Do Energy Conservation, Renewables Mean Utilities Must Earn Less?

The Legislature again turns it attention to decoupling, which could sever the bond between selling more energy and making greater profits

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The Legislature may tackle one of the more contentious issues confronting the energy sector: How do utilities thrive when their customers are using less gas and electricity, and sometimes generating their own power?

The move is driven by increased energy conservation due to high prices and a growing reliance on producing electricity from other than conventional power plants, many of which are among the biggest sources of greenhouse gas emissions contributing to global climate change.

Good new for consumers, but not for utilities, if the trend continues as most expect it will. For utilities, it raises concerns about whether they will have the money to invest in maintaining their infrastructure at a time when they are under pressure from regulators to improve the resilience of the power grid.

One possible answer is to revamp the more than century-old business model that rewards utilities according to how much energy customers use. Instead, it would incent utilities to invest in energy conservation and renewable energy by adjusting ratepayers’ bills — even if sales fall.

Dubbed “decoupling,” it is a strategy adopted by more than two dozen other states with varying degrees of success, but a concept that has failed to win strong backing in New Jersey. But legislators seem inclined to try again.

The Senate Environment and Energy Committee is expected to establish a stakeholder group at its meeting next week to come up with recommendations for legislation to decouple’ energy rates from energy usage. Sen. Bob Smith (D-Middlesex), the chairman of the committee, has used such a working group at times to help frame bills when there is a wide divergence of views.

Decoupling meets that test. In fact, two years ago, Smith appointed a stakeholder group to look at the issue and try to forge a consensus on what the state should do. The only thing the group could agreed on was that the state needs to significantly change its business model for utilities if it is to achieve a goal of reducing greenhouse gas emissions by 80 percent by 2050.

How to achieve that end was left unresolved. And not everyone is eager to see decoupling happen. The state Division of Rate Counsel has repeatedly raised concerns, joined by consumer advocates, that decoupling would only increase bills for customers in a state already saddled with some of the highest energy costs in the nation.

To others, however, including many clean-energy advocates, the state needs to restructure its rate model for utilities if New Jersey is going to increase energy conservation and use of renewable energy. Public Service Enterprise Group CEO, President, and Chairman Ralph Izzo also often has spoken in favor of giving utilities increased financial incentives to invest in energy efficiency and solar power.

To some extent, decoupling is already happening in the state, but on a smaller scale. New Jersey Natural Gas and South Jersey Gas have programs in place to encourage customers to reduce the amount of gas they use, which have generally been well-received by both consumers and regulators.

The difficulty has been in designing a one-size-fits-all decoupling program that all of New Jersey utilities have been willing to back. It also is uncertain whether the Christie administration would get behind such a program — given Rate Counsel’s concerns.