Should Ratepayers Pick Up the Tab for Energy Efficiency?

Lawmakers ponder a bill that would reward energy efficiency but could end up forcing consumers to subsidize new technologies

When the sun beats down on a solar panel, for each megawatt of electricity the system generates it earns the owner a solar renewable energy certificate (SREC), which in the spot market can fetch up to $670.

If offshore wind farms begin churning out power sometime in the future, they will earn offshore renewable energy certificates (OREC), although the price tag has yet to be determined.

In both instances, the cost of those certificates ultimately are or will be passed on to electric customers, a subsidy designed to kick-start those renewable energy technologies. Now, lawmakers are thinking of creating a similar type of program to promote energy efficiency, a prospect that worries consumer advocates.

Efficiency Certificates

Should energy efficiency projects that curtail electric or gas consumption be eligible for similar certificates? If bill A-2529 becomes law, that question would have to be answered by the state Board of Public Utilities (BPU).

The legislation directs the state agency to evaluate if it should adopt energy efficiency portfolio standards along the lines of renewable energy portfolio standards now in place in New Jersey and many other states. These require utilities to purchase a minimum amount of the electricity they deliver to customers from renewable energy sources, such as solar and wind power.

With New Jersey setting a goal of reducing energy consumption by 20 percent by 2020, the bill aims to spur greater investment by the private sector in energy efficiency. But some skeptics worry the measure could end up inflating already high gas and electric bills for customers across the state.

That is because ratepayers end up paying for SRECs and other renewable energy certificates, a strategy the state adopted to help “jump-start” fledgling industries that are not yet cost-effective, said Stefanie Brand, director of the New Jersey Division of Rate Counsel.

“It’s different for energy efficiency because it should be cost-effective on its own,’’ Brand said. Creating a portfolio standard for this program also might lead suppliers to come up with programs to meet the standard, whether or not the programs are cost-effective, she said. Furthermore, if the suppliers fail to secure enough certificates to comply with the new energy efficiency standard, it also could result in additional compliance payments, Brand said, an outcome that would be unnecessarily costly for ratepayers.

Lowering Costs to Customers

But Assemblyman Upendra Chivukula (D-Middlesex), the sponsor of the bill, argued it would end up lowering costs to customers because moving to a market-based system would encourage more competition among energy-efficiency firms, which would lower prices to customers.

The issue is important because the Christie administration is weighing whether to have the state’s four gas and four electric utilities oversee the energy-efficiency program instead of having it managed by the BPU, which Chivukula notes paid out $53 million to three contractors to run the program over the past few years. The energy efficiency projects are allocated three-quarters of all clean energy funds, according to a law enacted when the state deregulated its energy industry.

The state’s energy efficiency programs are now primarily funded by a surcharge on gas and electric customers’ bills, the so-called the societal benefits charge. The surcharge has rapidly grown in recent years, so much so, in fact, that policymakers are questioning whether it should be trimmed back.

Whatever action is taken, business lobbyists say the last thing the state should do is anything that results in higher energy bills.

“I’m opposed to anything that imposes any new costs on utility bills,’’ said Hal Bozarth, executive director of the Chemistry Council of New Jersey. “We need to lower energy costs, not do anything to increase them.’’

Ev Liebman, program director for New Jersey Citizen Action, also expressed concern. “We should tread very carefully in this realm and not do anything to dilute the benefits of energy conservation,’’ she said.

Beyond the conflict over the energy portfolio standard, the bill is controversial in other areas, too. It seeks to redefine current classifications of Class I and Class II renewable energy as “alternative energy ‘’ technologies and to classify what size solar projects are eligible for SRECs. Solar advocates fear the bill will make it nearly impossible to finance larger solar projects if it is adopted as currently written.