We all know that Newton’s laws of motion are not confined to the study of physics, but instead are often applicable to a variety of life experiences and universal truths. This is especially true of Newton’s final axiom—to every action, there is always an equal and opposite reaction—which somehow crops up regardless of subject or circumstance.
Newton’s third law was on my mind while reading about the decision by a Missouri utility to actually cut its energy efficiency investments. For the last couple of weeks, we’ve talked about the benefits experienced by utilities, their shareholders, and their customers as the result of increased investment in energy efficiency projects and programs. In Connecticut, officials expect 30% savings on $60 billion in energy costs with a funding program specifically aimed at helping small business increase energy efficiency (distributedenergy.com/blogs/de-editors-blog/teaching-a-man-to-fish-77696.aspx). Additionally, a recent survey by Comerge revealed that, this year, utilities plan to allocate a significant portion of their budgets to energy efficiency resources.
And finally, we cannot ignore the findings of the American Council for an Energy-Efficient Economy (ACEEE) 2010 report (the results of which were released earlier this year). The report, entitled “Carrots for Utilities: Providing Financial Returns for Utility Investments in Energy Efficiency,” gathered information from 18 states where utilities employ “shareholder incentive policies” to spur increased energy efficiency at the supplier—rather than user—level. After reviewing the report, ACEEE concluded that the ability of utilities to earn a profit from energy efficiency programs results in a greater likelihood that those programs will be continued and expanded. According to the report, “when states have set energy savings goals for utilities under a shareholder incentive structure, the utilities have thus far consistently met or exceeded them.” With a conclusion that “states are rewarding utility programs that are cost effectively producing energy savings”, the ACEEE concludes that “there is widespread agreement among industry experts that shareholder incentives are making efficiency programs a more attractive investment opportunity for utility decision makers.” (www.distributedenergy.com/blogs/de-editors-blog/carrot-or-stick-76703.aspx)
With so much evidence supporting the notion that energy efficiency can reduce energy expenses and spur even greater reductions in energy demand, why would Ameren Missouri decide that cutting energy efficiency investments by $5 million (down from $25 million this year) would actually bolster its bottom line?
According to the company, this decision is based primarily on the shareholder compensation—specifically because shareholders bear the brunt of energy efficiency investments well before the company can ever recover the costs. According to Ameren Missouri’s vice president of regulatory affairs, Steve Kidwell, the culprit is Missouri’s Energy Efficiency Investment Act, which—while allowing for compensation of shareholders by investor-owned utilities—does not allow the utility to quickly recover investment costs.
In a statement, Kidwell explains, “We are still committed to energy efficiency. We want to support energy efficiency; we think it’s a great resource. We just have to figure out a way to do it that’s good for shareholders and good for customers.”
This is all backed up by an energy efficiency plan published by the utility last year, which determined that in order to reduce energy consumption by 7.3 over the next two decades, the utility would have to invest an additional $100 million a year. And because increased energy efficiency results in decreased use by customers, the utility would be facing additional investments in the face of reduced revenues.
“If we went after the potential that we’ve seen in our own study, we wouldn’t have to build another power plant for 20 years, and we could retire [58-year-old coal plant] Meramec, and we’d be OK,” says Kidwell. But, he adds, “We’d lose $30 million a year. And we just can’t do that. It’s that simple.”
In response, Rebecca Stanfield, a senior energy advocate for the Natural Resources Defense Council, says in a statement, “This is hugely disappointing. Their own numbers show that an aggressive energy efficiency plan will keep electricity bills lower than any other plan. The company is looking out solely for its shareholders’ profits.”
So what do you think? We all know that for power utilities, distributed energy and onsite power often conspire to create a similar scenario—reduce energy demand and smaller energy bills—but in many cases, doesn’t DG also fill in gaps in service or helps utilities meet local, state, or federal regulations? Could a premium be attached to some services—like greater reliability or power quality—that could offset the overall reduction in energy usage? And because most consumers are not well versed in all areas of energy efficiency and onsite power systems, couldn’t utilities—who already have access to a wide variety of resources and manpower—provide customer support and consultation to large-scale power users also for an additional charge? Or is the final solution to attach punitive fees to energy efficiency benchmarks and regulations?