The New York State Public Service Commission (PSC), in a July 15 order, adopted a revised non-wire alternative (NWA) project cost allocation and recovery methodology proposed by Central Hudson Gas and Electric that reflects the same cost allocation and recovery principles of traditional demand-related transmission and distribution (T&D) investment.
That will result in recovery of NWA project costs from non-demand metered customers on a per kilowatt-hour basis, and from demand metered customers on a per kilowatt basis, the PSC said. For the financial incentive, the PSC said that it adopts a sharing of benefits approach that provides 30% to shareholders and 70% to ratepayers.
“The 30% sharing adopted here represents a financially meaningful incentive opportunity that should encourage Central Hudson to pursue the innovative portfolio-level approach to implementing the NWA project while producing significant net benefits to customers,” the PSC said. “It is expected that residential customers will save approximately $5 million on a net present value basis over the deferred investment period. We arrived at the sharing percentage by considering the magnitude of the alternative investments, the deferred investment period of the traditional T&D projects, and the likelihood of achieving the savings for consumers.”
As noted in the order, Central Hudson in July 2015 filed– in compliance with a PSC June 2015 order approving a rate plan – a petition seeking approval of a proposed cost recovery mechanism and a shared savings financial incentive mechanism for an NWA project.
The PSC noted that the NWA project is a portfolio addressing a mix of T&D needs in three locations in the company’s service territory, which require these load reductions in order to defer traditional T&D investment:
- Area 1 – 10 MW by 2019 to defer traditional T&D until 2029
- Area 2 – 5 MW by 2020 to defer traditional T&D until 2025
- Area 3 – 1 MW by 2020 to defer traditional T&D until 2027
The anticipated load reductions would be achieved through a combination of residential and small commercial load control, as well as large commercial and industrial targeted demand
response, the PSC said. Residential and small commercial load control would primarily be direct load control of thermostats, and load control switches to automate cycling of air conditioning units, hot water heaters and various residential and commercial pumps, the PSC said, adding that large commercial and industrial demand response will consist of either automated or manual demand response triggered by a call to reduce load.
The company is pursuing the NWA project in order to delay millions of dollars of traditional capital infrastructure investment that would otherwise be needed to accommodate the growth in expected area peak demand in the three areas, the PSC said.
To recover the costs of the NWA project, for which the PSC has already granted deferred accounting treatment, the company proposed to establish a new non-bypassable delivery surcharge mechanism called the system alternative infrastructure (SAI) charge. The PSC also said that the financial incentive proposed by the company is for a maximum of 50% of the net present value (NPV) of net-benefits resulting from the NWA project that afford the deferral of investment in the three traditional T&D project areas.
As proposed, the SAI charge would be calculated every six months by dividing the NWA costs by the estimated billed kilowatt-hour over the collection period, the PSC said, noting that the company does not propose to reconcile recoveries with costs resulting from billed kilowatt-hour delivery variations, but instead would allow any such differences to remain in the deferred balance account and be addressed at the end of the NWA project amortization period.
Further, the PSC said, the company proposed to include in its next electric rate filing, a proposal for the removal of the NWA costs from the SAI charge with concomitant recovery of the balance of unrecovered costs through base rates.
The PSC said that it is not persuaded by Central Hudson’s proposal to allocate the incremental costs of the NWA project based on energy, and instead agrees with multiple intervenors that those costs should be allocated to service classes based on demand.
Specifically, the PSC said that it directs Central Hudson to use a demand allocator that reflects the T&D cost allocation of the traditional T&D investment being deferred. That allocation, instead of allocating on an energy-only basis, more appropriately aligns the costs incurred with the service classes that are driving the need for the NWA project, the PSC said.
The PSC further noted that it sees no need for Central Hudson’s proposal to implement a new SAI charge to recover NWA project costs that are incremental to costs reflected in base delivery rates. Instead, the PSC said, those costs should be collected through the existing miscellaneous charge (MISC).
The NWA project-related costs should be billed to customers by demand because the project is needed due to increasing area peak demand, while total electricity volume is of comparatively less relevance, the PSC said. However, for customers that do not have demand meters and are not billed a demand charge, it is reasonable to bill those customers by energy usage, the PSC said, adding that this charge should be updated every 12 months instead of every six months as proposed by the company, which will help alleviate bill volatility.
As for the company’s proposal to not reconcile recoveries with costs resulting from billed kilowatt-hour delivery variations, the PSC said that it rejects the proposal and directs Central Hudson to include the reconciliation in the surcharge for the subsequent 12-month period.
Noting that Central Hudson proposed that only certain initial NWA costs be amortized and recovered over five years, while other on-going NWA costs would be collected as incurred, the PSC said that it directs Central Hudson to amortize and recover all costs related to the NWA program over a five-year period.
Discussing “financial incentive,” the PSC said that it agrees with multiple intervenors’ assertion that the 50% share is excessive where the company is recovering the full cost of the NWA project from ratepayers, and concludes that 30% strikes a reasonable balance between ratepayers and shareholders.
“The commission concludes that providing a meaningful share of the expected customer savings is a critical component to developing the momentum necessary to make the consideration of and experience with implementing NWA projects a pillar of the utility business model, which stands to save ratepayers millions of dollars,” the PSC said.
Regarding “incentive milestones and cost recovery,” the PSC said that the incentive related to the value of delaying the infrastructure investment will be calculated on a portfolio basis and split evenly, with 50% of the incentive awarded when half the target megawatt of the portfolio – 8 MW – is achieved, and the remaining 50% of the incentive to be earned when the full megawatt target of the portfolio – 16 MW – is achieved.
Among other things, the PSC said that it agrees with Central Hudson’s proposal to stop the incentive recovery if at any time the traditional T&D investment is no longer able to be deferred.
Central Hudson is a Fortis company.