The New York State Benefit Cost Analysis in the Reforming the Energy Vision Proceeding (Case 14-M-0101)

Kevin M. Bronner, Ph.D. University at Albany

Nelson A. Rockefeller College of Public Affairs and Policy

October 8, 2015

New York State Reforming the Energy Vision Proceeding

• New York State Public Service Commission Case 14-M-0101.

• Benefit Cost Analysis (BCA) proposal submitted on July 1, 2015 for comments by the parties to the proceeding.

• Proceeding is ongoing with comments being filed this year with decision made sometime in 2016.

Changing the Energy Structure Barriers

• Historian Daniel Yurgen August 25, 2015 Wall Street Journal piece.

• Energy revolutions from 1824 such as steam, coal, petroleum take a long time to implement (100 years).

• Caution: Solar, wind, and others may take a long time also.

Energy Conservation BCA from August 28, 2007

• Staff Preliminary Proposal for Energy Efficiency Program Design and Delivery, August 28, 2007.

• Case 07-M-0548 Energy Efficiency Portfolio Standard.

• Energy Conservation programs implemented.• BCA comparing direct investments costs vs

energy savings.

Benefit Cost Analysis Background

• Federal level: Presidential Executive Order 12866 requires that benefit cost analysis be used for major decisions such as energy policy and other regulatory items.

• Dudley, Susan and Jerry Brito (2012) Regulation a Primer. Marcus Center at George Mason University. See pp. 39-44 and pp. 111-114.

• Regulatory impact statement required.

New York State Department of Public Service

• Staff White Paper on Benefit-Cost Analysis in the Reforming the Energy Vision Proceeding

• Case 14-M-0101• July 1, 2015

More BCA Background

• Balleisen, Edward J. and David A. Moss (2010). Government and Markets Toward A New Theory of Regulation. Cambridge University Press. See pp. 56-82 on United States Superfund program.

• Carpenter Daniel and David A. Moss (2014). Preventing Regulatory Capture Special Interest Influence and How to Limit It. Cambridge University Press. See Federal Office of Information and Regulatory Affairs role at 439-442.

New York State

• Cost Benefit Assessment in Rulemaking A Guide for State Agencies (2008). Governor’s Office of Regulatory Reform.

• Item Superseded?

2015 BCA Proposal

• Project to study the benefits and costs of distributed energy resources (DER) programs at the utilities (p. 2).

• Distributed System Implementation Plans (DSIPs) to be developed by each utility.

• Now DER programs are a type of uncontrollable event like the weather and perhaps systematic BCA study will resolve that issue.

2015 BCA Proposal Cost Tests

• DER penetration must be studied (p. 4).• How much will distributed energy resources

enter the utility system?• Societal Cost Test.• Utility Cost Test.• Rate Impact Measurement Test.

2015 BCA Proposal Additional Information Requirements

• Much more sophisticated tests to be involved than in the past to study distributed generation components (p.5).

• Previous studies had a focus on traditional costs that can be avoided.

2015 BCA Proposal Social Costs

• Social costs to be included (p. 6).• Environmental impacts, external costs, and

social costs to be included in addition to traditional pecuniary or monetary costs.

• Coase, R.H. (1960). The Problem of Social Cost in Journal of Law and Economics, Vol. 3 (Oct. 1960.) University of Chicago Press, pp. 1-44.

2015 BCA Proposal Handbook

• Benefit Cost Analysis Handbook process to be developed by each utility (p. 9).

• Sensitivity analysis and risk assessments.• This is designed with transparency in mind.• Decision making model.

2015 BCA Proposal Discount Rate Issues

• Discount rate is a big issue since the proposal intends to use the utilities’ weighted average cost of capital (WAAC), (p. 10).

• Social benefits late in the study period will be given less weight than up front costs.

• Multi generational climate change costs mentioned at p. 10 in footnote 8.

• Nature Conservancy discount rate: Zero to 3%

2015 BCA Proposal Costs to be Quantified

• Table 1 lists benefits and costs to be quantified (p. 12).

• Net avoided green house gasses.• Net avoided air pollutants.• Health impacts.

2015 BCA Proposal Some Traditional Benefits

• Avoided generation costs (p. 13).• Avoided energy (fuel) costs (p. 15).• Avoided transmission costs (p. 17).• Avoided distribution costs (p. 20).

2015 BCA Proposal Greenhouse Gas Cost Estimates

• Sulfur dioxide (SO2), Nitrogen Oxide (NOx), and Carbon Dioxide (CO2) forecast prices shown in Table 4 on page 33.

• 2012 to 2035.• SO2: 2012= $2.50, 2035 = $3,123.• NOx: 2012 = $64, 2035 = $232.• CO2: 2012 = $2.08, 2035 = $31.95.

Many Parties Commenting in the Proceeding

• National Resources Defense Council. • Environmental Defense Fund.• Major New York energy utilities.• Nature Conservancy.• Numerous other parties involved.

Case Schedule & Next Steps

• Comments filed in August and September of 2015.

• Public Service Commission decision in early 2016?

• Studies to proceed in detail thereafter.

Regulatory Capture Theory Concern

• Capture theory was invented in the 1950s and says that regulatory processes are used by those regulated to control the process.

• Marver Bernstein (1955) The Life Cycle of Regulatory Commissions.

• George Stigler (1971) The Theory of Economic Regulation in “The Bell Journal of Economics and Management Science .”

BCA as Barrier to Entry

• Final point: Will the BCA process slow down the development of distributed energy?

• Litigation and uncertainty?• Barrier to entry related to distributed energy

resources may being created if the process is too complex.

Questions?

• Request copy of the paper at kbronner@albany.edu.