Changes in regulatory requirements, market structures, and operational technologies have introduced complexities that traditional ratemaking approaches can’t address. Poorly designed rates lead to...
A Business Case: Energy Efficiency in the New Environment
Investments in energy efficiency can be a growing revenue source. Strong programs, in conjunction with effective monitoring and verification, are the keys to success.
of the problem (California surpassed a system peak of 50,000 MW this summer—an all-time high that raised concerns about system reliability—and New York experienced brownouts in Queens due to capacity constraints).
It is inevitable that new construction programs to add generation capacity will be part of the next decade. Because of the energy price/cost and environmental concerns, any entity facing capacity constraints and wishing to pursue, postpone, or avoid an aggressive construction program would do well to engage fully and seriously in energy efficiency initiatives as a first matter of course.
Good will and the hope of regulatory favor toward construction plans at the state or federal level are not the only reasons to pursue aggressive energy efficiency strategies today. In New England, a forward capacity market (FCM) mechanism recently was approved by the Federal Energy Regulatory Commission (in March of 2006). Mechanisms already are being set up to establish a level playing field for all types of resources that can help meet the need for increased demand in the near future. As noted by the Northeast Energy Efficiency Partnership (NEEP) in its October 2006 electronic newsletter: 4
“A major provision of the FCM settlement is that Demand Resources—including energy efficiency, distributed generation, real-time demand response, and load management—can qualify as capacity along with supply-side resources.”
The rules for what entities can participate in the FCM, and how demand resources will be documented and verified, are just now being established, with the interim market to start in January 2007 and last through 2009. Utilities would do well do stay abreast of how these rules develop for counting energy efficiency as part of the mix of resources being sought.
Rising Energy Costs
Consumers and industry alike are resigned to the continuation of increasing energy costs and are beginning to think more seriously about energy efficiency as a way to combat the higher costs. Natural-gas prices experienced high volatility these last two heating seasons, with price increases of more than 50 percent in some states, and even though recent predictions point toward some relief (in weather and prices) in some regions this winter, the trend is increasing. Energy prices for natural gas and electricity shot up in other states because of the removal of price caps that postponed the effects of deregulation ( e.g., Maryland and the District of Columbia). An ongoing and potentially long-term conflict in the Middle East, and more short-term disruptions (like pipeline corrosion in the Alaskan Slope this fall), are both issues that promise to keep fuel prices on an upward trend, adding further negative press to consumer perceptions of energy costs. Smart utilities will offer services that help customers identify the latest technologies and techniques for controlling their energy costs. That leads to the final factor.
Corporate Sustainability Programs
The entities that are now jockeying for position along the starting gate for the emerging CO 2 market include not only electric utilities and independent power producers, but also those on the other side of the meter—major industrial facilities and large, multi-facility, end-use customers. A growing number of Fortune 500