Ceres Report Proposes New 21st Century Electric Utility Model Aligned with Clean Energy Goals
Utility Financial Expert Peter Kind Offers New Vision for Reducing the Industry’s Carbon Footprint While Avoiding Big Hikes in Customer Fixed Monthly Charges
November 9, 2015 /3BL Media/ - As regulators, industry representatives and advocates discuss power sector challenges at the National Association of Regulatory Utility Commissioners’ (NARUC) annual meeting, Ceres today releases a report outlining a pathway to align the electric utility business model with increased clean energy deployment and long-term financial viability amid growing climate change concerns. The rapid pace of technological change, falling renewable energy prices, increased energy efficiency, and policymaker focus on low-carbon energy and customer choice are increasingly challenging the traditional utility business model – yet as the report lays out, there are win-win solutions.
Commissioned by Ceres and authored by electric utility expert and investment banker Peter Kind, Pathway to a 21st Century Electric Utility Model proposes a vision for accelerating the transition to a reformed electric system that benefits all stakeholders, including customers, competitive third party providers (e.g.. companies deploying rooftop solar), policymakers, utilities and their investors.
“Our current path is not leading us toward a 21st century utility that provides safe, reliable and affordable energy, and meets the needs of customers, society and utility investors. We need a pathway that incentivizes the right choices for both more efficient use of clean energy and the deployment of capital,” said Peter Kind, executive director of Energy Infrastructure Advocates LLC,who also authored the 2013 Edison Electric Institute (EEI) Paper: Disruptive Challenges: Financial Implications And Strategic Responses To A Changing Retail Electric Business.
The report proposes comprehensive reform measures that would help achieve clean energy goals and long-term industry stability:
- State policy revisions consistent with the proposed model for a 21st Century Utility, including: 1) environmental, renewable energy, energy efficiency, demand response and peak-load management objectives and transitional targets; 2) refining building standards to support clean energy goals; 3) accountability metrics for utility performance; and 4) reforming regulatory oversight to focus on planning and accountability;
- Enacting regulatory reform to support efficient resource deployment and accountability, including a forward-looking rather than backward-looking approach;
- Refining utility rate structures to align price signals and revenue incentives with key clean energy objectives, including inclining block rates to encourage efficiency, revenue decoupling, bidirectional meters for customers who install renewable energy on-site, and fair time-of-use rates that can help reduce peak electricity demand;
- Enabling and holding utilities accountable for clean energy transition, and for educating customers on new energy management alternatives. One of the recommendations for helping customers adopt new energy services is through a customer-focused energy management application store that could be accessed via smart phones and other mobile devices.
"This report proposes an approach that will align an electric utility's business model with society's need to decarbonize the power sector and therefore unleash more investment in clean energy resources," said Dan Bakal, director of Electric Power at Ceres."Electric utilities are key players in deploying capital in clean energy at the speed and scale needed to limit climate changing pollution. Achieving such goals in the US power sector and across the world globally is integral to achieving Ceres’ Clean Trillion objective of boosting clean energy investments globally by an additional $1 trillion a year to avoid catastrophic climate warming.”
Addressing Fixed Charges: Pathway to a 21st Century Electric Utility Modelincludes notably different recommendations from the report author’s previous Edison Electric Institute 2013 paper, Disruptive Challenges. In response to declining revenues as customers consume less power, the earlier EEI paper advised utilities to:
“Institute a monthly customer service charge to all tariffs in all states in order to recover fixed costs and eliminate the cross-subsidy biases that are created by distributed resources and net metering, energy efficiency, and demand-side resources.”
Since 2013, utilities in dozens of states have brought forward numerous rate cases proposing to significantly raise these mandatory monthly fixed fees, drawing opposition from National Association of State Utility Consumer Advocates, the American Association of Retired People, the National Association for the Advancement of Colored People, the Christian Coalition, and countless others working to advance renewable energy, energy efficiency and conservation in America’s electric power sector.
Pathway to a 21st Century Electric Utility Model takes a far cooler stance on fixed charges, stating:
“The policy of adopting monthly fixed-charge increases has several flaws—principally that such increases would remove the price signals needed to encourage energy efficiency and efficient resource deployment. This paper proposes several solutions to address the utility revenue challenge as an alternative to increased fixed charges, such as inclining block rates, reforming net energy metering, use of bidirectional meters, time-of-use rates, accountability incentives and identifying new revenue opportunities for utilities.”
Energy Efficiency: The report also cites energy efficiency as one of the most significant opportunities to enhance both customer value and environmental benefit. The American Council for an Energy Efficiency Economy (ACEEE), for example, estimates that a 40 to 60 percent reduction of electricity sales could be achieved by 2050 by harnessing the full suite of opportunities. Because increased efficiency can strike at the revenue base of utilities, financial incentives must be designed and deployed so that utilities are not penalized financially for encouraging energy efficiency.
Download the report here: http://www.ceres.org/resources/reports/pathway-to-a-21st-century-electric-utility/view
About Ceres
Ceres is a nonprofit organization mobilizing business leadership on climate change, water scarcity and other global sustainability challenges. Ceres directs the Investor Network on Climate Risk (INCR), a network of more than 110 institutional investors with collective assets totaling more than $13 trillion. Ceres also directs BICEP, an advocacy coalition of 36 businesses committed to working with policy makers to pass meaningful energy and climate legislation. For more information, visit http://www.ceres.org or follow on Twitter @CeresNews.
