As REV finally begins to kick off this year, it is still unclear what role traditional energy providers will play in this restructuring of the utility industry. Although this question has been asked repeatedly of the New York Public Service Commission (PSC), no answer has been provided. This is the first of a series of posts that will attempt to clarify the issue. This post will provide a brief synopsis of the REV proceeding’s thus far and outline the different tracks into which REV has been divided. The next post in the series will delve deeper into REV’s second track and the agenda for 2016.

REV was born out of a December 23, 2013 order by the New York Public Service Commission (PSC) and a subsequent Staff Report and Proposal detailing implementation of the REV plan.  Reforming the Energy Vision (REV) entails a total reconfiguration of New York’s energy markets by changing the way electricity is distributed and used in New York State through a reformation of industry and regulatory practices.  REV aims to incorporate new technologies into existing infrastructure and to enable customers to better manage and reduce their energy costs by enabling participation by both companies and customers in the retail market.  REV also aims to integrate new electricity resources into the grid to ensure reliability and efficiency.

In an April 24, 2014 proposal, the PSC carved out a new role for regulated utilities as “Distribution System Platform (DSP) Providers” which would both coordinate and facilitate various distributed energy resources (DERs) on the grid.  In essence, the PSC hopes to totally reconfigure the utility business model so as to better integrate DERs from third-party providers by encouraging utility companies to consider DERs as an alternative to traditional industry investments.  This would be accomplished through the coordination of a wide range of DERs to manage load, optimize system operations, and enable clean distributed power generation.  A combination of markets and tariffs would both empower and encourage customers to optimize their energy usage while both reducing their electric bills and spurring innovation within the industry.

Given its expansive nature, the REV docket was separated into two tracks.  Track One focuses on the development of distributed resource markets and the utility as the DSP providers.  Track Two focuses on reforming utility ratemaking practices and revenue streams to incorporate DSPs into the existing utility market.  Both tracks will rely on pilot projects proposed by New York utilities, which will be used to gauge the viability of different implementation measures.

Track 1:

Track One contains the “Vision” component of the REV proceedings.  Its focus is on developing the structure of the new utility market, including distribution system operation and issues relating to the ownership of distributed energy resources.  Track One grants electric utility companies the role of DPS, which would provide a technology platform and marketplace allowing distributed energy resources, to compete fairly with the utilities’ own distribution infrastructure.  When deployed at scale, distributed energy resources could serve as an alternative conventional grid upgrades.

In January, certain utilities filed reply comments on the proposed DSIP guidance and other stakeholder responses to it.  Although more than 200 stakeholders are involved in the REV docket, only a fraction filed reply comments.  However, those that did highlighted the need to resolve an existing friction between the utilities, environmentalists, and DER providers.

Track 2:

While Track One of the REV docket focuses on the logistics of converting traditional utilities into DSP providers, Track Two aims to align financial and ratemaking incentives so both utilities and third parties benefit from providing customers enhanced value through DERs.  To better align these incentives, regulators have proposed business model reforms including the use of market based earnings (MBEs), incremental ratemaking reforms to the utility revenue model, and rate design reforms to reflect the needs of the evolving marketplace.  Regulators emphasized that MBE’s will not be enough to realize the goals of REV; rather utilities will also need incentives to invest in DERs over other, more traditional grid projects.  Regulators hope to move utilities away from traditional cost-of-service ratemaking and toward performance-based rates through the use of Earning Impact Mechanisms (EIMs). EIMs would allow utilities to earn revenue for peak demand reduction, efficiency, customer engagement and the like.  Over time, regulators anticipate MBEs supplanting some or all of the EIMs, as part of an overarching REV goal to shift utilities toward economic incentives, rather than regulatory ones.

Thus far, REV has received overwhelmingly positive responses from energy stakeholders within the state of New York.  However, it is still unclear exactly what role these will stakeholders will play in the REV regime and how the program will promote DERs without undermining traditional utilities.  Furthermore, most of the action taken thus far in implementing REV has been preparatory and opinions may shift as Track One really kicks off later this year.