Calif. gives utilities new financial incentives to push energy efficiency

September 16th, 2013 | Posted in Blog, Government, Uncategorized | No Comments »

Utilities in California will be able to earn money when they persuade residents and businesses to add building upgrades that cut energy use, state regulators ruled yesterday.

Logo-California-Public-Utilities-CommissionThe California Public Utilities Commission unanimously approved up to $178 million for new incentives to promote energy efficiency in 2013-2014. The state’s investor-owned utilities (IOUs) will win the funds by meeting or exceeding goals in categories that include energy savings achieved, work on methods to verify reduced power use and effective advocacy for the development of new standards in California and at the federal level.”This is the first time that any state has attempted to financially incent each of these key aspects explicitly,” said CPUC Commissioner Mark Ferron. “The Efficiency Savings and Performance Incentive Mechanism will align the interests of utility shareholders and management with our energy efficiency policy goals and will provide the kind of predictability and durability in earnings that will reinforce and enhance the attractiveness of investing in California’s top energy resource.

“This enhanced investment environment will directly benefit customers in terms of lower bills and, ultimately, benefit our citizens in terms of lower greenhouse gas emissions,” he added.

Power companies in California already are supposed to make efficiency efforts their top priority, putting it above building new power plants as a way to net out energy demand and supplies. But the state has policies that conflict with that directive, said Devra Wang, director of the California Energy Program for the Natural Resources Defense Council.

In California, utilities do not make any money from the energy they provide, instead earning a return on investment for infrastructure like new power plants. That creates an enticement for utilities to pursue those projects, Wang said.

“The PUC was sending contradictory signals,” Wang said. “It was saying, ‘Do energy efficiency first, but we will pay you if you build a power plant.'” The enhanced incentive program correct this problem, she said.

“If efficiency is going to be California’s top priority, we really need to put our money where our mouth is,” Wang added.

Consumer groups oppose

Incentives for promoting energy efficiency have existed for several years but had lapsed. Before yesterday, there was nothing on the books for this year or beyond. Moreover, Wang said, the earlier structure gave money for fixes that were inexpensive and more short-term, she said, like swapping out light bulbs.

The revised program offers the most rewards for efforts that create long-lasting energy savings, like adding insulation to a home or installing dual-pane windows, Wang explained. “It’s going to maximize energy savings that reduce greenhouse gas pollution. We need to really scale up energy savings efforts in order to meet California’s carbon reduction goals.”

The Golden State by 2020 wants to shrink greenhouse gas pollution to 1990 levels and by 2050 wants to push it to 80 percent below the 1990 point.

Consumer groups have opposed the energy efficiency incentive programs, however.

CPUC’s consumer arm, the Division of Ratepayer Advocates (DRA), argued that despite years of incentive mechanisms, utilities “still engage in over-procurement of supply-side resources while underachieving [energy efficiency] savings and challenging independent evaluations of those savings.”

“DRA claims the IOUs have not incorporated [energy efficiency] into their long-term procurement plans to the full extent of adopted goals,” CPUC said in a ruling background document. “DRA claims that ratepayers have been forced to fund under-performing [energy efficiency] investments and to pay out incentives, while funding higher supply-side costs.”

The new energy efficiency incentives are about half as much as the return on investment a utility would get for building a power plant, Wang said. NRDC argues that the energy efficiency promotion monies should be higher. She noted, however, that some feel the amounts are fair, as there’s more risk in building a power plant after factoring in the need to get funding and go through environmental clearance hurdles.

Pacific Gas and Electric Co. (PG&E) also analyzed energy efficiency incentives versus power plant payback. It found that “the return on investment on energy efficiency is indeed lower than if we invested in power plants, but that it’s still sufficiently high enough that our leadership prioritizes and focuses on energy efficiency,” said utility spokeswoman Katie Key.

Utilities pushing ‘holistic’ programs

Utilities said they supported CPUC’s decision.

“It is important for the state and our customers for the utilities to have a sustainable business model,” said Ted Reguly, director of customer programs and projects at San Diego Gas & Electric Co. “We are pleased to see these new improvements upon the earnings mechanism to reward the utilities for high performance on energy efficiency. We have been working with our customers to promote the programs available to them and to help them realize the benefits of energy efficiency.

“An increased focus on comprehensive solutions will be beneficial on many levels,” he added.

PG&E already is transitioning to advocating for more holistic energy efficiency upgrades, Key said. The utility’s “Whole House” program gives customers rebates that grow when they combine moves like attic insulation and air sealing, duct replacement and furnace replacement.

“We’re encouraging customers to look at their building envelope as a whole,” Key said. That offers more savings, she said, than the “widget-based” approach.

The incentive program will help shift utilities away from what is now a dated business model, where they were focused on building power plants and growing power supplies, Wang said.

“We see this as a really critical part of changing the structure utilities are in,” Wang said. “We want utilities to be helping customers with energy efficiency, distributed generation, demand response.” There need to be, she said, “incentives for the direction we want them to be moving in.”

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