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New York DPS Staff File Specific Proposed Mechanism For Changing ESCO ZEC Compliance To Pay-As-You-Go

August 6, 2018

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Reporting by Paul Ring • ring@energychoicematters.com

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Staff of the New York Department of Public Service and Staff of NYSERDA have filed a proposal to transition the compliance mechanism for LSEs, including ESCOs, under the zero emissions credit (ZEC) program to a "pay as you go" mechanism

"In this Implementation Plan, NYSERDA and Staff to propose modify how each LSE’s initial ZEC obligation is calculated and how LSEs remit ZEC obligation payments from the current payment structure, which is based on a fixed ZEC quantity obligation calculated using the LSE’s historical share of statewide load, to a model based on each LSE’s actual load. Under this proposal, LSEs will be given a uniform wholesale per kWh charge that can be collected from their retail customers, as opposed to an obligation to purchase predetermined number of ZECs from NYSERDA," the Staffs said in the filing

Under this approach, each year, NYSERDA would determine, in collaboration with Staff, the dollar per MWh charge (LSE ZEC Rate) owed by each LSE for the next compliance year of the ZEC program. The dollar per MWh charge to be paid by each LSE for the compliance year would be calculated according to the following formula:

LSE ZEC Rate = NYSERDA’s maximum total cost to procure ZECs / Forecasted statewide electric load

An LSE’s ZEC payment obligation would then be calculated as the LSE ZEC Rate multiplied by the number of MWh the LSE served, using the New York Independent System Operator’s (NYISO) Version 2 load data, including generation from load modifiers utilized by distribution utilities. The LSE’s obligation would thus be calculated according to the following formula:

LSE ZEC payment obligation = LSE ZEC Rate x (LSE’s MWh + MWh from Load Modifiers)

Under this proposal, each LSE will be required to make monthly payments to NYSERDA, based on the load served by each LSE for the previous month. The monthly obligation will be subject to an interim reconciliation once the Version 2 generation data is provided by NYISO and recorded in NYGATS, which occurs approximately five months following the close of each month. A final reconciliation will continue to occur after the close of each program year.

"This modification is necessary to more accurately reflect month-to-month changes in an LSE’s load and to avoid significant under-or over-payments by LSEs as is the case under the current structure. NYSERDA’s review of the LSE’s ZEC obligation payments will permit under or overpayments to be reconciled on a shorter timeline than the current annual reconciliation, thereby alleviating administrative and financial burdens on LSEs. This process will significantly reduce the magnitude of the settlements between NYSERDA and the LSEs during the annual reconciliation period, since LSEs must know their load for business purposes and for scheduling with the NYISO, and thus will be able to accurately calculate their actual obligation in near real-time," the Staffs said in their proposal

"The uniform MWh charge (LSE ZEC Rate) will be used by all LSEs and NYSERDA to determine the monthly payment an LSE will be responsible for making to NYSERDA. The LSE ZEC Rate will be a wholesale rate that will be applied to the load data NYSERDA receives from the NYISO as opposed to a retail rate that an LSE could apply directly to its retail customers. The cost component of the LSE ZEC Rate will be based on the total forecasted cost for NYSERDA to purchase ZECs. The load component of the LSE ZEC Rate will be based on a statewide forecasted load," the Staffs said in their proposal

Under the proposal, NYSERDA will notify each LSE of the next year’s LSE ZEC Rate by e-mail after it has been calculated by NYSERDA and Staff. This notification will occur after Commission approval of any NYSERDA administrative adder for the compliance year but at least 2 months before the commencement of a compliance year. NYSERDA will also post the LSE ZEC Rate on the NYSERDA website.

The new pay-as-you-go payment methodology relies on LSE’s use of the monthly wholesale load requirements for their retail customers. "LSEs have this information readily available, as it is used to schedule energy requirements with the NYISO. LSEs will use their best estimate of their wholesale load for the prior month to calculate and report their expected ZEC obligation payment to NYSERDA. LSEs will have the option to use their total forecasted load as submitted to the NYISO or Version 1 of the total LSE load data, as settled by the NYISO each month, as a basis for their monthly payment to NYSERDA. The LSE will then multiply this load, plus load served by generation from a load modifier, if applicable, by the LSE ZEC Rate to determine their ZEC obligation payment to NYSERDA for that month. LSEs will submit their payment to NYSERDA by the 15th of the following month, such that, NYSERDA can ensure receipt of LSE payments before NYSERDA’s ZEC payments to generators are due," the Staffs said in their proposal

"As opposed to the ZECR program’s current set payment schedule, the pay-as-you go method will likely result in each LSE having a different payment amount each month. NYSERDA will develop a verification process to ensure that LSEs’ estimated loads are reasonably accurate, based on actual data received. This process would be in addition to the reconciliation process that is required when NYSERDA receives the annual actual Version 2 load data and the total number of ZECs purchased by NYSERDA," the Staffs said in their proposal

"NYSERDA and Staff recognize the potential for collection variances to occur due to differences between the estimated monthly loads the LSE will record with NYSERDA and the actual load recorded in NYGATS. NYSERDA proposes the use of a quarterly review to verify the accuracy of the submitted estimated load. Based on this interim review, LSEs will be required to make-up any shortfalls in the monthly ZEC payments through payments to NYSERDA within 15 days of notification. During the review, NYSERDA would compare the submitted estimated load for the quarter to the actual Version 2 load received by NYSERDA for that same quarter. NYSERDA recognizes that the submitted load forecast is an estimate and there are conditions outside of the LSEs control, such as weather conditions, that could cause the actual load to vary from the LSE’s forecasted load," the Staffs said in their proposal

"NYSERDA must ensure that it collects the funds necessary to meet its obligation to purchase ZECs. NYSERDA and Staff seek to balance the flexibility provided LSEs under the pay-as-you go method with NYSERDA’s obligation to make ZEC payments to generators. Therefore, we propose that LSEs with an aggregate estimated quarterly load for any quarter that is less than 90% of their actual Version 2 load for that quarter be required to make-up the shortfall within 15 days of being notified by NYSERDA. The aggregate estimated quarterly load is the sum of three consecutive months of the load an LSE recorded through the online system and utilized to determine its ZEC obligation payment. This implementation plan proposes that LSEs be required to pay a penalty if their aggregated estimated load for any quarter is less than 85% of their actual load for that quarter. This penalty would be equal to 15% of the difference between the payment amount for aggregated estimated load for the quarter and the payment amount for the actual load for the quarter, with the minimum penalty being no less than $1,000. Penalty payment amounts would not count towards an LSE’s obligation," the Staffs said in their proposal

"NYSERDA proposes the following process to reconcile the funds necessary to purchase the ZECs and collections from the LSEs. NYSERDA will determine the actual dollars per MWh charge based on the total dollars expended by NYSERDA to purchase ZECs and the actual Version 2 load data including load modifiers. This charge will be applied to the load associated with each LSE and provide the LSEs ZEC obligation based on an LSE’s actual load, as opposed to estimates, as is currently completed under the ZECR Program. NYSERDA will reconcile the payments received from each of the LSEs against the ZEC obligation determined using actual load data," the Staffs said in their proposal

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