BPU Proposal Discourages Utilities from Investing in Energy Efficiency, Critics Claim

Tom Johnson | April 2, 2020 | Energy & Environment
Staff proposal, according to one critique, makes investing in energy efficiency less economically rewarding than investing in infrastructure
Credit: Alexei Chizhov via Pixabay
Transmission infrastructure

The state’s utilities may be reluctant to invest in New Jersey’s efforts to promote energy savings due to “disincentives’’ offered under a revamped program by the Board of Public Utilities, according to company executives and clean-energy advocates.

In a stakeholder meeting held via webinar, the staff’s straw proposal got mixed reviews from lobbyists, consumer advocates and others — largely on long-standing contentious issues, including how to allow utilities to recover lost revenue when energy-efficiency programs reduce gas or electric sales and their bottom lines.

Perhaps, most problematic from the utility perspective, is the proposal would reduce their ROE (return on equity) on investments in energy efficiency. The reduction was justified by the proposal because it maintains that those investments are less risky than traditional infrastructure investments.

Infrastructure vs. energy efficiency

“If investments in energy efficiency will earn less than investments in infrastructure, the utility will never prioritize energy efficiency,’’ said Erin Cosgrove, representing the Energy Efficiency Alliance of New Jersey.

Karen Alexander, president of the New Jersey Utility Shareholders Association, argued several provisions in the straw proposal will hinder the ability of utilities to attract investment capital, including ROE.

“The ROE deduction for energy efficiency makes a dollar spent on energy efficiency less valuable than a dollar spent on pipes and wires,’’ Alexander said. “This is a disconnect that must be remedied if the programs are to succeed.’’

Karen Reif, a vice president at Public Service Electric & Gas who oversees its clean-energy strategy, also recommended the staff eliminate the ROE reduction. “It has nothing to do with how well a utility helps its customers save money, it is not authorized under the Clean Energy Act, and is unprecedented in the U.S.’’ Reif said.

The straw proposal is being driven by mandates in the nearly two-year-old Clean Energy Act, a law that seeks to transition New Jersey to a clean-energy economy. The law mandates electric utilities cut customer energy consumption by 2% a year within five years. Gas companies are obliged to cut customer use by 0.75% annually over the same period.

Seeing eye to eye over ROE

In general, several clean-energy advocates agreed with arguments about the ROE reduction, as well as calling for a full decoupling provision as a way of making utilities indifferent to customer energy use while providing enough resources for them to maintain affordable and reliable services.

Instead, the straw proposal recommends a limited decoupling system, modeled somewhat after energy-conservation programs in place for South Jersey Gas and New Jersey Natural Gas. In those cases, shareholders fund incentives for achieving energy savings.

Division of Rate Counsel director Stefanie Brand, noting the economic distress caused by the coronavirus pandemic, warned if the state had a full decoupling provision, shareholders at the utilities would be rewarded while ratepayers would face spikes in their energy bills.

Dennis Hart, executive director of the Chemistry Industry Council, and a member of the Energy Efficiency Alliance Group, argued that too often the debate over energy efficiency focuses on what kind of return on investment utilities should make instead of the return earned by residents and businesses.

David Pringle, speaking for Clean Water Action, agreed. “Too much focus centers on utility profits rather than customer savings,’’ he said. “We need to make sure decoupling doesn’t slide in. This proposal provides the appropriate restraints.’’

Others faulted the proposal for failing to address the needs of low- and moderate-income communities, who in the past have not benefitted from the switch to cleaner technologies, like solar and wind. They pressed for more aggressive job-training programs in those communities.

The BPU staff anticipates presenting a regulatory proposal to the board sometime in May. Utilities would have to submit program proposals by late summer or early fall; the programs would start in July 2021.