New York Takes a Major Step toward Rethinking Utility Economics

NY Lights BridgeThroughout the United States, utilities earn a profit through a tried and true regulatory model that has worked well for over 100 years. This model was built on the assumption that customers would use ever increasing amounts of electricity, and it worked for some time. But, as the need to save power and make electric systems more efficient becomes essential to adapt to climate change, this and other assumptions no longer hold true. Without changing how utilities are compensated, we run the risk of experiencing a true irony: utilities, the cradles from which our modern civilization rose, may become the chains preventing us from advancing toward a clean energy future.

Last week, the New York State Public Service Commission (PSC) – which regulates the state’s utilities – took action to transition to a new model aligned with Reforming the Energy Vision (REV), the state’s initiative to transform the electric grid into a cleaner, more efficient and affordable system. By issuing the “Order Adopting a Ratemaking and Utility Revenue Model Policy Framework,” the PSC is changing how New York’s utilities will be compensated, taking a major step to break the chains holding utilities back, and moving from a system where utilities get paid according to how much electricity they sell to one where utilities are compensated for producing environmental benefits aligned with the public good.

Setting the stage for utility 2.0

Also known as the REV Track 2 Order, the ruling is a significant milestone for New York. It does not do away with the traditional regulatory model, but sets the stage for utilities to earn revenue from new sources. According to the Order, “Utility revenue opportunities must be expanded to more closely align utilities’ financial interests with the customer benefits from these elements of a modernized electric system.” It’s clear they will be tied to achieving goals under the New York State Energy Plan .

The Order points out specific earnings opportunity that utilities can pursue as an incentive to reduce pollution, and helps dispel many early concerns that REV may not yield favorable environmental outcomes. While exact details on how earnings measures will be implemented are underway, linking utilities’ performance to this metric is an example for other states. It illustrates how to address the increasing need for energy efficiency and renewable energy by tying utilities’ compensation directly to greater environmental benefits.

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Improved electricity rates

In addition to establishing new revenue models, the PSC emphasized the role of time variant pricing, a rate structure that reflects the true cost of electricity, which varies with time of day, month, season, or year. The Order highlights a lack of information customers need, noting that customers “are not provided with information about the true components of cost or the means to effectively respond to the price signals such information can provide.” To increase the effectiveness of time-variant pricing used in New York, the PSC directed utilities to review existing rates and create new tariff structures that allow customers to choose a rate that enables the greatest opportunities for cost and energy savings.

Greater access to electricity data

Going even further, the Order recognizes the value of timely access to electricity data and establishes a number of guidelines for utilities and customers alike. Today, the average customer has to wait till the end of the month when they receive a bill to find out how much energy they used. With this new Order, customers will have more timely access to their energy use through mobile and desktop apps, and at no additional cost. The PSC established guidelines concerning what type of data utilities could charge for, and made it clear that utilities cannot charge customers for accessing, or giving others access to, their data. In the future, as Advanced Metering Infrastructure is deployed throughout the state, more New Yorkers will gain timely access to their electricity use data, empowering them to save energy and money.

The Order recognizes the value of timely access to electricity data and establishes a number of guidelines for utilities and customers alike.

For individuals and organizations already taking an active role in managing their energy use and the associated environmental outcomes, these changes are a beacon of hope. They are a clear statement that New York is serious about addressing barriers that have hindered progress in other states. The Order also opens the door for cleantech businesses to invest in the state, knowing that these barriers are being removed, and new opportunities created.

EDF has long called for action to transition away from the traditional model – in which utilities are paid to build increasingly more energy infrastructure – to one where utilities are compensated based on their ability to save customers energy and money instead. We will continue to advocate for more measures that allow REV to flourish and lead to a cleaner, more resilient electric grid benefiting all new Yorkers – now and in the future.

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  1. Posted June 3, 2016 at 3:57 pm | Permalink

    Looks like a cleaner grid and a clearer picture are possible for New York’s energy prospects. We now have the opportunity to convert public and community participation into actionable projects and palpable economic and environmental gains. Thank you for your vigilance !

  2. Bob Meinetz
    Posted June 4, 2016 at 1:01 am | Permalink

    Rory, if utilities will be compensated “based on their ability to save customers energy and money”, I guess customers won’t be doing the compensating. Who will? Taxpayers? Santa Claus? And just how are customers supposed to “save energy” – with batteries?

    I realize these dimwitted platitudes might encourage dimwitted readers to send EDF money, but really – EDF’s presentation would be less embarrassing given by someone with a rudimentary understanding of utility economics and energy.

  3. Bas
    Posted June 5, 2016 at 10:37 am | Permalink

    These are only half measures, confirming the backwards electricity infra-structure in USA.. The real step forwards is free competition allowing new entrants, as shown in NW-Europe.

    Even here in NL consumers can choose between ~20 utilities who are eager to supply electricity. Some offer 100% renewable, etc.
    These new entrants in the market caused sharp competition with substantial price decreases! And choice for consumers about e.g. what type of generation they want to support (nuclear, renewable, wind by farmers, etc), whether they buy from a cooperation, etc.

    • Rory Christian
      Posted June 13, 2016 at 3:57 pm | Permalink

      It’s certainly not a silver bullet, but it’s definitely a step in the right direction toward increased competition and greater customer choice.

  4. Bas
    Posted June 5, 2016 at 10:50 am | Permalink

    BTW. There is a 5 year smart metering rollout project in NL
    Everybody will have a smart meter in 2020 allowing: TOU metering, real time consumption on apps, FiT’s with different tariffs depending on … allowing virtual power plants, etc.

    • Rory Christian
      Posted June 13, 2016 at 4:03 pm | Permalink

      What you describe sounds similar to recent developments in New York State. ConEd has a smart meter rollout that should conclude in 2022, and I’m certain most of the other New York utilities will follow. Can you direct me to anything describing the plans for meters in The Netherlands?