NEW YORK — Last month, six of the state’s utility CEOs met on the west side of Manhattan to discuss the future of their business.
What did they see? They pictured the state of New York with less CO2, more renewable power and more distributed generation. They contemplated a grid where they continue to build and run the wires, but they make money in novel and disruptive ways. They showed off the pilot projects that, they think, can be models of the new electricity era.
Then Mark Lynch, the president of New York State Electric & Gas and Rochester Gas & Electric, served up a teaspoon of temperance.
"Those revenues are going to be modest," he said at the Advanced Energy Conference. "They’re not going to supplant getting a billion dollars for capital expenditure and regulating that."
Utilities have thrown their support behind Democratic Gov. Andrew Cuomo’s plan to revolutionize the state’s power grid, a plan known as Reforming the Energy Vision, or REV. But they don’t yet know the answer to this question: Is there any money in it for them?
Cuomo and state regulators think so.
Last week, New York’s Public Service Commission rolled out rules that, it hopes, will expand utilities’ revenue options.
The old-fashioned way remains: Utilities can still build infrastructure and sell electrons, as ever. But in the future, utilities can also profit from making the grid lower-carbon, more efficient and more distributed.
The commission doesn’t just want these investor-owned companies to modernize the grid. If the rules are set right, it hopes, these companies will be financially driven to do it.
"With this direction we begin a new turn toward a modernized utility business model," it said in the filing.
And REV’s supporters think this model should leave the utilities financially sound — or even better off, when all is said and done.
"I wouldn’t look at this as we’re going to shrink the utilities and get rid of them," said Rory Christian, director of New York clean energy at the Environmental Defense Fund. "I’d look at this as a transition to a new way of business where more revenue comes from doing business differently."
If so, "modest" earnings won’t do. Utilities are multibillion-dollar businesses that mostly make money the old-fashioned way: by building the grid and selling juice.
Consolidated Edison Inc. reported $8.8. billion in operating revenue from power last year. Avangrid Inc., which runs four electric utilities in New York and New England, collected more than a quarter-billion dollars in profits last year.
Christian, and others, acknowledged the uncertainties inherent in building a new business model for the industry of Thomas Edison.
So did Avangrid, in a recent securities filing.
"While the end result of the REV process at the NYPSC remains unclear, it could alter the utility model in New York in a manner that could create material adverse impacts on our businesses and operations in New York," it said.
Cutting the wires?
The uncertainty isn’t really about the technology. Solar panels, batteries and smart meters are hardly new. But REV imagines an unprecented scale-up of such technologies — called distributed energy resources, or DERs — across the grid.
Since they don’t behave the same way as traditional power plants, just coordinating these resources to keep the grid up will be a challenge. On top of that, the PSC wants proof that these resources are profitable — for utilities, customers and third-party companies that want to participate.
Is there really enough cash to make everyone happy?
"That is really the big question to be answered," said Rebecca Wingenroth, a technical leader at the Electric Power Research Institute, "because we don’t know how quickly renewables will come into play, and DER, and we don’t know how the customers are going to react to it. We’re still testing the technology to see how it all works.
"So I don’t think there is a firm answer to, first of all, how much money there is, and second, how long it’s going to take" to find out, she said.
To find out, the six major utilities in New York are launching demonstration projects.
Take Rochester Gas & Electric Corp., which is testing out an online "marketplace" where customers can shop for energy-related goods and services, including from third parties — a sort of Amazon.com for the green, distributed grid.
According to a filing, the project budget is set at $415,000 through the start of next year. But the forecasts in Table 15, "project revenue," are blacked out.
Another project — not technically part of REV, but closely watched nonetheless — is taking place in New York City.
Consolidated Edison Company of New York Inc. is trying to find enough energy efficiency in Brooklyn and Queens that it can avoid a $1 billion upgrade to the grid. If it can, ConEd estimates, these alternatives could cost as little as $200 million.
But New York City has asked who’s on the hook if it costs more.
"The assumption and assertion that the [Brooklyn/Queens Demand Management] Program, as proposed, will be cost-effective is questionable," the city said in a 2014 filing. "The confidence level of this [$200 million] estimate is not high. There are no details or factual support for this projection in the Petition or in the Brownsville Load Area Plan."
Virginia Lacy, a principal at the Rocky Mountain Institute, said the pilots will be useful even if they don’t turn out to be wildly profitable.
"There are going to be failures. That’s why they’re demonstration projects," she said. "It’s learning by doing, and we’ve got to start somewhere."
As for the utilties’ investors, they seem unperturbed so far.
Some just aren’t paying attention. REV, if implemented in full, could take years or even a decade — too far out for most investors to care.
And others take comfort in the PSC’s promise that it wants to "maintain a sound electric industry," as it said last July.
A big change is coming, they say, but utilities have a seat at the table.
"I didn’t get the sense that it was going to place that much utility revenue at risk," said Paul Patterson, an equity analyst with Glenrock Associates LLC. "If you can cut the wires, that changes everything. But right now, I don’t think we’re in a situation where transmission and distribution companies are facing that imminently. They may. I don’t dismiss it."