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. 111114.
• 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 439442.
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• Item Superseded?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.