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. She will keynote at the Empowering Customers & Cities conference in Chicago, November 1-2. This is the third of a three-part series based on those conversations, edited for style and length.
Energy Times: What risks are ahead?
Zibelman: The risk of any change like this requires a certain amount of diligence and a recognition that not everything is always going to go as intended. One needs to think about these unintended aspects of it as opportunities to learn and move forward rather than signaling defeat. That is why, for example, the commission has been very clear on the demonstrations that are very much focused not only on technology - because we believe the technology is there - but the business models that we are using. We want so see what works, to develop what works, and then to pivot to something better with the assumption that not everything is going to be perfect. Unlike traditional regulations, where the regulator sits like a Monday morning quarterback, we are there in partnership and collectively learning from what works and what doesn't and making certain that we are adjusting as we learn. That's the way of mitigating the traditional risk of change. Every entrepreneurial business takes risk. What smart entrepreneurs know is you test a market, what's working and what's not. Then, you move on. If you try to do things in the traditional regulatory way of everything has to be done full on, full tariff, all at once, that is going to create a certain amount of friction, a certain amount of reluctance to change because of fear of the unknown. The better approach is to take things in small bites, learn from them, and then scale.
ENERGY TIMES: The last major utility sector revolution in California at the turn of the century led to the Enron debacle, utility bankruptcies and major disruptions. Can you assure folks that the system that you are erecting in New York is not subject to being gamed?
ZIBELMAN: The problem that we saw in California was the way the market was designed. Many people who were looking at it outside of California were saying, "This is a bad idea." Well, there were built in discontinuities. Fundamentally the obligations of utilities to buy at a set price didn't work. In New York we are having the utilities develop demand response programs and market programs. We are using demonstrations as a means to develop the market at a smaller scale and then growing them so that we can learn from the mistakes as they are being launched. We have the benefit of a lot that's been learned in the wholesale market, most notably the implementation of locational marginal pricing. One of the things that is part of REV is the move to locational marginal pricing at the distribution level which in our view will drive the same level of efficiencies that we see in well- designed wholesale markets.
ENERGY TIMES: Do you think New York a decade from now is going to be a center of energy innovation that the whole country is going to be look to?
ZIBELMAN: I believe we will be. We are already seeing that many aspects of New York becoming an epicenter of innovation and energy. There are many new startups in this area. We just announced another competition to encourage innovation in this area. We have universities that are looking at these types of issues. We also have labs like Brookhaven National Laboratory that are focused on this. The N.Y. Green Bank provides the financial resources. The size of the market, the amount of energy behind it, all point in the direction of New York really being the place to be for entrepreneurs who are interested in innovating in the energy space.
ENERGY TIMES: Are there any benchmarks you think utilities and regulators around the country should be watching for?
ZIBELMAN: There are a number of different things. Again, the activities that we are doing around pricing are important. Watch that. We have created REV Connect which is a way for entrepreneurs to enter into the market in a much easier way. Get to know the players. Work with the utilities. There are lots of different ways for outsiders to get in and make sure that they are part of the game.