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

Fortnightly Magazine - December 1996

improved use of power plant "resources."

DSM and IRP: The Weakness

in the Total Resource Cost Test

DSM and IRP programs are supposed to follow concise regulatory guidelines and goals with the stated overall objective of

minimizing the present value of a

utility's long-run revenue requirements (or something similar). These guidelines require passing proscribed cost-effectiveness tests. Such tests are usually based upon "California Standard Practices," with perhaps the most widely adopted one being the Total Resource Cost Test (TRC). However, according to the Tellus Institute,19 natural gas utilities are frequently put at a further disadvantage if commission-approved DSM or IRP programs are allowed to ignore benefit/cost test standards that clearly call for including the diseconomies imposed upon the "fuel not chosen."20

The California Standard Practice Manual provides guidance for identifying the differences between conservation and load-building.21 Translated simply, the legitimate cost-effectiveness of utility DSM and IRP programs requires including those diseconomies imposed upon alternative energy providers (and their customers) to comply with these standards. For example, all propane and natural gas customers are also customers of an electric utility. Thus, it makes no sense (from the customer's perspective) to transfer money from one pocket to another, especially if funds are lost in the process. Including these diseconomies in benefit/cost tests provides important safeguards against these problems. However, some regulators seem to believe that "modifying" such requirements to ignore the diseconomies imposed upon alternative energy service providers and their

customers promotes "vigorous competition" that benefits consumers. In many cases, gas utilities have been categorically denied the ability to use avoided costs as incentive mechanisms (however minor they may be in comparison to those of electric utilities) since commission-approved DSM or IRP programs for natural gas simply do not exist. Therefore, the mathematical avoided-cost difference between gas and electricity can be viewed as infinite.

Load-building programs can be easily disguised to appear marginally cost-effective despite highly tenuous underlying assumptions, such as the "fundamental assumption that the program is targeted exclusively to segments of the residential new construction market that have chosen electric space heating."22 Accompanying benefit/ cost analyses are easily manipulated to attain a ratio greater than one (thereby deemed cost-effective and subsequently approved). Considering that many of these programs barely pass the primary cost-effectiveness tests as proposed and approved, subjecting them to the diseconomies imposed upon the "fuel not chosen," eliminating IRS write-offs, emissions reductions benefits, and a host of other highly sensitive statistical inputs for such models could easily cause such programs to fail these tests; in most cases, miserably.23 The primary strategy used by electric utilities to conceal these variables takes shape in the form of filings that are too heavy to lift, let alone read, and which are based upon complex, proprietary models requiring immense levels of expertise through specialized training and "consultants."

With relatively limited staffs and budgets, natural gas utilities intervene against such programs at great cost. They have also encountered difficulty in getting regulators to understand these complexities. Once final rulings are issued and electric utility DSM/IRP programs approved, "state action" doctrines may then effectively bar natural