New York PSC Changes How Tier 1 Clean Energy Obligation Assigned To, & Collected From, ESCOs
PSC: While No Current Cap On ESCO Renewable Plan Prices, Further Consideration Of Issue Shall Be Taken, To Ensure Just & Reasonable Rates
April 20, 2023 Email This Story Copyright 2010-21 EnergyChoiceMatters.com
Reporting by Paul Ring • firstname.lastname@example.org
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The New York State Public Service Commission (Commission) today approved changes to Tier 1 of the Clean Energy Standard (CES) to transition the Tier 1 Renewable Energy Standard (RES) compliance obligation for Load Serving Entities (LSEs) away from the current predetermined percentage-based approach toward a load share obligation similar to other existing LSE obligations under the CES
NYSERDA procures RECs from Tier 1 RES-eligible resources under long-term contracts as a central procurement agent, and resells Tier 1 RECs for ultimate use by RES-obligated LSEs.
Under the current approach, an LSE’s Tier 1
obligation under the CES is represented as a pre-determined and ascending percentage of the
load it serves. LSEs may procure RECs from NYSERDA, third parties, or may comply with the standard via an ACP
The adopted new approach will instead require LSEs to purchase from NYSERDA their load share of the Tier 1 RECs purchased by NYSERDA annually based upon a "pay-as-you-go" model, similar to the mechanism implemented by NYSERDA for the ZEC [Zero Emission Credit] program
The transition from the LSE obligation percentage to a method using an LSE’s load share, to determine each LSE’s obligation, will commence with year 2025.
The pay-as-you-go model applies a uniform wholesale per MWh charge to each LSE’s actual wholesale load to calculate its monthly Tier 1 REC obligation payments.
Beginning on January 1, 2025, and reoccurring each year thereafter, NYSERDA will determine, in collaboration with DPS Staff, the dollar per MWh charge (LSE Tier 1 REC Rate) owed by each LSE for the next compliance year of the Tier 1 program.
The LSE Tier 1 REC Rate will be used by all LSEs and NYSERDA to determine the monthly payment an LSE will be responsible for making to NYSERDA
The cost component of the LSE Tier 1 REC Rate will be based on total forecasted cost for NYSERDA to purchase Tier 1 RECs and the load component will be based on statewide forecasted load
NYSERDA will utilize Version 1 of the total LSE load data, as settled by the New York Independent System Operator, Inc. (NYISO) each month, as the basis for each LSE’s monthly payment to NYSERDA. The final reconciliation will occur in June after the close of each year.
The cost component of the LSE Tier 1 REC Rate will be the cost for NYSERDA to procure Tier 1 RECs from the Large-Scale Renewable REC purchase agreements, plus the cost of VDER Tier 1 RECs, plus any Commission-approved administrative adder, and less any sales made through a voluntary sale process noted below
NYSERDA will apply an annual load modifier rate, based on load modifier generation data from the previous year.
Notification of the LSE Tier 1 REC Rate will occur after Commission approval of any NYSERDA administrative adder for the compliance year, but at least two months before commencement of a compliance year.
A reconciliation process will occur each year after the Tier 1 compliance year ends on December 31.
NYSERDA will offset the total financial obligation to Tier 1 contracted generators and the purchase of VDER Tier 1 RECs with any Tier 1 long-term contract revenue, as well as any Tier 1 annual presale or resale revenue, to determine the net LSE financial obligation. Then, NYSERDA will reconcile the funds collected from each LSE to the net LSE financial obligation necessary to meet their requirement based on the Version 2 load data that is provided from the NYISO and recorded in NYGATS and adjusted for load modifiers
In addition to concerns with the pay-as-you-go due to the inability to reflect unknown future costs in retail prices, certain ESCOs have raised particular concern with the reconciliation process, and the ability of ESCOs to recover their ultimate annual compliance costs which differ from the prices forecast by NYSERDA at the start of the year
There will be no ACP under the new program given its pay-as-you-go nature
As part of the transition, NYSERDA will offer voluntary REC sales. NYSERDA will conduct both a presale and post-sale process prior to and subsequent to, respectively, the purchase and sale of Tier 1 obligated RECs under the main operation of the program. NYSERDA will sell Tier 1 RECs to voluntary purchasers and enter into contractual arrangements with more than one entity. NYSERDA will offer Tier 1 RECs for sale to the voluntary market which will help to defray the cost of the Tier 1 program, the PSC said. The voluntary Tier 1 RECs will be offered at NYSERDA’s own net-levelized cost (including an administrative adder).
The PSC noted that the voluntary market presale and post-sale processes would allow entities, including CCA Administrators, Energy Service Companies (ESCOs), and other market participants, to purchase Tier 1 RECs
The PSC modified NYSERDA's proposal in order to allow LSEs to transfer/sell RECs purchased from NYSERDA to other entities in NYGATS
"We agree that parties that purchase Tier 1 RECs during the presale or resale events should have the capacity to sell those RECs to other parties for various voluntary purposes including to CCA programs, ESCOs, and other market participants. Providing this option should assist these programs in procuring the necessary RECs to satisfy their green offerings, especially in light of the shortage of voluntary RECS [sic] that has been brought to Staff’s attention during the last two years. Therefore, parties that purchase Tier 1 RECs during the presale or resale events are permitted to transfer or resell RECs purchased from NYSERDA to other entities in NYGATS," the PSC said
As summarized by the PSC, Brookfield Renewables raised concern that NYSERDA’s new load share approach for the Tier 1 program will harm ESCOs’ ability to properly manage price risk associated with an unknowable Tier 1 obligation. Brookfield argued that the percentage obligation for a compliance year provides LSEs the opportunity to know their cost exposure and hedge appropriately. Brookfield said that the new approach leaves LSEs, particularly ESCOs, seeking to offer a competitively priced fixed product without the ability to forecast with any amount of reasonable certainty what their annual CES cost obligation will be.
Brookfield argued that without the ACP as an upper bound on price, NYSERDA will forecast the LSE Tier REC Rate. Brookfield asserted that because Tier 1 RECs are indexed, the swings in the estimated Tier 1 REC Rate for LSEs actualized price can be large and the impact will grow as the size of the LSEs obligation grows.
As summarized by the PSC, Brookfield Renewable further asserted that the new process will result in increases to the prices ESCOs charge for fixed-rate products because they will need to factor in additional risk premiums.
In response, the PSC said, "this concern is mitigated by the cap placed on ESCO fixed rate products. ESCO fixed rate products offered to mass market customers are capped at no more than five percent above the 12-month trailing average utility supply rate."
The PSC also said, "it is understood that some entities may include a risk premium in the products they offer, like is currently done today, to account for any lack of certainty regarding LSE obligations under Tier 1. Under the proposed process, because LSEs will not know their Tier 1 obligation years in advance like they do now, there is inherent uncertainty associated with this obligation."
"However, the Commission finds that the efficiencies gained in administration of the Tier 1 program, as well as the potential reductions to ratepayer costs through voluntary sales, should outweigh potential risk premiums associated with this uncertainty," the PSC said
As summarized by the PSC, Azure Mountain commented on the impact the transition will have on the retail access market, with Azure Mountain asserting that "predatory" (using the PSC's term summarizing Azure's comments) ESCO pricing practices are still occurring, particularly with ESCO renewable products.
In response, the PSC notably said, "While currently, no pricing restrictions are placed on ESCO renewable products, further consideration of that issue shall be taken up in the generic retail access proceedings to ensure that ESCO products are provided at just and reasonable rates."
The PSC rejected a recommendation by Vistra Corp. to remove ESCOs from the Statewide LSE obligation and only have the IOUs collecting Tier 1 costs from ratepayers via delivery rates. All the State’s jurisdictional LSEs will continue to have a Tier 1 obligation following the implementation of the proposed process, the PSC said