New York Takes a Major Step toward Rethinking Utility Economics

Throughout 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.

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.