FERC’s new rule on compensation for demand resources tips the market balance toward negawatts. Arguably the commission’s economic analysis is flawed, and the rule represents a covert policy...
2008 Regulators Forum: Putting Efficiency First
New rate structures prioritize conservation, but will customers buy it?
for the residential and small-commercial classes.
This frees the utility to be more aggressive in their conservation and efficiency programs, and if per-customer usage does happen to decline they won’t be short on the revenue side. That was our attempt to remove a disincentive that we thought existed for the company being enthusiastically engaged in these activities.
Smitherman (Texas): We have a mechanism for allowing TDUs to recover their costs for energy efficiency programs, so they’re not at risk of not being made whole. Our program has exceeded the goals every year in terms of the amount of increased demand we’re going to [avoid] through energy efficiency. That success provided a good foundation for the legislature to be comfortable with increasing the [goals]. We’re also happy that the numbers seemed to indicate for every dollar we spend on energy efficiency we’re saving about $2 in terms of what that power would otherwise cost. In 2007 we spent about $72 million, and we estimate we’re going to save about $155 million over the life of these energy efficiency measures.
Fortnightly: Things like advanced metering, TOU rates and decoupling have the potential to change utilities’ business models. How do you see the regulatory compact changing, if at all, as a result of these changes in the market?
Smith (Idaho): I don’t see this as a change in what regulators always have done. We’ve always encouraged our utilities to be as efficient as possible and we’ve always overseen their decisions to make sure they were prudent. We have for a long time encouraged incorporating new technology where it makes economic sense and there’s a business case. We’ve had TOU pricing for many years, especially for our larger customers, and they’ve enjoyed that as well as it bringing down overall costs for utilities.
Morgan (D.C.): The principles that regulators have followed for the better part of a century are still good principles to follow and provide appropriate guidance. I don’t see a problem with the regulatory compact.
The real challenge is how we create incentives for utilities to move forward and make investments in these technologies that are in the public interest. There’s a strong interest among both utilities and regulators in seeing this happen. There isn’t a clear-cut path to get from here to there. We have a lot of hard work to do.
Butler (N.J.): I think the compact has always been flexible. Again it needs to be flexible in a real way.
We’re all in this together—ratepayers, regulators, generators and utilities. We just need to make sure everybody gets what they need out of the system, and that’s the underlying basis of the regulatory compact. If that means we’re going to have T&D companies doing what they haven’t thought of doing before, which is to incent conservation, then we need to come up with a system that allows them not to be goring their own ox in doing it.
I don’t subscribe blindly to the idea of decoupling. Fortnightly published an article about a year ago in which we broke