ORIGINAL REPORTING: Rates That Will Grow Energy Efficiency
How rate reform can help turn energy efficiency into a 'profit center' for utilities; Decoupling and performance-based regulation can make saving energy more appealing to power providers
Herman K. Trabish, April 27, 2016 (Utility Dive)
Editor’s note: This is a great example of a state level policy driven by economics that federal policy is unlikely to reverse.
…The most cost-effective megawatt is a megawatt saved. But utilities make money off the electricity they sell, so efficiency improvements can cut into company revenues if there's no regulatory mechanism to prevent it. Such problems can be easily fixed with good policy, according to a new report for Texas regulators that argues for incentive mechanisms that make energy efficiency a utility profit center, allow for timely recovery of program costs, reduce risk of lost revenue, and provide ways for utilities to earn more money with better programs…
The paper describes three utility ratemaking practices that could balance the public good done by reducing consumption with the harm done to utilities and their shareholders. The first is separating, or “decoupling,” the utility’s electricity sales volume from its returns, as is now done in at least 22 states…The second is making sure the alternative rate mechanism provides for “timely” recovery of the utility’s costs through rates.Finally, the utility should be able to improve its returns if it implements and manages the program better than an established standard. The foundation of the paper is in the understanding that the utility of the future is going to be more of a service provider, providing reliability, providing technical help, providing efficiency, and coordinating distributed generation with wholesale power… click here for more