Balancing risks and opportunities in efficiency investments.
Hossein Haeri is a principal at Cadmus Group, and Jim Stewart and Aaron Jenniges are associates.
In June 2008, the New York Public Service Commission (PSC) established the electric energy-efficiency portfolio standards for New York’s investor-owned utilities.1 In its order, the PSC directed utilities to file three-year energy-efficiency plans which, once implemented, would generate cumulative savings of nearly 2.1 GWh from 2009 to 2011 at a total cost of about $518 million. Later that year, the PSC issued a supplemental order approving shareholder incentives for utilities successfully implementing their portfolios.2 If all goes according to plan, the six affected IOUs stand to earn about $27 million annually in performance incentives over three years (see Figure 1).
The structure of the incentive mechanism approved by the PSC presents risk factors that might affect utilities’ ability to realize the full earning potentials the mechanism offers.