Incentivized to Inefficiency? Investor-Owned Utility Model May Actually Hinder Energy Efficiency Programs
By Nigam Trivedi, Lehigh University
Recently, the owner of a small company in Virginia shared with Powered by Facts that he had reduced energy consumption by 25 percent in order to save some overhead costs. However, he ended up actually paying more in electricity bills, because Dominion charges less per kilowatt hour the more energy a ratepayer consumes. When consumption goes down, as it did in this case, the hourly rate goes up, defeating the business owner’s purpose of trying to save money by increasing energy efficiency.
This story prompted us to do a little research into how Dominion structures billing when energy efficiency measures are implemented. We learned that from generation to consumption, the goals of an energy utility can clash with consumers’ desire to move toward cheaper forms of energy. This is particularly true in Virginia, because we have a monopoly utility and state policies that protect it from competition and ensure that creates ever-increasing top-line revenue.
Needless to say, that is more beneficial to the utility than to the ratepayer. You have to do some digging below the surface, because utilities appear to offer help and support consumers who want to generate electricity independently or increase their energy efficiency. Dominion, for one, boasts a variety of energy conservation programs for both residential and non-residential customers, though each category of customer is assigned a certain rate or tariff structure stipulated by Dominion.
A close look at Dominion’s economic model reveals not only that the utility is dis-incentivized to provide energy efficiency programs, but also that even when the utility receives more incentives to provide consumers with a path to efficient energy usage, the financial incentives of the utility come at a cost to the ratepayer.
Utilities like Dominion usually compensate for the fixed costs of their energy efficiency operations with other fees imposed on ratepayers to alleviate reduced profits. In Virginia, nearly 80 regulatory programs, tax incentives, and ordinances have been established in the past 20 years to promote statewide energy efficiency.
A recent report, however, demonstrates that none of these incentives have made Dominion competitive with electric utilities across the country in the realm of energy efficiency. For example, a June 2016 Ceres, Inc., report revealed that when compared to 29 other holding companies with respect to “Incremental Energy Efficiency as a Percentage of Retail Sales,” Dominion placed dead last, at just 0.1% (for reference, FPL, which took 29th place, demonstrated a percentage of 0.2%, while Eversource Energy, a New England-based utility, mustered a rating of 1.87%).
In addition, Dominion is an investor-owned utility, so their shareholders and shareholder profits come before considerations for ratepayers and others. By contrast, in the public power utility model, the consumers and shareholders are one and the same, so the utility is not balancing the financial interests of two different groups, particularly at the cost of one in favor of the other.
Wouldn’t it be great if we lived in an area where a consumer’s desire to reduce his or her carbon footprint or electricity rates were actually in alignment with the goals of our state government and supported by our utility companies? Instead, we find that the pursuit of profits will keep our energy rates going up, no matter what we may try to do to lower our bills.
It’s time for a change in Virginia – we need the State Corporation Commission to urge Dominion to change its fee structure for ratepayers who implement energy efficiency programs.