New York’s REV Proceeding Envisions a New Clean Energy Marketplace – but How Clean is it?

nyc downtownDespite its enormous relevance to the struggle to build a cleaner, greener electric system, New York’s ‘Reforming the Energy Vision’ (REV) proceeding is not fundamentally an environmental one. It is concerned with building a new electric marketplace for a broad range of energy resources, some zero-carbon and some not, which are expected to reduce total costs paid by tomorrow’s customers over the long term compared to what would be expected under a ’business as usual’ scenario.

My last blog post described the new electric industry market structure envisioned by New York regulators in the recent Track 1 order of the REV proceeding. As promised, this week I’m providing a closer look at the environmental implications of the new order.

While reducing carbon emissions is one of the six stated goals of the proceeding, it is not the sole thrust. Interestingly, the order begins a deep dive on what decarbonization means for the electric system and discusses various environmental issues at length, potentially raising their profile in the proceeding. Highlighting the importance of environmental issues is a welcome change, but, to accomplish the goal of emissions reductions, the devil is in the details.

Most of these details are to be resolved in ’Track 2’ of the proceeding or in other processes that are shaped in part, but not determined, by the Track 1 order. Track 2, which is just getting started, is concerned with innovations in regulation, electric service pricing, and utility earnings needed to make the Track 1 vision a reality. Further complicating matters, the New York Public Service Commission (Commission), the state entity behind the REV proceeding, is not the only decision maker that will drive environmental outcomes.

Hopeful signs

  • In our previous blog post on the Track 1 order, we discussed the general separation of the Distributed System Platform Provider (which would provide a technology platform and marketplace for distributed energy resources)from ownership of distributed energy resources. This move makes room for new energy service providers, opening the door to the most innovative technologies – including the best new ideas in clean energy.
  • For the very near future, the Commission has made clear that existing funding for renewables and energy efficiency, as well as utilities’ energy efficiency programs, will remain in place, mitigating the risk of a collapse in the market for those resources before the new marketplace envisioned by the REV proceeding is fully up and running.
  • The order (see page 124) seems to endorse not only full consideration of environmental externalities – typically the environmental costs (like air pollution) associated with making, moving, and using electricity that are unaccounted for – in a benefit cost analysis, but also internalizing externalities, or in other words, making those responsible for the environmental effects of their actions actually bear those costs.
  • The order acknowledges concerns raised by many parties, including Environmental Defense Fund (EDF), about the risk of emissions from fossil fuel-based distributed generation (for example, diesel generators) that would raise local public health concerns. The order also directs the Department of Public Service Staff to help New York’s Department of Environmental Conservation (DEC) develop rules to curb local emissions. Additionally, it acknowledges there may be a need for further measures, including eligibility criteria for distributed energy resources to participate in the new marketplace, restrictions on emissions in certain areas based on environmental justice criteria, and electric pricing that reflects emissions values.
  • The order takes important steps in the direction of ensuring the Distributed System Platform Provider (DSP) really will enable an active marketplace for third-party distributed energy resources, clean and otherwise. For example, the order not only requires the utility-owned DSPs to release information about system needs to the marketplace, but makes connecting distributed energy resources to the system a clear priority. Indeed, the order states that utilities’ earnings will be linked to the timeliness and frequency of these successful interconnections.

The jury is out

  • In its straw proposal on Track 1, the Department of Public Service Staff suggested the benefit cost analysis should value carbon emissions by taking into account the full costs of damages – citing as an example the findings of the federal Interagency Working Group on the Social Cost of Carbon, which estimated the cost of carbon at around $40 per ton (even that may be a lowball figure). While the Staff’s proposal was encouraging, the Commission’s order is noncommittal about how externalities should be valued, leaving that to be addressed in a later staff white paper. It also suggests that decisions won’t necessarily be made based on the findings of a benefit cost analysis.
  • The need to manage emissions from on-site distributed generation will be critical from the start if the REV marketplace is to be a powerful driver of the environmental transformation needed in New York – and if the DSP marketplace is to offer a model for other states to follow. However, any DEC action on localized emissions is outside of the Commission’s control. The DEC has been working on rules for public health-related emissions from distributed generation for more than a decade. Getting rules in place before REV itself becomes a driver of these types of emissions is now a matter of real urgency. In addition, we don’t yet know whether or how New York regulators plan to address carbon emissions from distributed generation.
  • Unless the utility-owned DSP is successfully incentivized to seek out clean energy resources, the overall separation of the platform from the ownership of distributed energy resources could block one clear path to deploying clean energy resources (i.e., the utility itself) without fully opening the pathway for non-utility parties to do so at a large scale.
  • Despite the assurances that existing programs for energy efficiency and renewables will continue to operate in the near term, the future outlook is heavily dependent on decisions that remain to be made by the Commission, the New York State Energy Research and Development Authority (NYSERDA), and the utility companies. Although the Commission envisions energy efficiency playing a larger role in a new electric marketplace – indeed, REV is designed to make utilities, customers, and third-party energy service providers rely more heavily on energy efficiency than they do today, and spend more of their own resources on it – some energy efficiency advocates worry that this approach could backfire. They are concerned that the Commission’s approach to shifting energy efficiency responsibility from NYSERDA, which currently operates energy efficiency programs, to the new marketplace poses a risk of far lower levels of energy efficiency.

REV represents a serious push to transform a crisis facing the electric industry into an opportunity – an attempt to bring the genius of the marketplace to the table to squeeze inefficiencies out of the system, reduce future costs, and achieve carbon emissions reductions on an unprecedented scale. However, the risk that REV won’t drive environmental benefits – or that it will actually cause environmental harm – will persist at least until the new marketplace actually shows that it is able to drive widespread adoption of clean energy resources. As described above, key drivers of tomorrow’s outcomes are still up in the air, and they will remain there for some time. So fasten your seatbelts because we’re still just getting started.

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One Comment

  1. Stuart Anderson
    Posted March 26, 2015 at 2:41 pm | Permalink

    Thank you for your detailed analysis of the REV program’s progress.

    I find it difficult to believe that the utilities will not load up the fringe regions of the grid, where humans are few, with portable gas- or oil-fired generators. The tractor-trailer sized units, already being marketed, will offer the utilities stable capital investment opportunities that are not subject to real estate taxes and are too small (individually) to make a blip on DEC’s air quality regulations. As metro areas’ demand spikes in the summer heat, hundreds of the DERs will fire up in the land beyond the reservoirs. This might be the plan for replacing the generating capacity as aging nuclear plants are shut down and not replaced.