Utilities Reap Up to $82M for Unverified Energy Savings

By Published On: December 19, 2008

The California Public Utilities Commission voted to move the goal posts on risk-reward incentives for investor-owned utility energy efficiency claims, making it easier for the utilities to score. This alters the traditional risk-reward mechanism. Pacific Gas & Electric, Southern California Edison, San Diego Gas & Electric, and Southern California Gas are allowed to keep savings awarded by regulators even if subsequently they are shown to have been a good distance from the goal. Interim payments for investor-owned utilities’ energy claims that are unverified were authorized by the California Public Utilities Commission December 18 on a 4-1 vote. It may allow up to $82 million for 2006-2007 energy savings claims, which still are under review by the CPUC’s Energy Division. PG&E reaps $41.5 million, Edison $24.7 million, SDG&E $10.8 million, and Southern California Gas $5.2 million. The incentive mechanism is both a carrot and a stick, with the former policy calling for utilities to pay penalties when they don’t come within 80 percent of set efficiency targets. Under the newly adopted ruling, ratepayer refunds of interim payments for claimed conservation are required only if verified savings are 65 percent below set efficiency goals. This was the second blow for commissioner Dian Grueneich. She not only was on the losing end of the Sunrise Powerlink vote but also the sole dissenter on the new energy efficiency risk/reward order. The adopted ruling by commission president Mike Peevey is nearly double the incentive payments recommended by Grueniech and administrative law judge David Gamson in their rejected proposal. “This is the most palatable sausage our kitchen could create,” noted commissioner John Bohn. He and the other commissioners acknowledged inherent flaws and conflict in the current program giving utility shareholder incentives to boost energy savings. Ratepayer advocates and Grueneich pointed to troubling inconsistencies in the utilities’ claims and outside verification. A draft CPUC staff report found that the utilities fell short of their energy efficiency goals and may face a $3 million penalty. Utilities did not comment on the ruling before press times. “This commission is giving the utility companies a free ride,” said Mark Toney, The Utility Reform Network’s executive director. TURN calls for alternatives to allowing utilities to manage customer-funded energy efficiency programs, in particular, third party instead of utility administration. Before the vote, numerous consumer advocates and representatives blasted the incentive payouts to the utilities, particularly given the struggles low- and fixed-income ratepayers face in the current economy. Utilities pushed for a payout before this month’s end so they could book them in their end-of-the year earnings reports. They also sought a change in the incentive mechanism to prohibit repayment to ratepayers for any overpayments subsequently revealed by a CPUC assessment. Peevey’s ruling also limits the amount of payout that is held back. It lowers the level to 65 percent of the utilities claimed savings while the Energy Division completes its verification. Grueneich and Gamson would have created an 80 percent hold back while the energy division evaluated the veracity of the utility energy savings claims. Peevey asserted Grueneich’s proposal “goes too far in the direction of assuming the worst in the utilities attempts to save energy.”

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