The Wall Street Journal reports that a program to cut energy consumption by subsidizing consumer purchases of compact fluorescent light bulbs is not working out as planned. I think we can summarize this as: regulator approves cost recovery for subsidy program to reduce energy consumption, program doesn’t work as well as expected, so regulator approves additional “incentive pay” rewards. Onward and upward!
Related stories from the San Francisco Bay Guardian (“PG&E may receive millions for unverified energy savings“) and NRDC’s Switchboard blog (“CPUC Awards Final Incentive for Success of 2006-08 Energy Efficiency Programs; Improving The Mechanism For Following Years Should Now Be Urgent Priority“). As the WSJ article points out and the NRDC report emphasizes, no one claims that the programs didn’t reduce energy consumption. The dispute is over how much of a reduction the programs were responsible for, and so what kinds of incentive rewards (or penalties) the utilities are due under the program design. I hope someone is also arguing about the cost to ratepayers per unit of benefit received.
The program is an example of an approach to regulatory ratemaking termed “decoupling,” in which the profit a utility earns is separated in part from total sales. The intent is to enlist the utility in fostering energy conservation by letting it profit by helping consumers cut back. California’s policy has been cited as a model for decoupling policy, but it may also suggest the potential problems. Regulated companies always have good reasons for putting energy into pleasing their regulators. Decoupling exacerbates the problem by creating programs for which most or all of the potential profits come from convincing regulators that the company did something useful, rather than simply doing something useful for consumers like supplying them with safe, clean, reliable and inexpensive electric power.
Quotes from the WSJ story below (but the full thing is worth reading):
No state has done more to promote compact fluorescent lamps than California. On Jan. 1, the state began phasing out sales of incandescent bulbs, one year ahead of the rest of the nation. A federal law that takes effect in January 2012 requires a 28% improvement in lighting efficiency for conventional bulbs in standard wattages. Compact fluorescent lamps are the logical substitute for traditional incandescent light bulbs, which won’t be available in stores after 2014.
California utilities have used ratepayer funds to subsidize sales of more than 100 million of the bulbs since 2006, most of themmade in China. It is part of a comprehensive state effort to use energy-efficiency techniques as a substitute for power production. Subsidized bulbs cost an average of $1.30 in California versus $4 for bulbs not carrying utility subsidies.
Anxious to see what ratepayers got for their money, state utility regulators have devoted millions of dollars in the past three years for evaluation reports and field studies. What California has learned, in a nutshell, is that it is hard to accurately predict and tricky to measure energy savings. It is also difficult to design incentive plans that reward—but don’t overly reward—utilities for their promotional efforts.
When it set up its bulb program in 2006, PG&E Corp. thought its customers would buy 53 million compact fluorescent bulbs by 2008. It allotted $92 million for rebates, the most of any utility in the state. Researchers hired by the California Public Utilities Commission concluded earlier this year that fewer bulbs were sold, fewer were screwed in, and they saved less energy than PG&E anticipated.
As a result of these and other adjustments, energy savings attributed to PG&E were pegged at 451.6 million kilowatt hours by regulators, or 73% less than the 1.7 billion kilowatt hours projected by PG&E for the 2006-2008 program.