Undoing the Wasteful Incentives of the Energy World, Giving Innovators a Shot: A Talk With State Energy Secretary Ian Bowles

11/24/09Follow @wroush

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cutting energy costs. All of those agendas merge quite well. A terrific example is district heating, which has about 25 percent penetration in European cities but less than 1 percent here. The barriers to things like that, as well as solar and wind, have typically been utility rate structures that encourage utilities to sell as much power as they can.

The Public Utility Commission issued a landmark decoupling ruling over a year ago, in the summer of 2008, and now you’re seeing utilities coming in for decoupling rate cases. The first of those rate cases was issued on November 1, for Bay State Gas. The second, for National Grid, is in front of the DPU [the Department of Public Utilities] right now, for a decision at the end of the month. Those cases are bringing about a fundamental shift in the model of utility regulation. The utilities have an incentive to maximize their power sales in order to make revenues. It’s as if Comcast were charging you for how many minutes of CNN you watched, rather than for simply bringing the cable to your house.

X: So decoupling takes away the incentive to simply sell more power—but explain how that helps advance clean energy.

IB: For one thing, utilities won’t have the incentive to come up with bureaucratic reasons not to let you install solar, or fuel cells, or wind. Any time you put solar on your roof, the utility makes less money. So the history of enterprises trying to install distributed power has been one of utilities telling them “No, it’s too complicated, or too hard to interconnect, or we’re going to charge you this high stand-by rate just in case the thing breaks.” That may or may not have actually been true.

A century’s worth of utility regulation has been based around centralized power systems and delivery. Tomorrow’s world is going to look a lot more decentralized—-people are using a lot less energy and generating more of it at their homes, whether it’s geothermal or solar or what have you. Utility rate redesign won’t in itself deliver a final product, but it will remove some of the perverse incentives in the system.

Investing in energy efficiency is another big part of what we’ve been doing. We have a $1.6 billion plan for the electric and gas utilities over three years to invest in energy efficiency. Last year, the American Council for an Energy-Efficient Economy ranked Massachusetts No. 7 in the nation, and this year we are No. 2. Our message to our friends in California is to enjoy their last year as number 1. We are spending three times more, per capita, than they are going to do. That will produce about $6 billion in savings for ratepayers. In the old world, if you ever got an energy audit of your home, you would get a document at the end that said “Here are some things you might or might not want to do.” In the new program, there will be very sophisticated energy audits that engage with the consumer; we are projecting a 15 to 40 percent energy reduction in participants’ homes which is a very big change.

X: That $1.6 billion is not coming out of the state treasury, right?

IB: No, it’s from three sources. Eighty percent of the Regional Greenhouse Gas Initiative auction proceeds are going to the utility-run energy efficiency programs. About $300 million of it is private capital. And the third source is a charge on ratepayers.

X: On the topic of deregulation, do you think Massachusetts is sufficiently hospitable to innovators who want to pilot new energy technologies? One local company that I won’t name here told me a story about how it took them almost a year to get permission from the local utility to connect a prototype generator to their own building.

IB: Every time I hear a story like that, I say “Call me or call Phil Giudice [commissioner of the Massachusetts Department of Energy Resources] and let’s try to get it fixed.” When people come to us with problems like that, we’ll typically call the utility and help get it … Next Page »

Wade Roush is a contributing editor at Xconomy. Follow @wroush

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