 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. 
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AuthorMatt Golden, Principal Archives
October 2017
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