Back in January, Con Edison quietly reported some new load forecasts. It turns out the cutting-edge Brooklyn-Queens demand management program -- which has been furiously installing energy-efficient light bulbs and coordinating demand reduction commitments to relieve overloads on the local electric system -- is no longer necessary at all.
Since its 2014 launch, the Brooklyn-Queens Neighborhood Program (commonly referred to as BQDM) has been touted by state regulators, the governor’s office, the news media, environmental groups and policy experts as the highlight of New York electric utility reform. Supposedly foregoing an unimaginative, expensive substation quoted at $1 billion to $1.2 billion for a mere $200 million in distributed energy and novel utility solutions, the program was hailed to have enormous value and international significance.
That value is now far less obvious -- though you wouldn’t know it from recent press coverage or policy briefs. When it comes to the unanswered questions underlying Brooklyn-Queens, nobody seems to be paying attention.
The “a couple hundred million dollars rather than $1.2 billion” is simply not the deal New York regulators approved. Per detailed (if arcane) cost-benefit calculations -- made public some eight months after program approval -- Con Ed projects the substation would cost $877 million to build today. The price to defer it 10 years stands at $855 million, which includes $385 million in “traditional costs,” $300 million in additional “escalation” on traditional costs, and the much-celebrated $200 million (recently cut to $170 million) in innovative solutions. Plus there's the eventual cost of the substation a decade down the line.
So far from saving $1 billion, Brooklyn-Queens hooks New Yorkers for almost $1 billion in additional costs -- most of it conventional utility investment. Technically, the program would save New Yorkers money for about 10 years. Then rates would skyrocket. By Con Ed’s numbers, the company will effectively lend us those savings at a compound annual interest rate north of 11 percent, while market interest rates scrape historic lows.
Neither the public availability of these egregious economics, nor the program’s newfound redundancy has noticeably affected the key stakeholders’ enthusiastic support. In response to the new load forecast, Con Edison asked to extend the program’s timeline in perpetuity, and this month announced a whole new batch of non-wires alternatives in the mold of Brooklyn-Queens.
Summarizing its extension request, Con Ed flatly declares, “[Brooklyn-Queens] demonstrates the benefits of non-wires alternatives.” I would humbly suggest it raises a number of questions. Here are three.
What are we really saving?
If Brooklyn-Queens’ economics fail a common-sense test (and I believe borrowing utility bill savings at 11 percent interest does), how come nobody’s raising a stink?
Once we get through the pervasive “$200 million versus $1 billion” line, a common apology for the dismal terms is that additional non-wires projects may defer that substation even further into the future. Hey, maybe it never gets built at all.
This could very well be the plan: at least one of Con Ed’s new non-wires projects may focus on the Glendale substation, the site of the major conventional stopgap for Brooklyn-Queens. A recently approved “Demonstration Project” will also provide a heavily subsidized (if not free) 4-megawatt-hour battery-on-wheels initially targeting Glendale.
If we can prop up our non-wires alternatives (and their conventional stopgaps) with additional non-wires alternatives, perhaps we can push the major costs out indefinitely. But this strategy sounds risky -- something like borrowing to gamble your way out of the hole.
Why not limit the knock-on hazards of a series of non-wires projects, and revise borrowing rates closer to the expectations of everyday citizens, say 2 percent to 5 percent? For that, someone probably should raise a stink.
Too small to be effective?
Let’s assume non-wires projects pencil out financially: do they make operational sense? Is Brooklyn-Queens’ newfound redundancy a fluke?
The program’s 52 megawatts of innovative solutions were intended to relieve about 6 percent of the area’s 2018 critical peak load. Weather alone varies a given year’s peak load by more than 6 percent with some regularity for the state as a whole -- and that’s a lot more portfolio diversity than two adjacent boroughs. The evident vagaries of forecasting load years into the future multiply the uncertainty.
Above what operational scale do targeted distributed energy deployments mitigate this ambient forecast variability -- and when are they a waste of time?
Despite institutionalizing non-wires projects across the state, New York regulators appear to have punted on this basic question. Utility-determined project suitability criteria are presently limited to implementation time and minimum cost (although, as discussed, the costs aren’t exactly clear).
Can we count on alternatives to perform?
Let’s say the project pencils and the load forecast ends up spot-on. Can we count on those distributed energy resources at the critical hour?
Brooklyn-Queens’ biggest distributed energy resource is commercial demand response, procured through a highly acclaimed auction. Con Ed ordered some 17 megawatts of the stuff for the program’s critical 2018 peak -- more than three times its original estimate -- and maintains this figure as evidence of successfully hitting (indeed, exceeding) its procurement targets.
State Energy Czar Richard Kauffman hails such “animated markets” for distributed energy as the core of the governor’s vision for the utility of the future.
But these 17 megawatts look suspect. Last month, the auction’s largest awardee filed an SEC report not only implying cancelation of its entire 4-megawatt 2017 award, but also declaring the foundational partnership for fulfilling its commitments terminated. Even committed resources seem less than reliable: the 1.6 megawatts enrolled in the comparable demand response window last summer produced just 60 kilowatts (less than 4 percent) of relief.
Brooklyn-Queens’ bright spot is old-fashioned upfront energy-efficiency incentives. Eighty-six percent of its currently operational distributed energy resources are free light bulbs, installed door-to-door for local businesses. And, unlike demand response, energy efficiency’s benefits are much likelier to stick around after the program has ended.
As a crucial aside, state-administered upfront energy-efficiency incentives will basically end in 2018, and have been only partially replaced by utility programs.
The emerging results of Brooklyn-Queens’ innovative procurements caution against ramping down conventional energy efficiency programs and counting “animated market” chickens before they’ve hatched. Yet policymakers have not indicated they’ll delve further into these issues, which are so philosophically vital to state utility reforms.
I’ve spent the better part of a decade working to develop and finance distributed energy projects. More non-wires projects might be good for business. But collectively glossing over Brooklyn-Queens’ inconvenient realities seems bound to backfire.
Why squander finite time and capital -- sorely needed to build a sustainable energy system -- on programs promising higher long-term utility rates and little else?
As I argued in regulatory comments earlier this month, policymakers must stop and troubleshoot these issues before expanding non-wires programs.
New Yorkers deserve some answers.