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Fate of Conservation Mandates

Many states allow private opt-outs, but Florida bucks the trend.

Fortnightly Magazine - March 2016
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For the past several years state legislators have been taking a look at mandates imposed on energy utilities to offer programs that promote conservation, renewable power, and energy efficiency. A number of states have acted to reduce, eliminate or postpone such obligations, including high-profile programs in Ohio and Indiana. Most recently, however, a decision issued by the Florida Public Service Commission suggests movement in the opposite direction.

These developments invite questions about whether conservation and energy efficiency are public or private goods. Should regulators allow customers to opt-out from such programs, on the theory that they know best how to tailor their investments to get the best results? Or should all customers be made to participate in a coordinated fashion, since conservation and efficiency confer benefits on society at large?

Florida: Wal-Mart Rebuffed

Florida regulators, who were not bound by any new legislation aimed at curtailing mandates, voted this past January to reject a request by large commercial customers in the state to switch to an opt-out model for energy efficiency initiatives; i.e. to allow them to come up with their own self-directed programs and at the same time benefit from an exemption from paying for costs associated with established conservation programs offered by utilities. This decision, issued by the Florida Public Service Commission, concluded that the opt-out advocates had not provided convincing evidence to justify altering the state's long-held policy that since all ratepayers benefit from cost-effective demand-side management (DSM) measures, all ratepayers should share in the costs. Re Wal-Mart Stores East, LP et al., Docket No. 140226-EI, Order No. PSC-16-0011-FOF-EI, Jan. 5, 2016 (Fla.P.S.C.).

The Florida case involved a request by Wal-Mart Stores East and its affiliate, Sam's East, Inc., to opt out of participating in conservation and energy efficiency initiatives sponsored by investor-owned utilities. Customers allowed to opt out would no longer be held liable for the costs of the plans, which currently are recouped through Energy Conservation Cost Recovery (ECCR) clauses included in Florida utility tariffs. The existing ECCR mechanism is considered non-bypassable and is applied to every ratepayer. 

Wal-Mart maintained that large customers could implement energy efficiency more effectively on their own. It noted that many other states already had embraced opt-out policies for large customers, including Arkansas, Indiana, Louisiana, Missouri, North Carolina, Oklahoma, South Carolina, Texas, Virginia, and West Virginia. In addition, Wal-Mart said, some states permit so-called "self-direct" programs that allow participating customers to re-direct the dollars they would have otherwise contributed to utility-sponsored programs, so as to fund their own private energy efficiency investments. The self-direct states include several Midwestern states from Ohio to Minnesota and most of the states in the Mountain West and the Northwest.

While the proponents of the opt-out plan said that eligible customers would still

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