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New York Explores a “Fundamental” Restructuring of Electric Utilities

By: Wilbur C. Earley |

What is the structure and role of the utility of the future? New York is initiating a regulatory process to begin answering this question.

New York is considering “a substantial transformation of electric utility practices” to improve efficiency, empower customer choice and encourage greater penetration of clean generation and efficiency technologies, according to the NY Public Service Commission. In an April 25, 2014 order, the agency launched an initiative to consider “fundamental changes” in the way electric utilities provide service, aimed at least in part toward reducing peak demand and encouraging behind-the-meter resources as ways of both reducing the substantial investment that would otherwise be needed in remote generators and delivery infrastructure and mitigating the vulnerabilities of the distribution system to increasingly severe weather events.

The PSC’s order includes a Department of Public Service staff report, Reforming the Energy Vision, that will serve as the basis for collaborative discussions with stakeholders. The report suggests that today’s distribution utility should serve as a Distributed System Platform Provider. A DSPP would actively manage and coordinate distributed resources and provide customers and resource providers with an improved electricity pricing structure and market. Distributed resources will be reevaluated to determine how demand management can be used not as a last resort but rather as a primary tool, and distributed grid architecture will be examined to determine how to fully integrate energy-consuming equipment as well as distributed generation and storage into grid management. The function of the DSPP would be complemented by competitive energy service providers who will expand their business models to participate in distributed energy resources markets coordinated by the DSPP.

The staff report asserts that the current ratemaking paradigm provides few incentives for utilities to innovate or support third-party innovation and falls short of the pace of technology development that defines many parts of our economy. Accordingly, the DSPP will create markets, tariffs, and operational systems to enable behind the meter resource providers to monetize products and services. The DSPP will enable the adoption of information technology and real-time information flow among market participants and establish a platform to support demand-side markets and technology innovation. The report says that pricing structures will allow for large scale deployment of clean distributed resources, including energy storage that complements renewables.

Supporting the PSC’s initiative, NY Governor Cuomo said the initiative is “taking a giant step from the status quo and leading the way on energy modernization. …By introducing and embracing information technology and clean energy solutions, millions of New Yorkers will benefit from a 21st Century power grid, enabling them to better manage and reduce their energy costs while protecting and preserving the environment.”

Stakeholder discussions on the “Reforming the Energy Vision” initiative are proceeding on two parallel tracks: one focusing on DSPP issues noted in the staff report and the other on regulatory changes and ratemaking issues. The PSC has set an ambitious schedule for moving things along: a status report from the first track and a straw proposal from the second are due in July, and the commission expects to make generic policy determination on regulatory design and ratemaking issues in the first quarter of 2015.