Promoting Energy Efficiency: Comparing New York State to California

us price per kwh Promoting Energy Efficiency: Comparing New York State to CaliforniaOne of the simplest things we can do to improve our productivity and economic well being is to increase the efficiency of our use of energy. We are so wasteful that there is an enormous amount of low hanging fruit. As New York state begins to get serious about this, we should look west to California, for a place that really knows how to make the most out of a kilowatt.

Since 1981, I’ve taught public management at Columbia, and I am not one of those people who believe that government is incompetent and only the private sector is efficient and effective. Some work is best performed by government, some by nonprofits and some by the private sector. On energy efficiency I think that California has gotten this mix right, and in New York I am worried that we rely too much on government.

California’s Energy Efficiency Program

California’s program began in 1996 and required the three major private utilities to collect $540 million in fees annually to promote "public purpose" programs, with $220 million set aside specifically for energy efficiency. In 2002, Californians began to pay another, smaller surcharge to promote renewable energy. The renewable energy fee generates $135 million per year. The other goals of California’s energy efficiency program are to improve the efficiency of appliances sold in California and to increase efficiency standards for buildings.

California’s 2000-01 energy crisis led to four major blackouts and caused a supply and demand imbalance. That drove the state government to create an Energy Action Plan designed to reduce the load on the state’s electricity grid and prevent excessive price spikes.

California is also moving on renewable energy. The state leads the nation in electricity generation from non-hydroelectric renewable energy sources – solar, wind and biomass. In 2006 it set a goal of increasing the portion of electricity derived from renewable resources to 33 percent by 2020. Currently 11 percent of the state’s electricity comes from renewable energy sources. (See map above)

In September 2005, the California Public Utilities Commission (CPUC) authorized $2 billion in energy efficiency funding for 2006-08, the most ambitious energy efficiency and conservation campaign in the history of the utility industry in the United States. According to the California Energy Commission, "California’s building and appliance standards have saved consumers more than $56 billion in electricity and natural gas costs since 1978 and averted building 15 large power plants. It is estimated the current standards will save an additional $23 billion by 2013."

California is the most energy efficient state in the United States. While per capita electricity consumption in the United States increased by nearly 50 percent over the past 30 years, California’s per capita electricity use remained almost flat, due in large part to cost-effective building and appliance efficiency standards and other energy efficiency programs, according to the CPUC.

Comparing California’s Energy Efficiency to New York’s

According to the Energy Information Administration, California’s per capita electricity consumption in 2006 was 7,185kWh per person, while New York consumed 7,369.8kWh per person. So both states are below the national average of around 12,000.

Of course these data actually understate how inefficient New York state is, since New York City has the highest energy efficiency of any major city in the United States with only 4,473kWh per capita consumption. Without New York City’s high level of energy efficiency, New York state would rank up there with Texas for energy inefficiency.

Instead of growing a government agency to work on energy efficiency with the private sector, the funds collected for energy efficiency in California are allocated to the state’s private electric utilities. However, the money can only be spent by the utilities on energy efficiency projects. Since utilities are in the business of generating and distributing energy and not saving it, most of the energy efficiency work in California has been outsourced to companies that specialize in that type of work. In fact, California’s market for energy efficiency has given rise to around 40 businesses that focus exclusively on building and enhancing energy efficiency.

Intergy, a "resource conservation firm", is one example. Ben Bradford, a senior program manager at the company, estimates the California energy market at around $4 billion for energy efficiency programs, with $1 billion going to third parties, such as Intergy. He believes New York has roughly the same potential, but until now it has not been adequately tapped.

Intergy was established in 2003. Of the energy efficiency companies operating in California, only about 15 are as broad as Intergy, which has recently expanded its operations to New York. It is currently developing a "research and demonstration" project with the New York State Energy and Research Development Authority (NYSERDA) that focuses on improving data centers in downtown Manhattan. Intergy is also about to start working with Mt Sinai Hospital to improve its energy efficiency.

New York State’s Energy Efficiency Program

Which brings us to New York state, and the impact of New York style politics on energy efficiency programs. As of October 2008, New York will devote $347 million each year to energy efficiency programs, mostly administered by NYSERDA. Both New York’s and California’s energy efficiency programs have been in effect since 1996, but New York’s funding increases have been modest when compared to California’s. Our increased funding from $175 to $347 million this year is still dwarfed by the $1 billion currently spent each year in California.

New York‘s public benefit program started with funding from the System Benefits Charge (SBC). This three-year, $234.3 million program, administered by the New York Public Service Commission, was put in place to harness funds that could be put toward programs designed to achieve peak load reductions. The System Benefits Charge funded initiatives were focused on:

  • Energy efficiency = $162 million
  • Research and development in energy-related areas, particularly in
    renewable resources, environmental monitoring and protection, and combined heat and power = $41 million
  • Energy affordability for low-income utility customers = $29 million

An additional $3 million was allocated to environmental disclosure activities

Since 2001 all of the money collected under the System Benefits Charge has gone to NYSERDA for the administration of Energy $mart, a program designed “to promote competitive markets for energy efficiency services, and to provide direct benefits to electricity ratepayers and/or be of clear economic benefit to the people of New York.” The System Benefits Charge generated $150 million a year from 2001-2006 and was increased to $175 million per year from 2006-2008.

Funding allocations will change in October, when the Public Service Commission increases its annual System Benefits Charge revenue collections from $175 million to $347 million. NYSERDA will receive most of the new funding – $260 million, $85 million of which will go to a group of fast-track programs. The remainder of the funds – $87 million – will go to the public utilities, which have been granted a 60-day filing period during which they can submit proposals for up to two energy efficiency programs.

So far. about 2,700 projects in more than 40 individual programs have been funded by the System Benefits Charge and made available through the Energy $mart program.

Other benefits accrued over Energy $mart’s five-year operation include:

  • Approximately $198 million in annual energy savings
  • 4,200 jobs retained or created
  • A leverage of $2.50 in private investment for every New York Energy $mart Program dollar spent
  • 1,400 GWh saved per year
  • 860 MW in reduced demand
  • Annual carbon dioxide reduction equivalent to 200,000 fewer cars

Several of the state’s electric utilities, including Central Hudson and Con Edison/Orange & Rockland, have protested against the large allocations in System Benefits Charge funds going to NYSERDA. According to a Public Service Commission-issued assessment, Central Hudson argued that it is “not reasonable” to provide large increases in ratepayer funding to what it termed, “the incumbent governmental monopoly energy efficiency supplier…”

A Better Mix of Public and Private Sector Actions Might Work Better

Here’s my take on this, and I apologize for the detail I needed to review before getting to this. The people that work at NYSERDA are doing a good job of promoting energy efficiency, but the design and size of New York’s program is inadequate. I know that it is difficult to compare these two states, their economies and the age of their infrastructure are quite different. However, by directly funding utilities, California has generated a large, entrepreneurial energy efficiency business. Government can focus on setting policy and evaluating the performance of energy efficiency projects. In California, the government doesn’t need to manage the energy efficiency experiments. In New York, a government authority, NYSERDA, funds and manages the effort to make energy more efficient. NYSERDA does a good job, but the system in California works better.

California has demonstrated that a utility driven, private sector model can work. Utilities are pushed by their regulators to spend these funds and have no incentive to develop elaborate bureaucracies to spend this money. The companies that are providing energy efficiency services are growing and building their expertise and unlike many service businesses have a steady and secure revenue stream to compete for.

In the short run, New York should copy California and increase our surcharges, devote some to renewables and allocate funds to carefully regulated electric utilities rather than a government authority. As energy becomes a larger cost for families and businesses, energy efficiency will be a key determinant of a state’s economic competitiveness. Unless we change, California will win these competitions and New York will lose.

I am grateful for the extensive research for this piece provided by Sara Schonhardt, 2009 Master’s candidate, School of International and Public Affairs, Columbia University