On June 10, stakeholders submitted reply comments in a New York Reforming the Energy Vision docket on valuing distributed energy resources. The DER docket is one of the most comprehensive reviews of net energy metering (NEM) to date, with input from a wide range of interest groups on alternatives to the existing retail-rate NEM structure.
Parties submitted proposals and recommendations on how to value DER in mid-April. We detailed some of the most prominent proposals in earlier sections of this series. Part 1 looked at a landmark agreement between six utilities and three major solar players dubbed the Solar Progress Partnership. Part 2 looked at proposals from Solar Electric Industries Association and Vote Solar; the Environmental Defense Fund; and the Advanced Energy Economy Institute in partnership with the Alliance for Clean Energy New York and the Northeast Clean Energy Council.
The New York Public Service Commission has established a formula for valuing DER in the longer term that is expressed as LMP+D -- where “LMP” represents the location-based marginal price of energy and “D” represents the value provided to the electric distribution system. The formula is intended to assign value to DERs based on all of the benefits they provide. But while the general structure has already been determined, there is more debate to come around how to value each of the formula inputs. Recognizing the broader discussions that lie ahead, regulators set a deadline to implement an interim alternative to retail-rate NEM by 2017.
The notion of replacing retail-rate NEM with another type of compensation mechanism is a contentious issue. Most proposals, including the Solar Progress Partnership proposal, have advocated for keeping some form of net metering for rooftop solar projects in place in the near term. But stakeholders disagreed on how the interim NEM rate should be structured and for how long the NEM mechanism should be kept in place.
Having had a chance to review the other proposals, various parties offered more nuanced positions in their reply comments to the DER filing. Below we summarize comments from a consortium of New York utilities (jump to section), The Alliance for Solar Choice (TASC) (jump to section), and the Advanced Energy Economy Institute in partnership with the Alliance for Clean Energy New York and the Northeast Clean Energy Council (jump to section).
These filings shed light on some of the prominent stakeholder positions heading into “informal and collaborative talks” as ordered by an administrative law judge. The talks are intended to produce recommendations on an interim NEM alternative for the commission to act on before the end of the year.
It will be a challenge to reconcile various stakeholder proposals and positions. “The process scares me,” one source said. While the immediate task is to find an interim solution, the upcoming talks will lay the groundwork for a longer-term DER policy in New York and possibly other states too.
This spring, six New York utilities filed a DER valuation proposal in partnership with three major solar companies. The Solar Progress Partnership focused predominantly on community solar projects (more here), but also recommended maintaining retail-rate NEM for rooftop solar customers through 2020, at which point the credit would ratchet down. While the utilities were willing to compromise on NEM in the near term, they underscored in reply comments that NEM must sunset in order to avoid a major cost shift.
Utility reply comments were submitted as a single filing on behalf of Central Hudson Gas & Electric Corporation, Consolidated Edison Company of New York, New York State Electric and Gas Corporation, Niagara Mohawk Power Corporation, National Grid, Orange & Rockland Utilities, and Rochester Gas & Electric Corporation.
The “Joint Utilities” opened their statement by reiterating that “clean DER provide multiple benefits to the State and customers, supporting the transition to a cleaner generation mix as well as enabling customer choice.” This statement is considered a win in the eyes of many clean energy advocates.
But the utilities didn’t go so far as to support the continuation of NEM -- a key incentive for DER projects. The Joint Utilities were quick to point out that regulators need to end the cross-subsidization of distributed solar inherent to the existing NEM program. Interconnection queues have continued to increase since the DER docket was launched. The New York NEM queue grew by 560 megawatts in just one month between March and April. The total amounted to 4,637 megawatts as of April 30, 2016.
“If these resources were to be built, existing policies would shift more than $336 million in costs to residential customers who do not participate in NEM (“Non-Participating Customers”) across the state, raising these customers’ rates by more than 30 percent in some service territories,” the filing states.
The Joint Utilities argued against keeping the existing NEM structure in place for the foreseeable future, which is the position that several solar industry groups have taken. They also argued that a resolution needs to be reached on how long existing NEM customers can stay on their current rate.
In addition, the utilities encouraged regulators to adopt the LMP+D+E formula, with the environmental benefits being given their own, separate value. But rather than value a variety of externality payments, the utilities argue for limiting the “E” value to the carbon dioxide as established by the PSC’s Order Establishing the Benefit Cost Analysis Framework.
Finally, utilities made the case for maintaining simplicity for customers in the transition away from NEM and for keeping the current rate design in place. The Joint Utilities rejected proposals to change demand-based rates and to introduce monetary crediting. “Attempting to resolve broader rate design issues within the context of this proceeding is inappropriate and will only introduce unnecessary delays,” the filing states.
It’s widely accepted that New York’s traditional retail-rate net metering policy needs to change, but there continues to be disagreement on how much change there needs to be and how soon it needs to take place.
In reply comments submitted by The Alliance for Solar Choice (TASC), the pro-solar advocacy group expressed support for taking interim steps to complement NEM with optional time-of-use rates that encourage customers to deploy and operate DERs when they’re most valuable to the grid. TASC also discussed how a “smart home rate” (more on that below) could be structured to encourage “efficient and effective ratepayer engagement with the grid.”
But while supportive of certain tweaks to the current policy, TASC urged the New York PSC to adopt an interim regulation that maintains existing NEM rules for residential and small commercial customers. “NEM continues to be a practical solution, especially given the current status of mass-market customer metering, utility data management and billing systems, and benefit/cost measurement protocols,” the filing states. TASC also urged the PSC to issue a grandfathering rule that allows existing NEM customers to continue to be credited at the retail rate.
NEM is working, according to TASC. It is stimulating markets for DERs, lowering PV installed costs, and helping to achieve a variety of state environmental and energy system objectives. At the same time, the filing states there is no evidence that DER owners are currently being overcompensated. The filing cites an E3 report that found in some cases societal benefits combined with financial benefits may actually be greater than the current NEM value. And if NEM does have a bill impact on non-participants, TASC wrote that it is trivial, at worst.
TASC acknowledged that maintaining NEM under existing polities is an interim solution, but took issue with the Solar Progress Partnership’s proposal to sunset NEM in 2020. “This date is unsupported and any transition date for mass-market customers from existing NEM policies to LMP+D+E based compensation should be identified as part of the collaborative process,” TASC wrote.
Any decision to sunset the current rate design should be delayed until stakeholders have been able to carry out demonstration projects and understand the impacts of possible successor tariffs, TASC continued. The lobby group expressed support for working with utilities on a demonstration project to test time-of-use rates. TASC said it is also pleased with the commission’s proposal to test how a smart home rate would be structured.
In a July 2015 white paper, New York Department of Public Service staff described a “smart home rate” as a more sophisticated rate for residential and small commercial DER customers. It’s a rate in which “granular price signals are unbundled to reflect costs associated with underlying dimensions of electricity, including commodity energy delivery costs, and possibly certain ancillary services, and have significantly more temporal granularity.”
“A well-constructed smart home rate would provide a technology-agnostic rate mechanism to incentivize greater system efficiency through behind-the-meter management,” the white paper states. “Through direct management by customers, automated controls by on-site DERs, or possibly supported by third-party intermediaries, customer loads could respond to day-ahead or other price signals. On an opt-in basis, a smart home rate would allow interested customers and service providers to develop more advanced in-home energy management systems.”
TASC said such a rate should incentivize behind-the-meter generation, storage, home controls, electric vehicle and other advanced technologies. At the same time, a well-designed smart home rate would provide additional value to the distribution grid, through frequency and voltage support, peak shaving, and offsetting the need for system upgrades, among other things. Lessons learned from the demonstration can be leveraged for future rate design decisions, according to TASC.
TASC concluded its reply comments by underscoring that the Solar Progress Partnership and other collaborative proposals “do not represent all interests in this docket” and urged the commission “to equally consider the merits of all of the comments and proposals in this proceeding.”
The Advanced Energy Economy Institute (AEEI), Alliance for Clean Energy New York (ACE NY), and the Northeast Clean Energy Council (NECEC) submitted a joint proposal this spring that outlined a nuanced approach to valuing DERs.
The proposal centers on creating an hourly rate that’s time- and location-sensitive and could be applied to all types of DERs, not just solar PV. “The proposed LMP+D rate would be similar to a real-time rate in that it would incorporate hourly energy prices, but it would also allocate capacity, line-loss effects, and other costs as functions of hourly load and would reflect locational differences. It would also include all other benefits, such as environmental externalities,” according to the filing.
While simple in theory, the AEEI/ACE NY/NCEC proposal was considered to be too complex to work as an interim solution. “[I]t is apparent to us that the vision for the interim methodology is more modest than what we proposed in our April 18, 2016 filing,” the groups wrote.
As a result, AEEI and its partners offered another alternative. “Under the DER Rider approach, customers would continue to take service under their existing retail rate, and the methods for determining hourly prices (as described in our original proposal and its appendix) would be applicable to distributed generation delivered (exported) to the grid,” the filing states. In contrast, self-consumption (behind-the-meter generation produced and consumed by the customer without passing through the metering point) would be neither charged nor credited. Thus, from the customer’s perspective, self-generation projects would effectively be valued at the applicable retail rate as they are today.
“This modification would make our proposal similar in structure to the proposal filed by the Solar Energy Industries Association (SEIA) and Vote Solar, except that all exported generation, and not just monthly net excess generation, would be valued at the hourly LMP+D rate,” according to the reply comments. “This would encourage DG to be dispatched when it was most valuable, and would also encourage customers to pair [distributed generation] DG with energy storage and/or load management, to maximize exports at time of highest prices, when these resources could provide the most value to the grid.”
"I would not characterize our reply comments as representing a 'shift of position,” Ryan Katofsky, director of industry analysis for AEEI, wrote in an email. “Rather, we have provided some additional options for the commission to consider as it develops the interim methodology. These options still include the use of hourly variable pricing, but could allow this type of pricing to be implemented more quickly.”
“As the proceeding has evolved, it has become clearer to us that the interim methodology will be more modest in scope than what we thought...and we are very interested in getting some form of time-varying pricing implemented soon so that all forms of DERs can start to be deployed in a manner that brings greater value to the grid,” he added.
The AEEI/ACE NY/NECEC reply comments also addressed other filings, including the Solar Progress Partnership. AEEI facilitated that agreement, but was not a signatory. AEEI/ACE NY/NECEC took issue with some aspects of the utility-solar agreement, including the different treatment of community solar and rooftop solar projects.
This design “creates a disparity in compensation between customers who subscribe to [community solar] and customers who are able to install onsite projects over the next three years. The commission should take care to not create a situation where it significantly advantages one type of project over another, as both project types are ultimately intended to benefit ratepayers,” AEEI/ACE NY/NECEC wrote.
The reply comments concluded with a note on the scope of the collaborative process. AEEI and its partners said they believe the value of the stakeholder process will be to develop “high-level objectives and principles,” and as such, commission staff would then need to develop a more formal methodology. The comment seems to indicate that common principles may be difficult to achieve.