What is a conservative after all but one who conserves

The conservation of natural resources is not, and should not be, a partisan issue. Both Republicans and Democrats, conservatives and liberals, want a strong economy, and an economy with excess waste is not as strong as it could be. For the good of the economy, we should be pursuing opportunities to use energy more efficiently.

Wasted energy is ubiquitous.  Studies abound that show we’re achieving only a fraction of the energy efficiency that could be attained more cheaply than generating electricity to serve inefficient loads.

The arguments against efficiency are tired and often repeated: The programs are subsidies (never mind that every single source of energy gets subsidies).

Another common one: If efficiency made economic sense, people would already be doing it. This argument, of course, glosses over the myriad barriers to efficiency including lack of knowledge and information, and unwillingness to use—or lack of—upfront capital to make improvements.

So how do we become more efficient?

The most straightforward way is to increase the ratepayer funded programs. They are successful: a third party review of utility programs verified they were achieving savings for less than two pennies per kilowatt-hour (the average residential electric rate in Texas is above ten cents).

So what could Texas do to increase conservation and efficiency, to root out waste and inefficiency?

An essential step will be to align utilities’ financial interests with those of their customers. Utilities, under traditional ratemaking, are volumetric businesses: the more they sell, the more revenue they receive. Getting utilities to wholeheartedly support energy efficiency is difficult because they are being asked to sell less of their product.

But there are ways to align utility incentives with greater efficiency. Alternative regulatory mechanisms have been developed and deployed over the last 35 years, and are now used in a majority of states to change the incentives of utilities in an attempt to internalize a drive for greater efficiency by a state’s utilities. 

Further, utilities’ profits are tied to building new infrastructure. There are cases where transmission and distribution infrastructure could be unnecessary if energy efficiency, demand response, and distributed generation were targeted to a particular part of the grid but deploying these demand side resources would significantly harm the utility’s bottom line in the current regulatory structure.

One utility, ConEd in New York, is working with regulators to overcome this problem. They have received approval for $250 million in targeted demand side management programs to obviate the need for $1 billion in transmission and distribution upgrades.

There are also discussions ongoing around the country and the world about performance based ratemaking. Why not give utilities the potential for higher rates of return if they meet certain goals?

Increased energy efficiency, demand response, and distributed generation would hopefully be among those but incentives could also be provided for other broadly supported goals including system reliability, customer satisfaction, strategic load reductions, total cost of service, and efficiency of the utility’s operations, among others.

Demand growth is slowing as energy efficiency gains take hold. Building codes, appliance standards, and successful energy efficiency rebate programs have driven electric demand growth to less than 1 percent nationally compared to 2.4 percent in the 1990s, 4.6 percent in the 1970s, and 9.8 percent in the 1950s.

As efficiency increases and solar energy becomes more widely adopted, those growth rates will continue to decline and may even go negative. Utilities are rapidly coming to understand that new regulatory models are necessary now, and will become even more important over time, to allow them to remain financially healthy.

There are other ways to align utility interests and they should all be explored. But ultimately policymakers of all backgrounds and political persuasions should support ratemaking approaches that lead to lower overall costs, and a stronger economy, while maintaining the financial health of utilities. Overall the state should consider forms of regulation that allow utilities to become more focused on service, quality, and lower electric bills for their customers and less concerned with volume of sales.

Editor’s Note: This opinion piece is adapted from a whitepaper prepared for the SPEER Commission on Texas Energy Efficiency Policy. The whitepaper contains more detail and context. Please click here to review final recommendations of the SPEER Commission and for additional background information.

Doug Lewin is executive director of the South-central Partnership for Energy Efficiency as a Resource (SPEER). He earned his bachelor’s and master’s degrees from the University of Texas at Austin. Doug may be contacted at dlewin@eepartnership.org. Follow SPEER on Twitter @EEpartnership.

The views expressed by contributors to the Cynthia and George Mitchell Foundation's blogging initiative, "Achieving a Sustainable Texas," are those of the authors and do not necessarily represent the views of the foundation. 

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