Friday, December 5, 2014

New York’s Proposal to Enhance Customer Engagement

By Nate Larsen, Energy Fellow

New York’s Department of Public Service (DPS) issued a straw proposal on April 24, 2014, detailing regulators’ recommendations for comprehensive electric industry reforms. The report, Reforming the Energy Vision (REV), described a number of measures that the state is considering, including the creation of Distributed System Platform Providers (DSPPs) to manage a distribution grid that will be expected to integrate increasing levels of distributed energy resources (DERs)—discussed in a previous post. The REV guidance also addresses the flip side of that issue, which is identifying opportunities to enhance customer engagement in the modern electric grid.

Customer participation is integral to the successful operation of New York’s model for the integrated grid of the future, both from a generation and a demand-side perspective. This post will address some of the DPS proposals to promote customer engagement outlined in the REV guidance.

Barriers to Customer Engagement

The REV identified six categories of barriers to the deployment of DERs, including 1) barriers to demand response; 2) barriers to distributed generation; 3) customer awareness; 4) access to data; 5) economic considerations; and 6) customer behavior patterns.

1.     Barriers to Demand Response

With regards to demand response (DR)—which allows certain loads to be curtailed during periods of peak demand—DPS found that customer-side incentives, bidding requirements, and customer aversion towards the risks inherent in adopting unfamiliar technologies were limiting factors in customer adoption of DR resources. The REV identified several other customer concerns that inhibit more widespread DR deployment, including the noncompliance penalty, the level of curtailment payments, short notice, an unclear value proposition for the customer, and a lack of information or understanding.

To overcome those obstacles, the REV suggested a review of the rates paid to DR resources to better reflect the value those resources provide to the grid. The guidance also recommended that DPS consider the implementation of a variable rate structure to better reflect the actual cost of power. DPS also notes that advancements in automated building systems have addressed some of those concerns.

2.     Barriers to Distributed Generation

The REV highlights a number of barriers to distributed generation (DG) deployment in New York, including 1) the fact that DG is not economically competitive with traditional utility service; 2) the onerous interconnection standards that potential DG customers face; 3) standby tariffs that unfavorably impact the customer value proposition; 4) a failure to account for all the benefits of DG to the grid; 5) the difficulty of obtaining financing for DG projects; 6) the responsibility of owning and maintaining equipment; 7) potential emissions restriction for combined heat and power resources; and 8) local code restrictions relating to some DG technologies.

3.     Customer Awareness

A lack of customer awareness regarding the potential value of DER is another obstacle identified by the DPS. The REV concluded that energy services providers typically targeted industrial and large commercial customers, resulting in limited opportunities for residential and small commercial customers to pursue demand-side management options. The report also identified customer confusion and lack of information as impacting potential customer engagement in DER development.

4.     Access to Data

Data access is important to the modern integrated distribution system to the extent that it allows electricity customers to manage their usage. The distribution model advanced by the DPS relies on the ability of customers to have access to their energy use data, understand the value of the data, and take advantage of goods and services that allow them to extract value from that data. Calling for an expansion of the availability of customer electricity usage, DPS was careful to note that such need for data access should be balanced against privacy protections, critical infrastructure information, trade secret protections and confidentiality requirements.

5.     Economic Considerations

Non-price economic factors represent another barrier to the widespread deployment of DERs. The high capital outlay, long payback period, and difficulty finding financing for DER projects make development unattractive for customers for whom those resources would otherwise be cost-effective. Those considerations are particularly limiting for low-income customers.

6.     Customer Behavior Patterns

Assuming that DERs are capable of presenting favorable economics, customers will only begin to adopt those technologies to the extent that they are easy to understand and use. DPS notes that programs designed to incentivize DERs should avoid requiring customers to make affirmative decisions to participate.

Opportunities to Facilitate Customer Engagement

Without going into many specifics, the REV also identified opportunities to promote DER deployment, including customer outreach regarding the benefits of DERs, regulations that encourage innovative business models, and the development of community resources. DPS also identified additional strategies to promote DER by resolving issues relating to data access, enabling DER technologies and removing financing barriers.

The guidance document additionally identified the potential for customer aggregation as an opportunity for DER development. DPS envisions that energy services companies (ESCOs) could play the role of aggregators, interfacing with both the DER-customers and the DSPPs. Those ESCOs would calculate the value of DER and compensate DER-customers for the services and product that they provide, while simultaneously marketing those products and services to the DSPPs.

In order to play the role envisioned by the DPS, ESCOs would need to move beyond their role as aggregators and develop new products and services to suit a new portfolio of varied customer requirements. Those products and services would range from traditional electricity service to demand management programs, dynamic pricing programs and ancillary services. The REV noted that many industrial customers are already taking advantage of a similar array of products and services.

DPS also addressed barriers to the role of ESCOs as proposed by REV, including the cost of acquiring new customers, current utility billing systems, access to customer energy usage information, access to distribution system constraints, and issues relating to servicing customers with small loads. To encourage the development of ESCOs as envisioned by the REV, DPS suggested that it would consider precluding utilities from offering energy commodity, instead requiring all customers to receive their energy services from an ESCO. DPS also noted that it would have to work to develop standards to ensure the reliability of the distribution system as ESCOs proliferate.


The REV reforms relating to customer engagement represent a significant departure from the passive electricity consumer model. While customers may continue to receive traditional bundled electricity service under the proposed reforms, they would also have access to an array of products and services that would encourage them to take advantage of distributed generation and demand-side management opportunities. Increased customer participation in the electricity system is an important component of the REV integrated grid model, and the success of the proposal will depend on the specific reforms that New York’s DPS ultimately promulgates.

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