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NY Slaps New Nuclear Procurement Compliance Cost on ESCOs (Starts At $17/MWh), Also Imposes New Renewable Compliance Obligation on ESCOs

August 2, 2016

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Copyright 2010-16 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com

The New York PSC adopted an order requiring ESCOs and other LSEs to pay a compliance cost associated with administratively determined subsidies provided to allegedly at-risk "merchant" nuclear plants, and also instituted a new renewable energy standard with the compliance obligation imposed on ESCOs and other LSEs

Regarding the new nuclear standard (Zero Emission Credit or ZEC program, aka Tier 3), NYSERDA will conduct all procurements of ZECs from nuclear facilities, with prices based on the, "social cost of carbon."

Each LSE, including ESCOs, that serves end-use customers in New York, beginning April 1, 2017, shall purchase the percentage of ZECs purchased by NYSERDA in a year that represents the portion of the electric energy load served by the LSE in relation to the total electric energy load served by all such LSEs.

LSEs will make ZEC purchases by contracting with NYSERDA and will recover costs from ratepayers through commodity charges on customer bills. The price paid by NYSERDA for the initial ZECs will be $17.48 per MWh. The price paid by NYSERDA for ZECs is to be adjusted every two years.

"This adoption of the Zero-Emissions Credit Requirement is a changed regulatory requirement for the purposes of the UBP {Uniform Business Practices]," the PSC said in its order

"Each Load Serving Entity is directed to enter into a contractual relationship with NYSERDA to periodically purchase ZECs during a program year based on initial forecasts of load and a balancing reconciliation at the end of each program year. In this manner, after the reconciliation process, each Load Serving Entity will have purchased the correct proportion of ZECs on an annual basis. In accordance with Staff’s proposal, that ZECs will not be tradable except between NYSERDA and the Load Serving Entities during this balancing process," the PSC ordered

Initially, LSEs may only procure ZECs through NYSERDA, with no trading or self-supply. As a potential alternative to contracting for ZECs with NYSERDA, LSEs and self-supply customers may seek permission from the Commission to meet their ZECs obligations by entering into combined ZEC plus energy and/or capacity contracts directly with the nuclear facilities. However, such proposals will be carefully scrutinized by the Commission to ensure that these alternate contracts will not unfairly shift ZECs costs onto other ratepayers, the PSC said

The PSC also instituted a new renewable energy standard (RES), with ESCOs and other LSEs responsible for compliance with Tier 1 of the RES (new renewable facilities).

However, despite the transfer of the compliance obligation to LSEs, NYSERDA will continue with central REC procurements, though, unlike with the nuclear standard, LSEs may purchase RECs from other sources, or may comply with the RES by making Alternative Compliance Payments to NYSERDA (as noted below, the ACP shall include a 10% adder versus NYSERDA's REC price).

LSEs must comply with the Tier 1 RES in proportion of the total load served by the LSE for the years 2017 through 2021 as follows:

Year    RES Amount
2017    0.6%
2018    1.1%
2019    2.0%
2020    3.4%
2021    4.8%

Under the RES, each LSE will be responsible for supplying a defined percentage of retail load with supply derived from eligible resources. The obligation will be annual, determined by multiplying the LSE’s actual load for that year by the percentage RES target for that year.

"This adoption of the Renewable Energy Standard is a changed regulatory requirement for the purposes of the Uniform Business Practices (UBP)," the PSC said in its order.

The PSC noted that representatives of ESCOs argued that some ESCOs have fixed price contracts with customers, and that these ESCOs could not pass through the additional costs created by the LSE obligation.

"As an equitable matter, all customers and market participants must share in the RES effort. In the early years of the RES, the incremental obligation will be small, so this will not fall outside the range of normal business risks. As the LSE obligation grows, ESCOs will have timed out of their fixed price obligations, and the RES obligation will provide both incentives for ESCOs to develop new products, and opportunities to appeal to voluntary 100% green markets," the PSC said

For the Year 2017 compliance period, by December 1, 2016, NYSERDA shall publish on its website a REC price and the estimated quantity of the RECs NYSERDA will offer for sale in the 2017 compliance period. The REC price offered will equal the weighted average cost per MWh NYSERDA paid to acquire the RECs to be offered, plus a reasonable Commission-approved adder to cover the administrative costs and fees incurred by NYSERDA to administer Tier 1. NYSERDA will file a petition with the Commission proposing the amount of the adder by August 25, 2016, in order to allow the Commission an opportunity to consider the adder at its November 2016 Session. For subsequent years, Staff will propose a methodology for pricing and offering RECs as part of the implementation phase of this proceeding.

By December 1, 2016 for the Year 2017 compliance period, each LSE will inform NYSERDA whether it intends to purchase RECs from NYSERDA during the compliance period. During the 2017 compliance period, NYSERDA will offer the RECs for sale in the compliance period to each participating LSE with a right of first refusal to each participating LSE to purchase their proportional share of the available RECs based on historical share of load.

By December 1, 2016 for the Year 2017 compliance period, NYSERDA shall publish on its website a per MWh ACP price for the 2017 compliance period. The ACP price will equal an amount calculated as the published REC price plus 10%.

The PSC declined to allow utilities to enter into long-term PPAs or to own renewable generation as part of its efforts to increase renewable energy.

"Mandating utilities to enter long-term PPAs would present a significant financial risk to ratepayers and to utilities. Because customers in New York can choose their power suppliers, no supplier is assured of the size of its customer base, for purposes of energy sales, over the long-term. This is true of distribution utilities as well as ESCOs. Because there is no assurance of a long-term customer base from which to recover the cost of power contracts, mandated PPAs would create the risk of utilities recovering costs from a dwindling group of default energy customers, or to resort to a non-bypassable surcharge that applies to all delivery customers. Because a delivery surcharge limits competitive choice, it is not the preferred alternative. Advocates of PPAs argued that there are hedge benefits as well; but hedging in power markets tends to occur over three- to five-year periods, not 20-year periods," the PSC said

"Utility-owned generation [UOG] can cost less than the alternatives, in the near-term, largely because utilities have lower finance costs. But utility owned generation also has the potential to inhibit entry by other market participants, which can result in less competition and higher costs in the long-run," the PSC said

"Procurement that is limited to the REC, and does not include the power supply itself, avoids the pitfalls of PPAs and UOGs, but may result in higher costs for the renewable attribute, as developers build the increased risk of power cost fluctuation into their bids to sell the renewable attribute," the PSC said

"Consistent with the Commission’s long-standing policies, however, as a matter of first preference long-term PPAs will not be mandated, nor will the Commission revert to a blanket authorization of traditional UOGs. Long-term procurement will begin by employing the current method of fixed-price REC contracts," the PSC said

Cases 15-E-0302, 16-E-0270

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