Antitrust Law Daily Wrap Up, CONSUMER PROTECTION NEWS: New York electricity regulator urged to increase competition in distribution system transformation proposal, (Oct 24, 2014)

By Edward L. Puzzo, J.D.

The FTC staff has submitted a comment in response to the recent New York State Public Service Commission (NY PSC) proposal to transform the function of the electric distribution system by authorizing Distributed System Platform (DSP) entities (FTC File No. V140012), the FTC announced today.

Under the NY PSC proposal, DSP operators would be responsible for balancing electricity supply and demand on local, lower-voltage distribution lines. The NY PSC proposal was made to foster the development of "distributed energy resources" (DERs) for electricity generation—such as customer owned solar arrays, energy storage units, and demand reductions—for the purpose of lowering electric system costs, increasing reliability, improving resiliency and lowering environmental impacts.

In response, the FTC staff expressed a concern regarding competition in the electric distribution system: namely that distribution utilities that served as their own DSP operators would have the incentive and ability to raise the costs and risks for rival, independent DERs.

To address the competition concern, the FTC staff recommends the use of a competitive procurement process to select the entities that will serve as DSP operators. This would allow a variety of bidders to show how they could keep administrative costs low, remove incentives to discriminate against independent DERs, and provide other benefits to electricity customers.

Further, the FTC staff comment encourages the NY PSC to use a competitive procurement approach to appoint independent market monitors to evaluate the performance of DSP operators, and suggests ways to improve the performance of the electric distribution system. In the event a distribution utility ends up serving as its own DSP operator, the comment recommends that the NY PSC consider disclosures to potential DER investors to avoid deception of customers and third parties contemplating new or expanded DER investments, as well as performance based incentives to avoid discrimination.

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