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New York City: NY PSC Lacks Authority To Impose Proposed Penalty On LSE (ESCO) Forecast Errors Related To ZEC Obligations

October 22, 2018

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Copyright 2010-17 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com

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In comments to the New York PSC concerning a Department of Public Service Staff & NYSERDA Staff proposed to transition to a "pay as you go" mechanism for LSE (ESCO) compliance with the zero emissions credit (ZEC) program, the City of New York said that the PSC lacks authority to impose a penalty for errors in LSE forecasting under the mechanism

Under the Staff's proposed "pay as you go" mechanism, 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.

As previously reported by EnergyChoiceMatters.com, the Staffs' 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

In its comments, the City said, "There is no support in the CES Order, or in any subsequent Order issued by the Commission in this proceeding authorizing or even identifying the need for penalties for variances between forecasted and actual load. The contracts entered into between NYSERDA and the LSEs, if in the same form as the approved contract, do not specify any obligation for the variances to be less than 15 percent or provide for any penalties for larger variations. The ZEC Implementation Plan provides no rationale or justification for the proposal to impose additional penalties for deviations between an LSE’s forecasted and actual load, it provides no explanation as to why the existing penalties are insufficient, and it offers nothing to support the proposal to impose a minimum penalty of $1,000. Moreover, the Plan provides no explanation as to why the Commission should, or legally can, modify the existing contracts between the LSEs and NYSERDA to impose new requirements regarding load forecasts and penalties for errors in such forecasts."

"The City respectfully submits that the Commission does not have the legal authority to abrogate or modify the existing contracts, and there is no rational basis before the Commission for adopting the proposed penalty. Accordingly, the Commission should reject this aspect of the ZEC Implementation Plan," the City said

The City further said, "As a separate reason for rejecting the proposed penalties, the City respectfully submits that they do not serve any legitimate purpose. The Commission established a specific formula to calculate the amount of payments the nuclear plants would receive, and which would be paid by LSEs via the purchase of ZECs. The Commission also approved NYSERDA’s request for an administrative adder to cover NYSERDA’s costs of administering the ZEC program. The Commission also approved a utility backstop guarantee 'to ensure NYSERDA has sufficient funds to make timely payments to the generators.' All payments made by NYSERDA are fully reconciled each year to ensure that the amounts collected from ratepayers match the amounts owed to the nuclear plants plus NYSERDA’s approved administrative costs."

The City further said, "Inasmuch as the costs of the ZEC program are already fully addressed, there is no need for the additional revenues that would be collected via the penalties. Further, the proposed penalty would not advance the preservation of existing at-risk zero-emissions nuclear plants – the purpose of the ZEC program – because the plants already receive full payment of the approved by the Commission. Similarly, the proposed penalty will not support or bolster the State’s GHG emissions reduction goals as they unrelated to achievement of any level of incremental GHG emissions reductions. That is, if the penalty is stricken, there would be no increase in GHG emissions, and if penalties are levied, there would be no incremental decrease in GHG emissions. The only result of the proposed penalty is to unnecessarily and unjustly burden customers. For this reason as well, the Commission should reject the proposed penalty mechanism."

"Finally, the City submits that there is a significant flaw in the proposed penalty. The ZEC Implementation Plan states that LSEs will have the opportunity to use the New York Independent System Operator, Inc.’s ('NYISO') load forecasting mechanism to develop their load forecasts for the ZEC program. If the NYISO’s forecast is later determined to be in error by more than 15 percent, the LSE, not the NYISO, would be held liable for the error. Penalizing an LSE for relying on the NYISO’s analysis would be unjust and unreasonable, and it would not serve any valid purpose. If anything, levying a penalty against an LSE under such circumstances would cause LSEs to refrain from relying on the NYISO’s forecasts and undermine this aspect of the ZEC Implementation Plan," the City said

The City also said that the Commission should require that overcollections be treated similarly to undercollections -- both should be reconciled quarterly.

The City noted that the Staffs' plan provides that LSEs will be required to make-up any shortfalls in the monthly ZEC payments on quarterly basis, but there is no similar requirement to return overcollections to LSEs on the same schedule

"The reconciliations should be symmetrical, and whether an LSE has overpaid, the overpayment should be returned quarterly, not annually or according to some other schedule. It would not be reasonable or rational for NYSERDA to conduct quarterly reviews of the payments made by LSEs and require that only shortfalls be ameliorated," the City said

Case 15-E-0302

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