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It's a War Out There: A Gas Man Questions Electric "Efficiency".

Fortnightly Magazine - December 1996

combustion and lower friction10 and another 16 percent11 by unloading cylinders according to speed and power requirements. Considering that some 200 million or so reciprocating engines can be found operating in America's cars and trucks, just a one-percent efficiency increase would reduce the nation's greenhouse gases more than any single concept identified in the Clinton/Gore Climate Change Action Plan. Unfortunately, however, federal funding for research and development (R&D) for reciprocating engine technologies is virtually non-existent compared to that for electric utility power plants.

The cumulative effects of such federal R&D spending biases could cause EPRI's growth predictions to become a self-fulfilling prophecy.

"Avoided Cost" Studies: Regulatory Cover for Manipulative Strategies

Given the stated intentions of electric utility DSM and IRP programs to conserve energy and be "at least as profitable as load building,"12 in theory, electric utilities should show indifference towards, "ecowatts," "negawatts," or therms. Again, in theory, improved energy efficiency and/or strategies that reduce peak demand can provide an economical equivalent of capacity by freeing-up actual capacity for other purposes.

For example, more efficient motors or lighting systems can reduce electrical consumption and demand. In addition, motor and lighting loads can be reduced or turned off through various control strategies. Assuming that the incremental cost of adding an incremental Kw of traditional capacity costs $500 and the costs of removing one Kw through efficiency improvements and/or demand reduction costs less than $500, then the latter can be viewed as a superior investment and customer rebates (up to $500) can be rationalized. In fact, many states with formal DSM and IRP programs allow consumer financial incentives to be rate-based (like power plants) or at least expensed. Some states also allow utilities to recover ostensible "lost revenues." The same theory of avoiding power plants through DSM and IRP applies to cogeneration projects, whereby electric utilities must buy excess capacity from "qualified facilities" at their "avoided costs" of capacity and incremental energy. High avoided costs can encourage cogeneration and DSM/ IRP, while low avoided costs would have the opposite effect. Thus, avoided costs provide the primary motive force behind DSM and IRP "energy efficiency" rebates.

Since avoided costs are considerably higher for electric utilities that for natural gas distributors, electric utilities can spend significantly more to increase energy efficiency. Similarly, electric utilities can spend significant amounts, under the guise of energy- and/or demand-reduction programs to increase sales and many have become quite adept at manipulating DSM and IRP policies for this purpose. Thus, in practice, according to a recent DOE-funded study conducted by Oak Ridge National Laboratory, electric utilities are increasingly using DSM to build load.13 Based upon the combination of incentives to build load supplied by monopoly rate-of-return (cost-plus) regulation, along with traditional fiduciary duties of utility management to "grow the business" and an assortment of subsidies to assist them (such as IRS write-offs for DSM), it should have come as no surprise that "valley filling" and "strategic load growth" have become the preferred IRP/DSM load-shape objectives under the guise of energy "efficiency."

To further illustrate these relationships, the following graphs compare the