TODAY’S STUDY: The Best Policies To Get More Distributed Energy

Distributed Energy Resources Integration Policy, Technical, And Regulatory; Perspectives From New York And California

Cristin Lyons and Vazken Kassakhian, December 2016 (ScottMadden and Smart Electric Power Alliance)

Executive Summary

New York and California are leading the country in their approaches to integrate distributed energy resources (DERs). However, those approaches differ in some important ways including their starting points. In New York, DER penetration has been minimal to date, and the Public Service Commission (PSC) has adopted the view that “if we build it, they will come,” creating the infrastructure and incentives to bring DERs to the state. Creating a path to changing the utility business model and “market animation” have featured prominently in the state’s Reforming the Energy Vision (REV) proceedings. REV consists of myriad interlocking proceedings that address demonstration projects, large-scale renewables, rate reform, low income issues, planning the grid, and more. These initiatives impact each other, and the incentives, requirements, earnings opportunities, and metrics are linked and overlap.

In California, legislators and regulators have adopted a different approach. Rooftop solar installations have introduced operational and planning challenges for utilities. Utility regulators in California began by focusing on the technical aspects of integrating DERs and are now moving to implement policies that address the alignment of utility incentives. Importantly, California is taking a step-by-step approach through a series of legislative and Commission actions that address discrete issues presented by DERs. This is a slightly more cautious approach that focuses on piloting key changes before finalizing rate reforms or other changes to the business model.

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To facilitate DER integration, both states are working to improve the interconnection process and expand hosting capacity analysis. They are considering the impacts of DERs to the distribution planning process and are developing processes that use DERs to offset traditional utility capital expenditures (Capex). Each is developing analyses to compare non-wires alternatives (NWAs) to traditional infrastructure to assess these opportunities. Also, as part of the planning process, they are considering how best to share planning and system data with third parties.

The demonstration projects being developed in New York seek to demonstrate both technical and business model alternatives for DER integration. Whereas, in California, pilots are addressing specific technical questions. Both states are considering how best to reform their rate structures. New York provided guidance through its Track Two order on how to begin the move away from traditional cost of service ratemaking. A separate state proceeding deals with the future of net metering. In California, the Commission is addressing the future of net metering in one proceeding, while piloting alternative incentive approaches for NWAs in a separate initiative.

While New York and California are starting from very different places (regarding market structure and DER penetration), and each has a different end goal for the future of their respective marketplaces, there are common elements between the two states’ approaches. Other states will benefit from the New York and California experiences both in areas where they are pursuing very similar tactics and in areas where they diverge. This report will lay out the key similarities and differences between the two states’ paths to increase the penetration of DERs, so others may adopt and/or adapt them to facilitate their own market transformations…

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Introduction

Over the last century, the U.S. electric power sector has undergone significant changes in response to developments in technology, markets, regulations, and policies. The sector is once again entering a period of major change with the rise of DERs. These changes impact the electricity system to varying degrees across the country. New York and California have taken particularly proactive approaches to integrate DERs.

The New York and California approaches to DERs differ in several ways; however, their experiences in integrating DERs from the regulatory, technology, and policy standpoints provide critical lessons for other states. Notably, the two states are beginning their DER efforts under different conditions. California already has high penetrations of DERs, including nearly 600,000 residential photovoltaic (PV) installations,1 and the state also has mandates for additional resources, such as storage. Meanwhile, in New York, DER penetration is significantly less with approximately 58,000 residential PV installations.2

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However, the New York governor and the Public Service Commission (PSC) have taken the view that DERs are critical to the energy future of the state and are creating a policy and regulatory framework to further DER proliferation. Another important distinction between the states is their existing infrastructure: California has a fully deployed, advanced metering infrastructure (AMI), while New York is just beginning AMI deployment. This has important implications for data sharing and visibility, as well as distribution system planning and the involvement of stakeholders in that process. This paper considers myriad topics pertinent to the integration of DERs and how they are treated by the two states. It will begin with the goals of the two initiatives and how they are being realized through legislation and/or regulation. It will then explore the following topics and how the two jurisdictions treat them:

n Goals for DER Integration

n Interconnection

n Hosting Capacity

n Planning

n Benefit-Cost Analysis

n Data Sharing

n Use of Demonstration Projects

n Rate Reform and Utility Incentives

n ISO Interface

This first paper in the 51st State Perspectives series presents progress in DER integration in New York and California as of fall 2016. The hope is this discussion furthers understanding of key aspects of the integration of DERs and provides valuable lessons for the states to follow as these issues are evolving quickly.

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Conclusion

New York and California are leading the country in DER integration. From a technical perspective, their approaches are similar as they try to resolve barriers to entry for DERs and their developers. Both states are proposing and implementing enhancements to interconnection, hosting capacity, and data sharing. All parties appear to recognize the need for enhanced distribution system planning, and utilities are defining the changes they will make to those processes. They are working to assess the true value of DERs to the grid and the degree and methods by which they may replace traditional capex. Demonstration projects are filling an important need in piloting technical solutions to what may become grid-wide challenges.

While similar in their approaches to resolve technical questions, the legislative and regulatory approaches differ significantly despite seemingly similar goals. New York is attempting to guide overarching regulatory reform through the Track Two and Value of DER proceedings as the primary drivers. However, many details remain to be implemented through other proceedings and utility rate cases. As mentioned before, there are many interlocking pieces to REV. In California, there is no single overarching proceeding that guides the reforms underway. Instead, those reforms are appearing in myriad proceedings from NEM 2.0, to storage mandates, to the pilot programs being implemented to test incentives related to NWAs. Each approach has merit. New York attempts to “put it all in one place,” while California has created a set of building blocks all moving toward reducing GHGs and making a cleaner environment.

The coming years and the experiences of the various entities participating in these two states will determine which process yielded better results. In the interim, the industry can take important lessons and findings from the developments underway in both jurisdictions.

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