New York Plans to Make Fighting Climate Change Good Business

Source: By Justin Gillis, New York Times • Posted: Friday, May 13, 2016

A governor wants to lead on green energy. The state’s utilities are nervously falling in line. Young entrepreneurs are buzzing, determined to be part of the generation that finally solves climate change.

To most ears, that might sound like California, where all those things and more are happening. But it also describes New York.

New York?

The state may not leap to mind as being in the vanguard of the green economy. But under Gov. Andrew Cuomo, the most populous state in the Northeast is in a close race with its counterpart in the West in setting ambitious climate goals. And in some ways, New York may be on the verge of pulling ahead of California.

Without much fanfare, Mr. Cuomo has started a big effort to retool his state’s utilities for the modern age, trying to apply market forces to transform the way electricity is produced, transmitted and consumed.

Critical rules are due in coming weeks from a state agency, the Public Service Commission. Depending on the details, Mr. Cuomo’s program could prove to be the most ambitious effort in the country, and possibly in the world, to enlist the profit motive as an ally in the fight against global warming.

Mr. Cuomo has been vocal on the issue of climate change since the state suffered through the trauma of Hurricane Sandy in 2012. The governor toured the remains of century-old homes reduced to splinters by that storm. Scientists said the damage had been worsened by sea-level rise induced by human emissions of greenhouse gases.

“In the case of climate change, denial is not a survival strategy,” Mr. Cuomo said at Columbia University in October. “Climate change is a reality, and not to address it is gross negligence by government and irresponsible as citizens.”

New York starts with advantages. It receives about 26 percent of its power from renewable sources already. Much of that comes from upstate dams, but wind farms have been popping up around the state, and solar power is up 575 percent in four years. Transport emissions are among the lowest in the country because of New York City’s huge transit system.

The state has largely shut down its coal-burning power plants, and Mr. Cuomo intends to close the rest of them by 2020. He has set a goal of getting 50 percent of the state’s electricity from renewable sources by 2030.

Mr. Cuomo hopes to shutter the Indian Point nuclear plant north of New York City for safety reasons, but he recently offered plans to save upstate nuclear power plants. Those are at risk of closing because of low electricity prices driven by cheap natural gas, but he argues that losing the plants would take the state backward on emissions. Mr. Cuomo has drawn some opposition on this from environmental groups, who are otherwise largely supporting his approach.

The heart of Mr. Cuomo’s policy is his intention to enlist market forces in shaking up the utility industry. That plan has a name: Reforming the Energy Vision. Yes, it does sound like something dreamed up by hippies at their commune in the mountains.

In fact, Mr. Cuomo is among the most business-friendly of the nation’s Democratic governors, and his plan is being led by a former partner at Goldman Sachs, Richard L. Kauffman.

Mr. Kauffman argues that the utilities distributing electrical power are among the most hidebound, least innovative, businesses in the nation. Historically, they were monopolies that made their money by selling more electricity, building whatever power plants were necessary to produce it, and collecting the money to pay for those plants and other equipment in a sort of cost-plus business model. Some of the plants tended to sit idle, waiting to be turned on to meet peak demand a few hours a year — an enormous waste of money.

New York State has been trying to get away from this system for years, adopting rules that reduced the incentive for utilities to try to sell more and more power. It successfully introduced competition in the wholesale power market. But substantial inefficiencies remain. And now, the falling costs of renewable power, the invention of devices like intelligent thermostats and electric meters, and other developments have created the possibility of sweeping change.

“We need to open up the electricity system to innovation,” Mr. Kauffman said in an interview.

How, exactly, does the state intend to do that?

The precise details are still under wraps at the Public Service Commission. But some of the possibilities have been outlined in reports and discussed extensively in public meetings.

The state is likely to shift the rules of how utilities are paid. New York may set targets — for instance, telling the utilities to cut the average power consumption per household, or to cut their peak demand on the hottest days — and then allow them to earn more money by meeting or exceeding those targets.

The key to this system is giving the utilities a profit motive to cooperate with smaller companies that are bringing innovations to the electric grid. Take, for instance, the companies driving the national boom in the installation of solar panels.

Across much of the country, they are seen as a threat to utility profits, and the utilities are fighting them aggressively. In New York, the two sides have made a tentative peace deal, hoping to influence the details of the state plan so their interests wind up being aligned long term.

Other small companies want to help people manage their electrical demand in real time, installing water heaters or dishwashers that can turn themselves on or off to match the intermittent supply of electricity coming from wind farms and solar panels. Still others want to earn money by fixing up drafty houses that waste huge amounts of energy, just as millions of houses, with their leaky windows and barely insulated attics, do across the country.

“When I drive down the street and I look at houses, all I see is money coming out of people’s attics,” said Andy Frank, the president of a small company called Sealed on Long Island. Sealed is fixing leaky homes already, and guaranteeing that customers will save on their energy bills. But he sees the potential for a far larger business if the state’s utilities are given a stronger incentive to cut deals with companies like his.

New York’s public service commissioners, as they put the final touches on the plan, are no doubt torn between the desire to move quickly and the fear of messing with an electrical grid that, whatever its flaws, does work. They may well choose to start with small tweaks to the rules, meaning it could take years to know if the plan is going to succeed.

But if it does, Mr. Cuomo might well be able to turn New York, the state where Thomas Edison invented the electrical grid in the 19th century, into a global powerhouse of innovation for the 21st. Mr. Kauffman believes the entire energy system could become far more efficient, so customer bills go down, greenhouse emissions fall — and, if the utilities are sufficiently creative, their profits go up.