and diverse power supply.

AUGUST 2015 PUBLIC UTILITIES FORTNIGHTLY 17www.fortnightly.com

the utility. Incentives to upgrade and improve system effi ciency and reliabil-ity similarly were outweighed by the fi nancial incentives to instead build new assets that could be added to a utility’s capital asset base.

As part of its reforms, New York is redefi ning the role of public utili-ties. The NYPSC already has started realigning utility incentives by using “performance-based rates” where profi ts are tied to how effi ciently and effectively the utility distributes power. The func-tions of the DSP now will be tied into their organizational structure. Utilities will serve a system planning function, including providing real time informa-tion, to allow other service providers and retail customers to meet system needs with DER and renewables. By augmenting the utilities’ role, the NYPSC is seeking to ensure their fi nan-cial survival in the new decentralized markets. Rather than simply building new power plants and transmission

A New Role for UtilitiesAs the DSP, the utilities will procure and provide necessary products and services for customers and power sup-pliers in exchange for transaction or usage fees. These products and services might include platform access, analytic services, interconnection services, bill-ing, metering data sharing and other information services. The utility also will be able to offer DER’s maintenance, operation, and fi nancing support.

Traditionally, utilities have had little incentive to provide access to energy markets to third-party power suppliers and energy customers. Utility earnings are largely tied to their ability to build large central power plants and transmis-sion facilities, upon which utilities earn a regulated return on investment. Utili-ties also have had little incentive to pur-chase power from third-party suppliers, as these purchases typically are treated as merely a pass-through expense to customers, which yields little return to

platform and trading clearinghouse for buyers and sellers of DER. The DSP will provide and procure services necessary to support use of DER, such as information, communications, interconnection, and dispatch services. An online database will be established where energy customers and DERs can obtain real-time information, compare and choose energy products and pro-viders, and increase the value of their resources by integrating them into the grid. Customers will be able to shop for the least costly electricity.

The DSP will be an independent platform that will integrate and distrib-ute reliable and effi cient electric services to meet customer needs. The DSP will be run by traditional utilities like Con-Ed and LIPA. To ensure its indepen-dence, these utilities will be prohibited from owning DER resources except under limited circumstances. The DSP will be positioned between the DER and retail customers on the one hand, and the New York Independent System Operator (NYISO) on the other, which is the bulk wholesale market used by utilities and other wholesalers to buy and sell power, transmission and ancil-lary services. The public utilities will continue to retain their traditional role of physically delivering electric-ity to consumers and dispatching the entire system.

New York’s public utilities are required to fi le detailed implementation plans later this year for transitioning to the DSP platform-based system. In the interim, the NYPSC proposes to use an auction based approach to solicit and procure various energy-related products from the market, such as peak-load energy, ancillary services and demand side management. The Commission will put open access transmission tariffs in place during the transitional phase designed to allow parties to sell into the market and monetize the value of their DER.

“If New York succeeds, it will set a new gold standard for the utility industry.”– Merrill Kramer, attorney, Sullivan & Worcester, LLP

18 PUBLIC UTILITIES FORTNIGHTLY AUGUST 2015 www.fortnightly.com

to opt-in or opt-out of sharing granular data with the DSP, such as daily or hourly usage information. It is unclear whether or to what extent AMI or AMF will be adopted.

The Commission also has deter-mined that some supervision over DER providers will be necessary to ensure both consumer protection and fair competition. The Commission plans to develop rules in consultation with stakeholders to establish codes of busi-ness practice and conduct.

The Regulatory FrameworkOne of the most signifi cant barriers standing between distributed energy resources and their participation in energy markets is the potential that the NYPSC will regulate the participant as an electric utility.

Under New York Public Service Law, an “electric corporation” is broadly defi ned as any company that owns, operates, or manages “any electric plant” “used to generate, transmit, dis-tribute, sell or ‘furnish’ electricity for light, heat or power…” except where the electricity is generated or distrib-uted on private property and is “not for sale to others.”

DER providers and microgrid owners would be electric corporations under this defi nition because they “fur-nish” electricity, among other things. Likewise, they would be subject to regulation by the U.S. Federal Energy Regulatory Commission (FERC) if they sold electric energy for resale, or owned transmission facilities.

The FERC separately has exempted qualifying cogenerators, small power producers, and certain wholesale power generators from FERC rate regulation. And in a similar vein, the NYPSC has determined on a pre-liminary basis that DER providers will not be subject to rate regulation by the state. Yet the NYPSC is still reviewing what oversight might be

The NYPSC is investigating how best to design a digital marketplace platform that can allow consumers to compare energy providers and potential services. It has directed its staff in a consultative process with interested par-ties to present a proposal later this year on how to increase the informational value of energy bills as a way to facili-tate increased customer engagement in energy and investment decisions.

A signifi cant obstacle to obtain-ing real time information is that most energy users do not have metering equipment that can provide dynamic price information (e.g., hourly, daily) regarding their energy consumption. Dynamic pricing requires signals both to and from end-use equipment. Many parties have advocated for adoption of Advanced Metering Infrastructure (AMI) or advanced metering function-ality (AMF) as a necessary precursor to provide transparency to customers regarding real-time products and prices to help engage them in the market. To these ends, the Commission has asked each utility to include in its imple-mentation plans fi led later this year a proposal for dealing with advanced metering needs.

Customer Privacy. Access to customer energy usage data raises sig-nifi cant privacy and security issues. As things stand now, energy usage data for individual customers is not readily available to DERs and other potential market participants without customer consent – due primarily to privacy con-cerns and technology limitations. The NYPSC is looking to address this by potentially giving customers the ability

lines, utilities will have earnings oppor-tunities through enhanced performance and in the provision of transac-tional services.

Implementation PlansThe NYPSC has established two over-lapping working groups to implement the DSP – one to formulate market rules and the other to develop technical standards. Together these two groups will create the architecture of the DSP market platform. The two groups will submit detailed plans to the NYPSC this year. Interested parties will have the opportunity to comment on the propos-als. Once this basic architecture is in place, the commission then will lay out a roadmap to put all the pieces together, paying attention to particular issues such as 1) interconnection rules for DERs, 2) public access to data and real-time metering, and 3) customer privacy.

Resource Interconnection. The Commission plans to adopt uniform interconnection procedures to allow DER’s to tie into the grid. Intercon-nection rules will be instituted in two phases: phase one will adopt stream-lined approval processes for smaller distributed energy projects. The Commission will establish uniform contract terms and expedited proce-dures intended to provide certainty to developers. The Commission tentatively plans to increase the threshold for the Standardized Interconnection Require-ments to 5 MW. Phase two will be oriented toward a more comprehensive integration of interconnection pro-cedures into utility system planning and operations.

Metering and Data Access. Cus-tomer choice stands as the bedrock of the DSP market model. Obtaining real-time access to energy usage infor-mation will be central to creating a transparent market to allow DERs and energy customers to make correct eco-nomic decisions.

Traditionally, utilities have had little incentive to help third-party suppliers.

AUGUST 2015 PUBLIC UTILITIES FORTNIGHTLY 19www.fortnightly.com

barriers as the three largest obstacles to microgrid development.

The New York commission has solicited comment on the extent to which it is obligated to impose utility regulation on microgrids and commu-nity power under the Public Service laws. Among other things, the Com-mission has asked for public comment in light of its obligation to ensure the provision of reliable power at just and reasonable rates, the application of consumer protections for residential customer, and regulatory standards for submetering electricity delivered to residential customers.

What Next?The NYPSC estimates that the energy savings, reduced line losses and other cost reductions under REV will save New Yorkers between $1.4 billion and $2.1 billion a year. The NYPSC hopes to jumpstart the program in the short term through a transitional process where DER and renewable energy resources will be supplied through RFPs or incentive tariffs and programs.

In the long term, however, the NYPSC has a tall order to fi ll. Imple-menting the right operational, techni-cal, reliability, and security standards for integrating DERs and microgrids into the system at the desired scale marks an ambitious undertaking. A market platform still needs to be designed and implemented that provides the ease of entry, market liquidity, and the right price signals to attract participants, innovators, and investors.

Yet if if the program proves success-ful, New York will have established a new gold standard for the electric utility industry. F

to be able to island themselves during grid emergencies.

Microgrids today are seen as an effective way for local communities and businesses to avoid the severe power disruptions they experienced during Hurricane Sandy and other weather-related events. Microgrids also offer a way for communities to self-supply their energy needs through less expen-sive or renewable power systems. By establishing a localized system that can automatically self-supply, a community can thereby help insulate itself from the impact of larger system outages.

In short, microgrids present tough regulatory challenges. They can involve the erection of wires, substa-tions, conduits and other facilities that require rights of way, easements, and more a complicated interconnection to the larger grid. And unlike utilities, private microgrid owners do not enjoy the powers of eminent domain. Nor can they “rate base” their investments like utilities. Microgrids also need to be incorporated in a manner to avoid redundancies and overlaps with utility planning and facilities. Other barriers to microgrid development include the lack of any existing regulatory frame-work, unclear safety standards, utility opposition and permitting delays. Par-ties cite 1) excessive stand-by charges, 2) restricted opportunities to sell back to the grid, and 3) interconnection

required under REV in light of the types of products and services that DERs can sell or purchase. The New York commission has stated that some supervision “could become necessary” in order to ensure both consumer pro-tection and fair competition.

Where Do Microgrids Fit In? Microgrids, however, present diffi cult issues for regulators. On one hand, transmission and distribution systems and services traditionally have fallen subject to regulatory oversight and rate regulation. And as microgrids become integrated into the utility grid, utilities will increasingly rely on these market participants to deliver the promised products and reliability, and to observe security protocols to protect against cyber security threats. Nevertheless, the NYPSC has not yet addressed if and how it intends to extend its oversight over microgrids.

REV seeks to encourage installa-tion of microgrids and community-based solar and storage models. A microgrid generally refers to an electric grid within the larger utility system that interconnects multiple customers with each other and with local power generators and/or storage in a largely self-contained system. Microgrids typically have the ability to “island”, or automatically disconnect them-selves from the larger grid during system emergencies while maintaining reliability within the microgrid area. “Community solar” or “community power” refer to a situation where a larger solar or other power system is centrally installed to supply power to multiple customers in a defi ned area. Community systems also need

REV will redefine utilities, seeking to ensure their financial survival.