Utility 2.0: New York State Envisions New Platform Giving Equal Priority to Clean Energy Solutions

New York’s “Reforming the Energy Vision” (REV) proceeding aims to reform the state’s long-standing electricity system to lay the groundwork for a cleaner and more efficient grid that allows for more customer choice and competition from third-party energy services companies. Forming the centerpiece of this 21^st-century vision is a platform that would smoothly integrate innovative energy services and solutions into the existing grid, allowing them to compete on equal footing with electricity from centralized power plants.

Currently, the electric industry comprises three functions: generation, transmission, and distribution. Generation refers to making electricity, traditionally from large, centralized power plants. Transmission refers to sending that electricity along high-voltage wires to substations closer to electricity customers. Distribution refers to delivering the power from the substations to homes and businesses. In its recent straw proposal, the Department of Public Service Staff (Staff) recommends splitting the distribution function into two parts, one performing the traditional delivery service and the other serving as the Distribution System Platform Provider (DSP), to grant equal priority to energy solutions that are not centralized, such as on-site, distributed generation and energy efficiency.

What is the DSP?

The Staff describes the role of the DSP as “an intelligent network platform that will provide safe, reliable and efficient electric services by integrating diverse resources to meet customers’ and society’s evolving needs. The DSP fosters broad market activity that monetizes system and social values, by enabling active customer and third party engagement that is aligned with the wholesale market and bulk power system.”

To be clear, the DSP is a set of technologies and business practices that would level the playing field by allowing alternative energy solutions to bypass the centralized grid to compete fairly with traditional resources. Although the DSP is focused on the same grid as a distribution utility, its perspective is fundamentally different. The distribution utility’s mission is to deliver electricity to customers, whereas the DSP’s mission is to design and operate a marketplace where the benefits and costs of each energy solution – including system values like offsetting the need for more wires and social values like environmental degradation – are embedded in electricity prices.

The creation of the DSP signals a fundamental break with current industry practice, which is to build new centralized infrastructure to meet growing energy demand. However, even though the DSP is described as a new function, the Staff proposes distribution utilities fulfill this role in their service territories, at least initially. For an early glimpse of how a DSP might address system needs in a different way than traditional distribution utilities, keep an eye on the Brooklyn Queens Demand Management project in Con Edison’s service territory.[Tweet “NY is ushering in a 21st century electric system and @NYSDPS’s proposed distributed energy platform can help http://ow.ly/CRjLk”]

Con Edison’s project anticipates role of DSP

Rapidly rising electricity demand along the Brooklyn/Queens border is straining the grid in that area, and – if it continues as anticipated – the strain is expected to become intolerable within a couple of years. The customary response would be to do a massive upgrade of the distribution infrastructure – specifically, in this case, a new substation – at a cost of over $1 billion. That cost would be borne by all Con Edison customers. This wasteful, business-as-usual approach generally results in a system that goes largely unused for most the year, since the highest periods of energy demand occur during only a few hours of the year – during a heat wave, for example.

Con Edison is breaking with tradition. Instead of immediately building another expensive substation, Con Edison will endeavor first to meet rising demand with local, distributed energy resources, such as energy efficiency, storage, on-site generation, and demand response, a solution that compensates customers for voluntary reductions in electricity use at particular times. Anticipating what a DSP might do in this situation, Con Edison plans to evaluate potential distributed energy resources based on cost and impact to the environment and community. This effort gives third-party distributed energy providers an opportunity to receive full compensation for the value they contribute to the grid, not just to particular customers. Similarly, it may also compensate customers for delivering benefits to the system, such as through demand response.

Who should take on the role of DSP?

The Staff’s proposal recommending incumbent distribution utilities take on the role of the DSP has given rise to a range of concerns. Some believe the promise of the DSP will be squandered from the start if incumbent distribution utilities are given the job, and that a single entity should perform the function statewide to avoid having to duplicate similar expensive systems in multiple service territories.

However, the Staff has concluded, for the time being, that certain practical realities – such as the fact distribution utilities have considerable resources and the expertise needed to serve as the DSP –– tip the scales in favor of embedding the new DSP function in the legacy utilities. The Staff’s straw proposal adds, as a caveat, that this initial assignment is subject to good behavior and the distribution utility will only be permitted to keep this job if it performs satisfactorily.

Leaving aside the question of who will ultimately take on the role of the DSP and on what terms, it’s clear that a modern platform integrating distributed energy resources is critical to New York’s efforts to usher in a 21^st century electric system. As a party to this proceeding, EDF is closely watching how the role of the DSP will be defined in coming months and our recommendations for designing the DSP’s role will seek to optimize clean energy outcomes.