CEA Explains: What is a Carbon Budget?

Our civilization seems to be in the denial stage on that climate change thing. Even the folks that know there is a problem don’t seem to realize the speed at which we need to act to have a decent chance of avoiding some of the catastrophic effects of climate change. A good way to think about the emissions reductions required is by examining our global carbon budget, or the total remaining CO2 our civilization can emit. Listen in as we attempt to explain carbon budgets.

Decoupling & Demand Side Management in Colorado

Utility revenue decoupling is often seen as an enabling policy supporting “demand side management” (DSM) programs.  DSM is a catch-all term for the things you can do behind the meter that reduce the amount of energy (kWh) a utility needs to produce or the amount of capacity (kW) it needs to have available.  DSM includes investments improving the energy efficiency of buildings and their heating and cooling systems, lighting, and appliances.  It can also include “demand response” (DR) which is a dispatchable decline in energy consumption — like the ability of a utility to ask every Walmart in New England to turn down their lights or air conditioning at the same time on a moment’s notice — in order to avoid needing to build seldom used peaking power plants.

For reasons that will be obvious if you’ve read our previous posts on revenue decoupling, getting utilities to invest in these kinds of measures can be challenging, so long as their revenues are directly tied to the amount of electricity they sell.  Revenue decoupling can fix that problem.  However, reducing customer demand for energy on a larger scale, especially during times of peak demand, can seriously detract from the utility’s ability to deploy capital (on which they earn a return) for the construction of additional generating capacity.  That conflict of interests is harder to address.

But it’s worth working on, because as we’ll see below, DSM is cheap and very low risk — it’s great for rate payers, and it’s great for the economy as a whole.  It can reduce our economic sensitivity to volatile fuel prices, and often shifts investment away from low-value environmentally damaging commodities like natural gas and coal, toward skilled labor and high performance building systems and industrial components.

The rest of this post is based on the testimony that Clean Energy Action prepared for Xcel Energy’s 14AL-0660E rate case proceeding, before revenue decoupling was split off.  Much of it applies specifically to Xcel in Colorado.  However, the overall issues addressed are applicable in many traditional regulated, vertically integrated monopoly utility settings.

Why can’t we scale up DSM?

There are several barriers to Xcel profitably and cost-effectively scaling up their current DSM programs.  Removing these impediments is necessary if DSM is to realize its full potential for reducing GHG emissions from Colorado’s electricity sector.  Revenue decoupling can address some, but not all of them.

  1. There are the lost revenues from energy saved, which impacts the utility’s fixed cost recovery.  If the incentive payment that they earn by meeting DSM targets is too small to compensate for those lost revenues, then the net financial impact of investing in DSM is still negative — i.e. the utility will see investing in DSM as a losing proposition.  Xcel currently gets a “disincentive offset” to make up for lost revenues, but they say that this doesn’t entirely offset their lost revenues.
  2. Even if the performance incentive is big enough to make DSM an attractive investment, the PUC currently caps the incentive at $30M per year (including the $5M “disincentive offset”), meaning that even if there’s a larger pool of cost-effective energy efficiency measures to invest in, the utility has no reason to go above and beyond and save more energy once they’ve maxed out the incentive.
  3. If this cap were removed, the utility would still have a finite approved DSM budget.  With an unlimited performance incentive and a finite DSM budget, the utility would have an incentive to buy as much efficiency as possible, within their approved budget, which would encourage cost-effectiveness, but wouldn’t necessarily mean all the available cost-effective DSM was being acquired.
  4. Given that the utility has an annual obligation under the current DSM legislation to save a particular amount of energy (400 GWh), they have an incentive to “bank” some opportunities, and save them for later, lest they make it more difficult for themselves to satisfy their regulatory mandate in later years by buying all the easy stuff up front.
  5. It is of course the possible that beyond a certain point there simply aren’t any more scalable, cost-effective efficiency investments to be made.
  6. Finally and most seriously, declining electricity demand would pose a threat to the “used and useful” status of existing generation assets and to the utility’s future capital investment program, which is how they make basically all of their money right now.

Revenue decoupling can play an important role in overcoming some, but not all, of these limitations.  With decoupling in place, we’d expect that the utility would be willing and able to earn the entire $30M performance incentive (which they have yet to do in any year) so long as it didn’t make regulatory compliance in future years more challenging by prematurely exhausting some of the easy DSM opportunities.

Continue reading Decoupling & Demand Side Management in Colorado

Public Banking: Supporting community Resiliency & Renewable Energy

An Evening with Gwen Hallsmith
Executive Director of the Public Banking Institute

January 29th
6:30 – 7 pm – Refreshments
7 – 8:45 pm – Discussion
Impact Hub, Boulder
1877 Broadway St.
RSVP Here

Gwen Hallsmith
Gwen Hallsmith, the Executive Director of the Public Banking Institute will present on how public banking could play a role in financing a municipal electric utility and how Boulder can use public banking to enhance community wealth, resiliency, entrepreneurial participation and economic vitality. She will discuss the main advantage of public banking: lower-cost financing which enables states, counties and cities to better fund small business, infrastructure and projects such as affordable housing, libraries, farm-to-table agriculture, renewable energy, energy efficiency and public transportation. Each of these projects creates good local jobs. In these ways, public banks enable cities, counties, and states to better finance public priorities without relying on Wall Street or paying the high interest rates that pad big bank profits.

This presentation is part of Clean Energy Action’s Global Warming Solutions Speaker Series. Audience participation will be invited during discussion and Q&A. No RSVP required.

More About Gwen

Gwen most recently made national headlines with her work in Vermont to ask Town Meetings to consider public banking. On March 4th, 18 cities and towns in Vermont voted to endorse a resolution directing the state legislators to create a State Bank for Vermont. Thanks to the media expertise of William Boardman and Matt Stannard, the national media has picked up on the story, and there have been now over 20 radio interviews, print stories, and starting this week we’ll be on syndicated television with the story as well… Gwen has an interview with GritTV on Tuesday, and we understand that even bigger shows are working on the story – stay tuned.

Gwen is the author of several books on sustainable communities and economic reform, including her most recent book with Bernard Lietaer called Creating Wealth: Growing Local Communities with Local Currencies. She has been an advocate for economic reform for over 25 years, and implemented new currency projects on the local level in her recent position as the Director of Planning and Community Development for the City of Montpelier. Her work spans the globe – she has worked in all the major world regions at this point, and with cities, towns, regions, provinces, and states in the United States and Canada.

Her vision for the Public Banking Institute expands our horizons to include many other aspects of a public monetary system, everything from strengthening the possibilities for local investment that the new SEC regulations allow to fostering and supporting complementary currencies for local and regional means of exchange. Her deep commitment to local action matches our vision for the Institute as a source of technical assistance, training, and research for all the state, regional, and local initiatives underway to set up public banks and other currency and investment initiatives.

Accelerating the transition from fossil fuels to a clean energy economy