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).
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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.