[BETA] Fortnightly

Investments that minimize life-cycle costs of reliable energy services should be more profitable to utilities than those that fail that test. This perceptive article shows that Puget Power and the Washington Utilities and Transportation Commission (UTC) share that view.Too many utilities still hesitate to finance energy savings that cost less than the displaced power production. Sometimes that hesitation reflects a concern about recovering the underlying investment, reinforced by uncertainty about the future of industry restructuring. I agree with Kelly and Gaines that one solution lies in creating a formal statutory entitlement to recovery of prudent conservation investments. Puget Power's demonstrated ability to convert that entitlement into a marketable asset has obvious appeal.I am sure the authors would join in several additional observations. Energy-efficiency investments that qualify for this treatment should be subject to rigorous quality controls and performance-based accountability; neither Puget Power nor the UTC would tolerate anything less. State commissions should also establish formally that conservation cost recovery represents a nonbypassable charge on the use of electric distribution systems, which cannot be avoided by contracting with a different electricity producer. Washington State has been a leader here too; the UTC adopted the first formal rate designation of this kind last December.Finally, Kelly and Gaines are right to emphasize the need to break the linkage between utilities' profits and their retail kilowatt-hour sales. Unless corrected appropriately, the lost-revenue disincentive would make irrelevant even the strongest assurances for cost recovery of utility investments in energy efficiency. Even worse, the opportunity to earn profits on increased sales might prompt utilities to underwrite ineffective energy-efficiency programs so they could enjoy the best of both worlds: earnings on programs that were supposed to have saved electricity, and additional revenues from all the electricity that was not actually saved. By contrast, Puget Power and the UTC together have proved that a sound incentive system, coupled with good management, means more value for both customers and society. t

Ralph Cavanagh is senior attorney with the Natural Resources Defense Council, a conservation advocacy group with offices in San Francisco, Los Angeles, New York, and Washington, DC.

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