Senior Attorney and Co-Director, Energy and Transportation Program,
eLab seeks a solution to three dilemmas that threaten what should be a bright future for distributed resources, including both energy efficiency and on-site generation. The first involves the nature and magnitude of the societal contribution that the resources offer; the second addresses the continued relevance of the regulated utility itself; and the third confronts the seemingly inherent conflict of interest between the utilities and technologies that will reduce their retail energy commodity sales. The eLab white paper has much to say on all three, and most of the news is good.
The most important conclusion is simplicity itself: regulated utilities have many vital and robust roles, with more evolving every day, but they aren’t in the energy commodity business and shouldn’t be regulated as if they were. We must stop tying our electric (and gas) utilities’ financial health to their retail energy sales. And the solution emphatically isn’t to load all the utilities’ fixed costs into higher fixed charges for distribution-system customers, which will dramatically reduce their incentives to embrace all types of distributed resources, from end-use efficiency improvements to solar arrays.
eLab finds an answer instead in the revenue decoupling mechanisms that regularly adjust volumetric electricity rates, so that utilities’ fixed cost recovery is independent of their retail commodity sales; this is the essential first step toward escaping distribution companies’ addiction to commodity sales. eLab is also right that revenue decoupling is a necessary but not sufficient advance. Distributed resources won’t reduce system costs and improve reliability unless they are strategically sited and effectively integrated with the rest of the distribution system; too often today’s deployment patterns look like random shotgun blasts, and the allocation of costs and benefits is no more rational. The party best situated to nudge these resources into the right places at the right times is the one responsible for maintaining and enhancing the distribution system of which they are a part, and it is long past time to introduce performance-based incentives that will make distributed resources a core element of the utility distribution business.
Making our utilities full partners in the distributed-resource enterprise doesn’t mean that they should monopolize ownership or deployment of the resources themselves, any more than those resources should be viewed as a prelude to grid replacement rather than grid enhancement. The interests of distributed resource owners and distribution companies can and should be wholly complementary. This goes to the heart of the eLab venture.
Ralph Cavanagh is a senior attorney and co-director of NRDC's energy program, which he joined in 1979. In addition, Ralph has been a Visiting Professor of Law at Stanford and UC Berkeley (Boalt Hall), and from 1993-2003 he served as a member of the U.S. Secretary of Energy's Advisory Board. His current board memberships include the Bonneville Environmental Foundation, the California Clean Energy Fund, the Center for Energy Efficiency and Renewable Technologies, the Renewable Northwest Project, the Northwest Energy Coalition, and the Sustainable Energy Advisory Board of Texas-based Energy Future Holdings. He is a member of the National Commission on Energy Policy, which the William and Flora Hewlett Foundation established in 2002. Ralph has received the Heinz Award for Public Policy, the Yale Law School's Preiskel-Silverman Fellowship, the Lifetime Achievement in Energy Efficiency Award from California's Flex Your Power Campaign, the Headwaters Award from the Northwest Energy Coalition, and the Bonneville Power Administration's Award for Exceptional Public Service. He is a graduate of Yale College and the Yale Law School. He is married to Deborah Rhode, who is the MacFarland Professor of Law at Stanford Law School.