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Efficiency in the USA
VIEWPOINT
Efficiency in the USA A State regulator's view Stephen Wiel
Cost-effective technology now exists which would allow people in the USA to live the same life style using only one-quarter the electricity. Practically speaking it will take at least 10 years to reach even half that efficiency potential. In fact, since 1973 the USA has already significantly improved efficiency. Even more significant improvements will be made over the next decade for several reasons; first, technology which will allow such improvement is developing at an astounding rate; second, we are facing renewed environmental concern for which energy efficiency offers the best mitigation opportunity; and third, the USA is improving the regulatory process to consider environmental effects. Finally, the regulatory process is being adjusted to allow utility companies to be in the business of energy conservation. Keywords: Energy efficiency; Utility regulation; USA
Stephen Wiel is Commissioner, Public Service Commission of Nevada, Capitol Complex, 727 Fairview Drive, Carson City, NV 89710, USA.
202
Each year in the U S A we use an average of 10 500 kWh of electricity for each man, woman and child. We do this despite the fact that costeffective technology exists which would allow us to live the same life style using only one-quarter the electricity. To accomplish this we would have to replace almost every motor and appliance in the country and would have to rebuild most of our houses. Practically speaking, even with a concerted effort it will take at least 10 years to get halfway to that efficiency potential according to the Electric Power Research Institute (EPRI), the research arm of the electric utility industry in the USA. But that's a start and at least it is preferable to the alternatives. In fact, in the U S A we've already significantly improved the efficiency with which we use electricity. In 1973 the annual per capita consumption of electricity in the U S A was 9 300 kWh and for the previous decade it had been increasing at a rate of 400 kWh per year. Had it continued at that rate, we would now be averaging 16 000 kWh each year. Instead, we've held today's annual consumption to twothirds of that amount, despite our expanding use of air conditioners, business computers, photocopiers, home computers and a multitude of other electrical devices. To a small degree the U S A has cut back on energy services. For example, I now generally heat my house in the winter to only 68°F instead of a more comfortable 70°F. Predominantly, however, we use energy more effi-
ciently. For example, more and more people are using compact fluorescent light bulbs to replace incandescent bulbs in their businesses and homes. In fact, some of our utility companies give or lease to their customers such light bulbs to encourage their use. State utility regulators and electric utilities in the U S A have become increasingly conscious in recent years of the fact that technology which offers dramatic, cost-effective improvements in energy efficiency is being developed at an astounding rate. We have also become increasingly conscious that not only does the utility customer benefit from this energy conservation but in most cases so do the rest of the customers. Fuel is saved and costly new power plants are delayed or avoided. As a result of this recognition, the State regulators have been trying to create a regulatory climate in which utility companies will want to help their customers improve end-use efficiency. By the mid-1970s the California and Wisconsin regulatory commissions had set goals for utility investments in demand-side management programmes. They directed utility companies to conduct conservation and load management programmes to affect the efficiency and timing of customer electricity-use. The utilities developed innovative programmes offering, for example, rebates for the purchase of efficient home appliances, free attic insulation and energy audits of the facilities of commercial customers. In addition, California formed the California Energy Commission to conduct
ENERGY POLICY April 1991
Viewpoint Statewide conservation programmes and to prepare independent forecasts for electricity demand. Activity of this nature evolved into what was until recently called 'leastcost utility planning' and is now called 'integrated resource planning'. Since 1986 a US Department of Energy programme has accelerated the acceptance of integrated resource planning. By 1988 25 States had implemented or were in the process of implementing some form of integrated resource planning, and another 18 States were formally considering or developing such planning requirements. As. a practical matter, integrated resource planning had led utility companies to encourage and sometimes pay for their customers' energy conservation. Resource planning requires utilities to give equal consideration to demand management and supply additions. Because the U S A had so grossly under-invested in energy efficiency over the previous decade or two, a rational approach to demand management inherently spurred the flurry of utility conservation programmes we have seen. Surveys in recent years by E P R I indicate that utility conservation programmes which began in the mid1970s have now expanded to over half the utility companies in the USA. State regulators, to varying degrees throughout the USA, have accommodated and sometimes fostered utilities' involvement in conservation programmes in several ways: 1) they have required integrated resource planning to identify the desirability of such programmes; 2) they have ordered the institution of specific programmes; and 3) they have allowed the recovery of the costs of such programmes in electricity tariffs. Within the past two years two new movements which foster electric energy efficiency have emerged and are rapidly gaining momentum in the USA. State regulators have recognized that the predominant formula they use for setting electricity tariffs provides a perverse message to the investor-owned utility companies which provide 80% of electricity: each kWh of electricity sold, no matter how much it costs, increases profits, and
ENERGY POLICY April 1991
each kWh of electricity avoided decreases profits even though less fuel is burned and it may otherwise cost nothing extra. Regulators in six States have already changed their tariffmaking procedures to provide financial incentives for their electric utilities to work with their customers to improve end-use efficiency and 13 other States are conducting formal proceedings to consider such changes. The goal is for utilities to be able to profit from being in the business of energy conservation. The second movement which fosters electric energy efficiency results from an increasing recognition that there are large environmental costs to society which result from burning fossil fuel. These are real costs caused by the residual pollutant emissions not removed at the power plant. They include medical expenses, lost productivity, water treatment costs and crop damage, to name a few examples. Efforts are recently underway in many States to account for these environmental costs in the selection of utility resources. Suppose a utility is choosing from among a new coal-fired power plant, a solar power plant and an enhanced conservation programme. In order to avoid subsidizing coal-fuelled electricity, the utility should add the nonutility environmental costs caused by the coal-fired plant and any such costs that might be associated with the solar plant and the conservation programme to their expected costs so that a fair comparison can be made. The State of New York, in August 1989, adopted such a procedure, attributing ¢l.4/kWh to the coal-fired plant to account for nitrogen oxide, sulphur dioxide and carbon dioxide emissions, water pollutants and land-use impacts. Massachusetts and Nevada have subsequently followed suit adopting even higher values and eight other States are close behind. The U S A has been nudging its electric utility industry and citizens toward improved efficiency over the past decade and a half. Will the people of the U S A really double their end-use electric energy efficiency over the next decade as E P R I predicts we can? Will we improve it by at least a third? Or
203
Viewpoint even by just a quarter? For several reasons, and without quibbling over the exact amount, I believe the answer is 'yes, we will significantly improve our energy efficiency'. First, technology is developing at a rate which would allow a much greater improvement than EPRI addresses. The purchase of efficient new motors and appliances, the cost-effective replacement of old motors and appliances and the corresponding construction and retrofit of buildings are limited only by our ability to manufacture and install such products and our resolve to invest the up-front capital. Second, our progress over the past 10 years was made in a decade of societal apathy towards the environment. We are currently facing a period of environmental concern in which anxiety over global warming is already a primary focus. Improvement in energy efficiency is generally believed, correctly, to offer our best opportunity to mitigate the increasing carbon
204
dioxide concentration in our atmosphere which is thought to pose the threat of unacceptable climate change. I expect the public will strongly support appropriate investment in energy efficiency and will cooperate with corresponding government and/or utility efforts over the next several years. Finally, our progress over the past 10 years was made during a decade in which the environmental impact of fossil fuel combustion was undervalued and in which utility companies were resistant to demand management programmes. We are currently improving our regulatory processes such that environmental effects will be more properly considered. As importantly, we are adjusting our regulatory process so that utility companies will be in the business of energy conservation.
Stephen Wiel Public Service Commission of Nevada, USA
ENERGY POLICY April 1991
Efficiency in the USA A State regulator's view Stephen Wiel
Cost-effective technology now exists which would allow people in the USA to live the same life style using only one-quarter the electricity. Practically speaking it will take at least 10 years to reach even half that efficiency potential. In fact, since 1973 the USA has already significantly improved efficiency. Even more significant improvements will be made over the next decade for several reasons; first, technology which will allow such improvement is developing at an astounding rate; second, we are facing renewed environmental concern for which energy efficiency offers the best mitigation opportunity; and third, the USA is improving the regulatory process to consider environmental effects. Finally, the regulatory process is being adjusted to allow utility companies to be in the business of energy conservation. Keywords: Energy efficiency; Utility regulation; USA
Stephen Wiel is Commissioner, Public Service Commission of Nevada, Capitol Complex, 727 Fairview Drive, Carson City, NV 89710, USA.
202
Each year in the U S A we use an average of 10 500 kWh of electricity for each man, woman and child. We do this despite the fact that costeffective technology exists which would allow us to live the same life style using only one-quarter the electricity. To accomplish this we would have to replace almost every motor and appliance in the country and would have to rebuild most of our houses. Practically speaking, even with a concerted effort it will take at least 10 years to get halfway to that efficiency potential according to the Electric Power Research Institute (EPRI), the research arm of the electric utility industry in the USA. But that's a start and at least it is preferable to the alternatives. In fact, in the U S A we've already significantly improved the efficiency with which we use electricity. In 1973 the annual per capita consumption of electricity in the U S A was 9 300 kWh and for the previous decade it had been increasing at a rate of 400 kWh per year. Had it continued at that rate, we would now be averaging 16 000 kWh each year. Instead, we've held today's annual consumption to twothirds of that amount, despite our expanding use of air conditioners, business computers, photocopiers, home computers and a multitude of other electrical devices. To a small degree the U S A has cut back on energy services. For example, I now generally heat my house in the winter to only 68°F instead of a more comfortable 70°F. Predominantly, however, we use energy more effi-
ciently. For example, more and more people are using compact fluorescent light bulbs to replace incandescent bulbs in their businesses and homes. In fact, some of our utility companies give or lease to their customers such light bulbs to encourage their use. State utility regulators and electric utilities in the U S A have become increasingly conscious in recent years of the fact that technology which offers dramatic, cost-effective improvements in energy efficiency is being developed at an astounding rate. We have also become increasingly conscious that not only does the utility customer benefit from this energy conservation but in most cases so do the rest of the customers. Fuel is saved and costly new power plants are delayed or avoided. As a result of this recognition, the State regulators have been trying to create a regulatory climate in which utility companies will want to help their customers improve end-use efficiency. By the mid-1970s the California and Wisconsin regulatory commissions had set goals for utility investments in demand-side management programmes. They directed utility companies to conduct conservation and load management programmes to affect the efficiency and timing of customer electricity-use. The utilities developed innovative programmes offering, for example, rebates for the purchase of efficient home appliances, free attic insulation and energy audits of the facilities of commercial customers. In addition, California formed the California Energy Commission to conduct
ENERGY POLICY April 1991
Viewpoint Statewide conservation programmes and to prepare independent forecasts for electricity demand. Activity of this nature evolved into what was until recently called 'leastcost utility planning' and is now called 'integrated resource planning'. Since 1986 a US Department of Energy programme has accelerated the acceptance of integrated resource planning. By 1988 25 States had implemented or were in the process of implementing some form of integrated resource planning, and another 18 States were formally considering or developing such planning requirements. As. a practical matter, integrated resource planning had led utility companies to encourage and sometimes pay for their customers' energy conservation. Resource planning requires utilities to give equal consideration to demand management and supply additions. Because the U S A had so grossly under-invested in energy efficiency over the previous decade or two, a rational approach to demand management inherently spurred the flurry of utility conservation programmes we have seen. Surveys in recent years by E P R I indicate that utility conservation programmes which began in the mid1970s have now expanded to over half the utility companies in the USA. State regulators, to varying degrees throughout the USA, have accommodated and sometimes fostered utilities' involvement in conservation programmes in several ways: 1) they have required integrated resource planning to identify the desirability of such programmes; 2) they have ordered the institution of specific programmes; and 3) they have allowed the recovery of the costs of such programmes in electricity tariffs. Within the past two years two new movements which foster electric energy efficiency have emerged and are rapidly gaining momentum in the USA. State regulators have recognized that the predominant formula they use for setting electricity tariffs provides a perverse message to the investor-owned utility companies which provide 80% of electricity: each kWh of electricity sold, no matter how much it costs, increases profits, and
ENERGY POLICY April 1991
each kWh of electricity avoided decreases profits even though less fuel is burned and it may otherwise cost nothing extra. Regulators in six States have already changed their tariffmaking procedures to provide financial incentives for their electric utilities to work with their customers to improve end-use efficiency and 13 other States are conducting formal proceedings to consider such changes. The goal is for utilities to be able to profit from being in the business of energy conservation. The second movement which fosters electric energy efficiency results from an increasing recognition that there are large environmental costs to society which result from burning fossil fuel. These are real costs caused by the residual pollutant emissions not removed at the power plant. They include medical expenses, lost productivity, water treatment costs and crop damage, to name a few examples. Efforts are recently underway in many States to account for these environmental costs in the selection of utility resources. Suppose a utility is choosing from among a new coal-fired power plant, a solar power plant and an enhanced conservation programme. In order to avoid subsidizing coal-fuelled electricity, the utility should add the nonutility environmental costs caused by the coal-fired plant and any such costs that might be associated with the solar plant and the conservation programme to their expected costs so that a fair comparison can be made. The State of New York, in August 1989, adopted such a procedure, attributing ¢l.4/kWh to the coal-fired plant to account for nitrogen oxide, sulphur dioxide and carbon dioxide emissions, water pollutants and land-use impacts. Massachusetts and Nevada have subsequently followed suit adopting even higher values and eight other States are close behind. The U S A has been nudging its electric utility industry and citizens toward improved efficiency over the past decade and a half. Will the people of the U S A really double their end-use electric energy efficiency over the next decade as E P R I predicts we can? Will we improve it by at least a third? Or
203
Viewpoint even by just a quarter? For several reasons, and without quibbling over the exact amount, I believe the answer is 'yes, we will significantly improve our energy efficiency'. First, technology is developing at a rate which would allow a much greater improvement than EPRI addresses. The purchase of efficient new motors and appliances, the cost-effective replacement of old motors and appliances and the corresponding construction and retrofit of buildings are limited only by our ability to manufacture and install such products and our resolve to invest the up-front capital. Second, our progress over the past 10 years was made in a decade of societal apathy towards the environment. We are currently facing a period of environmental concern in which anxiety over global warming is already a primary focus. Improvement in energy efficiency is generally believed, correctly, to offer our best opportunity to mitigate the increasing carbon
204
dioxide concentration in our atmosphere which is thought to pose the threat of unacceptable climate change. I expect the public will strongly support appropriate investment in energy efficiency and will cooperate with corresponding government and/or utility efforts over the next several years. Finally, our progress over the past 10 years was made during a decade in which the environmental impact of fossil fuel combustion was undervalued and in which utility companies were resistant to demand management programmes. We are currently improving our regulatory processes such that environmental effects will be more properly considered. As importantly, we are adjusting our regulatory process so that utility companies will be in the business of energy conservation.
Stephen Wiel Public Service Commission of Nevada, USA
ENERGY POLICY April 1991