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New York's Visionary Model of Utilities Reform

Utilities profit from building more power plants—a flawed model for a diminishing natural monopoly.
October 15, 2015, 10am PDT | Emily Calhoun
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Daniel X. O'Neill

David Roberts argues that New York State's Reforming the Energy Vision (REV) may be "the most important clean energy policy initiative in the country today." Not only can it change a poorly aligned incentive structure but also will contribute to national carbon reduction targets, setting an example for the rest of the country.

"Reforming utilities is a perilous process, with intense politics and high stakes. Reliable service must be maintained throughout any transition — it's like rebuilding an airplane in flight," Roberts warns. There remain many uncertainties about how and whether or not it will work, but he opines that New York's innovative vision is a clear path to real reform.

The REV will tackle grid inefficiencies by smoothing out the load profile - reducing congestion at peak energy hours. "To do that, it needs to encourage energy efficiency, demand shifting, and distributed energy resources (DER)s — all of which, in the traditional regulatory model, reduce utility revenue." This is because utilities make money by building more power plants—not by improving efficiency of existing plants.

To fill the gap in revenues from reduced capital expenditures, the REV proposes that utilities are restructured to be distributed service providers (DSPs), responsible for maintaining the grid but also involved in creating and managing “markets where third parties can compete to provide energy products and services on the retail side, things like energy storage, demand response, and distributed generation,” Roberts explains.

"The boundary of the [public utility's] natural monopoly has moved inward again. What remains of it is grid operations and reliability planning — that is, running the distribution grid itself. That's the only function that is still properly the purview of a publicly accountable, regulated utility."

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Published on Monday, October 5, 2015 in Vox
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