Jim Rogers’ chutzpah, geothermal’s promise, Larson’s carbon tax, and efficiency’s returns 0

• Jim Rogers, CEO of Duke Energy and prominent member of USCAP, says that it’s a bad idea to refund carbon auction money back to taxpayers. Instead, the vast bulk of the money should be given to public utility regulators. Really, he said that.

• According to a new report from Credit Suisse, geothermal power now has a lower cost-per-kilowatt-hour than coal. ScientificAmerican takes a look at the report and finds that it contains several important caveats (it presumes reasonable interest rate financing, doesn’t include explorations costs, etc.). Even with the caveats, though, this is heartening stuff.

• Shell Oil now has a climate change blog. So far, it’s surprisingly good and substantive.

• Rep. John Larson (D-Conn.) has introduced a carbon tax bill to the House (updating and improving a similar bill from 2007). It would start with a $15/ton tax, which would rise $10 per year, and it would refund all revenue to taxpayers through payroll tax rebates. $10 billion a year in tax credits are also made available to cleantech R&D and investments. The guys at the Carbon Tax Center love it. They say one of the prospective losers is "cynics who said the U.S. could never enact a meaningful carbon tax." But the U.S. won’t enact this one either, so ...

• The Berkeley National Laboratory has an interesting report out: “Financial Analysis of Incentive Mechanisms to Promote Energy Efficiency: Case Study of a Prototypical Southwest Utility (PDF).” (I know, sounds fascinating, right?) It runs through scenarios whereby a utility aggressively pursues energy efficiency, based on various policies (decoupling, performance standards, etc.). What does it do to rates? Equity? Shareholder returns? Here are the key conclusions:

1. Aggressive and sustained energy efficiency efforts can produce significant resource benefits at
relatively low cost to society and utility customers. However, aggressive and sustained energy
efficiency efforts will adversely impact utility shareholder interests by increasing the risk of lost
earnings between rate cases and decreasing the available earnings opportunities over time.



2. Introducing a decoupling mechanism removes a short-run financial disincentive to energy
efficiency by improving the ability of a utility to earn its authorized return between rate cases.
Shareholder incentive mechanisms can improve the utility’s longer-term business case for
aggressive and sustained energy efficiency when success is measured on the basis of ROE rather
than the absolute level of earnings. 



3. Average utility bills would decrease by 3-6% if the utility successfully implements the energy
efficiency portfolios in conjunction with decoupling or these shareholder incentive mechanisms
compared to the “business-as-usual” No EE case.



4. The three EE portfolios have a modest effect on average retail rates over the 20-year planning
horizon, even with the added cost of a decoupling or shareholder incentive.



5.  Combining a decoupling mechanism with a shareholder incentive further improves the
business case for energy efficiency for the prototypical utility; alternatively, the proposed Save-
A-Watt (NC) mechanism provides the utility with the opportunity for much higher earnings and
ROE.



6. Ratepayers receive 70-90% of the net benefits from EE portfolios that include the costs of
decoupling and one of three shareholder incentive mechanisms (Performance Target, Cost
Capitalization, Shared Net Benefits); ratepayer’s share of net benefits is much lower under the
Save-A-Watt (NC) proposal.



7. The design of a decoupling and shareholder incentive mechanism (e.g. earnings basis) can
significantly influence its value and perceived costs and risks to utility shareholders and
ratepayers. In assessing the relative merits of proposed incentive mechanisms, PUCs should
consider and analyze quantitative metrics that reflect the interests and concerns of both
shareholders and ratepayers (e.g., ratepayer share of net resource benefits, impact on EE
program costs, target increase in ROE that rewards superior performance in achieving EE
goals). This approach can provide insights on the design of incentive mechanisms that create a
sustainable business model for the utility to aggressively pursue energy efficiency while
effectively balancing ratepayer interests.

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