The industry is struggling to reconcile legacy business models with emerging green priorities. CEOs at Green Mountain Power, Progress Energy, IDACORP, Pepco Holdings, and Reliant Energy explain...
2008 CEO Forum: Conservation Compact
Utilities test new models to encourage investments in efficiency and conservation.
for the mid-term future?
Keen: We’ve established four cornerstones for how we’ll meet customer needs over the next 20 years. The first cornerstone is to preserve the base. Our existing supply curve has a negative slope. We have a concentration of hydropower, which is declining with depletion of river flows and hydro relicensing requirements. Also, river-flow requirements are reducing cooling capacity for thermal facilities. So we try to smooth the decline of the supply curve as much as possible.
Second, we go after cost-effective energy efficiency, and third, we take a hard look at renewables. These parts of the generation profile are somewhat intermittent, and they need to be partnered with other resources that have a more dependable profile. So we see a need for more conventional resources. That’s the fourth cornerstone.
Fortnightly: Have Idaho and Oregon policies provided adequate incentives to prioritize investments in conservation and efficiency?
Keen: In both Oregon and Idaho we have strong regulatory support for our energy-efficiency initiatives. With Idaho’s Marsha Smith serving as president of NARUC and co-chairing the National Action Plan for Energy Efficiency, we believe we have a commission that is positioned to be exceptionally supportive.
Properly managed energy efficiency and conservation efforts are good for both the customer and the shareholder. They reduce the need to finance and build resources, and that drives down capital needs and operating costs. They also improve customer satisfaction, which we witnessed recently with a 30 percent increase in our customers’ positive perception of our energy efficiency efforts.
Fortnightly: What’s your perspective on revenue decoupling?
Keen: Working with our regulators and the Natural Resources Defense Council, we positioned our company as a leader in the decoupling effort. Energy efficiency and conservation are critical parts of the resource mix, so any disincentive to pursue them should be removed.
In Idaho, our pilot decoupling mechanism applies only to residential and small commercial customer classes. We chose these two sectors because their rates have the largest percentage of fixed-cost recovery.
Decoupling is one of three legs on the energy-efficiency regulatory stool. It removes the disincentive to the utility. The second leg is prompt recovery of energy-efficiency expenditures, achieved through a tariff rider on customer bills. The third is providing incentives for successful program implementation, which we are piloting through the Energy Star Homes Northwest program.
All three are in place in Idaho and we have a positive and useful regulatory approach.
When you look at this uncertain world, as we make these big capital investments, going to a carbon-light economy, anything that takes pressure off the capital budget is a big plus for the shareholder. We’ve been out in the capital markets raising both debt and equity, and it takes some pressure off what we have to raise each year to fund other things.
Fortnightly: Some critics of decoupling argue it shifts risks and costs to ratepayers. How does Idaho Power’s mechanism protect ratepayers and make sure they get the best deal?
Keen: I don’t view an investment in energy efficiency any different than an investment in a new power plant.