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?
ranks with our sister states [on decoupling]. But that’s the kind of thing we need to be flexible in the regulatory compact.
Pfannenstiel (Calif.): I agree the regulatory compact isn’t in jeopardy. Those principles are as valid now as ever, which is that consumers are entitled to reliable energy at the least cost and utilities can earn a reasonable return on providing that. However, what does change is consumers will have a lot more control with advanced meters, assuming—and this is an enormous assumption—that we can get the rate structures appropriately designed. If we can do that, then consumers will choose when they are going to use power and when not, based on their needs and the cost. That will change how utilities think about resource planning and procurement.
I’m a big believer in decoupling, because disincentives get in the way and put utilities in a difficult position if conservation and efficiency really take hold. The only part of the regulatory compact that might have to be rethought is how that works. Do the utilities’ revenues get eroded from the price signals that we’re going to be passing on to customers? As regulators we’re going to have to think that through.
Ervin (N.C.): The issue isn’t whether the so-called regulatory compact is changed, but rather how it works. As technology changes, as the nature of capital markets changes, as customers’ use of the product changes, you see changes in the way regulators approach things. But at the bottom, all of us recognize that to the extent a utility makes prudent investments, they are entitled to recoup their operating expenses and earn a reasonable return on the capital investment they’ve made.
Fortnightly: Decoupling and negawatt rates seem to be ways to compensate the utility for doing the right thing. That’s partly why some ratepayer advocates oppose them; they don’t like the idea of paying utilities not to sell power. How do you think these structures will be made the most viable for the long term?
Butler (N.J.): I don’t think I’d ever vote for a program that simply paid utilities not to sell electricity. My view of a beneficial decoupling program is to require educational components, not just bill stuffers, but real outreach, and some actual steel-in-the-ground kinds of measures where they were deploying new burner tips and new thermostats and teaching people how to use them. Once that’s accomplished, then maybe these things get transformed in some way so you don’t have the criticism that we’re just paying them to not sell.
Morgan (D.C.): I don’t think customers think about it in those terms. It might come up in initial discussions about whether to adopt such a policy as decoupling, but once it’s in place the proof is in the pudding. Is it working or isn’t it? We’ve had enough experience with decoupling and similar measures to understand that there are some approaches that work better than others. It didn’t work well back in Maine in the 1990s, and they abandoned it. But California has had decoupling for most of the