IEEE Power & Energy Magazine - May/June 2016 - 22

Our goal is transactive energy, enabled by utilities,
that will allow consumers and other parties to take
full advantage of every type of energy resource.

helping us respond to greenhouse gas emissions and other
energy challenges we face today.
Past limitations in technology and controls caused the
electric grid to stop at the meter. Modern information technology, which has been thoroughly integrated into numerous
industries, enables innovation in products and services that
can help the grid function more effectively as an operating
platform: where resources behind the meter can take advantage of data and new technology; where utilities partner with
third-party providers; and where the activities of individual
customers and customers aggregated by third parties can be
coordinated through intelligent, two-way distribution management systems, real-time operation of dynamic load and
other demand management technologies.
Critical to the REV vision is not only a change in the way
the grid is physically operated but also the use of markets to
drive innovation. REV aims to leverage the power of markets to reduce total customer bills, by increasing the deployment of nonregulated third-party capital, and by supporting
utility reliance on DERs as an integral grid resource. When
informed by adequate information and pricing and enabled
by platforms coordinated by utilities, DER markets can
drive greater system efficiencies, facilitate the integration of
variable renewable resources both in front of and behind the
meter, and reduce overall energy bills.
In addition to the historical question of whether the cost of
service provides the utility an incentive to modernize, a more
recent question is whether the cost-of-service approach continues to work when essential aspects of the natural monopoly
are not aligned with or are potentially threatened by beneficial technology and market developments. The late regulatory expert Alfred Kahn asked the first question, and anticipated the second, when he asked, "Might [utilities] be natural
monopolies in some static, efficiency sense but 'unnatural'
ones in terms of the prerequisites for innovation and growth?"
The cost-of-service approach is insufficient in the face of the
accelerating technology and market trends the commission has
identified. The commission is requiring utilities to fulfill their
statutory obligations in fundamentally different ways.

What REV Is Doing
A large amount of investment will be made in the electric
system in the coming years-by utilities and increasingly by
third parties, DER providers, and end-use customers. In New
York alone, we estimate that US$30 billion in utility investment would be needed in the next ten years simply to maintain
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the conventional system. To meet the coming challenges,
investments of all participants need to be economically efficient. That means that investments must be optimized at the
customer end of the electric system as well as the traditional
production end and requires that customers and market participants have sufficient information and value-creation potential to make the best choices about how they purchase and use
power and how they invest in and use DERs.
Efficient investment requires accurate and transparent value
signals. To develop these, two processes have been undertaken
under REV. The first is a process to establish a benefit cost analysis framework, which would apply initially to procurements of
DERs by utilities and eventually to broader market structures.
The second process is beginning in 2016, is to adapt locational
marginal pricing (LMP) principles to the distribution network
and accurately calculate the full values of distributed resources.
The development of LMP plus D (for distribution value) will be
a significant component of creating the transactive grid. DER
providers will have the opportunity to determine what configuration of distributed systems can create the greatest value for
the system, and utilities will have the opportunity to rely on
third-party capital to increase consumer value.
Utilities play a central role under REV. As distributed
system platform (DSP) providers, they will be responsible
for actively managing and coordinating distributed resources
and providing customers with a market in which to optimize
their priorities. Each utility will serve simultaneously as the
interface among its customers and the interface between
aggregated customers and the New York Independent System
Operator. From traditional infrastructure serving unmanaged loads to dynamically managing a distributed system
platform, utilities will provide ratepayers with the greatest
benefits and consumer options at the lowest cost.
Critical to the development of the DSP is the distributed
system implementation plan (DSIP) process. Utilities will
develop plans that will integrate potential DER solutions into
their traditional capital planning. DSIPs will also identify
the means by which utilities will build out their own capabilities to serve as platform providers for the DER market. A
combination of market-facing opportunities and traditional
regulatory oversight are necessary to instill the broad-based
confidence that REV requires, place the New York firmly on
the path to industry modernization, and provide the commission with the transparency necessary to determine how best
to adjust the regulatory formula as the market matures and
less regulatory intervention is needed.
may/june 2016

Table of Contents for the Digital Edition of IEEE Power & Energy Magazine - May/June 2016