New Jersey-2024-A5114-Introduced

An Act concerning public utility rate treatments and incentives and amending P.L.2018, c.17 and P.L.2007, c.340.

Be It Enacted by the Senate and General Assembly of the State of New Jersey:

1. Section 3 of P.L.2018, c.17 (C.48:3-87.9) is amended to read as follows:

3. a. No later than one year after the date of enactment of P.L.2018, c.17 (C.48:3-87.8 et al.), the Board of Public Utilities shall require each electric public utility and gas public utility to reduce the use of electricity, or natural gas, as appropriate, within its territory, by its customers, below what would have otherwise been used. For the purposes of this section, a gas public utility shall reduce the use of natural gas for residential, commercial, and industrial uses, but shall not be required to include a reduction in natural gas used for distributed energy resources such as combined heat and power.

Each electric public utility shall be required to achieve annual reductions in the use of electricity of two percent of the average annual usage in the prior three years within five years of implementation of its electric energy efficiency program. Each natural gas public utility shall be required to achieve annual reductions in the use of natural gas of 0.75 percent of the average annual usage in the prior three years within five years of implementation of its gas energy efficiency program. The amount of reduction mandated by the board that exceeds two percent of the average annual usage for electricity and 0.75 percent of the average annual usage for natural gas for the prior three years shall be determined pursuant to the study conducted pursuant to subsection b. of this section until the reduction in energy usage reaches the full economic, cost-effective potential in each service territory, as determined by the board.

b. No later than one year after the date of enactment of P.L.2018, c.17 (C.48:3-87.8 et al.), the board shall conduct and complete a study to determine the energy savings targets for full economic, cost-effective potential for electricity usage reduction and natural gas usage reduction as well as the potential for peak demand reduction by the customers of each electric public utility and gas public utility and the timeframe for achieving the reductions. The energy savings targets for each electric public utility and gas public utility shall be reviewed every three years to determine if the targets should be adjusted. The board, in conducting the study, shall accept comments and suggestions from interested parties.

c. No later than one year after the date of enactment of P.L.2018, c.17 (C.48:3-87.8 et al.), the board shall adopt quantitative performance indicators pursuant to the "Administrative Procedure Act," P.L.1968, c.410 (C.52:14B-1 et seq.) for each electric public utility and gas public utility, which shall establish reasonably achievable targets for energy usage reductions and peak demand reductions and take into account the public utility's energy efficiency measures and other non-utility energy efficiency measures including measures to support the development and implementation of building code changes, appliance efficiency standards, the Clean Energy program, any other State-sponsored energy efficiency or peak reduction programs, and public utility energy efficiency programs that exist on the date of enactment of P.L.2018, c.17 (C.48:3-87.8 et al.). In establishing quantitative performance indicators, the board shall use a methodology that incorporates weather, economic factors, customer growth, outage-adjusted efficiency factors, and any other appropriate factors to ensure that the public utility's incentives or penalties determined pursuant to subsection e. of this section and section 13 of P.L.2007, c.340 (C.48:3-98.1) are based upon performance, and take into account the growth in the use of electric vehicles, microgrids, and distributed energy resources. In establishing quantitative performance indicators, the board shall also consider each public utility's customer class mix and potential for adoption by each of those customer classes of energy efficiency programs offered by the public utility or that are otherwise available. The board shall review each quantitative performance indicator every three years. A public utility may apply all energy savings attributable to programs available to its customers, including demand side management programs, other measures implemented by the public utility, non-utility programs, including those available under energy efficiency programs in existence on the date of enactment of P.L.2018, c.17 (C.48:3-87.8 et al.), building codes, and other efficiency standards in effect, to achieve the targets established in this section.

d. (1) Each electric public utility and gas public utility shall establish energy efficiency programs and peak demand reduction programs to be approved by the board no later than 30 days prior to the start of the energy year in order to comply with the requirements of this section. The energy efficiency programs and peak demand reduction programs adopted by each public utility shall comply with quantitative performance indicators adopted by the board pursuant to subsection c. of this section.

(2) The energy efficiency programs and peak demand reduction programs shall have a benefit-to-cost ratio greater than or equal to 1.0 at the portfolio level, considering both economic and environmental factors, and shall be subject to review during the stakeholder process established by the board pursuant to subsection f. of this section. The methodology, assumptions, and data used to perform the benefit-to-cost analysis shall be based upon publicly available sources and shall be subject to stakeholder review and comment. A program may have a benefit-to-cost ratio of less than 1.0 but may be appropriate to include within the portfolio if implementation of the program is in the public interest, including, but not limited to, benefitting low-income customers or promoting emerging energy efficiency technologies.

(3) Each electric public utility and gas public utility shall file with the board implementation and reporting plans as well as evaluation, measurement, and verification strategies to determine the energy usage reductions and peak demand reductions achieved by the energy efficiency programs and peak demand reduction programs approved pursuant to this section. The filings shall include details of expenditures made by the public utility and the resultant reduction in energy usage and peak demand. The board shall determine the appropriate level of reasonable and prudent costs for each energy efficiency program and peak demand reduction program.

e. (1) Each electric public utility and gas public utility shall file an annual petition with the board to demonstrate compliance with the energy efficiency and peak demand reduction programs, compliance with the targets established pursuant to the quantitative performance indicators, and for cost recovery of the programs, including any performance incentives or penalties, pursuant to section 13 of P.L.2007, c.340 (C.48:3-98.1). Each electric public utility and gas public utility shall file annually with the board a petition to recover on a full and current basis through a surcharge all reasonable and prudent costs incurred as a result of energy efficiency programs and peak demand reduction programs required pursuant to this section, including but not limited to recovery of and on capital investment, [and the revenue impact of sales losses resulting from implementation of the energy efficiency and peak demand reduction schedules,] which shall be determined by the board pursuant to section 13 of P.L. 2007, c. 340 (C.48:3-98.1).

(2) If an electric public utility or gas public utility achieves the performance targets established in the quantitative performance indicators, the public utility shall receive an incentive as determined by the board through an accounting mechanism established pursuant to section 13 of P.L.2007, c.340 (C.48:3-98.1) for its energy efficiency measures and peak demand reduction measures for the following year, provided that the electric public utility or gas public utility shall not be eligible for an incentive that provides additional revenue to the utility to account for lost revenue resulting from the decrease in customer usage of electricity or natural gas, as appropriate, due to participation in energy efficiency programs and peak demand reduction programs.. The incentive shall scale in a linear fashion to a maximum established by the board that reflects the extra value of achieving greater savings.

(3) If an electric public utility or gas public utility fails to achieve the reductions in its performance target established in the quantitative performance indicators, the public utility shall be assessed a penalty as determined by the board through an accounting mechanism established pursuant to section 13 of P.L.2007, c.340 (C.48:3-98.1) for its energy efficiency measures and peak demand reduction measures for the following year. The penalty shall scale in a linear fashion to a maximum established by the board that reflects the extent of the failure to achieve the required savings.

(4) The adjustments made pursuant to this subsection may be made through adjustments of the electric public utility's or gas public utility's return on equity related to the energy efficiency or peak demand reduction programs only, or a specified dollar amount, reflecting the incentive structure as established in this subsection. The adjustments shall not be included in a revenue or cost in any base rate filing and shall be adopted by the board pursuant to the "Administrative Procedure Act[.]," P.L.1968, c.410 (C.52:14B-1 et seq.).

f. (1) The board shall establish a stakeholder process to evaluate the economically achievable energy efficiency and peak demand reduction requirements, rate adjustments, quantitative performance indicators, and the process for evaluating, measuring, and verifying energy usage reductions and peak demand reductions by the public utilities. As part of the stakeholder process, the board shall establish an independent advisory group to study the evaluation, measurement, and verification process for energy efficiency and peak demand reduction programs, which shall include representatives from the public utilities, the Division of Rate Counsel, and environmental and consumer organizations, to provide recommendations to the board for improvements to the programs.

(2) Each electric public utility and gas public utility shall conduct a demographic analysis as part of the stakeholder process to determine if all of its customers are able to participate fully in implementing energy efficiency measures, to identify market barriers that prevent such participation, and to make recommendations for measures to overcome such barriers. The public utility shall be entitled to full and timely recovery of the costs associated with this analysis.

g. For the purposes of this section, the board shall only consider usage for which public utility energy efficiency programs are applicable.

(cf. P.L.2018, c.17, s.3)

2. Section 13 of P.L.2007, c.340 (C.48:3-98.1) is amended to read as follows:

13. a. Notwithstanding the provisions of any other law or rule or regulation to the contrary:

(1) an electric public utility or a gas public utility may provide and invest in energy efficiency and conservation programs in its respective service territory on a regulated basis pursuant to this section, regardless of whether the energy efficiency or conservation program involves facilities on the utility side or customer side of the point of interconnection;

(2) an electric public utility or a gas public utility may invest in Class I renewable energy resources, or offer Class I renewable energy programs on a regulated basis pursuant to this section, regardless of whether the renewable energy resource is located on the utility side or customer side of the point of interconnection; and

(3) the board may provide funding for energy efficiency, conservation, and renewable energy improvements through the societal benefits charge established pursuant to section 12 of P.L.1999, c.23 (C.48:3-60), the retail margin on certain hourly-priced and larger non-residential customers pursuant to the board's continuing regulation of basic generation service pursuant to sections 3 and 9 of P.L.1999, c.23 (C.48:3-51 and C.48:3-57), or other monies appropriated for such purposes. The board may also direct electric public utilities and gas public utilities to undertake energy efficiency, conservation, and renewable energy improvements, and shall allow the recovery of program costs and incentive rate treatment pursuant to subsection b. of this section.

b. An electric public utility or a gas public utility seeking cost recovery for any program pursuant to this section shall file a petition with the board to request cost recovery. In determining the recovery by electric public utilities and gas public utilities of program costs for any program implemented pursuant to this section, the board may take into account the potential for job creation from such programs, the effect on competition for such programs, existing market barriers, environmental benefits, and the availability of such programs in the marketplace. Unless the board issues a written order within 180 days after the filing of the petition approving, modifying or denying the requested recovery, the recovery requested by the utility shall be granted effective on the 181st day after the filing without further order by the board. Ratemaking treatment may include placing appropriate technology and program cost investments in the respective utility's rate base, or recovering the utility's technology and program costs through another ratemaking methodology approved by the board, including, but not limited to, the societal benefits charge established pursuant to section 12 of P.L.1999, c.23 (C.48:3-60). All electric public utility and gas public utility investment in energy efficiency and conservation programs or Class I renewable energy programs may be eligible for rate treatment approved by the board, including a return on equity, or other incentives or rate mechanisms [that decouple utility revenue from sales of electricity and gas], provided that the electric public utility or gas public utility shall not be eligible for a rate adjustment mechanism that provides additional revenue to the utility to account for lost revenue attributable to the decrease in customer electricity or natural gas usage due to participation in energy efficiency, conservation, or Class I renewable energy programs.

c. Within 120 days after the date of enactment of P.L.2007, c.340 (C.26:2C-45 et al.), the board shall issue an order that allows electric public utilities and gas public utilities to offer energy efficiency and conservation programs, to invest in Class I renewable energy resources, and to offer Class I renewable energy programs in their respective service territories on a regulated basis. The board's order shall be reflected in rules and regulations thereafter to be adopted by the board pursuant to the "Administrative Procedure Act," P.L.1968, c.410 (C.52:14B-1 et seq.).

d. As used in this section:

"Class I renewable energy program" means any regulated program approved by the board pursuant to this section for the purpose of facilitating the development of Class I renewable energy in the State.

"Energy efficiency and conservation program" means any regulated program, including customer and community education and outreach, approved by the board pursuant to this section for the purpose of conserving energy or making the use of electricity or natural gas more efficient by New Jersey consumers, whether residential, commercial, industrial, or governmental agencies.

"Program costs" means all reasonable and prudent costs incurred in developing and implementing energy efficiency, conservation, or Class I renewable energy programs approved by the board pursuant to this section. These costs shall include a full return on invested capital and foregone electric and gas distribution fixed cost contributions associated with the implementation of the energy efficiency, conservation, or Class I renewable energy programs until those cost contributions are reflected in base rates following a base rate case if such costs were reasonably and prudently incurred.

(cf. P.L.2007, c.340, s.13)

3. This act shall take effect immediately.

STATEMENT

This bill provides that an electric public utility or a gas public utility (collectively, "utility") is not permitted to impose or collect any rate adjustment mechanism that provides additional revenue to the utility to account for lost revenue from the decrease in energy usage due to customer participation in certain energy efficiency, peak demand reduction, conservation, or renewable energy programs.

Under current law, a utility may provide and invest in energy efficiency, peak demand reduction, conservation and renewable energy programs in its service territory on a regulated basis and may, if approved by the Board of Public Utilities (board), be permitted to impose and collect rate adjustment mechanisms that provide additional revenue to the utility to offset a decrease in consumption for customers participating in certain programs.

It is the sponsor's intent to prohibit a utility from implementing a conservation incentive program rate adjustment in response to the testimony provided by the Director of the Division of Rate Counsel during the October 2, 2024 Assembly Telecommunications and Utilities Committee meeting. The Division of Rate Counsel testified that a conservation incentive program rate adjustment enables a utility to make up for a portion of revenues lost due to customer participation in energy efficiency efforts by charging that loss back to all consumers.

It is the sponsor's belief that the board needs to work harder for the consumer and less for the utility company. There is no logical reason why ratepayers should work to reduce their power consumption through conservation measures, such as purchasing Energy Star appliances, increasing weatherization, installing light-emitting diode (LED) lighting, using smart meters and thermostats, wearing warming clothing or siting in the dark, only to have these hard fought savings reduced or eliminated through rate increases to make up for the utility companies loss of revenue.