With billions of dollars in stimulus money going towards clean energy and efficiency projects, what can the United States do in future legislation and regulatory efforts to reduce energy consumption? During today's E&ETV Event Coverage of the Alliance to Save Energy's Great Energy Efficiency Day, Energy Secretary Steven Chu, discusses the need for greater efficiency in all sectors. Following the Secretary's remarks, a panel of experts discusses incentives to drive efficiency in the utility sector. Panelists include, Arshad Mansoor, of the Electric Power Research Institute, Ralph Cavanagh, of the Natural Resources Defense Council, Angela Beehler, of the Energy Regulation section of Wal-Mart Stores, Inc., Francis Murray, of the New York State Research and Development Authority, and David Springe, of the National Association of State Utility Consumer Advocates. The panel is moderated by E&ETV managing editor Monica Trauzzi.
Kateri Callahan: Dr. Chu is a distinguished scientist. I think most of you probably know he’s a winner of the Nobel Prize for physics. He was appointed by President Obama. He’s only the 12th Secretary of Energy that we’ve ever had.
And he comes to us from the Department of Energy’s Lawrence Berkeley National Lab, which is where I’ve had the pleasure of meeting him.
There he aggressively promoted research on advanced biofuels, solar power, and very important to the message here today, energy efficiency. He’s a strong advocate of funding research and development in energy.
And I think his track record of success that he brings to his new assignment bodes for it well for this country’s energy portfolio. Please join me in a warm, warm welcome for the new Secretary of Energy Dr. Chu.
Steven Chu: Well, thank you President Callahan for that very generous introduction and I have to say that I’m speaking here today with great pleasure because in solving the energy problem the United States faces, I believe wholeheartedly that energy efficiency is the lowest hanging fruit.
And for the next several decades it will be energy efficiency that will make the most inroads in reducing our carbon footprint and transitioning to sustainable energy.
For those of you who don’t know, I was just briefed on the founding of this Alliance to Save Energy. It was founded in 1977 by Senators Percy and Humphrey and it was founded on the heels of the energy crisis created by the Arab oil embargo.
But as the prices of oil went down, a lot of key policymakers were a little bit afraid that we would lapse back to our old habits. And they founded this alliance to say no, we have to stay the course.
They enlisted Gregory Peck as the alliance spokes person and in an advertising campaign which had the slogan “Let’s Not Blow it America.” That was in 1977.
You guys can decide for yourselves whether we blew it, but we have a second chance. And there’s something else that’s different. At that time it was an oil embargo, it was control of oil that led to the energy crisis in America and all over the world.
Times are very different. There are new supply and demand pressures that, over the long term, one can’t really predict what the energy prices are going to be this year or next year. I can tell you, those who can predict will be far richer than I am.
But decades in the future I think one can safely bet that the energy prices will go up. But most importantly, there is a new 800-pound gorilla in the room and that is the carbon emissions that are associated with the production of energy.
So we must decrease that carbon footprint because of the potential threats, very serious potential threats in a world that our children and grandchildren will inherit.
So, I think what we really want to do in terms of energy efficiency is to first get in the minds of the American public that energy efficiency doesn’t necessarily mean you have to sleep in a down sleeping bag at night.
I actually gave a talk at Berkeley on energy, the energy problem, climate change issues, and how serious the problem was. And one of the people in the audience, in the Q&A session afterwards, said he advocated that we all sleep in sleeping bags and we should turn the heat in our homes off.
And someone else in the audience asked are you married? So it doesn’t mean turning the heat off in our homes. It doesn’t mean turning the air conditioning off. It means using it much more wisely.
And we want the idea of the American consumer, when they go into a store and look at products, that Energy Star immediately means you’re going to save money on the lifecycle cost of the product you’re about to buy.
I’ve been now talking with EPA, the Energy Star program which was started by EPA many years ago, joined by the Department of Energy.
There should be an energy superstar category, maybe the upper five or 10 percent, where companies will get the bragging rights that this product is so outstandingly good in terms of energy conservation and will save even more money.
Yes, there’s more upfront capital cost, but it should save even more money, to actually draw industry into wanting to have those bragging rights.
Now, one of my favorite examples of how energy efficiency has really saved America energy, money, and decreased its carbon footprint is what happened starting in the middle of the 1970s in California, where California began to institute refrigerator standards.
In fact, I know very well the person behind this, Art Rosenfeld, who’s a personal hero of mine. In 1974 he decided, in this energy crisis, to leave high-energy physics. He was a very distinguished high-energy physicist at UC Berkeley and Berkeley Lab.
He was Enrico Fermi’s last student and he thought that the problem was so important he left high-energy physics and went in to energy.
After looking around for a brief while, he decided energy efficiency was the place where we could have the most impact. Then he went into an appliance store and looked at refrigerators and he noticed a wide variety of refrigerators.
But of a certain size refrigerator, the variation in energy use of the refrigerators varied by a factor of two or three even though the price was approximately the same for given features.
So you don’t have to be a rocket scientist or a refrigerator expert to decide energy efficiency was not a price driver for refrigerators. It depended on how seriously the engineer wanted to do it.
In fact, he found that the most striking correlation to the cost of a refrigerator was the size of the compressor. And so with improved insulation you could use a smaller compressor.
And so what was instituted was a series of refrigerator standards, starting in California, eventually reaching the United States.
It drove energy efficiency in refrigerators down by 75 percent, one quarter of the energy use, even though the size of the refrigerators went from an average of 18 cubic feet in 1975 to approximately 22 cubic feet in today’s refrigerators. So, even though the refrigerators increased in size, the energy went down by a factor of four.
Now, when this was started the manufacturers said, “No, you can’t do this. The American homeowner can’t afford energy-efficient refrigerators. This is disaster is. There will be a consumer revolt!”
Inflation adjusted prices of refrigerators went down by a factor of two. So it’s very important to realize that many of the things, I think there’s a natural resistance of companies, but in the end it was good for everybody. It was especially good for the consumer. Now, how much energy was saved in refrigerators?
It turned out the amount of energy, if we were using the 1975 average refrigerator efficiency versus today, the amount of energy we are now saving from refrigerators alone, commercial and residential refrigerators is more than all of U.S. renewable energy that we produce today, excluding hydro.
That’s all the wind and solar that we now produce is less than what we save in refrigerators alone. Okay? It’s staggering. We now have energy efficiencies of roughly 40 and 60 percent for gas burners and air conditioners and those can be further improved.
So to put another thing in perspective, think about what we use in terms of energy in buildings.
Buildings are roughly 40 percent of the energy consumption in the United States, slightly less from 40 percent, roughly speaking half of it in commercial buildings and half of it in residential buildings.
The amount of savings we can have in commercial buildings, especially where you can really do a systems engineering approach, we feel is also staggering.
Perhaps as much as 80 percent reduction in buildings if it’s designed correctly with the most modern methods and built with modern materials. But we’re not doing this. So this is not really low hanging fruit.
I think this is really fruit lying on the ground. So as part of the recovery package, President Obama has been very wise in saying that you can have a triple win situation.
You can create jobs by inducing America to make those investments in energy-efficiency.
You can create the jobs, you can save the American homeowners and businesses money by not having all the hard earned dollars go up the chimney so to speak, and you can cut CO2 emissions.
And so, as was mentioned in the introduction, over $20 billion will be invested in energy efficiency over the map, but we’re going to be investing $5 billion to help low and middle income families weatherize up to a million homes.
It’s very important that we do this right, that it’s not only spending the money to create jobs, but that 5 billion and really the $20 billion is invested in the smartest way possible.
That means we have to train energy auditors to actually determine how to best invest the money. If you willy-nilly put on insulation in places, but you have a huge energy leak in your windows or doors, you have to seal the drafts.
You have to put insulation in the wisest way possible. And we actually would like to have qualified, certified energy auditors before you do the work and then after you do the work to see how it really improved.
That’s very important, because we do not want to give energy conservation a bad name. The overall impact I think would be huge in reducing the energy bills of American homeowners.
The federal government will do its part and our goal is to reduce the energy consumption in our federal buildings some 25 percent. We will be getting $6.3 billion in direct aid to state and local governments to launch energy efficiency programs.
Again, it’s very important. I had to sell my house in California. It was tragic from two accounts. It was a beautiful home. Virtually every room in the house had a full view of San Francisco, the Golden Gate Bridge, or the Bay Bridge.
It was on a hill. It was also very nice because we didn’t have to turn on the heat until well past Thanksgiving. It was very well insulated.
The passive solar heating came in, the day the house kept warm. It had an air conditioner. We never had to turn on the air conditioning.
If you do heat management correctly, because it’s a three-story house, you get a big huge chimney effect with a modest added fan, even in the California heat wave where people were dying we never turned on the air conditioning.
I’m very frightened of buying a home in the Washington area with the heating and air-conditioning bills. And one of the first things I will do is I will get some qualified energy auditor in the house and see what we can do to make it as energy-efficient as possible.
In other recovery packages we will be investing in electricity transmission and distribution and in a Smart Grid. Looking forward in terms of renewable energy, the renewable energy is variable.
Sometimes the wind doesn’t blow, the sun doesn’t shine. In order to take full advantage of renewable energy, right now renewable energy, again excluding hydro, is only about 2.8 percent of the energy production in the United States.
When you have solar panels on your roof, yes, you can sell it back, but it’s about less than 1 percent or about 1 percent. At 1 percent level doesn’t really matter, but imagine a decade or two from now where it could be 25 percent or even more.
Then it really matters. We don’t have a grid that can manage two-way flows and we don’t have a grid that can actually port the energy to where it’s needed when a cloud goes over a set of solar panels or when the wind falters a bit.
So we need to develop those technologies and the Department of Energy will be a key player in helping convene companies to develop standards for Smart Grid distribution systems and also in developing technologies that can port electricity over long distances.
The electricity transmission and distribution system has become a national priority. Before, in the last century, we generated energy locally. We used it locally.
But because our renewable resources are in very distant parts of the country, for example in the North Midwestern states, in the Dakotas, where there’s incredible wind resources, and in the whole southwest of the United States with incredible solar resources, you want to be able to port that energy over to population centers.
And, again, we do not have the system to do that. We are going to be taking a much more aggressive role in appliance standards. Appliance standards, the Department of Energy has not had a completely distinguished record in getting out appliance standards.
And we are, in fact, beginning to look at the appliance standards that we were about to issue. I’m going to be looking at those because I’ve become more convinced that they’re not as aggressive as they could be, so we will look at making them more aggressive.
But, again, appliance standards, building standards, very, very important, but their push is from the bottom. I also want to start to like in an energy superstar program or homes that actually exceed the standards, that we have to get it in the minds of the American public that these homes and these appliances are all saving money.
I was quoted and I’ll say it again that sometimes when you buy a home you have this terrible choice that’s presented. It’s a false choice. The choice is would you rather have a granite kitchen top or an energy-efficient home?
It’s a completely false choice. You can have both. The McKinsey report said that the price of building materials of $1000, and mostly labor and materials, can pay for itself in about a year and a half for the average American home.
And so if you’re going to plan on living in your home for more than a year and a half, the rest of it is pure money. And so this is how important to get that message out is in all of America. So, we’re going to be working on building codes.
We’re going to be working on appliance standards. We are going to be working on data centers. Everywhere we can, I reiterate that this is really the lowest hanging fruit. So, I need your help in…I can’t use the word lobbying. You’re not supposed to lobby. Is that right?
Audience Comment: Educate.
Steven Chu: Educate the consumers. Educate the policymakers in how important this is. Again, referring to this McKinsey report and how much it would cost to mitigate carbon, there’s a graph of carbon mitigation on the X axis, on the Y axis is cost.
And it turns out roughly 40 percent of the mitigation things are negative costs. That is to say you’re really making money and this is not appreciated.
Certainly, there are structures, landlord/tenant structures that prevent that. But in many cases it’s simply a lack of appreciation, a lack of education. And to really get it embedded in people’s minds how this is, as I said before a win-win-win situation.
You’re decreasing the carbon footprint. You’re making a safer world for your children and grandchildren. You’re saving money on a daily basis and you’re decreasing our country’s dependence on importing energy from abroad. It’s hugely important.
Energy savings and conservation is the key, the lowest hanging fruit. So keep up the good work. You can even probably get your teenagers in on this so that you can get them to turn off their computers and their lights. It’s their moral responsibility.
You can maybe turn it into a contest. This is now working in dorms all over the country and in schools where you take as a baseline certain energy use in a dormitory and they compete with each other in how much they can decrease their energy use.
You want to do this with your neighborhoods. You can compete with each other on how much greener you can be. I think the kids will buy into this in a big way. But anyway, thank you, it’s been a pleasure to be here and I wish you all the best of luck.
Monica Trauzzi: As Kateri mentioned, this is a very provocative issue. Utilities, consumer advocates, and state regulators face a really big challenge here and that’s how do we incentivize an industry that makes money off of selling energy to be more energy efficient?
And who should bear the costs of implementing these energy efficiency measures? Should it be the consumer? Should it be the utility?
Just recently in the stimulus debate we saw the politics of this issue heat up again with a provision on decoupling. And the state regulators came out in strong opposition. The final bill included slightly pared back language.
I know some of our panelists are going to want to discuss that. But what is the best path forward and is there a one-size-fits-all approach for the nation?
So today’s panel will explore the incentives that could be used to drive energy efficiency in the utility sector. We’ll also try to answer the overarching question of whether one approach will win out eventually.
And the Alliance to Save Energy has assembled an excellent panel of guests for us today. Each panelist is going to have about 10 minutes to talk and I ask that they all keep their discussions to 10 minutes so we can get into a discussion afterwards and also take your questions.
So with that, I’m going to introduce our first speaker. Arshad Mansoor is vice president of the Power Delivery and Utilization Sector at the Electric Power Research Institute, or EPRI.
He leads the research development, demonstration, and application of transmission and distribution and energy utilization technologies, Arshad?
Arshad Mansoor: Thank you. Good morning. You can hear from my voice when you are in smart grid and energy efficiency and plug-in hybrid area you can blame the voice, it goes.
I want to thank the alliance for inviting me again this year and I really appreciate the opportunity really to inform you of what I think is an untapped resource. There’s an energy efficiency resource out there.
I don’t think many of us know about what that resource is and how to get to that and what is the extent of the resource. So, what I’m going to talk about is really how to make the electricity sector.
When I heard the first two speakers Secretary Chu and Senator Pryor talk about the grid I almost thought they were looking at me. So, how to make the grade more efficient and how much efficiency resource we have on the electricity sector.
Just a brief introduction on EPRI, we are an independent, nonprofit center for research on energy and environment. We have more than 450 engineers and scientists working across the electricity specter.
When you look at grid generation, transmission, distribution, and use, all those four things makes what we call the grid. I’m going to start with a Jeopardy question. I’m not looking for an answer, but if you want to raise your hand, go ahead.
Which industry is the single largest user of electricity? So I’ve got aluminum, steel, data centers, automotive, if they still last and support industries, and none of the above. Anybody?
Housing, well industry, yeah, you’re right, housing is 40 percent. But if you just look at the industry the answer is when you have a trick question like this the answer is none of the above. The single largest user of electricity is the electricity sector itself.
It takes electricity to make electricity. It takes electricity to transmit electricity. It takes electricity to distribute electricity. And in that chain of generation, transmission and distribution, we are using a lot of electricity. How much are we using?
How much electricity is used? Just rough order of magnitude, because every power plant is different, every transmission line is different. It takes 6 percent of electricity to make electricity in power plants.
It takes around 3 percent on transmission and around 5 percent on distribution. You take that, aggregate it, comes around if you do the math, around 300 terawatt hours. Now what does that mean, terawatt hours?
It sounds like a big word. It’s approximately 20 percent more electricity than we use in the state of California. So think about the electricity that is used in the state of California, move up 20 percent.
That’s the amount of electricity we need to generate electricity, trance and electricity, and distributes electricity. And what I really want to point your attention to when I talk about EPRI is working with the industry to develop a framework on how do we achieve energy efficiency.
What does a framework mean? A framework means what are some of the things that we can do on the transmission and distribution side?
How much does it take to do those technological things that will actually save energy? How does that compare with buildings energy savings? How does that compare with lighting and other end-user areas?
So that’s what a framework is, so we can go after this energy efficiency resource that is also low hanging fruit. One of the advantages here, if you look at residential, there are more than 100 million houses.
You go to change a light bulb at each house one at a time. You’re looking at 500 or 600 facilities that manage 90 percent of the transmission and distribution facilities in the US.
So you can target those energy efficiency measures and you can actually achieve them. And some of the work that we are doing right now on the distribution side, distribution are those poles and wires that you see outside your house.
On the distribution side, when you talk about the grid, these are the names of the grid. We are working with the utilities to look at what can be done on the distribution side to improve efficiency?
How much does it cost and what is the extent of savings that you can get from electricity that is the size of the electricity that we need in California? That’s what we’re doing today.
On the transmission side, if you look at the next frontier, the transmission, these are the big towers that you see and we are about to start an industry initiative on the transmission side.
Commissioner Wellinghoff is leading a team of leaders across the grid. There are grid operators here, there are transmission operators here, and we’re going to start with a series of workshops in May and June.
Focusing, once again, on what can you do on the transmission side, how much does it cost, and most importantly, can we go ahead and do it? So that’s what a framework creation means.
Bring the people who are managing and running the grid. Work with them to figure out what it takes and how do you get to it and then come up with policy based on sound science.
And one of the technology I had to put in that smart grid, you’ve got to use that word every time. Yes, we do have a brain, but we don’t have enough eyes and we don’t have the communication fabric to bring the data.
If you have enough sensors, you hear about smart meters, and if you have two-way communication to bring the data, you can actually manage the grid much more efficiently.
Realistically, you can save 15 percent of the energy that it takes to generate, transmit, and distribute electricity. How much is that roughly 15 percent? That’s approximately 40 terawatt hours.
New York City consumes 50 terawatt hours. So the savings that you can get from the T&D side is approximately the electricity that it takes to power in New York City.
So what I’m going to end up with is once again there are opportunities of energy efficiency in the electricity sector. We are working on it.
It just doesn’t need technology, it will also need policy. It will need the right incentives so we can get to that efficiency. Thank you.
Monica Trauzzi: Next up we have Ralph Cavanagh. He’s a senior attorney and co-director of NRDC’s that, which he joined in 1979. Ralph has been a visiting professor of law at Stanford and UC Berkeley and a lecturer on law at the Harvard Law School.
Ralph Cavanagh: I just want to begin by thanking Kateri and all of her colleagues at the Alliance to Save Energy for creating a truly great Energy Efficiency Day, once again. And then I need to lodge a ritual protest.
My normal role at these events is, of course, to begin by telling you the compelling energy efficiency story of the refrigerator. Link that to the history of energy efficiency standards and incentives in the United States.
And then complain bitterly about the Department of Energy’s lack of progress in establishing energy efficiency standards. This role has already been ably performed by the sitting United States Secretary of Energy.
And, on balance, I think this is a reassuring and altogether happy transfer of responsibilities. So I’m not going to complain about it. I’m going instead, my other ritualistic obligation is to argue that EPRI has once again understated the nation’s energy efficiency potential.
And I want you all to simply accept that protest as lodged, because it really doesn’t matter whether the potential is the enormous and exciting one outlined by my predecessor or the even more enormous and even more exciting ones outlined by authorities like the McKinsey study to which Secretary Chu referred.
Which basically says you do everything that we know how to do today at lower cost than avoided supply in buildings and you can save almost a billion tons of carbon dioxide, close to 1/8 of current U.S. emissions, over the next two decades and that annual savings will then stay with you.
You can take that estimate, you can take the American Physical Society, the association of our physicists, which has told us that energy demand from the entire U.S. building sector, that’s everything from office towers to retail stores to houses and all of their equipment, that that would not grow at all through the year 2030 if we, again, deployed those same efficiency technologies that cost less than the avoided supply.
And finally, the interesting new findings from the Rocky Mountain Institute, that closing the electricity efficiency gap between the top 10 performing states and the rest, if we just did that we’d achieve electricity savings equivalent to more than 60 percent of all U.S. coal-fired power generation.
And, as you look at those different estimates, what you realize is that the aspirations of this group collectively, for energy efficiency, go way beyond what we’ve done already and we’ve done a lot already.
Total U.S. electricity consumption has doubled since 1980 and we are trying to move into a future with very different trends. In an era in which electricity use doubles since 1980, obviously it’s a very good business to be running a utility where financial health is tied directly to sales.
We’re looking, I submit to all of you, to move into a different environment. And in arguing that we need to change the business model for utilities if we want to do that, I needed perhaps first to spend just a moment on why I think utilities matter so much in energy efficiency.
Someone like me, an advocate for a national environmental group doesn’t come instantly to the conclusion that utilities are a critical partner in efficiency. I expected to spend my career suing these people.
What I have learned of the last 30 years is that utilities can be a critical partner in energy efficiency, which doesn’t mean that they are a monopolist in energy efficiency.
I can’t sit on a panel with representatives of Wal-Mart and NYSERDA and the National Association of State Utility Consumer Advocates and assert for an instant that utilities are the only participant that matters.
I came yesterday from a forum in Arkansas with the Arkansas utilities on energy efficiency and I want to assure you none of them thinks they want to go forward without Wal-Mart as an enthusiastic and motivated partner.
Or without the host of other retail participants who are needed to make these delivery systems work. Energy efficiency is, in every sense, at the levels we want, going to take the best efforts of all of us.
If that’s the case though, we need to look at the utility role in the partnership and the incentives they have to do it well. And I submit I come to this with a fairly straightforward objective which I hope is widely shared here.
If you’re a for-profit utility and you’re good at energy efficiency and good at helping your customers do more of it, I think you ought to be more profitable than companies that are less effective.
And if you’re a publicly owned utility I think you ought to be financially stronger and your financial ratings ought to go up if you’re really good at helping customers use energy more efficiently, as opposed to those that don’t.
And what I need to emphasize is that in most of the country today we have not achieved these very simple objectives. The question that was posed for us today is, is there just one solution?
And, of course, in a nation where states make so many of the critical choices on utility regulatory policies there will never be only one answer.
One of the sources that helps us though I think find some common ground is the National Action Plan on Energy Efficiency, which so many of you have helped with, which Kateri and her colleagues have taken a leadership role on.
And I think if you look at that you see some fundamental acknowledgments on key principles that I’m hoping we can come together on.
The first is that to the extent utilities are investing in energy efficiency as an alternative to more costly sources of alternative supply, they ought to be able to recover their prudently incurred costs.
And to the extent that they’re making a significant contribution to delivering savings to customers there ought to be some earnings opportunity associated with it. Why an earnings opportunity?
Because in a for-profit venture the talent tends to migrate towards earning opportunities and if there aren’t any talent tends to go where they are.
And right now we’ve got an asymmetrical situation in which most utilities in the for-profit sector can make money building power generation, transmission lines, investing in that smart grid, which I’m all for too.
But they don’t have an earnings opportunity associated with success at delivering cost-effective savings.
And then, finally and in some quarters most controversially, I think it’s critical that we break what I have termed the throughput addiction of America’s gas and electric utilities without reducing their customers’ incentive to save energy.
And because both of those are important I want to repeat them. We need to break the throughput addiction of our natural gas and electric utilities without reducing their customers’ incentives to save energy.
The problem here, and its well known in this room, is that utilities are a fixed-cost intensive business. They recover most of their fixed costs through sales of electricity and natural gas.
And that means that if sales go higher than regulators expected when they set the rates, utilities will over recover the authorized fixed costs that they need to run their systems.
And if sales dip below expected levels utilities will under recover. And at any level of consumption utilities have an intense financial interest in pushing sales higher.
This throughput addiction is more powerful in most of the country than anything that can be overcome simply by cost recovery or even a modest earnings opportunity.
To give you a sense of how powerful it is, the analysis we did for Idaho Power, which helped persuade Idaho Power that this was a problem that needed solving, we asked a simple question.
If Idaho Power helps its customers through a whole host of measures, none of them involving monopolizing service, if they help their customers save 1 percent of electricity use a year, 1 percent a year, and keep it up for five years.
What’s the financial impact on the Company assuming the Company recovers all of its costs associated with those programs?
And the answer was, because of the throughput addiction, because of the linkage of fixed-cost recovery to sales, automatic deadweight loss for Idaho Power of $45 million to help customers save energy at the level of 1 percent of system use a year, even if all the measures are clearly cost effective, even if the Company recovers all of its costs of service.
The problem of breaking the throughput addiction is critical. But, again, what I want to emphasize is we need to do it the right way. We need to do it without reducing customers’ incentive to say.
Because the easy way to solve the problem would be to make electric bills independent of consumption. That way, sure, utilities will recover what they need to run their systems no matter how much customers use.
But you can also call that a national all-you-can-eat rate because that’s what it would be and all customer incentive and reward for saving energy would be lost.
The approach that we favor, which some have called decoupling, is one that simply does a small, automatic adjustment in rates every year to correct for any changes in fixed cost recovery compared to the authorized level based on fluctuations in sales.
Now, what does it take to do that? Typically a rate adjustment on the order of 2 percent or less, either up or down, because remember, utilities can either over recover or under recover.
What’s a 2 percent rate adjustment? The average electric bill in the United States is about $100 a month at the household level. A 2 percent adjustment is a dime a day, less than a dime a day up or down.
That, in our view, is not an acceptable price to pay for breaking throughput addiction for utilities particularly since, again, it’s not an automatic rate increase. It could go down, it can go and the history of these mechanisms around the country shows that they do both.
Monica put the question who should pay to create incentives for utilities to help customers save energy? With great respect, I submit that that’s the wrong question.
Because the real opportunity here is to help everyone save money by introducing resources which, as we’ve heard repeatedly this morning, allow for equivalent service at lower cost.
And the real issue here is how much savings are we leaving on the table by failing to get our utilities the right incentives? And, remember, I think that this question is relevant whether you’re talking about public power or for-profit power.
And I think it’s relevant no matter what role you want your utilities to have. You may want to turn over many of the program delivery details to nonprofit agencies as Frank Murray’s New York does.
You may want and you will want, I hope, an enormous role for the private sector involving Angie’s Wal-Mart and every other company like it.
But there will remain a crucially important partnership role for utilities in helping work better for example, helping underwrite the cost of training and compliance.
Helping to advocate for all customers to take advantage of energy efficiency opportunities, going to those tax credits that Congress is creating and helping people take advantage of them.
A motivated utility can do an enormous amount. Some of my constituents have asked me from time to time, frustrated after struggles with the hometown utility, which still occur, why should we pay utilities to do the right thing?
Mark Twain famously said that doing the right thing will gratify a few people and astonish the rest. And what I’d like to see and I think I submit what all of us need to see is energy efficiency progress moving from the astonishing to the business as usual.
And that the ultimate reason why we should move together to solve this problem is not so much to advance utilities interests or even primarily to do that, but to advance all of our interests in taking more advantage of America’s largest, cheapest, and cleanest energy resource.
For all that I know all of you will do to help with that effort in every state, where it won’t just be one answer, I thank you.
Monica Trauzzi: How does he manage to have so much energy? Next up we have Angela Beehler, she is senior director of energy regulation and legislation for Wal-Mart stores and is responsible for the implementation of Wal-Mart’s strategic energy vision for over 4100 U.S. facilities through regulatory proceedings, legislative discussions, and also working closely with government agencies, utilities, nongovernmental organizations, and many others. Angela.
Angela Beehler: What an honor to be here today. I want to thank all the parties who have invited us here. We do have an exciting story at this time and as I pondered this topic, the incentives for the utility sector, where do we begin on that? What are the incentives for utilities?
What are the incentives for consumers? And as I pondered this there became synergies. For one to succeed we have to have the other succeed. We have to walk hand-in-hand.
We have to make sure we educate each other. I am finding we are doing this on a daily basis. But how did Wal-Mart get where we are?
I would like to say it’s from extraordinary leadership in our company. Along with our culture Sam Walton always emphasized the need to help our customers, help them raise their standard of living, every one of them.
Recently Lee Scott also came along and said, “We also want to help our customers save money and live better.” How do we do this? We manage every cost we can.
And as we became more of a national company and global company as well, we started to make an impact and we saw this. And Lee said, “The environmental problems of our nation are our problems.”
So aggressively and inspirationally he set out three goals for our company; one, to be supplied by 100 percent renewable energy; two, to sell products that sustain our retirement; also, number three, to create zero waste.
There are many sub-goals throughout these goals. We have 14 sustainable networks all across our business to do business better, to make a difference in environment and to encourage energy efficiency and we’re learning as we go day by day.
In that line, we have made a difference in energy efficiency and greenhouse gas reductions across our company and across our nation.
We can make a difference, we will make a difference, and we will continue to make a difference in these areas. What do we see out there in incentives? Who pays for the incentives? Who benefits from the incentives?
Usually there are programs all over our taxpayers pay for incentives, our rate payers, we pay for incentives. But we do see benefits through these incentives as we become more knowledgeable and more energy-efficient.
Things that I would consider that we really need to keep in mind as we go forward, we must partner, we must educate on these incentives. We must educate and remember customer considerations.
These changes that we are making on a nationwide scale, we must remember that it must be cost effective where possible. We can implement these changes with wide scale improvements across our nation and become less energy dependent within our own companies and across our nation.
I think it’s very important, as Ralph said, it’s important that utilities as well as other market-driven sectors across the U.S., as well as customers be able to participate with our local utilities, being able to participate on a regional basis as well as our national basis.
We all have to play a hand. Wal-Mart has made many improvements to energy efficiency across our company. HVAC, we are creating new jobs throughout the industry with our sustainable networks that work with our vendors across our nation to become more energy-efficient and cost-conscious and conscious of our environments as well.
De-humidification, we are improving our abilities and energy efficiency by employing great de-humidification technology throughout our stores. White membrane roofs, variable frequency drive motors in our refrigeration, heat reclaim to heat up most of our hot water within our stores.
Our T-8 lighting throughout our stores and our advanced metering systems that we have implemented throughout the nation with the availability of the latest one minute loggers, advanced metering with great features.
And also being able to participate with demand/response opportunities across our nation with utilities, local and federal level when we need to.
It’s a great opportunity. We will continue to make a difference. We have made a difference and it is on our agenda as we move forward.
I’m very thankful that the administration is paying attention to the items that will make a big difference in our economy and our environment. I think we’re on the right track and Wal-Mart is glad to be a part of it. Thank you.
Monica Trauzzi: Next we have Frank Murray. He was appointed president and chief executive officer of the New York State Energy Research and Development Authority, which you all know as NYSERDA. In late January, prior to his appointment, Mr. Murray served as a senior adviser at the international environmental consulting firm, Ecology and Environment Inc.
Francis Murray: Thank you, good morning everybody. This is something of a coming-out party for me. I’ve only been in the job a little less than a month and this is the first opportunity I’ve had to speak before an audience of this size.
My bio in the write up, by way of full disclosure, doesn’t mention the fact that for the last two years much of my time has been so been working on behalf of NRDC, trying to promote the establishment of an energy-efficiency portfolio standard in New York state.
So it shouldn’t come as a big surprise to you that almost everything Ralph said I agree with. But I did want to emphasize three points.
Nuances perhaps, but what I consider to be three elements that are key to successful energy efficiency programs, whether they’re operated by an organization like mine, NYSERDA, or by utilities or any energy service company.
And the first element of that is what I call the human dimension, which we often forget about when we talk about programs and policies. We get so wrapped up in that.
But the human element, which can also be characterized as leadership I think is essential to a successful energy efficiency program in the utilities sector, as well as in the public sector.
Individuals can and they do make a difference. With respect to utilities in the private sector, my view is energy efficiency, if it’s going to succeed, must be an explicit corporate priority.
And corporate leaders must demonstrate, not just through words, but through actions, through things as subtle as promotion policies that support for energy sufficiency is indeed important to the corporation.
In New York we have that sort of leadership. Governor Patterson has outlined a vision of 45 by 15. Our goal is to meet 45 percent of our energy needs, electricity needs, through a combination of energy efficiency and renewable energy by the year 2015.
Here in Washington President Obama, he gets it. I mean I would be surprised if this room would have this many people and this much enthusiasm but for the vision that President Obama has laid forth.
And similar things can be found across the board in other states and in the private sector, but leadership is key. The second element I think is commitment.
Many of us have been through the experience of running programs that kind of go up and down as the funding cycles increase or decrease over time.
With respect to state government we need commitments to adopt and enforce energy efficiency across the full spectrum of activities and sectors. Now, I’m very fortunate, NYSERDA, some of you may know 15 years ago I worked for Governor Mario Cuomo.
And I was the last state energy commissioner in New York before we abolished the state energy office. In those days the incoming governor didn’t think energy was important enough to warrant its own agency.
But in those days the state energy commissioner also served as the chairman of NYSERDA. When I left NYSERDA 15 years ago it had a budget of about 30 or $40 million. Today it has a budget of over $600 million a year devoted heavily to energy efficiency and renewable energy.
It’s that sort of ongoing, continuing commitment that you need to see on both the public and the private sector if we’re going to be able to accomplish the goals that we all so strongly support.
But financial incentives, money, while important is only one piece of the puzzle, the key is market transformation. That should be the end game towards which we all aspire.
Our greatest and our most sustainable gains will be made in the upstream and midstream areas that begin with research and development processes that promote energy efficiency through new technology development, which is what we do at NYSERDA.
And shows of this technology can then be successfully commercialized, which we also try to do at NYSERDA.
And then, ultimately, move this into midstream by the adoption of these technologies and use through distributors and vendors such as energy companies, equipment suppliers, and trade professionals, while also being available on the retail level through companies such as Wal-Mart where information and training can be used to encourage customers to purchase energy-efficient equipment.
Now, the paradigm as Ralph was alluding to somewhat, the paradigm has changed with respect to the utility industry. I remember when I first got involved in this field in the late 70s, back when I have brown hair and more of it.
We in government in those days mandated utility involvement in energy efficiency programs. And, to a large degree, it didn’t work. We were wrong, I think, in retrospect in believing that utilities would invest in energy efficiency just because it was the right thing to do.
The energy and environmental challenges however that we confront are so important, as Ralph alluded to that we need the involvement of everyone. And the utilities do indeed have an important role to play.
Now, Ralph also alluded to this concept of revenue decoupling. Back when I was working on behalf of NRDC I advocated revenue coupling and in New York state our public service commission has adopted that as the policy.
But while adopting as a policy, the challenge is implementing the concept. And the way we’re doing it in New York is through the rate cases of various submissions that the utilities are making.
The first one has been made by Con Ed and Con Ed has suggested a somewhat different approach to implementing this concept of revenue decoupling.
They have proposed a performance-based rates proposal that would allow them to earn more as they perform better and also penalize them, although perhaps not as much as we’d like to, if they don’t perform as well.
My point with respect to whether it be revenue decoupling or any other particular specific regulatory policy, is that these are important tools, but they’re not the end.
The objective, my argument would be, is to keep your eye on the goal and look at things such as revenue decoupling or a performance-based ratemaking as tools that allow you to accomplish that goal, which brings me to the third point that I want to make and that is flexibility.
One of the lessons that we’ve learned in New York and I would hope that others have as well is it would be a mistake to reduce future activities in the era of energy efficiency to a single model or to a singular approach that is directly applicable to every corner of this country.
The price structures around our country vary greatly. The regulatory mechanisms do as well. And the success and advances of approaches used by the states may differ from one another, reflecting no differences in their priorities and their financial resources.
A good example of a type of federal program that provides the flexibility that state and utilities and others need to accomplish this goal, I think, is the Energy Star program, which I think has been very successful not only in influencing customer behavior, but also demonstrating the value to manufacturers, wholesalers, and retailers of the economic opportunities available from energy efficiency products and services.
Flexibility has been critical to the success of the Energy Star program. And one of the beauties of that program is the ability of individual states to adopt a program in a very different way, a generic traction and then implement them to respond to different priorities within those states.
So my message to you today with respect to energy efficiency and the role of the utilities is clearly one approach does not solve the problem, will not achieve our goal.
However, whatever approach, whatever programs, whatever policies we do put in place the key thing is that, one, they have the leadership of the utility industry as well as the public sector behind it. Two, that the utilities are committed long-term to making energy efficiency a viable option.
And three, that in designing the specific programs to be implemented, whether it come from Washington or from the state capitals like Albany, that we provide the flexibility to the states and the other program administrators and implementers to implement these policy objectives in the most cost effective way possible. Thank you all very much.
Monica Trauzzi: Our final speaker is David Springe. He was named consumer Counsel of the Kansas Citizens Utility Ratepayer Board in December of 2002. CURB has a five-member volunteer board appointed by the governor to advocate and protect the interests of residential and small commercial ratepayers in utility proceedings before the Kansas Corporation commission in Kansas courts and the Kansas legislators.
David Springe: And at the bottom end of that introduction I’m also the current president of the National Association of State Utility Consumer Advocates, which is why I’m here, unless you’re fascinated by what’s going on in Kansas right now.
And I could tell you a lot about it. We have coal plants and windmills in all sorts of fun political things, but I’m actually here on behalf of NASUCA, and NASUCA is the national association made up of the state utility consumer advocates that live at ground level in the utility rate wars that go on at the state level.
We don’t operate in Washington, DC, that well, but we operate out in the states and we’re an important part of this. I want to sort of back up for half a second and tell you that NASUCA has always been a strong proponent of energy efficiency and all things green.
Our first greenhouse gas resolution on behalf of the national association was in 1990 and we urged the utilities and state utilities commission to put greenhouse gases and the impacts of carbon into the utility planning process.
We have always supported energy efficiency strongly. We just recently, this past year, put together another energy efficiency principles resolution to more clarify what we believe is important.
And I will tell you that that resolution focused really more on market-driven incentives as opposed to utilities.
And it’s actually interesting, this is just a small fact, but EPRI and EEI and whether you like them or not, they do have a study out that looks at where your primary sources of energy efficiency are going to be.
And the vast majority are market-driven and a small percentage of energy efficiency savings are going to come from utilities. So we think that if you’re going to focus, focus where the important and major gains will be.
And to that extent, I support many of the things that Secretary Chu put forth in terms of what we’re going to try and do with the appliance standards and building codes and different things like that. But I’m not here to talk about that.
Decoupling is really a lightning rod issue for consumer advocates. I will tell you that some of my members have decoupling in their states, support decoupling and think it’s the right answer.
I also have other members that hate decoupling, I think it’s the worst revenue giveaway they’ve ever seen and would die before they signed on to it. And, as the president of the national association, I’m compelled to tell you that they’re both right.
So what we do? Now, I want to mention, interesting, the sort of dichotomy. Ohio is a very strong proponent and I don’t know if any of you sort of go to these a lot, but Janine Migden-Ostrander from Ohio is a very staunch advocate for energy efficiency.
Supports decoupling and thinks it’s the right way and I think that’s great and it’s working for Ohio. If you’ve gone to many of these you also probably run into John Perkins, who’s the consumer advocate from Iowa and a former president of NASUCA.
And he likes to chart out a graph where he shows that Iowa spends more per capita on energy efficiency than any other state in the country. He’s pretty proud of that.
And they have come to the conclusion that you don’t need and will not have decoupling in their state, so both of these approaches can work. No single approach is necessarily correct.
And to that end, NASUCA put together a decoupling resolution actually, which was no small feat if you know my members to get them to agree on a few things and I want to touch on that in a moment.
But let’s talk about decoupling itself for a second, because really that’s sort of the hot button issue and that’s why we’re here. And Ralph Cavanagh is a very eloquent spokesman on behalf of decoupling, so I’m going to sort of play the other foil just for good measure.
First of all, decoupling is a revenue mechanism. Now, I know when I say decoupling a lot of you hear conservation, but it has nothing to do with conservation. It’s a revenue mechanism period, first, foremost and end of story.
I read a New York Times article just the other day talking about the language in the stimulus package and the fact that nobody’s quite sure what it says, although they think it means decoupling.
But it said, in this article, we’re going to disconnect sales from profit, thus encouraging conservation. And I submit to you that there is no thus there. Encouraging conservation is an entirely different subject.
Revenue decoupling does separate profits from sales and nothing more. And that really is, I think, what gives consumer advocates a lot of heartburn, because a lot of mechanisms aren’t necessarily tied to savings from conservation.
Let me give you this to ponder on this note. We are, at this very moment in this country, going through one of the largest demand reduction programs in history. It’s called the economic recession.
It’s working fabulously if you’re focused on demand reduction. Now, if you have a decoupling mechanism the beauty of this system is that the utility can come in at the end of the year and say, well, my sales went down, but luckily I have a decoupling mechanism.
Here’s my revenue requirement. Send the bill out. I’ve got to have my revenue. And I would posit that there’s nothing in this revenue equation that has anything to do with energy conservation or an action specifically taken by the utility to achieve that energy conservation.
But decoupling is just a revenue mechanism so it doesn’t matter. Sales go down, sales go up, we get the same revenue requirement. I think Ralph called it the all-you-can-eat and I think that’s what you get.
The fascinating thing is once the revenue requirement is determined, let’s say it’s $100 million a year, we could all just write a check on the first day of the year. We could write a check on the last day of the year.
We could spread the payments over and have 12 equal payments. We could have 365 different payments, but as long as we end up at $100 million of revenue requirement at the end of the year, then we have achieved our goal, conservation irrelevant.
The consumer advocates have a problem with that concept. And, again, we have advocates that support decoupling, but even those that support decoupling recognize that it’s just not that simple.
So, we have a resolution and you can get these resolutions on our website. It’s NASUCA.org, N-A-S-U-C-A dot org. it says we oppose decoupling mechanisms that guarantee revenue recovery of a predetermined level of revenue without regard to the number of energy units sold and the cause of the lost revenue between rate cases.
And there’s all sorts of…you know, if I go out and buy a new refrigerator right now it’s going to be a lot more efficient and why I did. There’s going to be savings in my household. There’s going to be savings on the utility system and the utility had nothing to do with it.
So should the utility get credit in a decoupling mechanism for the savings that’s occurring in my house when they had nothing to do it that? How do you sort that out? It’s very important and contentious issue.
The other thing that we focus on in our resolution is the utilities themselves. And, frankly, some of it is coming I guess, from the wars that we fight are less enamored with utilities, some more than others.
But prior to using decoupling as a means to blunt utility opposition to energy efficiency, you’ve got to really give some consideration to the utilities you’re dealing with. Have they been good to work with in the past? Have they followed through on their goals?
Have they been forward thinking? Or do they have the type of leadership that you’re going to entrust with this type of mechanism?
Finally, and really most importantly, if decoupling is allowed we believe that you have to, one, prevent over-earning, but there has to be a significant downward adjustment to the utility return on equity because you’ve just removed all the risk.
If the revenue requirement is $100 million and they’re going to get $100 million no matter what they sell or don’t sell throughout the year, they’re not really at risk anymore.
And that reduction in return on equity at the shareholder level is dollars in consumer pockets and consumers get this. I live this night and day. I get this and I would love to see NRDC step up and put this as part of their platform too.
That once we’ve done decoupling there is a risk reduction and it should be represented in consumer bills through ROE. I think that’s hugely important and so we’d like to see that.
I guess the final comment that I’d like to make and I want you to keep this in mind because you’re being sold something here. And every time we come to this conversation it is we’re going to help everyone save money.
If you know anything about ratemaking, by definition, if you spent money somebody’s bills are going up. Everyone can’t save money, mathematically impossible. So, somebody’s bill is going up. Somebody’s bill is going to go down, that’s great, but somebody’s bill is going to go up. There’s no free lunch.
So be careful when you tell the public that everyone is going to save money because they are going to realize pretty soon whether they did or did not save money and they’re going to be angry about it.
And then, if you couple that with the fact that you’ve guaranteed a level of profit to the utility through a decoupling mechanism they’re going to be even more angry about it. So be careful.
Finally, I’m going to leave you with this thought just because it’s a fun thought, you know, we wouldn’t trust McDonald’s to fix our healthcare system. We wouldn’t trust ExxonMobil to build our electric cars.
Do you really want to trust the electric utilities? With all the other mechanisms that we have available to encourage consumers to conserve, are you going to entrust the electric utilities and yet bribe the electric utilities through decoupling mechanisms and profit guarantees to do something that’s fundamentally against what they do?
And I think if you’ve entered into a conversation where the question is, is how much have I got to pay them to get what I want, you’re probably walking down the wrong path in the first place.
So these are the type of details that bother us consumer advocates, even the ones that support decoupling. There’s a lot of details that go into this. And so I throw that out to liven up the discussion. Thank you very much.
Monica Trauzzi: I think the congressman gave us a preview of what the cap-and-trade debate is going to look like this year. We’ve got many great questions from the audience. This is actually something that’s come up on my show quite often and that is will the grid be able to support the proposed future reliance on plug-in electric vehicles?
Arshad Mansoor: There are two answers two that question. One is, do we have sufficient capacity to supply the expected growth of plug-in hybrids and the answer is yes. There’s a second question, do we have these smartness in the grid right now to send a pricing signal so that we are all not charging at 8 p.m.? And the answers right now, no, but that’s what all the focused on smart grid is.
Ralph Cavanagh: And Monica, just quickly, in a rare but welcome gesture of bipartisanship, NRDC and EPRI did a study together of the impact of plug-in hybrids on the power grid, which is one both the EPRI and NRDC websites.
Two interesting findings from that, first of all of an assessment of what the electricity supply implications are of ramping up to say 60 percent plug-in hybrids over the next couple of decades, reassuringly modest, if the vehicles are efficient.
And it will be very important to have incentives in place to make the vehicles efficient. One more reason not to have a throughput addicted electric system. You want the incentive to be lots of efficient plug-in vehicles.
I think David will be with me on this one. You don’t want the incentive to be sell as much electricity as you possibly can to the transportation sector.
I also agreed that is going to be very important, the first generation of plug-ins won’t be equipped to give power back to the grid. And if the electric sector wants that capacity, there has to be an ongoing dialogue between the electric sector and the automobile manufacturing industry about the importance of that capacity.
People like David and Angie have to be vitally involved. The proposition remembers that these things will add value to the system. Well, if so, the system ought to have some incentive to push them to do it faster.
Monica Trauzzi: Does anyone else want to comment? Okay, the next question is for David Springe. Do you realistically believe the president’s goals for energy efficiency can be met without utility efficiency programs going all out?
David Springe: Is this on? Yes.
Monica Trauzzi: Would you like to elaborate?
David Springe: Look, you know, I’m not suggesting that utilities shouldn’t be involved in the process. I think they’re a smaller piece of the process than a lot of other things that we can do.
And, frankly, I’ll be honest with you, if we really sat down and said, okay, if we have a dollar to spend and I want to get the biggest bang for that dollar, which is what we I guess used to do in this country.
I don’t know if we still do it, but I would be over on the other end with EPRI saying we should spend those dollars upstream at the T&D level getting the efficiencies in the system, because it’s a better bang for the buck.
And I think utilities are absolutely going to be doing that and have to do that. I think it’s this notion that’s circulates around residential energy efficiency programs that people got really fixated on. And I’m not sure you should get fixated on there.
And, again, I’m still not sure that utilities are the be-all end-all of supplier of energy efficiency at that level. So are they a piece? Yes. Do we fail without them? No, not at all.
Monica Trauzzi: Did you want to respond?
Angela Beehler: I’d like to add a short note on that. I think a critical function is it’s important for a lot of the market. We have some great technology out there now. We have great businesses that provide different kinds of energy services.
The utilities, many of the utilities have good programs. I think it’s important that in order to drive change across this nation in a way that we want to see, we have to engage all forces across the markets.
We have to let the plug-ins be on the grid. We have to incorporate renewables in the grid. We have to incorporate everything we have into that grid.
But also I think, as a primary thing, across the states, we’ve been engaged last year in approximately 50 rate proceedings across the U.S., about 30 policy proceedings across the U.S.
We have to make sure that our rate structures across the U.S. that are employed by our states for our utilities and all of our factors, that we are seeing the properly structured rates to tell us what those fixed rates are.
To let us really see those price signals instead of being all convoluted. The more clearly we can see our price signals, the more I’m going to be inspired as a customer to really make a difference and see those results of my efforts and make sure those benefits are trickling down to the consumers and encourage them to do a lot more. Thanks.
Ralph Cavanagh: And all I want to say about this is for a wonderful example of a settlement on energy efficiency and decoupling by a leading consumer advocate and his utilities, I commend to all of you the citizens utility Board of Wisconsin and the Wisconsin utilities which David will join me in affirming is a terrific way forward.
Remembering Frank’s admonition, all of these things are means to an end. Let’s keep our eye on the ball. Where are we delivering the results? Wisconsin is one of the places we’re delivering the results with help from David’s members.
Francis Murray: I think the answer to your question is probably not. I mean in New York, as I’ve mentioned, we’ve articulated and the governor has articulated a vision of 45 x 15.
If you parse that out, initially it was the 15 x 15, which was to reduce our electric consumption by 15 percent by the year 2015. And that’s reflected in an order that was adopted 18 months ago by our public service commission.
In implementing that order the commission has designated both NYSERDA as well as the utilities to actually implement the energy efficiency measures designed to achieve that target.
So we’ve answered that question in New York, that you’re not going to be able to achieve the goals that we’re talking about, which are ambitious, but maybe even less ambitious than what the president is trying to achieve nationally without the participation of other actors in the process, including the utilities.
Monica Trauzzi: David had mentioned the somewhat dubious language in the stimulus package on decoupling.
Ralph Cavanagh: I love that!
Monica Trauzzi: Or whatever it is. Well, I’m wondering if you want to comment on what it means and what it’s going to do?
Ralph Cavanagh: Section 410 of the American Recovery and Reinvestment Act basically says three things. And, actually, I’m going to try to persuade David that he likes one of them at least.
One of the things it says, and, by the way, it does this in the context of $3.1 billion in new funding to the states. It asked the state in return for the $3.1 billion in new funding to move in three directions.
One is a timely opportunity to recover prudently incurred costs and an earnings opportunity associated with measurable and verifiable energy efficiency statements.
I didn’t hear David scream about that, but that’s item 1. Item 2 says align utility financial incentives with those of their customers in energy efficiency and do it in a way that doesn’t reduce and, indeed if possible, enhances customers incentive to save energy.
What Angie was talking about. That is pushing us in the direction of exploring together approaches for ending this throughput addiction. And my hope and prediction is that we will get down to that task together at the state level.
The Congress did not dictate the mechanics on any of this and if I were to put forward an illustrative resolution that I think admirably meets the spirit of that entire provision it would be, again, the Wisconsin settlement that David’s colleagues recently reached.
Or the Idaho mechanism that some of you are familiar with. There are a lot of ways to do it, but you’ve got these three elements again; cost recovery and earnings opportunity and action to break the throughput addiction with the states left to figure out how they want to do that.
And I would describe that not as a straitjacket, but a nudge. And probably an appropriate nudge since Congress first urged the states to act on these issues in 1992, which was a while back.
David Springe: I’d follow up on that. Let us be clear on one of the things the language does do is it asks the governors to seek assurances from the regulators about what they may do in the future.
And don’t underestimate the impact of that little conundrum. And you saw NARUC, come out strongly, more strongly than I’ve seen NARUC get on a lot of things against that particular piece of language.
And it bothers me, because I know that if my governor calls my three commissioners in Kansas and asked them for assurances about what they do, I’m probably not going to be in that meeting.
And if they have that meeting and my commissioners come to the commission and decide to start executing this policy, I might be looking at motions to recuse.
Because how can I be assured of a fair, due process proceeding when the governors dictated to them what their outcome might be. That’s problematic. Now, that’s one issue.
Past that, I do agree, note this, I do agree with Ralph. The language is pretty convoluted and Congress is at least helpful in that respect because it didn’t start convoluted.
And I think that’s a testament to NARUC, and NASUCA and the other consumer groups getting involved in it. So it does leave open some opportunities and, as Ralph pointed out, I have different members that approach this in different ways.
I think what bothers us is that at the state level and as the people that deal with the rate proceedings and deal with the customers, we want to craft our own solutions.
And so we get concerned when not only we get a solution handed to us on the federal level, even though this one is a little, I guess, less than prescriptive, but with dollars attached to it as sort of a bribe. That sort of bothers us too.
Now, I would also point out I could put forth an idea that suggests that we set a utilities revenue requirement, tell them they have to save let’s say 10 percent as an example through energy conservation and efficiency.
And, if they don’t meet that standard, I’m going to start taking money away from them and lowering their returns, thus aligning their incentive to do energy conservation with their economic bottom-line.
It’s a different approach than Ralph might use, but I guess the language does leave that open to possibility.
Arshad Mansoor: Just this last point I think, on the whole decoupling issue, it’s a very interesting discussion. It doesn’t take a molecule of carbon from the atmosphere.
So if you look at what our goal is, reducing carbon, if that is our goal let’s say you take plug-in hybrids, and that’s going to increase the kilowatt hour.
Let’s look at a technology heat pump, that’s going to increase kilowatt hour, but reduce carbon. Let’s look at compact fluorescent light bulbs, that will reduce kilowatt hours and reduce carbon.
Let’s look at buildings that shall reduce kilowatt hour and reduce carbon. If our focus is on carbon than kilowatt hour is not even the right metrics.
Some could increase kilowatt hour, some could reduce kilowatt hour, but they are all energy efficiency. You know, back in school energy was not kilowatt hours, energy was a BTU. And the footprint is carbon.
So I think it’s an interesting discussion, but we should look at all technologies, whether it increases kilowatt hour or reduces kilowatt hour, but focus on does it reduce our carbon footprint?
Francis Murray: As one of those states that has to make the representations that Ralph alluded to in order to access this federal DOE money, a couple of observations.
One, once again flexibility is essential. What works in New York may not work in Iowa, the Midwest, Kansas. So however it gets crafted, allowing different states the flexibility to adopt the appropriate mechanisms that work in their state, to achieve that policy objective I think is essential.
With respect to David’s concerns about the assurance language, I’ve worked for three governors, none of whom have been bashful about expressing their views about what the Public Service Commission should or should not do.
Sometimes they listen, more often than not they don’t. So I’m not as deeply concerned about that aspect and then just one final point not related directly to the revenue decoupling language, but to the building codes language.
We’re very supportive of more stringent building codes, but I have to say we would probably accomplish more in terms of energy efficiency if we found a way of getting money to the states and local governments to enforce the existing energy building code that’s in place than going to the exercise of a brand new, more efficient, more aggressive building code statute that’s going to suffer from the same inadequacies.
Ralph Cavanagh: Let’s do both! Let’s do both!
Francis Murray: I’m all for both if we can get the money to do it.
David Springe: Can I follow just quickly on that point? NASUCA actually did send a letter to Congress supporting the building code language. We do have a resolution that thinks that building codes is the right way to go.
Now, when you get back to the state level in Kansas I will tell you that the vast majority of the state doesn’t have zoning, doesn’t have building codes and they don’t want $3 million, or whatever the money is, if that’s what it takes to get it.
It’s not going to happen at the local level in Kansas. They’ll tell you to keep your money. So not an easy thing, but even the national association, at least my members agreed that building codes is a right way to go and a good way to go.
Monica Trauzzi: So how will decoupling programs differ in fully regulated states versus deregulated states?
Ralph Cavanagh: Oh, Monica, this is an important nuance, decoupling applies only to authorized fixed costs adjudicated by the regulators. And so if you’ve got what you’re calling a deregulated state, it would only apply to the distribution business, which is the business that remains regulated.
But on the notion that this is an enormous giveaway to the utilities by the way, remember that if you were in an industry where you were doubling sales since 1980, which was the history since 1980, there were plenty of utilities that did very well without this and they are giving something up if they take it.
They are giving up the upside associated with increased electricity use. And my colleagues from EPRI are quite bullish about the future of electricity consumption.
It’s not like this is something that – there’s a reason why I’m pushing this in front of you today and not the head of the Edison Electric Institute. They too have a divided membership on the specific issue of this approach.
And my pitch for it is, and this is an ongoing discussion that me and David emphatically will be part of – if I can persuade David that it’s a dime a day up or down, is it really the biggest revenue heist he’s ever seen?
Because if that’s the case I’ve got to enrich his experience on the history of utility regulation.
David Springe: Ralph, again I want that ROE reduction, because it’s much more than a dime a day and it means something to consumers. So if you’re going to give them a guarantee let’s put that in your plan too, because I haven’t seen that part of your plan.
Ralph Cavanagh: Because they’re giving up an upside, they are understandably reluctant to do that.
David Springe: Well, you’re on my side or their side.
Monica Trauzzi: All right, I have a question for EPRI. Please discuss the role of storage in a utility’s ability to provide renewable electricity?
Arshad Mansoor: It’s pretty simple. If the wind doesn’t blow what do you do? If the sun doesn’t shine what do you do? And a role for storage, I mean, today of wind doesn’t blow what do we do today?
We use gas turbines, we use other thermal power sources. But if wind becomes 10, 15, 20 percent, we call it balancing resource in the gig term, dancing partner in a good term. We need some partner for wind and solar and storage is that partner.
Monica Trauzzi: How big a role is carbon capture and storage going to play in all of this?
Arshad Mansoor: That’s a different question. Storage, I was talking about energy storage.
Monica Trauzzi: Yes, but moving to a new subject.
Arshad Mansoor: You know, there is no silver bullet. Does decoupling work in one state? It doesn’t work in another state. I think it works everywhere depending on where you are. California shows decoupling works.
New York shows con Edison can work with NYSERDA to do it, so back to carbon capture. There is no one answer.
Energy efficiency, nuclear, renewable, carbon capture, we need to make sure we keep our line of sight, that all these technologies need to flourish if you realistically want to reduce carbon.
So is there a role for a carbon capture and sequestration? Yes. Fifty percent of your lights that get turned on are powered by coal. If we cannot decarbonize that, we will have a tough battle on our hands. And we shouldn’t take any solution or any option out today.
Francis Murray: I concur with, that at this point in the stage of our learning it would be imprudent to take options off the table and I know in New York we are very interested in carbon sequestration as a possible mitigation strategy to the point that we’re funding projects in western New York.
Whether carbon sequestration even works remains an open question. But the fact you can’t answer the question today is not a good excuse not to try to pursue an answer.
Monica Trauzzi: How do you increase oversight on utilities to control the urge to increase utility profit?
Ralph Cavanagh: Well, if you are operating under the assumption that the best way to improve utility profit is to boost sales of electricity and natural gas than this is a huge and I think ultimately unsolvable problem.
And Frank mentioned, you know, early on my notion with Franks was we will just make them do it. It doesn’t work very well. You want to have the incentives to the utility and its customers aligned.
And the good news is if you get the maligned, I mean David said wide, in the end, do you want to trust somebody whose fundamental business is increasing electricity and gas use?
And I want the fundamental business to be different. I don’t think electric and gas utilities are in the commodity business, at least not at the retail level.
I don’t think that individual households and businesses are interested in the kilowatt hours and the therms. They are interested in the services that the kilowatt hours and the therms provide. They want those services at high reliability and the lowest possible cost.
And I want to orient utilities towards that dimension of consumer service, which I’m betting matters a lot more to Angie than the issue of commodity costs at the retail level.
If you can reorient utilities to be thinking about reducing service costs in a carbon constrained world, which is what we’ve got to do, then you can get away from this notion that I’ve got to have somebody looking over the utilities shoulder to make sure it doesn’t cheat.
Then I’m in a world in which utility is better off if it helps its customers save energy cost effectively. And, remember, all of the efficiency we’re talking about, at least in my universe of possibility, is at lower costs than the alternatives.
And that’s the sense in which I want to keep insisting to David there is a win-win opportunity. It’s the same one Secretary Chu identified.
It’s not that everybody benefits from every measure, it’s that everybody benefits by substituting less costly efficiency for more costly generation.
And I know NRDC and NYSUCA agree on that. So my pitch is, and this is a continuing discussion with David, can we align the incentives that are so less oversight is required?
Heaven knows David doesn’t have enough lawyers to look over the shoulder of every utility manager in Kansas, let alone the country. We can take action that will reduce the need to do that.
Monica Trauzzi: Okay, we have time for one more question. It’s for Angela. How do large retailers like Wal-Mart demand energy efficiency from companies they purchase from?
Angela Beehler: Can you repeat that question one more time?
Monica Trauzzi: How is your company demanding energy efficiency from people that you’re purchasing from?
Angela Beehler: Oh, okay.
Monica Trauzzi: Is that a practice?
Angela Beehler: You know what, we do encourage our vendors to be energy-efficient, to make a difference across our nation. Suppliers that need to focus on the environment, need to deliver, we need to deliver all the value we can to consumers across our nation.
Unless we make an effort to get more efficient, to package our materials better, to work on our textiles, to use less chemicals, to improve our transportation fleet, we depend on vendors and suppliers all over the world and especially in the United States, the ones who are innovative, creative, the ones who have new technologies.
We need to engage these people. We need to reward them for sustainability and making these improvements that are kind of out of their normal box.
But at the same time, yes, we do work with them. We do encourage that. We are moving on a fast track. Our nation is on a new initiative where we need to make progress.
And I’d like to add one other thing where we mentioned previously how do you control the urge to utilities? I think the main thing is, is get involved.
That’s why we have been in so many rate proceedings policy. Where are the consumers? Luckily we have consumer advocates, but we also have chambers of commerce across our nation.
We have retailer associations. We need to be involved as ratepayers in these initiatives as we go forward so we can make a difference, so we can make sure those benefits are really rewarding us, letting us participate in the process as we go. Get involved and make a difference. Thank you.
Monica Trauzzi: Okay, a lot left to be decided clearly. Thank you to all the panelists for participating.
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