The single most important policy change needed to promote broad-based, California-style energy efficiency is to “decouple” utility profits from sales—to allow utilities to profit from energy efficiency (see “How does California do it?” and “Why we never need to build another polluting power plant”).
Utilities are the most effective delivery channels for making homes, commercial buildings, and industry more energy-efficient, but the vast majority operate under a regulatory regime that penalizes utilities for promoting efficiency. Indeed, those regulations actually motivate utilities to encourage their customers to overuse electricity, because not only do they make more profits then, but if demand rises enough, they can get the Public Utility Commission to approve a new power plant and higher rates—and thus more profits.
I have been assuming that Democrats would wait until the mother of all energy bills later this year to make their big push toward decoupling. But it turns out that Dems have decided to make it one of the conditions for the multi-billion-dollar energy efficiency block grants in the stimulus (see “Details of Obama’s green stimulus plan released”).
That is an outstanding idea. E&E Daily ($ub. req’d) has the details:
States that accept federal energy efficiency grants from the economic stimulus package will have to ensure utilities recover the revenue lost when consumers use less energy, thanks to an amendment the House Energy and Commerce Committee approved yesterday.
The controversial “decoupling” provision was offered as a part of Chairman Henry Waxman’s (D-Calif.) substitute amendment during the committee markup of the House Democrats’ $825 billion economic stimulus bill that includes billions of dollars for energy efficiency, smart grid technology and renewable energy.
The House is scheduled to vote on the stimulus bill Wednesday, according to the office of Majority Leader Steny Hoyer (D-Md.) ...
“We do appreciate the opportunity to have some debate on this,” said ranking member Joe Barton (R-Texas) “I respect the right of a new president to have his or her agenda but ... it is truly an insult to this committee and I would say to the committee system, that we didn’t have a few weeks to get a hearing on this,” he said.
The constrained time limit squeezed the amount of amendments members could offer, so Barton offered only an amendment that would have gutted the “decoupling” measure. “This is probably the most important consumer protection amendment in this markup,” Barton said. “I think the last thing we want to do, is to do all these great energy efficiency ideas in the bill ... and not have their cost go down,” he said.
Rep. John Shimkus (R-Ill.) said the best way for people to adopt energy efficiency measures is for them see their costs go down. “This is the first time I have heard Democrats trust an electric utility in my 12 years,” he added.
But supporters say “decoupling” allows utilities to promote energy efficiency and still maintain a viable business structure as they would no longer rely on revenue made from how much electricity or gas they sell.
“Decoupling ... has been the single most important policy to reduce usage of electricity in America,” said Rep. Jay Inslee (D-Wash.). California adopted decoupling and has successfully maintained a level electricity consumption for the past 20 years, he said.
(I’m sure he said level electricity consumption per capita for the past 30 years.)
Inslee explained that while the rates may stay at a higher level, the ratepayers’ overall bill would likely decrease as efficiency measures considerably cut their energy consumption. “Once we free utilities ... to sell energy efficiency you know what they do? They sell energy efficiency services,” Inslee said. Efficiency programs—usually implemented through the utilities—also creates thousands of jobs including energy audits, changing doors, insulation and other efficiency upgrades, Inslee said.
The Alliance to Save Energy, the American Gas Association, the Edison Electric Institute and the Natural Resources Defense Council all endorsed the provision, Waxman noted. Democrats tried to put a similar measure requiring decoupling in the 2007 energy bill, but it was eventually watered down to only require state regulators to consider adopting decoupling policies—most of which have not yet done so.
In addition, states that receive the additional energy grants given in the stimulus would also be required to adopt recent and more stringent residential and commercial building energy codes and should prioritize grants toward existing energy efficiency and renewable energy programs—this last provision adopted as an additional amendment offered by Inslee and passed by voice vote.
Outside of the state energy grant programs, Waxman’s substitute amendment would require smart grid demonstration projects to be public knowledge and raise the federal matching grants to 50 percent; allows the energy secretary to encourage states to give priority of Weatherization Assistance funding to the “most cost-effective” efficiency activities; and mandates the assumptions for the required renewable electricity transmission study be made public. An amendment by Rep. Fred Upton (R-Mich.), adopted by voice vote, would also make the energy secretary study to what extent legal challenges are delaying the construction of transmission necessary for renewable energy.
Kudos to Waxman for the decoupling provision.
This post was created for ClimateProgress.org, a project of the Center for American Progress Action Fund.
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Comments
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gozhawk34 Posted 5:08 pm
24 Jan 2009
This needs to be an option in every state.
-Chris
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amazingdrx Posted 5:46 pm
24 Jan 2009
Say maybe 5 cents per kwh saved over a moving average of cumulative past power use?
A direct subsidy to home solar owners would be good too. Why trust all the middle men, put the money towards direct stimulation of the family finances.
http://amazngdrx.blogharbor.com/blog John Schneider, Northern Wisconsin
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Sean Casten Posted 10:57 pm
24 Jan 2009
But why not challenge that paradigm? Why not subject utilities to the same pressures that all the rest of us face? (Spend irresponsibly and you lose. Fail to innovate and you lose. Sell a better product than your competitors and you win.)
After all, it's not as if all the downsides of rate-of-return regulation go away simply because of decoupling. Utilities still have an incentive to preferentially deploy capital dollars in expensive stuff, since they still get paid based on the total dollars in the rate base. (See: the economic boondoggle that is nuclear power for an example.)
To be sure, decoupling is a step forward. But it is far from the end game, and it limits our ability to continue to move down the field; to take a football analogy, it gives us a first down, but in exchange we let the other team put another defender on the field for the subsequent play. On balance, it's a risky basket to put our eggs in.
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amazingdrx Posted 1:04 am
25 Jan 2009
Say a local utility installs a ground source heating/cooling system, rooftop solar cogeneration, and/or solid oxide fuel cell/turbine cogeneration system in a big building, like a school, that provides both heating/cooling and electricity. Would that 5 cent per kwh saved give a reasonable incentive?
How would this be measured? Does the NREL have some sort of method for determing the bottomline figure of exactly how many kwh and how much GHG is saved to base this payment on?
The line blurs between renewables and conservation with all these systems, could one program based on simple GHG-kwhs/fuel savings do the job better than decoupling? Once decoupling takes place does a public service commision just assign profit percentage, also decpoupling incentives for GHG reduction?
It sure seems complicated. Something simple enough for a home equity loan application, to fund a green home retrofit, would be needed. If local homeowners, builders, and banks could get a clear idea of payback period in terms of energy savings and incentive payments, it should work for utilities too.
http://amazngdrx.blogharbor.com/blog John Schneider, Northern Wisconsin
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Max8806 Posted 1:09 am
25 Jan 2009
Max Epstein
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JMG Posted 4:26 am
25 Jan 2009
Every argument against publicly owned utilities can be made against public roads, and outside of the nutjob institutes, I don't hear anyone calling for wholesale privatization of roads.
The 5% Project
Let's live on the planet as if we intend to stay.
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Sean Casten Posted 5:49 am
25 Jan 2009
The modern utility is therefore a "half-pregnant" enterprise, capturing the worst of both models - the lack of fiscal discipline that comes from the public sector and the lack of social purpose innate to a for-profit business. (And none of the upsides of either model.) If one concludes that the fully-nationalized utility is the way to go (a point Jon Rynn makes often), then we don't need to decouple, because 100% of the benefits are socialized. If one concludes on the other hand that a fully-competitive electric sector is the way to go, we also don't need to decouple because cost control will immediately become a route to profit growth. But as long as we insist on maintaining the kluge that we currently have, decoupling is the solution.
Ergo, my point isn't to argue the public vs. private point, but simply to acknowledge that that conversation really ought to preclude the presumption that decoupling is a panacea.
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stopgreenpath Posted 1:53 pm
30 Jan 2009
people and utilities would. deal with it, that is. the WORST thing we have done is pub utilities in charge of conservation and renewable energy programs. the worst. if those programs were run by the state, which has a genuine interest in reducing power consumption and increasing renewables production, things would be working. right now they aren't. because no matter how you slice it, you've got the foxes guarding the henhouse, and they know they still make WAY more if you use more. period.
decoupling has done very little to impact CA's low consumption - regulation is what has succeeded. sorry, but that's the truth. and, decoupling actually acts as a ratepayer DISINCENTIVE, since your "flat fees" are a much greater part of your bill than non-decoupled bills that are based on your consumption. therefore, you see a much lower impact, as a ratepayer, if you conserve, because the utility has tacked on a $10/month "distribution fee" to compensate themselves for all that "lost" income.
sorry, folks, but municipal utilities, at least LADWP, are even worse than IOUs when it comes to mercenary, monopolistic megalomania. the solution is adequate and specific requirements of electronics, appliance, building supplies and contractors/building codes that contain carrot and stick elements. the utility should just be a distribution network with load-balancing capabilities, and should not even be allowed to be a generator, much less a monopoly generator.
the greenest energy is that which you needn't ever produce.
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