Dive Brief:

• Initial comments from power sector stakeholders were due Monday on the second track of New York's Reforming the Energy Vision proceeding to overhaul utility business models and stimulate the growth of distributed resources. 
• Comments filed with the New York Public Service Commission focused on a white paper issued in July by regulators proposing fundamental changes to utility ratemaking practices and revenue models, including adding market-based earnings into utility ledgers.
• Moody's Investors Service recently released its take on the REV proceeding and impacts of changing business models last week, predicting utilities' will see more volatility under the initiative but also have the opportunity to further grow their businesses, as opposed to the "utility death spiral" feared by some.

Dive Insight:

New York regulators on Monday received comments from a variety of power sector stakeholders on its REV docket, which proposes a vast departure from how utilities' have traditionally earned money.

The state envisions having traditional utilities build distributed system platforms (DSPs) — essentially allowing the utility to act as a platform provider for third parties that serve end customers with distributed energy and services.

Many of the comments from utilility sector participants focused on the idea of market-based earnings. 

The initial REV white paper envisioned utilities earning revenue through market-based earnings (MBEs) for value-added services such as customer origination, data analysis, co-branding, transaction fees or optimization and scheduling services for DERs, among other possible functions.

A large part of those market-based earnings, regulators anticipate, will be "platform service revenues" earned from market participants for the use of the grid. Regulators expect "the relative balance between base rates, performance incentives, and MBEs will change."

In response to the idea, retail electric providers and energy service companies argued that third party providers could provide many of the services offered to utiltities as MBEs in the white paper, and could do it at a lower cost without risk to ratepayers. To provide those services and deploy more DERs, multiple commenters noted the need for increased data-sharing between utilities and third parties on customer demand and system usage. 

The state's utilities endorsed the idea of market-based earnings, but stressed that they must be implemented carefully, and without risk to current utility revenue streams. The Joint Utilities, a group of power companies including Con Ed, Central Hudson, National Grid and others, stressed that MBEs should not be included when calculating a utility's cost-of-service rates, and indicated the companies don't expect MBEs to act as a meaningful alternative to traditional utility revenue recovery in the short term.

"[MBE] revenues are inherently uncertain and cannot be reasonably estimated in advance of the results from demonstration projects and actual experience," the Joint Utilities' comments read. "MBEs and targeted incentives may supplement utility revenues but these untested proposals cannot be relied upon to finance REV-related or other utility investments."

Officials at Exelon, which owns competitive energy services firm Constellation Energy and operates several nuclear plants in New York, wrote that they are open to MBEs, but that the utility's revenue streams must be preserved while regulators work out the details.

"In the meantime," the company wrote, "MBEs should not be immediately relied upon as a one-for-one substitute for utility earnings derived from sustaining system reliability, as the Commission cannot rely on unproven MBE opportunities to fund essential grid functions."

Both Exelon and the Joint Utilities endorsed a move to time-of-use rates in the state to incentivize further DER adoption, but stressed that affordability should remain the priority in designing the new rates. 

"Rates designed around a higher proportion of demand charges ($/kW) and/or fixed customer charges ($/customer) would better reflect the distribution system cost structure and thereby ensure adequate cost recovery in a world of low or declining load growth," Exelon wrote.

Both filings touch on the need to value DERs accurately at the distribution level to prevent any cost-shifting to customers who have not deployed their own DG.

More broadly, the utility comments demonstrate a sector that is amenable to the final goals of REV, but is concerned with preserving its current business model and the reliable delivery of electricity while the regulations are worked out. 

"This new business model could evolve more or less slowly than anticipated but it will definitely take many years," the Joint Utilities note. "Customers expect utilities to maintain service quality and reliability throughout the transition and provide electric distribution service at reasonable cost, consistent with the utilities’ statutory obligations." 

While that new model will take time to implement and adjust to, Moody's issued a report earlier this month that was complimentary of the initiative and positive on the utility sector's overall outlook.

With the utility industry already undergoing change — spurred by new technologies, falling DER prices, and cleaner energy policies — New York's push to rethink its utility model may put it ahead of the curve, Moody's predicted. 

“We believe it is credit positive that state regulators are encouraging utilities to adopt a business model that could help them stay ahead of technological changes which are certainly coming to the utilities industry,” Moody's wrote, according to Microgrid Knowledge.

Reply comments to the just-filed comments on Track 2 of the REV docket are due on November 23.