Op-Ed: The $14 Billion Key to Clean Energy in New Jersey

Franklin Neubauer | September 9, 2019 | Opinion
The state government should act decisively on initiatives in energy efficiency which could pay big dividends

Franklin Neubauer
One of the pillars of New Jersey’s transition to clean energy and the best way to keep energy affordable is energy efficiency. Attention being devoted to the new Energy Master Plan (EMP) should not prevent state government from acting decisively this year to gain benefits worth billions of dollars from energy efficiency between 2020 and 2029. However, to incentivize the electric and gas utilities to create aggressive new programs to save energy, including in periods of peak demand, as required by the 2018 Clean Energy Act, the Board of Public Utilities (BPU) must first rule on how it will implement energy efficiency provisions in the new law. As summer months have passed with no related announcements from the BPU, prospects for decisive action are unclear.

New Jersey has struggled with questions of how to deliver energy efficiency programs for decades. Despite the Clean Energy Act’s mandate for utility-run programs, and a recent, intensely debated study by the BPU’s consultant Optimal Energy, BPU chose to make only slight changes to state-run programs on June 21, which blocks the path for robust, large-scale planning by the state’s investor-owned utilities. Incrementalism has guided recent BPU decisions on energy efficiency, partly due to the programs’ complexity, BPU senior staff’s limited availability and old administrative habits. Fortunately, the Energy Master Plan’s importance can end these incremental changes.

Often, engineers, environmentalists and academics push for so-called best practices in energy efficiency, copying successful efforts from other parts of the country. New Jersey went all in for best practices 11 years ago during the Corzine administration. In 2008, the BPU hired a team of expert consultants, including Optimal Energy. However, their 2009 report’s recommendations could not have been implemented even if Corzine had won re-election. Energy experts’ advice was unsuited to solving organizational, funding and staffing problems, among others. If real progress is the goal, then supporters of best practices need to consider practical constraints on the BPU and state agencies. What I have noticed is that the label “best practices” tends to stop smart people from critical thinking.

Can stakeholders agree?

The criteria for determining what is best should be explicit. In my view, what New Jersey needs is a set of reliable energy-efficiency practices that work well together, fit New Jersey’s utilities and institutions, and deliver verified energy savings while avoiding more delays. Those criteria lead me to support what is known as revenue decoupling, for those readers who are familiar with utility ratemaking. Decoupling deserves a separate discussion beyond the scope of this op-ed.

Efforts to interpret the Clean Energy Act’s energy-efficiency provisions were contentious in initial stakeholder meetings. A new Energy Efficiency Advisory Group to advise BPU commissioners offers hope of creating more consensus and fewer disputes. As of this writing, no public announcement about the advisory group has been made since the group was authorized on May 28.

It would be a poor start for the new EMP if energy efficiency, a key to decarbonizing our energy system, was not deployed due to an impasse among New Jersey stakeholders, because the stakes are enormous. Optimal Energy’s May report estimated that the present value of net benefits to New Jersey from maximizing energy efficiency across the state in 2020 through 2029 (a hypothetical scenario) is $14 billion. That amount is reasonably consistent with previous studies, even though critics have concerns with how energy savings and costs were estimated for Optimal’s work. In this calculation, the costs are associated with all-out, new efficiency programs during 2020-2029, but benefits continue to be produced after 2029, throughout the lifetime of energy-efficient equipment or a building shell’s life. Net benefits include but undervalue emissions reductions by using a 7 percent discount rate. Even more benefits are available through demand-response programs and CHP in New Jersey, but that research required speculative assumptions and Optimal could not provide dollar estimates.

Dividing the costs and benefits

Under the Clean Energy Act, with benefits that large, all parties can come out ahead of where they would be under the status quo. That includes households, businesses, utilities, the environment, labor and the overall economy. One reason for contentiousness is that regulations will influence how these benefits and costs will be divided among stakeholders. Some stakeholder representatives do not see energy efficiency as a cooperative venture but see establishing new rules as a zero-sum negotiation. From that perspective, if you win, I lose, and compromise will not occur.

A significant portion of the $14 billion in benefits would be lost if New Jersey is slow to ramp up its energy-efficiency programs. Two economic models are being used in the EMP process that could provide a more detailed estimate of what the consequences would be of failing to accelerate energy efficiency promptly. It is already evident what some of the impacts would be. In the electric sector, energy users denied participation in energy efficiency programs would face bigger bills to pay for a mix of conventional power and small amount of renewable energy, some coming from outside New Jersey. Natural gas consumption would be higher, and fossil fuel emissions would remain higher for as long as it took efficiency programs to catch up on the energy savings they should have (many years). In addition, economic activity in clean-energy sectors that would boost New Jersey’s economy would be reduced. Since the Murphy administration is sponsoring economic analysis for the EMP, in particular an Integrated Energy Plan, it should be willing to examine that scenario, and see what is at stake.

Following a Draft Energy Master Plan report filled with many strategies but few specifics, this year’s plans should be capped off with decisive actions to advance energy efficiency. If consensus cannot be created among stakeholders, then BPU commissioners or the governor’s office should step in to avoid gridlock on progress towards EMP goals. The stakes are too big and too much effort has been put into the EMP to fail to make progress now.