Who Pays on a Decentralized Grid? New York Tackles the Equity Problem with New Rates

May 28, 2019
New York regulators recently changed utility standby and buyback rates to tackle the vexing problem of ratepayer equity in an age of distributed energy.

The New York Public Service Commission recently revamped utility standby and buyback rates to tackle the vexing problem of ratepayer equity in an age of distributed energy.

The changes represent the next iteration in the state’s efforts to encourage wider adoption of clean energy while bringing rates more in line with market forces, all part of its Reforming the Energy Vision (REV) program.

At issue is who pays for the grid as more customers generate power on site. When customers use more on-site energy and less grid power, their utility bills decrease. So other ratepayers are left shouldering more of the burden to keep the grid operating. The fairness problem grows even more complex as customers sell excess on-site power to the grid.

Standby and buyback rates are meant to bring about payment equity. Standby rates recover system delivery costs from customers that use on-site generation. Buyback rates, as the name implies, represent what utilities pay on-site generators for their excess power.

The new rates better align the rates with system costs to avoid over- or undercharging customers, according to the commission’s May 16 order (Case Number 15-E-0751).

Clarity for microgrid developers

The order also is a step forward because it helps provide “clarity and optionality” for developers of microgrids and energy storage in New York, said Michael Byrnes, senior vice president at Veolia Solutions North America.

The changes are “all going in the right direction,” Byrnes said.

New options for mass market

The order puts mass market customers, like households, on more equal footing with large commercial and industrial customers.

The commission’s order included more than a dozen items relating to rates for distributed energy resources.

When it comes to standby rates, the order puts mass market customers, like households, on more equal footing with large commercial and industrial customers. Standby rates traditionally gave large customers an alternative to paying for energy on a volumetric basis. In the order, the commission argues that today’s advanced metering infrastructure now makes it feasible to apply those rates to smaller customers as well.

Previously, standby rates for mass market customers were based on volumetric usage and a monthly, as opposed to daily, demand charge. The new order creates standby rates for them based on non-volumetric usage and daily demand. This will give all customers the benefit of rates that align payment more closely to costs, the commission said. 

More granular rates

In addition, the order expanded the eligibility of standby rates to all demand metered customers.

The order notes that the daily as-used demand charges, a component of standby rates, levied by Consolidated Edison under Rider Q of its Standby/Buyback Pilot program “represent a significant improvement in more granular time-varying price signals to customers.”

The commission directs other utilities to develop more granular daily ‘as-used demand charges’ with off-peak, on-peak, and super-peak components during the summer period for their existing standby rates.

The expanded availability of standby rates gives smaller customers the ability to manage their energy based on more precise price signals, the commission said.

New York customers will voluntarily opt in to the new standby rates. And they can do so regardless of whether they use on-site generation.

Value stacking and campus offset tariffs

The commission also directed utilities to modify their respective standby service tariffs to restrict eligibility for the reliability credit. They did so by excluding on-site generation that receives value stack compensation for exports to the system.

Of interest to microgrid developers, the order also addresses multi-party campus offset tariffs. The commission directed utilities to draft the tariffs in a way similar to those currently in place at Consolidated Edison. Offset tariffs allow a customer with generation to offset load of multiple buildings in a campus setting, provided that the generator and buildings are on a single premise. The tariff has been used where a microgrid is located on a university campus. Columbia University in New York City was the first instance.

(Photo: foxbat/Shutterstock)

Buyback rate

In a similar fashion to standby rates, buyback rates have included a customer charge and a demand charge to cover system costs. The terms of those rates are similar across most — but not all — New York utilities. In light of the determination that the customer charge and the contract demand charge represent actual costs, the commission’s order directs Niagara Mohawk, New York Electric & Gas, and Rochester Gas & Electric to draft buyback rates that include elements that account for those costs and preclude cost shifting to customers that are not eligible for buyback rates.

Utility tariffs in New York allow eligible customers to sell energy and capacity to the New York Independent System Operator (NYISO) or directly to a utility. Selling capacity to a utility is “an important option” for some distributed energy resources, according to the commission. But utility tariffs for the buy back of capacity differ widely.

For instance, Consolidated Edison’s tariff contains no language granting customers the right to negotiate capacity contracts, which the commission sees as a barrier to entry of distributed energy. The order directs the utility to modify its tariffs to allow for capacity purchases. The commission also finds it “reasonable” to set a more uniform maximum limit on the amount of capacity a utility must purchase. The order says that a 5 MW per project limit should be applied across all utilities. Above the limit, a non-utility generator would be expected to participate in the NYISO capacity market.

Energy storage

Regarding energy storage, the commission accepted staff’s recommendation that systems connected to utility distribution continue to pay delivery service rates and, in particular, the applicable standby and buyback service contract demand charges. The commission noted that the order’s requirements for granularity of rates will benefit energy storage systems.

How will New York’s ruling on standby and buyback rates influence microgrids? Comment below or on our LinkedIn group: Distributed Energy Resources.

About the Author

Peter Maloney

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