In January 2013, the Edison Electric Institute—the leading advocacy group of the investor-owned utility industry—released a report predicting “significant future disruption to the utility business model,” thanks to growing adoption of distributed generation resources. Now, a new proposal from New York’s Public Service Commission (PSC) defines this “disruption,” outlining what a new relationship between utilities, regulators and consumers might look like, and it could become a New York state law within the next couple years. According to one regulatory expert, other states could follow New York’s lead in the not-too-distant future.
In its proposal, “Reforming the Energy Vision,” New York’s PSC argues that the Empire State needs to re-evaluate the electric utility’s role, from the current one-way provider of electricity and the substations, transformers and wires needed to deliver this commodity, to a market manager of all available power resources. Those resources might be wholesale electricity produced by traditional bulk-power generators (such as large natural gas-fired power plants) or, equally, solar panels on a customer’s rooftop or even the battery-powered automobile plugged into a customer’s garage. The report’s writers call such service-oriented utilities distributed system platform providers (DSPPs).
While such language might sound like technocratic jargon, the vision the document presents is actually pretty revolutionary. By calling these DSPPs “aggregators of aggregators,” this proposal implies local distribution utilities would become, in effect, localized independent system operators, performing functions very similar to those of the statewide New York Independent System Operator (NYISO).
“The DSPP will serve as the local balancing authority, forecasting load and dispatching resources in real time to meet customer needs and balance supply with load in real time to maintain reliability,” the report states. “In taking on the role of DSPP, the distribution utility expands its function from being a physical conduit for delivery of electricity, to also being a transactional platform for a distribution-level market.” So, instead of being just a sales clerk, the utility would become the market, itself.
New York’s situation is somewhat unique in two ways. First, it’s one of 10 states (plus Washington, D.C.) in which electricity markets are fully deregulated, meaning local distribution utilities buy the electricity they sell to consumers in open auctions, rather than produce it with company-owned distribution assets. Second, New York is one of only three states (along with California and Texas) with its own energy marketplace or independent system operator (ISO). Other states participate in larger regional ISOs. These factors make it easier for New York regulators to suggest changes that could affect utilities and the statewide market for electricity.
While New York may be in a unique position, Rob Thormeyer, spokesperson for the National Association of Regulatory Utility Commissioners (NARUC), believes conditions are rife for reconsidering the regulatory status quo across the country. His group doesn’t comment on specific regulatory proceedings, but Thormeyer sees a confluence of regulatory and reliability issues occurring across the country that have regulators reconsidering traditional business models in states operating with a range of market structures.
“You have new rules coming from EPA that are going to transform the electric utility sector,” he said, referring to regulations anticipated this summer that could force the shutdown of multiple aging coal plants. “You also have a recognition that severe weather events are going to become more frequent. You have states like New York, Pennsylvania, Virginia and Maryland that are dealing with weather that more frequently hits Texas.”
It’s not just the weather that has infrastructure experts concerned. Like many of the nation’s highways and bridges, a number of transmission and distribution systems are showing signs of age, just as traditional rate-based cost-recovery arrangements are being called into question. While age doesn’t necessarily negate safety, increased maintenance expenses (along with demands for “smarter” systems) can make replacement the logical option—if regulators can figure out how to pay for the upgrades.
“The commissioners try to keep the rates as reasonable as possible, so customers don’t get slammed,” Thormeyer said. “If this had been 30 years ago, the answer would have been simple; you just go out and replace those power lines.”
The New York report could start affecting the state’s energy market very soon, as policy proposals could start rolling out as early as the end of this year. Thormeyer expects regulators in other states won’t be far behind. NARUC held its first education session on the impact of distributed generation at an annual convention several years ago. It attracted an overflow crowd, and interest has only grown since then.
“It’s a conversation that’s happening across the country,” he said. “You’re going to have some states that step out in front, and that’s just like it’s always been.”