14 Oct 2008 | by Stephen Heins
In an October report by the American Council for an Energy Efficient Economy, the state of Wisconsin moved into the top 10 on the “2008 State Energy Efficiency Scorecard.”
In addition, Wisconsin should further improve its ranking now that the Citizens Utility Board and Wisconsin Public Service Corp., a natural gas and electric utility serving northeastern and central Wisconsin, have reached a milestone Stipulated Agreement. The pact, which begins in 2009 and ends in 2012, creates a pilot program that includes decoupling of sales and profits and also major increases in energy efficiency spending.
This is an opportune time to discuss the implications of this major change in energy policy in Wisconsin.
The Stipulated Agreement includes two of the most important recommendations of the Governor’s Task Force on Global Warming: It ends the inherent disincentives for publicly traded utilities to help their customers save energy; and it increases WPSC’s spending for energy efficiency above the amount being spent from 1.2 percent to 2.0 percent next year and then rising to 3.5 percent over the next four years.
CUB director Charlie Higley stated that the group would like to see similar deals with WE Energies and other state utilities.
First, it is worth mentioning that investor-owned utilities are regulated monopolies, which are guaranteed a return on investment and the extra money they make by selling more electricity. In fact, this antiquated rate structure is still used in 42 states, excluding California, Idaho, New York, Delaware, Massachusetts, New Jersey, Maryland and likely Minnesota.
In the past, both CUB and WPSC have been reluctant to experiment with decoupling of electricity sales and utility profits, each for their own reasons. CUB worried about higher rates without sufficient benefits for customers; WPSC worried about the effect of lower sales on profits and its stock price.
This disincentive has impaired utilities’ willingness and ability to promote energy efficiency, despite its benefits to consumers’ bills, economic development, electrical reliability, national security and the environment. Thanks to the two provisions in the new agreement, the two parties have broken the link between electricity sales and utility profits.
The parties negotiated a compromise that reduced the basic monthly customer charge from $8.40 to nearly $3 less for the average residential bill. In exchange, WPSC will get stable revenue and an increase in usage rate charges that reward consumers for being more energy efficient.
This idea was supported by a U.S. study conducted by Paul Waide of the International Energy Agency, which determined states that have funded efficiency programs used 31 percent less energy per person than states that don’t. Hence, by rewarding energy efficiency, the Stipulated Agreement will significantly increase funding for Focus on Energy and allow customers to profit from doing the right thing, while not penalizing WPSC.
Most advocates of decoupling expect a sizable benefit because energy efficiency can have the same effect as building new power plants at 25 percent to 33 percent the cost, according to the American Council for an Energy Efficient Economy.
Moreover, decoupling and more money for energy efficiency programs can significantly slow growth in energy demand and the need for more new power plants.
Finally, the utilities (Alliant’s “shared savings” program) and third-party-run energy efficiency programs like Focus on Energy will be able to receive a performance reward for their measured and verified energy efficiency successes.
By bringing together these three approaches (remove disincentives, recover utility costs and establish performance rewards), state regulators will be able to create an energy market where all major stakeholders are on the same side.
As proof, California has been so successful with its decoupling and energy reward program that it has essentially the same per person usage of electricity as it did 30 years ago, while the rest of the U.S. has had 50 percent increases in consumption. In fact, California recently doubled its energy efficiency targets and budgets in anticipation of meeting the majority of the need for new power by investing in energy efficiency. Based on today’s dollars and electric rates, the net benefit to California rate-payers in energy savings is expected to be $10 billion over the next decade.
By combining decoupling and energy efficiency incentives, Wisconsin can expect the same results with billions of dollars in energy savings. At the same time, it can eliminate tens of millions of tons of carbon emissions over the next decade.
The Stipulated Agreement awaits Wisconsin Public Service Commission approval.
10/14/2008 10:28 am
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