Stimulus Could Boost Efficiency

• Author: John Pendergrass
• Position: Director of ELI's Center for State, Local, and Regional Environmental Programs
• Pages: 12-12

Page 12 ❧ THE ENVIRONMENTAL FORUM Copyright © 2009, Environmental Law Institute®, Washington, D.C. www.eli.org.

Reprinted by permission from The Environmental Forum®, March/April 2009

By John Pendergrass

Stimulus Could

Boost Efciency

Yet another California innovation

appears set to become national

policy, this time through the unlikely

vehicle of the economic stimulus bill.

Although f‌inal passage of the bill had

not occurred as of press time, various

reports indicate that a provision added

by Representative Henry Waxman (D-

California) had survived that would

require states that accept energy ef‌f‌i-

ciency grants to decouple energy util-

ity revenues from energy use.

Proponents argue that the policy is

needed to allow utilities to maintain

their revenues even if ef‌f‌iciency mea-

sures cause energy use to decline. Rate

structures in most states tie a utility’s

revenues to the amount of energy it

sells, meaning the utility has no in-

centive to promote ef‌f‌iciency as the

decrease in energy use reduces its rev-

enue. Waxman and other proponents

of the federal requirement point to

California as proof that the concept

is ef‌fective at improving energy ef‌f‌i-

ciency.

California indeed has the lowest

per capita energy consumption in the

nation and has the same level of con-

sumption as it had twenty years ago. In

my September/October 2007 column

I wrote favorably about the Maryland

Public Service Commission’s decision

to decouple rates for Maryland’s utili-

ties, noting that it was the fourth state

to do so (the Natural Resources De-

fense Council lists California, Dela-

ware, Idaho, Maryland, Massachusetts,

and New York as having decoupled

rates now). But this requirement raises

several issues concerning both the best

way to promote energy ef‌f‌iciency and

federalism.

Some Republicans in Congress

have questioned whether decoupling

is the best way to promote energy ef-

f‌iciency, arguing that decoupling will

mean that consumers will not save as

much money by becoming more en-

ergy ef‌f‌icient as they would under tra-

ditional rate structures. Representative

Joe Barton (R-Texas) said that con-

sumers should see their costs go down

as a result of all the energy ef‌f‌iciency

measures in the stimulus bill and that

decoupling would prevent that. Rep-

resentative Jay Inslee (D-Washington)

has countered that consumers’ energy

bills would decline, assuming that the

ef‌f‌iciency gains signif‌icantly decrease

their total energy consumption.

To some degree the argument re-

volves around the question of where to

apply incentives to convince consum-

ers to become more

ef‌f‌icient in their ener-

gy use. Reducing their

energy bills has so far

not been suf‌f‌icient to

induce many consum-

ers to invest in energy

ef‌f‌iciency. Other parts

of the stimulus bill attempt to remedy

this by providing consumers tax incen-

tives to install more ef‌f‌icient applianc-

es, windows, and other improvements.

Decoupling operates from the other

direction by allowing producers to en-

courage or even provide incentives to

consumers to become more ef‌f‌icient.

Inslee claims that decoupling would

free utilities to sell energy ef‌f‌iciency

services, which would both generate

additional revenue for the utilities and

stimulate jobs, from energy audits to

installing insulation, windows, doors,

and more ef‌f‌icient furnaces and air

conditioners.

Another set of issues have been

raised by state utility regulators who

say Congress is being overly intrusive

in state af‌fairs. To be clear, Congress

is using the carrot approach here, re-

quiring governors to certify that their

states are moving to decouple rates

as a condition for receiving federal

grants rather than directly mandating

the policy change. But, the amount at

stake, more than $2 billion, is substan-

tial and it is a very common method

by which Congress inf‌luences state

policies.

At the most fundamental level

James Crawley, chair of the Pennsylva-

nia Public Utility Commission, argues

that because the PUC is not a part of

the executive branch — requiring the

governor to commit the state to such

a change is a separation of powers is-

sue. Even one of the commissioners of

the California PUC, Dian Grueneich,

who promotes decoupling as a success-

ful method of promoting energy ef‌f‌i-

ciency, argues against the provision on

the grounds that it is harmful to the

rate setting process to bring governors

and political pressure into the process.

Crawley also argues that decoupling

is not the only policy by which states

can promote energy

ef‌f‌iciency and that by

mandating a particu-

lar policy Congress is

intruding in an area

of traditional state

control. He claims it

directly conf‌licts with

Pennsylvania’s 2008 energy ef‌f‌iciency

law that prohibits decoupling. And

the National Association of Regulato-

ry Utility Commissioners argues that

a one-size-f‌its-all scheme is bad policy

because states have dif‌fering electricity

markets and are best suited to deter-

mine how to balance the many factors

af‌fecting prices.

Despite vigorous advocacy by these

state utility regulators it appears Con-

gress will require states to follow the

California model and decouple energy

rates from utility prof‌its in order to re-

ceive federal energy ef‌f‌iciency funding.

John Pendergras s is Dir ector of ELI’s

Center for State, Local, and Regional Envi-

ronmental Programs. He can be reached at

pendergr ass@eli.org.

A  S

Despite vigorous

advocacy by some states,

Congress will requi re

states to follow the

California model