Transcript Opening Remarks (powerpoint file)

Designing Utility Regulation to Promote Investment
in Cost-Effective Energy Efficiency
Pennsylvania PUC Discussion
December 7, 2006
Dale S. Bryk
Natural Resources Defense Council
[email protected]
Overarching Goals

Safe, reliable, affordable energy service

Minimize environmental impacts

Economic efficiency
–
Customers and utilities invest in all cost-effective energy
efficiency
Policy Context

Rate Regulation/ Decoupling

Portfolio Management
–

Portfolio Standards
System Benefit Charge Programs
–
Secure minimum amount of energy efficiency
–
Market Transformation

Codes and Standards

Transmission and Distribution System Planning
Emerging Policy Context

Regional Greenhouse Gas Initiative

CA Emissions Cap on Electricity Sales/
Procurement

New Requirements to Manage Carbon Risk
Traditional Regulation

Rewards sales / encourages consumption

Discourages utility support for efficiency

Recovery of fixed costs uncertain
Decoupling

Severs link between profit and sales
–
–
–

Modest true-ups in both directions vs. rate cap
Assures recovery of fixed costs
Removes incentive to increase sales
Rewards safe, reliable service; public goals
–
Customizable to reward/ penalize based on performance
Decoupling Objectives

Align consumer and shareholder interests

Promote investment in least cost efficiency

Assure recovery of fixed costs

Reduce gas prices by reducing demand
Energy Efficiency: Benefits & Barriers

Cost-effective efficiency investments
–
–

5:1 cost benefit ratio
likely to reduce load by 1%/ year
Market barriers
–
–
–
Lack of knowledge, access to efficient products
Split incentives
Customers require 40-100% return, < 3 yr payback
Energy Efficiency Potential
Existing and New EE Strategies Can Offset ISO
Forecasted Energy Requirements (GWH) and Beyond
Existing EE
Programs at
3.1¢/kWh
150,000
ISO GWh Forecast (w/out DSM)
1.2% Avg. Annual Increase at
Marginal Avoided Energy Supply Cost of 9.4¢/kWh
145,000
Building
Codes at
2.9¢/kWh
140,000
135,000
Addt'l EE Can Offset Growth
(at 3.1¢/kWh)
Standards at
1.0 ¢/kWh
GWh
130,000
Addt'l
Savings
Opport.
Beyond
Offsetting
Growth (at
3.1¢/kWh)
Actual Energy Requirement (2003)
125,000
120,000
115,000
Total Achievable Energy Savings Potential
-1.38% Avg. Annual Reduction
110,000
Total EE
Potential in
2013 Can
Reduce
Energy Req.
to 1993 Level
105,000
100,000
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Decoupling Objectives

Environmental Benefit
–
–
–

Consumer Benefit
–
–

Utilities more likely to help customers reduce demand, lower bills
Reducing demand reduces electric and gas prices for all (ACEEE study)
Utility Benefit
–
–
–

Energy efficiency competes directly with supply
Reduced consumption = reduced environmental impact
Lower gas prices put more competitive pressure on coal
Guaranteed fixed cost recovery
Reduced risks associated with economy, weather, efficiency standards
Better service to customers
Improved Reliability
–
More efficiency means less strain on system
Alternatives to Decoupling

Increase fixed customer charges
–
–

Lost revenue recovery mechanisms
–
–

Asymmetrical; fails to recapture “found” revenues from excess sales
Does not address disincentive to promote efficiency beyond programs (e.g., codes and
standards)
Codes and standards; SBC programs
–
–

Reduces reward for end-use efficiency
More disruptive to rate structures than modest true-ups that decoupling would require
Current regulation discourages utility support
Funding uncertain
Massive subsidies for coal gasification; LNG
–
Much more expensive than promoting efficiency