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Energy Conservation Update

Conservation Improvement Program image

The March 9 edition of Session Weekly from Minnesota House of Representatives includes a short piece on Representative Kalin's H.F. 1221 on energy conservation. I recently wrote a post about the decoupling portion of this bill.

The bill has been approved by the House Energy Finance and Policy Division. Its next stop is the House Finance Committee.

The bill represents an expansion of the state's current conservation improvement program, which directs utilities to invest money in programs and initiatives that encourage energy conservation among their customers.

Kalin called the 1.5 percent goal both "aggressive" and "doable." Representatives of utility companies, however, said they would have a tough time meeting it, and that it might result in higher gas and electric prices.

Mike Bash, chief financial officer of Connexus Energy, said it didn't make sense to put the onus for energy conservation on the utility companies when customers are responsible for gas and electric demand.

"We're not at our customers' shoulders when they're at Best Buy buying that new plasma TV. We're not at their shoulder when they're at the hardware store deciding which light bulb to buy. We're not there with their builder at their new home deciding what appliances to put in," Bash said, adding that his company will have to raise its rates anywhere from 6 percent to 10 percent if the bill passes.

Sheldon Strom, executive director of the Center for Energy and the Environment, disputed the notion that the bill would increase energy prices, arguing that having to build new power plants to meet energy demands would be much more expensive than conservation.

In the same pattern of testimony from the Renewable Energy Standard, utilities largely said that 1.5% is too big a conservation goal. Some suggested they thought they could meet 1% but even that would be stretch.

When discussing why utilities are required to do the conservation (in response to Bash's question above), someone noted that energy companies are trusted by consumers and are therefore posed to offer the best programs to reduce demand. From a philosophical point of view, I wholly agree that customers should be the targets and not the energy companies themselves, but I think this plan is more practical.

That being said, one utility testifier made the salient point that they may offer a customer hundreds of dollars in rebates for efficient appliances, only to see them purchase a bigger TV or something else that will nullify the conservation. It left me thinking that education has to be the ultimate answer.

When discussing potential costs, testifiers for the utility companies stressed that this could raise rates and that there is no linear relationship between conservation and money spent. Thus, conserving 2% may cost more than twice as much as conserving 1%.

While that makes intuitive sense (CFLs are cheap, but only take you so far) some of the testimony seemed over the top. Some of the testifiers used cost estimates extrapolated from what they are currently achieving. However, their current requirement is a spending requirement - not an efficiency requirement. Thus, there undoubtedly ways for the utilities to be more efficient with their conservation dollars.

The worst moment came when one of the utility testifiers showed what other states are doing and insinuated that Hawaii's incredibly stringent conservation requirements are responsible for their sky-high $.22/kWhr cost. As one Representative pointed out, this is a meaningless comparison because Hawaii has to pay exorbitant energy costs due to its isolated location.

I thought the best moment came when some of the more conservative members of the committee were complaining that this bill goes too far. Another member noted that the Leg has been moving increasingly toward performance standards in all aspects of policy and that this is nothing more than a step in that direction.

The Great Climate Swindle

Well, I stand corrected. This whole global warming thing is a big sham. (Click the link to see the video.)

It's a nice summary of the usual arguments: censorship and intimidation by mainstream science, the IPCC is a political, scientists are inventing the problem to get funding, they are trying to stifle economic development, etc.

Tony Blair: Action Hero!

That's what Gov. Scharwzeneggar is calling Tony Blair after he unveiled plans to legislate binding emissions cuts in the UK. Under the draft plan, which sounds similar to Minnesota's pending climate legislation, carbon emissions would be cut 26 to 32 percent in 2020 and 60 percent in 2050. There is no specification for how to achieve this cuts, but the bill would encourage consumers to "become energy producers" and includes the usual greater efficiency, renewables, and possibily carbon capture and sequestration. Expanding the nuclear option is also on the table.

This story also alludes to some of our discussion on offsets and self-sacrifice. When pressed, Tony Blair said he would not be giving up vacations anytime soon:

"There is a way that we can be responsible members of society but without trying to get to the stage where you say to people in Europe that you must never travel or take the aeroplane. That is not going to happen...", he said.

This comment was echoed by an environmentalist quoted in the story:

"It is inevitable that we are going to see some drastic changes, but with the right government programme put in place it will not impinge too heavily. For instance, it could mean changing the fuel we put in our cars, or the way energy is produced at source, or more recycling."

Decoupling

Light bulb

The House Energy and Finance Committee had several discussions centering around decoupling sales from revenues for gas and electric utilities. Decoupling enables removes the disincentives for energy efficiency and conservation that utilities currently face.

Wayne Shirley from the Regulatory Assistance Project testified in front of both this House Committee (on February 28) and in front of the Senate Energy Committee (on February 27 I think).

Decoupling is a feature that Governor Pawlenty has mentioned and one that Representative Kalin has included in his bill on the conservation improvement programs (CIPs). House Research has a summary of that whole bill - but I am focusing on the decoupling aspect here. If I understand it correctly, H.F. 1221 requires the Public Utility Commission to establish standards for decoupling. Utilities may then enter into pilot projects to see what happens when revenues are decoupled.

So what does decoupling mean? That summary has a good definition of decoupling:

"Decoupling" means separating a utility's revenues from its fluctuations in sales in order to remove utility disincentives to promote energy efficiency.

I'll explore what this means by summarizing Shirley's testimony. If you want to hear his words, I have isolated his audio presentation (6 MB mp3, 36 minutes long) to the House as well as a 15 minute clarification from discussion in the Senate Committee (6 MB mp3).

Currently, the ratemaking process for utilities involves the utility (Xcel for instance) and the Public Utilities Commission determining the appropriate rates for selling electricity (or gas) based on "cost of service regulation." All operating expenses are summed with the necessary returns on capital investments to get the revenue requirement. This is divided by the sales to get the price that at which electricity will be sold.

In the real world, sales will be different from what is expected based on many factors. This may mean higher or lower sales than expected. If the sales are insufficient (over time, perhaps several years later) to recover costs and the needed rate of return, it starts the process over.

As the utilities generally have high fixed costs, it cannot lower costs to make more money. They make more money based upon sales. Higher sales than expected during the ratemaking mean more profits (or higher dividends for cooperatives). This a significant disincentive to encouraging customers to lower consumption.

Decoupling changes the ratecase procedure by adding another step. After the revenue requirement is divided by the expected sales, they compute the average revenue per customer in each class (industrial, commercial, and residential). This is done more frequently (somewhat automatically) than traditional ratecases. For instance, the rate might be adjusted based upon actual consumption every month.

He uses this example:

A utility is determined to require $1 million from a given rate class. They are selling 25 million kilowatt hours of energy over that period. Under the existing system, this means the utility will charge $.04 per kilowatt hour. ($1,000,000/25,000,000 kWhrs).

If many customers became more efficient and reduced overall consumption in that rateclass by 1.5%, the utilities revenues would decline by $15,000.

Under a decoupling arrangement, the rate is adjusted for the next time period so that all ratepayers in that class are now paying $.0406 per kWhr.

At this point, you may be thinking, "Whaaaaa? How is it that the rates go up because people are conserving?" The utilities have to cover their costs and necessary returns on investments. If they are selling less power, they need to price it higher. Bear in mind that those who conserve power and use less of it will see smaller bills even if the rate increases slightly. In the example above, that was a fairly major (and unlikely) sudden reduction in consumption. In real life, the reduction would be smaller and also balanced partially by a growing customer base.

The important part about all of this is that utilities no longer have an incentive to increase their sales. If they increase their sales, the rates will drop in the next period (again, perhaps monthly or quarterly) and they will not profit from those increases (because their rate of return remains fixed). When combined with other aspects of Representative Kalin's improved CIP bill, the utilities have a strong incentive to encourage conservation and efficiency.

Decoupling has the effect of stabilizing the revenue stream of the utilities because its revenues are no longer dependent on sales. Thus, a mild winter will no longer hurt the profits of energy companies whereas a cold winter will no longer boost profits (due to higher than expected sales).

MN Leads

Executive Director of the Sierra Club, Carl Pope, recently used Minnesota as an example of a state which is leading on climate change legislation.

The US is actually beginning to show some leadership, based on innovative state policies.

The rest of piece discusses his fear that Congress will move in and create federal policies that preempt stronger state policies.

GHG Offsets

The local Institute for Local Self-Reliance's David Morris is quite skeptical of carbon offsets. I think he identifies many of the problems with offsets (both philosophical and practical) but I disagree with his assessment of cap and trade programs.

This summarizes my key objection to offsets:

Those who purchase offsets believe they are doing something significant when they are not. Their sense of mission accomplished undermines their enthusiasm for real actions that require more sacrifice, which indeed, may be the key selling point for those selling voluntary offsets.

Week Wrapup

SI Cover Photo

MEP's lobbyist, John Tuma explained what happened to climate change legislation in the Minnesota House this week. He also mentions progress on the conservation legislation.

In other interesting news this week, Sports Illustrated has a cover story this week on sports and global climate change.

As global warming changes the planet, it is changing the sports world. To counter the looming environmental crisis, surprising and innovative ideas are already helping sports adapt

I'm looking forward to reader reactions in the next couple of issues.

Short Notice: Climate Change Symposium

Short Description: 

"What Science Really Says About Global Warming"

Featuring: Dr. Patrick Michaels, Research Professor, Environmental Sciences, Univ. of Virginia (and Senior Fellow of the CATO Institute

Dr. E. Calvin Beisner, Asso. Professor of Social Ethics, Knox Theological Seminary & National Spokesman, Interfaith Stewardship Alliance

James Taylor, JD, Senior Fellow, Heartland Institute (a nonprofit organization devoted to discovering and promoting free-market solutions to social and economic problems).

Sponsor: 

Senator Mike Jungbauer
Representative Tom Emmer
Senator David Haan
Representative Mike Beard

Cost: 

Free - I think

Full Description: 

This event promises to tell us what the science really says about global warming and appears to only feature one scientist. Viewing the web sites of James Taylor and Dr. E. Calvin Beisner reveal common misconceptions and inaccuracies about what the climate science says.

However, Dr. Patrick Michaels appears to have a good handle on the relevant science (judging from an interview I saw with him) but questions just how much we should do to deal with climate change.

The presenters are clearly stacked to represent both the free market response to climate change and climate science deniers.

Ethanol and Coal

Using coal to produce ethanol and a really dumb idea and state policies should guard strongly against it. Though using coal makes ethanol production significantly cheaper, the environmental impact is worse than actually continuing reliance on gasoline. It increases emissions of all kinds and generally is poor for the environment.

Nonetheless, some ethanol producers in MN are moving toward coal rather than natural gas. I'm thrilled to see California using intelligent policies to blunt that trend.

California Gov. Arnold Schwarzenegger and his state's Legislature have embraced a plan to rate all motor fuels by greenhouse gas emissions over their entire life cycles, from production to transportation to ignition.

Measured that way, ethanol made from plant residue would earn an excellent rating. Ethanol from corn would do moderately well. And corn ethanol made in a coal-fired plant? That would rate poorly — even lower than ordinary gasoline, according to Schwarzenegger's office.

Using coal to produce biofuels negates the environmental reasons to embrace biofuels and, in my opinion, causes more harm than good.

Carbon Dioxide Reductions Needed

Following my Climate Change Confusion post, we had a short discussion of what it takes to stop climate change. For some context, I wanted to alert people to a new report from the Electric Power Research Institute (EPRI) entitled Electricity Technology in a Carbon-Constrained Future.

There is significant potential for emergence of U.S. government policies that will place constraints on greenhouse gas emissions, including CO2. To better understand our future options, EPRI conducted a technical analysis of the potential for significant CO2 reductions from the U.S. electric power sector within the next 25-30 years.

EPRI CO2 Future Emissions chart

Stopping climate change in the future, means significant actions now. This is not talk of reversing it, but stabilizing it in the future. To do that, scientists recommend an 80% reduction of emissions by 2050. This chart shows how much work we have to do in the electric sector to head in that direction.

I have not read the actual report (limited time, I'm trying to focus on issues directly in front of the MN legislature) but I hope others will and write about it.

The report comes with an executive summary and presentation.

As a side note, I hope that their prediction of wind generation in 2030 is low. I think we can do better than 6% ish by 2030.

Also, I'm not sure that I totally understand the chart and why plug-in hybrid electric vehicles (PHEVs) are expected to lower the amount of emissions from the power sector. I believe the electric sector wants to get credit for them as it will provide the energy, but I would also expect a sudden spike in electricity demand as they hit the market.

Climate Change Confusion

I was just listening to an old Talk of the Nation - from 22 Feb - with Jonah Goldberg, Dan Kammen, and Barry Rabe talking about (in)action to mitigate climate change. You can download the mp3 here - the discussion is perhaps 30-40 minutes at the beginning of the segment.

After listening to Neil Conan describe the discussion about to take place, I thought I should write something to dispel a few major misconceptions about climate change and the debate around it. Neil Conan asked if "global cooling" or "reversing" climate change would be too expensive (this is the claim made by Goldberg).

To my limited knowledge, no one is seriously talking about "reversing" global climate change. We are talking about slowing it or, for the ambitious, stopping it. This is to say that we are going to slow human-caused greenhouse gas (GHG) emissions. Slowing substantially or stopping climate change will be a herculean effort - reversing it is almost beyond contemplation just now.

So to be clear, most arguments about climate change are about whether we should slow GHG emissions and at what rate.

In the discussion on TotN, Goldberg noted that a rising temperature on Earth is not that big of a deal because the earth has been warmer and cooler in the past. He also later claimed that talk of a rising ocean level is not persuasive to him. I find this odd because the ocean levels have been both higher and lower in the past.

It does not take much to figure that a higher temperature will impact the ocean levels. Even without melting ice, warmer water takes up more space than cooler water (called thermal expansion). Thus, there are two main contributors to higher sea levels. At this point, this is little scientific certainty as to how rapidly sea levels will rise with a warming climate but I have not heard of a single scientist predicting shrinking sea levels.

Goldberg's argument that we should not mitigate GHGs comes from the apt observation that millions of people die every year from problems that could be solved with the money and attention that is being paid to global warming. He cites a number predicting 1 million climate change related deaths in 100 years and believes we are focusing on the wrong problems based upon that metric.

This seems to be THE main argument from economists for inaction on climate change. If one only valued human life and only knew that 1 million death prediction (I believe this describes many economists) then it makes sense that they argue our focus on climate change is misplaced.

However, climate change impacts all creatures on earth and there are significant moral questions to valuing cheap fossil fuels over mass extinctions. Even from a human-centric view, these mass extinctions can be dangerous because humans depends on food chains for sustenance. Nonetheless, there are far greater costs to global climate change than most economists take into account (in part because it is difficult to place a monetary value on them).

On the other hand, scientists are often specialists. They know a lot about things like climate change, biological diversity, and the dangers of them. They rarely spend time deciding if the money used to prevent problems in their field would create more utility for humans (or the planet) if it were used somewhere else (say to alleviate poverty in poor countries).

Thus, scientists and economists argue in part because they do not understand where the other comes from.

Another issue I have heard recently in popular culture is the idea that the ozone hole is/isn't healing and that it means we cannot stop climate change.

Climate change is occurring regardless of the problems in the ozone layer. The ozone hole is dangerous for other reasons beyond just climate changes. Healing the ozone layer will not stop global warming. These are two different problems that are interrelated, but not in the sense that solving one will solve the other.

The final issue on climate change is the terminology. I use the term "global climate change" rather than "global warming" because idiot talk radio hosts are obsessed with refuting "global warming" by noting any low temperature or cooling trend in the world. While the average temperature of the planet is warming, it does not get warmer everywhere by the same degree. Some places may even cool.

I prefer climate change because it is easier to explain to the lay person because it does not have the connotation as global warming. However, some argue that climate change suggests it is a natural process rather than one caused by human actions. Though it may that impact on some, I still find it a more accurate term.

Climate Change Testimony

I listened to the Feb 22 Minnesota Senate Energy Committee meeting (audio available here, scroll down for the day) and had some thoughts about the testimony on the climate change legislation before the committee.

Otter Tail Power (OTP) started by bragging about decreasing its carbon intensity since 1990 and said it has plans to continue decreasing it. This is the same language that the Bush Administration uses when trying to obfuscate its energy policy with a policy that actually does something. Business as usual means Otter Tail Power will decrease its carbon intensity. It is called being more efficient. If Otter Tail Power decided to stop being more efficient, that would be dumb for its investors because they would be wasting money.

Thus, OTP essentially begins its presentation by bragging about something it must do. This is not action. Though future reductions of carbon intensity for OTP seems like a course of action, it is not. It is business as usual. Well, business as usual and a strong RES (renewable electricity standard). Business as usual will not mitigate greenhouse gases (GHGs) and commits everyone to a rapidly changing climate.

The testifier next discussed what Minnesota should do. OTP wants a stakeholder process to recommend policies on GHGs and to inventory MN GHG emissions. Other actions supported by OTP are to make plans to eventually do something. Notice that they do not want to do anything, they want to contemplate doing something.

They continue to characterize a Minnesota cap-and-trade program as being "unilateral" despite the fact that many other states have done so and offer a market for us to tap into. Though this market will work better with all states involved, we have to start somewhere.

I think he seriously stretched the truth about the growing electricity load in Minnesota. To hear him tell it, electricity demand must rise. Keep in mind that California has nearly flat-lined its per capita load growth over the last 30 years. Given proper incentives and investment, Minnesota could also keep load growth quite low despite a growing population.

A major question for future electricity demand rests with plug-in hybrid vehicles. The mass adoption of those vehicles over the next 10 years will certainly add substantially to electricity demand. As someone who is pushing for no new coal plants right now, I don't actually have a good solution for how to deal with rising demand for power aside from policies to encourage efficiency. This seems to fall apart when plug-in cars are introduced due to the large amounts of electricity they will require.

OTP apparently does not appreciate the potential for such policies - the testifier believes that all appliances purchased from Target and plugged into the wall will increase electrical demand. However, many of those appliances will be replacing existing appliances. In a perfect world, each new appliance would be more efficient than the one it replaces.

The final point of OTP's representative was that pushing a cap-and-trade program or other programs that require offsets will cause OTP to rely on older, less efficient coal generation than if Big Stone II is built. Big Stone II will be very efficient and comparatively clean (thanks to strong environmental laws that utilities like OTP tend to challenge legally at every opportunity). The testifier suggested that if BSII is built, they will retire their 50+ year old generators in Fergus Falls. This strikes me as being a bit of wishful thinking and bluster built into one.

Regardless, it strikes me that a policy that punishes new coal generation (via offsets as in both Anderson and Pawlenty's plans) while not at least dealing with the grandfather issue is lacking. Ultimately, it seems to me that we want to cap emissions - not coal. Ideally, we would want Big Stone II built and older plants decommissioned in such a manner as to keep emissions flat-lined or begin decreases.

I find it ironic that these utilities and other interests opposed to GHG regulation are pushing for more studies like the wind integration study. Many of them actually cite that study as being a good example. This comes mere weeks after they attacked the study in committee testimony as being wrong, based on erroneous assumptions, and generally unhelpful when it comes to putting more wind on the grid. Now they want to do the same thing with GHG emissions?

Before ending this rant, I do want to note that utilities such as OTP resist this legislation for a reason - they are committed to providing cheap, reliable electricity. If rates suddenly rise or electricity becomes less reliable due to legislation (however necessary it may be), most people will get angry with them, not with the legislature. Nonetheless, I do believe that utilities like OTP must be compelled to invest carefully for the future given what we know and what technologies are available.

New Xcel Rates

Xcel Energy has quietly raised the rates for their Windsource program, bumping up from 2 cents to 3.5 cents per kilowatt-hour. While their website mentions the change, that seems to have been the only advertising of the new rate; I was unaware of it until I got my bill a few days ago. Interestingly, the bill insert touting Windsource lists the program's cost at the old rate. Maybe they just had a lot of old paper to get rid of.

There's also the interesting fact that the ordinary electric rates listed on my bill don't match the rates quoted in their flyer about the new rates coming into effect, but that's another question.

Green PCs

For other computer geeks - PC Magazine has an article on how to assemble a PC that uses power efficiently and minimizes heavy metals.

Gore's House

Climate change deniers and right wing pundits are thrilled to see a report suggesting Gore's Nashville mansion used 221,000 kilowatt hours of electricity in 2006. While the report comes from a right-wing think tank, it appears to be credible judging from additional A.P. reports and the response from a Gore spokesperson. The average U.S. home uses around 10,000 kw hours per year.

She said Gore subsidizes renewable energy sources such as solar power, wind power and methane gas to balance 100 per cent of his electricity costs.

She said Gore participates in a utility program that lets people buy blocks of "green power" for $4 a month. Gore purchases 108 blocks a month, the equivalent of 16,200 kilowatt hours.

The Gore home is also under renovation to add solar panels, Kreider said.

This falls perfectly into the discussion we have had about whether offsets are valuable in themselves or whether there should be an efficiency consideration. I think this is the perfect example of a major downside of offsets. People like Gore should be selling their mansions to families of 50 or investing in super efficient insulation and lighting at the minimum.

This attack is clearly politically motivated, but Gore's personal life does appear to be incompatible with the changes needed for reducing GHGs. Efficiency is more important than offsets despite being less public and braggable.

Update: Some had used this realization, coupled with Bush's apparently enviro-friendly house in Texas to suggest that Bush is friendlier to the environment than Gore.

This is absurd. Whereas Gore apparently lives less efficiently in his Nashville home than Bush may in Crawford, the simple fact is that these differences do not even exist when compared to national energy consumption. What is important is policies and how they drive the market. Gore's policies are right and his lifestyle choices are questionable. Bush's (ahem, when it comes to energy, Cheney's) policies are wholly wrong whereas he appears to have made less deleterious personal choices in building his mansion.

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