January 27, 2020

January 27, 2020

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Valuation of Distributed Energy Resources under New York State’s REV Initiative

Solar Developers and Utilities Propose Valuing CO2 Emissions

Valuing Renewable Energy:  New York State’s Renewing the Energy Vision (REV) Initiative sets an aggressive goal where 50% of the State’s electricity will be provided by renewable resources by 2030. Several agencies are proactively advancing REV’s objectives, with the New York State Public Service Commission (PSC) taking a lead role in advancing necessary structural changes to the regulatory regime governing electric generation and distribution.  Not surprisingly, the PSC has identified achieving a “more precise articulation of the full value” of the benefits of Distributed Energy Resources (DER) as a “cornerstone REV issue.” 

The agency took a more concrete step on this issue in late December 2015, when it initiated a new proceeding on the value of DER.  Recognizing that implementing an approach to achieve full valuation of DER is likely a long term effort, the agency wants to pursue an “interim approach to valuing DER including a transition plan for moving from net metering to DER valuation that can be adopted prior to December 31, 2016.”

Currently, Net Energy Metering (NEM) provides individualized reduced rates for distribution charges, accounting for power exported onto the grid. Costs incurred by utilities for buying back exported power are shifted to those customers who do not participate in NEM. Adopting a staff recommendation, the PSC in October 2015 had approved, as a starting point, a valuation system for DER with the formula “LMP + D,” where LMP is the location-based marginal price of energy, and D represents the “full range of additional values provided by the distribution-level resource.”  The agency explained: 

This “value of D” can include load reduction, frequency regulation, reactive power, line loss avoidance, resilience and locational values as well as values not directly related to delivery service such as installed capacity and emission avoidance. (emphasis added)

Solar Companies and Utilities Submit Interim Proposal to PSC: On April 18, 2016, three leading solar power developers – SunEdison, Inc., SolarCity, Inc., and SunPower, Inc. – and five of New York’s major electricity utilities (Central Hudson Gas & Electric Corporation, Consolidated Edison Company of New York, Inc., New York State Electric & Gas Corporation, Niagara Mohawk Power Corporation d/b/a National Grid, Orange and Rockland Utilities, Inc., and Rochester Gas and Electric), collectively, the “Partnership,” submitted a proposal to the PSC for an interim successor to move away from NEM. The Partnership’s proposal offers a system for gradually phasing out NEM while introducing a compensation rate and developer payments drawn from Community Distribution Generation (CDG) and Grandfathered Monetary Crediting Remote Net Metering (GRMN) projects.

Of particular significance, the Partnership applies the LMP + D equation, but introduces a price point for “externalities” (E) – to reflect the social benefits of DER.  Specifically, the Partnership proposes E to be the constant value of carbon dioxide emissions reductions, as determined by the U.S. Environmental Protection Agency’s Social Cost of Carbon, minus the value of carbon as set by the Regional Greenhouse Gas Initiative. This value will be gradually introduced as a cost to customers for the economic value of carbon-free electricity.  By placing a value on E, the Partnership would create a visible stream of cash flow that enables developers to invest in CDG. Moreover, according to the Partnership, the transition from NEM to CDG would evolve the credit counter-party risk from single homes to an entire community, lowering the cost of financing and reducing the cost of electricity.

Initial DSIP Deadline Looming:  The PSC has issued an Order that requires utilities to submit by June 30 individual Initial Distributed System Implementation Plans (DSIPs) that identify changes utilities can immediately implement to advance REV’s goals. Joint and supplemental DSIPs that outline utilities’ cooperative efforts are due November 1, 2016.

© 2020 Beveridge & Diamond PC


About this Author

Mr. Gordon's practice includes providing legal services to local government

Mr. Gordon's practice includes providing legal services to local government, energy, real estate development, natural resource, manufacturing and waste management companies in all aspects of environment and land use law.

Representative matters during the past several years include numerous administrative and judicial proceedings relating to hazardous waste and sanitary landfill issues, environmental impact statements and public hearings for the siting of major electric generating facilities, large commercial and industrial real estate...

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Michael G. Murphy, Beveridge Diamond Law Firm, Environmental Attorney

Michael Murphy’s practice is primarily concentrated on energy, land use, regulatory permitting, environmental compliance, contract disputes and litigation matters.  Mr. Murphy has represented private clients in a variety of regulatory matters, including permit applications to federal, state, and local agencies, review under New York’s State Environmental Quality Review Act (SEQRA), contaminated site remediation programs in New York and New Jersey, administrative enforcement actions and other compliance matters.  He also represents private clients in major power plant project proposals.  His litigation experience on behalf of private clients includes contract disputes, Superfund, SEQRA, and common law claims based on negligence, trespass, nuisance, fraud, and misrepresentation.  

John H. Paul, Environmental, Energy, lawyer, Beveredige Diamond Law Firm
Of Counsel

John H. Paul's practice focuses on environmental and energy law, and environmental quality review of project proposals.

His environmental practice focuses on regulatory compliance, permitting, and administrative law, as well as counseling clients on energy, takings, environmental quality review, and land use matters. John has helped obtain, modify and renew permits under state and local programs governing energy facility siting, air, stormwater, solid waste, and wetlands development. John’s compliance counseling addresses the handling, transport...

Sarah A. Kettenmann, Beveridge Diamond, general environmental litigation lawyer, regulatory practice attorney

Sarah Kettenmann maintains a general environmental litigation and regulatory practice. Prior to joining the Firm, Sarah served as a judicial clerk for Chief Justice Chase T. Rogers in the Supreme Court of Connecticut.

During her time at Pace Law School, Sarah  served as a judicial extern for Judge Laura Taylor Swain in the U.S. District Court for the Southern District of New York (S.D.N.Y.), and  interned in the Civil Division of the U.S. Attorney’s Office, S.D.N.Y., and in the King’s County District Attorney’s Office.  She also served as an...

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