Inside the REV: Audrey Zibelman's bold plan to transform New York's electricity market
New York’s head utility regulator tells Utility Dive why the status quo isn't working—and why that's an opportunity for utilities
Few people have the power to shape the makeup of the electricity system like a regulator.
Well, Audrey Zibelman is not just any regulator.
As the chairwoman of the New York Department of Public Service, Zibelman is pioneering what is perhaps the most significant overhaul of the electricity sector since deregulation in the 1990s.
Known in the industry as the REV—short for Reforming the Energy Vision—the ambitious regulatory proceeding aims to “animate the markets,” as Zibelman repeatedly emphasized at the Solar Network Summit last week in Washington, D.C.
Zibelman herself is no stranger to “animating the markets.” At the height of deregulation, she famously helped create the first wholesale markets in the U.S, helping turn the PJM Interconnection from mere idea into one of the single largest grids in the world.
The REV is a logical extension of the evolution that started with deregulation in the 1990s, Zibelman told Utility Dive in an interview. But Zibelman wants the REV to move faster than deregulation.
“Unlike the wholesale markets, where there were actually a number of market players who had a lot of independent generation, we don’t even have what I would call the asset base for distributed resources—yet,” Zibelman said.
New York intends to animate the market for distributed resources by sending economic signals such as tariffs, “just like demand response at the wholesale level,” Zibelman said at the conference. These tariffs will seek to tap into customer-sited resources such as energy storage, electric vehicles, demand response, and rooftop solar.
What's most critical to Zibelman is the creation of liquidity and transparency in the marketplace, as well as erasing barriers to entry. “Regardless of whether it’s one distributed platform provider or multiple utilities,” she said, “I want—from the customer-facing and market-facing approach—for everything to be very consistent.”
Unpacking the value of demand
One of the most radical ideas in the REV is that New York is having demand—as opposed to generation—be the state’s primary energy resource.
“Rather than demand being the last resource you manage in the system, it’s the first resource,” Zibelman said. “Demand can respond much more quickly than any other resource.”
Like many other regions in the country, New York has slowing overall demand for electricity, but a growing gap between peaks and non-peaks, which diminishes the overall efficiency of the electricity system.
A focus on managing demand will drive system efficiencies, create economic value for cleantech, and help meet state renewable energy targets and federal environmental regulations, according to Zibelman.
For Zibelman, the future of the grid is that “demand itself becomes highly flexible and manageable” through the deployment of distributed energy resources and the Internet of Things. In order to achieve that future, Zibelman wants to unbundle the integrated price of electricity and “make sure the information is out there.”
While utilities have historically condemned energy efficiency, that is down to the regulatory model, according to Zibelman.
She wants to move the earnings component of utilities’ returns to be tied to driving efficiency. “If you create a more efficient system, the total bill price goes down [for the consumer],” she said. “Like other firms that get rewarded for creating greater system efficiencies [and] productivity, utilities should be rewarded for that.”
Utilities are very effective at maximizing profits given their regulatory environment, she said. If they can profit from driving efficiencies in New York, they will find a way.
“Every other industry has taken a look at the ability to become a more productive developer and financer of the good as an economic value-add to consumers,” she added. Until now, “we haven’t figured out a way to economically reward utilities becoming more productive.”
That’s what the REV is all about, she told Utility Dive—taking utility regulation into the 21st century, aligning business models with societal goals, and rewarding productivity instead of growth.
The opportunity for utilities
One can imagine that many utilities would be reticent to sell less of their product, but Zibelman believes that there are three new significant opportunities for utilities.
The first opportunity for utilities is to develop the distributed system platform upon which all these emerging technologies will rely. The utilities will be the network aggregators and orchestrators under such a scenario. The utilities would be able to “take a piece of the revenue requirement” through the regulated services provided by the distributed system platform, Zibelman said.
The second opportunity is the opening up of “a fairly robust retail market” that utilities’ non-regulated subsidiaries can also compete in.
“If you think about a platform company like Google, Google charges for information. I’m not talking about individual consumer information, but market value information,” Zibelman said. “That’s something they could do along with a third party firm, so it wouldn’t necessarily be a regulated service.”
And the third is the potential to procure distributed energy resources directly and share in the earnings and savings.
For example, ConEd has been seeing 2-4% load growth in Brooklyn and Queens, and saw the need to build a $1 billion substation to meet that growth. Zibelman and her fellow New York regulators looked at the proposal and wondered if there was a way to manage demand and reduce or delay the need for the substation. The commission asked the utility to reconsider its approach. ConEd then came back with a request for inquiry for 52 MW of customer-side and utility-side demand solutions by 2018.
"What's different—and I think this is what's going to be different in the future—is that this wasn't a utility who [designed the solution, issued a tightly-defined RFP asking for specific resources, and sited them]. Rather, they just went out and said, 'We need 52 MW of demand reductions over the next several years. Market, come at us,'" Zibelman said. "As a result, we're getting incredibly innovative solutions. Because rather than a bunch of regulators and utility engineers sitting there saying, 'We know best,' we're asking the market. We're saying, 'We have a problem. Can you solve it?'"
While promising, Zibelman acknowledged that procuring distributed resources is certainly “a different revenue model” for utilities. The REV will incentivize customers, utilities and solar companies to help deploy solar in places and ways that help the system solve problems on the grid, she added, such as deploying west-facing solar panels to help solve the Duck Curve.
Utilities in New York will ultimately have two roles—wires company and distributed system platform company, Zibelman said. The role of the distribution utility is transitioning from a command-and-control approach to a network approach where the utility uses distributed resources to drive system efficiencies.
While change on the grid typically moves at a glacial pace, Audrey Zibelman wants to move fast.
Comments on the REV are in to the commission, and Zibelman is looking at early first quarter of 2015 to resolve any lingering issues.
“We need to move forward,” Zibelman told Utility Dive after her panel. She and her fellow regulators need “to make certain that we are not slowing ourselves down by looking for the perfect end-route.”
“The status quo is just not tenable anymore,” she said.