Energy Exchange: Electricity pricing

By Jim Marston

To avoid the worst effects of climate change, we must do more to reduce our greenhouse gas emissions. Yet, we still do not have a price on carbon, one of the most prevalent greenhouse gases in the world and the biggest contributor to climate change. Despite knowing that a carbon price creates broad incentives to cut emissions, the current average price of carbon globally (which is below zero, once half a trillion dollars of fossil-fuel subsidies are factored in) is much too low relative to the hidden environmental, health, and societal costs of burning a ton of coal or a barrel of oil.

Policies that comprehensively reform the energy sector—a sector designed around fossil fuels—are necessary even as the price of renewable energy declines. The cost of solar photovoltaics, for example, has declined 80 percent since 2008. Prices will continue to fall, but not fast enough to make a dent in the climate problem.

Policymakers are more likely to price carbon appropriately if renewables are competitive with (or cheaper than) fossil fuels. But reducing the cost of renewable energy requires substantial investment, and thus a carbon price. The best hope of resolution is through controlled policy experiments designed to drive down the cost of renewable power sources even further and faster than in the past five years.

In a Nature commentary published today, Push renewables to spur carbon pricing, several of my colleagues and leading climate and energy experts outline a plan for deepening solar and wind penetration levels and achieving the ‘holy grail’ of climate policy: an effective carbon price.

The group calls for policymakers to:

• End fossil-fuel subsidies by breaking-up non-competitive arrangements around electric grid access;
• Modernize our grid by funding the integration of renewable energy resources; and
• Address the energy sector in its entirety by subsidizing key technologies — particularly battery storage — to quicken systemic change in transportation and electricity.

All of this makes a carbon cap or tax more likely.

How energizing #renewables can spur #CarbonPricing
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The full comment is available on Nature.com and is co-authored by Environmental Defense Fund lead senior economist, Gernot Wagner, and economic analyst, Katherine Rittenhouse; Tomas Kåberger, professor industrial energy policy at Chalmers University of Technology and board member of Vattenfall; Susanna Olai, environmental economist at the University of Gothenburg; Michael Oppenheimer, professor of geosciences and international affairs at Princeton; and Thomas Sterner, professor of environmental economics at the University of Gothenburg and EDF senior contributing economist.

By John Finnigan

How does a utility company structure charges for the electricity it sells? That depends on where you live, and across the country, utilities are filing for rate increases with state agencies and commissions. The utility’s charges may be some combination of a fixed monthly fee, a fee based on the volume of electricity used, and a fee connected to the customer’s peak energy use.

Westar Energy in Kansas is one example of a utility company filing for rate increases. The company recently asked the Kansas Corporation Commission for permission to increase the fixed monthly charge for residential customers. That’s not unusual in itself, but the amount of the fixed charge increase was shocking.

Westar also proposed a special rate structure squarely aimed at residential customers with solar panels, essentially penalizing them for using clean energy and discouraging more people from installing solar panels.

Environmental Defense Fund disagreed with Westar’s approach, and we filed expert testimony with Kansas regulators explaining why. Westar finally reached a settlement with the other stakeholders – and our recommendations were instrumental in eliminating the utility’s proposal to impose discriminatory rates on solar customers. Last week the Commission issued the order to approve the settlement.

The Westar case shows how utilities are grappling with the growing adoption of clean, distributed energy resources, like rooftop solar. As more people have begun owning and producing their own electricity on-site – but are not quite independent enough to go completely “off grid” – many non-solar-owning customers are asking: Are rooftop solar owners paying their fair share to build and maintain our central electric grid? And utilities are asking whether they will have an opportunity to recover their costs to serve solar customers. In many instances, the answer to these questions comes down to how well a utility’s rates are designed.

Residential demand charges: fair or unfair?

Electricity rates should be designed to give utilities a fair opportunity to recover their costs and to eliminate subsidies among different groups of customers. With that in mind, rates should also be designed to avoid harming or favoring one type of customer over another – including solar customers.

Westar claimed it needed a new rate plan because non-solar customers were subsidizing solar customers under the existing rates, and it wanted to impose a demand charge on customers with rooftop solar. EDF believes that if a utility is introducing demand charges, then all customers should receive the same options, without singling out solar customers.

A demand charge is a fixed monthly charge based on how much a customer’s peak electricity demand contributes to the utility’s peak demand during a given time period. Peak demand is typically during the hottest or coldest months of the year, depending on where you live, and when you crank up your AC and heating units. Utilities have used demand charges for commercial and industrial customers for many years, but applying them to residential customers is fairly new.

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Demand charges can be good policy, if done right. They can give the utility a better opportunity to recover its costs and provide an incentive for customers to manage their peak energy demand, which can lead to lower rates for all customers. Demand charges can also be more fair for smaller customers than a higher fixed monthly charge because the fixed charge eliminates the customers’ ability to lower their bills by managing their usage.

But demand charges can harm solar customers if not implemented or designed correctly. And if we are to avoid the most catastrophic effects of climate change, we need to scale clean energy technologies (like rooftop solar) faster and more efficiently than ever before. That’s why it’s imperative that we get rate designs right. They should provide incentives for clean energy deployment – not hinder it – while being fair toward the utility and non-solar customers.

Westar is a case study

 Westar originally proposed that solar customers would be required to choose between a plan with a demand charge and a $27 monthly fixed charge versus a plan with a $50 monthly fixed charge – both much higher than the current $12 monthly fixed charge. Also under Westar’s proposal: solar customers would not have the option, available to other customers, of remaining on the present plan with a low monthly fixed charge and no demand charge. Westar’s plan was unfair for solar customers. If demand charges are being used, then all customers should have the same rate options.

EDF efforts helped achieve a settlement in which Westar agreed to a very small fixed charge increase (from $12 per month to $14.50 per month) instead of the $27 monthly charge it originally sought. In addition, Westar agreed to give solar customers the same rate options other customers receive. We believe this is a much more balanced solution that considers the interests of the utility, solar customers, and non-solar customers.

While rate design may seem arcane and boring, it has an important impact on whether customers choose to install solar panels. A recent study by the Lawrence Berkeley National Laboratory shows that having the right rate design has a huge influence on a customer’s decision to add solar panels.

As utility leaders and policymakers from other states continue to explore the most equitable path toward a cleaner electric grid, the Westar case provides important lessons.

By Jamie Fine

Anybody managing a household budget knows it pays to plan ahead. With advanced thinking we can buy favorite items with coupons, when they’re on sale, in bulk, or at the cheapest store in the area. Similarly, we know that buying under duress, or in the touristy spot, will likely mean higher prices. Using the same smart shopper skills, new changes to the way utilities charge for electricity are going to give Californians another way to save money on energy bills.

In the current system, most California households’ electricity prices don’t change throughout the day. There is no option for lower prices when system demands are lower and electricity is cheap in wholesale markets. But that’s about to change, thanks to a recent 5-0 decision by the California Public Utilities Commission (CPUC).

Starting January 1, 2019, after a period of study, public outreach, and education, California’s large investor-owned utilities (Pacific Gas and Electric, San Diego Gas and Electric, Southern California Edison) will switch households to time-of-use (TOU) electricity pricing.

This simplified rate structure rewards customers who shift some of their electricity use to times of the day when clean energy is plentiful. Why would you run the dishwasher at 6 PM, for example, if it were cheaper to wash the dishes overnight when wind energy is abundant and cheap? This shift to a TOU pricing regime – one of the first in the nation – is a huge win for Californians and the environment.

TOU pricing can bring big benefits to California

Historically, the major challenge for utilities has been to ensure adequate electricity is available to meet peak demand. This is especially challenging on hot summer afternoons when demand peaks in response to high temperatures. In addition to this ongoing challenge, the growing reliance on solar will mean a new grid management issue: keeping the lights on as the sun sets but demand grows (as people get home from work and start using electricity). This latter challenge is motivating a lot of new power plant construction.

There are currently plans to build new “peaker” power plants, but they can be avoided if people adapt their energy use and make clean energy investments in self-generation, efficiency, and energy storage. One key piece of this alternative is the transition to TOU pricing.

From late morning until the sun sets, California produces a significant amount of solar power; and the future for solar is so bright, we’re reaching for our shades. With TOU pricing, we can shift demand to match up with the abundant solar electricity we produce – making the cheapest price windows for TOU rates likely from 10 AM until 4 PM. The good news is, the success of clean energy programs in California over the past decade means we’ll be able to meet peak demand by simply re-aligning our energy use to synch up with plentiful, clean, and cheap electricity.

With TOU pricing, we will inspire investment in other clean energy strategies, like storing thermal and chemical energy, improved efficiency (such as weatherization to help homes stay cool or warm as they ride through peak price times of the day), and smart devices, like “set-it-and-forget-it” thermostats, that can help us better manage our energy use. These new strategies driven by customer action will further help to displace dirty, fossil fuel electricity.

As CPUC President Michael Picker put it,

[Utility rate reform] move[s] us into a future where consumers have the tools they need to manage their own energy use, and can install new, clean technologies such as storage and renewables… It also builds a more nimble rate structure to allow us to add more and more renewables to the grid, and to encourage customers to use energy when we have excess renewables and to cut back during peak periods.

The introduction of TOU pricing could not come at a better time as California works towards Governor Brown’s goal of 50 percent renewables by 2030, which is currently going through the process of becoming law in the form of SB 350 (De León).

What’s needed to make sure the new system works?

First, utilities will need to do a good job of communicating peak and off-peak hours. Beginning now, this means customer education and outreach, but eventually it will mean systems that communicate with our smart phones and wifi-enabled appliances.

The current four-tier inclining rate structure is opaque and unfairly punishes households with large families. TOU pricing aims to fix this. Families will need clear information to make good choices. We’ll also need access to the right technologies, such as set-it-and-forget-it thermostats and appliances, so they can help us take advantage of low-priced times of the day. Several thermostats are already smart enough to routinely precool in advance of peak price windows.

The Commission needs to make sure utilities take these public awareness and technology interoperability components very seriously. As part of the working groups established to advise the utilities on their TOU roll-out plans, Environmental Defense Fund (EDF) will work with the Commission to make sure these are priorities.

Second, the Legislature needs to maintain, adequately fund, and strengthen programs that make it easy for Californians to access these conservation and clean energy technologies. As Commissioner Carla Peterman notedduring the July 3rd hearing:

These rate reform measures, coupled with California’s pioneering programs for energy efficiency, solar, and low income assistance, will enable consumers to better understand and manage their energy consumption and bills… A crucial next step in this reform process is to ensure that consumers are aware of the programs that are available to them.

TOU pricing offers more options

Utility reform debates can be divisive. What’s different about this CPUC decision is it gives Californians more opportunities to save, more choice, and greater control over electricity bills than previous rate reforms – and it does so without having to sacrifice cleaner air for our families.

Keep in mind that the current system isn’t fair. It doesn’t give access to low-cost energy each day and it doesn’t involve people as a vital part of a more nimble energy system. No one is being forced into the TOU pricing structure. People who prefer tiered rates can switch back at any time. For those who stick with the program, however, we think they will find TOU pricing is a powerful solution to decrease energy bills and a pathway to cleaner, cheaper electricity.

By Michael Panfil

The Federal Energy Regulatory Commission (FERC), a grid operator, states, and other parties just filed briefs with the U.S. Supreme Court in a case that could decide whether Americans have access to low-cost, clean and reliable electricity.

The case, EPSA v. FERC, revolves around demand response, a resource that helps keep prices low and the lights on – and does so while also being environmentally friendly.

In 2013, for example, demand response saved customers in the mid-Atlantic region close to $12 billion. And during the polar vortex, which threatened the North-East with freezing cold in 2014, the same resource helped prevent black-outs.

The clean energy rule at issue in this case is called FERC Order 745. EDF has been writing about this demand response case throughout the past year. We’ve been fighting for low-cost demand response and we’ll keep fighting in the Supreme Court. 

History of the Case

The case involves a FERC rule that allows demand response – a low-cost, clean, and reliable energy conservation resource – the chance to compete fairly in our nation’s wholesale energy market.

EDF and a broad coalition of consumer advocates, environmental groups, companies, and industry organizations support it.

Demand Response – How It Works, Why It’s Popular

The broad support for demand response exists because of how the resource works.

Demand response reduces energy demand when power is needed most, rather than increasing supply from costly, carbon–emitting fuels. It relies on people and technology, not power plants, to affordably meet our country’s rising electricity needs. In so doing, it reduces costs for everyone by taking the place of very expensive generation.

Anyone in favor of cleaner, more reliable, lower-cost energy has a reason to support demand response.

What’s at Issue

FERC is the federal agency responsible for keeping our electricity rates “just and reasonable” (in other words, for making sure we get fairly priced electricity).

FERC created Order 745 to further that goal. Order 745 allows demand response access to the wholesale energy market, where electricity is bought and sold. It levels the playing field between demand response and traditional sources of electricity generation, like coal.

In doing so, demand response has been able to reduce our use of unneeded, costly electricity – the exact type of electricity that should be limited if one wants “just and reasonable” rates.

Electricity producers challenged FERC’s Order 745, arguing that the agency lacked jurisdiction to create it. A three-judge panel for the U.S. Court of Appeals for the D.C. Circuit Court, in a split 2-to-1 decision, ruled in favor of the challengers.

Now FERC — as well as states, demand response providers, grid operators, and others – have stated their case to the Supreme Court.

The Case Before the Court

In its just-filed brief, the Solicitor General said on behalf of FERC:

Given that demand-response programs unquestionably confer significant benefits on wholesale markets, including lower rates, there is no defensible justification for concluding that the [Federal Power Act] nevertheless altogether excludes the programs from wholesale markets or FERC regulation. (FERC brief page 34)

The FERC brief also says:

By exercising authority over wholesale demand-response programs, FERC can ensure that a practice that occurs in wholesale markets, and has been widely recognized as tremendously important to the efficient functioning of those markets, will continue to provide benefits to consumers and the economy and is deployed in a way that results in just and reasonable wholesale rates and a reliable electricity system. (FERC brief page 45)

Another party to the case, demand response company EnerNOC, said in its brief:

Without demand response participation, wholesale energy markets will not ‘function…effectively’: Competition will be constrained; and prices will be higher. (EnerNOC brief page 39)

What Happens Next

Next, attention will turn to the amicus briefs – briefs filed in support of the parties to the case. Those, including EDF’s amicus brief, will be filed by July 16.

The Supreme Court is expected to hear oral arguments in the case this fall.

You can find all the briefs in the case here. And EDF will keep you updated as the case moves forward.

This post originally appeared on EDF's Climate 411 blog.

Photo source: iStock

By Guest Author

By: Nancy E. Pfund, Managing Partner of DBL Investors, and Anand Chhabra, former Summer Associate at DBL Investors and current JD/MBA Candidate at Stanford University

Does more renewable energy mean more expensive electricity? In the nation’s debate on energy, few questions are more important to American families and businesses.

Many critics of renewables allege skyrocketing electricity prices and economic crisis, owing to growing reliance on renewables. This commentary has emphasized “exploding electricity prices,” an “attack on any state’s economy,” and “gouging job creators and American families with higher electricity bills.”

Wait, what?

In our report, Renewables Are Driving Up Electricity Prices – Wait What?, we address this concern directly by assessing average retail electricity prices in the U.S., with a particular focus on whether states rely a lot or a little on renewables. What we discovered is that many of the fears espoused by critics of renewable energy are overblown.

Our findings

In 2013, states that led on renewables (measured by share of overall generation from renewable sources) actually had lower average retail electricity prices than states that lagged on renewables. States that led on renewables also experienced, on average, cheaper electricity than the national average.

These findings are significant because about ten years ago, this was not the case. In 2001, the leading renewable states we studied had slightly more expensive average retail electricity than lagging renewable states. By 2013, however, the states had flipped. Those that led on renewables actually had slightly cheaper electricity on average than states that lagged on renewables.

Similar pricing trends exist in states with Renewable Portfolio Standards (RPS). In these states, mandates require an “increase[d] production of energy from renewable sources such as wind, solar, biomass and other alternatives to fossil and nuclear electric generation.” Many states began to adopt these standards in the early 2000s, and at that time, average retail electricity was more expensive in many states that adopted an RPS compared to states that did not. By 2013, however, electricity prices in these RPS states only exceeded electricity prices in non-RPS states by a hair’s breadth (less than 1 cent/kWh) above the price difference that already existed in 2001.

The road ahead

Looking to the future, an array of factors will affect electricity prices, including fuel costs, power plant construction and operation costs, transmission and distribution, regulation, and rate design. But research into two economic trends deserve particular note.

First, a series of studies have concluded that increased reliance on wind will save people and businesses money. According to an American Wind Energy Association (AWEA) analysis, more than one dozen reports find that increased wind generation would decrease retail electricity costs across the country. These analyses forecast savings of $231 million per year over 20 years in Colorado, $177 million per year in Illinois, $7 billion in the PJM region (the electricity market in the Mid-Atlantic region), and more than $3 billion in the Midwest.

Similarly, more Americans than ever before can save on their electricity bills by relying on solar power. According to Deutsche Bank, by the end of 2016, nearly three out of four states in the nation will have reached grid parity (the “point where the cost of PV-generated electricity equals the cost of electricity purchased from the grid”). The list of states ranges from Maine and Massachusetts, to Michigan and Montana. This means that many Americans can actually save cash by relying on clean and renewable solar power.

These trends offer welcome news for Americans who are concerned about increasing electricity costs. Greater adoption of renewable energy is not going to result in economic crisis, as some critics would have us believe. Instead, the future of renewables looks bright.

Nancy Pfund is a Managing Partner of DBL Investors, a “double-bottom line” venture capital firm based in San Francisco, California. Anand Chhabra was a Summer Associate at DBL Investors and is a JD/MBA Candidate at Stanford University. Their recent report, “Renewables Are Driving Up Electricity Prices – Wait What?” is available online.

Photo source: Flickr

By Erica Fick

Here at Environmental Defense Fund (EDF), we love win-win solutions. This is why we’re big fans of time-of-use (TOU) electricity pricing (a type of time variant electricity pricing). As I’ve written before, TOU pricing better reflects the true cost of electricity, which fluctuates throughout the day. What’s more, it brings with it significant benefits for the environment, electric reliability, and people’s wallets. By empowering customers to better control their energy bills and the energy system reducing use of fossil fuels, everyone wins with TOU pricing.

Thankfully, the California Public Utilities Commission (CPUC) included TOU pricing as one of the key elements in their plan to reform residential electricity rates. But how and what Californians pay for electricity – the best way to structure rates – is currently up for debate at the CPUC.

The Commission issued its proposed decision on restructuring California’s residential rates and moving customers to TOU rates, which EDF strongly supports as an evolutionary leap forward. Subsequently, Commissioner Mike Florio issued an alternate proposed decision that nudges the current tiered rate system forward with a time-variation “adder.” Unfortunately, Florio’s alternate proposal amounts to more of a tune-up than the substantial overhaul required to prepare for a future grid that runs on carbon-free renewables, like wind and solar, and also powers our cars, trucks, trains, and boats.

EDF and many other stakeholders – including utilities, consumer protection groups, distributed energy providers, and EDF’s sister environmental organizations – support a version of the original proposed decision because it more strongly assures that TOU rates will be used to their full potential. The CPUC will vote on which version to adopt later this month with the opportunity to issue changes based on either proposal.

Proposed decision vs. alternate proposed decision

The good news is, both the proposed decision and the alternate proposed decision direct California’s three investor owned utilities – Pacific Gas and Electric (PG&E), San Diego Gas and Electric (SDG&E), and Southern California Edison (SoCal Ed) – to develop TOU rates for widespread use, including transitioning some customers to TOU pricing automatically (a good thing, according to research on opt-in versus opt-out programs). If EDF’s recommendations are embraced, this will include technology enablement for those who need the most assistance in adjusting to time-variant pricing.

There are, however, a few substantial differences between the two proposed decisions:

1) Language about TOU: The proposed decision orders transitioning customers to TOU rates starting in 2019 after several years of pilot studies. In contrast, the alternate proposed decision more softly requires utilities “establish a goal” of defaulting customers to TOU. This difference may seem too small to matter but these directives are for the utilities to interpret, so the CPUC must be clear that TOU is to be the default.

2) Number of tiers: The original proposed decision consolidates and simplifies the current four tiered rate structure into a baseline allocation of energy at a set price according to regional energy burden (i.e., how much electricity an average home needs for basic services, such as lighting and cooling) with a TOU electricity price. In other words, it creates essentially two-tiers where the upper (TOU tier) may vary with time of day.

The alternate proposed decision breaks down the current four tiered rate structure into three tiers: a baseline and higher usage surcharge, and then layers the TOU price on top. In a tiered rate system, the price per unit of electricity increases as a customer uses energy during the month. Higher users pay more per unit of energy than low users when their usage exceeds a prescribed level. The high-use surcharge of the alternate proposed decision is essentially a third tier. Unless the surcharge threshold is set at a very high level so as to affect only a very small group of super users, it would be a broadly confounding message when marketed with time-variant rates. Tiered rates mix up the message about shifting energy use to align with when it’s cheapest, including times when there is an abundance of renewable energy available – one of the biggest benefits of TOU. Instead, a TOU rate without the tiers will be easier for customers to understand – and respond to – by avoiding energy use during the time of the day when it’s most expensive.

Again, the difference between two or three tiers might not seem important, but it makes it harder for customers to manage their bills by planning the daily timing of their energy use. For programs like TOU to work, folks need to easily understand how the pricing works and how they can save money.

3) Consideration of greenhouse gas emissions: Both the original and alternate proposed decisions suggest that the CPUC does not have enough information to tell whether or not TOU rates can reduce overall household energy use. EDF strongly supports requiring the investor owned utilities to develop peer-reviewed evaluations of the emissions-reduction potential for TOU. In addition, a menu of dynamic tariff options (e.g., tariffs that vary hourly or subhourly based on real-time wholesale energy prices) that integrate utility-scale renewables and reward distributed energy resources (e.g., energy efficiency, rooftop solar, and energy storage) are also recommended. EDF is eager to be a helpful partner in scoping and executing the studies.

4) Fixed charge vs. minimum bill: The original proposed decision would adopt a fixed charge while the alternate would implement a minimum bill charge. Both are aimed at making sure each customer pays for at least some portion of their fair share to use and maintain the central electric grid on which we all rely.

However, a fixed charge is just that: fixed onto each bill and is anticipated to be larger than a minimum bill charge. A minimum bill, however, sets a floor for how much a customer can pay on their monthly bill. This minimum bill keeps intact incentives for clean, distributed energy resources like rooftop solar, while the fixed charge can diminish savings from these upgrades and extend the payback period.

EDF’s recommendation

Taking these differences into consideration, EDF urges the adoption of the original proposed decision – with one caveat: we agree with the alternate proposed decision’s adoption of a minimum bill instead of a fixed charge.

Further, for this to be successful, these aspects need to be incorporated into the final decision with a directive for utilities to develop and be accountable for strong education, outreach, marketing, and enablement. This is particularly important for low-income customers enrolled in utility programs like the California Alternate Rates for Energy (CARE) program, which provides low-income customers with a 30-35 percent discount on their electricity and gas bills.

We all know making big changes to residential electricity rates is difficult. We also know it’s vital for California to realize a clean energy future if we are to avoid the damaging effects of climate change (like the historic drought we’re currently experiencing). So, why not take this opportunity to develop truly innovative electricity pricing that delivers a win-win for all Californians and sets a standard for the rest of the nation?

By Peter Sopher

‘Disruptive’ is a favorite word among entrepreneurs and innovators, but start-up companies like Airbnb and Uber truly have disrupted long-standing industries over the past few years. Beyond their youth and success, what further links these two companies as well as many others (such as Teespring, Postmates, Patreon, and Verbling), is the way they empower people.

Exemplified by Airbnb and Uber, among others, is a new kind of business model that is revolutionizing many sectors, including how we get our electricity. Just like hotel and taxi industries, these disruptive, decentralized trends are taking hold in energy – affording people more choice, enabling existing resources and technology, and empowering people to veer from the traditional provider of services. Moreover, they even allow some people to make money in ways that didn’t exist until recently.

The key to disruption: customers are at the center

Previously, if you needed a place to stay or a ride, you had limited options, all involving a “gatekeeper;” for lodging, it was the hotel, and for private transportation, the taxi. Airbnb and Uber have completely changed this standard, opening the door for competition and decentralization of resources.

Similarly, decentralized power generation means people have more variety than ever before when it comes to where they get their electricity. And the upswing of microgrids and rooftop solar panels is catalyzing the electricity sector’s trend toward decentralization.

Microgrids are localized energy systems – often fueled by natural gas and/or renewables – that can operate independently from the broader transmission and distribution grid when needed. Thus, when conditions for drawing electricity from the central electric grid are unappealing – like during a power outage, for example – the microgrid can disconnect from the main grid and continue to provide power. Microgrid customers therefore benefit from not needing to alter their electricity consumption behavior as much as those stranded on the broader grid.

At an even more localized level, rooftop solar panels are a growing source of distributed electricity generation. Bloomberg New Energy Finance (BNEF) forecasts in its June 2014 2030 Market Outlook that, by 2030:

Renewables will command over 60 percent of the 5,574 GW of new [global] capacity and 65 percent of the $7.7 trillion [global] power investment. Rooftop solar PV will dominate, taking up a fifth [1,073 GW] of the capacity additions and investment to 2020.

Decentralization also means people have more choice in terms of investment and potential profitability. According to BNEF, customers in many locations can already make a return on investment above six percent (in real terms) by installing a PV system and operating it for a 25-year lifetime. And in locations with net metering, PV owners sell their excess electricity generation back to the grid. In other words, as with Airbnb and Uber, clean energy creates a platform that enables owners to directly sell a good and generate profits.

As costs decline, this profitability will increase. BNEF believes “from at least 2020, [policy and/or financial] support will no longer be necessary for [solar] PV build, thanks to a significant decline in costs.” Thus, solar promises to become an increasingly affordable fuel source that empowers individuals. And individuals have proven quick to capitalize. In Germany, the country with the most advanced solar progress, people and small businesses own over half of all renewable electricity capacity.

More choice, responsibility, and freedom

Airbnb and Uber realized the number of rooms and cars already in existence weren’t being utilized in the most efficient, not to mention profitable, way. Similarly, microgrid and solar PV technology already exists and operates successfully. People and businesses are finding ways to take better advantage of these resources.

In the burgeoning decentralized model, companies create a platform so individuals can own the valued good or service that is produced and potentially sold. As with Uber and Airbnb, many clean energy technologies, such as microgrids and solar PV, are forcing a previously entrenched industry to pivot, placing customers at the center.

If this trend continues, companies will see to it that you, the individual, are empowered in countless new contexts. Just know that with great power comes great responsibility. And with more options comes more choices. I, for one, am ready to choose a clean energy future.

Photo sources: Both Wikimedia commons (Uber, Airbnb)

By N. Jonathan Peress

In an ideal world, our electricity system would run on 100 percent clean, renewable energy. Moving toward that goal means transitioning away from a system of centralized, fossil fuel power plants, to an intelligent, efficient, networked energy grid that smoothly integrates vastly increased amounts of renewables and energy-efficient solutions.

To do that, we have to balance the intermittency of renewables with our steady need for electricity. That’s where natural gas comes in: When the sun stops shining or the wind stops blowing and renewables are offline, gas-fired plants can ramp up more quickly and efficiently than coal plants.

Many policymakers, regulators and industry members believe we have to build thousands of miles of new pipelines costing $150 billion or more to feed this need. But that could be an unnecessary and expensive mistake, not just now but over a very long term.

Nationally, the U.S. has plenty of existing pipeline infrastructure to accommodate significantly expanded gas use, including to replace coal power plants with gas in order to meet the requirements of the proposed Clean Power Plan. In fact, we aren’t even using 46 percent of the pipeline capacity we already have, according to a recent study by the U.S. Department of Energy.   In its Quadrennial Energy Review, DOE concludes that in many areas of the country, enhancing the flexibility and capability of the existing network is a better investment than building new pipelines.

Although we will  need to build out new pipes to fill in certain gaps, this should be complemented by an emphasis on  removing the regulatory and market barriers that keep us from making much more efficient use of the massive infrastructure that’s in place today.

If we don’t, then billions of dollars of capital sunk into new pipelines will fall needlessly on ratepayer shoulders, and potentially constrain the ongoing expansion of  clean, low-cost renewable technologies.

How to ensure new natural gas infrastructure doesn't lock out renewables
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Contracts Lock Out Innovation, Competition

The typical lifespan of a natural gas pipeline is 50 years or more. Because they are so expensive to build, pipelines are financed over decades based on long-term contracts that must provide enough money to pay for the full cost of the new pipeline, plus a guaranteed profit for the pipeline owner. By locking in that demand, however, these massive investments lock out competition from cleaner, more efficient alternatives.

New pipelines, in other words, inherently create long-lasting incentives to keep burning fossil fuel. And often those incentives are legally binding because more often than not, ratepayers (i.e., the public) are on the hook for the costs.

How natural gas is bought and delivered also creates huge inefficiencies in the pipeline system that are responsible for today’s substantial underutilization, and which also work against renewables.

Flexibility is the defining characteristic of the developing lower carbon, lower cost energy grid. If gas is to be used to support renewables, pipelines (and power plants) must be able to accommodate loads that vary by the minute rather than the day. But pipelines typically schedule delivery of gas in steady volumes over the course of a 24-hour period.

Starting to Get it Right

New kinds of contracts and better management would facilitate delivery on short notice, and in shorter increments. Indeed, some pipeline operators are already providing additional flexibility and daily scheduling to meet demand peaks. But today, there’s little market incentive for most pipeline companies across the country to adopt this approach.

Pipeline operators seeking to modernize pipeline systems to complement variable renewables and a more dynamic, interactive grid will distinguish their projects from developers stuck in the old paradigm of providing base load, unvarying quantities of natural gas. Companies that are getting it right – with or without encouragement from regulators – have a substantial opportunity to position themselves more competitively.

Steps Toward a More Efficient Market

Over the past year, the Federal Energy Regulatory Commission (FERC) – the agency responsible for managing the nation’s energy  grid –  recognized that the current design of wholesale gas markets is not aligned with the needs of the evolving electricity market. In a recent order, FERC agreed with EDF and concluded that regional gas pipeline operators should be providing additional daily scheduling opportunities.

In expressly requiring more frequent scheduling, the Commission said that “additional intraday nomination [scheduling] opportunities could promote more efficient use of existing pipeline infrastructure and provide additional operational flexibility to all pipeline shippers, including gas-fired generators” and directed the gas and electric industries to develop further mechanisms for faster more flexible scheduling, including by automating the process.

This is a good sign because it signals to the gas and electric industries that more market refinements are forthcoming to ensure natural gas pipeline infrastructure does not become a progressively bigger obstacle to cleaner, more efficient ways of doing business.

Competitive Renewables Are the Future

In its modeling to support the proposed Clean Power Plan to reduce carbon pollution from power plants, the Environmental Protection Agency projects that natural gas demand in the U.S. will increase for the next ten years or so as gas displaces coal. But then it is expected to start falling as energy efficiency and renewable energy technologies – which are already cost-competitive with fossil generation – continue to work their way into the energy grid.  Recent analysis by the U.S. Energy Information Administration agrees.

A similar conclusion as was reached by The California Low Carbon Grid study by the National Renewable Energy Lab, which finds that by around 2020, the cost advantages of renewable technologies, energy efficiency, demand response, and energy storage begin to significantly reduce natural gas’ share of the U.S. electric power market.

All of which means that regulators, investors and ratepayers should carefully examine proposals for new natural gas pipelines to make sure that the economics work over the long run because, in some instances,  there’s a good chance somebody is going to be stuck paying too much, for too long. This is a consumer issue whether or not you care about climate protection and clean air.

Deployed properly, natural gas can be part of the climate solution in the near term, but it is only a limited tool to help decarbonize the energy system. To be beneficial for clean energy, gas must be used efficiently and with a limited role into the future.

An inefficient overbuild of the regional pipeline system will lock in fossil fuels and impose unnecessary costs on customers and the environment. But, a refined energy market design, along with forward-thinking pipeline developers, can be part of the solution for displacing coal-fired power and complementing clean energy resources.

Image Source: Ohio Power Siting Board

By Jim Marston

Solar energy is booming – and you needn’t look further for proof of its success than Brian H. Potts’ recent op-ed in the Wall Street Journal. When a utility lawyer like Potts is arguing for what type of solar energy our country should be investing in –utility-owned, large-scale solar versus customer-owned, rooftop – you know this renewable energy resource has gone mainstream. And that’s a good thing.

We should support a wide variety of clean energy resources precisely because these technologies eliminate the costs of pollution now being socialized by fossil fuel generators. And this is becoming all the more critical as the costs of a changing climate grow.

Rooftop solar incentives deliver benefits

As Potts points out, the price of solar panels has fallen by 80 percent since 2008. This significant decrease in cost – coupled with incentives like net metering that allow customers to send the surplus energy they produce from their solar systems back to the grid and receive a credit on their bill, plus the emergence of new financing models like solar “leasing” programs – has led to an explosion of rooftop solar in the U.S.

Even though these incentives and loan programs have resulted in localized health benefits and unprecedented energy savings for millions of American families and businesses, Potts’ believes our money would be better spent if we invested it in more “cost-effective renewable sources of power” like utility-owned, large-scale solar systems.

While perhaps not equal to large, central solar plants owned and operated by utilities, the price of distributed solar installations are plunging, and the returns growing.

In 2012, rooftop solar panels cost about one percent of what they did 30 years ago. Solar leasing models and policies like net metering and tax incentives have served as a necessary precursor and an enormous catalyst to distributed solar development, making solar energy a more attainable option for American families and small businesses.

That’s why it’s imperative we keep these incentives in place. It is important to remember that these solar policies are working in the real world. They are helping to drive the current boom in solar generation, and eliminating them – as Potts suggests – would undermine the very policies helping to accelerate our nation’s transition to a clean energy economy.

Incentives like net metering deliver many benefits that Potts does not address. For example, net metering spurs the production of electricity on-site where it’s consumed, which can help reduce the strain on distribution systems and cut the amount of electricity lost to long-distance transmission (estimated at seven percent in the U.S.). Net metering, moreover, tends to reduce greenhouse gas emissions by incentivizing people to adopt renewable energy and become more aware of energy-saving opportunities.

And Potts’ argument that net metering isn’t fair to those who don’t invest in rooftop solar is just plain wrong. A recent study sponsored by the California Public Utilities Commission found that, on average, net metering customers pay more into the system than the costs they create; that is, they’re still contributing more than their fair share at around 103 percent cost recovery.

Net metering customers contribute an average of 3% more than their fair share to the grid. Source: CPUC

A diversity of solar projects for a diversity of customers

Net metering aside, there are other types of local solar that can help reduce costs and negate structural, shading, or ownership issues associated with rooftop installations. Community solar allows customers to “subscribe” to larger solar arrays located in their neighborhood. The subscribers then get a credit on their electricity bill for the energy produced from these community solar projects through a process called virtual net metering. This model is particularly attractive to renters, apartment dwellers, and low-income communities who may not otherwise be able to join the solar revolution. Although Potts does not address this kind of local solar, it offers benefits utility-scale solar cannot.

Also, many of these systems are now on vast warehouses and big box retail roofs. As a whole, the top 20 big-box retailers have over 18,000 U.S. stores, representing enormous potential for solar power growth. These retailers are only part of a larger group of commercial customers, which in total make up about one- third of U.S. electric utility sales. But other commercial customers are turning to solar too. The National Renewable Energy Laboratory reports 40 percent of the nation’s 86,000 supermarkets are located in areas with grid parity (i.e., the cost of power from solar panels is equal to or less than the cost of buying power from the utility).

Rooftop solar will keep getting cheaper

Finally, recent power purchase agreements with third-party solar providers are allowing global corporations like Google, Apple, and Walmart to develop their own economies of scale. Apple, for example, made headlines earlier this year when it signed a 25-year contract to buy solar energy directly from a third-party solar provider – securing enough electricity to power essentially all of the company's California operations for less than half the cost it would pay to a utility. New finance models like yieldcos, which allow companies to distribute profits from power sales to their shareholders in the form of regular dividends, are also allowing renewable energy developers to further scale rooftop solar affordably like never before. This financial tool didn’t exist three years ago but is on track to become a $100 billion market this year.

Utilities’ real concern: Impacts on their profits

It’s not surprising why Potts would argue against rooftop solar. Analysis from a recent Lawrence Berkeley National Laboratory study shows, even under the most aggressive expansion of rooftop solar the researchers studied, shareholder (or utility) profits would be impacted more from net metering than customers’ electricity rates. It would appear these efforts to attack rooftop solar and related policies like net-metering are more about disruptions to profits than negative impacts on customers or the planet.

We agree the role of renewables, especially solar, in reducing greenhouse gas emissions is critical to managing climate change. And continued support – for all types of solar energy – is essential.

By Beia Spiller

With time-variant pricing, people can choose to run their dishwashers at times of day when electricity is less expensive.

New York cemented its reputation as a national leader in energy policy last year when it announced plans to revamp the way utilities are regulated in order to establish a 21st-century energy system. But the state is still trailing in one crucial area: More than 99% of its homes have antiquated meters that tell utilities nothing more than how much electricity customers use each month. To achieve its ambitious goal of an energy revolution, the state should embrace a technology—advanced meters—that empowers New Yorkers to cut their energy use during times of the day when it matters most.

A key component of the smart grid, advanced meters provide detailed electricity-use data throughout the day. This information reduces inefficiencies in the energy system and leads to quicker detection of power outages. Such improvements reduce the costs of operating the power grid, resulting in lower electricity prices.

Advanced meters, also known as two-way-communicating Advanced Metering Infrastructure (AMI), or "smart meters" (which can both send and receive information such as electricity prices and energy usage), enable pricing that incentivizes customers to use electricity when it is cheaper and cut back when it is expensive. This time-variant pricing reduces congestion on the power grid, ultimately lowering costs for everybody. But, without advanced meters measuring electricity use in short time intervals, it's impossible for utilities to bill on a time-variant basis.

Programs across the country have shown that time-variant pricing becomes much more beneficial to the electric system as more customers enroll. A widespread roll-out of advanced meters will therefore allow a far greater number of customers to adopt time-variant pricing, maximizing the benefits to all.

New York still lags other states when it comes to advanced meters

Across the country, approximately 35% of homes have advanced meters. Here in New York, less than 1% do. New York's landmark energy reform provides the chance to engage customers in important ways, but without advanced meters, many options are not available.

So why hasn't this happened yet? Although a huge influx of federal stimulus funds in 2009 helped spur the installation of more than 50 million smart meters in other parts of the country, New York was unconvinced that their benefits would translate locally and took a "wait-and-see" approach to widespread adoption. Although the technology has proved useful in other states, New York has cited high costs for the continued delay.

Earlier this year, the New York Department of Public Service co-sponsored a forum with New York University and my organization, the Environmental Defense Fund, on time-variant pricing to explore how its widespread adoption can reduce electricity use and electricity bills. We heard policymakers, regulators and utility executives describe the benefits of advanced meters as substantial and well documented.

EDF urges local utilities and regulators to consider the benefits of time-variant pricing as part of their decision-making process on advanced meters, as that factor could indeed tip the scales. Utilities could conduct pilot programs to understand the impact of new pricing approaches, or, at the very least, use results from other states to inform their analyses.

Accelerating the roll-out of advanced meters will open doors to the innovative future envisioned by New York's historic energy transformation.

This op-ed originally appeared on Crain's.

By Jamie Fine

Last week, the California Public Utilities Commission (CPUC) issued a proposed decision on residential rate reform. Residential rate reform – how and what Californians pay for electricity – is a thorny subject, and the Commission’s proposed decision is being met with a range of reactions.

We at Environmental Defense Fund (EDF) want to highlight a bright spot in the 300-page document that we’re thrilled about: the attention paid to time-of-use electricity pricing (a type of time-variant pricing). Buried in this long legal document, we see EDF’s fingerprints in the Commission’s call for California investor-owned utilities to ramp up their use of this innovative yet well-proven pricing tool starting with pilots in 2016 and going to scale in 2019.

How TOU Works

If you’ve been following EDF’s work in this area, then you know we’ve been involved in this process for many years and have probably gathered that we’re big fans of time-of-use pricing (TOU) because it better reflects the true cost of electricity, which fluctuates throughout the day. This type of pricing also empowers customers to better control their own energy bills and reduce our reliance on fossil fuels.

TOU pricing works by breaking up the day into two or three large intervals and charges a different price for each. Rates can be divided into off-peak prices (generally during the middle of the night to early morning), semi-peak prices (daytime and evening), and peak prices (occurring during periods of highest demand, usually afternoon to early evening). These rates remain fixed day-to-day over the season.

This simple method of pricing encourages customers to shift their electricity use away from times of the day when demand is higher, enabling the use of more clean energy when it’s available and plentiful (like solar energy during the daytime and wind energy at night). TOU pricing also helps reduce stress on the electric grid during periods of peak demand.

With its many benefits to the environment, electric reliability, and people’s pocketbooks, it’s not hard to see why the CPUC is considering rate reform to incorporate more TOU pricing across the state.

Breaking Down the Proposed Decision

So, how does the Commission’s proposed decision help California realize the potential of TOU pricing?

1. It illustrates the important role TOU can play in the effort to reduce our reliance on fossil fuels. Not only does this benefit customers and the economy, it will help California meet its carbon reduction goals.
2. The proposed decision calls on all three California investor-owned utilities – Pacific Gas and Electric Company, Southern California Edison Company, and San Diego Gas and Electric – to begin piloting TOU pricing programs in 2016, with planning to begin immediately. Ultimately, the decision would make TOU the default option by 2019, though people will always be able to opt-out once TOU becomes the default option. But, as behavioral economics and retirement savings examples have taught us, it’s a lot easier to get people to do the right thing if it’s the default option.
3. The Commission indicated that it is looking out for low-income customers, requiring that utilities make a concerted effort to reach out, educate, and engage even the hardest-to-reach Californians. Studies show that people at all income levels support TOU electricity pricing because it helps folks save money and improve the environment. Nevertheless, there remains a legitimate concern that some customers just won’t have the ability to shift their energy use to take advantage of time-of-use pricing. This is why the attention to customer engagement and education in the proposed decision is vital: it’s on utilities to not just pilot the programs, but also help them succeed and take hold. This is also why other related efforts at the Commission to increase access to the technologies and appliances that save customers money are so important.

The final decision from the CPUC is due on May 30th, and in the interim, many stakeholders will be submitting comments and advocating for the rate reform they want during the public input period. There are substantial components of the decision having to do with collapsing the current four-tier pricing model to two tiers, and adding a fixed charge, to which many are already crying foul. These components have the power to dominate the discourse moving forward. However, we should not let them override the potential progress for TOU.

From EDF’s perspective, our dedication to fighting climate change and cleaning up our air makes the emphasis on time-of-use pricing an exciting step towards our clean energy future. By encouraging people and businesses to use clean energy when it’s available, time-of-use pricing could help us successfully integrate ever-larger amounts of clean power into our energy system. And even better, customers end up saving money under these programs and we can collectively avoid the construction of more dirty power plants which would otherwise be built to serve growing peak demand. TOU pricing is truly a win-win for everyone and EDF is excited to continue adding our influence to this new decision through comments and working with other stakeholders to ensure the promising aspects of this proposed decision become a reality.

Photo source: Flickr/Ian Britton

This post originally appeared on our California Dream 2.0 blog.

By John Finnigan

The new Apple Watch, which went on sale last Friday, is attracting huge attention. Among many other features, the watch will monitor your health by tracking fitness and activity, like the Fitbit. In its first day on the market, nearly one million were sold.

The popularity of this wearable device speaks to a larger trend happening in technology that one might call “life tracking”: the ability to track, analyze, and hone your personal activities through the use of connected devices. From fitness to finance, technology like the Apple Watch is enabling more choice and efficiency than ever before. And, just as fitness wearables monitor our personal activity, other devices can monitor our home energy activity – leading to an array of cost-saving and environmental benefits.

Home energy monitors

The Nest thermostat is one of the most well-known home energy monitors. It learns how you like to set your home temperature, and then automatically programs itself to follow your patterns.

For example, if you work an office job and are away from home nine to ten hours a day, the Nest thermostat may cycle the air conditioner down to increase the home temperature a couple of degrees during the day while you’re gone, and then automatically reduce the temperature an hour or so before you return to re-establish your preferred home temperature.

This process of automated, learned behavior by home energy devices has significant cost-savings potential. Nest users reduced their energy use from air conditioning by 11 percent in a recent California study, and lower energy use means lower electric bills.

Some home energy monitors can even allow us to see in real time how much energy we’re using – both for our entire house and on an appliance-by-appliance basis, which can encourage conservation. A 2012 study by the American Council for an Energy Efficiency Economy entitled “Results from Real-Time Feedback Studies” reported that customers reduced their energy consumption up to 12 percent when they received real-time feedback about their energy usage in the form of in-home displays, web portals, and prepaid metering programs.

Demand response moves in

Home energy management devices can also enable utility-sponsored, energy-savings programs like demand response.

Demand response pays people to save energy when electricity demand is high by integrating home energy monitors with smart meters, the interface that allows two-way communication between customers’ appliances and utilities. For example, when energy demands are up, households and businesses are notified by their utility – usually through a smart phone app, text, or display notification on a home energy device – so that customers can choose to switch off non-essential appliances like water heaters, washers, and dryers. Smart meters and programmable thermostats make demand response even easier by automating this process.

At the end of the month, customers will see a rebate on their electricity bill for participating in demand response, in addition to the amount they saved by using less energy. Many utilities offer this type of program, especially now that smart meters reach over 40 percent of U.S. households.

Electricity pricing can finally be dynamic

This home energy monitor from Ceiva allows people to view their home's energy demand, cost of electricity by the hour, and other energy data in the elegant and familiar design of a photo frame, encouraging people to integrate energy conservation into their daily lives.

Time-variant pricing plans are also becoming more popular with the expansion of smart meters and home energy management devices. The idea is that utilities can offer customers different rates at different times of the day or throughout the month that better reflect the true cost of electricity, which varies depending on when it’s used. The varying cost of electricity can be communicated through home energy management devices’ display screens or accompanying smart phone apps.

For example, when a heat wave occurs on a weekend when most people are at home, demand skyrockets as people crank up their air conditioners, creating what is known as a “critical peak event.” In order to meet this increased demand, the most expensive power plants – which remain unused for most of the year and generally tend to emit more pollution – are turned on. Enabling customers to curb their electricity use during these heat waves could offset the need for these dirty, expensive plants, resulting in lower prices and less harmful pollution.

Home energy monitors can be programmed to receive price signals from the utility during these peak events, giving customers the choice to either manually adjust their appliances in response to these signals, or program their home energy monitor to automatically adjust appliances.

Utilities must deliver   

Apple created the Apple Watch to give people real-time feedback on – and thus greater control over – their lives. Similarly, there is great potential for home energy monitors to change people’s lives. And the market for home energy management is growing rapidly – in fact, it’s predicted to exceed $3 billion annually by 2020.

But, home energy monitors are just a piece of the energy savings puzzle, and combining them with utility programs like demand response and time-variant pricing can unlock even greater savings. However, utilities, and the regulators overseeing them, need to follow through with implementing these programs as part of their investment in a smarter grid. Then we can ensure customers have the opportunity to receive all the potential financial and environmental benefits “wearables” (or their energy management counterparts) can offer.

Photo sources: Flickr/LWYang; Ceiva

By Beia Spiller

Last week, Environmental Defense Fund (EDF) co-hosted a successful forum on residential time-variant electricity pricing – which allows customers to pay different prices for electricity depending on when it is used – within the context of New York’s ‘Reforming the Energy Vision’ (REV) proceeding.’

Co-hosted with the New York Department of Public Service and New York University’s Institute for Policy Integrity, the full-day forum, “On the REV Agenda: The Role of Time-Variant Pricing,” brought together more than 150 regulators, utility executives, academics, and other stakeholders to explore how residential time-variant pricing works, what it can accomplish, and how best to implement it. Below is a recap of some of the high-level takeaways from the forum.

How time-variant pricing (TVP) works

One of EDF’s objectives has been to improve the efficiency of the electricity industry by pursuing a market-based approach to electricity pricing. In most well-functioning markets, the cost of making a product and its relative scarcity is reflected in the price. For example, a door is more expensive than the wood with which it is made in order to reflect the labor costs involved. Similarly, strawberries are more expensive during the winter because they are less abundant during that time. Customers understand that prices vary with production costs and over time, yet neither of these elements gets reflected in how residential customers currently pay for electricity.

Types of Time-Variant Pricing

• Real-time pricing (RTP)– Prices vary frequently over the course of the day to reflect fluctuating electricity costs.
• Time-of-use pricing (TOU)– The day is broken out into two or three periods of time (e.g., peak period, off-peak period, interim period) whereby prices vary by period, but remain consistent from day to day.
• Variable peak pricing (VPP) – Similar to TOU, except that peak period prices change daily to reflect system conditions and costs.
• Critical peak pricing (CPP)– A critical event (such as a heat wave or power plant failure) is identified when the price may increase dramatically to reflect system conditions.
• Critical peak rebate (CPR)– Similar to CPP, except customers are paid for cutting back on electricity during critical events relative to the amount they normally use.

Most utilities around the country charge customers flat prices representing an average of the costs and scarcity over the entire year. With flat prices, customers often end up paying more than they should because that average includes some very expensive energy that is produced to meet spikes in demand that occur only a few times a year. Avoiding these spikes in demand would lead to lower prices, yet flat prices leave customers unaware of these high-cost times. Time-variant pricing (TVP), on the other hand, helps to bridge this gap by signaling to customers when costs are high, incentivizing them to cut back on electricity use or shift to times when electricity is cheaper.

Lessons learned from implementing TVP across country

Our forum helped shed greater light on this type of pricing through lively discussions and presentations by a range of speakers who’ve had experience implementing or analyzing TVP. Utility representatives and consultants presented on lessons learned from TVP programs in various states, including California, Oklahoma, Illinois, and Maryland, where utilities implemented very different types of pricing mechanisms. For example, time-of-use and critical peak pricing were implemented in California, while variable peak pricing was used in Oklahoma, real-time pricing in Illinois, and peak time rebates in Maryland.

Despite deploying different technologies and outreach methods, the utilities saw similar outcomes in all four states. Time-variant pricing led to substantial reductions in peak-time electricity use and customers reported that they liked being able to respond to price fluctuations. Regulators and consumer advocate groups have been concerned about the effect of TVP on low-income customers, but they, too, cut back on electricity use, and in some cases, reported even greater acceptance than more affluent customers. Another key factor affecting TVP adoption was how the choice was structured: i.e., whether customers were asked to opt-in to a voluntary TVP program or opt-out of a TVP program in which they were automatically enrolled. Utilities saw much higher TVP adoption as well as greater total peak demand reductions when customers were automatically enrolled in TVP and allowed to opt-out.

A panel on TVP considerations featured speakers doing a deeper dive on:

1. Potential concerns regarding the impact of TVP on low-income customers;
2. Environmental impacts of TVP, and;
3. The role of customer-enabling technologies in reducing demand when paired with TVP.

TVP implementation in New York: opportunities and barriers

The forum’s final panel was of a more academic nature, bringing together thought leaders in the field to discuss the future of TVP in New York’s reformed electricity system. Stanford University Economics Professor, Dr. Frank Wolak, argued that utilities should provide real-time pricing (RTP) to residential customers. He recommended that RTP be levied only on the portion of a customer’s bill that reflects the costs of generating electricity. He noted that customers in New York have the flexibility to go to a third-party energy service provider and choose a flat rate if they wish to avoid the fluctuation in prices brought on by RTP. The panel also discussed how time-variant pricing can be implemented for the portion of a customer’s electricity bill that reflects a utility’s infrastructure investments (i.e., the delivery portion of the bill). These charges would help utilities avoid future infrastructure investments, such as substations, resulting from elevated peak demand.

Unfortunately, there are significant barriers to TVP implementation in New York State. For starters, customers don’t have the type of advanced, or smart, meter that provides detailed data on how much electricity is used each hour or minute of the day, making it impossible for utilities to bill on a time-variant basis. This theme was repeated throughout the day, with many presenters stressing the importance of utilities investing in an advanced metering system.

Another barrier to widespread TVP implementation in New York is the lack of incentive for utilities to make changes that would help them reduce costs, such as TVP. Instead, the current system reimburses the utility for incurred investment costs, creating a perverse incentive to spend more and avoid implementing TVP. The REV proceeding is looking into changing how utilities are paid (for example, based on performance rather than expenditures). This provides an ideal opportunity for the state to introduce time-variant pricing as part of a reformed electricity system.

Our successful forum not only helped reinforce the idea it is time to begin implementing TVP in New York but also offered guidance on the best way to do so. We hope the understanding gained from the forum will help guide the path to a cleaner, more efficient electric industry in New York.

For more information, check out our new time-variant pricing fact sheet.

By Rory Christian

These are exciting times. New York’s ‘Reforming the Energy Vision’ (REV) has paved the way for change of unprecedented proportions. New York regulators are preparing the state for a future in which rooftop solar installations are ubiquitous and the rumbling staccato of gasoline-fueled automobiles is replaced by the relative silence of electric vehicles.

While more rooftop solar energy and electric vehicles are certainly part of our energy future, some of the biggest changes are likely to come from less visible – and less obvious – sources, particularly for customers in densely populated metropolitan areas and low-income customers, who make up a significant portion of New York state’s customer base.

Urban dwellers, for whom mass transit is a central part of daily life and owning your own rooftop is less common, may view electric cars, rooftop solar, wind, battery storage, and on-site energy generation as appealing, but also abstractions more suitable for upstate homeowners than those living in crowded apartment buildings.

For these customers, the opportunity to contribute to a clean energy future will be guided largely by the domain of Adam Smith’s invisible hand: economic forces that enable greater control over how much energy is used and at what price.

New York seeks to engage low-income customers

Fortunately, the New York Public Service Commission (Commission) is aware of this dichotomy between low-income customers and more affluent ones and is examining the best way to address these concerns through two additional proceedings in conjunction with REV. One focuses on needs specific to low-income New Yorkers, while the other examines the option of community net metering, which would allow urban residents to participate in emerging clean energy technologies, such as rooftop solar.

Who could benefit most from fair electricity pricing? Low-income customers.
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In addition to these efforts, the Commission is also evaluating time-variant electricity pricing, which allows customers to pay different prices for electricity depending on when it is used, reflecting the true costs of making and moving  electricity. Time-variant pricing could benefit all energy customers, transcending both geographic and financial constraints and enabling everyone to participate in the clean energy future envisioned in New York.

In a previous blog post by my colleague, Elizabeth Stein, she compared the current electricity pricing system – in which residential customers pay the same price for electricity regardless of the time of day when it is used – to a supermarket where customers fill up their carts and pay by the cart instead of by the contents. With the current flat electricity pricing, residential customers pay for electricity services without any information on their true costs. Without this information, customers can’t make a clear connection between their behavior and their utility bills.

Low-income customers are most affected by fluctuating monthly bills

Low-income customers stand to benefit most from improved electricity pricing because these customers spend a higher share of their income on energy than others and are most sensitive to wide fluctuations in monthly utility bills. Time-variant pricing, and the technologies that allow customers to automatically respond to these variations in price (like smart meters), results in adjustments to electricity use that can ultimately lower customer bills. By simply shifting their use of heavy appliances, such as a dishwasher or washing machine, to more affordable times of day, customers are able to benefit from lower electricity prices. This opportunity is especially important for low-income customers, who might struggle to pay monthly electricity bills during a summer heat wave that required heavy air conditioner use.

When low-income customers have had access to time-variant pricing, the results have been compelling. A time-variant pricing pilot conducted by the Sacramento Municipal Utility District showed that study participants not only report high levels of satisfaction with the programs, but in some cases, they are more likely to perceive the prices they are charged as fair compared to those customers who have flat pricing. Moreover, low-income participants showed higher-than-average acceptance of time-variant pricing.

For many, simply moving to a time-variant rate can lead to financial savings without having to change their patterns of electricity use. That’s because many low-income customers are “natural winners,” meaning they already use less energy during peak hours – when time-variant prices are higher – than the average residential customer. If these natural winners do not have access to time-variant prices they are being over-charged for electricity, since they place less stress on the power grid by not using electricity during times when the system is constrained.

Time-variant pricing aligns with REV goals

Effective implementation of time-variant pricing can be aligned with the Commission’s stated goals of better engaging customers because it creates a path forward for all who choose to embrace it, while complementing the low-income and community net metering efforts currently underway. It also aligns customer choice with the health of the system since time-variant pricing can help utilities defer or avoid investments in energy infrastructure built to meet increasing energy demand.

Our current one-size-fits-all system of electricity pricing is not ideal for all customers and unduly burdens those who would stand to benefit most from time-variant pricing. Certainly not all customers will take advantage of new time-variant pricing options once they become available, but the absence of time-variant pricing as an option will place limits on utilities, regulators, and customers at a time when most other industries are expanding opportunities to engage with people through customer-focused solutions.

For more information, check out our new time-variant pricing fact sheet.

By Larissa Koehler

San Onofre Nuclear Generating Stations (SONGS) Photo source: Flickr/Jason Hickey

Editor's note: This post was updated April 9, 2015.

When the door to one power plant closes, a window to more clean energy solutions opens.

It may seem logical that once a power plant closes, another one needs to be built to replace it – after all, we need to make up for its potential energy generation with more natural gas or nuclear-powered energy, right? San Diego Gas & Electric (SDG&E) is certainly trying to convince Californians this is true. Trouble is, EDF and other environmental groups, along with the California Public Utilities Commission (CPUC), aren’t buying it. And you shouldn’t either.

This story begins in 2013, when the San Onofre Nuclear Generating Stations (SONGS) permanently closed, shutting down a nuclear power plant with a capacity of 2,200 megawatts (MW) and sparking a debate about how to replace this lost power source. When first determining how to proceed in the wake of the SONGS closure, the CPUC decided SDG&E could buy between 500 to 800 megawatts (MW) of new energy resources by 2022. Further, at least 200 MW of this power had to – and all of it could – be met with preferred resources like energy efficiency, renewable energy, energy storage, and demand response (an energy conservation tool that pays people to save energy when the electric grid is stressed).

SDG&E, one of the joint owners of SONGS, is seeking permission to buy a brand-new 600 MW natural gas plant in Carlsbad, California from NRG Corporation. SDG&E’s argument is that this resource is necessary to fill the gap left by SONGS and provide greater reliability in the face of intermittent renewable energy resources. EDF and like-minded organizations such as the Sierra Club and the Natural Resources Defense Council (NRDC), on the other hand, are rightfully pushing back on this proposal as likely unnecessary and unquestionably premature. For example, rather than paying above-market prices to NRG for polluting power plants, why not work with NRG to help them meet their commitment to invest more than $102 million in electric vehicle infrastructure that could help address reliability concerns?

Rightfully, in their recent proposed decision over SONGS replacement, the CPUC sent a clear signal that SDG&E must abide by the state’s Loading Order, first established in 2003 by the California Energy Commission (CEC) and adopted by both the CEC and the CPUC. The Loading Order was developed for just this type of situation: as regulatory guidance to help clean energy solutions be part of the mix when considering how to replace lost power supply. In the CPUC’s own words, when proposing to reject the Carlsbad plant: “we reaffirm our commitment to the Loading Order, and reiterate that it is incumbent on SDG&E to meet its procurement authority to the extent feasible with preferred resources and energy storage.” Though the CPUC left the door open for SDG&E to bring this proposal again if the utility cannot buy the minimum required amount of preferred resources, we believe SDG&E, with reasonable effort, should be capable of meeting the CPUC’s directive.

EDF’s stance, then and now, amounts to this: while the demand for power doesn’t go away, a plethora of clean, efficient resources exist that can help us manage energy demand more effectively without turning to fossil fuels. For example:

• California can make much greater use of demand response programs. Demand response sends a signal to customers to voluntarily and temporarily reduce their energy use at times when the grid is most burdened – thereby preventing the need to ramp up fossil fuel resources to meet demand and reducing system costs and emissions.
• Incorporate time-of-use (TOU) electricity pricing. By charging lower energy prices to encourage use during off-peak times, or when renewables are available, California can integrate more clean energy resources and relieve strain on the power grid during peak times. In fact, EDF has demonstrated that if half of Southern California Edison’s residential customers adopted a voluntary TOU electricity price, they could replace two-thirds of SONGS’ lost capacity, saving $357 million per year – and the same trend would likely follow in SDG&E’s service territory.
• Bolster energy efficiency programs. Emphasizing the use of energy-efficient technology will lower demand, offset the need for expensive and dirty fossil fuels, and reduce system costs by avoiding additional power plant, transmission, and distribution infrastructure. For example, in 2010 and 2011, CPUC energy efficiency programs produced enough energy savings to power more than 600,000 households and offset 1,069 megawatts (MW) of electric capacity.
• Utilize increasing viable storage technologies. By storing energy at times when the sun is shining or the wind is blowing, and drawing on that energy when these resources are not available, storage provides a powerful mechanism to integrate more clean energy and greatly reduces the need for fossil fuels. As demonstrated by the CPUC’s storage mandate for utilities – as well as the fact that Southern California Edison already went above and beyond this directive – storage is a reliable and growing part of the solution.

EDF applauds the CPUC for issuing a clear statement on how the SONGS capacity should be replaced – making it apparent that SDG&E should commit to more than the minimum required procurement of energy efficiency, renewable energy, energy storage, demand response, and other clean energy resources. And with SDG&E’s history of forward-thinking energy policy, they should embrace this opportunity for continued leadership. The key to California’s energy needs lies in a suite of solutions that are good for the grid, the environment, and the health of California’s citizens. The CPUC’s statement highlights an important priority for the state in the coming decades to address these needs. This should be the beginning, not the end, of Southern California’s push to adopt preferred resources. Diversifying the region’s energy mix opens the door to a clean, sustainable, and healthy future.

UPDATE: In the weeks following the posting of this story, the California Public Utilities Commission issued a disappointing alternate proposed decision that, when it comes to the positive progress on clean energy, changes direction from the original proposed decision. The new proposed decision retracts the emphasis on clean energy resources like energy efficiency, renewables, demand response, and storage by San Diego Gas & Electric Company.  Instead, citing “reliability, safety, and cost risk,” Commissioner Picker has approved a 500 megawatt natural-gas fired power plant, reduced from the initial 600 MW proposal. Our outlook on this is clear: this alternate proposed decision is a big step backwards for the state’s transition to low-cost clean energy. In addition to being a vast under-assessment of the ability of clean energy resources to fill the gap left by SONGS reliably, safely, and cost-effectively, this alternate scenario poses a greater threat to the environment and the health of the people in California. Californians want to transition to a clean energy economy and we hope this is not reflective of a change of course for the Commission.

This post originally appeared on our California Dream 2.0 blog.

By Ronny Sandoval

The amount of energy we use at any given time is constantly changing. Lights are switched on and off by time of day – other appliances, such as air conditioners, might operate based on the season. In order to meet our dynamic energy demands, our system has to have the infrastructure and resources in place to respond when needed.

What may not be clear to many of us is that the costs associated with supplying this electricity also change with time, and during certain hours of the day and year these costs can be much higher. This isn’t readily apparent because the electricity rates we pay throughout the year are essentially flat.

Many, including Environmental Defense Fund (EDF), have made the case for electricity pricing that helps signal these fluctuating costs to customers. There are a variety of ways to design pricing that varies with time, while communicating to individuals and businesses the value of cutting back on electricity, or shifting use to other times. These options can take the form of paying a different amount for energy at different times, or perhaps being compensated for reducing use at times when the electric system is most constrained.

Smart meters and time-variant pricing

Though these pricing concepts (also known as “time-variant electricity pricing”) have been around for some time, recent advances in technology have made it both easier to implement time-variant electricity pricing as well as leverage the greater transparency in electric system costs.

One technology with the potential for enabling this dynamic or time-variant pricing is advanced or smart meters. In contrast to legacy electric meters that only allow for one energy reading per month (usually done manually by an actual person visiting a home or business to read the meter), smart meters can record electricity use remotely and more frequently, often in 15-minute intervals. These smart meters, along with the communication and data management infrastructure necessary to support them, allow customers to see how much energy is used and at what times, making it easier to make informed energy decisions.

Smart meters have already reached a significant level of deployment. In fact, as of July 2014, 50 million smart meters have been deployed across the country. Smart meter deployment at this scale could translate into lower transaction costs for businesses and energy service providers that rely on this data to develop products and services. This, in turn, could result in the design of additional products and services for customers that also meet the specific needs of local markets.

Deploying smart meters to better communicate energy usage data may help customers see what appliances or actions result in higher electricity use than others. However, to really get a sense of how this usage translates into costly investments and expenses to the system, this data should also be coupled with time-variant pricing in a manner that is both transparent and accessible to customers.

Advances in technology

Advances in technology available to individual homes and businesses have come a long way in not only increasing transparency of energy costs, but also in increasing the ease with which we manage our energy use. Technology companies have designed products and services not simply around the benefits to the electric system, but in a manner that increases comfort, convenience, and overall value for their customers.

For instance, Google-owned Nest has coupled its advanced thermostats with signals from utilities to inform customers when ‘rush hours’ for electricity use occur, making it easy for customers to automatically respond by reducing or shifting energy use. ThinkEco has also extended this sort of energy management to window-installed air-conditioners and other appliances. GE and Quirky have made great strides in creating a ‘connected home’ – whereby various home appliances are coordinated with each other in accordance with a family’s schedules. These offerings highlight that energy management services, when designed well, can benefit the electric system and actually be appealing to the everyday consumer.

These advanced and emerging technologies services, however, can only take us so far in managing our dynamic energy costs. Customers, too, need to be informed and incentivized through pricing to cut back on electricity or shift use to times when electricity is cheaper.  Knowing when electricity is most costly can be helpful in managing customer and system costs, and enabling technologies such as these allows individuals to use this knowledge to modify their behavior.

Photo source: Wikipedia

For more information, check out our new time-variant pricing fact sheet.

By Elizabeth B. Stein

Despite its enormous relevance to the struggle to build a cleaner, greener electric system, New York’s ‘Reforming the Energy Vision’ (REV) proceeding is not fundamentally an environmental one. It is concerned with building a new electric marketplace for a broad range of energy resources, some zero-carbon and some not, which are expected to reduce total costs paid by tomorrow’s customers over the long term compared to what would be expected under a ’business as usual’ scenario.

My last blog post described the new electric industry market structure envisioned by New York regulators in the recent Track 1 order of the REV proceeding. As promised, this week I’m providing a closer look at the environmental implications of the new order.

While reducing carbon emissions is one of the six stated goals of the proceeding, it is not the sole thrust. Interestingly, the order begins a deep dive on what decarbonization means for the electric system and discusses various environmental issues at length, potentially raising their profile in the proceeding. Highlighting the importance of environmental issues is a welcome change, but, to accomplish the goal of emissions reductions, the devil is in the details.

Most of these details are to be resolved in ’Track 2’ of the proceeding or in other processes that are shaped in part, but not determined, by the Track 1 order. Track 2, which is just getting started, is concerned with innovations in regulation, electric service pricing, and utility earnings needed to make the Track 1 vision a reality. Further complicating matters, the New York Public Service Commission (Commission), the state entity behind the REV proceeding, is not the only decision maker that will drive environmental outcomes.

Hopeful signs

• In our previous blog post on the Track 1 order, we discussed the general separation of the Distributed System Platform Provider (which would provide a technology platform and marketplace for distributed energy resources)from ownership of distributed energy resources. This move makes room for new energy service providers, opening the door to the most innovative technologies – including the best new ideas in clean energy.
• For the very near future, the Commission has made clear that existing funding for renewables and energy efficiency, as well as utilities’ energy efficiency programs, will remain in place, mitigating the risk of a collapse in the market for those resources before the new marketplace envisioned by the REV proceeding is fully up and running.
• The order (see page 124) seems to endorse not only full consideration of environmental externalities – typically the environmental costs (like air pollution) associated with making, moving, and using electricity that are unaccounted for – in a benefit cost analysis, but also internalizing externalities, or in other words, making those responsible for the environmental effects of their actions actually bear those costs.
• The order acknowledges concerns raised by many parties, including Environmental Defense Fund (EDF), about the risk of emissions from fossil fuel-based distributed generation (for example, diesel generators) that would raise local public health concerns. The order also directs the Department of Public Service Staff to help New York’s Department of Environmental Conservation (DEC) develop rules to curb local emissions. Additionally, it acknowledges there may be a need for further measures, including eligibility criteria for distributed energy resources to participate in the new marketplace, restrictions on emissions in certain areas based on environmental justice criteria, and electric pricing that reflects emissions values.
• The order takes important steps in the direction of ensuring the Distributed System Platform Provider (DSP) really will enable an active marketplace for third-party distributed energy resources, clean and otherwise. For example, the order not only requires the utility-owned DSPs to release information about system needs to the marketplace, but makes connecting distributed energy resources to the system a clear priority. Indeed, the order states that utilities’ earnings will be linked to the timeliness and frequency of these successful interconnections.

The jury is out

• In its straw proposal on Track 1, the Department of Public Service Staff suggested the benefit cost analysis should value carbon emissions by taking into account the full costs of damages – citing as an example the findings of the federal Interagency Working Group on the Social Cost of Carbon, which estimated the cost of carbon at around $40 per ton (even that may be a lowball figure). While the Staff’s proposal was encouraging, the Commission’s order is noncommittal about how externalities should be valued, leaving that to be addressed in a later staff white paper. It also suggests that decisions won’t necessarily be made based on the findings of a benefit cost analysis.
• The need to manage emissions from on-site distributed generation will be critical from the start if the REV marketplace is to be a powerful driver of the environmental transformation needed in New York – and if the DSP marketplace is to offer a model for other states to follow. However, any DEC action on localized emissions is outside of the Commission’s control. The DEC has been working on rules for public health-related emissions from distributed generation for more than a decade. Getting rules in place before REV itself becomes a driver of these types of emissions is now a matter of real urgency. In addition, we don’t yet know whether or how New York regulators plan to address carbon emissions from distributed generation.
• Unless the utility-owned DSP is successfully incentivized to seek out clean energy resources, the overall separation of the platform from the ownership of distributed energy resources could block one clear path to deploying clean energy resources (i.e., the utility itself) without fully opening the pathway for non-utility parties to do so at a large scale.
• Despite the assurances that existing programs for energy efficiency and renewables will continue to operate in the near term, the future outlook is heavily dependent on decisions that remain to be made by the Commission, the New York State Energy Research and Development Authority (NYSERDA), and the utility companies. Although the Commission envisions energy efficiency playing a larger role in a new electric marketplace – indeed, REV is designed to make utilities, customers, and third-party energy service providers rely more heavily on energy efficiency than they do today, and spend more of their own resources on it – some energy efficiency advocates worry that this approach could backfire. They are concerned that the Commission’s approach to shifting energy efficiency responsibility from NYSERDA, which currently operates energy efficiency programs, to the new marketplace poses a risk of far lower levels of energy efficiency.

REV represents a serious push to transform a crisis facing the electric industry into an opportunity – an attempt to bring the genius of the marketplace to the table to squeeze inefficiencies out of the system, reduce future costs, and achieve carbon emissions reductions on an unprecedented scale. However, the risk that REV won’t drive environmental benefits – or that it will actually cause environmental harm – will persist at least until the new marketplace actually shows that it is able to drive widespread adoption of clean energy resources. As described above, key drivers of tomorrow’s outcomes are still up in the air, and they will remain there for some time. So fasten your seatbelts because we’re still just getting started.

By Larissa Koehler

Ask most people what the Beatles and California have in common and they might very well be at a loss. However, the answer is pretty simple: they are both unabashed trendsetters in the face of resistance – the former in their musical style and the latter in its clean energy policies.

Not content with setting a Renewable Portfolio Standard that ends at 2020, Governor Jerry Brown and state legislators are pushing for the Golden State to get 50 percent of its energy from renewable resources by 2030.

To meet this ambitious target, California must build a system that is largely based on renewable electricity, like wind and solar. This is not an easy task. The primary reason? Sunshine and wind are only available at certain times of the day and can be variable during those times.

Traditionally, managers of the electricity grid have relied upon dirty “peaker” power plants – usually fossil fuel-fired and only needed a couple of days a year – to balance the grid during periods of variability or when electricity demand exceeds supply. But, in a world where 50 percent of our energy comes from renewable sources as a means to achieving a clean energy economy, we can’t rely on these dirty peaker plants to balance the variability of wind and solar.

Luckily, technology is available today that can help fill the gap of these peaker plants – and the California Public Utilities Commission (CPUC) is starting to embrace it.

This technology, also known as demand-side resources, is defined by the CPUC as:

• Energy efficiency
• Demand response, an energy conservation tool that pays customers to save energy when the grid is stressed
• Distributed generation, like rooftop solar PV
• Energy storage, including electric vehicle batteries
• Smart grid, which utilizes technologies like two way programmable thermostats, to gather energy use information to improve efficiency and enable other resources like demand response
• Water-energy measures, which address the inextricable effect of water use on energy use, and vice-versa
• Strategic electricity rate design, such as time-of-use pricing, a voluntary program that enables people to choose when they power up appliances based on electricity prices and make decisions that can both save them money and reduce harmful pollution

By encouraging customers to use energy more wisely through demand-side resources like these, utility companies can avoid the need to produce more energy as the state’s population increases. This will also cut down on infrastructure costs, as fewer power plants and transmission lines will need to be built, and those savings can be passed on to customers. Further, by leveraging the ability of electric vehicles to charge at times when there is an abundance of clean power available, as well as distributed generation, California will be able to use increasing amounts of renewable energy.

Currently, there are a number of these innovative, demand-side solutions available in California. In order to bring them together, the CPUC, under the direction of Commissioner Michel Florio, initiated a new proceeding to, “create a consistent regulatory framework for the guidance, planning, and evaluation of integrated demand side resource programs.”

EDF would like to make sure the CPUC advances the following outcomes, as stated in our formal comments:

1. Ensure Californians are an integral part of the solution. Resources on the customer side of the meter should be given due consideration and incentivized by properly structured rates and ensuring these customer-side resources are properly valued.
2. Target demand-side resources geographically. The CPUC should focus on the placement of demand-side resources where they will have the most benefit – i.e., in those areas hit hardest by air pollution. This will ensure communities historically and disproportionately burdened by dirty air benefit from these improvements.
3. Consider how to link utility revenues to the outcomes California wants. Rather than allowing cost recovery as a matter of course, the CPUC should develop principles for a utility business model that rewards utilities and Californians for integrating cost-saving, well-targeted demand-side measures on both sides of the meter. Successful resources will be those that contribute to the reliable operation of the grid and advance state environmental goals, such as AB 32 (California’s Global Warming Solutions Act of 2006, a landmark piece of legislation that set an absolute, state-wide limit on greenhouse gas emissions) and the Renewable Portfolio Standard.
4. Link closely with distribution and reliability planning. By requiring the consideration of demand-side resources in utility planning, the CPUC can help to defer or avoid the need for more costly or environmentally damaging investments.

This new effort by the CPUC is a terrific opportunity for more coordinated, cost-effective deployment of demand-side resources that can better address California’s energy needs, improve customer choice, and reduce carbon pollution from our energy system. It’s a chance to make real, lasting change in California. Similar to the transformative effect “Beatlemania” had on music and popular culture, California’s clean energy policies can transform how we make, move, and use electricity.

This post originally appeared on EDF's California Dream 2.0 blog.

Photo credit: Activ Solar