MA Utility Regulators Clear the Path for Energy Efficiency Expansion
PRESS STATEMENT
July 17, 2008
Contact:
Meg Wilcox, 617-742-0064
Jeremy McDiarmid, 617-742-0054
www.env-ne.org
ENE Lauds the Department of Public Utilities' "Decoupling" Decision
DPU Decision Calls for Meaningful Rate Reform Aimed at Lowering Customer Costs
BOSTON---ENE (Environment Northeast), a research and policy organization and leading advocate for energy reform in Massachusetts, praised the Department of Public Utilities for its leadership in issuing a timely decision in its "Investigation into Rate Structures that will Promote Efficient Deployment of Demand Resources." In its decision, the DPU requires all gas and electric utilities to "decouple" sales from revenues, a move that will eliminate a long-standing disincentive for utilities to help their customers save energy and lower their bills.
"The DPU decision signifies a game-changing shift in utility rate design-one that will help Massachusetts electric and gas customers save money," said Dan Sosland, executive director of ENE. "At a time when energy prices are spiraling out of control, Massachusetts must do everything possible to increase investments in energy efficiency, the lowest cost way to meet our energy needs. This decision, along with the state's recent passage of the Green Communities Act, should facilitate expanded investments in energy efficiency."
"Energy efficiency is the cheapest and cleanest energy resource we have, and decoupling unlocks the door to its full benefit," said Jeremy McDiarmid, ENE attorney. "The DPU decision aligns utility incentives with consumer and environmental goals, and will help move Massachusetts into the age of clean energy."
Background on DPUC Legislative Mandate for Decoupling and All Cost Effective Efficiency
The Green Communities Act signed by Governor Patrick on July 2, 2008, calls for a paradigm shift in the regulation of Massachusetts' electric and gas utilities. Seeking to bolster investment in green jobs, save money on energy bills, and cut global warming pollution, the legislature mandated utilities to supply their customers' energy needs with the most cost-effective energy source available. The Act requires electric and gas utilities to invest in all energy efficiency resources that are cost-effective and less expensive than conventional power generation. This means utilities must invest in energy efficiency, such as insulation or appliance rebate programs for homeowners, or lighting upgrades for businesses, before signing new power plant contracts.
Recognizing that utilities currently lose money when their customers conserve energy, the DPU now mandates that each gas and electric utility implement a so-called "decoupling" mechanism to remove this barrier. Decoupling breaks the link between utilities' profits and their sales, ending the long standing system that encourages them to sell ever more energy in order to increase their profits.
It's a strategy that's gaining in popularity across the country as an effective means for maximizing energy efficiency. California credits decoupling as the major reason that efficiency gains there far exceed those in all other states.
Decoupling and the mandate to pursue all cost-effective efficiency are complementary -- and essential -- pieces of the same puzzle; one without the other cannot achieve the efficiency gains the state needs in order to lower its energy costs, increase our system's reliability, and cut global warming pollution.
How the Decoupling Mechanism Will Work
Under the DPU's Order, a decoupling mechanism must render a utility's revenues independent of its sales. To do this, the DPU will set the amount of revenue each utility is allowed to collect in order to meet its costs and earn an allowed return on investment-exactly as it does now. These allowed revenues cover fixed costs only, such as for poles, distribution lines, substations and personnel. Under decoupling, if more energy is used than expected, and utilities earn more than allowed, the excess revenue will be credited back to customers through their rates. Similarly, if energy use is lower than expected, revenue shortfalls will be recovered later under a modest rate surcharge.
The DPU decision ushering in decoupling does not change the way the DPU establishes the revenues to be collected from customers; rather, it requires that the amount of revenues collected should be independent of sales to remove the incentive to sell more electricity.
It is important to note that decoupling rate adjustments will go both ways, sometimes in the customer's favor and other times in the utility's favor. Rates will not be adjusted because of a utility's bad management or poor decision making.
ENE Background Materials on Decoupling
http://www.env-ne.org/projects/open/p/id/357/program/Energy
ENE Summary of MA Energy Bill
http://www.env-ne.org/public/resources/pdf/ENE_MA_2008_Energy_Act_Summary_062508.pdf
