By: Meghan Boland, Esq.

Adding to what is shaping up to be one of the most volatile years for the New York energy market on record, the New York Public Service Commission (“PSC” or “Commission”) issued a REV-related order (“CES Order”) on August 1, 2016, amending its Clean Energy Standard to include a Renewable Energy Standard as well as a brand-new Zero-Emissions Credit Requirement (“ZEC”) program (Cases 15-E-0302 & 16-E-0270).

To meet the state’s goal of 50% renewable electricity by 2030, the CES Order added a requirement that ESCOs and all other load serving entities (LSEs) pay a compliance cost associated with administratively determined subsidies provided to “at-risk” renewable generation facilities.

In addition, it also created a Zero-Emissions Credit Requirement designed to provide financial incentives for struggling nuclear power plants facing, including Ginna and Fitzpatrick, and the resulting loss almost 1500MW from the grid.

The CES Order is broken into three tiers, which are discussed below.

Tier 1: New Renewable Resources

The Commission, through the August 1 Order, now requires that each New York LSE serving their retail customers procure new renewable resources through qualifying RECs according to the following proportions of the total load served by the LSE:

• 2017: 6%
• 2018: 1%
• 2019: 0%
• 2020: 4%
• 2021: 8%

Over time through a triennial review process, the Commission will adopt incrementally larger percentages for the years 2022 through 2030.[1] The LSEs will be able to meet their obligations by purchasing RECs from NYSERDA, by purchasing qualified RECs from other sources, or by making Alternative Compliance Payments to NYSERDA.[2]

On or before December 1, 2016, NYSERDA will publish a REC price and the estimated quantity of the RECs NYSERDA will offer for sale in the 2017 compliance period. By December 1, 2016 for the Year 2017 compliance period, each LSE will inform NYSERDA whether it intends to purchase RECs from NYSERDA and 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.

The cost of Tier 1 REC procurement will not result in new charges to delivery customers; all charges will be to commodity customers.^[3] However, the PSC did acknowledge 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.

Tier 2: Maintenance Tier

Tier 2 will consist of a maintenance program, similar to that of the Renewable Portfolio Standard, and requires certain agencies, including NYSERDA, to research future opportunities for off-shore wind production.

Tier 3: Zero-Emissions Credit Requirement

Although nuclear energy accounts for roughly 30% of electricity generated in New York, the four existing power plants in New York are struggling financially. The Ginna power plant (owned by Constellation Energy) reached a Reliability Service Agreement with Rochester Gas & Electric (“RG&E”) earlier this year. Under the terms of the agreement, Ginna will get a Monthly Fixed Amount of $17.5 million (net Applicable Revenues). It will also get a “Deferred Collection Amount” backdated to April 1, 2015.

However, the Entergy-owned Fitzpatrick plant announced its plans to close in early 2017. To forestall the loss of Fitzpatrick’s approximately 880MW from the grid – which would prevent New York from reaching its ambitious carbon emission reduction goals, the Commission agreed to expand Case15-E-0302 to consider an expedited program to provide financial support for the existing nuclear facilities.

Tier 3 of the August 1 Order is the result, and is described by the PSC as an “independent but related component of the CES concerns the State’s nuclear facilities.”[4]

Under Tier 3, NYSERDA will conduct all procurements of ZECs from nuclear facilities, with prices based on the, “social cost of carbon.” The price paid by NYSERDA for the initial ZECs will be $17.48 per MWh, but will be adjusted every two years.

Beginning April 1, 2017, LSEs that serve end-use customers in New York will be required to 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 purchase ZECs through NYSERDA and will recover costs through commodity charges on ratepayer bills.

Initially, LSEs may only procure ZECs through NYSERDA, not trading or self-supply. 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. The CES Order made clear that any such proposals will be carefully scrutinized by the PSC to ensure that these alternate contracts will not unfairly shift ZECs costs onto other ratepayers.

As part of its efforts to increase renewable energy generation and supply, the PSC will not allow utilities to satisfy the new requirements by entering into long-term PPAs or to own renewable generation.

[1] New York State Public Service Commission, “Order Adopting A Clean Energy Standard” (issued and effective Aug. 1, 2016) Cases 15-E-0302, 16-E-0270, at 14.

[2] Id., at 16.

[3] Id., at 17.

[4] Id., at 19.