CEP supports incentives for utilities to pursue all cost-effective electricity savings and avoid unnecessary expenditures on generation and grid additions.
Kansans, like all Americans, face skyrocketing fuel and commodity prices, reliability concerns, and an antiquated grid in need of extensive updates. In the face of all this – and amidst a worsening financial crisis and concerns about pollution in general and climate change in particular – it is time not only to remove perverse incentives but to actively encourage our utilities to sell less rather than ever more energy.
We encourage the KCC to align shareholder and customer interests in reducing use and bills. The NARUC National Energy Efficiency Action Plan states the goal well: “modify policies to align utility incentives with the delivery of cost-effective energy efficiency,” by “addressing the typical utility throughput incentive and removing other regulatory and management disincentives to energy efficiency.”
Our state’s regulated utilities have the power to influence the pace of energy efficiency improvements both directly and indirectly. If our investor-owned utilities embrace energy efficiency as a business model – which they will do only as their shareholders receive a dependable return – they can not only deliver proven programs but also shape state and federal standards and tax credits as well as their customers’ attitudes toward personal efficiency investments and conservation.
With proper incentives, our largest utilities can lower bills for most Kansans, spurring local economic development and preserving our environment and our future options in the process.
Some have said that decoupling is unnecessary since Kansas utilities will not be able to reduce demand-side use enough to reduce profits for shareholders. This is simply contrary to fact. We know – we have empirical proof from other states – that utilities large and small can and have reduced use by 1% annually with focused effort and appropriate investment. Settling for anything less in the face of America’s challenges today is unacceptable.
CEP supports aggressive target savings of at least 1% annually and advocates thoroughgoing measurement, evaluation, and verification of energy savings. We would welcome the use of regular true-ups to ensure that fixed costs recovered in kilowatt-hour charges are not held hostage to sales volumes – protecting shareholders and customers in the process. Utilities might also be encouraged to support state-wide minimum energy efficient building codes, which would assist our collective cause considerably.
BENEFITS
Energy efficiency helps protect citizens (and ratepayers) on a number of levels.
• Hedges against volatile, generally rising fuel prices.
• Avoids the skyrocketing costs of constructing new generation and as it does, reduces utilities’ liability under future carbon regulation.
• Creates no new pollution – particulate, mercury, or carbon dioxide – so preserves the health of the public and the environment, avoiding deferred healthcare and adaptation costs.
• Lowers utility bills by 2-9% over a ten year period, according to the EPA.
• Creates local jobs that cannot be exported - installing HVAC systems, windows, insulation, selling appliances and services.
These benefits provide substantial direct and indirect economic impacts. Economic energy efficiency programs are crucial to a clean, affordable, safe, and reliable electricity supply for Kansas.
Energy efficiency saves money while maintaining comfort and convenience, and thereby contributes to our standard of living. As important, energy efficiency protects the quality of our air, water, and health, so helps to improve our quality of life.
QUESTIONS RAISED
As the Kansas Corporation Commission (KCC) considers how best to encourage utilities to pursue energy efficiency, several questions have repeatedly been raised.
What about decoupling?
Whether or not the Commission pursues full decoupling, the current rate structure clearly must change. Today we reward utilities with a return on investment only for new generation. That is, shareholders receive benefits only for selling more electricity, creating new pollution, and raising customers’ rates. That approach is outdated and even risky in today’s economic and environmental climates. CEP supports a combination of incentives and penalties to reward successful – and cost-effective – programs.
What about energy efficiency improvements – like building codes and appliance standards – that take place outside of utilities’ energy efficiency programs?
Some have argued that the biggest efficiency gains will come well outside of utility-administered efficiency programs. With respect, that argument is irrelevant to the Commission’s consideration. Whatever happens outside utility programs, utility programs should be aggressively pursued. They are making real, measurable contributions across the country today. They will lower bills, forestall new generation and, crucially, build awareness and acceptance for other programs – like federal appliance standards and minimum state building codes like ASHRAE’s newest – as they succeed.
Who should provide the energy efficiency programs? Are the utilities the best choice?
Some – including CEP – have argued that a third-party nonprofit provider might more efficiently, effectively, and equitably provide energy efficiency to our state’s diverse ratepayers. That may be true. However, such a body does not currently exist, would have to be supported by a systems benefit charge – which the Kansas legislature has shown no inclination to enact – and would then have to work to create programs and build customer trust. So, even if approved today, a third-party program would take years to ramp up.
In contrast, Kansas utilities are poised provide energy efficiency today. With certainty around cost recovery and a moderate return on investment, utilities can pursue efficiency as, in essence, a “new” form of generation – as a resource and a business model.
Utilities know their customers and their habits quite intimately. They communicate with customers regularly. They have the infrastructure, expertise, and capital to get the job done swiftly.
With KCC oversight and clearly structured expectations – plus rigorous measurement and verification by KCC and CURB staff – we can create a win/win/win in Kansas. Utilities, shareholders, and customers can and should benefit, keeping risk low, profits healthy, customer bills low, and our options for a prosperous, resilient future open.
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