New York’s standby tariff: Standing in the way of distributed energy? Click To Tweet
In their argument for standby tariffs, utilities say they must recover not only their ordinary costs of distributing electricity, but also their incremental costs of maintaining the reserve electricity needed in case customer generators break down and need to draw more electricity from the grid. Additionally, utilities argue the standby tariff protects non-power-generating customers by ensuring reserve-electricity costs are not shifted from the power-generating customers to non-power generating customers. The utilities claim that absent a standby tariff, there would be an unfair subsidy for large customers who choose to generate their own electricity. But the standby tariff must be viewed in the context of how conventional, regulated utilities have made money for more than 100 years. Unlike just about every industry in our economy, utilities and their investors are guaranteed above-market rates of return on capital investments, such as new power plants, transmission lines, and distribution facilities. Since distributed generation lessens the need for investment in these types of facilities, utilities have scant incentive to encourage its adoption. Hence, the widespread skepticism on the part of large electricity customers producing their own power. Con Ed’s standby tariff critics The potential and existing large energy consumers who own and operate distributed generation, notably New York City’s real estate developers and their trade association, the Real Estate Board of New York, have been among the most vocal and persistent critics of Con Ed’s standby tariff. In fact, the Durst Organization, a prominent New York City real estate developer, announced in January that its Hallets Point residential project slated for development in Astoria, Queens would generate all of its own electricity, and not connect to the grid. This announcement was widely viewed as a reflection of the Durst Organization’s prior disputes with Con Ed over the standby tariff. At a panel discussion on standby tariffs convened by the Public Service Commission (PSC), New York’s utility regulator, in late January, the concerns voiced by representatives of large energy consumers fell into four broad categories:
- The standby tariff amounts to an excessive and arbitrary tax on distributed generation;
- The exemptions that have been inserted on the tariff over the years (e.g. for small scale CHP plants) have stunted growth of distributed generation, as the main goal of project developers has become to keep generators small enough to qualify for exemptions rather than to install bigger generators that could provide cost savings and other benefits to facility owners;
- The exemptions tend to be time-limited, leading to regulatory uncertainty on whether they will be renewed or extended, which further discourages investment; and
- The tariff is so complex and difficult to apply that even high-priced energy consultants can only predict its financial impact with great difficulty and many qualifications, creating still another disincentive to investment in distributed generation.
Much more work must be done to hash out the complexities of the standby tariff and its barriers to clean, distributed energy.The recent issue of Track 2 Order serves as an important starting point for reforming the standby tariff, and shows that state officials are beginning to work toward comprehensive, long-lasting solutions. But much more work must be done to hash out the complexities of the standby tariff and its barriers to clean, distributed energy. In Part two of this post, I will expand on the large energy consumers’ proposals to fix the standby tariff, show how a course can be charted toward long-term, equitable, and broadly-acceptable solutions that can foster significantly more investment in distributed generation, and propose modifications that will lead to cleaner distributed generation. This is one of two blogs exploring the standby tariff in New York and how it discourages distributed, on-site, customer-owned and operated power generation. In part two, we’ll explore how a course can be charted to fix it. Photo source: CUNY