June 7, 2016

New NY PSC Order Could Impact C&I Customers

By Edison Energy

Latest NY PSC Order Dealing with Utility Rate Recovery Will Affect Businesses

On May 19, the New York Public Service Commission (NY PSC) entered an Order Adopting a Ratemaking and Utility Revenue Model Policy Framework (hereafter “the Order”).  Download the Order here

The Order is an important second part of the NY Reforming the Energy Vision (NY REV) process which has a goal of “growth of a retail market and a modernized power system that is increasingly clean, efficient, transactive and adaptable to integrating and optimizing resources in front of and behind the meter.”  Order, p.2

Previously, the NY PSC had entered an Order in February 2015 which proposed a dramatic restructuring of the way utilities provide services to the modern grid. The goal of the February Order was to create the concept and role of Distribution Service Providers that moves utilities away from owning and creating all distributed energy resources (DER) and instead, allow market-based third party providers to create direct relationships with customers to provide DER to the grid — this was what the new Vision would look like. The May 19 Order focuses on an important second part — how utilities will make money under the new paradigm.

NY PCS Order Could Impact Commercial and Industrial Customers

While many commentators have rightly focused on what the Order means to utilities, the purpose of this blog post is to look at the Order for what it may mean to commercial and industrial (C&I) customers.

The NY PSC Order stated that with these new rate types it is following certain key principals that affect rate-paying customers:

“First, the unidirectional grid must evolve into a more diversified and resilient distributed model engaging customers and third parties.  Second, ensuring universal, reliable, resilient, and secure delivery service at just and reasonable prices remains a function of regulated utilities.  Third, and critically important to this order, the overall efficiency of the system and consumer value and choice must be improved by achieving a more productive mix of utility and third-party investment.” Order, p.2

The NY PSC staff has classified customers into three segments. As a C&I customer, which of these classifications best describes you?

  • Traditional consumers — those customers who do not choose to actively manage their energy usage, or for whom it is difficult to do so;
  • Active consumers — those customers who undertake DER measures that allow them to actively modulate their usage in response to rate signals with the purpose of reducing their bills; and
  • Prosumers — those customers who install or participate in DER including generation or other technologies that allow them to provide services to the grid. Order, p.17

Our analysis of the trend-line and framework indicates that eventually all customers will need to become more “prosumer” than “traditional.” While the NY PSC is taking pains not to “force” customers to do something, they are putting into motion forces that will require customers to participate to a greater degree in maintaining the grid than before. For example, the NY PSC also wants rates for customers, including C&I customers, to become more “granular.” The dimensions of granularity are temporal i.e. different prices at different times of the day, and locational i.e. different pricing depending on where the customer is located on the grid and the ease or difficulty in serving the facility at that particular point. And finally, more granular in “attributes” i.e. breaking out each component service that customers receive rather than having them bundled as they are today.

The drive for finer granularity presents an opportunity for achieving greater efficiency and cost saving for customers. Conversely, failure to act can leave companies at a competitive disadvantage and increase costs. The days of everyone being treated equally with a flat rate for energy usage are over. Deploying a demand response system allows you to push energy usage to a time when rates are lower. If your competitor is doing this and you aren’t then you are not only paying more for your energy than your competitor, but you are also at a competitive disadvantage by having to carry those higher energy costs.

What’s clear from this is that the pace and complexity of regulatory change and the resulting impact on large energy users is rapidly increasing.

“While we will remain pragmatic in our approach, we also emphasize that a customer’s relationships to their use of energy is also growing more complex driven by changes up and down the energy value chain. As the Framework Order explained, the need to develop a demand-responsive, climate-friendly, information-centered electric system does not afford us with the luxury of time.  With billions of dollars of infrastructure investment impending, as well as carbon reduction requirements and rapid improvements in customer-side technology, the historic pace of regulatory change is inadequate. Recent developments in this and other industries demonstrate that slow and deliberate progress is not always an option and may no longer be acceptable.” Order, p.25 (emphasis added)

Managing this growing complexity can be challenging for many C&I customers and they may be better served by working with a trusted energy advisor who has the breadth of experience in both quickly changing regulatory policies and the knowledge of new energy technologies to more effectively manage their energy resources throughout their enterprise.