Last week, the WV PSC issued a final order in a case involving AEP’s WV energy efficiency and demand response programs. The order required AEP to expand its programs by one third, and to increase the number of programs the company offers in WV.
The PSC did not place its own energy efficiency standard on AEP, which it has the power to do. The Commission concluded:
It is not appropriate at this time to require the Companies to meet a Commission-ordered higher savings level target of 0.7 percent because the costs to do so would approximately double the $6.1 million budget which would be overly ambitious at this time.
The Commission’s reasoning here is just silly. The PSC fails to compare the budget increase to meet the efficiency standard with the cost of adding new generation capacity that is avoided by efficiency investment.
But this order illustrates clearly that the PSC wants to keep all discussion of energy efficiency investment eliminating the need for generation capacity off the table. The fact is that across the US, states are eliminating the need for new generation capacity by setting demand reduction targets and investing in energy efficiency.
The Green Communities Act requires that electric and gas utilities procure all cost-effective energy efficiency before more expense supply resources, requiring a three year planning cycle. In January 2013, the DPU approved the second 3-year (2013-2015) electric and gas energy efficiency plans under the Green Communities Act, continuing the state’s progress toward the most ambitious energy savings targets in the country. The first electric efficiency procurement plan called for savings 1.0% in 2009, 1.4% in 2010, 2.0% in 2011, and 2.4% in 2012. The state’s second three-year plan calls for savings to increase to 2.6% in 2015. The energy efficiency investments in 2013-2015 are expected to save 3,703 GWh of electricity in 2015.
Massachusetts’ annual targets are more than triple what the WV PSC rejected as
a two year an annual target, .5% in 2014 and .7% in 2015.
The WV PSC is also strenuously avoiding connecting energy efficiency investment with generation capacity investment by AEP in WV. Over the years, there have been several proposals by various parties for rate mechanisms to provide power companies with incentives to fund efficiency programs. If you are interested to see how these incentives work, the recent order provides a pretty good overview of the options.
At least one of the incentive options involves treating energy efficiency investments as alternatives to generation investments. This option would provide the same return on equity adder to efficiency investments that power companies receive for capital investments. In its AEP order, however, the PSC wants nothing to do with this kind of system.
Instead, the PSC continues its past practice by funding efficiency programs using a special “cost recovery rider.” This rider isolates energy efficiency spending, and keeps it out of base rate cases where direct comparison with generation capacity might happen. Because WV has no requirement for power companies to do public integrated resource planning, the PSC can collaborate with power companies in avoiding any discussion of using energy efficiency to eliminate the need for new capacity. This is entirely consistent with the bogus arguments the Commission made against energy efficiency in both the AEP and FirstEnergy power plant cases that just ended.
The Commission did require AEP to increase its annual energy efficiency spending by $2.1 million, or about 34%, so that demonstrates some commitment to expand programs. But it is also clear that the PSC sees energy efficiency as a sideshow. The Commissioners are focused only on how much money AEP spends, not on setting real performance standards that build a less expensive and more resilient electrical system for our state.