How quickly should a utility ramp up or down its energy conservation programs in response to changing circumstances?
FortisBC’s electric utility in south-central BC raised that question forcefully in its latest energy conservation plan, which it has submitted to the Utilities Commission for approval.
Fortis’s plan for the next five years would cut energy conservation investments by 70% and energy savings by 60%, relative to current investment levels and savings goals. Programs slashed from the plan include heat pump upgrades and conversions, efficient window incentives and efficient appliance rebate programs.
A key part of Fortis’s rationale is its recent re-calculation of the “long-run marginal cost” (LRMC) that it faces in acquiring new supply-side energy resources to meet forecast load growth. The LRMC is the benchmark by which to assess the cost-effectiveness of energy conservation resources. Fortis claims that, since the filing and approval of its 2012 Long Term Resource Plan, its LRMC has plummeted from $85 per Megawatt-hour to $57 (i.e. 8.5 cents per kilowatt-hour and 5.7 cents).
The previous figure was based on the cost to develop new generation resources in BC, but the $57 figure is based on the forecast spot market price of electricity from the Mid-Columbia (Mid-C) trading hub in Washington State. Fortis claims this is a valid proxy for its cost of acquiring electricity to meet new load in the long term.
Accordingly, Fortis says that much of its conservation plan is no longer cost effective and should be cut back. Fortis is also quick to point out that conservation investments tend to push rates up, which they say is bad, especially when there are other upward forces on rates.
The Utilities Commission is now reviewing Fortis’s conservation plan to see if it meets the test of being in the interests of ratepayers. According to government regulation, this means, broadly speaking, that the plan must be cost effective, and Fortis must use conservation instead of supply-side resources where possible.
This review may turn out to be one of the more contentious that BCSEA has been involved in. We have filed expert evidence to say that Fortis could cost-effectively invest in and achieve four times more conservation savings than proposed, eliminating the foreseeable need for new supply-side resources.
We are strongly challenging Fortis’s claim that the Mid-C spot market is the right basis for estimating long-term power costs. We note that BC Hydro currently estimates its own LRMC as $85 to $100 per Megawatt-hour, 50-75% higher than Fortis’s number. (And if Fortis means to rely on Mid-C for power, that will cause undesirable increases in greenhouse gas emissions. Power from Mid-C comes from a combination of coal, natural gas, hydro-electric and wind generation and is more carbon-intensive than generation in BC. The spot market price of electricity is now relatively low, largely because of the low price of natural gas and the absence of any price on carbon dioxide emissions.)
Regarding rate impacts, the pay-off of conservation is that it pushes energy bills down by enabling customers to consume less, even though billing rates may go up. Investment in conservation also postpones and reduces the need to build new generation, transmission and distribution infrastructure, which add to rates.
Also, a well-run energy conservation program needs to be consistent over time, so that businesses offering conservation services can plan and develop in an orderly, efficient manner, and customers can integrate conservation thinking appropriately into their decisions about home (or business) purchases and renovations.
The Utilities Commission review will probably continue through the spring. One possible outcome is that Fortis’s conservation plan could be rejected, and Fortis could be required to submit a revised plan addressing the deficiencies of the current plan.
BCSEA has also written to government, asking that it remove an ambiguity from the energy conservation regulations, which Fortis has interpreted to support its low-ball LRMC estimate. Previous governments have taken strong policy positions in favour of energy conservation. Fixing the energy conservation regulations would be a cost-free way to show demonstrate continued support for conservation.
Meanwhile, BCSEA will continue to argue the benefits of deeper and more active utility investments conservation, as a long-term benefit to ratepayers, the utility and society as a whole.