BPU Plan Would Reimburse Utilities for Sales Lost to Energy Efficiency Programs

Known as limited decoupling, the scheme would ensure utilities are made whole for reduced retail sales resulting from successful energy efficiency initiatives
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Energy efficiency ends up costing utilities retail sales.

The state is suggesting a system now in place for two of its gas utilities may encourage other utilities to engage in more aggressive programs to cut both gas and electric use.

The draft proposal from the staff of the Board of Public Utilities is at the core of the agency’s efforts to achieve the more-ambitious energy efficiency goals mandated by 2018 law, which aims to promote a shift to 100% clean energy by 2050.

By most accounts, the state will not hit that target without overhauling its energy efficiency programs, particularly since the new Energy Master Plan envisions a doubling of demand for electricity by midcentury. That demand will largely be driven by efforts to electrify the transportation and building sectors, both of which now primarily rely on fossil fuels that contribute to climate change.

The high price of energy efficiency

In New Jersey, however, the push to get utilities to invest more in reducing energy use has been frustrated by a dispute over how to compensate gas and electric companies for lost revenue if energy efficiency programs prove successful in shaving retail sales. Also of concern is their ability to maintain the reliability of their power grids.

After a couple of decades of debate, that issue remains unresolved. The staff proposal has won praise from Rate Counsel director Stefanie Brand and others, but has raised concerns from some utilities and environmental organizations as not doing enough to change the utility business model, which relies on increased energy sales to grow.

Under the staff proposal, utilities will be able to recover lost revenue that they can demonstrate is attributable to their energy efficiency programs, as well as programs to reduce energy use during times of peak demand.

In its draft, the staff indicated its proposal is modeled on energy efficiency programs adopted by South Jersey Gas and New Jersey Natural Gas more than a decade ago, so-called limited decoupling. Dubbed Conservation Incentive Programs (CIP), they rely on incentives funded by shareholders to implement conservation programs.

Moving beyond conventional business model

Decoupling is touted as a way to change the century-old utility business model, which aims to increase energy sales. Instead, the new law aims to promote energy conservation while retaining the ability of utilities to maintain the reliability of their power grids.

Brand, in comments submitted to the BPU, argued the staff proposal is more consistent than a full decoupling proposal advocated by utilities and others because it more appropriately bases revenues on utility actions related to energy efficiency.

The staff draft, Brand said, balances the interests of both the utilities and ratepayers. A full decoupling proposal could allow utilities to over-earn on their energy efficiency programs, she said. New Jersey is only one of four states and the District of Columbia, which allow utilities to earn a return on their energy efficiency investments, Brand noted.

Others disagreed. Mary Barber, director of regulatory and legislative affairs for the Environmental Defense Fund, said full revenue decoupling makes the utility indifferent to customer energy use while maintaining affordable and reliable service.

Arguing in favor of full decoupling

In comments submitted with several other organizations, the EDF and others argued states with the most successful energy efficiency programs are ones that have a full decoupling program, which prioritizes climate change and energy efficiency goals.

Public Service Electric & Gas, which has a pending $2.5 billion energy efficiency filing before the BPU, declined to comment or provide its comments to the agency, which have yet to be posted on its website.

Tom Churchelow, president of the New Jersey Utilities Association, noted the deliberations over the proposal are in the early stages. Many stakeholders, including NJUA, expressed “the need to go further establishing adequate recovery of costs and incentives that appropriately align with the goals of the Act and enable utilities to deliver energy efficiency savings.’’

Steven Goldenberg, an attorney with Giordano, Halleran & Ciesla, disputed that assessment. In comments submitted to the agency, Goldenberg conceded the disincentive that exists for utilities to implement programs designed to reduce customer energy use.

“However, the staff proposal is designed to reduce this disincentive by making the utilities whole for all provable losses directly attributable to the utilities’ conservation efforts,’’ he said.