The Energy Times recently conducted several conversations with Audrey Zibelman, chair of the New York Public Service Commission and a principal architect of the state’s far-reaching energy regulatory reforms. This is the second of a three-part series based on those conversations, edited for style and length.
Navigating the Risks
ENERGY TIMES: New York is going to give utilities the opportunity for earnings for market facing platform activities. Could you expand a little bit on that, please?
ZIBELMAN: Certainly. The utility has an opportunity to take a look at how to increase the use of distributed energy resources as a mechanism to improve reliability and also improve the overall efficiency of the system. Historically, utilities would have looked at that as a good thing to do as a public service but not an exciting thing to do from a business standpoint. If, however, utilities are using distributed energy resources in a transactive way it offers a multitude of opportunities, such as making the system more dynamic, load shaping and the avoidance of investments in additional traditional resources to preserve reliability. Utilities have an opportunity to earn from delivering value to the energy provider. While the focus is on earnings, it is very important to remember that earnings will promote higher value for the utility and lower bills for the customer.
ENERGY TIMES: Is this as simple as seeing the utility become the platform enabling transactions between other parties like an Airbnb for energy services?
ZIBELMAN: That is exactly what it is. Utility should think of the distribution system as an asset and their ability to manage those resources to get better value of them is a way of reducing transaction costs for both the distributed resource providers and the customers. They can create a more valuable platform so that it is both capital efficient and usage efficient. Just like any competitive firm, the utility is delivering a service. The cost for that service for the end user could be reduced if they go about it in a way that is more capital efficient, even using third party capital. By finding ways to deliver the same service at a lower cost, the utility has an opportunity to share in that value and potentially get a higher return on equity than they would get from a traditional investment. The quality of earnings need to be significant and substantial enough that the utility is interested in pursuing it. The concept behind REV is all about usage efficiency, system efficiency, and capital efficiency over a two-way platform. It avoids uneconomic bypass of the system, which is obviously a concern of ours. They are able to do something different which saves the customers dollars. Our hope, our plan, is that the earnings they get are equal to or greater than what they would have had because everyone wins. The system becomes that much smarter.
ENERGY TIMES: A lot of people around the country view the scale and speed of change that you are achieving in New York as breathtaking. What impact do you think it will have around the country for what you are doing?
ZIBELMAN: The approach we are taking in New York has been different. Under Gov. Andrew Cuomo's leadership and that of Richard Kauffman, chairman of energy and finance for New York, the state has taken a much more comprehensive approach than I believe anyone has ever done in this industry. We are taking a look at not just the regulatory changes but the business model changes, the financial changes, the subsidy changes with a very clear objective established by the governor about where we want to go. That has allowed us the ability to move more quickly, adeptly and more comprehensively than one would typically see in a regulatory change. That has been different. A lot of entrepreneurs in energy have come to New York. We are seeing all of our utilities focused on this. If you walk into their offices and you meet the people, they talk very differently than their counterparts at a traditional utility. They are very entrepreneurial in their approach. That is very exciting for me.