Over the last two years, the New York Public Service Commission (NYPSC)—which is similar to Massachusetts’s Department of Public Utilities—has been conducting an exercise that contemplates fundamental change in the way electric distribution companies should function, make money and correspondingly be regulated by state government.
The effort has been aptly named “Reforming the Energy Vision (REV)” and has been closely watched and debated across the country among many players in the energy world. NYPSC’s recent order (all 170 pages) is reminiscent of the epic works that the California Commission issued in the mid-1990s about restructuring the electric industry to allow for customer choice and retail competition. Those missives stimulated debate and robust dialogue, leading to the solutions that achieved the goal of retail competition in many states, including Massachusetts.
This NYPSC order is well written, thoughtful, practical and should be read by every state public utility regulatory commission in the country as guidance toward creating a 21st-century electric delivery system that can support rapidly advancing technology, the explosion of distributed generation and the need to address climate change even more effectively and efficiently at the lowest possible cost.
The order debunks many myths and challenges the outmoded utility thinking that customers are the only substantial source from which to recover costs, that customer demand is largely uncontrollable and drives all capital investment and that reliability mandates large expenditures to balance supply and demand with redundancies. The order also lays out a plan to move utilities away from traditional cost of service cost recovery and, at the same time, creates a platform for the growth of new services and technologies that unleash the potential for market driven solutions for the operation of the system and for new and expanded customer services.
The NYPSC’s vision for the future recognizes its own need to change, stating:
“… the Commission will need to adopt a new approach to its own exercise of authority. Rather than specifying or pre-approving all of the actions it believes need to be taken, the Commission will allow markets to bring forward the best options to achieve the broad policy objectives identified by the State.”
How could some of this play out in Massachusetts?
As we have suggested here in the past, the distribution companies (LDCs) could play a more active role in facilitating the interface between distributed generation (DG) and the grid operator, ISO-NE. They could generate revenue in that role and, at the same time, increase the value of the DG resources to the system. To date, they’ve either refused or demanded “full cost recovery” in doing so. Under the REV approach, LDCs would be required to figure out ways to make money and offset their costs. That is a very different paradigm.
As Massachusetts takes up the grid modernization plans filed by the utilities last August, it would behoove us all to look at them through the lens of the REV vision and make sure the regulatory tools are in place to build a utility for the future. It does little for customers or our system to just keep adding new bells and whistles to our outdated distribution company construct.