How Utilities Make Money: Capital in, Profits Out The Basics

PA 295 (2008) contained two provisions whereby utilities could receive an economic incentive for implementing energy efficiency programs. With the passage of Act 342, electric utility providers serving less than 100,000 customers are now eligible to propose a decoupling mechanism for energy efficiency programs. Because the statute requires demand reduction resources in the portfolio, they are implicitly incented in the standard PI for their benefits as calculated for the cost-effectiveness test. The enabling statute calls for all cost-effective energy efficiency and https://themors.com/two-silvers-one-surge-how-hall-and-ogden-rewrote-the-days-script-for-team-usa/ demand reduction resources (ch. 25 section 21). The incentive is based on a combination of elements including energy savings, benefit-cost analysis, and market transformation results.

Delmarva proposed to recover the costs of the program, amortized over a five-year period, using the same rate of return as their supply-side capital investments. In 2014, the state legislature passed SB 150, calling for the expansion of cost-effective electric and natural gas utility programs and allowing utilities to deliver these programs and recover costs through rates. The docket has been on hold since late 2011 because the conditions required to implement decoupling could not be met until Delmarva Power was able to implement energy efficiency programs that benefit its customers.

There is currently no policy in place that decouples electric utility profits from sales, but the Tennessee Valley Authority made a determination that efforts will be made to address the issue of lost contributions to fixed costs for distributors. In 2008, OtterTail Power received approval for its energy efficiency programs, with a flat-rate bonus if the utility met its efficiency goals. Any over/under collection for the first year (including interest), plus forecasted DSM program costs and lost revenues for the second year, are added together to compute rates for the second year. In 2010, the South Dakota Public Utilities Commission authorized the first lost revenue adjustment mechanism for Montana-Dakota Utilities in docket NG09-001.

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• The PI formula is the similar for electric and gas utilities comparing planned versus actual.
• The most recent bill establishing an Energy Efficiency Portfolio Standard (EEPS) allows the PUC to establish incentives and penalties based on performance in achieving the EEPS.
• In 2014, the state legislature passed SB 150, calling for the expansion of cost-effective electric and natural gas utility programs and allowing utilities to deliver these programs and recover costs through rates.
• In 2008, the Commission established incentives for electric utility energy efficiency programs under the Energy Efficiency Portfolio Standard (EEPS) proceeding.
• By examining strategies from the water and energy sectors, the guidebook will provide utilities with a menu of options tailored to diverse scenarios, from urban growth to rural population decline.
• The DC Council adopted the Clean and Affordable Energy Act (CAEA) of 2008 effective October 1, 2008 which authorizes the Energy Office to contract with a “Sustainable Energy Utility” (SEU) for the implementation of energy efficiency programs.

This revenue instability can deter investment in water efficiency measures that offer long-term benefits, including cost savings for utilities and customers. For other ways to give to RMI, including checks or gifts of stock, please visit Other Ways to Give. These reductions would achieve 32 percent of what RMI showed was possible across all sectors (electricity, buildings, and transportation) in the Stepping Up report. The electrification of the energy system would have large implications for the utility, including changes to traditional electricity demand—our research suggested a 31-percent decrease in building energy use and almost 320 MW of distributed solar on customers’ roofs. Our work is supported by philanthropy as well as partnerships, including fee-for-service engagements. It provides in-depth reporting on energy sector R&D, industry and technology news, EPRI thought leadership, and guest perspectives from industry leaders.

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• For natural gas utilities, the incentive bonus is capped at 25% of the expenditures or 20% of the net economic benefits of the DSM programs, whichever amount is lower.
• The NJBPU as a state agency does not receive performance incentives for achieving energy savings targets.
• The sector’s experience with transformational change may provide lessons for utilities.
• The Kansas Corporation Commission will consider proposals from electric and gas utilities that include decoupling on a case by case basis; however, no plans have been approved for any utilities (Docket 08-GIMX-441-GIV).
• Percentage of income payment plans (PIPPs) and low-income rates are a proven tool for reducing energy burdens, with some successful implementations of …

It provides the opportunity for the PUC to consider EDC plan filings that would decouple profits from sales, and allow for alternative methods of cost-recovery including incentives based on program performance. There is currently no policy in place that rewards successful energy efficiency programs with performance incentives. There is currently no policy in place that rewards successful energy efficiency programs as Energy Trust is an independent, non-profit, and overseen by the State. Since 2009, Portland General Electric has implemented revenue per customer decoupling (called Sales Normalization Adjustment) for residential, small https://scriptmafia.org/tutorials/576944-iso-50001-energy-management-master-energy-management-system.html business, and “other” customers.

In December 2010 the PSC issued an order approving a general policy under which the Commission outlined steps to approve incentives to reward achievement in the delivery of essential energy conservation services by investor-owned utilities. There is currently no policy in place that rewards successful energy efficiency programs. Alabama Power and Alabama Gas Company may recover a reasonable rate of return on efficiency spending via a rate rider. Alabama Power Company and Alabama Gas Company recover their retail costs (including a reasonable return) through a formulary rate approach called Rate RSE (Rate Stabilization and Equalization). By examining strategies from the water and energy sectors, the guidebook will provide utilities with a menu of options tailored to diverse scenarios, from urban growth to rural population decline. A Collaborative Effort with Expert Insights A key element of the project is a working group composed of leaders from water utilities, government agencies, NGOs, and other sectors.

Both Public Service Oklahoma (PSO) and Oklahoma Gas and Electric Company (OG&E) have shared benefit incentive plans. In January 2015, Ohio Senate Bill 310 gave certain customers the ability to opt-out of energy efficiency programs entirely. In the natural gas sector, Piedmont Natural Gas and Public Service Company of North Carolina both have revenue-per-customer decoupling with semi-annual adjustments. Rate-regulated utilities may seek to recover the costs for energy efficiency programs through a Demand-Side Management/Energy Efficiency rate rider. In New York, utilities have earned variations on a rate of return for total expenditures on Non-Wires and Non-Pipes Solutions as well “share-of-savings” incentive mechanisms for Non-Wires Solutions projects. In 2008, the Commission established incentives for electric utility energy efficiency programs under the Energy Efficiency Portfolio Standard (EEPS) proceeding.

Public Act , An Act Concerning Electricity and Energy Efficiency, required PURA to order the state’s electric and natural gas distribution companies to decouple distribution revenues from the volume of natural gas or electricity sales. For natural gas utilities, the incentive bonus is capped at 25% of the expenditures or 20% of the net economic benefits of the DSM programs, whichever amount is lower. The performance incentive for PSCo is 40% of incremental net benefits above 280 GWh up to 550 GWh upon achievement of at least 400 GWh.

This allows utilities to freely invest in energy efficiency programs without impacting the utility’s bottom line, enabling lower rates over the long term. Utilities also have fixed costs that may not be fully recovered when kWh sales fall. Utilities earn a profit by investing in capital expenses, such as new power plants, transmission and distribution infrastructure, and recovering those costs through rates, plus an approved rate of return on investment. The rates that a utility charges to customers are set by regulators, based on the utility’s annual revenue requirement (a combination of investments, an approved rate of return, and fixed operation costs).

Conventional Utility Business Model

Following an April 2007 order (Cases 03-E-0640 and 06-G-0746), electric and gas utilities must file proposals for true-up-based decoupling mechanisms in ongoing and new rate cases. A penalty is assessed if performance of the target is between 50% and 90%, and a utility is deemed non-compliant if achieving 50% or less of its target. The NJBPU as a state agency does not receive performance incentives for achieving energy savings targets. The Commission has authorized revenue decoupling (in lieu of LBR) for all electric and gas utilities except for one, who is required to propose a decoupling mechanism in its next distribution rate case. The PI formula is the similar for electric and gas utilities comparing planned versus actual. The rules specify a revenue-per-customer system for determining utility revenues to recover fixed costs.

THE UTILITY BUSINESS MODEL OF THE FUTURE

Given the rapid and unprecedented pace of change in the electricity sector, utilities must embed innovation into their business models, culture, and operations. For example, one paper will assess the implications of energy being viewed as an integrated system—including electricity, heat, and liquid fuels—interacting in complex ways and with differing business models. The sector’s experience with transformational change may provide lessons for utilities. Over the past 20 years, a combination of deregulation, technology advances, and customer demands have upended traditional models in the telecom sector.