Utility Dive: With PSE&G’s new $1B efficiency program, New Jersey takes early moves toward new utility business model

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PSE&G's program is the first approved under this new framework developed by the New Jersey Board of Public Utilities (BPU).

Published by Utility Dive on 9/25/2020

Dive Brief:

  • Public Service Electric & Gas Co. received approval on Wednesday for its $1 billion energy efficiency program, New Jersey’s first efficiency plan to incorporate new rules intended to move electric utilities toward a service-based model. The program is part of the state’s larger regulatory push to significantly reduce carbon dioxide emissions as laid out by the 2018 Clean Energy Act.

  • Described by a PSE&G statement as the “centerpiece” of the utility’s Clean Energy Future proposal, the efficiency program represents a shift in the utility business model for New Jersey because the profits PSE&G can gain from the program will come from performing efficiency work rather than selling electricity, according to the Energy Efficiency Alliance of New Jersey, a trade association for the energy efficiency industry in the state.

  • PSE&G had originally proposed a much more ambitious, $2.8 billion efficiency program that would have unfolded over six years, but a settlement agreement between the utility and various groups reduced the program to $1 billion and a three year timeframe so that PSE&G’s efficiency plans do not conflict with new efficiency targets that New Jersey regulators are developing under the Energy Efficiency and Peak Demand Reduction framework created earlier this year.

Dive Insight:

PSE&G’s program is the first approved under this new framework developed by the New Jersey Board of Public Utilities (BPU).

The June order creating the framework “laid the groundwork” for a performance-based cost recovery approach for utility regulation, according to a statement from the Energy Efficiency Alliance of New Jersey. “Decoupling profits from energy sales will lead to a major shift in how utilities look at making money,” Erin Cosgrove, director of regulatory affairs for the alliance, said in the statement. The BPU is still developing more comprehensive utility cost recovery and efficiency plans.

Energy efficiency growth, an area where New Jersey lags behind other states according to a recent scorecard from the American Council for an Energy-Efficient Economy, is just one plank of New Jersey’s efforts to meet a goal of 100% clean energy by 2050.

Another focus is the electrification of the transportation sector, and on Wednesday, the regulatory body also approved a plan for the build-out of publicly accessible EV charging stations. Under the order, New Jersey utilities must file plans for building light-duty EV infrastructure by Feb. 28, 2021.

The New Jersey legislature set goals and incentives for EVs in January in legislation that New Jersey Sierra Club Director Jeff Tittel described at the time as the most important bill for cutting greenhouse gas emissions passed in the state in 12 years.

On efficiency, the Sierra Club has problems with PSE&G’s program, including the fact that it will expand efficiency upgrades for natural gas-burning equipment. “We should be phasing out gas” instead, Tittel said in an interview.

But the group hopes that the new efficiency standards being developed by BPU will improve upon PSE&G’s plan. The short duration of the three-year PSE&G program ensures that the utility will not be “grandfathered” out of having to comply with the new BPU rules, Tittel said.

The new BPU efficiency plans will begin in July 2021, and “PSE&G is allowed to start earlier, but PSE&G has to align their programs and plans with any direction from the BPU and PSE&G has to implement plans that are similar to all other potential state utilities and must accommodate any changes,” Cosgrove said in an email.

PSE&G’s efficiency work under its new program will consist of several different subprograms, the largest of which is $210 million for rebates and on-bill repayment to help C&I customers upgrade or replace equipment like HVAC systems and lighting. Another $476 million will go toward other subprograms for C&I customers. About $284 million of the program budget is for residential efficiency work like home audits, rebates for weatherization upgrades for existing homes or rebates for new equipment.

“Today’s decision will allow us to bring the benefits of energy efficiency to every customer and give them options to reduce their energy use, save money and shrink their carbon footprint,” Ralph Izzo, president, CEO and chairman of PSE&G parent company Public Service Enterprise Group Inc., said in a statement released the day of the BPU approval. “New Jersey now has the opportunity to be at the forefront of clean energy policy and be a role model for the nation.”

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