October 24, 2007

California's Magical Policy for Lower Energy Consumption


Energy companies have no incentive [to reduce energy usage] because they make more money in the current system.

Well yes. In most parts of the country, this is absolutely true.

The standard business model for energy companies is the more watts your customers use, the more money the company makes. Indeed, under the current business models, it makes sense for energy companies to sell hair dryers for heating a home to their customers because, by gosh, that would really help rack up the profits. Yet, it doesn't have to be that way.

Some states have put in place policies that decouple the profits of an energy company from the amount of power used by their customers. These policies have been proven to really work.

Furthermore, one of the reasons that California has been able to maintain a level per capita energy usage over 30 years (instead of having energy usage double like most of the country) is because of the decoupling policy which re-wrote the way energy companies work with their customers. It is a powerful and effective policy in helping promote more efficiency on the part of both energy companies and their customers.

So what does a decoupling policy do?

A decoupling policy provides an incentive for both the energy provider and the energy consumer to reduce the use of energy by the consumer by breaking the connection between the amount of energy used from the business model of the producer. As consumers reduce their use of energy, the efficiency savings are divided into reduction in costs to the consumer and profits to the energy producer. Energy producers can now build a business model on the services they provide (heat, lighting, warm water), not on the amount of watts it takes to provide those services.

Adopted by the CPUC for the natural gas industry in 1978 and 1982 for the electric power sector, California’s long-standing "decoupling" policy is designed to remove the disincentives for utilities to promote energy efficiency and conservation among energy customers. Decoupling ensures that utilities retain their expected earnings even as energy efficiency programs reduce sales.

Simply put, decoupling aligns the interests of the energy consumer with the energy producer so we are all focused on lowering energy consumption.

What other ways can we devise that puts producers and consumers on the same side of the equation?

Posted by Mary at October 24, 2007 01:23 AM | Energy | Technorati links |