Time to Shore Up Energy Efficiency in NY

This blog post was also co-authored by legal intern Pablo Rojas.

With all of the exciting energy policy developments coming out of New York these days (and there are many!), it can be challenging to keep tabs on the moving parts. From Governor Cuomo’s recent support for building the nation’s largest offshore wind power project 30 miles off the coast of Long Island to the anticipated August 1st finalization of a binding 50-percent-by-2030 renewables program and all the exciting demand-side projects unfolding through the governor’s Reforming the Energy Vision (REV) proceeding—which is designed to make New York State’s electric system cleaner, more affordable and more reliable—it’s been full steam ahead for clean energy in the Empire State over the last 15 months.

However, if there’s one critical piece of the governor’s pioneering clean energy platform that’s in dire need of help, it is, somewhat ironically, the most cost-effective, tried-and-true arrow in the clean energy quiver: energy efficiency. Recent New York Public Service Commission (PSC) decisions on efficiency include some promising ideas, but they ultimately fall short of what is needed to support the state’s bold vision.

It’s almost as if in preparation for a trip to the moon, we remembered to map out all of the most complicated aspects of the mission, and pack all the shiny supercomputers and navigation tools, but left the crates of drinking water out on the launch pad. The good news? The rocket hasn’t launched yet, and it’s not too late to grab those crates and ensure we have what we need to sustain us on the way.

But that will happen only if New York takes the essential steps needed now to retain its status as an energy efficiency leader. (In 2011, 2012, and 2013, New York ranked third in the nation in the state energy-efficiency standings published by the American Council for an Energy-Efficient Economy. This year, the Empire State ranked only 9th and is in danger of falling out of the top 10 altogether if the state doesn’t act).

At its August 1 session, it’s widely anticipated that the PSC will issue an order establishing a Clean Energy Standard to lock in a binding 50-percent-by-2030 renewables program. This same order presents a golden opportunity to put New York back on track when it comes to energy efficiency. To do so, the PSC must clarify the state’s ambition to achieve more than 2 percent energy savings annually (which nearby states like Massachusetts and Rhode Island have demonstrated is readily achievable). It must also make clear that utilities and companies and organizations hoping to get into the business of delivering energy savings will be provided with the necessary resources to deliver them as well as related emissions reductions. The figure below illustrates the magnitude of the gap that exists in New York’s current energy efficiency portfolio.

As the chart above illustrates, New York’s current 2016-2018 utility energy efficiency targets are far below what the state Public Service Commission assumed in its white paper on the Clean Energy Standard (CES), and significantly lower than those of other nearby states—Massachusetts and Rhode Island—that lead in energy efficiency. Historically, energy efficiency in New York State has been delivered through a combination of programs run by utilities and programs run by the New York State Energy Research and Development Authority (NYSERDA), New York’s clean energy agency, with utility programs responsible for delivering less than half of the total energy savings. (This is illustrated by the difference between the solid orange and red lines in the chart.) Now, under the PSC’s most recent orders, NYSERDA’s role in direct savings is slated to decline dramatically. That means that in order to achieve the relatively modest energy savings assumed in the PSC CES white paper, the state must achieve all its energy savings from utility programs alone or from other drivers that will somehow take up the slack. Under the current efficiency framework, New York’s ability to achieve these savings in practice is highly uncertain. (For more about the state’s previous efficiency portfolio, including the breakdown of NYSERDA vs. utility programs, click here.)

Here’s the basic truth: Efficiency not only saves consumers serious money, it is the most cost-effective way to cut power-plant pollution and reduce strain on the grid. It’s therefore critical to New York State’s ability to get 50 percent of its energy from renewable sources by 2030. After all, as outlined in this previous post, when the pie is smaller overall—when we need less electricity because we’ve cut energy waste—we need fewer supplies to bake it.

NRDC has been working with the consulting firm Synapse Energy Economics to analyze how recent Public Service Commission decisions on energy efficiency fit into the state’s broader energy goals. In January, the PSC issued decisions that held utilities’ efficiency budgets and targets for 2017 and 2018 at the same, disappointingly low levels the PSC already set for 2016. In response, Synapse released a report titled Aiming Higher, showing that these efficiency targets will leave untapped much of New York’s vast efficiency potential. The report also estimated that by setting higher efficiency targets, the commission could help New Yorkers save roughly $3 billion in electricity costs through 2030, and that each dollar that New York utilities spend on energy efficiency would yield $1.65 in benefits for customers.

The Commission’s May 19^th Track II Order: One positive (baby) step for energy efficiency

The PSC’s recently issued Track II Order on utility ratemaking and business models includes some promising steps to advance energy efficiency. But they are insufficient on their own to accelerate efficiency to the levels New York can and must achieve to deliver on Governor Cuomo’s promise of a clean energy future.

The order establishes several performance-based incentives, which will boost utilities’ shareholder earnings based on the utilities reaching certain metrics—a tool NRDC has supported nationwide as one means of moving toward a 21^st century utility business model. One incentive rewards utilities for achieving greater energy efficiency, based on the achievement of new targets that will be set later this year through a process outlined in the order. Once the details are worked out, the order could provide a powerful motivation for utilities to facilitate greater efficiency savings.

But more is needed to maximize New York’s efficiency potential. Other states with successful energy efficiency policies couple similar performance incentives with additional programs. For example, they combine clear efficiency targets of more than 2 percent annual energy savings with the financial backing needed to deliver them. Without clear targets and financial support for efficiency programs, the Track II performance incentives are unlikely to deliver the efficiency savings seen in neighboring states that are clean energy leaders.

New York is also developing mechanisms to encourage utilities to facilitate efficiency investments by other market actors. For instance, Track II provides for another potential source of utility income called Platform Service Revenues (PSRs): revenues they can earn for encouraging private investment by, for example, helping an energy efficiency company acquire customers. But in the near term, PSRs and other mechanisms already established by REV can’t possibly be large enough to enable the state to reach appropriately ambitious efficiency goals.

So, when combined with the PSC’s earlier disappointing decisions on utilities’ 2017 and 2018 energy efficiency targets, the mechanisms outlined in the Track II Order alone can’t do the job. To fill the gap, the PSC must take additional actions to drive investment into energy efficiency. One especially important step would be to fund utility efficiency programs at greater levels through individual utility rate cases. In addition to supporting tried-and-true programs, the commission can use rate cases to fund innovative tools consistent with the REV vision, like Pay for Performance programs that use specialized monitoring and analytics to allow utilities to pay for actual energy reductions.

Here’s the bottom line: As August 1st approaches, the commission should seize the opportunity presented by the Clean Energy Standard Order to lay down the much-needed marker on energy efficiency targets and should ensure utilities have the resources they need to achieve them. Failing to do so would jeopardize what is otherwise a nation-leading clean energy portfolio from Governor Cuomo.