Position: FAVORABLE WITH AMENDMENTS
Maryland PIRG and AARP respectfully request a favorable
report of SB 205, the EmPOWER Maryland Energy Efficiency Act of 2008. We also
urge the committee to consider an amendment to strike language mandating
decoupling from the bill.
In the face of rising energy costs, reliability problems and
rising concern about the impacts of global warming on our state, energy efficiency
is a vital first step as a way to lower energy costs for Maryland consumers.
If achieved, the EmPOWER Maryland Act will save Maryland consumers $1.9
billion by 2015 and $4.1 billion by 2020 in avoided electricity costs. An
additional $346 to $725 million in savings will be realized by reduced demand
which avoids the most expensive peak demand costs.
Energy Efficiency Is Cheaper than New Power Plants or New Transmission Lines
Efficiency
measures are much cheaper than generating and delivering electricity. In 2002,
energy efficiency programs supported by public benefit funds in New England produced energy savings at an average lifetime
cost of 2.4 cents per kWh. Northeast Energy Efficiency Partnerships estimates
that capturing all remaining achievable energy efficiency potential in New England would cost just 3.1 cents per kWh.
In
comparison, the cost of generating electricity from many different types of
technology has increased in the past few years as demand for power
infrastructure increases worldwide. For example, the California Energy
Commission estimates that the cost of generating electricity from a new nuclear
power plant (owned by a merchant generating company such as Constellation
Energy) would equal 11.8 cents per kWh (2007 dollars). In other words,
efficiency measures are on the order of three times as cost-effective as
building a new nuclear reactor.
For
further comparison, transmission and distribution costs are on the order of 2.7
cents per kWh for residential customers in Maryland—and another 10 cents per
kWh for power generation—for a total of more than 12 cents per kWh.
Similarly,
energy efficiency is cheaper than procuring new supplies of natural gas. For
example, energy efficiency measures in Wisconsin
save natural gas at a cost of about 19 cents per therm. In comparison, retail
natural gas prices are more than four times higher.
Energy
Efficiency Saves Consumers Money on their electricity and gas bills
Energy
efficiency programs help consumers use less energy, which directly translates
into monetary savings. Under SB 205’s 15 percent by 2015 goal, the Public
Service Commission would require utility companies to submit plans for energy
efficiency programs that accomplish 10 percent of energy savings by 2015.
Utility
companies effectively deliver energy efficiency programs around the country.
For
example, California
utilities provide discounts on compact fluorescent light bulbs, which deliver
the same levels of light as incandescent bulbs while using 75 percent less
electricity and lasting up to 10 times as long. Pacific Gas & Electric
estimates that in 2007, its customers installed about 25 million efficient
bulbs—which will yield on the order of $300 million in electricity savings over
time.
Likewise,
in Massachusetts,
a utility offers free energy audits for small business customers, plus
financial incentives toward the installation of efficient equipment—paying up
to 70 percent of the cost of the new equipment, with interest-free financing on
the rest. Participating businesses typically see a 30 percent reduction in
their energy use.
Under
SB 205, the Maryland Energy Administration would be responsible for achieving
the remaining 5 percent of the savings. State agencies effectively administer
these programs in other states. For example, through public education and
targeted rebates, New York
encourages homeowners to replace outdated and inefficient appliances with
energy-saving models. Participating families save an average of $600 per year
in energy costs.
Pennsylvania helps
low-income customers reduce their energy bills through free home energy audits
and weatherization. In 2004, the program saved the average low-income family
about $300 per year, or 2 percent of their annual income.
Investments
in efficiency can also make energy cheaper—not just for those who make the
investments, but for the entire economy. By reducing demand, energy efficiency
programs can put downward pressure on the price of electricity and natural gas.
In fact, recent studies by the U.S. Department of Energy estimate that for
every 1 percent reduction in national natural gas demand, natural gas prices
fall by 0.8 percent to 2 percent below forecast levels. That is particularly
relevant for Maryland,
where the price of electricity on the wholesale market is set primarily by
natural gas generators.
The Need for Oversight, Measurement and Verification of Program
Successes
Under this bill, the Maryland Public Service Commission
(PSC) and the Maryland Energy Administration (MEA) are charged with reaching a
15 percent reduction in per-capita energy use and peak demand by 2015. The PSC
and MEA would review and approve proposals submitted by the utility companies
for energy efficiency programs as well as a cost recovery plan for the utility
companies. The agencies would also monitor the progress of programs every three
years to ensure that companies were on track to reaching the 15% target and if
not, require adjustments. The Public Service Commission retains the power to hold
utility companies accountable to the approved plans and has the authority to
evaluate and approve cost-recovery mechanisms.
The Case against Mandatory Decoupling
Decoupling is a rate adjustment mechanism that separates a
utility company’s agreed upon fixed costs, including allowed earnings, from the
actual volume of unit sales. While decoupling of earnings from volume removes disincentives
that discourage energy efficiency, it also has the effect of shifting risk from
the utility company to the ratepayers. Under decoupling, regardless of what
happens, the company’s profits are guaranteed.
In its current form, the EmPOWER Maryland Energy Efficiency
Act of 2008 requires the PSC to order decoupling for all Maryland electric utilities. AARP has
testified before the Public Service Commission detailing serious concerns with
decoupling. Utilities propose decoupling measures as a way to guarantee their
allowed level of revenues and to compensate utilities for revenue losses
related to reduced energy usage. However,
utilities may experience revenues changes due to many factors, including
weather, changes in economic conditions, population shifts, and loss of large
customers. While utility companies have been pushing for decoupling in Maryland and elsewhere,
the fact is that regulated companies in other states have provided energy
efficiency and conservation programs without a decoupling mechanism.
The Commission currently has the power to order decoupling
for Maryland
utilities. In fact, decoupling has already been approved for PEPCO, Delmarva
Power and BGE. The decision to allow
decoupling should be left to the regulatory agency, which can modify or
condition its approval based upon changed circumstances, rather than imposed as
a rigid regulatory mandate. Given the
fact that the Commission already has the authority to order decoupling if
deemed necessary, we respectfully recommend striking sections A and B from
Section 7-213 of the act.
We respectfully request a favorable report, with the
proposed amendment to strike decoupling language from the bill, on SB 205.
