FTC Staff Reply Comment Before the State of New York Public Service Commission in the Reforming the Energy Vision Proceeding, Responding To Third-Party Comments on the NY PSC Benefit-Cost Analysis

STATE OF NEW YORK
PUBLIC SERVICE COMMISSION
Proceeding on the Motion of the Commission in Regard to )
Reforming the Energy Vision 	) 	Case 14-M-0101
)
Staff White Paper on Benefit-Cost Analysis 	)
REPLY COMMENT OF THE STAFF OF THE FEDERAL TRADE COMMISSION1
September 10, 2015
I. 	Introduction
The Federal Trade Commission (FTC) staff appreciates this opportunity to submit a
comment in reply to certain comments filed last month in the Reforming the Energy Vision
(REV) proceeding before the State of New York Public Service Commission (NY PSC). The
NY PSC has requested input concerning the NY PSC Staff White Paper on Benefit-Cost
Analysis in the Reforming Energy Vision Proceeding (Staff BCA).2
As we have done previously,3 we commend the NY PSC and its staff for their efforts to
reconceive the structure and operations of the electric distribution system in the face of a number
1 This comment expresses the view of the FTC’s Office of the General Counsel, Office of Policy
Planning, and Bureau of Economics. The comment does not necessarily represent the views of
the FTC or of any individual Commissioner. The Commission, however, has voted to authorize
the filing of this comment.
2 State of New York, Dep’t of Public Service, Staff White Paper on Benefit-Cost Analysis in the
Reforming the Energy Vision Proceeding (July 1, 2015) (Staff BCA), available at
http://documents.dps.ny.gov/public/Common/ViewDoc.aspx?DocRefId={168B59A0-14A9-
4DE3-8B97-DFE25A067CF9}; Notice Inviting Public Comment on the Staff White Paper on
Benefit-Cost Analysis (July 2, 2015), available at
http://documents.dps.ny.gov/public/Common/ViewDoc.aspx?DocRefId={411B7682-90CB-
40D8-922E-19F4A4FB1A27}. We use the acronym “BCA” throughout this comment to stand
for “benefit-cost analysis.”
3 Reply Comment of the Staff of the Federal Trade Commission Before the State of New York
Public Service Commission, Proceeding on the Motion of the Commission in Regard to
Reforming the Energy Vision: DPS Staff Straw Proposal on Track One Issues, Case No. 14-M-
0101 (Oct. 23, 2014), available at
https://www.ftc.gov/system/files/documents/advocacy_documents/federal-trade-commission-
staff-reply-comment-new-york-state-public-service-commission-
reforming/141024nypsccomment.pdf.

2
of key developments. Those developments include: (1) important technical advances in
distributed energy resources (DERs), together with tools to optimize the inclusion of DERs in the
distribution level of the power system;4 (2) increasing concerns about the environmental impacts
of fossil-fueled generation; and (3) growing evidence of consumer interest in customized electric
service, including differing preferences for increased reliability and resiliency. Our comment
draws on the FTC’s experience both in enforcing competition laws and in advising federal and
state regulatory agencies about the competitive effects of an array of regulatory programs
focused on the electric power system.
The Staff BCA seeks to describe a framework that the NY PSC will apply in examining
categories of distribution utility expenditures related to developing the Distributed System
Platform, the procurement of DERs via selective processes, the development (via tariffs) of
customers’ and third parties’ efficient investment in DERs, and energy efficiency programs. This
is all in the context of “the evaluation of opportunities to avoid traditional utility distribution
investments by calling upon the marketplace to supply DER alternatives.” The NY PSC reserves
the authority to modify the final version of the BCA framework based on the type, range, and
duration of the potential benefits and costs.
Our comment responds to initial third-party comments on the Staff BCA. For example,
the comments of both Exelon Companies5 and the Advanced Energy Economy Institute (with
others)6 found value in the Staff BCA framework for assessing the benefits and costs of DERs as
an alternative to conventional distribution utility investments.7 We likewise saw value in that
framework. In addition, both comments also recommended additional types of benefits and costs
for inclusion in the Staff BCA8 and cautioned about the potential sensitivity of BCA results to
models and assumptions used in BCA regarding future economic and environmental conditions.
We agree that BCA should assess additional types of benefits and costs and that the Staff BCA
should include sensitivity analysis of BCA results. The remainder of this comment identifies our
4 See, e.g., Gerry Braun & Stan Hazelroth, Energy Infrastructure Finance: Local Dollars for
Local Energy, 28 Electricity J. 6, 9, 19 (June 2015).
5 Exelon Companies, Benefit-Cost Analysis Comments of the Exelon Companies (Aug. 21, 2015)
(Exelon Comment), available at
http://documents.dps.ny.gov/public/Common/ViewDoc.aspx?DocRefId={42634466-F7A9-
43FB-B699-EA43BF5B48A4}.
6 Advanced Energy Economy Institute, Alliance for Clean Energy New York, & New England
Clean Energy Council, Comments on Staff White Paper on Benefit-Cost Analysis in the
Reforming the Energy Vision Proceeding (Aug. 21, 2015) (AEEI Comment), available at
http://documents.dps.ny.gov/public/Common/ViewDoc.aspx?DocRefId={C02AD3D8-6153-
4FAD-A605-C57453337CB2}.
7 Exelon Comment at 2; AEEI Comment at 2-3. See also the extensive appendix to the AEEI
Comment, consisting of a report, Benefit-Cost Analysis for Distributed Energy Resources: A
Framework for Accounting for All Relevant Costs and Benefits (Sept. 22, 2014).
8 Exelon Comment at 4, 6-9; AEEI Comment at 9.

3
recommendations for additional benefits and costs to be included in the Staff BCA and explains
the importance to the NY PSC of insights regarding the sensitivity of BCA results.
We encourage the NY PSC and its staff to broaden the perspective of the Staff BCA to
take more complete account of the REV proceeding’s potential effects on competition, including
those beyond just cost and price considerations. At a fundamental level, REV is an effort to
open the marketplace to DERs at the distribution level of the electric power industry. This is an
area that – aside from limited self-supply options – has historically operated as a regulated
monopoly. Opening markets to competition can create opportunities for quality improvements,
wider customer choice, and increased rates of innovation (in addition to lower costs and prices).
All of these economic benefits – stemming from more effective competition – redound to the
benefit of customers. Yet despite the breadth of this array of benefits that could flow from the
increased competition presented by DERs, the Staff BCA appears to focus mainly on potential
cost and price benefits.
As discussed in Section II of this comment, the FTC – with a long history of law
enforcement and policy research regarding the effects of changes in the intensity of competition
– employs economic analysis to assess competitive conditions and engages in antitrust
enforcement to block mergers or anticompetitive practices that harm competition and consumers.
The FTC’s analysis of competitive effects entails the examination of price effects and efficiency
effects, consistent with the focus of the Staff BCA. Appropriate analysis of competitive effects
does not necessarily end, however, with assessment of price and efficiency effects. The
competition analysis extends to non-price aspects as well, including effects on the quality of
goods or services, innovation, and the number of choices available to customers. This latter
group of concerns is particularly acute when excessively restrictive regulations impede suppliers
from exercising their otherwise legal right to respond to customers’ divergent preferences.
In our view, the NY PSC and the public would benefit from broadening the perspective
of the Staff BCA. By focusing on a more complete range of potential economic performance
benefits likely to flow from the growing competitive role of DERs, the NY PSC can illuminate
additional opportunities to benefit customers. Section III of this comment discusses this issue in
the context of the “Principles of the BCA Framework” set forth early in the Staff BCA. Section
IV offers examples of additional categories of benefits, drawn from the broader spectrum of
competitive effects that the FTC examines in its competition analysis and competition advocacy.
Section V discusses how the importance of these additional categories of benefits may vary as
revealed by sensitivity analyses.
II. 	Interest and Experience of the FTC
The FTC is an independent agency of the United States Government responsible for
maintaining competition and safeguarding the interests of consumers. The FTC fulfills these
missions through law enforcement, policy research, and advocacy. For example, in the field of
consumer protection, the FTC enforces Section 5 of the Federal Trade Commission Act, which
prohibits unfair or deceptive acts or practices. In its competition mission, the FTC enforces
antitrust laws regarding mergers and unfair methods of competition that harm consumers. In
addition, the FTC often analyzes regulatory or legislative proposals that may affect competition,
allocative efficiency, or consumer protection. It also engages in considerable consumer

4
education through its Division of Consumer and Business Education.9 In the course of all of this
work, the FTC applies established legal and economic principles as well as recent, innovative
developments in economic theory and empirical analysis.
The energy sector, including the electric power industry, has been an important focus of
the FTC’s merger review and other antitrust enforcement, competition advocacy, and consumer
protection efforts.10 In particular, the FTC and its staff have filed numerous comments
advocating competition and consumer protection principles with state utility commissions, state
legislatures, the Department of Energy (DOE), and the Federal Energy Regulatory Commission
(FERC).11 The FTC’s competition advocacy program also has issued two staff reports on
electric power industry restructuring issues at the wholesale and retail levels.12 In addition, the
9 For an overview of the FTC’s education efforts, see the FTC staff’s comment to the Consumer
Financial Protection Bureau concerning “Request for Information on Effective Financial
Education,” Docket No. CFPB-2012-0030 (Nov. 2, 2012), available at
http://www.ftc.gov/os/2012/11/1211cfpb.pdf.
10 See, e.g., In re DTE Energy Co., Dkt. No. C-4008 (2001) (consent order), available at
http://www.ftc.gov/enforcement/cases-and-proceedings/cases/2001/05/dte-energy-company-and-
mcn-energy-group-inc; In re PacifiCorp, File No. 971 0091 (1998) (consent agreement),
available at http://www.ftc.gov/sites/default/files/documents/cases/1998/02/9710091.agr_.htm;
FTC Conference on Energy Markets in the 21st Century: Competition Policy in Perspective (Apr.
10, 2007), available at http://www.ftc.gov/news-events/events-calendar/2007/04/energy-
markets-21st-century-competition-policy-perspective.
11 A listing, in reverse chronological order, of FTC and FTC staff competition advocacy
comments to federal and state electricity regulatory agencies is available at
http://www.ftc.gov/policy/advocacy/advocacy-
filings?combine=&field_matter_number_value=&field_advocacy_document_terms_tid=5290&f
ield_date_value%5Bmin%5D%5Bdate%5D=&field_date_value%5Bmax%5D%5Bdate%5D=&
=Apply. In addition, the FTC’s Bureau of Consumer Protection has been monitoring the
evolving uses of energy-related consumer data for privacy and data security issues. See, e.g.,
Letter from Jessica L. Rich, Dir., Bureau of Consumer Protection, FTC, to Eric Lightner,
Director, Federal Smart Grid Task Force, Office of Electricity Delivery and Energy Reliability,
U.S. Dep’t of Energy, concerning a Voluntary Code of Conduct for Utilities and Third Parties
Providing Consumer Energy Use Services (Oct. 29, 2014), available at
https://www.ftc.gov/system/files/documents/public_statements/599251/141029consumer_energy
vcccomment.pdf.
12 FTC Staff Report, Competition and Consumer Protection Perspectives on Electric Power
Regulatory Reform: Focus on Retail Competition (Sept. 2001), available at
http://www.ftc.gov/reports/competition-consumer-protection-perspectives-electric-power-
regulatory-reform-focus-retail; FTC Staff Report, Competition and Consumer Protection
Perspective on Electric Power Regulatory Reform (July 2000), available at
http://www.ftc.gov/reports/competition-consumer-protection-perspectives-electric-power-

5
FTC staff (along with staff from FERC, the Department of Justice, the Department of
Agriculture, and DOE) contributed to the work of the Electric Energy Market Competition Task
Force, which issued a Report to Congress in the spring of 2007.13
III. 	Include Service Quality, Service Choices, and Innovation Rates in the Principles
of the BCA Framework
The Staff BCA (at 3-4) lays out the “Principles of the BCA Framework” and asks for
recommended revisions, additions, or deletions. In our view, this statement of Principles would
benefit from an explicit recognition that electricity services are no longer homogeneous. One of
the attractions of the REV proceeding is the opportunity it presents to continue to allow for the
customization of electricity services to better match customers’ varying preferences. To be
consistent with the REV’s opening of the distribution system to customized electricity services,
the Staff BCA Principles should acknowledge the benefits of more closely matching those
services to customers’ varied preferences. This matching between customers’ preferences and
services provided could involve any aspect of energy services that interests customers. Such an
explicit statement in the Principles would make clear that the staff recognizes the value of
customization in the context of the Staff BCA.14 Equally important, it would demonstrate the
staff’s recognition, in the context of the Staff BCA, of the NY PSC’s view that a one-size-fits-all
model of retail electric services for all customers is not optimal.
A non-exhaustive list of kinds of retail electric service differentiation would include:
• 	dynamic retail prices that track wholesale prices, or that reduce price volatility by
undertaking hedging against a variety of price risks;
• 	the inclusion of renewable resources or other products that reflect retail customers’
preferences regarding impact on the environment;
• 	degrees of service resiliency in the face of severe weather or other service disruptions;
• 	bundling of DER equipment and DER equipment services with retail electric service;
• 	aggregation of demand responses from multiple customers;
• 	energy conservation incentives;
• 	bundling of energy management services with retail electric services;
• 	energy efficiency incentives and energy audit services;
regulatory-reform (containing edited compendium of excerpts from previous comments that the
FTC and its staff provided to various state and federal agencies).
13 That report is available at http://www.ferc.gov/legal/fed-sta/ene-pol-act/epact-final-rpt.pdf.
14 A more recently issued NY PSC staff white paper focuses on this keystone concept of the
REV process. State of New York, Department of Public Service, Staff White Paper on
Ratemaking and Utility Business Models (July 28, 2015), available at
http://documents.dps.ny.gov/public/Common/ViewDoc.aspx?DocRefId={48954621-2BE8-
40A8-903E-41D2AD268798}. See esp. Section III of the July 28 white paper (“Aligning
Customer Value with Earnings Opportunities”).

6
• 	limited versus unlimited backup services for DER owners;
• 	peak load shaving incentives;
• 	choices among potential combinations of capacity charges, minimum use charges, and
energy use charges;
• 	bundling of analysis of cross-sectional and longitudinal power consumption data and data
display equipment with energy services; and
• 	degrees of power quality assurances provided by equipment on either side of a
customer’s meter.
In addition, when growth and profit opportunities arise in competitive markets from
offering improved equipment or services, this incentivizes further innovation. We expect the
opening of the electric distribution system to competition (pursuant to the REV plan) to yield
major benefits from increased innovation in customized electricity services. We recommend that
the Principles of the BCA Framework explicitly include the benefits of increased rates of
innovation.
A modification of the second Principle could easily take account of both service
differentiation and innovation. For example, the second Principle could be modified to read:
“List all benefits and costs borne by all parties, including localized impacts on host communities;
customization of services that better match customer preferences regarding prices, service
quality, and variety of service; and rates of innovation.”
IV. 	Add Competition, Efficiency, and Customer Choice to the List of Benefits15
Table 1 lists benefits and costs to include in the BCAs that distribution utilities conduct.
The table expresses the benefits almost exclusively in terms of avoided costs, some of which
occur at the bulk power level while others are at the distribution level. Some of the listed costs
focus on reliability, while others concern externalities. A residual item covers “Net Non-Energy
Benefits.” The Staff BCA invites comments on whether to revise this proposed list of benefits
and costs to be assessed by utilities when comparing traditional distribution utility investments to
DER and energy efficiency alternatives.
As discussed in Section III of this comment, we recommend that the Staff BCA take a
broader view of DERs’ potential benefits. The benefits list in Table 1 focuses primarily on bulk
system and distribution system benefits associated with traditional utility operations, which
provided little service variety to satisfy differing customer preferences. Consistent with our
recommendation in Section III, we recommend an additional category of benefits associated with
15 We also recommend an addition to the list of potential DER costs. Tariff changes to induce
DER or to pay for DER investments may cause some customers to reduce their energy
consumption. The value of this forgone electricity consumption may constitute a cost to the
customer (or to society). Logically, this value would be classified as a part of “Net Non-Energy
Costs” in Table 1 of the Staff BCA. If distributed generation substitutes for lower consumption
from the grid, there may be little or no forgone consumption. Instead, the source of supply has
simply changed from the grid to an onsite generation resource.

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the increased value of electric services that DERs provide to customers that incorporates the
principles of competition, efficiency, and customer choice. Chief among these benefits could be
the extra value that customers of retail electric services derive from the increased customization
of those services.16
We do not have a basis to recommend specific ways to measure these DER benefits.
Rather, we want to emphasize that the NY PSC is likely to create the conditions in which these
benefits can flourish if it fosters a competitive environment conducive to increased DER
participation.17
In addition, although Table 1 includes “Wholesale Market Price Impacts” as a benefit, we
recommend that NY PSC staff determine whether the beneficial effects of increased competition
receive adequate attention in the power system modeling discussed at pages 14-15 in the Staff
BCA. The competitive benefits of the REV are not limited to the immediate impacts of DERs or
energy efficiency projects that substitute for distribution system expenditures. The benefits may
also include the long-term impacts of increased competition at the distribution level of the power
system.18 It is not clear to what degree the modeling and forecasting sources cited in this section
of the Staff BCA incorporate these effects. The Staff BCA envisions calculating benefits and
costs over the full life of investments (the seventh listed Principle, at page 4); accordingly, any
analysis of the dynamic benefits of increasing competition at the distribution level should cover
the same time span. If the modeling referenced on pages 14-15 does not incorporate the benefits
of these newly released dynamic market forces, we recommend that the staff add consideration
of this source of benefits to the Staff BCA.
16 This category of benefits could also be treated as a subgroup under “Net Non-Energy
Benefits.” This is a designation for benefits that do not align with savings (avoided costs) in
traditional utility cost categories.
17 At a later stage of this proceeding, if the NY PSC wished to gain insights into the size of the
associated benefits, it could, for example, examine the rates at which these services have been
adopted in New York or other jurisdictions and the extent of customer satisfaction with the
services. In some instances, it might be possible to estimate customer bill savings,
environmental benefits, or the value of reliability assurances that customers derive from these
customized services.
18 Increasingly active customers can reinforce the dynamic benefits of opening DERs’ access to
the grid. This interaction between active sellers and buyers, termed “market animation,” is
described in the Synapse Energy Economics appendix to the AEEI Comment, supra notes 6-7:
“At the retail level, adoption of DERs increases the number of market actors involved in
supplying energy products and services, facilitating both competition and innovation. This effect
is referred to as ‘market animation’ and was described in the Staff’s Track One Straw Proposal.
At the individual customer level, DERs empower customers to take control of their utility bills
and usage, enabling customers to make consumption decisions that more accurately reflect the
actual value that they place on the product or service.” Id. at 26 (footnote omitted). Some of
these benefits also may be captured by the concept of “organic conservation.” See Ryan Hledik,
Ahmad Faruqui, & Wade Davis, The Emergence of Organic Conservation, 28 Electricity J. 48,
48-51 (June 2015).

8
Increased competition in formerly regulated monopoly markets also may induce
efficiency improvements and more rapid innovation.19 Accordingly, we also recommend the
addition of “Efficiency Improvements” and “Increased Innovation” to the list of benefits in Table
1.
V. 	Sensitivity of BCA Results
The Staff BCA uses various models or assumptions to account for uncertainties regarding
future technological, economic, and environmental conditions. Future benefits and costs can
depend on the numerous future conditions that can influence demand and supply. Thus, faced
with a multi-year time frame, BCA must take future conditions into consideration.
The transparency of BCA depends in part on the recognition that BCA results could
change depending on current estimates of future conditions. In part, this means highlighting for
decision-makers the sensitivity of BCA results to potential variances in future conditions. Such
recognition should help decision-makers make informed decisions about how to handle risk.20
In the context of the REV proceeding, alternative future conditions of interest could
include shifts in relative fuel prices, climate change impacts, and the pace of technological
changes affecting both the supply and demand sides of the market (including, of course,
competitive conditions). If the BCA results, based on the most likely future conditions, prove
sensitive to alternative future conditions – or to rates of change in future conditions – then
additional benefits may be associated with the customization of services and the increased rates
of innovation that stem from increased competition. Specifically, the customization of services
and increased rates of innovation increase the markets’ ability to respond to changing demand
more quickly and at lower cost.
This source of benefits is similar to the benefits of resiliency investments, but it deals
with the general flexibility of future markets rather than flexibility in restoring service after
disruptive events. If a wider array of services is already available because of customization,
changes in customer preferences (due to changes in conditions) can be satisfied more quickly and
at lower cost because the newly popular services are more likely to be available already.
Expanding the supply of an existing type of service (with a known technology) is likely to be
quicker and less costly than starting from scratch to develop entirely new services and associated
technologies. If future conditions diverge from anticipated conditions, sensitivity analysis can
19 For a discussion of parallels between efficiency and innovation impacts of increased
competition in the telecommunications and electricity sectors, see William P. Zarakas, Growth
Prospects and Shifting Electric Utility Business Models: Retail, Wholesale and Telecom
Markets, 28 Electricity J. 59, 63-65 (June 2015).
20 Generally, if BCA results are robust to potential variations in future conditions, decision-
makers can proceed with less concern about interim reevaluations, hedging, and contingency
planning. Conversely, if BCA results are highly sensitive to future conditions, decision-makers
may want to emphasize interim reevaluations, hedging, and contingency planning.

9
help decision-makers understand the implications.21 Increased market nimbleness (from the
opening of electricity distribution to more DER competition) may make a major difference in
long-term market performance in the face of unexpected economic, weather, or technical
conditions.
VI. 	Conclusion
The FTC staff appreciates the opportunity to provide this reply comment. If you have any
questions or comments, please contact John H. Seesel, Office of the General Counsel, at (202)
326-2702.
21 Advanced system optimization techniques may also be helpful for this purpose. See, e.g.,
Francisco D. Munoz, Jean-Paul Watson, & Benjamin F. Hobbs, Optimizing Your Options:
Extracting the Full Economic Value of Transmission When Planning Under Uncertainty, 28
Electricity J. 26, 32-35 (June 2015).