On December 26th 2013, the New York Public Service Commission issued a ruling Approving Energy Efficiency Performance Standard (EEPS) Program Changes, that address substantial problems with the required approach to cost effectiveness testing for NY energy efficiency programs, and attempts to bring order to the web of complex regulatory and utility programs in the State.

While cost testing can sounds boring, given that the bulk of energy efficiency funding are going to come from ratepayers for the foreseeable future, this issue is fundamental.  To learn more about why cost testing is so important to energy efficiency, check out the GreenTech Media article from last year written by Efficiency.org's Matt Golden, "What It Takes to make Efficiency Programs Work."  The National Home Performance Council has also been doing significant work on this issues and you can learn about their cost testing solution in the report Recommendations for Reforming Energy Efficiency Cost-Effectiveness Screening in the United States.

New York has been requiring Total Resource Cost test for every individual measure being installed as part of an eligible project. This means that the total cost (consumer and public sector) for every single energy conservation measure implemented must be cheaper than the next least cost option to qualify for rate payer funds.  

This application of TRC at the measure level has been a disaster for contractors, program goals, and ultimately homeowners who often could not qualify for incentives on projects that objectively make sense to the customer, drive deep savings, comfort and many other benefits, with the vast majority of the investment is in the form of private dollars - yet they don't qualify for New Yorks program based on the antiquated and misapplied PSC mandated use of TRC.

It would appear that in this ruling the PSC has wisely attempted to change the rules to require TRC only at a portfolio level, allowing individual measures to pass based on a combination of much more straight forward tests including Program Administrator Cost Test (PACT) and Participant Cost Test (PCT).  These tests looks primarily at public incentives versus savings and not full project costs that are likely driving a range of non energy benefits not counted in the TRC equation.

It remains to be seen how this approach will work in the real world, the the PSC applying a different bar at a measure level and at the portfolio, but it does seem to be a step at least in the right direction, and the NY PSC may have cleared some real hurdles that have cut into energy savings and hurting New York business.

Here are the key elements proposed by the NY PSC staff to fix Cost Effectiveness Testing in their ruling:

In terms of the complexities of NYSERDA and Utility programs (and the regulators that direct them) overlapping or completing while confusing the market, the PSC has laid out a series of goals and a basic structure to move forward towards more collaboration and organizational swimlanes. How these ideas actually play out will be interesting to watch as the ruling is not heavy on details.

Just about everyone I know operating in New York would agree that more coordination and cooperation between the Utilities, NYSERDA, and the Public Service Commission would be a good thing, and simplification and alignment of the various programs out there into a coherent approach to the market would be a great start.  

However it would be wise to analyze in this equation the balance of not just the role of Utilities vs. NYSERDA, but also to take into account the fundamental roles of the public vs. private sector.  

We have a common situation in NY where the program proposes "market transformation" but the core of the market for energy efficiency is missing.  A market at its core is centered on a transaction and a price.  However, the result we are trying to encourage - energy efficiency, is not being tracked or rewarded in either a timely or transparent fashion. 

Rather than put in place the foundation for a market based on paying for the product that is being brought to market - savings that can be calculated based on utility bills - we have instead attempted to regulate our way to a market by essentially determining the business model for energy efficiency through regulatory and stakeholder processes.  Getting this complex equation right, in advance, without feedback or selection is nearly impossible (like writing a business plan, and then operating per the plan without checking the balance sheet).

Rather the just move the deck chairs around one more time, we should look closely at the overall approach to market transformation in energy efficiency.  The definition of a Market is the process by which the prices of goods and services are established.  If we want to establish the market for energy efficiency, we need to start by measuring it and setting a price for savings.

The contractors I know in the NYSERDA program would prefer to see NYSERDA focus on aligning incentives with actual energy savings and move away from the current extensive regulation of the contractor business model that has defined the current program.  Rather then pour money into program overhead such as layers of approvals, requirements, and software, instead if we applies only a small fraction of those dollars to make delivering real energy savings lucrative, we could unleash the power of the market to innovate and select for those approaches that deliver results.  We need to send a signal back to the market, and allow those business models that work to win, and those that do not deliver results to change or exit the market.

Rather than Utilities and NYSERDA focusing on redesigning the program and executing on traditional private sector activities like consumer marketing and lead generation, the utility sector should focus on procuring energy efficiency exactly like they already do for other energy commodities.  If performance risk flows to industry, and ratepayers and regulators are buying delivered savings, regulators can be freed from attempting to manage the entire process in a vain hope to regulate good outcomes and instead focus on rewarding results.  

Reward energy savings performance at the meter and the market will select for business models that customers demand and that are profitable for industry based on the value of the real savings delivered.  

The good news is that given the amount of money being spent on programs in this sector, we could make delivering real savings a great business model while at the same time reducing costs by decreasing program overhead. 

I hope that New York can seize this opportunity to put in place the foundation for a real market where Energy Efficiency can be valued and traded as a true demand side resource, letting markets emerge and allowing programs to play the contained regulatory role that they do in others successful markets.

Based on this ruling, I think there is room for NYSERDA and the Utilities to make the fundamental changes necessary, but it will take leadership and courage to turn this ship.  However, overcoming big challenges with big ideas is the only real chance we have of success.

Efficiency.org would like to thank Commissioner Mark Ferron for his serives and dedication.  The job of CPUC Commissioner can be thankless and daunting.  Commissioner Ferron once described his job to me as an exercise in spinning plates - never enough time to focus on one issue long enough before he had to run off to another topic.  Little did I know that one of those plates was much more than a policy debate.  

Commissioner Ferron, our thoughts are with you as you take on Prostate cancer with all of your focus and energy.

Commissioner Ferron left us with parting words that lay out both the opportunity and the challenges we have ahead of us. While we wish you were to remain to help us cross the finish line, perhaps the critical concepts you laid out will continue - but only if we take these challenges on.  It is a worthwhile read and lays out many of the key structural issues we need to address, as well as the amazing opportunity in front of us to transition our system towards clean sources of energy.

Read the full statement Final Commissioner Report by Mark Ferron, January 16, 2014.

The following unedited expert lays out the Commissioner's six key points.  Emphasis in the original text.

1. First, there is no better place to be than California when it comes to energy and climate policy. We all know that there is no real Federal energy or climate policy, thanks in large part to the obstructionists in the Republican Tea Party and their allies in the fossil fuel industry. But in California, we have a clear commitment to green-house gas reductions and are taking bold and exciting steps in advancing renewables, energy storage and Electric Vehicles  (Parenthetically, I do believe that California has lost pace with the best in terms of Energy Efficiency and Demand Response.) We are at an inflection point where the convergence of new technologies, changing economics and, I hope, an added urgency to address our deteriorating climate, will combine to create exciting new business and policy opportunities.

2. We are fortunate to have utilities in California that are orders of magnitude more enlightened than their brethren in the coal-loving states, although I suspect that they would still dearly like to strangle rooftop solar if they could. Modern utilities are subject to a rapidly evolving business environment, and I wonder whether some top managers at our utilities have the ability or the will to understand and control the far-flung and complex organizations they oversee. And I am very worried about our utilities’ commitment to their side of the regulatory compact. We at the Commission need to watch our utilities’ management and their legal and compliance advisors very, very carefully: it is clear to me that the legalistic, confrontational approach to regulation is alive and well. Their strategy is often: “we will give the Commission only what they explicitly order us to give them”. This is cat and mouse, not partnership, so we have to be one smart and aggressive cat.

3. We also have a Legislature that by many measures is very inexperienced, and yet considers itself expert in energy policy matters. Many of the more influential members and veteran staffers seem to display an open, almost knee-jerk hostility toward the CPUC. It’s as if some Legislators (or their staff) think that their reputations will be enhanced by slapping down this Commission’s policy initiatives, rather than working on writing and passing legislation that we can quickly and effectively implement. (Exhibit A is the killing of our Energy Efficiency Financing pilots by the Legislative Analyst’s Office for “budgetary oversight” reasons). The CPUC needs to do a better job of convincing the Legislature that we are not their rivals nor their enemies - but rather their partners - in the design and implementation of policies that are vital to the economy and the people of this state.

4. Fortunately, or maybe unfortunately, with the passage of AB327, the thorny issue of Net Energy Metering and rate design has been given over to the CPUC. But recognize that this is a poisoned chalice: the Commission will come under intense pressure to use this authority to protect the interest of the utilities over those of consumers and potential self-generators, all in the name of addressing exaggerated concerns about grid stability, cost and fairness. You – my fellow Commissioners - all must be bold and forthright in defending and strengthening our state’s commitment to clean and distributed energy generation.

5. The Commission itself has many challenges: it has reacted too slowly to the changing landscape and, although we have tried to learn from past failures, we still have a very long way to go. I believe that our desire to create a stronger safety culture is real but, sadly, we have not had the right calibre of management to implement this effectively. And we are hopelessly out-gunned in terms of the resources necessary for our mission – in particular, our audit and finance functions have been woefully inadequate and we face a demographic time bomb, with our younger talent leaving for private industry and our most experienced staff on the verge of retirement. I hope that the zero based budgeting exercise ordered by the Legislature will create transparency into just how chronically underfunded the CPUC is, but I fear that this exercise will be used against us to tighten the screws even further.

6. Finally, we also have a serious governance problem at the heart of the Commission: we Commissioners rightly are held responsible for what happens in this building and yet we do not have any effective means to provide guidance and oversight to the CPUC’s permanent management and staff. My colleagues and I have discussed arranging ourselves similarly to the way that a Board of Directors is organized in Corporate America: we could create subcommittees dedicated to overseeing important internal issues like Audit, Budget, Personnel, External Relations, and Safety. These two-Commissioner subcommittees would meet regularly with senior directors and staff to provide strategic direction and would report on progress and seek policy direction from all five Commissioners on a regular basis. This arrangement could help give the Commissioners more effective senior-level oversight without violating Bagley-Keene and I believe would create a stronger and more effective agency. I do hope that my fellow Commissioners will act on my suggestion after I am gone.


Read the full statement Final Commissioner Report by Mark Ferron, January 16, 2014.