{"id":13440,"date":"2016-06-27T09:12:10","date_gmt":"2016-06-27T14:12:10","guid":{"rendered":"http:\/\/blogs.edf.org\/energyexchange\/?p=13440"},"modified":"2016-06-27T09:18:48","modified_gmt":"2016-06-27T14:18:48","slug":"new-yorks-standby-tariff-standing-in-the-way-of-distributed-energy","status":"publish","type":"post","link":"https:\/\/blogs.edf.org\/energyexchange\/2016\/06\/27\/new-yorks-standby-tariff-standing-in-the-way-of-distributed-energy\/","title":{"rendered":"New York\u2019s Standby Tariff: Standing in the Way of Distributed Energy?"},"content":{"rendered":"

\"AeonSolarcityview\"Late last month, New York took a major step toward rethinking utility economics when it issued<\/a> the \u201cOrder Adopting a Ratemaking and Utility Revenue Model Policy Framework\u201d (also known as Track 2 Order). This action aims to better align New York\u2019s electricity system with\u00a0Reforming the Energy Vision (REV)<\/a>, the state\u2019s initiative to transform the electric grid into a cleaner, more efficient, and affordable system.<\/p>\n

But buried in this 180-plus page document is another important development for New York\u2019s clean energy future: Nearly 10 pages are dedicated to re-examining the state\u2019s controversial standby tariff.<\/p>\n

Frequently cited as a major obstacle to distributed power generation (e.g. combined heat and power (CHP) systems, rooftop solar panels, energy efficiency, and storage), the standby tariff is a special electricity rate charged to large commercial and industrial customers who produce some of their own electricity but remain connected to the grid. While utilities say they need standby tariffs to recover the costs of maintaining a reliable electric grid, many potential and existing large electricity customers producing their own power see standby tariffs as perversely designed to undermine the business case for distributed generation.<\/p>\n

Unless the standby tariff is fixed in a manner that clears the way for investment in customer-owned and sited distributed generation, it will be hard to make REV\u2019s revolutionary vision for a decentralized, competitive electricity market a reality.<\/p>\n

The argument for standby tariffs<\/strong><\/p>\n

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In their argument for standby tariffs, utilities say they must recover not only their ordinary costs of distributing electricity, but also their incremental costs of maintaining the reserve electricity needed in case customer generators break down and need to draw more electricity from the grid. Additionally, utilities argue the standby tariff protects non-power-generating customers by ensuring reserve-electricity costs are not shifted from the power-generating customers to non-power generating customers. \u00a0The utilities claim that absent a standby tariff, there would be an unfair subsidy for large customers who choose to generate their own electricity.<\/p>\n

But the standby tariff must be viewed in the context of how conventional, regulated utilities have made money for more than 100 years. Unlike just about every industry in our economy, utilities and their investors are guaranteed above-market rates of return on capital investments, such as new power plants, transmission lines, and distribution facilities. Since distributed generation lessens the need for investment in these types of facilities, utilities have scant incentive to encourage its adoption. Hence, the widespread skepticism on the part of large electricity customers producing their own power.<\/p>\n

Con Ed\u2019s standby tariff critics<\/strong><\/p>\n

The potential and existing large energy consumers who own and operate distributed generation, notably New York City\u2019s real estate developers and their trade association, the Real Estate Board of New York, have been among the most vocal and persistent critics of Con Ed\u2019s standby tariff.<\/p>\n

In fact, the Durst Organization, a prominent New York City real estate developer, announced<\/a> in January that its Hallets Point residential project slated for development in Astoria, Queens would generate all of its own electricity, and not connect to the grid. This announcement was widely viewed as a reflection of the Durst Organization\u2019s prior disputes with Con Ed over the standby tariff.<\/p>\n

At a panel discussion on standby tariffs convened by the Public Service Commission (PSC), New York\u2019s utility regulator, in late January, the concerns voiced by representatives of large energy consumers fell into four broad categories:<\/p>\n