FTC to NY: Be Wary of Utilities Derailing Independent Microgrids

Dec. 2, 2015
New York policymakers need to take a closer look at the potential for utilities to derail independent microgrids and other competitors under Reforming the Energy Vision (REV), says the Federal Trade Commission.

New York policymakers need to take a closer look at the potential for utilities to derail independent microgrids and other competitors under Reforming the Energy Vision (REV), says the Federal Trade Commission.

The federal agency issued the advice in response to a white paper by the New York Public Service Commission’s staff that looks at how utilities will earn money under REV. The paper is the current focus of discussion before the commission as it refines REV, an industry-changing proposal by New York to create a decentralized, competitive electric grid.

Like many other market observers and participants, the FTC champions the overall idea of REV and the market forces it could unleash. However, the agency urged the state to rethink some of the particulars, specifically some holes it believes could give utilities an edge over competitors.

“The revenues white paper does not appear to address the potential for DSP operators [utilities] to raise the costs of – or otherwise discriminate against – independent providers of services,” the FTC said in comments filed with the PSC.

More specifically, it challenges the key role utilities would play operating the distributed system platform (DSP), a kind of exchange that would be created for microgrids, solar and other forms of distributed energy. This new job for utilities creates a different way to pay them for services, so that they are not robbed of revenue when customers use distributed energy rather than utility power.

But the potential exists for conflict, since utility affiliates would be allowed to vie for business on the platform against independent microgrid companies and other competitors, according to the FTC.

“It is unclear whether rules or competitive pressures would compel the DSP operator [utility] to compete on a level playing field,” the FTC said.

As a hypothetical, the FTC describes a utility with an affiliate that offers microgrid engineering services. The utility affiliate would be competing with independent microgrid engineering firms. As operator of the platform, a utility would have the financial incentive and means to make it difficult and costly for its rival.  For example, the utility could delay the rivals approvals or require excessive paperwork, causing delays in connecting the independent microgrid to the grid.

“This could indirectly raise their costs by making it more difficult and costly to attract microgrid investors, owners and organizers as clients,” the FTC said.

Meanwhile, the utility could favor its own affiliate, decreasing its overall cost, the FTC said.

The FTC urged the commission to look carefully at any inadvertent incentives the REV structure creates that could encourage utilities to discriminate against competitors.

Energy Cost Versus Energy Quality

The FTC also recommended that New York think carefully about how it treats consumer costs versus consumer services.

Reducing energy costs is a main mission of utility regulators, and of course a noble one. But the FTC posits that regulators may risk sacrificing energy quality for cost. For some consumers, quality may be more important.

“The primary problem is that it [the white paper] limits the description of potential benefits from the REV proceeding to price or quantity effects…Other benefits that customers may prefer include power quality, system reliability and resiliency, customer choice, reduced environmental impacts, and innovation,” the FTC said.

Data centers or research facilities value microgrids that guarantee reliable power supply. For these operations, loss of power can significantly harm their bottom line. So they may be willing to pay higher energy costs in return for better reliability.

The FTC suggested commission staff position REV as a policy meant to reduce customer bills or provide “other benefits that customers may prefer.”

Comments on REV by the FTC and others are available on NY’s REV website.

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About the Author

Elisa Wood | Editor-in-Chief

Elisa Wood is an award-winning writer and editor who specializes in the energy industry. She is chief editor and co-founder of Microgrid Knowledge and serves as co-host of the publication’s popular conference series. She also co-founded RealEnergyWriters.com, where she continues to lead a team of energy writers who produce content for energy companies and advocacy organizations.

She has been writing about energy for more than two decades and is published widely. Her work can be found in prominent energy business journals as well as mainstream publications. She has been quoted by NPR, the Wall Street Journal and other notable media outlets.

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