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A Consumer Advocate's View: Decoupling and Energy Efficiency

Two sides of the same coin.

Fortnightly Magazine - June 2006

program might entail—for purchasing energy-efficient appliances, and customers will respond.

For consumer advocates to guarantee a distribution company’s revenue requirements, a robust energy-efficiency program using programs with benefits that exceed their costs (the total resource cost [TRC] test) must be in place. This is the quid pro quo. Programs that provide weatherization, especially those that target low-income sectors of the residential population and that provide rebates to customers who purchase Energy Star products, might be especially beneficial. The goal is to present customers with an array of cost-effective programs that provide as many customers as possible with the opportunity to participate.

These programs should be selected with input from consumer groups, and should be monitored and evaluated effectively to ensure they provide the anticipated benefits. This will allow decision makers to increase funding for successful programs and pull back or modify disappointing ones.

Minimum Target

In structuring the decoupling mechanism, consumer protections must be built in so as to mitigate or control potential distribution rate increases that result from decreased consumption or sales. For example, a cap on the level of annual increases could be imposed with or without the option to carry over any uncollected revenue shortfall the following year. Washington and Idaho have caps on the whole bill set at 2 percent and 3 percent, respectively, but the cap could be designed for just the distribution portion of the bill as well. In that case, the cap probably would be higher because only 20 to 30 percent of the bill is affected by the increase. Another option is a price elasticity of demand adjustment to account for the fact that not all reductions in demand are the result of energy-efficiency programs. Other factors such as price-induced voluntary conservation can produce revenue adjustments. An elasticity adjustment could discount a utility’s recovery of lost revenues by 10 to 30 percent.

Energy efficiency simply makes sense. The ACEEE study estimates that participating Midwest customers could save $2.2 billion on gas and electric bills over the next five years if aggressive energy efficiency programs are put into effect. All customers would save an additional $760 million through reduced prices. These programs collectively could create more than 5,000 new jobs, adding $100 million in compensation by 2011. 12

Policymakers need to address short- and long-term solutions for ensuring affordable and reliable supplies of natural gas. The solutions are multifaceted. Energy efficiency is not the exclusive answer, but it is an important part of the solution. To discount it would be a mistake.

 

Endnotes:

1. See U.S. EIA monthly residential gas prices, http://tonto.eia.doe.gov/dnav/ng/ng_pri_sum_a_EPG0_PRS_DMcf_m.htm.

 

2. From “Energy Efficiency: Ohio’s Best Defense Against High Natural Gas Prices,” Midwest Energy Efficiency Alliance (MEEA), 2006. Original low-income data from Fisher, Sheehan, and Colton, “On the Brink: 2005, The Home Energy Affordability Gap,” Belmont, Mass. Affordability is at the 185 percent of poverty definition. See http://www.fsconline.com/work/heag/05/ states/ohio.pdf .

3. City Gate prices in Ohio ranged from $3/Mcf to $5/Mcf in the 1990s, see U.S. EIA, http://tonto.eia.doe.gov/dnav/ng/hist/ n3050oh3a.htm .

4. For example, EIA’s Annual Energy Outlook 2006 (with projections