Approval of Con Edison’s BQDM Program is a significant step for the utility to pursue non-traditional infrastructure investments to meet local demand.
On December 12, 2014, the New York State Public Service Commission (PSC) issued an order in Case 14-E-0302 approving Consolidated Edison Company of New York Inc.’s (Con Edison) Brooklyn/Queens Demand Management (BQDM) Program to address overload of sub-transmission feeders – serving Brownsville 1 and 2 substations – with a combination of traditional utility-side solutions and non-traditional customer- and utility-side solutions. The approval is a significant step towards a regulatory paradigm where utilities incorporate alternatives to traditional infrastructure to address planning and reliability. The PSC noted that Con Edison’s proposal – involving deployment of distributed energy resources, increased clean energy solutions, and innovation through competition – is consistent with the Reforming the Energy Vision (REV) proceeding goals.
The BQDM Program involves approximately 52 MW of non-traditional utility- and customer-side solutions. Combined with approximately 17 MW of traditional utility infrastructure investment, the program would defer the need for a new area substation – as forecast by Con Edison to address increased customer electric demand in Brooklyn and Queens – from 2017 to 2019. These alternate solutions together with a proposed 80 MW load transfer to the Glendale substation, addition of a fourth transformer to the Newtown substation, and fifth transformer at the Glendale substation could potentially defer the need for a new substation and Gowanus expansion to 2026 or beyond.
Con Edison plans to implement 41 MW of customer-side non-traditional solutions using its $25M Targeted Demand-Side Management (TDSM) funding which would provide an adder to existing incentives – Energy Efficiency Portfolio Standard, Indian Point demand management program, and the New York State Energy Research and Development Authority (NYSERDA) Combined Heat and Power (CHP) program – to leverage additional load reductions. It has proposed checkpoint dates – from January 2015 through June 2018 – to contract customer-side solutions to support the BQDM program’s load-reduction goals. Con Edison plans to implement approximately 11 MW of utility-side non-traditional solutions using its own plans, Request for Information (RFI), and Request for Proposal (RFP) for battery storage projects.
Con Edison estimates the BQDM program to cost $200M – $150M for 41 MW of customer-side solutions and $50M for 11 MW of utility-side solutions. The TDSM budget will provide $25M while the remainder will be recovered by customers through a surcharge. The BQDM program’s updated Benefit Cost Analysis (BCA) – submitted on December 10 – shows a project Net Present Value benefit of approximately $40M. The updates – expanded consideration of customer-side resources, updated cost estimates of the 80 MW load transfer, and updated valuation of emissions and avoided costs – would defer Con Edison’s forecast for a new substation and Gowanus expansion from 2024 to 2026.
Finding that the BCA lacks the necessary details to inform final portfolio selection decision, the PSC has directed Con Edison to re-submit its BCA after selecting the portfolio of customer- and utility-side non-traditional solutions. It requires the revised BCA to identify non-monetized benefits of the BQDM program including benefit of learning opportunities arising from its implementation, which could be instructive for the REV proceeding.
Considering concerns regarding the total BQDM Program cost, the PSC stressed the need to protect customers from excessive costs and expressed its intention to implement a demand management program to facilitate more ratepayer savings when compared to traditional infrastructure investments (which Con Edison estimated at approximately $1B in this instance). It ordered that Con Edison may not spend more than $200M on the BQDM Program, including the TDSM budget. Con Edison may begin deferring and recovering BQDM-related costs through a component of the Monthly Adjustment Clause (MAC) and New York Power Authority (NYPA) surcharge for timely program implementation. As NYPA delivery rate customers will also benefit from deferral of infrastructure – facilitated by BQDM – they are to be assigned a portion of BQDM costs. Con Edison has 30 days from the order issuance date to submit compliance tariff revisions regarding apportioning BQDM Program costs to NYPA delivery rate classes.
Regarding earnings opportunity, Con Edison’s proposed incentives consist of the regulated rate of return on alternative investments, a return on equity (ROE) adder of 100 basis points tied to MW-achievement levels, and a 50 percent share of calculated savings of alternative portfolio compared to traditional investment. The PSC finds that a regulated return on investment, with the 10-year amortization period provides reasonable earnings opportunity to select alternative solutions over traditional expenditures. The 100-basis point ROE adder on BQDM costs – tied to potential outcomes to advance policy objectives – provide an additional benefit. The PSC amended the ROE adder, breaking it down into 45 basis points tied to performance in achieving the proposed 41 MW alternative solutions, 25 points tied to performance in increasing DER diversity, and 30 points tied to the ability to gather a portfolio of solutions to achieve a lower $/MW value compared to traditional investment. The PSC rejected Con Edison’s shared savings proposal.
The PSC has permitted Con Edison’s proposed ownership of battery-storage solutions, where appropriate, without precluding customer-side battery storage. It noted that batteries – similar to capacitor banks – are a standard component of the traditional distribution system and underscored the value of gaining experience in storage-based solutions.
The PSC order sets a $200M cap on BQDM Program costs, which will be recovered through the MAC with a 10-year amortization period until base rates are reset. It has approved the BCA framework comparing the business-as-usual case to the alternative portfolio case, though Con Edison is required to report its revised BCA results after determining the portfolio of solutions. During its next major electric rate proceeding Con Edison will propose to remove unrecovered deferred BQDM Program costs from the surcharge and propose to include them in its revenue requirement to be collected from customers through base rates.
The PSC noted that the success of BQDM would largely depend on customer participation and that Con Edison has expressed its intention to promote participation by engaging community leaders and non-governmental organizations. It has directed Con Edison to file an implementation plan with a detailed outreach plan within 60 days of the order issuance, with updates annually or more frequently as needed.
Originally published by EnerKnol.
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