REV Order Resetting Retail Energy Markets - a Missed Opportunity?

 Malaria bed net distribution, Togo - via

Malaria bed net distribution, Togo - via

A post in Monday’s New York Times observed that societal problems almost never require a novel solution. The bottleneck is usually distribution—getting proven fixes (like malaria nets) to the folks in need.

In its 23 Feb Order Resetting Retail Electric Markets, the New York Public Service Commission may have missed a great opportunity at both ends of this paradigm: taking an existing, effective (if abused) solution for engaging energy consumers-- the ESCO salesforce--and repurposing it to accelerate the deployment of distributed energy resources (DER).

In case you missed it, the Order blocks electric and gas commodity retailers (known as ESCOs) from signing new procurement contracts with residential and small commercial users (the “mass market”), unless the ESCO (a) guarantees savings versus the utility procurement or (b) procures at least 30% of the electricity from renewable resources.

The Order’s basic logic—that ESCOs can’t beat utility procurement for these smaller consumers, and are thus likely in the bilking business—makes sense. The renewable energy carve-out, insofar as it vaguely ascribes value to low-carbon power, helps advance the Governor’s goal of 50% renewables by 2030.

The Commission is understandably eager to sweep the failed deregulation of mass-market electric sales under the rug—it’s an unsightly counterexample to REV’s ideal of “animating markets”. But to dismantle this system without deeper inquiry seems wasteful. For example:

  • Isn’t this an “animated market”? Why not?
  • How would the hoped-for legions of battery and demand response (and, for that matter, 30% renewable energy) salesmen protect consumers where the old retail market failed?
  • Will “information” really transform mass-market consumers into rational market actors?

 It’s true, many of these lessons are negative (and politically unhelpful).

But there may be some positive ones as well.

The ur-goal of REV is to unlock DER in addressing reliability, affordability, access, and sustainability in the electric power system. ESCOs have demonstrated an ability to overcome a primary barrier to distributing DER solutions—making customers care enough about energy to change their purchasing behavior.

I was recently talking with an executive in the retail ESCO industry. He observed that, despite deep customer relationships and pent-up societal benefit in cross-selling DER, ESCOs have limited incentive to cross-sell onsite energy resources (efficiency, solar, CHP) and thereby jeopardize annual commodity sales.

This retail market reset is a perfect opportunity to reverse perverse ESCO incentives. Why not explicitly make energy efficiency or onsite renewables (hopefully with appropriate anti-predatory protections) count toward the 30% clean energy carve-out, or the cost savings guarantee (as so promisingly offered by Sealed)?

To be fair, the Order does gesture toward “[expanded] opportunities for vendors to develop and provide services to residential and small non-residential customers” via other REV processes. But salesmen need to eat, and the cause for waiting is not clear.

By bifurcating these efforts in the retail mass market, the Commission may have missed a nice opportunity to learn from past mistakes and use existing resources to advance a central REV objective.