Now well into 2015, momentum is building around the country to create a 21st Century electricity system. Progress is being made on the regulatory front and with implementation, as various states move to modernize their grids, update their regulatory frameworks, and address the challenges and opportunities that come with wider deployment of distributed energy resources (DER), electric vehicles, renewable energy, and broadly speaking, a smarter grid. New York and California are two states that are leading the way. AEE, the AEE Institute, our member companies, and our state and regional partners are deeply involved.

New York State moves toward a Distributed System Platform. On February 26, the New York Public Service Commission (PSC) issued its much anticipated order in Track One of the “Reforming the Energy Vision” (REV) proceeding. This order lays out the policy framework that will define the new regulatory compact and sets out an ambitious schedule for implementation. The Track One order clearly articulates the vision and direction of the PSC in creating a Distributed System Platform (DSP) whereby utilities will create and operate a modern, customer-focused, flexible grid that can accommodate high levels of DER, including energy efficiency, demand response, energy storage, onsite solar, wind, fuel cells and other distributed generation, to meet both customer and system needs. The following excerpt from the order encapsulates the PSC’s efforts to “reorient both the electric industry and the ratemaking paradigm toward a consumer-centered approach that harnesses technology and markets”:

In almost every aspect of the retail economy, consumers have access to information that provide them the ability to easily locate products and services of interest and to compare and contrast providers. From airline tickets, to cars, to housing, clothing, restaurants, and potential spouses, the digital economy is resplendent with platforms that provide consumers with transparency and choice... In the energy industry, much of this competition for retail sales is still accomplished by door-to-door sales or marketing techniques that too frequently annoy rather than serve consumers.

Beyond articulating a bold vision of the future, the order clarifies important aspects of REV, such as the expectation that utilities will incorporate energy efficiency more directly in their planning and operations and the PSC’s plans for streamlining interconnection requests and increasing the limit for standard interconnection from 2 MW to 5 MW. The order also drew clear boundaries limiting regulated utility ownership of DER assets - instead, the utilities will be responsible for creating the DSP, whereas customers and third-party providers will be the ones to deploy and own most of the DER.

These and many other aspects of the Track One Order were well aligned with the positions taken by AEE Institute (AEEI) and its partners, the Alliance for Clean Energy New York and the New England Clean Energy Council (see table below and a more detailed comparison here). AEEI comments were cited more than 70 times in the order, which also referenced our Benefit-Cost Assessment Framework report, prepared by Synapse Energy Economics. But the order also left a lot of details to be hashed out in Track Two, a new track addressing large-scale renewables, various working groups, and various REV-specific utility filings and future utility rate cases. So while we are pleased with the Track One Order, there remains much work to do. If you’ve got some time on your hands, you can read the entire 300+ page order here.

Topic	Track One Order - Summary	Alignment
Market Framework	Adopted DSP with three functions: integrated distribution planning; grid ops & market ops	˜High
Utilities as DSP	Utilities to serve as DSP, but need to meet performance metrics	˜High
Info & Customer Engagement	Utility system info to be provided to third parties; Staff to explore single uniform platform for retail access and REV-enabled products and services.	˜High
Utility Engagement in DER	Limited regulated utility DER ownership; Affiliate ownership unrestricted outside territory but subject to monitoring & codes of conduct inside territory	˜High
Utility Energy Efficiency Programs	2016 utility targets and budget at 2015 levels; utilities to file 3-year rolling Efficiency Transition Implementation Plans; Transition from “resource acquisition” to market-based approaches	žMedium
Large Scale Renewable Resources	Not directly addressed in order – new track created to address this in 2015	šLow
Interconnection	Increase cap to 5MW, online applications, timely approvals & standard contracts	˜High
Platform Comms & Metering	Concur on concept of “advanced metering functionality with cost allocation dependent on where the benefits accrue (e.g., system vs. customer); Customers can opt-out	žMedium- High
Security	Privacy concerns integral to DSP operation; but PSC will have jurisdiction over ESCO/DER providers if national standards inadequate	žMedium- High
Customer Protections	Where markets are created by PSC and managed by DSP, some circumstances exist where PSC supervision over DER providers will be necessary	šLow
Microgrids	Many configurations possible – some may fall under Public Service Law (i.e., third parties take on utility obligations); Microgrids should have islanding capability	žMedium
Demonstration Projects	Utilities directed to engage third parties; cost recovery allowed (subject to cap)	˜H
Benefits and Costs	Benefit-cost framework will evolve over time; informed judgment important	žM

Convening for action in California. While New York is arguably taking the most ambitious, comprehensive approach to utility market reform, California has been at it longer and is pursuing many aspects of utility market reform, although not in a single proceeding. Instead, California has addressed, through multiple proceedings, matters such as smart grid deployment, energy storage, demand response, redesigning residential rates, and more recently, utility deployment of electric vehicle charging infrastructure and development of “distributed resource plans.” These DRPs are designed to produce results similar to REV:

1. modernize the electric distribution system to accommodate two-way flows of energy and energy services throughout the IOUs’ networks;

2. enable customer choice of new technologies and services that reduce emissions and improve reliability in a cost efficient manner; and

3. animate opportunities for DERs to realize benefits through the provision of grid services.

These proceedings, taken with California’s aggressive energy efficiency and renewable energy goals, are putting the state on a path toward creating an electricity system that will look very different 10 to 20 years from now.

The changes taking place in California can create new challenges for the grid, such as the potential for overgeneration (too much renewable energy generated at times when it cannot be put to use) that could lead to curtailment of output from renewable energy plants, wasting the resource and undermining the economics. There is also the so-called “duck chart.” which highlights the need for increased flexibility of dispatchable resources to provide faster ramp rates, for example, when solar output falls with the setting sun. But these problems are manageable and can be solved by the suite of advanced energy technologies covered by the various proceedings. As is often the case, California is taking the lead in moving us towards a modernized electricity system.

AEEI recently played its part in moving this process forward when it convened a one-day meeting of C-suite executives of advanced energy companies and California’s investor-owned utilities. The goal of the CEO Forum, the seventh in a series hosted by AEEI, was to develop a common inventory of the drivers of industry change and examine utility business models and regulatory concepts that can adapt to the emerging environment, especially to facilitate innovation. If one compares California to New York, it is clear that California, despite being further along in the process, is also pursuing its policies in a more piecemeal fashion. Our CEO Forum brought stakeholders together in an effort to look at the process more holistically. As a follow-on to the Forum, we will be developing a white paper that outlines a shared set of guiding principles and long-term vision, and that also lays out steps for moving towards that vision in a more coordinated fashion.

New York and California are not the only states moving forward with utility market and regulatory reform. In Massachusetts, utilities are preparing grid modernization plans as part of an ongoing proceeding. In Hawaii, where the penetration of distributed solar is higher than anywhere else in the country, the PUC continues to push its utility down the path to a distributed grid. In Minnesota, the e21 initiative is beginning to define what the utility of the future could look like in that state. These are just three more examples. Other states are also beginning to explore what it will take for them to create a 21st Century Electricity System. Stay tuned.