**4.2. Application of the Hamel Framework to the REV Docket**

**Table 3** offers a four-part, multi-dimensional, Hamel analytical framework and application of the key dimensions to REV. These dimensions extend beyond business-model innovation in the utility industry. These dimensions attempt to account for the increasing focus on performance-based utility operation, the relationship dynamics that accompany such a shift [58] and the required transition to a servitization system—as mandated by system reliability and resiliency, system-wide efficiency, and the climate change challenge [3].

#### *4.2.1. Strategic resources and opportunities: utility assets*

There are four main types of electric utilities in NYS, namely investor-owned private utilities, retail-power marketers, state-owned public authorities, and municipal utilities. These utilities can be grouped into two service types: bundled and delivery. Several organizations have institutional capabilities, mandates, and responsibilities for managing utility customer choice archetypes in New York (**Figure 4**). Eventually, NYSERDA may emerge as the hub of such polycentric activities. However, a more polycentric governance approach could potentially emerge across and between several bodies as institutional innovation takes root, with organizations such as the NYPSC and FERC providing oversight mechanisms for greater transparency in utility rate design, wholesale market regulations, and DER integration, and organizations like the North American Electric Reliability Corporation (NERC) and New York State Reliability Council (NYSRC), establishing greater degrees of reliability standards. This polycentric innovation development could help minimize information asymmetries and

> strategic behavior such as disguising true expected future costs to the regulator to increase allowed revenues or returns. As the NYPSC contends, "asymmetry regarding system information if continued will result in a barrier to new market entry by third parties and ultimately impede innovation and customer choice" [44]. On the other hand, New York Independent System Operator (NYISO)—a non-profit organization set up by NYS—could emerge as the central open platform for procuring DERs from suppliers. NYISO currently administers wholesale electricity markets in the state and provides reliability planning for bulk-electricity power, but this function could expand with the growth of DERs especially bulk power generation. Ultimately, NYISO would continue to oversee the wholesale electricity markets in NYS while FERC regulates wholesale electricity rates, licenses hydroelectric projects, and sets policies for interstate electricity sales. Under FERC Order 745, FERC regulates wholesale product tariffs by independent system operators (ISO) such as NYISO—including integration

**Component Definition REV features**

An estimated \$30 billions of investment in the state's aging grid infrastructure is required by

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15

NYSERDA's Clean Energy Fund provides \$5B investment in new green energy over 10 years,

REV promotes greater consumer choice. Emphasizes enhanced customer-centric paradigm (e.g., billing solutions for effective

Removes market barriers and promotes

Distribution utilities act as DSPs.

Promotes greater interaction among DSPs to create a market pricing platform, and service

Energy efficiency savings are part of utility revenue not dedicated surcharge.

Earning impact mechanisms (EIM) replace platform service revenues (PSR) and market

Includes modified clawback mechanisms to

Each utility submit benefit–cost-analysis plan.

Encourages time of use (TOU) rates.

2025.

Diversifying Electricity Customer Choice: REVing Up the New York Energy Vision for Polycentric Innovation

starting in 2016.

management).

monetization.

Nonlinear transactions.

distributed utilities.

based earnings (MBE).

attract third parties.

Depicts the architecture of the utility value creation. Includes strategic assets, know-how,

Greater customer interactions, including customer relationship, segmentation, fulfillment

offerings to resource providers, suppliers, and

of potential existential business model risks. This capacity is influenced by the flexibility and complexity of both the business model but also

**Table 3.** Application of Hamel business model to conventional energy utility.

core processes and competencies.

support, and revenue structure.

Core strategy The utility's capacity to change course in the face

the infrastructure it operates.

Value network Includes utility added values or business

partners.

Strategic resources

Customer interface

The state's strategic resources and utility assets are owned, operated, and regulated by a variety of private and public entities (**Figure 4**). The functions provided by this complex electricity infrastructure create a path dependency in which existing business models either enable

of DERs into wholesale markets [45].


**Table 2.** Policy, regulatory, and actions for polycentric innovation.


**Table 3.** Application of Hamel business model to conventional energy utility.

model as it challenges two fundamental components of the conventional utility model: the assumption that electricity demand is inelastic, and the notion that economies of scale make a centralized generating model the most economical way for electricity services provision [52] and market development. **Table 2** summarizes the main policy, regulatory, and technological solutions that utilities and planners have proposed to improve DMS and UCM strategies

**Table 3** offers a four-part, multi-dimensional, Hamel analytical framework and application of the key dimensions to REV. These dimensions extend beyond business-model innovation in the utility industry. These dimensions attempt to account for the increasing focus on performance-based utility operation, the relationship dynamics that accompany such a shift [58] and the required transition to a servitization system—as mandated by system reliability and

There are four main types of electric utilities in NYS, namely investor-owned private utilities, retail-power marketers, state-owned public authorities, and municipal utilities. These utilities can be grouped into two service types: bundled and delivery. Several organizations have institutional capabilities, mandates, and responsibilities for managing utility customer choice archetypes in New York (**Figure 4**). Eventually, NYSERDA may emerge as the hub of such polycentric activities. However, a more polycentric governance approach could potentially emerge across and between several bodies as institutional innovation takes root, with organizations such as the NYPSC and FERC providing oversight mechanisms for greater transparency in utility rate design, wholesale market regulations, and DER integration, and organizations like the North American Electric Reliability Corporation (NERC) and New York State Reliability Council (NYSRC), establishing greater degrees of reliability standards. This polycentric innovation development could help minimize information asymmetries and

**Policy, regulatory, and technological solutions for advancing polycentric innovation Author(s)** Information asymmetry, capital expenditure bias, and time-varying rates. [53, 54]

DERs, DSPs, benefit–cost analysis framework, and net energy metering. [3, 55, 56]

Marginal-cost-based dynamic pricing and time-varying electricity rates. [47]

Electric grid modernization and polycentric governance (democratized energy paradigm). [45, 46]

[1]

[16, 55]

[10, 38, 39]

[45, 57]

Distribution utilities and their place in an integrated grid model to provide infrastructure services,

Energy performance contracting, regulation of retail energy markets, and innovation of revenue and

Institutionalized polycentric innovations in energy governance, and sociotechnical co-evolution of

Utility financial incentives, investments, utility of the future roadmaps: (smart grid development,

based on polycentric approach to business-model innovations.

14 Energy Systems and Environment

**4.2. Application of the Hamel Framework to the REV Docket**

*4.2.1. Strategic resources and opportunities: utility assets*

enhance personalization, and value creation.

energy planning and policymaking.

DERs, and customer utility service model).

**Table 2.** Policy, regulatory, and actions for polycentric innovation.

pricing models.

resiliency, system-wide efficiency, and the climate change challenge [3].

strategic behavior such as disguising true expected future costs to the regulator to increase allowed revenues or returns. As the NYPSC contends, "asymmetry regarding system information if continued will result in a barrier to new market entry by third parties and ultimately impede innovation and customer choice" [44]. On the other hand, New York Independent System Operator (NYISO)—a non-profit organization set up by NYS—could emerge as the central open platform for procuring DERs from suppliers. NYISO currently administers wholesale electricity markets in the state and provides reliability planning for bulk-electricity power, but this function could expand with the growth of DERs especially bulk power generation. Ultimately, NYISO would continue to oversee the wholesale electricity markets in NYS while FERC regulates wholesale electricity rates, licenses hydroelectric projects, and sets policies for interstate electricity sales. Under FERC Order 745, FERC regulates wholesale product tariffs by independent system operators (ISO) such as NYISO—including integration of DERs into wholesale markets [45].

The state's strategic resources and utility assets are owned, operated, and regulated by a variety of private and public entities (**Figure 4**). The functions provided by this complex electricity infrastructure create a path dependency in which existing business models either enable or constrain energy market development. The resulting utility landscape that manages the flows of all these energy resources has experienced consolidation to the point at which, in 2015, a "baker's dozen" of three holding companies (namely Consolidated Edition, Long Island Power Authority, and Niagara Mohawk Power Corporation) representing 2.4% of all integrated utilities controlled 49% of utility revenues [4]. The REV model fully addresses the subcomponents of strategic resources (core competencies, strategic assets, and core processes) of the utility industry such as the aging infrastructure challenge. It supports what Reference [59] refers to as "infrastructure to services transition", or the "evolution of infrastructure for commodity delivery" to support greater personalization of value—new purposes, new platforms, enabled new infrastructure, and new applications (services).

to the owners and shareholders of the company. Additionally, conventional utilities are char-

Diversifying Electricity Customer Choice: REVing Up the New York Energy Vision for Polycentric Innovation

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17

Fundamental to optimizing behind-the-meter storage assets and DERs like rooftop solar is sharing of distribution-level data of the utility grid and common understanding of its distribution system. In 2015, a total of 124 utilities operated in New York with investor-owned utilities accounting for 12% of the total market share, representing 71% of customers (**Figure 5**). Behind the meter, cooperative, municipal, retail power marketer, and state utilities accounted for 9.7, 0.8, 9.7, 65.3, and 2.4% of the total market ownership, respectively. Investor-owned utilities operate under conditions of a guaranteed rate of return that is set by NYPSC. In the conventional business model, utilities invest in large-scale asset, economies of scale, and long-term infrastructural commitments that determine the form of the revenue/cost structure. These features still influence portfolio of electricity sales, revenues, and customer numbers of certain utilities in New York, even as the implementation of the REV model is ongoing. Behind-the-meter recorded the fastest growth in electricity revenues, sales, and customer count of 89.4, 78.6, and 68.7% in 2015, respectively. Under REV, DSP providers "create markets, tariffs, and operational systems to enable behind the meter resource providers to monetize products and services that will provide value to the utility system and thus to all

acterized by less customer interactions as they do not go "beyond-the-meter."

customers" [43].

**Figure 5.** Number of utilities, by ownership from 2008 to 2015.

#### *4.2.2. Customer interface: increasing customer choice and control*

REV empowers customers with meaningful level of choice and reduces cost-of-service of electricity consumption. For instance, it improves electricity billing system and knowledge of customer analytics, and animates the market with substantial choice offering about the consumption and provision of electricity services (e.g., from whom to procure electricity services and from what resources) [45, 46]. Conventional electric utilities compete by establishing utility-consumer relationship characterized by billing-based interactions that are impersonal, distant, and standardized. This distant aspect arises partly due to primary fiduciary obligation

**Figure 4.** NYS electric industry participants and institutions.

to the owners and shareholders of the company. Additionally, conventional utilities are characterized by less customer interactions as they do not go "beyond-the-meter."

or constrain energy market development. The resulting utility landscape that manages the flows of all these energy resources has experienced consolidation to the point at which, in 2015, a "baker's dozen" of three holding companies (namely Consolidated Edition, Long Island Power Authority, and Niagara Mohawk Power Corporation) representing 2.4% of all integrated utilities controlled 49% of utility revenues [4]. The REV model fully addresses the subcomponents of strategic resources (core competencies, strategic assets, and core processes) of the utility industry such as the aging infrastructure challenge. It supports what Reference [59] refers to as "infrastructure to services transition", or the "evolution of infrastructure for commodity delivery" to support greater personalization of value—new purposes, new plat-

REV empowers customers with meaningful level of choice and reduces cost-of-service of electricity consumption. For instance, it improves electricity billing system and knowledge of customer analytics, and animates the market with substantial choice offering about the consumption and provision of electricity services (e.g., from whom to procure electricity services and from what resources) [45, 46]. Conventional electric utilities compete by establishing utility-consumer relationship characterized by billing-based interactions that are impersonal, distant, and standardized. This distant aspect arises partly due to primary fiduciary obligation

forms, enabled new infrastructure, and new applications (services).

*4.2.2. Customer interface: increasing customer choice and control*

16 Energy Systems and Environment

**Figure 4.** NYS electric industry participants and institutions.

Fundamental to optimizing behind-the-meter storage assets and DERs like rooftop solar is sharing of distribution-level data of the utility grid and common understanding of its distribution system. In 2015, a total of 124 utilities operated in New York with investor-owned utilities accounting for 12% of the total market share, representing 71% of customers (**Figure 5**). Behind the meter, cooperative, municipal, retail power marketer, and state utilities accounted for 9.7, 0.8, 9.7, 65.3, and 2.4% of the total market ownership, respectively. Investor-owned utilities operate under conditions of a guaranteed rate of return that is set by NYPSC. In the conventional business model, utilities invest in large-scale asset, economies of scale, and long-term infrastructural commitments that determine the form of the revenue/cost structure. These features still influence portfolio of electricity sales, revenues, and customer numbers of certain utilities in New York, even as the implementation of the REV model is ongoing. Behind-the-meter recorded the fastest growth in electricity revenues, sales, and customer count of 89.4, 78.6, and 68.7% in 2015, respectively. Under REV, DSP providers "create markets, tariffs, and operational systems to enable behind the meter resource providers to monetize products and services that will provide value to the utility system and thus to all customers" [43].

**Figure 5.** Number of utilities, by ownership from 2008 to 2015.

#### *4.2.3. Value network: expanding customer-base*

The business model of the traditional utility pursues expansion in asset-based and, through its commodity-focused strategy, increases shareholders value. The goal of the conventional utility, as such, can be conceptually positioned at one end of a profit-motivation spectrum: the "motivation to build incremental assets for the primary purpose of expanding its ratebase" [60]. Because regulators reward or chastise utilities for decisions to achieve certain public-policy goals and to maintain "just and reasonable revenues," this model faces mounting challenges—especially in a DER framework. So-called "incentive regulation," however, establishes the working conditions of the utility. Within these conditions, "[g]iven any set of regulations, utilities participate in actions which most benefit their principal constituencies shareholders and management—while meeting the requirements of the regulations" [61]. Because the principal constituency of the investor-owned utility is its shareholder base, REV seeks to expand utility customer-base through *value addition* to scaling economic efficiency.

New York led by behind-the-meter facilities producing power intended for on-site consumption in homes, office facilities, and commercial buildings. Our findings show that New York utilities are increasingly investing in behind-the-meter renewable energy projects. Utilities favor these customer-side projects which recorded the fastest growth in electricity revenues,

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The chapter sheds lights on the growing influence of business-model innovations and the New York's REV docket in optimizing utility customer choice management and distribute system planning of electricity services. This research shows that implementation of the REV vision in a polycentric fashion offers significant benefits to all customers, not just those that subscribe to them, by generating richer innovations in pricing plans, consumer choice management, and customer analytics to improve utility operations and customer satisfaction. The expansion of renewable electricity market in New York would be impossible without support from state and federal policymakers. Although key polices and market regulations including community choice aggregation, net metering, clean energy fund, dynamic load management, low income affordability, and utility energy efficiency proposals have been proposed and even in some cases implemented in NYS to improve the development of distributed utilities and services, significant improvement in regulatory and market reforms is still required to eliminate market, financial, and economic barriers and skewed incentives that presently impede the efficient evolution of the utility sector. One of the key market development needs is thus to emphasize heavily improvement in the utilities' business-model innovation through external partnerships and suitable organizational structures that promotes an integrated

This work was supported by the Utility of the Future project that is co-sponsored by the Center for Energy and Environmental Policy (CEEP) at the University of Delaware and the

1 Foundation for Renewable Energy and Environment (FREE), New York, NY, USA

2 Center for Energy and Environmental Policy (CEEP), University of Delaware, Newark, DE,

sales, and customers in 2016 of 89.4, 78.6, and 68.7%, respectively.

renewable electricity utility market statewide.

Foundation for Renewable Energy and Environment (FREE).

No potential conflict of interest was reported by the authors.

\*Address all correspondence to: jnyangon@udel.edu

**Acknowledgements**

**Conflict of interest**

**Author details**

USA

Joseph Nyangon1,2\* and John Byrne1,2
