Oct 2014
Higher Fixed Customer Charges
19/10/14 15:04
Tweet Utility proposals to increase fixed customer charges create significant problems for energy efficiency, conservation, and renewables. When more of your electricity bill is fixed, the payback for energy efficiency and renewable energy is negatively impacted—it takes more investment and more time to recover that investment. No matter how much you spend, a bigger part of your electric bill is “non-bypassable.” Many of these fixed customer charge proposals include reductions in volumetric charges—with the express purpose or desired result of encouraging customers to use more energy.
Here is an edited excerpt from my direct testimony in the recent WE Energies rate case that explains what we stand to lose from the increasingly common initiatives aimed at increasing fixed customer charges.
Q. Why do we want to support energy efficiency, conservation, and renewables, especially distributed renewables?
A. State energy policy often supports or prioritizes distributed and clean energy resources, including energy efficiency, conservation, and renewables, for very good reasons. These include:
- Distributed and clean energy resources diversify the grid and the portfolio of resources that provide valuable energy services. This diversification makes the system more economically, operationally, and financially robust. That is, they help make the grid more secure and less vulnerable to disruption due to forces beyond the utility’s control. Such forces include fuel availability, environmental regulation, market volatility, severe weather, and broader economic conditions.
- Distributed and clean energy resources are cost effective in a wide range of applications today, and are on a trajectory to even greater cost-effectiveness improvements in the future. Unlike central station power plants, distributed and clean energy resources grow and improve in price as a result of manufacturing economies of scale, by which hardware and soft costs are systematically reduced through greater use.
- Distributed and clean energy resources, by their distributed character, generate more jobs in the local economy than central station system resources per unit of produced energy.
- Distributed and clean energy resources generate system wide benefits as many cost effectiveness evaluations demonstrate. These benefits extend to all customers, whether they are direct participants or not. These benefits include near-term reductions in fuel and expensive peak generation, as well as reduced wear and tear on expensive utility infrastructure. Over the longer term, right-sized distributed clean energy resources defer expensive capital investment requirements and improve system resilience, putting downward pressure on rates.
- Distributed and clean energy resources bring private customer and non-utility investment dollars to the provision of electric services, leveraging utility ratepayer and shareholder dollars for the benefit of all customers.
A. Best practices in electricity policy prioritize energy efficiency and conservation resources. This policy foundation comports with experience gained over decades of practice in many states in the United States. Energy efficiency and conservation generate benefits to the utility, ratepayers, and society in general in many ways:
- Energy efficiency and conservation consistently offer the least cost resource options, regardless of whether you are testing cost effectiveness from the perspective of the utility, participants, non-participants, or society. That is, there is always an energy efficiency or conservation option that costs less than using the next marginal unit of produced energy.
- Energy efficiency and conservation result in downward pressure on rates in the short- and long-term. With savings options that are always marginally less expensive even than fuel, and easily targeted at peak energy consumption, energy efficiency saves all customers by reducing utility fuel demand, with savings in the near term and through long-term price effects. In the long term, patterns of efficient energy use can extend the useful life of existing generation, transmission, and distribution infrastructure—resulting in savings in expensive capital investments by the utility on behalf of all customers.
- Energy efficiency and conservation measures, especially building improvements and investments in long-lived equipment, are persistent, often permanent, and systemic. They can be targeted to reduce consumption volatility due to economic conditions, weather, and, as discussed, fuel price volatility. They therefore improve not only the cost of service for all customers, including non-participants, but also the performance of stockholder investments.
- Energy efficiency and conservation, as a whole, show no signs of resource exhaustion or, as a group, depletion of economic cost effectiveness. In lighting, for example, there remain significant savings in replacing incandescent bulbs with compact fluorescents, and due to technological and price improvements, we now enjoy new opportunities to install LED lighting for even greater savings.
- Energy efficiency and conservation benefits are available in every economic, demographic, and geographic sector of the state. My own experience managing energy efficiency programs at Austin Energy, and in the electric utility industry over the last 24 years, is that well-structured energy efficiency programs can be designed to ensure that all customers enjoy cost-effective opportunities to participate in bill savings through energy efficiency and conservation.
- Energy efficiency and conservation generate huge, often unaccounted-for benefits in the communities where they are deployed. These resources create more jobs per unit of energy saved than are created with units of energy consumed. They are the ultimate resource for reducing risks associated with environmental regulation, energy security and reliability, interruptions in fuel supply or affordability, general economic conditions, and the weather.