CPUC Goes for Broke in Efficiency Plan, University Partnerships, Gas Accord

By Published On: September 21, 2007

In advance of expected approval next month for greatly expanded utility energy efficiency program goals, the California Public Utilities Commission September 20 approved $2.2 billion in incentive payments over three years for investor-owned utilities that meet enhanced energy savings goals. Regulators made several other major decisions as well, including approving funding for a university department to develop more efficient photovoltaics. They also ordered Pacific Gas & Electric to refund customers for back billing, added greenhouse gas costs into the market price referent for renewables, and created a new methodology to pay independent energy producers. In voting for the energy efficiency investments, commissioner Dian Grueneich said, “this sets the context for having comparable opportunity to earn” on energy efficiency investments. She called the additional financial incentives the first stage of regulators’ three-part plan for major energy efficiency changes in the state. The second would be a raft of new utility efficiency programs (see Juice column below). The third would be projects to reach low-income customers with energy efficiency measures. The CPUC’s action sets the stage for investor-owned utilities to reap substantial rewards for investing in energy efficiency projects similar to the gains utilities make through rates of return on fossil-fired facilities, nuclear power plants, and other capital investments. Utility shareholders could receive $175 million if the utilities reach 85 percent of their efficiency goals. At the same time, ratepayers would see $1.775 billion in net benefits if the savings goal is met, according to the commission. If utilities achieve 100 percent of their efficiency goal, their shareholders would receive $323 million. Concurrently, $2.7 billion in benefits would accrue to ratepayers, according to the regulators. Fines would be levied against utilities if they fail to provide the promised energy savings. Consumer groups, like The Utility Reform Network, opposed the proposal. In other CPUC news, regulators made two decisions on the state university front. The first one opens a proceeding to consider using $600 million in ratepayer money to fund a 10-year University of California project to develop greenhouse gas emissions reduction projects. All the university’s campuses would be eligible to participate. “Let’s all think big,” said commission president Mike Peevey. He added that while California produces about 2 percent of worldwide greenhouse gases, the major nations that emit global warming gases–India and China–look to California for leadership on the issue. Other commissioners, while voting for the proceeding, expressed concern that the commission might be mixing up taxpayer v. ratepayer responsibility to fuel research and development. They also questioned the cost-effectiveness of such a CPUC-UC partnership. The commission also voted to provide $50 million to U.C. Berkeley to research and develop ways to make solar photovoltaic systems more efficient. In another greenhouse gas decision, commissioners decided to add the cost of carbon into its “market price referent.” That guideline pits the price of renewables against the price of a fossil-fired power plant. If the price of renewable energy exceeds that from a fossil plant, utilities are no longer obligated to buy that power to meet their 20 percent renewables portfolio standard, according to Peevey. By factoring in carbon costs, it makes renewable energy comparatively less expensive than traditional power plants with bigger carbon footprints. In a separate move, when utilities buy power from slightly more traditional sources, such as small power plants and cogeneration (combined heat and power), they will face a new methodology. The commission voted to move what have been known as “standard contracts” since the 1980s toward more market-based agreements. Commissioners said that small producers still need the assurance of a contract to keep their plants in operation. However, as the California Independent System Operator moves to finish its wholesale market bidding processes–now set for April 2008–regulators hope to move independent producers to the grid operator’s market pricing. “It’s a half-step” to using the market for payments, said Jan Smutny Jones, Independent Energy Producers executive director, welcoming the decision. “We’ve never opposed going to market [based pricing]. The question has always been whether there is a fluid enough market.” Peevey lost his bid to require PG&E to pay only $13.5 million back to customers that it had back billed earlier this decade. Instead, the commission decided 4-1 to order PG&E to pay an estimated $35 million back to the some 157,000 customers who were caught in the billing snafu. PG&E was not subject to any fines. “It is not a case of ill intent,” said commissioner Rachelle Chong. Finally, on the natural gas side, an approved all-party settlement allowed PG&E’s “gas accord” to continue for three more years. Under the deal, the utility’s revenue requirement increases in each year. In 2008 it is $446,493,000; 2009: $458,875,000; and 2010: $471,299,000. This year the revenue requirement is $443,688,000. The only rates that increase are local transmission and the backbone transmission rates on the Baja Path. All other rates decrease or remain at the 2007 rates. According to the commission, without the settlement, “PG&E would have requested much higher revenue requirements and rates.”

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