Thursday, March 29, 2007

New York PSC Proposes Major Increase in Con Edison Natural Gas Efficiency Programs

For many years state utility regulators have approved utility funded programs to increase efficiency for end users of electricity. In New York, these programs started in response to high electricity prices in the 1980's and were first devised and implemented in PSC rate cases and rate case settlement agreements with each utility. Subsequently, most of the electric efficiency program functions were transferred to NYSERDA for implementation and evaluation, with funding coming from a PSC-approved surcharge on rates of most electric customers, known as the System Benefit Charge (SBC). Currently, the SBC funds programs at the level of $175 million per year.

In contrast, natural gas efficiency programs have been far smaller. For example, a three-year Con Edison natural gas efficiency pilot program, due to expire in September 2007, is funded at a level of $1.66 million per year. This program allocates 50 percent for low-income customers, 25 percent for other residential customers, and 25 percent for commercial efficiency programs. NYSERDA implements these programs funded through Con Edison rates, but NYSERDA has no statewide role to promote, implement and evaluate gas efficiency programs as it has with the electricity SBC programs.

The current small scale of the utility-funded natural gas efficiency programs stems from a number of factors, the most prominent of which is that in contrast to electricity, the price of natural gas remained low during the ‘80s and'90s. Indeed, it was the low cost and cleaner (compared to coal) attributes of natural gas, along with turbine efficiency improvements, that led to major deployment of natural gas fired power plants in the '80s and '90s.

Now, there is a greatly increased concern about using natural gas more efficiently. This concern stems from
  • shrinking North American natural gas reserves, production and supply,
  • increased future reliance on more expensive LNG imports,
  • increased concern over unnecessary production of greenhouse gases due to inefficient gas burning appliances and poorly insulated homes and apartment buildings,
  • increased usage of natural gas for electricity production, raising prices and requiring greater pipeline capacity at the same time as heating demands for gas are also high,
  • rising and sometimes spiking prices in unregulated wholesale natural gas markets, and
  • the leveraging impact of high natural gas prices on electricity prices in New York, where NYISO market rules allow sellers of lower cost electricity generated from hydro, nuclear, or coal plants to receive the same prices as sellers of electricity made by power plants using natural gas, which are now high and set the NYISO spot market clearing prices in many hours of the year.
In a pending Con Edison natural gas rate case, environmental groups are advocating for more substantial energy efficiency programs. Due to the time line for deciding the rate case, it became apparent to the PSC that the rate case proceeding is not an appropriate vehicle for deciding whether to expand dramatically the expiring pilot efficiency programs in time for the 2007 - 2008 heating season.

On March 27, 2007 the PSC issued a notice proposing to increase Con Edison efficiency programs to $14 million per year. This would be a "bridge" to the program funding level ultimately to be determined in the rate case. The notice appends a Department of Public Service Staff report which states:
Staff believes it is imperative to pursue cost-effective opportunities to reduce gas consumption through an expanded gas efficiency program. Given current gas prices, such a program is needed to provide relief to all consumers burdened by the high cost of energy. At the same time, a reduction in gas consumption would provide critically important environmental benefits. Therefore, measures to further gas efficiency should be put in place without undue delay.
The PSC notice asks for public comment on the Staff proposal. For more information, including the comments of PULP and other parties on the Staff proposal, see PULP's web page on energy efficiency issues.

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