Energy Conservation and the Arizona Corporation Commission

In recent weeks, discussions about energy efficiency and conservation have received increasing focus and attention at the Arizona Corporation Commission.  So far this year, the ACC has held several workshops to identify ways to encourage more investment in energy efficiency programs. While Arizona’s electric and natural gas utilities presently have programs aimed at lowering energy demand, our collective effort lags behind other states such as California. 

 The guiding premise for the ACC is that the least expensive way to meet the future demand for electricity and natural gas in Arizona is to consume less.  The potential benefits of energy conservation for families and society are obvious.  They include the prospect of reduced electricity and natural gas bills for families, as well as societal benefits from reduced reliance on fossil fuels, lower emissions of air pollutants and greenhouse gases and improved energy independence.

Very simply, energy conservation is an important element of our national energy policy, and one which AIC supports.

However, while the concept of gaining more energy conservation is laudable, the mechanics of how we implement conservation programs will determine its ultimate success.  As the ACC designs its energy efficiency rules, it should incorporate the following elements:
- Conservation goals must be realistic.  Setting arbitrary targets that cannot be achieved in an economical, cost effective manner is not helpful and could lead to waste.
- The economic welfare of all Arizona consumers should be a consideration.  Some consumers will take advantage of conservation programs while others will not—either because of consumer indifference or economic hurdles.  The rate effects of non-participants must be a consideration.  The rules should be structured to provide some level of benefit to all Arizonans and not be punitive to utilities for failing to produce results which are in someone else’s control.
- Spending on energy conservation must produce gains to economic efficiency.  Expenditure to achieve an additional unit of energy efficiency must be less than price of the energy saved.
- The disincentives for utilities to invest in conservation programs must be removed and economic incentives for greater investment in conservation should be implemented.

Regarding the last bullet -- I have previously written about how conservation can lead to under-recovery of some fixed costs of the utility companies.  This happens because some fixed costs are embedded in the volumetric charges that customers pay.  If consumers engage in conservation and purchase less electricity or natural gas, certain fixed costs cannot be recovered and the companies’ earnings suffer.  One way to remedy this situation is by restructuring rates to allow full fixed cost recovery or by allowing rate adjustor mechanisms like revenue decoupling.

Absent rate mechanisms like revenue decoupling, utility companies and their investors are harmed when the utility sells less energy.  Revenue decoupling or other compensation mechanisms remove the disincentive for the utility company to engage in conservation programs with its customers.

AIC supports revenue decoupling and encourages the ACC to move forward with compensation mechanisms.  It is an issue we will continue to press at the ACC, because absent attention to it, the full benefits of energy efficiency won’t be realized.

  
Gary Yaquinto, AIC President