The Montana Public Service Commission is requiring NorthWestern Energy to return $3 million to its customers because it overestimated its energy conservation efforts. Huh?
Most of us probably just scratched our heads and figured we could use the money. But this story points out a basic problem.
The cheapest source of energy is efficiency. The best way to save money buying energy is to use less of it. That’s true whether its gasoline, diesel, natural gas or electricity. But the systems we use to deliver energy are all designed sell it as a commodity, not to conserve it as a resource for the future.
Efficiency cuts sales
As the result of changes due to the energy crisis of the 1970s, utility regulators began pushing local utilities to run energy conservation programs to keep costs down. However, utilities make money by building things and selling power. The more they build and sell, the more they make. Naturally, when people started pushing them to conserve energy (sell less product), they resisted. But, because efficiency is desirable for consumer prices and the public good, regulators, utility execs and conservation advocates came up with tortured systems to make sure that utility efforts to reduce consumption do not reduce profits.
Here in Montana that system is called a “Lost Revenue Adjustment Mechanism.” The Public Service Commission allows utilities to recover money it doesn’t make because it is conserving energy (reducing sales) in the rates it charges customers. Utilities have to demonstrate the reduction in sales is related to the conservation programs they run rather than some other factor, like a few weeks of warm weather. This is referred to as “verification and measurement.” The result is a cottage industry of consultants running around figuring out what light bulbs end up in what rooms and what their average hours of use will be. They compile this info, run it through a bunch of formulas and computer programs, and provide that to the utility so it can get the PSC to approve its money. The $3 million rebate comes because the PSC didn’t buy some of the estimates provided by NorthWestern and its consultant.
As a lifelong advocate of energy conservation, this is frustrating. NorthWestern (its ratepayers ) spent more than $400 million purchasing the antiquated Colstrip 4 coal plant, which breaks down all the time, as well as $200 million on the Dave Gates gas plant, which has also had its problems producing power. It’s hard to keep a straight face listening to NorthWestern fret over whether an efficient light bulb ends up in a closet or bathroom.
Unfortunately, the recent PSC decision will make NorthWestern Energy hesitant to run efficiency programs. The result is that they will do less effective energy conservation programs, which means higher power bills for customers. The PSC was not wrong to question the numbers. NorthWestern should have to prove its case, and conservation advocates should be frustrated with the way this works. It’s a system that lends itself to game playing and hand wringing. At its core, this system is designed to make the utility do something — conservation — that is fundamentally against its core mission —building power plants and selling power.
Better state systems
There is an alternative. Vermont, Wisconsin and Oregon put energy conservation programs in the hands of “third party” organizations whose mission is saving energy. They still have to “prove” they are cost effectively saving energy, but they are not conflicted about why they are in business — and they don’t wring their hands about getting the job done.