The utility industry is in the midst of a massive transformation. As we plot a path to the future, through a shifting and challenging new landscape, it raises a key question: How will utilities evolve in a world where loads are declining, distributed generation is decreasing in price and increasing in volume, and capital costs for new infrastructure are escalating rapidly?
The Proven Results of Energy Efficiency
In answering this question, we must first consider the approaches that are already demonstrating tangible and verifiable success. Energy efficiency is at the top of that list.
Efficiency is a growing energy resource that has demonstrably lower costs, the lowest risk profile, and the greatest environmental and economic benefits of all options for meeting our current and future energy needs. A remarkable example of these often-unrecognized benefits is demonstrated in a recent ISO-New England study, which found that $260 million in regional transmission costs were avoided due to energy efficiency investments. These savings flow to all ratepayers, even if they don’t actively participate in energy efficiency programs, and ISO-NE has been able to defer 10 separate transmission upgrades to 2020 or later as a result of energy efficiency investment.
The widespread benefits, and impressive results, of energy efficiency are clear – and its impact is growing rapidly. That’s why I am continually surprised that in all the conversations about the future of utilities, there is almost no coherent consideration of the institutional structure that will be necessary to ensure customers get the best deal, markets advance to provide needed services, and utilities are enabled to deliver the results their customers increasingly demand. It may sound like a tall order, but this is exactly what leading energy efficiency efforts have been delivering for years: Lower costs, lasting economic development, and tangible results to address climate change.
The current situation has echoes of a decade ago, when it was assumed that electric utility restructuring would inevitably lead to energy efficiency market transformation. Instead, the most effective efficiency implementation strategies emerged from jurisdictions such as Vermont and Oregon, where a deliberate choice was made to institutionalize and invest in new energy efficiency models. Now that we are confronting these issues again, it is clear that there is an exciting role for the evolved distribution utility to play. But if we start by asking: “How will the utility survive?” rather than: “What energy future do we really need?” we will come up with answers that are at best incomplete, and at worst deeply flawed.
The Sustainable Energy Utility and a New Vision for Customer Empowerment
The recognition that efficiency can be the key to empowering customers is one of the best sources of insight about the future. Recently, many utility leaders have begun to acknowledge that there is not a clear vision for how the transition will take place, and they are looking for partners with the skills and knowledge to position them on the leading edge of true market transformation. Increasingly, they are recognizing that customer and market relationships developed through comprehensive efficiency efforts are on the cutting edge of that transformation.
Although most energy efficiency efforts are currently delivered by distribution utilities, I would argue that energy efficiency and other customer-focused services are not inherently utility functions: They can be effectively delivered in a new way. There is immense potential to overcome the barriers that currently keep consumers from investing in all the energy options that can lower their costs and benefit the electric system, the environment, and the economy. A separately chartered and regulated Sustainable Energy Utility focused on consumers and on facilitating the markets may be the most dynamic and effective way to address the often-named barriers that constrain our economy.
Though this approach may seem like a dramatic departure from the current system, it’s important to recognize that there are many states where it is already a success. In Vermont, for example, where the Vermont Energy Investment Corporation operates what has become the nation’s only franchised “energy efficiency utility,” 12.5% of electric needs are already being met through efficiency.
This is truly a pivotal time for the industry. As we consider the scope of the challenges that we must confront over next decade, we should not discount any approach that has a history of tangible success from both an economic and environmental perspective. I, for one, am very excited at the potential for energy efficiency to play a key role in shaping the utility of the future.
Scudder Parker is Policy Director for Vermont Energy Investment Corporation
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