Green Issue: Utilities miss energy efficiency goals but seek more public funds anyway
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As the window of opportunity for averting the worst-case global warming scenarios narrows, wise use of energy seems increasingly urgent. So millions of dollars in state and federal funding and significant contributions from utility customers are devoted each year to improving energy efficiency in California.
It's a crucial program designed to reduce consumption and planet-damaging emissions and eliminate the need for new fossil-fuel burning power plants. Yet the state's energy-efficiency programs are often run by investor-owned utility companies, such as Pacific Gas & Electric, that have been missing efficiency targets yet demanding ever more public money anyway.
Critics say the programs would yield more energy savings on the dollar if local governments or nonprofits were in charge. The utilities have not only fought to maintain control of these programs, they're now seeking even more taxpayer money by trying to claim federal economic stimulus funds.
Meanwhile, the San Francisco Public Utilities Commission is engaged in a long, slow process of rolling out an ambitious community choice aggregation (CCA) program, Clean Power SF, which would utilize 50 percent renewable energy and promote green technologies in the city.
While state law guarantees that energy-efficiency funding generated by San Franciscans could be funneled into Clean Power SF, it isn't likely to happen without a fight from the state's most powerful utility.
Although PG&E and other utilities are entrusted with millions in ratepayers' money to promote energy efficiency, independent analysis demonstrates that they've had limited success. But last December, they garnered rich rewards anyway, at ratepayers' expense.
In 2007, the California Public Utilities Commission adopted a system to encourage utilities to strive for high energy efficiency standards. Utilities could receive hearty payouts for achieving a certain threshold of energy savings, the commission decided. Conversely, if the companies failed miserably, they'd be slapped with penalty fees. Rather than take the utilities' word for it, the CPUC directed its Energy Division to inspect the companies' energy efficiency program performance and report on it each year.
About a third of the funding for these programs is amassed with a mandatory fee on every ratepayer's monthly energy bill, called the Public Goods Charge. This is combined with a second pot of ratepayer money and collected by utilities to fund initiatives such as rebates, light-bulb discounts, energy retrofits, and consumer-education drives. The program budget for all the utilities from 2006 through 2008 was around $2 billion. For the 2009 to 2011 program, the utilities are collectively seeking closer to $4 billion.
Last December, based on the utilities' own claims that they'd hit the targets for the 2006 2007 program, the CPUC handed over nearly $82 million in incentive payments with some $41 million going to PG&E. The commission accepted the utilities' claims because the Energy Division's verification report was behind schedule, and the utilities argued that this delay would postpone their payments and thus undermine the whole incentive.
At the same time, the commission noted, "We have profound concerns that accepting the [utilities'] proposal ... would subject ratepayers to significant risk of overpayment." In an attempt to strike a balance, the CPUC voted to award $82 million rather than the $152.7 million that the utilities claimed they were owed.
But the independent report, which was finally released two months later, concluded that PG&E and two other utilities shouldn't have been entitled to any incentive payments at all. Based on this analysis, they'd missed the targets.
The move drew criticism from groups like The Utilities Reform Network (TURN), Women's Energy Matters, and the California Public Utilities Commission's Division of Ratepayer Advocates, which charged that investor-owned utilities are more concerned about the payouts they receive for running these programs than maximizing energy savings.
"They didn't seem troubled by the fact that they hadn't met the goals. They were only troubled by the fact that they weren't going to get the financial reward," said Mindy Spatt, communications director for the Utility Reform Network (TURN). "I suppose there's a message in there about just how seriously they take energy efficiency."
Loretta Lynch, a former CPUC commissioner, told the Guardian that she'd been watching the proceedings closely. "They had already promised Wall Street they were going to get this money, and so they had to meet Wall Street's expectations regardless of whether or not they met the technical requirements of the program," Lynch said.
The CPUC's Division of Ratepayer Advocates opposed the decision to award the incentive money. "[The utilities] are being rewarded for something they say they've done, but that independent analysis shows they just didn't do," DRA Regulatory Analyst Thomas Roberts told the Guardian. "It's like rewarding a student for getting a D."
Part of the problem is that PG&E's program relied heavily on giving away compact-fluorescent light bulbs, and then the utility inflated estimates for how much energy savings they would provide and how long they would last. In other words, CFLs are a good first step to energy conservation, but not enough to make the greatest strides in reducing demand.
Roberts also said PG&E often delivered the bulbs to what he called "free riders," or people who would've made the switch on their own. TURN once discovered a box of light bulbs posted on eBay by some crafty entrepreneurs who had purchased them at a discount, courtesy of PG&E. At that point, the bulbs could have wound up anywhere in the country, Spatt points out, instead of reducing electricity demand in California.
"There is no clear connection that we are not building new power plants due to energy efficiency programs," said Cheryl Cox, senior policy analyst and project manager for energy efficiency at the CPUC's Division of Ratepayer Advocates. "And we do not appear to be on track to achieve long-term, persistent energy savings. Given the dependence of energy efficiency portfolios on short-term savings like lighting, it appears that the utilities would have to spend additional dollars to play catch-up yet they persist on proposing the same old, non-progressive, CFL programs."
For some, the incentive payouts provided new fuel for a longstanding argument that utilities shouldn't be in charge of administering state-mandated energy efficiency programs in the first place. Barbara George, executive director of Women's Energy Matters, points out that states with financially disinterested third parties managing energy efficiency measures tend to be more careful with the money they're granted, resulting in more energy savings per dollar.
She points to a report completed by analyst Richard Estevez, which ranked 37 statewide energy efficiency programs by cost-effectiveness. "Non-utility implemented programs make up 18 out of the top 20 rankings; utility-implemented programs make up 15 out of the 17 poorest rankings," that report concludes.
Under the current system, "PG&E makes a profit on every dollar," says Lynch. "In addition, all of PG&E's costs are covered. Then, of course, all the subcontractors' costs are covered too, so it gets down to only 50 or 60 cents of every dollar that is actually going into programs. The rest of the money is going into PG&E's profit, PG&E's overhead, and the subcontractors' overhead. Not surprisingly, if you're a nonprofit or a government, you're doing that service directly at no profit and lower administrative costs."
Paul Fenn, a consultant to Clean Power SF, sounds a similar note. In his view, PG&E "doesn't want to reduce energy consumption. Why? Because every year, they go to their shareholders and they predict next year's load growth. That's their business. They burn gas, and they sell power. They're a gas and electric company. The idea that a gas and electric company could be adequately incented to reduce their sales is naïve."
Fenn is the founder of Local Power, Inc. and the author of Assembly Bill 117 a state bill passed in 2002 under the sponsorship of then-Assembly Member Carole Migden that allows municipalities to set up community choice aggregation programs. Local Power has been a key player in San Francisco's own embryonic CCA.
AB 117 also gave cities the option to gain control of Public Goods Charge funds generated by their own ratepayers. In SF, that would mean funneling roughly $18 million annually into Clean Power SF's energy efficiency budget.
Sup. Ross Mirkarimi, who chairs a committee overseeing the CCA implementation, told the Guardian he supports the idea. But he warned that the city probably wouldn't be able to wrest the funding away from PG&E without a fight. "It's completely appropriate for city government to be in charge of those funds," he says. "PG&E shouldn't be in the driver's seat with all that money anyway."
San Francisco is already hailed as a green city, but Clean Power SF, which has renewable energy as its centerpiece, would set a new standard for what cities can do to address climate change. The plan calls for 50 percent renewable energy, compared with PG&E's energy mix of 11 to 12 percent renewable power. The SFPUC is slated to present CCA program plans to the state next year.
SFPUC's Michael Campbell, the CCA program director, rejects the idea of going after Public Goods Charge funds just yet. "It's premature to do that now," Campbell says. "About one-third of the energy efficiency dollars that PG&E collects ... come from Public Goods Charge, and the other two-thirds are charges associated with procurement portions of customers' bills. If a CCA were formed ... to have an equal amount of dollars, we would need to have additional charges to CCA customers that would be associated with the energy portion of their bill."
Yet Fenn said applying to administer those funds is long overdue. Not knowing whether that $18 million is in place every year could derail the CCA bidding process, Fenn argues, since it would be difficult for prospective power suppliers to draft a plan if they lack clarity on the program budget.
The other problem, Fenn said, is that without the energy-efficiency funds, it would be harder for the city's CCA to get its rates down low enough to compete with PG&E. Given the CCA is required to beat PG&E rates, it could make or break the success of the project.
"Energy efficiency is the cheapest resource," Fenn said. "It helps the economic feasibility of the portfolio by creating surplus revenue. If you're just doing green supply, and not green load reduction, it's going to be really hard not to pay more than PG&E."
While Clean Power SF lags, energy efficiency programs are percoutf8g throughout the city usually touted by Mayor Gavin Newsom and funded through public-private partnerships with PG&E.
In a recent post on TriplePundit.com, Newsom announced the creation of an Existing Buildings Efficiency Task Force composed of landlords, developers, PG&E, and other downtown interests tasked with greening buildings and creating green jobs.
"The Task Force builds upon a great deal of work we're doing already taking full advantage of the $7 [million] to $11 million provided in energy efficiency block grants by the federal stimulus, leveraging our ongoing ... partnership with PG&E, and working with private partners to create a San Francisco Clean Energy Fund," Newsom wrote.
A recent initiative to install energy efficient streetlights in the Tenderloin is the result of another PG&E partnership. While there's no doubt that these programs will have positive results, they also serve to further entrench PG&E into citywide green initiatives, which render it more difficult for Clean Power SF to gain footing further down the road.
With federal stimulus money flowing into state coffers, the utilities are back at the table, recommending to the CPUC that some of the federal funding go into their existing energy-efficiency programs. "We believe that the Recovery Act or ARRA funds should work in conjunction with [investor-owned utility] programs to minimize potential customer confusion and leverage the success we have had with the programs," Marc Gaines, a representative for the state's four investor-owned utilities, said during a recent All-Party CPUC meeting to discuss the stimulus funds. "Rather than competing with the programs, we would like to use ARRA funding to supplement existing energy efficiency [and other] programs."
Not so fast, countered George, who stood up to speak during the meeting. "We have to worry about if these funds are commingled with current programs, are the utilities going to rake off profits?" she wondered. "These funds need to be used for authorized purposes, and not for fraud, waste, error, and abuse. The energy efficiency programs have been used to fight public power and community choice efforts. The competition is brutal when it comes to the utilities."