BPU Proposal Looks to Prompt Utilities to Get Customers to Use Less Energy

Tom Johnson | March 25, 2020 | Energy & Environment
Agency staff tackles longstanding problem in New Jersey: making customer energy efficiency more palatable to utilities, who view it as negative impact on revenue
Credit: Twenty/20
The latest state proposal promotes the notion that energy efficiency programs can lead to lower bills for customers and create tens of thousands of green jobs in the state.

The state is circulating its latest proposal on how to spur gas and electric utilities to curb energy use by their customers, a top priority of the Murphy administration’s clean energy plan and efforts to fight climate change.

The 93-page straw proposal by staff of the New Jersey Board of Public Utilities is viewed as a possible framework for establishing a more comprehensive statewide energy efficiency program, one that aims to chart a course toward achieving some of the highest energy savings in the country.

By cutting energy use, energy efficiency programs can lead to lower bills for customers and create tens of thousands of green jobs in the state, according to the straw proposal. “Moreover, energy efficiency initiatives are one of the easiest and cheapest resources in our fight against the global climate crisis,’’ the plan said.

Getting utilities to buy into energy efficiency

Few dispute those arguments, but the big hurdle in New Jersey has usually been what kind of incentives are needed to prod utilities to invest more heavily in energy efficiency when it negatively affects their bottom line.

The Clean Energy Act, signed by Gov. Phil Murphy in May 2018, sought to achieve the goal. The law set new requirements for utilities to cut customer electric use by 2% a year within five years and gas use by 0.75% a year. It also envisioned a greater role in utilities running energy efficiency programs.

The staff proposal reflects those goals by handing over a significant amount of administration of existing energy efficiency programs to utilities, although a few will be co-managed by the state Office of Clean Energy.

The program also aims to provide access to energy efficiency initiatives to all market segments, New Jersey residents and businesses, regardless of geographic location. It also intends to decrease energy burdens on all ratepayers, with a specific focus on lower-income customers and environmental-justice communities.

Most states — particularly those with the most successful energy efficiency programs — have so-called limited decoupling mechanisms, a way of making utilities indifferent to customer energy use while allowing them to maintain affordable and reliable services, according to environmentalists.

The latest proposal by the BPU recommends a limited decoupling system, modeled somewhat on energy conservation programs already in place for South Jersey Gas and New Jersey Natural Gas. In those instances, they rely on shareholders to fund incentives for achieving reductions in customers’ gas use.

Three tools to promote energy efficiency

Under the straw proposal, staff proposed three ways to align the utility business model with increased energy efficiency. The regulatory tools include allowing utilities to recover program costs; recovery of lost revenues tied to efficiency programs and earning opportunities for efficiency investments through performance incentives. It also would penalize the utility’s return on equity if it failed to achieve performance standards.

But the proposal got mixed reviews from Tom Churchelow, president of the New Jersey Utilities Association. “I think what was envisioned as being a key component of the Clean Energy Act was to change the dynamic in a way that prioritizes as an investment and provide incentives to do so.’’ This proposal doesn’t get us there, he said.

The BPU staff is soliciting comments from stakeholders at a webinar it is holding Friday and seeking written comments through April 13. Comments on the straw proposal will help shape final recommendations of staff to the full BPU, with action anticipated this May.