How Much for Cuomo’s Executive Order 166 Part 2: REV

In response to President Trump’s decision to withdraw from the Paris Climate Agreement, Governor Cuomo recently issued an Executive Order reaffirming the state policy to reduce greenhouse gas emissions by forty percent by 2030, and eighty percent by 2050 from 1990 levels, across all emitting activities of the New York economy. I believe it is appropriate to ask how much is this plan to mitigate climate change going to cost and how much will the plan actually reduce global warming.

The Executive Order states that “New York has already committed to aggressive investments and initiatives to turn the State Energy Plan goals into action through its Clean Energy Standard (CES) program, the $5 Billion Clean Energy Fund (CEF), the $1 Billion NY-Sun solar program, the nation’s largest Green Bank, and unprecedented reforms to make the electricity grid more resilient, reliable, and affordable.” In order to make my analysis manageable I am breaking it up into three posts. The first post addressed each the first four components. This post speaks to the “unprecedented reforms” comment which refers to the Reforming the Energy Vision component. The final post will summarize the costs and estimate how much global warming would be prevented by the proposed reductions.

Disclaimer: I am writing this series of posts on New York State energy policy because I am concerned that this whole thing is going to end as an expensive boondoggle and drive electricity prices in particular and energy prices in general significantly higher. Before retirement from the electric generating industry, I was actively analyzing energy and air quality regulations that could affect company operations. The opinions expressed in this post do not reflect the position of any of my previous employers or any other company I have been associated with, these comments are mine alone.

Reforming the Energy Vision Costs

The Executive Order refers to “unprecedented reforms to make the electricity grid more resilient, reliable, and affordable” which is referencing the Governor’s Reforming the Energy Vision program. This comprehensive energy strategy for New York is supposed to help consumers make more informed energy choices, develop new energy products and services, and protect the environment. However, it does not have a comprehensive description of all the component programs, how they are supposed to work together, how much the programs will make the grid resilient and reliable or a description of the costs so it can be shown to be affordable.

There are seven general REV initiatives:

1. Renewable Energy
2. Buildings & Energy Efficiency
3. Clean Energy Financing
4. Sustainable and Resilient Communities
5. Energy Infrastructure Modernization
6. Innovation and R&D
7. Transportation

There is a lot of overlap between the other commitments mentioned in the Executive Order and REV. In order to put a limit on the scope of this effort to estimate costs, I am going to only try to include those REV costs that directly affect electricity rates associated with energy infrastructure modernization. In part this is because I am also interested in how much of the current rate request for my electricity supplier is required by REV. According to the website:

60% of New York’s power generation infrastructure is over 35 years old. As we develop distributed energy resources statewide, it is critical for the safety and resiliency of our current energy system that we maintain—and in some instances enhance—the central grid. It is only by doing so that we can continue to meet the energy needs of New Yorkers and integrate clean and distributed power at scale into our energy system.

One of the sample initiatives listed under energy infrastructure modernization is the Energy Highway.

The 13 actions presented in the Energy Highway Blueprint (issued in October 2012) includes a wide range of measures to provide up to 3,200 megawatts (MW) of additional electric generation and transmission capacity and clean power generation—enough to serve about 3 million homes—through up to $5.7 billion in private- and public-sector investments.

For this analysis I am assuming that these costs are included in other initiatives and have already been counted elsewhere in this analysis. However I am pretty sure that there are projects that were it not for REV would be required so that means the total costs estimated are going to be low.

In addition to that initiative, the Load Serving Entities are required to do demonstration projects to implement the Governor’s vision. Those projects are buried in rate case requests so teasing out their costs is a monumental chore. What I have tried to do in the following is figure out what National Grid, my electric provider, is going to spend on REV demonstration and infrastructure projects.

In the National Grid rate case under Information Services capital projects and investments there are 22 projects listed under the NY REV/Grid Modernization program label for fiscal years 2018 to 2021. The total capital expenditures for those projects is listed as $161 million. It is not clear how exactly these modernization projects will actually affect REV goals. Consider that there are eight projects associated with Advance Metering Infrastructure (AMI) meters totaling $48.9 million. The idea for these AMI meters is that they incorporate two-way communication between the utility and the customer. The goal is to reduce peak generation charging for electricity by an hourly rate which will induce the customer to use less at those times. What is not clear is any quantitative estimate of the specific impacts of these projects nor how the results will be integrated into the plan. Specifically, will the results of the demonstration projects be evaluated relative to the goals to see if they provide the expected benefits and can be used as anticipated or is this simply a formality and implementation of the Governor’s executive order will proceed heedless of the results?

Back to the analysis of REV. In their Electric Customer Panel testimony, National Grid described six REV demonstration projects and listed a deferral balance of $3.283 million.

• The Fruit Belt Neighborhood Solar demonstration project seeks to engage low to moderate income residential customers in the Fruit Belt neighborhood of Buffalo with solar photovoltaic (“PV”) installations and energy efficiency products and services. The project involves the installation of solar PV panels on the rooftops of 100 customers’ residences. The energy generated by the solar systems will be used to provide the Fruit Belt neighborhood with bill credits. Installation of the solar PV systems is scheduled to be completed in 2017.
• The Potsdam Community Resilience project will examine the feasibility of building a community microgrid to add resiliency to the electric infrastructure in the area. The Company is partnering with Clarkson University to develop and test the microgrid through use of an underground distribution network, new and existing DER, and other utility services. The project commenced in early 2016 and design, outreach, and testing will continue in 2017. The Company anticipates final stakeholder decision whether to fully implement the community microgrid in late 2017.
• The Distributed System Platform (“DSP”) project is aimed at testing how the Company can integrate customer-owned energy resources to manage system demands. As part of the project, the Company will partner with the Buffalo Niagara Medical Campus to incorporate customer-owned DER and other energy and ancillary services into the distribution system. The first phase of the project began in September 2016, with the technology development phase expected to continue in 2017 and field testing to begin in 2018.
• The Clifton Park Demand Reduction project is aimed at reducing customers’ energy bills and peak demand through a combination of infrastructure upgrades and customer engagement. The project involves 2 the installation of Advance Metering Infrastructure (AMI) meters for residents of Clifton Park and other infrastructure upgrades to test whether price signals, tools, community outreach, and innovative rate design concepts, such as voluntary time-of use rates, will reduce electric demand. AMI meter deployment has begun and the Company anticipates that all offerings and services will be available by the end of 2017.
• Linked to the already approved Clifton Park Demand Reduction project is the Smart Home Rate demonstration project. Under this project, customers in Clifton Park enrolled in the Company’s residential voluntary time-of-use rate will be provided with voice-recognition technology that will enable them to control home appliances via use of a phone application or other technology to reduce their electricity consumption when prices are high.
• The DG Interconnection demonstration project seeks to test whether the Company’s upfront investment to make the system “DG-ready” combined with an alternative cost allocation methodology will enhance DG interconnections in Upstate New York.

National Grid was asked “Are the costs of the demonstration projects described above included in the revenue requirement?” The testimony response:

Yes, with the exception of the Smart Home Rate and DG Interconnection demonstration projects because they have not yet been approved by Staff. The Track One Order authorized utilities to defer the revenue requirement impacts of the incremental demonstration project costs until their next rate plan. The actual deferral balance at the end of the Historic Test Year (the 12 months ended December 31, 2016) for the four approved projects is $0.274 million and the forecast deferral balance through March 31, 2018 is $3.283 million, as shown in Exhibit ___ (RRP-7). Treatment of the deferral balance is discussed by the Revenue Requirements Panel. With respect to future costs, beginning in the Rate Year, capital and O&M expense for the four approved demonstration projects are included in the revenue requirements.

I assume a ratepayer cost of $3.283 million but trying to figure out the impacts of the demonstration projects is not nearly as simple. For example, the Fruit Belt Neighborhood Solar demonstration project is for 100 residential rooftop solar installations and the average reduction in CO2 tons per year is 0.5 so the total CO2 avoided is 50 tons. However, that is the only project that will have direct CO2 savings. The Potsdam Community Resilience project will determine if a microgrid is feasible, Distributed System Platform project will test ways to integrate distributed energy resources into the grid, the two projects in Clifton Park are associated with AMI meters as previously discussed and the final project will evaluate distributed generation interconnections.

The Transmission and Distribution Capital Investment Plan submitted to DPS on 1/31/2017 includes projects totaling $3,012 million. It is not clear how much of this plan is included solely to meet the Reforming the Energy Vision. As far as I can tell the REV costs are buried in three categories: the Customer Requests/Public Requirements spending rationale includes the Company’s Advanced Metering project, the Communications / Control Systems spending rationale includes costs associated with AMF communications and the DER – Electric System Access appears to be all REV. Table 1-2 in the Investment Plan notes that $147.2 million is needed for the AMF Investment Plan.

In conclusion I estimate that the REV costs buried in this rate case total $271.7 million dollars (Table 1 REV Costs in National Grid Rate Case). However, I suspect that I am double counting some costs and have neglected other costs.

Reflections

There are two inconvenient problems with the REV demonstration projects: ultimate feasibility and a funding death spiral. The requirement that each utility sponsor demonstration projects begs the ultimate question whether they would all ultimately provide cost effective savings. Working in isolation the utilities are not charged with overall feasibility and the State has been remiss in providing an overall summary of expectations and costs. Until the State provides a detailed plan how all the bits and pieces will work together an estimate of feasibility is not possible.  The reality of this problem is described very well in a post on An analysis of electricity system flexibility for Great Britain from November 2016 by Carbon Trust. The United Kingdom has legislation in place to make similar reductions as proposed by Cuomo. The post itself notes that “solving a problem requires understanding the scale of the problem and especially the hardest challenges – before you start on the main project.” I strongly recommend that you read this evisceration of the UK policy and think how similar the situation is to New York.

The death spiral is an overlooked component. The National Grid Fruit Belt demonstration project provides 100 low/moderate income residential customers with “the benefits of solar photovoltaic installations and energy efficiency products and services” paid for by the rest of the National Grid customer base. The problem is that to pay for all low/moderate income residential customers to get this benefit then costs necessarily increase such that more people become eligible for the benefit. In order to pay for those people fewer people are available to cover those costs so the increase necessary is larger and the death spiral kicks. Ultimately the question is whether this kind of program is feasible for everyone and if not who chooses who benefits.