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The Key to Achieving Energy Efficiency is Establishing the Right Incentives
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The Key to Achieving Energy Efficiency is Establishing the Right Incentives

With soaring energy prices and recessionary economy, energy efficiency has certainly gained attention of consumers.  Our policymakers have also jumped on the energy efficiency bandwagon by passing or strengthening laws that mandate energy efficiency programs and standards for utility companies and manufacturers of products that are powered by electricity and fossil fuels. AIC believes energy conservation makes good sense – for consumers and society.  We often hear that the cheapest power is power saved or not used. 

On March 6, the ACC will hold a workshop on energy efficiency.  At the workshop, the Commission will entertain discussion of issues of energy efficiency, including how to encourage energy providers to reduce consumption by their customers.

For the utility companies and investors, precisely how the ACC enables the recovery of fixed costs in the face of declining sales that result from conservation is an important issue.  Regardless of the level of per capita sales, the utility companies must provide the power plants, transmission lines, distribution facilities, pipelines and the like to reach and serve customers.  However, some of these fixed costs are recovered through the rates imposed on volumetric sales.  Successful energy efficiency programs will depress per capita sales volumes and the companies will be unable to recoup all of their fixed costs.  As a result, earnings will fall and investors will realize lower returns.  Without a rate mechanism to stem this earnings erosion, the companies have little or no incentive to promote conservation.

As the ACC moves forward with its workshop, it must recognize this dilemma and act to implement creative and innovative rate mechanisms that both encourage and provide incentives to customers and providers alike to engage in energy conservation. 

Simply setting energy efficiency mandates without adequate implementation incentives will ultimately lead to less-than-satisfactory results – for consumers; for investors; and for regulators.
 
Gary Yaquinto, AIC President