Regulatory Aspects of Energy Efficiency: A Residential Perspective

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Regulatory Aspects of Energy Efficiency A
Residential Perspective

• Presented by
• Roger D. Colton
• Fisher, Sheehan Colton
• Public Finance and General Economics
• Belmont, MA
• National Regulatory Conference
• Wiliamsburg, Virginia
• May 2008

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Energy Efficiency Four Tests of
Cost-Effectiveness

• Participant test
• Cost and benefits to ratepayer (affordability)
• Total resource cost test
• Total costs and benefitsparticipant and utility
• Utility cost test
• Resource optionnarrowly defined avoided costs.
• Ratepayer impact test
• What happens to ratepayer bills

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Beyond the traditional tests. . .

• Four traditional tests focus on energy efficiency
  as a demand-side alternative to consider in
  capacity planning.
• Two additional concepts
• Efficiency can be a least-cost strategy for
  utility tasks other than capacity planning as
  well.
• In accepting proposition 1, the locus of
  authority for Commission to act on efficiency can
  be found in non-traditional statutes.

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Proposition 1

• Within a utilitys obligation to provide
  least-cost service, energy efficiency can serve
  not only as least-cost capacity planning, but as
  a least cost strategy for other utility tasks as
  well.

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Appropriate Application of Utility Cost Test

• Least-cost obligation applies to all aspects of
  utility operations
• Self-insurance rather than insurance.
• Peaking/base load/intermediate generation
• Demand-side vs. supply-side alternatives
• Traditional avoided costs (capacity/energy) for
  utility cost test.
• Least cost applies to non-supply issues as well
• Credit and collection
• Control of uncollectibles/write-offs
• Non-energy utility avoided costs exist (Howat)
• Reduced arrears 0.6 8.8 adder
• Reduced write-offs 8.5 adder
• Fewer emergency calls 11.6 adder

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Leaving Efficiency on the Table

• Electric utility proposes three-part energy
  efficiency program.
• Vendor-based appliance rebates for Energy Star.
• On-site energy audit and envelope sealing for
  HOs/1-family units
• Refrigerator replacement as part of on-site audit
• Low-income program low-cost kit
• 2 low-flow shower heads
• 3 CFLs
• Systematically excludes low-income
• 70 of HHs lt 150 of FPL are renters.
• 85 of HHs lt 10,000 are renters.
• Disparate tenure length
• Mean move-in date for renters 1998
• Mean move-in date for homeowners 1985
• Impact
• Low-income pay for program
• Low-income bear increased fixed costs
• Low-income pay lost revenue
• Consider, quite aside from low-income equity
  components (LI pay for but do not receive
  benefits from)

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Proposition 2

• Once you accept the notion that efficiency can be
  a least-cost strategy for various utility tasks,
  it opens up the proposition that not only the
  authority, but the obligation, for state
  regulators to consider efficiency can be found in
  some non-traditional statutes.
• Consider environment as one example.

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Applying Lessons re. Utility Commission Authority
in Era of Environmental Concern

• State PUCs not only may but must look outside
  exclusive focus on economic regulation
• As the environmental impact of generation
  increases, must look beyond economic regulation.
• Three sources
• Whereas clauses of commission creation.
• Mini-state NEPA that applies to PUC as state
  agency.
• Least-cost enforcement of federal law.

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Examples of whereas clauses

• Maryland PSC shall consider the public safety,
  and economy of the state, the conservation of
  natural resources, and the preservation of
  environmental quality.
• Vermont goal of utility policy is meeting the
  publics need for energy services, after safety
  concerns are addressed, at the lowest present
  value lie cycle cost, including environmental and
  economic costs. . .
• North Carolina PSC policy is to encourage and
  promote harmony between public utilities, their
  users and the environment.

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Example of State NEPA Laws

• New York PSC must find that consistent with
  social, economic and other essential
  considerations, to the maximum extent
  practicable, adverse environmental effects
  revealed in the EIS process will be minimized
  or avoided.
• Differences between states
• Some apply only to certifications/projects
• Others apply to all Commission actions (including
  rate-setting).
• 20 states have mini-NEPAs
• 12 commissions are explicitly subject to their
  state NEPAs.

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Section 404, Clean Air Act

• (2) Allowances for Emissions Avoided Through
  Energy Conservation and Renewable Energy.--
• (A) In General.--The regulations under paragraph
  (4) of this subsection shall provide that for
  each ton of sulfur dioxide emissions avoided by
  an electric utility, during the applicable
  period, through the use of qualified energy
  conservation measures or qualified renewable
  energy, the Administrator shall allocate a single
  allowance to such electric utility, on a
  first-come-first-served basis from the
  Conservation and Renewable Energy Reserve
  established under subsection (g), up to a total
  of 300,000 allowances for allocation from such
  Reserve.

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Energy Conservation as Clean Air Strategy

• B) Requirements for Issuance.--The Administrator
  shall allocate allowances to an electric utility
  under this subsection only if all of the
  following requirements are met
• (i) Such electric utility is paying for the
  qualified energy conservation measures or
  qualified renewable energy directly or through
  purchase from another person.
• (ii) The emissions of sulfur dioxide avoided
  through the use of qualified energy conservation
  measures or qualified renewable energy are
  quantified in accordance with regulations
  promulgated by the Administrator under this
  subsection.
• (iii)(I) Such electric utility has adopted and is
  implementing a least cost energy conservation and
  electric power plan which evaluates a range of
  resources, including new power supplies, energy
  conservation, and renewable energy resources, in
  order to meet expected future demand at the
  lowest system cost.
• (II) The qualified energy conservation measures
  or qualified renewable energy, or both, are
  consistent with that plan.
• (III) Electric utilities subject to the
  jurisdiction of a State regulatory authority must
  have such plan approved by such authority. For
  electric utilities not subject to the
  jurisdiction of a State regulatory authority such
  plan shall be approved by the entity with
  ratemaking authority for such utility.

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Pennsylvania implementation

• On or before January 1, 1996, each public
  utility shall submit to the commission and may
  request commission approval of a plan to bring
  its generating units which use coal to generate
  electricity into compliance with the Phase II
  requirements of Title IV of the Clean Air Act.

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Critical lessons for energy efficiency

• Common misperception is that utility commissions
  are only economic regulators
• Excludes environmental impacts
• Excludes affordability impacts

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For more information

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For more information

• roger_at_fsconline.com