New York DPS Staff Proposal Closes the Door on Utility Ownership of Large-Scale Renewables, Mostly

On January 25, 2016, the New York Department of Public Service (DPS) Staff issued the “Staff White Paper on Clean Energy Standard.” The white paper is the latest Staff filing in what has been considered Track 3 of New York’s Reforming the Energy Vision (REV). Initially, Track 3 was focused solely on Large-Scale Renewables (LSR), and was kicked off in the summer of 2015 when New York State Energy Research and Development Authority (NYSERDA) released a LSR Development Options paper followed by a technical conference and comments from stakeholders. On January 21, 2016, the proceeding was expanded to also include the development and implementation of a Clean Energy Standard (CES) in order to more comprehensively meet the goals outlined in the New York State Energy Plan.

In line with the proceeding’s expanded scope, the white paper on CES places a great deal of focus on a proposed CES framework and compliance mechanisms. However, the white paper also addresses some of the questions originally posed in the NYSERDA LSR Development Options paper regarding LSR procurement structure and designs, and specifically the question of utility ownership of LSR. In comments on the LSR Development Options paper the New York Joint Utilities offered arguments in favor of utility ownership of LSR. However, on this topic, the white paper proposes that utility ownership of LSR is not necessary or advantageous and restricts utility ownership to an extremely narrow set of circumstances.

Key Details on Utility Ownership of LSR

  • The white paper on CES mostly rules out utility ownership of LSR and states the following:
  • While utility ownership may reduce near-term costs, it could also potentially “chill the market” and stifle competition
  • Power purchase agreements  should be reserved for third parties with the regulated utilities as the purchasers
  • Any near-term advantages of utility ownership are outweighed by the long-term market efficiencies created by third-party ownershipDespite the proposed near prohibition of utility ownership of LSR, the white paper does identify a narrow set of circumstances where utility ownership could be allowed including:
  • Where there are demonstrable consumer benefits that could not otherwise be achieved
  • Corrections to potential failure of the market to develop sufficient levels of instate resources
  • The use of utility capital (in conjunction with third parties) to lower costs of compliance with the CES, as long as that investment can be shown to advance and not inhibit private investment

Implications

The limitations on utility ownership of LSR proposed in the Staff white paper on CES, along with the set of exceptions, are mostly in line with the NY Public Service Commission’s (PSC) stance on utility ownership of Distributed Energy Resources (DER) outlined in the REV Track 1 Framework Order. For instance, the PSC commented in the Track 1 Framework Order that “unrestricted utility participation in DER markets presents a risk of undermining markets more than a potential for accelerating market growth.” The Staff white paper also conforms to other PSC orders in the sense that it puts a priority on “animating the market” for renewable energy in New York and sets out to create an environment that facilitates competitive third-party participation. However, the exceptions allowing for utility ownership of LSR, narrow as they are, may still present some potential for involvement in LSR development. First, there could be cases in the near and medium term where utility ownership of LSR helps to satisfy broader goals of REV and the State Energy Plan, such as ensuring the state remains on track to meet the goal of 50 percent of all electricity used in the state be generated from renewable energy sources by 2030 or situations where groups of low-income customers can only receive the benefits of LSR through utility ownership. Additionally, innovative financing mechanisms could possibly be developed that allow utilities to utilize their lower cost of capital to partner with third parties to develop LSR assets in a way that is advantageous to the utility, the competitiveness of the market, and is in line with the principles set forth in the white paper and the Track 1 Framework Order.

The New York investor-owned utilities, third parties, and all other REV stakeholders have an opportunity to respond to the Staff white paper on CES with comments that are to be filed by March 14, 2016 and reply comments to be filed by March 28, 2016. Additionally, Staff convened an on-the-record technical conference on February 26, 2016 to further discuss the various proposals outlined in the white paper. Two more similar technical conferences are planned to take place in March 2016. Through this process it is expected that DPS Staff will have a proposed CES developed to present for consideration and adoption by the PSC during their June 2016 session.

More Information

Staff White Paper on Clean Energy Standard, 1/25/2016

LSR Development Options Paper, 6/1/2015

Order Expanding the LSR Proceeding, 1/21/2016

2015 New York State Energy Plan, 6/25/2015

REV Track 1 Framework Order, 2/26/2015

This report is part of ScottMadden’s Wires Minute series. To view all featured Wires Minutes, please click here.

Contributing Author: Josh Kmiec

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