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Saving Gigabucks with Negawatts (1985)

In an age of costly electricity and cheap efficiency, smart utilities will sell less electricity and more efficiency.

Fortnightly Magazine - March 21, 1985

Northwest and for low-income customers who abhor additional debt on any terms. Participation rates for such consumer-pays-nothing programs have ranged up to 95 percent.

Some utilities also buy back saved electricity — in effect, as if it had been generated under PURPA. At least 25 utilities now offer rebates for buying efficient appliances, and thereby save electricity at a cost of 1 to 2 cents per kilowatt-hour. Pacific Gas and Electric and Southern California Edison Company pay respectively $280 per kW peak and $300 per kW peak for peak savings achieved by any method. Some Southern California Edison incentive programs amount to prepurchasing saved kilowatt-hours at a flat rate of 2 to 4 cents each (far below avoided cost).

In two striking prepurchase initiatives of the Bonneville Power Administration, Snohomish Public Utility District pays 29.2 cents per kWh and Pacific Power and Light Company in a Hood River county, Oregon, experiment pays $1.15 per per kWh, for first-year savings from any durable device. These up-front payments — less than the present value of a 10- to 20-year stream of avoided cost — enable the customer to buy the device that will produce the savings. For example, if I lived in Hood River county and wanted to buy my 23-kWh-per-year refrigerator, Pacific Power and Light would send me a check for more than $1,700. I could use it to buy the refrigerator, throw a party with the balance, and watch my annual bill drop by the value of about 1,500 kWh per year. Pacific Power and Light’s advance purchase of my savings amounts to installing in my house a small, cheap hydro dam which will reliably churn out its negawatts for decades to come. Similarly, “negative hookup fees” to reward contractors for efficient buildings could increase the contractors’ profits and their houses’ marketability, give the buyers better mortgage terms and higher resale value, and save the utility 10 to 20 times the value of the rebate.

The most elegant concept for marketing negawatts and demarketing costlier megawatts is for a utility to run a public auction. It would announce its willingness to enter, say, 10-year contracts to pay 1 cent per kWh for electricity made, displaced, or saved by any means. It would accept all bids at that price and place them under contract. It would then raise the offer to 2 cents per kilowatt-hour and sign up all bidders at that price; then offer 3 cents per kWh, and so on. Somewhere around 3 to 4 cents per kWh in my opinion, 4 to 5 cents per kWh in that of some my more pessimistic colleagues — in any event, at about half of present prices — the utility would have achieved a market-clearing price representing the least-cost balance between all supply options and all efficiency options. New auctions would be held as old contracts rolled over, or service demand increased, ensuring that all needs would be met while enabling improved technologies to lower embedded costs. Several utilities are now considering this method; one even hopes to become the nation’s first “negawatt