New Mexico Court Strikes Down Surcharge For Revenue Lost To Energy Efficiency

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Utilities are often dismissed or ignored in most discussions of energy efficiency and green building  I find this quite remarkable.  First, many state laws mandate that utilities engage in energy efficiency efforts.  Second, as utilities are directly connected to the energy consumer, utilities are often the best place to advocate for energy efficiency and deliver energy efficiency programs.

The problem is that utilities are not usually incentivized, and are often disincentivized, from promoting energy effiiciency.  Historically, utilities have made money by selling electricity or natural gas, and recovering a return on their sales and investment in infrastructure from ratepayers.  The trouble with this scenario is that it does little to incentivize utilities to promote energy efficiency.  If the utility promotes conservation, thus selling less energy and reducing investment in infrastructure, they will make less money.   

Some energy efficiency advocates are beginning to promote different utility rate structures which pay the utilities for the lost revenue attributable to energy efficiency, so that the utilities are made whole for their investment. An article on energy efficient rate making is available here.

These new rate structures are not without their challenges.  For example, the Public Regulation Commission of New Mexico put in place a rate scheme which allowed utilities to collect one cent for each kilowatt hour of electricity that was saved through energy efficiency programs.  The average increase on a residential customer was 17 cents a month. 

On August 3, the New Mexico Supreme Court struck down the surcharge, holding:

The PRC did not inquire into any of the utilities’ revenue requirements, nor any of the traditional elements of the ratemaking process. At the evidentiary hearing, the utilities merely presented evidence on what the impact of [the surcharge] would be. Without inquiring into a utility’s revenue requirements, we fail to see how the PRC could adequately balance the investors’ interests against the ratepayers’ interests when adopting [the surcharge]. The PRC’s adoption of the adder rates was arbitrary and unlawful in that they were not evidence based, cost-based, nor utility specific.

Energy efficiency advocates seeking to use utility ratemaking as a mechanism for promoting energy efficiency must pay careful attention to ratemaking regulations, and realize that attempts to change the historical rate structures will face opposition from many sides, including consumer advocates.   

About Author

Walter’s contributions to CleanTechies over the past 4 years have been instrumental in growing the publications social media channels via his ongoing editorial and data driven strategies. He is the founder and managing director of Sunflower Tax, a renewable energy tax and finance consultancy based in San Diego, California. Active in the San Diego clean technology community, participating in events sponsored by CleanTech San Diego, EcoTopics, and Cleantech Open San Diego, Walter has also been a presenter at numerous California Center for Sustainability (CCSE) programs. He currently serves as an adjunct professor at the University of San Diego School of Law where he teaches a course on energy taxation and policy.

5 Comments

  1. “If the utility promotes conservation, thus selling less energy and reducing investment in infrastructure, they will make less money.” PG&E in California, as far as I understand per their website, does not profit from pumping energy through their lines, they’re incentives center around lowering production.

  2. I think we have an energy loss surcharge in the Philippines as well. I was wondering though if you have technical modules for pico hydro power like Vietnam.

  3. The concept of “don’t interfere with my profits” is a corporate mantra that has worn thin. We don’t get to choose how these companies spend their money, or take care of their employees. But we’re supposed to donate money to them when their earnings drop?

    Yeah – so not.

  4. Utilities love energy efficiency. Just as a cookie company would love to sell you smaller cookies for the same price, utility companies would love to sell you less electricity for the same price, or even a bit of a discount. They are not in the business for the purpose of building power plants and stretching wires, they are in the business to make money. They can make more profit if they don’t have to build new plants and stretch new wires. And everybody wins with efficiency because they can sell less electricity for a slightly lower price, thus getting a little less dollars for a lot less capital, i.e. more profit.

    Utilities have offered efficiency-incentives for decades. It’s called demand side management.

    The above explanation in numbers:

    Year 1:Customer buys 1000 kWh for $100. Utility spends $90 generating and distributing it and running business. Profit: $10.

    Year 2: Utility spends $1 convincing customer to increase efficiency by large factor. Customer buys 700 kWh for $70. Utility spends $60 to generate and distribute and run business, thanks to not having to lobby state regulatory agency to allow new power plant. Profit: $9, smaller than last year but larger percentage of gross, large percentage of capital invested. Shareholders happy company is getting leaner and meaner.

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