|
December 2006
Newsletter Contents:
Guest Highlight
Roger Cooper of the American Gas Association looks at the benefits of revenue decoupling.
Alliance to Save Energy Column
Senior Policy Director Kara Saul Rinaldi explains the recent planning in New York state regarding the Regional Greenhouse Gas Initiative.
State Updates
Legislative updates from Illinois, Michigan, New Jersey, Ohio, Pennsylvania, and Texas.
Revenue Decoupling: A Win-Win Scenario for Utilities and Their Customers
by Roger Cooper, Executive Vice President, Policy and Planning, American Gas Association
There is general agreement that natural gas utilities serve an important role in delivering energy efficiency programs and savings to customers. However, natural gas utilities traditionally face a powerful disincentive to promoting more aggressive energy efficiency. The good news is utilities, consumer groups and public utility commissions, working together, can remove this disincentive, creating a win-win solution benefiting customers and utilities. In 2004, the Alliance to Save Energy joined with the Natural Resources Defense Council, the American Council for an Energy Efficient Economy and the American Gas Association in urging state public utility commissions to support gas distribution company decoupling proposals, and these entities continue to support the concept.
The Problem: Natural gas utilities are fixed-cost businesses. The costs of the distribution service they provide do not vary greatly in relation to the amount of natural gas delivered to customers. This fact should make utilities natural supporters of energy conservation. However, typical utility rate structures penalize utilities if customers use energy more efficiently. Most utilities use a 100-year-old rate design that recovers the fixed costs of their business, not on a fixed, per customer basis, but on a volumetric basis. This means that under traditional utility rate design, a utility’s earnings and profits decline if customers conserve.
The Solution: Many states, as well as federal policy makers, discourage increased natural gas sales and encourage energy efficiency and conservation. Consequently, several states have developed rate formulas that separate, or “decouple”, the revenue generated from providing gas service to customers from the amount of gas customer’s use. Revenue decoupling allows the utility to actively promote energy efficiency without having to sacrifice financial stability. This approach works by adjusting the actual sales volumes to the sales volumes approved during the last rate case. When sales volumes deviate from the forecast in the rate case, a true-up mechanism adjusts the distribution charge.
Decoupling delivers benefits for customers. The symmetrical nature of decoupling prevents the utility from increasing its profits by increasing its sales volumes, because the additional distribution charge is refunded to customers. The mechanism does not shelter the utility from the impact of increased costs, nor does it not provide a guaranteed profit. Decoupling is not incentive regulation because there is no reward or bonus for the utility.
While decoupling imposes no additional costs to the customer beyond those approved by regulators, the mechanism dampens variability in customers’ bills by stabilizing distribution charges. Most importantly, since the biggest portion of a customer’s natural gas utility bill is the cost of natural gas, greater energy efficiency and conservation leads to significantly lower utility bills. Lower bills also lead to lower bad debt expense, which is a system cost paid by all customers. Finally, reduced overall natural gas demand can reduce upward pressure on natural gas prices.
An independent evaluation of one decoupling tariff1 concluded the decoupling mechanism:
• Effectively reduced the variability of utility revenues;
• Removed disincentives to promote energy efficiency;
• Changed the utility’s focus from sales advertising to conservation advertising;
• Did not reduce the incentive for good customer service; and
• Did not shift risk to customers.
While traditional rate structures, in essence, result in financial disincentives for utilities that promote energy efficiency, revenue decoupling breaks the link between utility earnings and customer consumption. Decoupling and other innovative rate designs can create a win-win for natural gas utilities and the customers they serve.
Up to Contents
New York Makes Clean Energy a Priority in RGGI Implementation
 By Kara Saul Rinaldi
Senior Policy Director, Alliance to Save Energy
On Tuesday, December 5th, New York State released its draft plans (“pre-proposal”) for New York to implement the Regional Greenhouse Gas Initiative (RGGI) Model Rule. The first of the RGGI states to issue proposed implementation plans, New York has set a positive example by specifying that 100% of the allowances under the program will be auctioned and the funds are to be used for “energy efficiency and clean energy technology purposes”. By placing a high priority on energy efficiency, New York is demonstrating a commitment to reduce its carbon emissions with the cleanest and most cost-effective resource.
New York plans to implement the Model Rule, which was issued in August of 2006 and agreed to by the seven participating states -- Connecticut, Delaware, Maine, New Hampshire, New Jersey, Rhode Island, and Vermont. Maryland will be joining RGGI next year, and Pennsylvania and Massachusetts also have participated in the discussions. The Model Rule was developed by the states from a historic memorandum of understanding (MOU) that the governors of the participating states agreed to in 2005. The Model Rule serves as the basis for New York’s pre-proposal, and the MOU specifies the general framework of the program.
The main New York-specific provision in the pre-proposal is the allocation of emissions allowances through an open, transparent auction. Under the New York proposal, a slight increase in electricity prices for consumers will be returned in benefits through energy- efficiency investments that will reduce the demand for electricity, thereby taking the pressure off electricity prices and the need for new electricity generation in the state. While the MOU had specified at least 25 percent of the emissions credits be allocated for public benefit purposes, the New York pre-proposal specifies that the 100% allowance auction is to be used for “energy efficiency and clean energy technology purposes”, defined to mean the “promotion of energy efficiency measures, promotion of renewable or non-carbon-emitting energy technologies, and stimulation or reward of investment in the development of innovative carbon emissions abatement technologies with significant carbon reduction potential.”
RGGI is the genesis of several states coming together to design a carbon cap-and trade program to help reduce greenhouse gas (GHG) emissions. The program is initially aimed at developing a program to reduce carbon dioxide emissions from power plants in the participating states. Starting in 2009 and remaining until 2015, emissions of carbon dioxide from power plants in the participating states will be capped at current levels – in the case of New York, this is approximately 64.3 million tons annually. The states will then begin to further reduce their emissions by 10 percent by 2019.
The New York pre-proposal also includes “safety valve” provisions which are design to ensure that the cost of allowances remains affordable. For example, if the average annual price of emissions rises above seven dollars, sources will be permitted to use offsets for up to 5 percent of the plants reported emissions. By allowing offsets to account for a percentage of emissions, the program aims to keep energy prices low while meeting its carbon reduction goals.
Through the New York State Department of Environmental Conservation, written comments from the public on the pre-proposal are being accepted on or before Friday, January 12th, 2007. Comments can be sent to nyrggi@gw.dec.state.ny.us. Additionally, oral comments will be received at two separate meetings. The first will be held on December 14th, 2006 from 10 AM to 12 noon in room 129A, 625 Broadway, Albany, New York. The second, scheduled for the same location, will be on January 12th 2007, from 10 AM to 12 noon.
For more information on RGGI, please visit www.rggi.org
For more information on the New York pre-proposal, please visit www.dec.state.ny.us/website/dar/rggi.html.
Up to Contents
Illinois
House Bill 4137
Passed both houses 11/15/06
HB 4137 orders that beginning the effective date of the act, all gasoline-powered vehicles purchased from state funds must be flexible fuel vehicles. Additionally, beginning July 1, 2007, all gasoline-powered vehicles purchased from state funds must be flexible fuel or fuel efficient hybrid vehicles.
House Bill 5868 
Introduced 11/28/06
HB 5868 requires that electric utilities, based on the number of residential customers, contribute money toward energy-efficiency programs and the purchase of renewable energy.
Michigan
House Bill 6643
Introduced and referred to Committee on Energy and Technology 11/14/06
HB 6643 states that, beginning October 1, 2007, a state agency, a community college, or a university requesting funding for a project from the Joint Committee on Spending (JCOS), in addition to any other requirement under this section or by law, shall specifically state, if applicable, what energy-efficiency initiatives will be implemented in the project and provide projected cost savings of those energy-efficiency initiatives, if known. If sufficient funds are not available to fund all projects submitted, preference shall be given to those projects with the highest overall energy-efficiency savings as determined by JCOS and the department.
House Bill 6647
Introduced and referred to Committee on Energy and Technology 11/14/06
HB 6647 states that, after notice and hearing, the Michigan Public Service Commission shall issue orders to establish the Michigan Uniform Energy Efficiency Code for Existing and New Residential and Commercial Structures. In establishing the energy-efficiency code, the Commission shall include all appropriate national standards and models regarding energy efficiency.
House Bill 6650
Introduced and referred to Committee on Commerce 11/14/06
HB 6650 amends the Michigan Strategic Fund Act to establish and operate a Center for the Development of Green Commerce. The Center, along with the Department of the Treasury and the Michigan Economic Development Corporation, shall provide loans, grants, and other support for the attraction, development, and growth of green commerce. For the purposes of this bill, “green commerce” means the research, development, production, and support of renewable or alternative energy, green chemistry, and pollution control and remediation technologies.
House Bill 6654
Introduced and referred to Committee on Commerce 11/14/06
HB 6654 amends the Michigan Strategic Fund Act to establish and operate a Center for Energy-Efficiency for Michigan Businesses. This Center shall establish and operate a low-interest revolving loan program to assist Michigan businesses with the installation of energy-efficient equipment.
House Bill 6655
Introduced and referred to Committee on Commerce 11/14/06
HB 6655, called the “Michigan-Plus Existing Home Renovation Loan Act”, orders the state housing development authority to administer a loan program for qualifying homeowners. A qualifying homeowner who has purchased an existing home within two years of applying for a renovation home loan may apply for up to $25,000.00 for qualifying renovations, which include energy-efficiency improvements. For the purposes of this bill, “qualifying homeowner” means a homeowner who owns a home with an appraised value of $200,000.00 or less.
House Bill 6656
Introduced and referred to Committee on Commerce 11/14/06
HB 6656, called the “Michigan Energy-Efficiency Initiative Bond Authorization Act”, allows the state to borrow a sum not to exceed $10 million and issue general obligation bonds to finance up to $10 million for public and private energy-efficiency initiatives.
New Jersey
Assembly Bill 3650
Introduced and referred to Committee on Environment and Solid Waste 11/9/06
AB 3650 aspires to cut greenhouse gas emissions by lowering the production cost of energy-efficient products so that the price to consumers drops. Specifically, it allows taxpayers to claim a corporation business tax or gross income tax credit in the amount of 50 percent of the acquisition cost of equipment used on New Jersey premises to manufacture products carrying the ENERGY STAR label. The bill also requires the Treasury to prepare an annual report on the effectiveness of the tax credit in stimulating manufacturing growth of these products in New Jersey.
Assembly Bill 3652
Introduced and referred to Committee on Environment and Solid Waste 11/9/06
AB 3652 exempts from sales and use taxes energy-efficient materials for the insulation or weatherization of residential property. As defined in the bill, “residential property” means apartment buildings, condominiums, townhouses, and two-family or single family homes.
Assembly Bill 3653
Introduced and referred to Committee on Environment and Solid Waste 11/9/06
AB 3653 establishes a Department of Community Affairs (DCA) low interest or no-interest “Conserve for America Loan Program,” to provide property owners with the financial means to weatherize and make other energy-efficiency improvements to residential properties. The bill also establishes the “Conserve for America Revolving Loan Fund,” and makes a $5 million allocation to the fund from the Board of Public Utilities (BPU) societal benefits charge collected under the “Electric Discount and Energy Competition Act.”
Assembly Bill 3721
Introduced and referred to Committee on Environment and Solid Waste 11/20/06
AB 3721 exempts the materials and labor used or consumed in converting traditional motor vehicles into plug-in hybrid motor vehicles from the sales and use tax. It specifically exempts the receipts of batteries, electronic equipment, or services purchased or rendered in connection with the conversion process for plug-in hybrids.
Assembly Bill 3723
Introduced and referred to Committee on Transportation and Public Works 11/20/06
AB 3723 would provide a 10% discount on New Jersey toll roads to E-ZPass customers of the who drive a vehicle that has a highway fuel efficiency of 35 miles per gallon or better.
Senate Bill 2360
Introduced and referred to Committee on Economic Growth 11/27/06
SB 2360 establishes specific, up-to-date energy-efficiency standards for selected commercial and residential appliances and equipment that are sold or installed in New Jersey. These standards are based on the most recent energy-efficiency guidelines adopted by various states and the U.S. government’s ENERGY STAR program.
Ohio
House Bill 251
Fiscal Note and Local Impact Statement Issued 11/25/06
HB 251 would specify certain energy-efficiency and conservation standards relating to facility construction and leasing for state agencies and public schools, and would require state agencies to give preference to procuring products and services that meet federal energy-efficiency guidelines.
Pennsylvania
House Bill 906
Amended by House 11/13/06, Referred to Committee on Finance 11/21/06
HB 906 would exclude from state taxes the sale or use of solar energy system equipment directly related to the installation, use or repair of an energy efficient solar energy system.
Texas
House Bill 269
Introduced 11/16/06
HB 269 would provide all electric utility customers of electric utilities a choice of, and access to, energy-efficiency alternatives and other choices from the market that allow them to reduce energy consumption, peak demand, or energy costs. Additionally, each electric utility will provide incentives sufficient for retail electric providers and competitive energy service providers to acquire additional cost-effective energy efficiency equivalent to 50 percent of the electric utility’s annual growth in demand.
Up to Contents
The Alliance Wants to Hear from You!
Contact us with suggestions or comments.
Subscribe to the State Energy Efficiency Policy Bulletin
View the State Energy Efficiency Policy Bulletin Archive
|
