ACEEE Blog

Is PACE moving to prime time?
July 18, 2016 - 11:36 am

By Jim Barrett, Chief Economist


One of the distinctions we often make between energy and energy efficiency is that energy acts more like a cost, and energy efficiency acts more like an investment. Like most investments, energy efficiency works by using an up front expense to generate a stream of economic benefits. Every year, our Energy Efficiency Finance Forum conference looks at ways to manage these up-front costs and how to use that stream of benefits to turn energy efficiency into a viable investment market.

This upfront expense can often act as a significant barrier to energy efficiency. Buying a house used to have the same problem, but a long time ago, some smart people came up with the idea of a mortgage to help work around it.

How to finance energy efficiency improvements

More recently, some other smart people came up with a similar idea for energy efficiency. Property Assessed Clean Energy (PACE) financing is a relatively new strategy for funding efficiency and renewable investments that is really starting to take off. It works like this: let’s say you’ve identified a number of efficiency upgrades for your house, but you don’t have the cash on hand to pay for it. PACE financing will cover those upfront costs, but unlike a mortgage where a bank lends you the money that you use to buy the house and eventually pay back to the bank, a PACE financing company will pay for the upgrades directly and they tack the monthly payment onto your property tax bill by using something called a voluntary assessment.

The difference between PACE and a mortgage loan may not sound like a big deal, but it is. Mortgages work because in exchange for the loan, the bank puts a lien on your house. If you don’t pay, they can foreclose and sell the house to get their money back. Efficiency upgrades would be hard to foreclose on: Banks don’t want to rip out your insulation, and if they did, how much could they sell it for? Instead, PACE companies get their security from the assessment. If a house goes into foreclosure, the assessment stays attached to the house, and whoever buys it picks up payment where the previous owner left off. The same thing happens when you sell the house, which means that you won’t be afraid to undertake larger projects that need longer terms. If you sell the house, the new owner gets the benefits of the efficiency upgrades and pays for them through the assessment. By linking to the property tax, risk to the financer goes down, allowing lower interest rates and sometimes allowing credit to be extended to moderate income homeowners who might not normally qualify for an unsecured loan.

As in past years, PACE was a hot topic of conversation at our Energy Efficiency Finance Forum. Part of the reason is its rapid growth. Even though the concept is relatively new, over $2 billion has been invested in about 97,000 homes through residential PACE financing. PACENation estimates that residential PACE projects have created over 17,000 jobs just in implementing the upgrades. Our research on efficiency projects indicates that the energy savings they generate create as many net new jobs as the implementation does, so the total is really about double the PACENation estimate. PACE is increasingly being used in the commercial sector with about $250 million of loans issued according to PACENation.

Providing clarity for repayment

Anytime people get creative with finance, some questions come up, and PACE is no exception. In its early days, many PACE assessments were what is called first-position, which means that if a home went into foreclosure, any past due PACE payments would get paid before the mortgage did. This is standard for property taxes, but bankers and regulators were concerned that it would increase the risk of mortgages not getting fully paid off. They were also worried that a foreclosure would mean that all of outstanding PACE payments would immediately come due, including future ones that weren’t due yet. Last year, the White House and the Federal Housing Authority announced forthcoming guidance for PACE financiers to follow. Among other things, this guidance will clarify that PACE financing should go in second position—after the mortgage. This is important because it gives PACE financiers clarity on how to structure the assessments to make sure that the homes are still eligible for FHA mortgage insurance, which is critical to many borrowers.

The PACE industry was already moving to make second-position liens the industry standard and to make sure the assessments could stay in place in the event of a foreclosure. They were pleased with the announcement about forthcoming guidelines because they will give them a formal set of rules they could follow and know that they weren’t running afoul of banks and mortgage regulators. With these guidelines, the PACE market appears to be ready for another huge leap forward, particularly if key secondary mortgage players such as Fannie Mae and Freddie Mac decide to adopt these same guidelines. PACE is a powerful tool for communities, helping homeowners save money and reduce energy-related pollution. It’s just one example of what can happen when people think creatively about how to shape the emerging energy landscape, which is the kind of thing that happens regularly at our Finance Forum conference. I hope to see you at next year’s Energy Efficiency Finance Forum in Chicago.


The 2016 International Scorecard is almost here. Tune in next week to see the Olympics of energy efficiency
July 13, 2016 - 10:18 am

By Chetana Kallakuri, Research Analyst, Federal Policy


As world-class athletes descend on Rio for the 2016 Olympic Games, twenty-three countries are vying in a very different arena to become leaders in energy efficiency.

On July 20, ACEEE will release the 2016 International Energy Efficiency Scorecard, showcasing winning energy efficiency policies and programs from around the globe. This year’s report examines 23 of the world’s top energy-consuming countries’ efficiency policies and performance. Together these countries represent 75% of all the energy consumed on the planet and over 80% of the world’s gross domestic product in 2013.

Changes since the last edition

New countries: The 2016 report features eight new contestants: Indonesia, the Netherlands, Poland, Saudi Arabia, South Africa, Taiwan, Thailand, and Turkey. They will join the 2014 competitors which include Australia, Brazil, Canada, China, France, Germany, India, Italy, Japan, Mexico, Russia, South Korea, Spain, the United Kingdom, and the United States.

New metrics: We use 35 metrics, including 4 new ones to evaluate each country’s national commitment to energy efficiency as well as its efficiency policies and performance in the buildings, industry, and transportation sectors. New metrics include data availability, presence of energy management systems in industry, efficiency standards for motors, and Combined Heat and Power (CHP) policy.

Policy versus performance weighting: This year’s scorecard leans more heavily towards energy efficiency policy, allocating 60% of the points to policy metrics and 40% to performance metrics, as opposed to the 50/50 breakdown used in the previous scorecard. Our new weighting allows for a fairer comparison between the countries since performance metrics can be affected by factors other than energy efficiency that cannot be controlled such as climate, geography, and economic structure.

Who wins this year, and who loses? Tune in here next week for the 2016 report to see how the top energy-consuming countries fare in our energy efficiency rankings. A few surprises may be in order!


Energy-water nexus issues heighten in the face of climate change
July 08, 2016 - 5:11 pm

By Steven Nadel , Executive Director


ACEEE and many others have noted the importance of the nexus between energy and water issues. Energy is used to move, treat, and heat water. Water is vital for producing energy, such as for cooling electric generating plants. Insufficient water availability can increase energy use for pumping and decrease energy production. Flooding can damage both energy and water systems. And there are many opportunities to promote both energy and water efficiency at the same time. Next month we will release a fact sheet on our work on the energy-water nexus and how both energy and water efficiency play critical roles. But first, I want to explore how the relationship between energy and water may evolve in future years, particularly in response to climate change.

Impacts on water supply and demand from Climate change

Parts of the US—primarily in the triangle from Montana to southern California to western Texas—are already experiencing water stress, meaning that water is being withdrawn from water sources at a rate that might not be sustainable (see map on page 272 here).

According to the US Global Change Research Program, as the climate changes, some regions, such as south of the Great Lakes, will get more precipitation and other regions, like the southwest, will get less. A stylized map of expected precipitation changes from their 2008 report is below.

Water flow change in 2040-2060 relative to 1901-1970. Source: US Climate Change Science Program, p. 138. (following this report the program was renamed the US Global Change Research Program).

But precipitation is only part of the picture. Population and other trends will also affect water withdrawals. In the 2014 National Climate Assessment report, the US Global Change Research Program compared expected withdrawals with and without climate change. As shown below, they found that without climate change, withdrawals would increase in roughly half of the US, with particularly large increases in Arizona, Florida, Maine, and east of the Cascade Mountains. With climate change, they estimate substantial increases in withdrawals in most regions except for around the Great Lakes.

Projected changes in water withdrawals from 2005 to 2060 assuming (a) change in population and socioeconomic conditions based on preferred emissions scenario, but with no change in climate, and (b) combined changes in population, socioeconomic conditions, and climate according to the same emissions scenario (gradual reductions from current emission trends beginning around mid-century). Source: US Global Change Research Program, Water Resources chapter, p. 85.

Four potential impacts on the energy-water nexus

What does all this mean for the energy-water nexus? This question can be divided into several issues, largely drawing from the US Global Change Research Program 2014 report referenced above.

First, energy use for water extraction and treatment is likely to increase. For example, with water scarcer in some regions, energy use for water pumping is likely to increase, particularly for groundwater in areas with declining water tables such as California’s Central Valley and the Ogallala Aquifer in the Great Plains. Additional energy will also likely be needed to improve drinking water quality in areas like Florida where water supplies could become saltier. And in areas with large water deficits, there may be a need for energy-intensive water reuse and even desalinization plants. We have not seen any good estimates of how much energy use may increase as a result of these multiple factors.

Second, demand for water might increase for some end-uses such as irrigation and water-cooled air-conditioning and refrigeration equipment. Warmer and dryer weather would increase use of irrigation and cooling, but how much of this increased need is served with more water, versus avoided with improved water management practices is an open question. For example, a 2015 review by USDA of multiple studies found a median estimate of modest increases in irrigated acreage through 2060 (increasing water use in the medium-term), but then significant declines in the 2060-2080 period (decreasing water use in the long-term due to shifts in cropping patterns). In addition, water demand for energy production (power plant cooling and fracking) could increase, but in regions with tight water supplies this increased demand could perhaps be offset by major efforts to improve the efficiency of water use, or to avoid power production or fracking entirely.

Third, changes in water availability in some regions could affect energy production. For example, an assessment by DOE of the effect of climate change on power produced by federal hydro facilities found increases in some regions, decreases in other regions, and often a shift towards more production in winter and less in summer, requiring changes in seasonal power management practices.

For fossil fuel and nuclear power plants, lack of cooling water or cooling water that is too warm could prevent operation of a few power plants during dry and hot periods, problems that have at times already affected power production in the southeast and other regions (see here and here). A study by European and American researchers estimated that thermoelectric power generating capacity in the US will decrease by between 4–16% between 2031 to 2060, and 6–19% in Europe due to lack of cooling water. Limited water availability could also affect oil and gas production in some regions.

Fourth, excessive water, due to floods and/or higher tides, will affect some coastal energy and water facilities. The problem may affect many wastewater treatment facilities located on flood plains that serve areas like Seattle, New York City, and parts of Massachusetts. Flooding could also affect the electric distribution system, as happened in New York State and New Jersey during Superstorm Sandy, causing power outages and expensive system repairs.  Similar problems could happen elsewhere.

In summary, major changes are likely for many of the issues involved in the energy-water nexus. In future blog posts we will explore these issues further to address:

  • Ways accelerated energy and water efficiency efforts can help address the issues discussed above
  • Past and future ACEEE water-energy nexus work
  • The need to improve energy efficiency for water reuse and desalinization
  • The need for increased planning and management to make communities more resilient as conditions change

Want to increase your community’s resilience? ACEEE can help
July 06, 2016 - 12:37 pm

By David Ribeiro, Senior Analyst


How is energy efficiency connected to community resilience? We answered that question in a report last year, Enhancing Community Resilience through Energy Efficiency. The report found that energy efficiency should be a core resilience strategy because it strengthens energy systems and the communities they serve by providing more reliable and affordable energy. Energy efficiency reduces a community’s vulnerability to an array of hazards and increases their capacity to cope when disruptions occur (check out this infographic for more details). Our resilience research is ongoing; we will present our next paper on this topic at the 2016 ACEEE Summer Study on Energy Efficiency in Buildings.

How ACEEE can help

Many communities are actively developing resilience plans or pursuing resilience activities (see  here, here, and here). Local governments, planning organizations, and other stakeholders in these communities might find hands-on assistance helpful. Today we are announcing a technical assistance opportunity to help them. We will be able to offer assistance to a small number of communities interested in using energy efficiency to increase their community resilience. For those selected, we can answer questions like: how should my community incorporate energy efficiency into its planning activities, or what types of energy efficiency should my community consider? Here are some of the ways we can assist:  

  • Participate in local convenings to discuss energy efficiency’s role in increasing community resilience
  • Review draft resilience plans and suggest how energy efficiency can be incorporated
  • Assist in prioritizing policies or programs and identifying relevant best practices

We will also work with partners in this effort. The Clean Energy Group’s Resilient Power Project works to catalyze the use of resilient power in low-income communities and vulnerable populations. They are a leading expert on the impact of solar and energy storage in increasing resilience. The Public Technology Institute provides support to local and county governments on a number of topics, including local energy assurance planning. Both organizations have unique expertise with synergies to our energy efficiency expertise. These partnerships not only streamline technical assistance offerings related to resilience and energy, but by teaming efficiency, solar, storage, and assurance planning expertise, they can amplify the impact of this opportunity. Energy efficiency is part of the solution, but a multi-faceted strategy can have a greater impact on resilience efforts.

How to contact us

If you are involved in resilience activities in your local government and are interested in having ACEEE help out, please send me a note at dribeiro@aceee.org by July 29. In your note, tell me about your community’s current commitment to resilience and other resilience activities under consideration. We will consider cities on a case-by-case basis, and prioritize those actively involved in resilience planning.


Progress on commercial building energy efficiency has been good, but more attention needed to decrease waste in several areas
July 01, 2016 - 9:26 am

By Steven Nadel , Executive Director


Data recently released as part of the Commercial Building Energy Consumption Survey (CBECS) highlights changes in commercial sector energy demand between 2003 and 2012. The Energy Information Administration conducts CBECS approximately every five years, and examines in depth a nationally representative sample of thousands of commercial buildings.  Overall, energy use per square foot of floor area is down by 12%. Great strides have been made in reducing energy use for lighting (see our previous blog post) and space heating. Regarding space heating, the reduction is due to both greater use of energy-saving technologies and practices, as well as higher growth in building floor area in the south, which accounted for 39% of commercial building floor area in 2012, up from 37% in 2003.

But it is also notable that some building energy end-uses have gone up over the past decade. As we have previously discussed, energy use for computers, office equipment, and “other” uses is up (see the figure below which highlights changes in energy use since 2003 by end-use). Use for cooking and refrigeration is also up, mirroring growth in the food service and food store sectors. We’re eating out more, and buying more prepared and refrigerated foods—data from the Bureau of Labor Statistics shows that food store employment is up 12.7% over the past decade, more than double the growth in all employment. And cooling and ventilation energy use are also up, although the growth in cooling is very modest given the fact that CBECS found that 45% of all commercial new construction since 2003 has been in the south where cooling needs are particularly high. 

Total commercial energy consumption for lighting and other end-uses, 2003 and 2012

Source: EIA 2012 CBECS results

What does this mean for energy efficiency? These findings show that efficiency efforts can work, as shown for lighting and space heating. And cooling energy use growth would have been much greater if not for gains in cooling equipment efficiency and other cooling efficiency measures. But these findings also indicate that we need to pay more attention to areas of growing energy uses including cooking, refrigeration, ventilation, office equipment, and other miscellaneous uses. While efficiency progress has been made in these areas (e.g., efficiency standards for commercial refrigeration equipment and ENERGY STAR® programs for both commercial refrigeration and cooking), greater effort is needed. We need to better understand how this energy is used (a just released DOE report on commercial appliances should help), continue to develop new technologies and practices to reduce this use, and develop program and policy approaches to speed up dissemination of these new technologies and practices.  Progress on lighting and space heating help show that with added attention, we should be able to tame even these growing energy uses.

Data Points is a blog series focusing on the graphs and other images that tell the energy efficiency story.

 


Pennsylvania’s large utility customers shouldn’t opt out of paying their fair share to reduce energy waste
June 28, 2016 - 12:17 pm

By Ethan Rogers , Program Director, Industry


Currently there is an attempt in Pennsylvania’s statehouse to allow large utility customers to shirk their responsibility to reduce their energy waste. Senate Bill 805 would allow large industrial and commercial companies to opt out of Act 129, the Pennsylvanian statewide initiative to create a more energy-efficient economy. Similar ideas have been floated in the state before, but now things are moving fast and this week may see a decision on whether large customers are relieved of their responsibility to pay their fair share for energy efficiency investments that benefit the entire state.

Huge benefits could be endangered

Energy efficiency programs are largely paid for by ratepayers in the form of a small fee on their bills or a small amount embedded in their rates. These fees are then aggregated to fund cost-effective energy efficiency programs and projects across all sectors. These programs lead to huge benefits, especially when everyone participates. To date, Pennsylvania’s energy efficiency programs have created about 57,000 jobs within the state, and saved customers at all sizes more than $750 million on their electricity bills. Energy efficiency has significantly lowered the costs of electricity in Pennsylvania, and it is in the interest of all customers, large and small, to ensure that these investments continue.

But reaping the full benefits of energy efficiency could be in doubt if Senate Bill 805 goes through. When large utility customers opt out of efficiency programs, it affects everyone. Large customers represent a singular opportunity for low-cost energy savings for ratepayer-funded energy efficiency programs. This opt-out legislation allows large customers to fully opt out of paying their energy efficiency fees with no corresponding obligation to make energy efficiency investments on their own. That means other customer classes will have to carry the full burden of meeting state efficiency targets, or if the targets are lowered, pay for the generation and transmission that will be needed to serve a less energy-efficient economy.

Opting out will decrease Pennsylvania’s expertise and knowledge base

An opt-out also means that large customers are ignoring an important opportunity. In general, investments in energy efficiency lower operating costs for manufacturers, which increases their productivity and improves competitiveness. When these investments are made through utility programs, businesses get the added value of access to technical expertise, project implementation support, and financial incentives that reduce initial costs. In effect, they invest in projects that they would not do on their own.

Supporters of such legislation may claim otherwise, but on multiple occasions we have debunked the reasons they give—myths if you will—for exempting large customers from contributing their share. Most recently in a series of fact sheets that describe the value of including industrial energy efficiency programs to a state’s efficiency and economic development efforts, and how to design effective energy efficiency programs for large customers. Over the years, our analysis has proven the cost effectiveness of energy efficiency in comparison to conventional resources.

Everyone should pay their fair share for benefits they enjoy

Pennsylvania currently ranks 17th in ACEEE’s 2015 State Energy Efficiency Scorecard, rising three positions from 2014, a notable achievement. The state should be looking to advance, not backslide on its progress to deliver benefits to all residents by reducing energy waste. It is important for everyone who benefits to participate in making the Pennsylvania economy more energy-efficient. Allowing large customers to opt out will transfer their responsibility to other consumers and may increase the cost of electricity and decrease the number of jobs that could be created in the Keystone State.


Celebrating 40 years of saving energy and training students in industrial efficiency
June 17, 2016 - 10:18 am

By Meegan Kelly, Senior Research Analyst, Industry Program


Industry has been important to the American economy since the earliest days of our country and the strength of the manufacturing sector is a priority for the US government and members of Congress. In a Senate briefing last week, staff on Capitol Hill attended a presentation celebrating the success of the Industrial Assessment Centers (IAC) program, a little-known and long-standing initiative funded by the US Department of Energy (DOE) that helps small manufacturers save energy while training the next generation of energy efficiency engineers.

As part of the IAC program’s 40th anniversary, hill staffers from more than 10 Congressional offices convened for a briefing organized by Senator Jeanne Shaheen (D-NH) to learn about the program’s achievements. Since the program was founded in 1976, teams of students at 24 of the top US engineering schools have conducted more than 17,000 free energy assessments, and helped small and medium-size manufacturers save more than $1 billion in energy costs and enough energy to power over 1.4 million homes. To emphasize these successes, Senator Shaheen and Senator Lamar Alexander (R-TN) submitted a formal recognition resolution commending the value the IAC program has brought to both manufacturers and engineering students.

Dr. Kathleen Hogan, Deputy Assistant Secretary for Energy Efficiency for DOE, spoke at the briefing and described the program’s critical role within the department and shared her perspective on how we can ensure that the momentum continues for the next 40 years. IAC Technical Field Manager Dr. Michael Muller from Rutgers University and Dr. Sudhakar Neti, assistant director of the IAC at Lehigh University, also spoke at the event and shared stories about what it is like to work with students in the field. Another speaker, Bert Hill, manager at Volvo Group North America, explained the benefits his company received after IAC energy assessments were completed at five of their plants over the last three years.

A study commissioned by the DOE last year evaluated the performance of the program over fifteen years (1997–2013) and confirmed the measurable impact it has had on both energy savings and job skills development. The efficiency recommendations implemented by companies yielded over 480 MBTUs annually for every federal dollar spent, all while developing a pipeline of talented engineers who are trained in energy efficiency with skills that are highly valued in the job market. Several IAC student alumni who graduated from the program and work today as energy efficiency engineers also attended the briefing.

The future of the IAC program is bright and DOE is currently reviewing applications from universities to select which ones will host centers for the next five years. Hosting an IAC can have a large impact on a university and the territory that the center serves, so universities compete to host a center and partner with utilities, government, and local manufacturing groups to make compelling proposals. DOE will invest approximately $35 million in those centers over that five-year period. 


Energy efficiency makes Clean Power Plan goals very achievable
June 10, 2016 - 10:00 am

By Sara Hayes, Sr. Manager and Researcher, Air and Climate Policy


The Environmental Protection Agency has finalized state-specific limits on greenhouse gas emissions from the power sector. States can get most, if not all, of the emission savings they need by reducing the amount of electricity they are currently wasting. In the graph below, the light orange bars show that the listed states can achieve more than half of EPA’s 2030 limits with a few modest energy efficiency measures: 1% annual savings target, updated building codes, and 100 MW of new combined heat and power. The red bar shows the money saved by businesses and households when they spend less on their utility bills. In every single case, implementing efficiency measures costs LESS than building new generation to meet demand. All of this data comes from the SUPR2 calculator for states. It’s really easy to use. Try it out!

For more information on energy efficiency and the Clean Power Plan, visit our Clean Power Plan topic page.

Data Points is a blog series focusing on the graphs and other images that tell the energy efficiency story.

 


Energy efficiency lowers costs in recent PJM capacity auction
June 01, 2016 - 10:00 am

By Brendon Baatz, Manager, Utilities Policy


Energy efficiency provides many benefits to the electric utility system. One of these benefits is reducing the market price for electric generation. PJM Interconnection, the operator of the largest electric grid in the United States serving approximately 61 million people, wrapped up its most recent generation capacity auction last week. This auction determines the price paid to power plants three years in the future. The clearing price in last week’s auction was far below expectations and nearly 40% below last year’s clearing price. This is in large part due to new natural gas power plants and energy efficiency.

Approximately 1,515 MW of energy efficiency cleared the auction, the largest amount ever. In terms of total clean energy alternative resources to clear the auction, energy efficiency had the highest amount of capacity, substantially more than solar (335 MW) and wind (969 MW). The complete results can be found here.

The results of this capacity auction are great news for two reasons. First, the result highlights how system planners are utilizing energy efficiency as resource able to provide sustained and predictable energy and reserves. The fact that energy efficiency cleared a substantial amount of megawatts under new requirements called “capacity performance” underscores the confidence of system planners in energy efficiency to reliably meet system load. 

Second, energy efficiency reduces costs for the entire PJM footprint. If efficiency had not participated in this auction, the clearing price would have been higher. While the economic value would have varied by resource zone (PJM is broken up into several geographical zones), many zones would have faced higher prices from other forms of generation. While the specific offer prices in the auction are confidential, Exelon (the largest utility company in the country) has publically stated two of its largest nuclear plants did not clear, meaning they are not economically competitive in the PJM marketplace. Given that energy efficiency savings are at the margin, these resources have provided substantial economic savings to millions of customers in the PJM footprint.

Capacity performance and why it’s important

The resources cleared as capacity performance included: approximately 139,000 MW or 89% of traditional generation (including solar and wind), 614 MW or 6% of demand response, and 1058 MW or 70% of energy efficiency.  Capacity performance is a new resource designation in the PJM footprint. It is a much more stringent requirement than in previous auctions. Essentially, it requires a resource to be “capable of sustained, predictable operation, and is expected to be available and capable of providing energy and reserves when needed throughout the entire delivery year.” The majority of efficiency resources met this requirement demonstrating efficiency can serve as a reliable system resource in the same way as nuclear, natural gas, or solar generation. 

Energy efficiency in prior PJM auctions

Energy efficiency has been participating as a resource in the PJM capacity market since 2009. The chart below shows the total amount of energy efficiency that cleared the last eight auctions. The delivery year is three years from the year of the auction. From delivery year 2012/2013 to 2019/2020, the level of energy efficiency resources clearing the auction has nearly tripled increasing from 568 MW to 1515 MW. These also only include efficiency that has not been reflected in the peak load forecast for the year in question, meaning there are additional savings not included.

Energy efficiency in future capacity markets

The level of energy efficiency to clear the PJM capacity market has increased nearly every year since 2009. This week’s auction emphasizes the critical role energy efficiency will play in the region as natural gas prices continue to reshape the national electric generation fleet. We expect the level of efficiency to clear this market to continue to grow in future auctions further suppressing the market prices for generating capacity in the region. This in turn will reduce system costs for customers for years to come.


New York REVs up as commission includes efficiency in earnings opportunities; efficiency targets to be decided later
May 26, 2016 - 9:36 am

By Steven Nadel , Executive Director


Last week the New York State Public Service Commission (PSC) released its final decision in Phase 2 of the Reforming the Energy Vision (REV) proceeding. REV is the New York initiative to reform the utility industry by building the rules that govern the utility system of the future. Phase 2 of the proceeding dealt mostly with financial issues, particularly how utilities can earn money. Several aspects of the decision affect energy efficiency, chiefly the inclusion of energy efficiency in an “earning adjustment mechanism” and a pledge to “develop targets for energy efficiency beyond [existing plans and targets].”

The heart of the decision is establishing two new earning opportunities for utilities – platform service revenues and earning adjustment mechanisms.

Platform service revenues

According to the decision, “[p]latform service revenues [PSRs] are new forms of utility revenues associated with operation and facilitation of distribution-level markets. In early stages, utilities will earn from displacing traditional [distribution] infrastructure projects with non-wires alternatives. As markets mature, opportunities to earn with PSRs will increase.” Among the non-wires alternatives utilities can use are energy efficiency, demand response, distributed generation and storage.

Earning adjustment mechanisms

The new earning adjustment mechanism is a type of performance-based ratemaking—a system where utility earnings are adjusted up or down based on performance on specifically-defined metrics. The REV2 decision specifies four categories of earning adjustment mechanisms: system efficiency (achieving peak reduction and load factor improvement targets), energy efficiency (discussed below), customer engagement and information access (providing tools and opt-in rates and use of these tools and rates), interconnection (ease with which third-parties can connect to the grid). Additionally, the commission decided that affordability issues are important and will receive attention in other dockets. In addition to the energy efficiency metric, energy efficiency can contribute to the system efficiency metric and to addressing affordability issues.

For the energy efficiency category, the PSC specifies that one of the metrics should be based on electric usage intensity (e.g., electric use per customer), but that additional metrics can be developed, including ones based on program-specific savings, cost-savings, and innovative efficiency measures that address the PSC’s strategic goals. The next step in this process is for the Clean Energy Advisory Council (CEAC, a group of state officials, senior utility executives, and perhaps others) to develop recommendations on energy efficiency targets and earnings mechanisms for meeting and exceeding those targets. In another proceeding, the PSC has asked the CEAC to develop recommendations by the end of the year.

Looking beyond earnings

The decision also addresses greenhouse gas reductions, competitive market-based earnings and data access. The greenhouse gas section notes a separate Clean Energy Standard proceeding (addressing renewable and nuclear energy) but also says that “[u]tilities will… be encouraged to propose programs to accelerate the conversion of transportation and building end uses to efficient electric alternatives.” This provision could include efforts to promote electric vehicles or cold climate heat pumps. On competitive market-based earnings, the decision allows utility subsidiaries to compete in markets provided they meet five criteria specified in the decision (at page 49) and implement standards to avoid affiliate abuse. This provision might, for example, affect utility subsidiaries that develop combined heat and power systems at customer facilities. The data access section requires utilities to make certain basic data available for free but utilities may charge a fee for more refined data or analysis.

In addition, the decision also addresses rate-setting, encouraging residential opt-in time-of-use rates and specifying that future rate cases will examine ways to make demand charges for commercial and industrial customers more time-sensitive. The decision also asks PSC staff to work with stakeholders and report to the commission on possible residential opt-out variable rate scenarios including time-of-use rates, demand charges and peak-coincident demand charges. “Opt-in” means customers must make a proactive decision to enroll, which typically means low participation rates. “Opt-out” means customers are automatically enrolled, but can make a proactive decision to opt-out. Participation rates are generally much higher with opt-out.

Many decisions to be made later

Overall, the PSC decision contains some promising opportunities for energy efficiency, although how extensive the opportunities are will be determined over the balance of this year by the Clean Energy Advisory Council and subsequent PSC decisions addressing such issues as setting energy efficiency targets and earnings incentive mechanism details. ACEEE hopes that CEAC will recommend strong energy efficiency targets and earnings mechanisms, which is the combination ACEEE finds deliver the largest savings.

The full PSC decision can be found here. It includes a summary beginning on page 23.