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2015, Issue 1

New York’s Reforming Energy Vision (REV) will be tough to implement with current utility centric strategy

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New York States bold Reforming Energy Vision (REV) initiative holds promise of transforming utility industry and set an example for other states in transforming their utility business model. However current proposal for implementation of utility as Distribution Service Provider (DSP) model will delay implementation, discourage entrepreneurs and defeat the very objective of REV.

Global and national trends on climate change, flat demand for electricity, rising peak demand, aging infrastructure and reducing cost of renewable technology substantiates a

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trend towards need for change in utility model. This change will be in the form of change in utility products and services from pure electricity sale to services. Utilities revenue growth will come from providing services.

New York REV vision rightly translates these trends by identifying critical path objectives of increasing Distributed Energy Resources (DER), building customers and market confidence and initiating DSP development.

We explain why DSP development should be independent, but in collaboration with utility based on principles of

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1. Lower cost of electricity 2. Need to focus on utility core 3. Power of information & speed 4. Entrepreneur interests & market

animation 5. Transparency and market power 6. Utility capability to adopt

technology

We believe that utilities should be a

key stakeholder in order to achieve

the objectives of increased DER

penetration, innovation in customer

and technology provider engagement,

maintaining grid reliability and

improving operational efficiency.

IN THIS ISSUE 2 Global/ National trends and drivers for New York REV. Case for Independent

Distribution Service Provider (DSP)

3. Proposed model for New York DSP 4 Our recommendations for New York REV implementation

Utility 2.0

Utility industry agrees that there will be a new business model in next 5 years. But they are asking what this model will be and how it will be implemented.

This newsletter provides answers on options & approaches for new

utility business model implementation.

Distributed Energy Resources (DERs) are defined as all the products which are connected to distribution grid and includes Renewable energy generation, Demand Response (DR), Energy Efficiency (EE), Energy Storage and Electric Vehicles

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New York Reforming Energy Vision implementation – An approach for success

Global and national Trends make case for new utility 2.0

Ø Climate Change is on top of world

agenda (US sets new target to cut net

greenhouse gas emissions 26-28

percent below 2005 levels by 2025

and China agreed on carbon cap)

Ø Demand for electricity forecasted to

grow <1% (0.16% for NY 2024) till

2040, meaning utility business from

sale of electricity will stagnate

Ø Utility infrastructure is aging-14000

MW of capacity in NY is more than

40 years old and will be replaced by

annual renewable growth of 15-20%

Ø New York requires $30 billion in next

10 years to upgrade infrastructure

Ø Peak is increasing (~ 0.83% /year),

reducing generation efficiency

Ø Average LCOE from renewables

reaching grid parity

Key drivers for New York REV � Need for high quality electricity � Emerging cyber and physical threats � Severe weather challenging reliability � Climate change and carbon reduction � FERC 745 ruling and risk to DR

program � Need for flexible grids to

accommodate DERs � Rapid declines in DER costs and

increased capabilities � Potential increase in electric vehicles

and they acting as DERs � Competitive pressure on the state’s

economy

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At the center of achieving REV vision

is the development of the Distribution

Service Provider (DSP) model. We

believe this model should be

developed independently with utility

as a key stakeholder instead of utility

as a DSP, as proposed by NY Public

Service Commission staff. Here is

why:

Lower Cost of electricity – Consumers are concerned about rising electricity bills. New technology providers/ ESCO’s can provide innovative models such as solar residential PPA’s, etc. more rapidly and with involvement of private capital, cost reduction will be achieved.

Need for utilities to focus on core – Utilities are best positioned for maintaining grid reliability and hence they should focus on core functions of planning, expansion and operation.

Power of information & speed– Consumers and technology providers need actionable information faster. An information-sharing platform in

Case for independent Distribution Service Provider (DSP)

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next 12-18 month is a prerequisite for REVs credibility with stakeholders.

Entrepreneur interests & market animation– Many Silicon Valley type startups and incubators and big technology providers have shown interest in clean energy, energy efficiency, and demand response technologies development. Speed of providing access to these technology providers to customers is essential for maintaining momentum. Further they can bring savings by reducing consumption and cost through disruptive innovation.

Utilities already have huge task of core grid automation and will be unable to own development of DSP platform.

Transparency and Market Power- One of the biggest concern by stakeholders in implementation of DSP model is transparency and market power. Since utilities own wires and last mile connectivity, it is a legitimate concern that utilities will distort market power. Making DSP independent and allowing stakeholders to be part of DSP implementation and operations can mitigate this concern. Further DSP should be the market operator and should coordinate operations with NYISO

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Capability and technology adoption – An assessment of recent utility technology implementation projects reveals that utilities have lack of adequate skilled manpower, knowledge and flexibility to implement complex technology projects. Often utilities depend on system integrators who also learn at the expense of utilities. Further 50% of the US utility workforce is eligible for retirement in next 5 years that means utilities simply don’t have resources to take on these new and complex projects. While utilities need to recruit and develop their people, it may be best for utility and industry to develop DSP in

collaboration with independent industry taking a lead.

We believe utilities should embrace model of Independent DSP for a number of reasons. Among them key reasons are

• Utilities can unlock multiple service opportunities which otherwise would be restricted by regulation

• Utilities will be able to focus on their core business of planning and operations

• Utility can avoid criticism, market power and transparency concerns

Summary NEW YORK REV POLICY RECOMMENDATIONS � DSP function served by existing utility

subjected to performance review

� Distribution Service Provider (DSP) to facilitate market participation of customers and service providers by enabling efficient information sharing and service deliveries

� Information sharing and services provided competitively in transparent manner

� Individual customer data must be made available on opt out basis

� Utilities only allowed to own DERs in certain approved plan

� Regulated/ unregulated utilities are allowed to participate in generation, ESCO, demand response, etc. as long as market oversight address market power concerns

� An immediate process should be undertaken to develop demand response tariffs for all service territories, including tariffs for storage and energy efficiency

� Multiple service providers participate in markets not controlled by utility

� Encourage participation of low and moderate-income customers

� Regulatory oversight of DER providers to protect consumers and reliability of service

� A benefit-cost framework should be defined appropriate to three different purposes: (1) utility DSP implementation plans (2) periodic utility resource plans and (3) pricing and procurement of DER

� As a transition towards market-based approaches to increase levels of efficiency and renewables, utilities should integrate energy efficiency into their regular operations and should take responsibility for procurement of Main Tier renewables.

PROPOSED DSP MODEL UNDER NEW YORK REV

• DSP is developed as an independent platform with utility as key stakeholder along with technology and service providers

• Create a central information warehouse managed by DSP/ Third party

• Regulated distribution utility responsible for system planning, operations, reliability and data gathering from field devices

• DSP receives all the information and enables transparent information sharing with all stakeholders

• Market operation function can be with utility or independent administered through DSP

Why should New York’s utilities support independent DSP?

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New York Reforming Energy Vision implementation – An approach to success

2015, ISSUE 1

OUR RECOMMENDATIONS

• Develop DSP model independently with utility as a key stakeholder

• Speed of implementation is the essence; develop DSP platform in next 12-18

month

• Engage innovators and startups to animate market by removing barriers to

entry such as information, regulation and access

• DSP should be a hub for transparent information exchange and market

facilitator

• Utilities should focus on core functions of planning and operations

• Utilities should take this as an opportunity to unlock multiple services, which

can be provided in regulated environment without market power and

transparency concerns.

With right policies, regulation and processes, supported by speed of implementation, participation of new technology providers and customer engagement, New York REV holds potential of transforming electric utilities as we know for past 100 years

Utility 2.0 – ABOUT AUTHOR

Navneet Trivedi – Executive Director & Co-Founder, Vrinda Inc. Navneet brings 20+ years of energy and utility sector experience working in seven countries with more than 100 utilities. Navneet has worked with policy makers, regulators, utilities, multilateral funding agencies to develop and implement power sector transformation.

Prior to his current initiative, Navneet was in the North America leadership of the Global Smart Grid Practice of Accenture and in leadership role at PricewaterhouseCoopers, utility management consulting services for 15 years. Navneet has also done design, construction, operational performance improvement and grid automation in his various roles in utility industry. Navneet holds a master’s degree in renewable energy from Indian Institute of technology, Bombay, a bachelor’s degree in electrical engineering and business certification from Columbia University, New York.

About Vrinda Inc. Vrinda Inc. is a New York based business and technology firm. Vrinda Inc. creates success in your business through focus on value creation by providing trusted, actionable advice and practical solutions. We provide business and technology consulting services to Energy, Utility and Transportation sector