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NEM, RESA worry New York REV missing mark

Utilities may get too much power in DER market

Rockville, MD (November 2, 2015) –The National Energy Marketers Assn (NEM) and the Retail Energy Supply Assn (RESA) had some similar messages for the New York PSC in separate comments on its Reforming the Energy Vision (REV) proceeding. The commission is now weighing a staff whitepaper on utility rate designs to make the vision a reality and both retail market groups argued that any changes need to be competitively neutral.

The REV seeks to turn utilities into "distribution system platforms" (DSPs) to help roll out distributed energy resources (DER). To do that, utilities' rates have to change because increasing efficiency, DR and DG undermines the way they have historically made money.

The main way the staff proposed of doing that was to give utilities acting as DSPs "market-based earnings" (MBEs), meant to give the utilities an incentive to support DER investments.

But NEM is concerned the reforms will not give utilities the needed incentives to optimally perform as DSPs that promote the offering of DER products by retailers and other competitive entities.

"Achieving REV goals may indeed require changes to existing ratemaking mechanisms and models," NEM said. "However, it is unclear whether the proposed model, under which ESCOs and other (DER providers) provide a new revenue stream to utilities in the form of a new market-based earnings mechanism, is appropriately targeted to achieving those goals."

The REV goals of higher efficiency, reliability and security will benefit all customers, whether they actively engage in DR offerings or not. That means putting the costs of facilitating the new market structures entirely on DER customers and their providers, discouraging them from using the DSP platform, NEM said.

It is entirely unclear what the utilities will be doing differently than they are now, it added. Whether that platform will become a mandatory gateway to selling customers DER-type products, which is already happening now, is still not clear.

QUOTABLE: Clarification should be given as to whether the platform will function to make it easier for ESCOs and other competitive entities to link with prospective customers. Finally, it must be made clear that the platform will not improperly serve as a vehicle for the utility to market its own services. – NEM in comments filed at the New York PSC

Utilities should not be offering competitive DER products, nor offering energy services financing related to their provision of competitive DER products, NEM said.

Staff's whitepaper suggested a way of paying DER – LMP plus "D" for the distribution costs. NEM supports figuring out the proper value DER provide to the system and paying that.

The paper also suggested a phase-in rate, on a voluntary basis, for the mass market called the "smart home rate" to unbundle the different costs of retail power and include significantly more temporal granularity. NEM agreed transparency in utility rates is paramount, but it argued that such innovative rate designs should be offered by competitive retailers.

Utilities should not use such rate structures as a gateway to offering behind-the-meter services, NEM said.

RESA agreed the smart home rate should be the exclusive province of competitive retailers with utilities acting as the DSP to facilitate the use of such new products. The PSC should also be mindful that the expansion of DER could create an unfortunate scenario where one segment of customers, who cannot or will not take part, ends up shouldering an ever-increasing revenue burden, RESA cautioned.

That would create ongoing uncertainty of the financial stability of the utility rate structure and its ability to maintain reliability, it added.

New York's utility rates change monthly and often include one-time and out-of-period charges. They also incorporate monthly and annual adjustments to true up the recovery of related commodity costs that were over- or under-collected earlier, RESA said.

That makes them a delayed reaction to what is actually happening at the wholesale level, while it is vital that consumers be more aware of actual market conditions so they can see the value of DER and thus be much more likely to take part.

How a DER investment helps at peak times with their higher prices can be a key factor in a consumer decision to invest, so if prices are masked during those critical periods, customers could just decide to opt out, it added. Customers realizing the benefits of their actions is critical and dynamic pricing would help with that.

Unfortunately, the whitepaper did not address or discuss that critical problem, RESA said.

QUOTABLE: All of the commission's desired aims are contingent upon providing consumers with transparent rates, prices and value which accurately reflect and mirror the real costs and benefits associated with their contemplated acquisition of DER products and services. – RESA in comments files at the New York PSC

"Unfortunately, the extant structures and practices governing utility rate development and calculations preclude the presentation to customers of accurate and transparent price signals."

This story was originally published in Utility Markets Today (http://ow.ly/U9eIN) on October 27, 2015 and has been slightly edited for this format. To read more articles like this one, sign up for a Free Trial to Utility Markets Today.

UTILITY MARKETS TODAY is published 245 times per year on business days by Modern Markets Intelligence Inc. UMT's mission is to deliver exclusive news chronicling ongoing efforts to build competitive wholesale and retail energy markets with in-depth analysis on why some fail and others succeed.

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