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

Fortnightly Magazine - December 1996

markets."44

s "[E]lectric utilities may use customer information acquired in their role as monopoly electric service providers to prepare a competitive bid."45

s "DSM practices may inhibit energy-service markets and may result in subsidies not intended by the societal objectives of energy efficiency and the conservation of resources."46

In essence, the Texas PUC recognized past mistakes in "interfering in the energy services sector" through approval of "regulations that allow utilities to exclude the bids of competitors at the utilities' sole discretion." It acknowledged that such regulations "are subject to abuse."47 Consequently, regulatory language contained within revisions of the Texas Public Utilities Regulatory Act (PURA) recently affirmed by the Texas PUC attempts to undertake the difficult process of moving all and least closer to their clear meaning. These words also convey a challenge with regard to the level of accomplishment expected toward reaching these goals.

Specifically, electric utilities now have the burden of proof for ruling out all alternatives (em i.e., all-source competitive bidding (em before constructing additional power plants. Comprehensive energy-service contracts derived through integrated energy audits of commercial and industrial customers could provide the basis of such bids. Conceptually, quick payback energy conservation, such as lighting improvements, would be bundled with more capital intensive applications, such as cogeneration or gas cooling, to bid against other demand-side and supply-side alternatives. However, electric utilities already appear to be thwarting such opportunities through recently proposed mergers with their natural gas competitors (em namely, TU Electric's proposed merger with Enserch (hence, Dallas-based Lone Star Gas) and Houston Lighting & Power's proposed merger with NorAm (hence, Houston-based Entex). Respectively, Lone Star and Entex represent the first- and second-largest natural gas utilities in Texas and provide service to the majority of the state's natural gas consumers.

Back to Reality: Some Final Thoughts

According to the "general principle" for restructuring the electric industry, as announced by the National Association of Regulatory Utility Commissioners48 (NARUC), "consumers should have access to adequate, safe, reliable, and efficient energy services at fair and reasonable prices at the lowest long-term cost to society. Structural changes in the [electric] industry should be encouraged when they result in improved

economic efficiency and serve the broader public interests."

However, in the words of one veteran of gas-versus-electric DSM/IRP,49 "conservation incentives can be distorted to provide promotional funding for improved-efficiency electric appliances that are still inferior to certain gas appliance options, which are not receiving support. Many electric utilities are now comfortable and familiar enough with these policies to try manipulating them."

Accordingly: "The line has to be drawn when the utility's plan for what it calls 'competition' perpetuates the monopoly powers that can be used to thwart true competition."50 Unfortunately, the overall preponderance of evidence does not frequently indicate a regulatory willingness to draw such lines.

The major regulatory challenge to ensure that diverse energy alternatives fairly compete on both the supply and demand side is the impartial development and refereeing of what has so far been an elusive level playing field. Ultimately, however, the natural gas utility industry and its trade associations must also rise