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November 28, 2007

CUB Monitors Additional Energy Efficiency Investments

Oregon's landmark Renewable Energy Standard, passed earlier this year, contains a provision allowing for additional electric utility revenues to be collected from customers to fund energy efficiency and low-income weatherization programs. PacifiCorp and PGE have just made Advice Filings with the Public Utility Commission; both utilities are requesting permission to make additional investments in energy efficiency, PacifiCorp an additional $8.5 million and PGE an additional $16.7 million. The additional investment is great, since the cheapest, greenest power is the power you don't have to produce.

Both utilities have requested keeping a certain amount of money to facilitate enrollment in energy efficiency programs managed by the Energy Trust of Oregon, and the low-income weatherization programs managed by the State's Community Action Partnership organizations. This makes sense, due to the fact that most customers have regular contact with their utility but don't necessarily know about all the great programs they might be eligible for to save energy. Account managers and customer service representatives at PGE and PacifiCorp can help connect residential and business customers with programs that will both save them money and reduce our overall energy usage. PGE, however, has requested an amount beyond what we feel is necessary to achieve energy efficiency goals.

PGE is asking to retain a greater share of the increased funds for purposes that, we believe, stretch the parameters of the law. PGE plans to spend part of the increased funding on initiatives related to conservation; however, PGE has not explained how these initiatives are cost-effective. For example, PGE is designing a curriculum to teach public school students about energy. While energy education is a laudable activity, PGE provides no analysis that this reduces usage in a cost-effective manner. Just as we opposed the Legislature giving money to OMSI from the 3% "public purpose" funds designated to obtain real energy savings goals, we also object to PGE's lack of focus in this current filing.

Furthermore, PGE claims that a reduction in energy usage cuts into their revenues to pay for fixed costs of the system (i.e., poles and wires), and that the Commission should therefore approve a "lost revenue recovery mechanism" to reimburse them 4 cents for each kilowatt hour (kwh) of power which is not produced due to energy savings (the current price per kwh is about 8 cents). To which our response is a great big "WHOA!" Even assuming that PGE's theory is correct, and that they are losing money due to energy usage reduction, our analysis is that the amount lost would be no more than about 2 cents/kwh.

But we don't believe that PGE's theory is correct. Due to continual load growth (the Oregonian reported just today on a steady stream of people moving to the Portland area - 102,000 last year), we actually think that PGE is not losing money, that those fixed costs are being paid for quite adequately out of customer revenues.

PGE always has the option of filing a rate case to request a rate hike, if they are indeed losing revenues that should be covering fixed costs. That would require analysis of a great many numbers that PGE has not, in this filing, put on the table. We currently have no evidence to support PGE's argument that they need an additional incentive to invest additional money in energy efficiency.

Most importantly, Oregon's Integrated Resource Planning (IRP) process, which occurs through the PUC as well, already requires utilities to make the "least cost" and "least risk" investments. And the rising cost of fossil fuels and inevitability of carbon regulation costs makes energy efficiency more and more cost-effective all the time. This means that Oregon's utilities should be doing more energy efficiency, even without extra incentives (that may or may not be justified).

Utilities have always had a bit of a conflict of interest in doing effective energy efficiency. And our experience throughout much of the 1980s and 1990s was that utilities would often try to maximize the public relations benefit to the company of energy efficiency programs, rather than maximizing the actual energy savings. That's why it was such an important policy step to create an independent non-profit with the mission of getting the biggest bang for the consumer's buck in savings from energy efficiency. The Energy Trust has been averaging a savings of about 25 average megawatts of electricity every year for the past 3 years (and with a lower overhead cost than the utilities used to have to provide the same service). Pretty impressive.

We happily support the utilities upping their investments in these programs that help clean the system and lower rates for everyone. We just want to make sure it's done right.

Posted by Oregon CUB at 04:41 PM | Comments (0)

November 15, 2007

Proposed BPA Settlement Is Unfair to Oregon

A proposed settlement regarding the BPA Residential Exchange has recently been reported on in the Oregonian. The settlement being discussed leaves a lot to be desired, decreasing Oregon's share of the federal hydropower system significantly.

As we have talked about before, the Residential Exchange is the process by which the Bonneville Power Administration has for almost 30 years passed through some benefits of the federal hydropower system to customers of the Northwest Region's privately owned utilities. The hydro system was set up in 1937 primarily to serve underserved rural areas, many of which had publicly owned utilities. In 1980, the Northwest Power Act mandated that the benefits of the system be shared with small farm customers and customers of privately-owned utilities. The Residential Exchange, the mechanism for distributing these benefits to privately-owned utility customers, was suspended this past May following a court case brought by some of the Region's publics. With the suspension of Residential Exchange benefits, electricity rates for the majority of Oregon customers went up 14%.

The level of benefits being discussed in the current settlement is between $200 and $220 million per year. This initial figure, though low for the historical average of Residential Exchange benefits (it accounts for 8.8% of the system, down from 14.8% this time last year) is downgraded but not absolutely unacceptable. The real problem is that the 20-year agreement offers no escalation of benefits to keep up with market prices, load growth, or even simple inflation.

We know that load is increasing in Oregon, and much of that increase is to be found in the service areas of the privately-owned utilities. We know that inflation seems to be on an upswing. And we have absolutely no doubt that the cost of energy is increasing by leaps and bounds. As global warming is taken more seriously and carbon regulation is instituted, the market value of BPA's carbon-free hydropower will increase quickly. This includes power that is sold directly to the Region's public utilities and also surplus power that is sold on the market outside of the Region, the benefits of which flow back into the system.

The final year of the agreement, therefore, in 2028, would leave residential and small farm customers of privately-owned utilities, including all those served by PGE and Pacific Power, with 2.9% of the system. That's CUB's analysis, using fairly conservative numbers; an analysis by Oregon Public Utility Commission staff concludes the Residential Exchange share would be even smaller, at 1.8%. The settlement would not meet the intent of the Northwest Power Act to equalize rates amongst Northwest utilities and share the benefits of the federal hydro system.

Many people have said, "Alright, then, all we need to do is go form some more public utilities." Well, unfortunately, that option has been taken away as well. In the Record of Decision regarding BPA's plan for the next 20 years of power contracts, the BPA adopted a new long-term policy that severely limits access to BPA's cheap hydropower for newly-formed publics. As we've said before, this means you can't get in through the front door and can't get in through the side door. So far, we can't see any back door.

Approximately 75% of Oregonians are served by privately-owned electric utilities. This means that as the value of the federal hydropower system increases by leaps and bounds, those benefits will flow more to Washington customers while Oregon customers receive fewer benefits. Oregon's Governor Kulongoski wrote to BPA, saying that any agreement that did not include an escalation of Residential Exchange benefits would be unacceptable. We agree whole-heartedly.

CUB will urge the PUC to reject the deal, when Oregon's private utilities bring it to the PUC for approval. We hope that the Commissioners will find it was not a "prudent" agreement, did not meet the needs of its customers, and that therefore shareholders should be held accountable for some of the loss of benefits.

Oregon's Senators Wyden and Smith should hear from you on this issue. Call and let them know that they should tell BPA that, as the value of the federal hydro system increases, the benefit to Oregon customers should as well. Not doing so increases the disparity in rates between the average Oregon customer and the average Washington customer. We can and should do better.

Posted by Oregon CUB at 04:07 PM | Comments (0)