PUC endorses direct access, plant divestiture and limits on recovery of stranded costs. Says order will not interfere with 1990 bankruptcy plan for Northeast Utilities. The New Hampshire Public...
It's a War Out There: A Gas Man Questions Electric "Efficiency".
How the electric industry uses DSM and IRP to build load, ignoring basic truths found in fuel-cycle analysis.It was during the early 19th century that General von Clausewitz announced his nine principles of warfare. But he might have waited 100 years or so, to observe how 20th century electric utilities have taken ideas such as efficiency and conservation and turned them into marketing strategies that compete head on with natural gas.
Read on. In a book published in 1988, entitled "Strategic Marketing for Electric Utilities,"1 authors Clark Gellings and Dilip Limaye devote an entire chapter to the principles of von Clausewitz and how they apply in the case of electric utility programs such as demand-side management (DSM), integrated resource planning (IRP), and incentive rates for economic development.
Today we learn that "monopoly rate-of-return regulation of electricity has failed,"2 according to the "Electric Consumers' Power to Choose Act of 1996."
"The future is here," notes Federal Energy Regulatory Commission (FERC) chair Elizabeth Moler in Order 888. "And the future is competition. It is a global trend, and in North America, we are at the forefront of embracing it. There is no turning back."
Yet, certain anticompetitive aspects of well-intentioned studies of avoided costs and stranded investments should pose questions for those concerned with a level playing field. And the same goes for heightened efforts at environmental protection.
This article will examine how demand-side management (DSM) and integrated resource planning (IRP) have "failed" through anti-competitive abuse of "avoided costs" mechanisms that funded "energy efficiency" rebates and marketing campaigns. It will also analyze relationships between DSM and IRP "avoided costs" and "stranded investments" associated with the present restructuring of the electric utility industry through the Federal Energy Regulatory Commission's (FERC's) "mega-NOPR" and subsequent Order 888.
Above all, regulators must remain cognizant of the historical penchant that Adam Smith's "invisible hand of competition" has demonstrated for externalizing the environmental diseconomies of production. Robust competition should entail more than new markets for natural gas and electricity brokers; we should also find healthy competition on the demand-side between these end-use energy alternatives. Competition should take on an environmental perspective through fuel-cycle analyses of energy alternatives. Properly combined, all-source competitive bidding can balance least-cost energy planning and environmental safeguards with the benefits of increased competition.
A century ago von Clausewitz chose "surprise" as his eighth principle. In modern terms, surprise often means infiltration, counterintelligence, and propaganda. So it goes with utility competition. It's a war out there. And truth is the first casualty of war.3
Where the Truth Lies
The U.S. Department of Energy (DOE) recently issued a report compiled by its Energy Information Administration (EIA), The International Energy Outlook 1996, which stated that "[b]y 2015 world energy consumption increases 1.6 times the current level."4 Not surprisingly, the report adds that "[e]lectricity demand is projected to nearly double over the forecast period."5 and "world carbon emissions are projected to exceed 1990 levels by 54 percent (1.54 times)."6
In July 1996, the United Nations Intergovernmental Panel on Climate Change (IPCC) held a meeting in Geneva to discuss the