New York’s REV: Will the state’s new energy plan spur savings or slow progress?

Blog | March 08, 2015 - 3:25 pm
By Steven Nadel , Executive Director

At the end of February, the New York Public Service Commission (PSC) released its final decision in Phase One of its Reforming the Energy Vision (REV) docket. We applaud the commission’s efforts to address 21st-century energy service needs and the improvements in this decision compared to the initial straw proposal. However ACEEE is concerned that the energy efficiency efforts outlined in the plan may not match the PSC’s stated intent to “not only achiev[e] current energy reduction goals, but accomplish[] higher goals consistent with State energy policy, and potentially, federal carbon reduction rules.” The decision leaves many details still to be determined, and these details will very much affect whether the state energy efficiency policy goals can be met. We also have concerns about several of the details provided.

The REV Decision

According to PSC Chair Audrey Zibelman, REV is designed to “reorient the electric industry and the ratemaking process toward a consumer-centered approach that harnesses new technologies and markets.” The emphasis appears to be on distributed energy sources like solar, wind, and combined heat and power systems, and on shifting loads away from times of peak demand. At the same time, a section of the decision (pages 72-82) specifically addresses energy efficiency programs. Under the decision, the state’s distribution utilities will take the lead in offering such programs which will gradually transition from a focus on “resource acquisition” to a focus on long-term “market transformation” that “will drive more market-based approaches.”

The PSC decision initially requires utilities to file energy efficiency programs for 2016 by the end of this month, but later this year each utility will need to file a three-year plan covering 2016–2018. The PSC decision establishes minimum energy-saving goals each utility must achieve in 2016. All of the utility goals combined total about 0.37% of statewide electricity sales. As discussed below, this is an extremely modest initial goal, and therefore we hope that the utility proposals will significantly exceed their minimum.

For 2017 and beyond, the utilities are told to propose metrics, both with the expectation that “longer-term goals should exceed existing targets,” and should include market progress metrics that go beyond kWh savings. Under REV, current statewide resource acquisition programs now operated by NYSERDA will largely end, the major exception being programs for low-income consumers that NYSERDA will continue to operate. NYSERDA will operate a set of market-transformation-focused programs in 2016 that will be finalized in a separate PSC docket.

The final decision is a significant improvement relative to a staff straw proposal issued in August 2014 that said energy efficiency budgets and targets would exist only for a transition period until “markets develop” and “utility performance measures…drive efficiency to become more integrated into utility operations.” In the final decision, programs continue “at least during the transition to REV markets,” and in various places the decision seems to support longer-term energy efficiency programs and goals that extend beyond a short transition period. In addition, the decision focuses much more on the market transformation approach to program design, an approach that ACEEE has long espoused.

However, even with these changes, we have concerns in three areas: energy-saving goals, how best to transform markets, and the transition from the present programs to the new construct.

Energy-Saving Goals

The energy-saving goals established by the PSC for 2016 are modest. While the PSC notes that it expects higher savings goals in the future, it offers no specifics. Developing these specifics will be critical. In 2007 New York set the goal of using energy efficiency to reduce electricity consumption by 15% below projected levels by 2015, an average of 1.9% savings per year. While building codes and equipment efficiency standards accounted for part of this goal, a substantial majority of the savings were to come from utility and NYSERDA programs.

In contrast, the 2016 minimum savings targets in the decision are only about 20% of this overall prior goal. Some of New York’s neighbors such as Massachusetts, Rhode Island, and Vermont have exceeded 2% annual savings (see p. 33 of our State Scorecard), showing that much higher savings are possible. The PSC should strive to meet these same goals and work with utilities to steadily ramp up savings to at least the prior goal of 1.9% per year if not higher.

As the PSC notes and ACEEE has found, the market transformation approach can increase energy savings in the medium and long terms. Energy saving goals should reflect this, complemented by goals for other key market transformation metrics. Our research indicates that states with binding energy savings targets save much more energy and money than states that leave energy efficiency decisions to utility planning processes.

Transforming Markets

As I wrote recently in a series of posts on the role of energy efficiency markets and programs, the most successful efforts meld the two. In particular, some market segments are riper for market-focused approaches than others. For example, private energy service companies have done well with large institutional customers. However other market segments such as small businesses and many residential customer segments have yet to see significant success. We should experiment with new market-based approaches for these unproven market segments, but we should also continue to use proven program approaches until alternatives prove their efficacy. The details of REV’s experimentation are critical and will be determined later this year in utility filings and an open docket on NYSERDA’s clean energy programs.

The market transformation approach to program design can help address the gap between current programs and an increasing reliance on markets. Market transformation programs work to overcome market barriers in specific market segments and also help with the development of promising technologies and services. Unfortunately, the REV decision seems to take a simplistic view of market transformation. For example, while we agree with the PSC that rebates are only one tool in the market transformation kit bag, they can be an important one, and the PSC is making a mistake by claiming that the place for a rebate program within a market transformation curve is “limited.” (We discuss the full kit bag including the role of rebates in Appendix B of an earlier ACEEE paper.)

Likewise, the PSC is too limited when it says “the end goal of a market transformation program for any particular measure is to eliminate further need for customer-funded subsidies of that measure.” Incentives can sometimes be ended once a market transformation initiative is successful, but sometimes it makes sense to continue a program and raise the eligibility level. For example, if efforts to promote air conditioners with a SEER (seasonal energy efficiency ratio) of 16 are successful, rather than end the air conditioner program, perhaps the target should be increased to SEER 18 or 20. At the same time the program might focus more on quality installation and maintenance to achieve additional energy and peak-demand savings.

Transitioning from the Present to the Future

It will take time until new market transformation initiatives have an impact, and time to experiment with other market-focused approaches. For example, a 2003 ACEEE study that examined 28 market transformation initiatives illustrates that it generally takes at least five years before a market transformation initiative has a significant impact, and often substantially longer. In the meantime, the recent REV decision leaves the fate of many successful programs in limbo. NYSERDA has had some very successful programs that ACEEE has recognized in the past such as its Multifamily Performance,Commercial and Industrial Existing Facilities, Commercial New Construction, Flexible Technical Assistance, Home Performance with Energy Star, and low-income programs. As part of REV, NYSERDA will retain the lead for low-income and many market transformation programs, but the others will end unless the utilities pick them up. We had hoped that the REV decision would direct the utilities and NYSERDA to carefully consider these proven programs and to develop transition plans for many of them. Instead the decision provides no direction on this issue and leaves decisions on these programs up to the individual utilities.

The Path Forward

New York fell four places (from 3rd to 7th) in ACEEE’s 2014 State Energy Efficiency Scorecard, due in part to REV transition issues. Without robust and ongoing support for energy efficiency from the PSC, the state could drop further. For example, if New York had achieved only 0.37% electricity savings in 2013 and higher goals had not been established, it would have placed even lower in the 2014 Scorecard.

There is much the PSC can and should do to build on the energy efficiency intentions stated in its REV decision. First, it should encourage utilities to include robust energy efficiency programs and goals in their plans, and it should make these goals an important consideration for plan approval. As part of this effort, the PSC should encourage the utilities to work with NYSERDA and develop transition strategies for current programs. Second, with the completion of Phase One, REV now moves into a second phase which will focus on rates and rate making, including performance-based regulation under which performance metrics are set and utilities are rewarded for good performance on them. Energy efficiency performance should be one of the key metrics used to evaluate utility performance.

New York has been an energy efficiency leader for many years. It can build on this leadership if REV is implemented with strong energy savings and other market transformation goals while gradually transitioning from past programs to the future.