Regulators Propose Fewer Efficiency Kickbacks

By Published On: August 2, 2013

The California Public Utilities Commission’s “incentive mechanism” for investor-owned utility energy efficiency programs would move from an annual gross payout for utilities to a lifecycle savings basis, according to a July 26 proposed decision. In place of payments for yearly calculated energy savings, payments would be based on the expected energy savings over the life of the insulation, double-paned window, and other efficiency installations. Under the revised formula incentive payments would be capped at $150 million for San Diego Gas & Electric, Pacific Gas & Electric, SoCal Gas, and Southern California Edison for the 2013-14 period. In the last few years, annual awards have run $60 million based on total spending authorized during the last three-year cycle of the efficiency program of $3 billion (Current, Dec. 17, 2010). The aim of the so-called “risk/reward mechanism” is to incentivize utilities to reap significant and lasting energy savings from large investments in their efficiency programs. To propel savings, utility shareholders are rewarded under the mechanism, though at ratepayers’ expense. The risk/reward mechanism is supposed to counter utilities’ “inherent bias” towards energy supply-side profit, as pointed out by regulators and stakeholders. This “carrot” approach was initiated in 2006. Ratepayer advocates looked at it as a mixed bag—good for increasing efficiency, but with the potential downside of spending funds on inefficient measures. For instance, energy savings from utility-subsidized compact fluorescent light bulbs have been less than clear cut, many believe. The Division of Ratepayer Advocates claims that after all these years, utilities are “underperforming” on efficiency while ratepayers continue to provide funding. As a result, there have been protracted disputes for years over how to measure the energy savings that determine the amount of shareholder financial reward and how regulators’ oversee the programs. Yet, despite the controversy, efficiency remains a chief goal of the state’s energy policies. California’s “loading order” puts efficiency at the top of preferred energy resources and fossil fuels at the bottom. The policy is supposed to make it easier to reduce greenhouse gases, but it doesn’t always translate into less-expensive energy. To boost efficiency for the last decade regulators have struggled with the risk-reward concept for utilities. The idea is to incent utilities to not sell electricity with their shareholders getting a financial reward in exchange. This proposed decision recognizes the “difficulties and challenges of implementing an effective” efficiency mechanism. The lifecycle efficiency goals in the proposal are: • Pacific Gas & Electric, 11,443 GWh for electricity, and 545 MMTh for gas; • Southern California Edison, 12,845 GWh; • San Diego Gas & Electric, 3,358 GWh, and 57 MMTh and; • SoCal Gas, 622 MMTh.

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