Does Driving Down Energy Use Mean Rethinking Utilities’ Business Model?

Tom Johnson | October 14, 2016 | Energy & Environment
Some states are successfully using ‘decoupling’ as a way to get power companies to convince customers to use less energy — without taking an economic hit

Ralph Izzo, chairman, chief executive officer, and president of PSEG
If the state is going to be more successful in cutting energy use and saving consumers money in the process, it needs to revamp its business model for utilities, according to New Jersey’s most prominent energy executive.

In a keynote address on the state’s evolving energy needs, Ralph Izzo, the chairman, president, and CEO of Public Service Enterprise Group, offered the company’s most expansive plea to date to develop a new regulatory model to encourage utilities to more aggressively invest in energy-efficient technology.

Izzo suggested that Public Service Electric & Gas, the state’s oldest and largest utility as well as PSEG’s most profitable business, is interested pursuing an overhaul of the century-old utility system.

Talks to that effect are now occurring in Trenton among a wide-ranging legislative task force, but similar efforts in the past have proved fruitless. Still, utilities are increasingly being squeezed financially by an array of changes sweeping the sector — declining energy use; increased reliance on cleaner and more localized energy sources, such as solar; and demands for better reliability.

“Meeting new expectations will require utilities to evolve,’’ Izzo said. “Energy efficiency is what the customers need… and we want to make it easy for them to get it.’’

Twenty-nine states already have embraced one new utility model in some form, a system dubbed “decoupling’’ in energy jargon. According to Izzo, “It seems to be a promising way to help make that (energy efficiency) happen.’’

In its simplest terms, the decoupling model insures that utilities get the revenue they need to maintain the reliability of their gas and electric grids — no matter how much energy they sell. In most cases, utilities are offered fiscal incentives for helping customers reduce their energy consumption.

For both utilities and consumer advocates, however, the devil is in the details. Consumer advocates fear decoupling could lead to an increase in energy bills in a state already saddled with some of the highest costs in the nation.

Still, Izzo, when asked by former Board of Public Utilities President Jeanne Fox for his thoughts on an energy-efficiency portfolio standard, he said the concept does make some sense, with certain reservations. Such a requirement would mandate specific reductions in energy use by utility customers, a policy long advocated by clean-energy advocates and environmental groups.

There is virtual consensus among those groups energy efficiency is the key to achieving a rational energy policy: It saves customers money, reduces pollution, and reduces strain on the power grid. Sadly, there is also consensus that New Jersey is falling short of doing what it needs in reducing energy use.

Izzo noted that on the latest national energy-efficiency scorecard, New Jersey ranks No. 24, dropping three places since 2015. The states with the highest ranking typically have an energy-efficiency portfolio standard.

In states with decoupling, and where they have told utility commissioners to make it their jobs to drive energy efficiency, they are achieving net energy savings of 2 percent, according to Izzo. “If New Jersey could reduce energy consumption by 2 percent, it would eliminate 1 million tons of carbon and put $130 million back in the pockets of consumers,’’ he said.

In other areas, Izzo said the company would continue to seek regulatory and legislative approval for investments in its traditional power grid and potential incentives for its nuclear power plants. The company is nearing completion of a $1.2 billion Energy Strong program, designed to improve the resiliency of its power grid to withstand extreme storms. Izzo said the company will seek approval for other improvements that need to be done, not initially approved by the BPU.

He also said the company is continuing its discussion with lawmakers for possible incentives for its nuclear power plants, which provide a carbon-free source of electricity for about half of the power consumed by residents and businesses in New Jersey.