New York REVs up as commission includes efficiency in earnings opportunities; efficiency targets to be decided later

Blog | 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.