Heat of Battle
Location: New York
Author: Ken Silverstein, EnergyBiz Insider, Editor-in-Chief
Date: Thursday, July 3, 2008
Utilities are now in the heat of battle. While they would like to maximize
their sales, they must now persuade their customers to save energy. It's a
quest that will help defer investments in expensive and contentious
infrastructure and in doing so, prevent the release of some harmful
emissions.
Instead of investing millions in power plants to meet the 100 or so hours a
year when energy demand is highest, utilities are turning to their customers
to reduce energy usage during these peak hours. Demand response is giving
commercial and industrial concerns more insight into the energy that their
facilities consume. By knowing this, they can consume power during those
times that are most favorable to the utilities' rate structure.
"We are trying to change the mindset," says Kevin Burke, chief executive of
Consolidated Edison in New York City, at the Edison Electric Institute's
annual conference in Toronto. "We have delivered a record amount of
electricity and clearly, energy efficiency has to rise to the top of what we
do. There is an economic benefit to get customers to defer usage."
Changes in consumption patterns could have a huge affect on the electric
utility industry, which takes in annually about $224 billion. But forward
looking utilities with sound balance sheets are motivated to control peak
load -- a force that controls their generating capacity as well as the cost
of their power generation. According to the Rand Corp., the utility industry
could save between $50 billion and $100 billion over the next two decades if
the technology and laws are implemented to give customers a reason to watch
their daily energy consumption.
Utilities are open to the idea and many of the larger ones have taken it on.
And, further, many independent system operators and regional transmission
organizations that dispatch available generation over the grid are
encouraging such energy shifting and saving techniques as demand response.
That's because strained networks inhibit commerce and cause expensive
transformers and power lines to erode at a faster rate.
Tampa Electric Co., for instance, allows customers to adjust their
electricity usage by using a programmable thermostat. On the hottest days
when power is at a premium, the company can reach inside those homes and
automatically change the temperature. The company says that it has taken a
bite out of peak energy usage. It's all part of a statewide program to
require utilities there to promote conservation to the fullest before any
power plants could be built. At the same time, regulators allow some prudent
operating costs and capital expenditures to be passed through to ratepayers.
"Customers will change," says Dennis Wrasse, chief executive of Pepco
Holdings in Washington, D.C., whose company will start rolling out smart
meters. "If they can save 20 percent by being on time-of-use rates, their
consumption patterns will change."
Assertive Role
To be sure, cost pressures still stand in the way of implementation. The old
utility mindset reasoned that anything that cut consumption would hurt
profits. But through a combination of regulatory moves and community
pressures, they have come to realize that they, too, can save money by
avoiding expensive and time-consuming build-outs.
The California Energy Commission, for instance, credits demand response for
avoiding the need to build 15,000 megawatts of new power plants since 1975.
Similarly, ISO New England says that demand response programs would relieve
congestion. Specifically, it said that the reduction of 50 megawatts in a
congested zone would improve reliability by 30 percent. The threat of
rolling blackouts would therefore diminish.
Many utilities therefore are working with their state utility commissions to
quantify the value of that benefit. The companies would like to pass through
much of the cost of energy efficiency plans in the same manner they do other
capital expenditures such as power plant and transmission development. While
they understand such programs do not obviate the need for new
infrastructure, the utilities reason that efficiency programs are far less
costly and are effective tools by which they can meet environmental
standards.
"If energy efficiency is a production option, then we ought to be
compensated," says Jim Rogers, CEO of Duke Energy. "It's dramatically
cheaper than renewables."
Some state regulators are supportive of the idea. The Colorado Public
Utilities Commission has approved a demand-side management program that will
be offered by Xcel Energy. It's expected to cost anywhere from $700 million
to $1.8 billion and be implemented over 12 years. Under the plan, if the
utility's costs are reasonable, it could get incentives for up to 20 percent
of that outlay.
The measure dovetails with a state law signed in 2007 to encourage utilities
to execute energy efficiency programs. The goal is to reduce peak load by 5
percent before 2018. In California, all regulated utilities there have been
required since 2004 to start cutting their peak load by 5 percent. The
public utility commission there says that that the policy will result in
$2.7 billion in energy savings as well take a slice out of carbon dioxide
emissions, all by the end of this year.
Environmental awareness and high energy costs have combined to provide
utilities and customers alike the incentive to cut consumption. It's been a
long time coming. But if the movement is to accelerate, regulators must
become more assertive so as to hasten the use of new energy saving
technologies.
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