Climate Leadership & Community Protection Act Tier 4 Residential Electricity Rate Costs

At the December 20, 2021 meeting of New York’s Climate Leadership and Community Protection Act (CLCPA) Climate Action Council  the Council voted to release the Scoping Plan for public comment later this year.  One of the controversial issues on the Council was the lack of any estimates of consumer cost impacts.  This article compares residential cost impacts of the recently announced New York State Energy Research and Development Authority (NYSERDA) contracts with Clean Path New York LLC for its Clean Path NY (CPNY) project and H.Q. Energy Services (U.S.) Inc. (HQUS) for its Champlain Hudson Power Express (CHPE) with the energy needed as part of the Scoping Plan.

I have summarized issues with the Climate Act and  written extensively on implementation of it because I believe the solutions proposed will adversely affect reliability and affordability, will have worse impacts on the environment than the purported effects of climate change, and cannot measurably affect global warming when implemented.   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.

Background

The Climate Action Council is responsible for preparing the Scoping Plan that will “achieve the State’s bold clean energy and climate agenda”.  Starting in the fall of 2020 seven advisory panels developed recommended policies to meet the targets that were presented to the Climate Action Council in the spring of 2021.  Over the summer of 2021 the New York State Energy Research & Development Authority (NYSERDA) and its consultant Energy + Environmental Economics (E3) prepared an integration analysis to “estimate the economy-wide benefits, costs, and GHG emissions reductions associated with pathways that achieve the Climate Act GHG emission limits and carbon neutrality goal”.  The integration analysis implementation strategies have been incorporated into the draft Scoping Plan.  On December 20, 2021 the Climate Action Council voted to release the Scoping Plan for public comment on December 30, 2021.

The presentation on December 20, 2021 revised previous projections.  Those projections were not documented the same as the November 18, 2021 update of key results, drivers, and assumptions that were posted on the Climate Act resources page.  In the absence of updated resource information, I was forced to use information from the following spreadsheet in this article: Integration Analysis – Inputs and Assumptions Workbook (“Inputs Workbook”) [XLSX]

Tier 4

According to the NYSERDA Tier 4 webpage:

The Public Service Commission’s October 15, 2020 Order [PDF]establishes a new Tier 4 within the Clean Energy Standard (CES) in response to NYSERDA’s CES White Paper. The new Tier 4 will increase the penetration of renewable energy into New York City (NYISO Zone J), which is particularly dependent on polluting fossil fuel-fired generation. NYSERDA’s CES White Paper found that without displacing a substantial portion of the fossil fuel-fired generation that New York City currently relies upon, the statewide 70 by 30 Target would be difficult to achieve. Through Tier 4, the State will procure the unbundled environmental attributes (in the form of Tier 4 RECs) associated with renewable generation delivered into Zone J. These environmental attributes include the avoidance of GHG emissions, as well as the avoidance of local pollutants such as NOx, SOx, and fine particulate matter. 

On November 30, 2021 New York Governor Kathy Hochul announced that finalized contracts for two projects to meet this solicitation had been awarded.  In order to complete this process NYSERDA and the Department of Public Service (DPS) submitted “a petition for approval this Petition and two contracts for renewable energy credits (RECs) entered into under Tier 4 of the Clean Energy Standard (CES)”.  These documents are available on the DPS website for this matter.  For the reader’s information and because trying to access the DPS website is a challenge I have posts the petition, press release, cost analysis, and the contracts on this website.  According to the petition:

Tier 4 was established by the Public Service Commission (Commission) in October 2020 to overcome the challenge of New York City’s reliance on fossil fuels and to help accelerate achievement of New York’s target of 70% renewable energy by 2030. To this end, the Commission instructed NYSERDA to proceed with a Tier 4 solicitation that will increase the penetration of renewable energy into New York City (Zone J). NYSERDA issued its solicitation in January 2021 and received a highly competitive response with seven projects submitting proposals.

Following a robust and comprehensive evaluation process, which considered bid prices, viability and economic benefits, in September of 2021, the selection of two projects was announced: (1) the Clean Path New York (CPNY) project; and (2) the Champlain Hudson Power Express (CHPE) project. Contract negotiations have now concluded, and in accordance with the Commission’s instructions, NYSERDA and Staff are submitting the signed contracts for the Commission’s consideration and approval. The selected projects are expected to deliver 18 million megawatt-hours of renewable energy per year to Zone J, more than a third of New York City’s annual electric consumption, from a diverse generation portfolio including onshore wind, solar and hydroelectric power from Upstate New York and Québec.

The bid evaluation document describes the two projects.  The CPNY proposal has three main components:

• • • New Tier 4 renewable generation to be built in New York (CPNY Resources), located largely upstate,
    • A new 1,300 MW HVDC controllable link from upstate to New York City, and
    • The use of the New York Power Authority owned Blenheim Gilboa pump storage facility to store energy produced by the CPNY resources that is generated in excess of the Tier 4 transmission capacity.

The CHPE project is an underground transmission line from Quebec to New York City that will deliver 1,250 MW of hydro generation from Hydro Quebec.  Both projects terminate in New York City so that it can be considered “in-city” generation.

The intent of this article is to discuss the cost aspects but I have to comment on the CPNY shell game.  The following table shows the capacity (MW), expected energy (GWh) and the capacity factors.  I call your attention to the CPNY capacity factor for the new Tier 4 renewable generation.  The only way that high a capacity factor for renewable generation is possible is if there is substantial energy storage and the project plan is to use the Blenheim Gilboa pump storage facility.  Here’s the thing, Blenheim Gilboa was built in 1973.  It has been in daily use storing energy when prices are low and producing energy when prices are high.  It does not represent anything new even if the plan is to use it differently.  The capacity factor of the new renewables will be much less than 74.9% however this is packaged to fulfill the contract.  It shows the degree of desperation of the State that they are trying to sell this renewable resource as contracted.

	CHPE	CPNY	Combined
Capacity (MW)	1,250	1,300	2,550
Energy (GWh)	10,000	8,527	18,527
Capacity Factor (%)	91.3%	74.9%	82.9%

Cost Estimates

The petition includes the following cost estimates:

The costs of program payments for the purchase of Tier 4 RECs from the projects are projected as $5.9 – $11.6 billion, equating to an estimated increase in customer electric bills of 2.1 – 4.1% (or $2.08 – $4.08 per month for the average residential customer) on average across the State for the 25-year period of the Tier 4 contracts. The range of these projections reflects future uncertainties including energy and capacity prices and includes the benefits to ratepayers from the expected purchase of Tier 4 RECs by the City, which reduces the ratepayer impact by $0.8-$1.7 billion. Additional cost reductions could occur as a result of federal transmission tax credits, which could reduce the remaining costs of Tier 4 to ratepayers to 1.8 – 3.8%. Voluntary purchase of Tier 4 RECs by New York City organizations with interest in switching to renewable energy could reduce ratepayer impact even further.

Program costs will be borne by ratepayers based on electric load. For instance, ConEdison customers with 40% of the State’s load will contribute 40% of the cost, and National Grid customers 23%, reflecting their load. However, because upstate customers tend to have lower electricity bills to start with, the percentage bill impacts tend to be higher upstate than downstate, with National Grid customers experiencing around twice the percentage bill increase as that of ConEdison customers. This underscores the importance of voluntary Tier 4 REC purchases by the City, as described above, in order to manage these upstate impacts.

I have prepared the Expected Annual Increase in Residential Sector Annual Costs Using the Tier 4 Cost Impacts table to summarize these costs.  The petition states that the projected increase in customer electric bills will be 2.1 – 4.1% (or $2.08 – $4.08 per month for the average residential customer.  The Tier 4 Petition row lists the values converted to annual numbers between $24.96 to $48.96.  My Tier 4 calculated numbers are slightly different.  I used the September 2021 average residential electricity price as the starting point, calculated that the average residential electricity use is 6,870 kWh and estimated that the annual average residential energy bill is $1,408.  The 2.1% and 4.1% increase from that baseline equates to annual increases of between $29.57 and $57.74 per year.

NYSERDA and DPS has set a precedent for future renewable energy subsidies with this petition.  The purchase of Tier 4 Renewable Energy Credits (RECs) from the projects are projected to cost between $5.9 – $11.6 billion (equating to an estimated increase in customer electric bills of 2.1 – 4.1%) for 18,527 GWh of renewable electricity energy.  Assuming that new hydro imports, onshore wind, wind imports, and offshore wind projects were comparable to these two projects, we can make an order of magnitude estimate of their cost if the same subsidy approach is used simply by pro-rating these Tier 4 contact costs by the total additional energy divided by the Tier 4 energy.  For Scenario 2 of the Integration Analysis the annual cost range is $168 to $327, Scenario 3 is $184 to $359, and Scenario 4 is $179 to $349 additional. 

Note that there are other programs that could contribute to the subsidies such that residential electricity prices would be reduced.  The costs remain the same so it is just how they get paid for that change. 

Discussion

On October 26,2021, the AP-NORC Center and the Energy Policy Institute at the University of Chicago (EPIC) released the results of a survey that claimed that a majority of Americans regard climate change as a problem of “high importance”.   It also included survey questions asking whether respondents would support, oppose, or neither support or oppose a law that imposed “a fee on carbon to combat climate change”.  The survey question asked “If the law passed, it would increase  the average amount your household pays each month for energy, including electricity, heating gas, and gasoline or diesel for your car by a total of X dollars per month” where respondents were randomly assigned a $1, $10, $20, $40, $75, or $100 cost increase.  For a $1 per month increase, 45% would support, 30% would oppose, and 25% would neither support or oppose. For a $20 per month increase, 37% would support, 41% would oppose, and 21% would neither support or oppose.   For a $100 per month increase, 20% would support, 62% would oppose, and 18% would neither support or oppose.  In other words, these cost estimates are right about at the point where more people oppose the cost increase than support them.

Of course, this is just a fraction of the expected residential rate increase.  New York also has to find a way to subsidize the expected solar energy, energy storage, and zero-carbon firm resource capacity needed.  There are also all sorts of less obvious costs to the electric consumers.  Someone also has to pay to upgrade the local distribution systems to handle all electric homes that have electric vehicles, install interactive meters, and pay for all the hidden costs that New York has foisted upon the electricity providers like public chargers for electric vehicles.  Don’t forget that consumers also have to absorb the added costs for electrifying their homes and transport too.

Conclusion

Ratepayer cost impacts are not included in the Integration Analysis documentation provided to date.  Based on a recent survey, the projected ratepayer costs for a fraction of the expected consumer cost in this analysis is just about at the level where more respondents oppose those costs than support them.  It is difficult to estimate more of the costs because the documentation provided to date does not even provide the values used in the graphs for costs provided.  There are some costs that could be broken out on a per household basis without a lot of work in the Integration Analysis.  In my opinion, the Climate Action Council has a vested interest in not showing even that level of detail because the costs are unsupportable.

New York’s Tier 4 contracts are good examples of one of the ways that the implementation costs for the Climate Act could be paid.  It is not clear why ratepayers have to subsidize renewable energy development if those resources are, in fact, cheaper than other energy resources.  The transparent manipulation of the Clean Path New York contract to provide more reliable energy using existing pumped storage energy resources demonstrates the State is desperate to fund these projects by any means, fair or foul.