Here are three articles from the Club's State Government Programs list serve. They are long, but this is important info on the CTL and TrAILCo battles we are currently fighting. Which of these can we use?

JBK

2. Efficiency, decoupling and the next step

3. Energy -- It's the economics, stupid.

4. Liquid Coal

5. Powering Down

Can utilities make money on energy efficiency? Governing Magazine for August, 2007 By CHRISTOPHER SWOPE

Saving electricity has never been a big priority in North Carolina.

Power

is cheap and plentiful, as it is across much of the South. These

days,

however, rising demand — what they call “load†in the

electricity business

— is catching up with supply. For the first time in two decades,

the state

needs a massive new workhorse of a power plant, what’s known as a

baseload

plant. Actually, according to Duke Energy, the state’s largest

utility,

North Carolina needs two of them. For an investor-owned utility such as Duke, planning a pair of huge

power

plants is just another turn in a familiar cycle: grow demand, build

supply,

sell more power, generate more profit. It’s a cycle geared for

growing

load, not shrinking it. It’s a cycle that rewards Duke when

consumers use

more power. It’s a cycle that encourages burning dirty coal, as

Duke

proposed with its two plants, since coal is so cheap. And it’s a

cycle that

regulators in North Carolina, as in most states, acquiesced to for

most of

the past century. Not anymore. When Duke’s plan for the two coal plants went before

the

North Carolina Utilities Commission early this year, the regulators

pushed

back. Go ahead and build one coal plant, commissioners told Duke. As

for

the rest of the demand, Duke could make it up through energy

efficiency.

That wasn’t all. Duke would have to spend 1 percent of its annual

revenues

— about $35 million — on helping its customers save

electricity by buying

energy-efficient appliances and lights and through other measures. For

a

state that had taken its energy abundance for granted, this was a staggering mandate. What happened next was even more unusual. Duke went back to state regulators with an entirely new pitch. The problem with energy-saving programs, Duke said, is that utilities don’t make money on them. In

fact,

utilities lose money because they don’t sell as much of their

product. Duke

proposed to turn that equation around through a radical new

regulatory

approach it calls “save-a-watt.†The idea is pretty simple: Let

the utility

earn profits by helping customers conserve power, just as it does by selling them more power. In fact, as Duke proposes it, energy

efficiency

might even become one of the company’s most profitable lines of

business.

Duke CEO Jim Rogers says he’ll propose a version of the same idea

in

Indiana, Kentucky, Ohio and South Carolina, the other states where

Duke

does business. As North Carolina regulators mull Duke’s plan this summer,

they’ll have a

lot to consider. Critics accuse Duke of trying to greenwash its way

to

windfall profits. But many environmentalists, including some who are

still

fighting Duke’s right to build any coal plants at all, find the

premise

behind save-a-watt encouraging. The nation can’t get serious about conserving energy and fighting global warming, they say, until

utilities

see dollar signs in it. Utilities have always run modest efficiency programs, “but they don’t usually put their heart into them,â€

says Michael

Shore, the Southeast air quality manager for Environmental Defense.

“If

efficiency is too successful, it goes against their business model. We

need

to develop models so that the utilities can make money through

promoting

energy efficiency.â€

LIP SERVICE Whether or not North Carolina regulators accept the save-a-watt

approach,

it’s clear that states and utilities alike are fast changing their

views

toward energy efficiency. Not since the energy crisis in the 1970s

have

states pushed utilities to save electricity with so much zeal. Big

new

initiatives are underway in California, Minnesota and New York —

perennial

leaders when it comes to efficiency. Now, however, states that enjoy

cheap

power, including Arkansas, Idaho and North Carolina, are pinching as

well.

For all the headlines about the nuisances of coal and the distant hope

of

wind, solar and biofuels, what states are coming to see is that the

easiest

solution to their problems with energy is simply to use less of it. †If you actively engage in energy efficiency, you can push out the

date

when you’ll need new generating resources,†says Marsha Smith, a

utilities

regulator in Idaho. Smith’s state enjoys the nation’s cheapest

power, but

is nevertheless asking utilities to ramp up their efficiency efforts. “Whether you’re a low-cost state or a high-cost state, the further

you can

push that out, the better off you’ll be.†That’s always been the case, of course. But efficiency is back on

the

agenda only because several forces collided at roughly the same time.

For

one, high fuel costs are driving up the price of electricity.

According to

the Energy Information Administration, average rates across the

country

have increased by 19 percent over the past three years. Rate pain is especially acute in states that deregulated their power markets. When

price

caps came off last year, rates in Maryland increased 70 percent and

rates

in Delaware increased 60 percent. The flip side of these high power

prices

is that investing in efficiency now seems cheap by comparison. Another factor is the huge and growing expense of building power

plants.

In North Carolina, Duke believed as recently as two years ago that it

could

build the two coal plants it wanted for $1 billion each. Now, thanks

to the

rising cost of building materials, Duke expects the bill for just the

one

plant it got approved to come in around $1.8 billion. That cost would translate directly into higher rates for customers. With eye-popping figures such as this on the table, states are beginning to see that

the

least expensive power plant is the one that never has to be built at

all.

Finally, concern over climate change is also fueling the efficiency

push.

Across the country, utilities have proposed building 150 coal-burning

power

plants. Coal plants are cleaner and more efficient than they used to

be,

but coal nevertheless remains a leading source of carbon dioxide.

It’s hard

to see today’s coal boom as a moment of truth when the plant

proposals come

up one by one before the 50 state utility commissions. But a moment

of

truth is exactly what this is. If states allow all of these coal

plants

now, they’ll be stuck with them and their greenhouse gases for two generations. On the other hand, if they can reduce demand for

electricity,

they just might prevent many of those coal plants from needing to be

built

in the first place. The good news is that there’s a lot of low-hanging fruit, as far

as

policies for reducing energy demand go. States can adopt efficiency standards for appliances, electronics and boilers that go beyond the federal government’s minimum standards. They can upgrade their

building

codes and provide tax breaks or expedited permitting for green

buildings.

They can use tax breaks to help customers make smarter appliance

purchases,

trade in clunky old freezers or weatherize their homes. And they can

lead

by example, by improving energy performance within government

buildings. At

this micro-level, there are literally hundreds of ways to power down,

and

many have been shown to work when there is sustained effort put into

it.

The problem with demand-side efficiency programs, however, is that

states

typically ask the electric companies to run them. There’s a certain

logic

to that — utilities already maintain ties to customers. But

utilities also

have a built-in conflict with the job they’re being asked to do.

Quite

simply, they’re in the business of selling electricity. Economists

have a

name for this natural urge to sell more power and make more profit.

They

call it the “throughput incentive.†Harris B. McDowell III, a

state senator

from Delaware, describes it this way. “Ask yourself: how hard would

General

Motors work to convince people they don’t need a car? How hard does

RJ

Reynolds try to get people to stop smoking? It’s the same problem

when

efficiency programs operate under the utility. They’ll give lip

service,

but they won’t pour their hearts out.†As McDowell sees it, utilities can’t be entrusted with

responsibility for

energy efficiency. Instead, he prefers circumventing them altogether. McDowell’s efficiency plan, which the Delaware legislature passed in

June,

sets up a competing “sustainable energy utility†whose sole task

is to help

customers save energy. The utility will subsidize purchases of energy-efficient appliances, and also aid customers who want to

generate

their own energy on site using solar, wind or geothermal

technologies.

Delaware will bankroll the new nonprofit with revenues from a $30

million

bond sale. The hope is that after 10 years, the utility can sustain positive cash flow by taking a cut of the savings customers see on

their

energy bills. Delaware’s sustainable utility is a twist on a similar program

that has

been showing positive results in Vermont. McDowell thinks it’s the

best way

to break the electric system of its gluttonous habits. “That

structure

knows only one thing, and that is to increase supply,†McDowell

says. “It’s

what’s comfortable. The utilities know exactly how many consultants

to hire

to tell you to do that. But building more supply is a self-fulfilling prophecy. If you build it, they’ll use it.â€

THE GRAPH There are other ways to neutralize the throughput incentive. And

electric

utilities, which seem resigned to a future with some kind of carbon regulation, are increasingly open to talking about them. The Edison Electric Institute, the national voice of investor-owned utilities, recently hired Diane Munns to direct its energy-efficiency

operations.

Munns was a utility regulator in Iowa and co-chaired a panel that

produced

the National Action Plan for Energy Efficiency — a solid synopsis

of

barriers to efficiency and methods for overcoming them. Asked if any particular method works better than others, Munns said, “I’m not

going to

say there is a best way to do it. I think whatever gets you going is

good.

We need to get moving on efficiency.†She continued, “It’s

whatever gets it

done for you — whatever you can put together that you think can

promote

efficiency and keep your shareholders whole.†California thinks it has a method that works. The Golden State is

the

established leader in energy efficiency, and has been for some time.

The

proof is in what energy experts there simply call “the graph.â€

What “the

graph†(on page 27) shows is electricity use per capita, for both California and the rest of the United States. The line for the other

49

states trends steadily upward from the 1950s through today — a

proxy for

Americans’ ever-growing appetite for electronics and big houses.

The

California line, however, goes flat in the late ’70s, when the

state

adopted the nation’s first efficiency standards for appliances and buildings. California hasn’t eliminated the need for new power

plants — its

load continues to grow along with the population. But the average Californian today consumes about the same amount of power as he did a generation ago. What’s more, California began tackling the throughput incentive in

the

early 1980s. The tool it devised was called “decoupling.†To

understand

what that means, it helps to know how rate regulation works.

Typically,

states allow utilities to recover their fixed costs, such as debt on

power

plants, and in addition earn a reasonable rate of return. These calculations are penciled out every so often in rate cases before

public

utility commissions. In the meantime, if utilities sell more power

than

they anticipated, they earn windfall profits. If demand is lower than expected, their profits suffer. What decoupling does is sever the

link

between a utility’s sales and its profits. From time to time,

regulators

tweak rates in a way that smooths out ups and downs in revenue. The

utility

still makes its profit. But it also becomes agnostic on the question

of

whether it’s better to sell more electricity or less of it. California’s decoupling experiment worked so well that a few other

states

also began tinkering with it. Then deregulation fever set in, and all

the

states pushed decoupling aside for what seemed like a much sexier

idea:

competitive power markets. Deregulation, as everyone knows, failed.

Shortly

after its blackout crisis of 2001, California went back to decoupling.

This

was one way California renewed its vows to energy efficiency. (Another

key

policy was called the “loading order,†which put efficiency above

renewable

and fossil fuels in the list of utilities’ options for meeting

electric

demand.) California’s second run with decoupling seems to be working. The

state’s

three investor-owned utilities are in the midst of one of the

nation’s most

aggressive efficiency campaigns ever. Between 2006 and 2008,

they’re

investing $2 billion toward the goal of helping reduce customer demand

for

their product. Peter Darbee, CEO of Pacific Gas & Electric, attributes

his

company’s newfound enthusiasm for efficiency to decoupling.

Testifying

before Congress, he said decoupling “means our financial health

doesn’t

depend on selling more energy.†Dian Grueneich, a public utility commissioner in Sacramento, agrees. “We believe strongly that

decoupling is

an essential part of doing a good job on energy efficiency,†she

says. “You

can’t just expect a business to want to do something where they

lose

money.†Now other states are looking at decoupling. Idaho just began a

three-year

pilot with Idaho Power in June. Minnesota, New York and Wisconsin are studying decoupling for electric utilities. Eleven states have

adopted

decoupling for their natural gas utilities. Decoupling has its critics, especially among consumer advocates.

Because

of how the mechanism works, customers end up paying higher rates when

they

use less power — and it doesn’t matter whether that’s because

efficiency

programs are working or because of mild weather or a slow economy. Neutering the utilities’ profit motive may make them lazy about

controlling

costs. Utilities might also forfeit their traditional role of helping government promote industry and economic development, a job that

utilities

always did in order to grow their load. And California’s Grueneich

admits

that all decoupling does is level the playing field for efficiency programs. It eliminates a disincentive, but it doesn’t make

efficiency

financially appealing for utilities, either. California expects to correct that last problem soon. Later this

month,

the state utilities commission is due to introduce a package of

financial

incentives for utilities that would allow them to earn profits on efficiency programs. Other states have tinkered with such incentives,

but

Grueneich says the plan California is working on will be

characteristically

groundbreaking in its comprehensiveness. “Decoupling is a major

first

step,†Grueneich says. “But the second step is that utilities make

an

approximately similar amount of money as they would if they took the

same

money and put it on the generation side.â€

AN EPIPHANY If this way of thinking is nothing new in California, it’s almost

unheard

of in North Carolina. Some credit for the new mindset goes to Jim

Rogers,

the CEO of Duke Energy. Rogers has been an outspoken advocate of a

national

cap-and-trade system for carbon emissions. He also served as Munns’ co-chair on the National Action Plan for Energy Efficiency. Rogers recently told the Charlotte Observer that he had an epiphany.

It

happened in February, he said, during a dinner with 14

environmentalists.

They told him Duke should support renewables and take a more

aggressive

approach on energy efficiency. Rogers says now that he’s following

their

advice. Surely, the epiphany was helped along by North Carolina’s

decision

to limit Duke to one coal plant rather than two. Rogers began calling energy efficiency the “fifth fuel,†right behind nuclear power,

coal,

natural gas and renewables. And he began laying the groundwork for save-a-watt. “We need a new regulatory compact,†he wrote in an

op-ed in

March, “that puts investments in energy efficiency on an equal

footing with

new generation investments.†On the surface, save-a-watt sounds similar to what California is

doing.

But Duke’s plan actually is quite different. It has nothing to do

with

decoupling, for example. Rather, what Duke is proposing is to make efficiency programs extremely lucrative — so much so that the

utility won’t

just want to run them but run them with gusto. Richard Sedano, a

director

at the Regulatory Assistance Project, a Vermont think tank, describes

it

this way: “Save-a-watt attempts to overwhelm the throughput

incentive with

financial counter-incentives.†Here’s what Duke proposed: In exchange for helping its customers

save

electricity, Duke wants to charge them for 90 percent of the cost of

the

power plant it no longer has to build. Duke says customers would save

money

compared with business-as-usual. And Duke would collect only if

independent

auditors verify that the load reductions are for real. “It’s a

fundamental

shift,†says Duke spokesman Tom Williams. “Efficiency is a

business line

for the utility now.†Some of the efficiency programs Duke would invest in are old

standbys.

For example, Duke would pay for energy audits of customers’ homes

and

businesses, offering energy-saving suggestions, and it would

subsidize

purchases of compact fluorescent light bulbs and high-efficiency

heating

and cooling systems. Duke also would test new energy-saving

technologies,

such as advanced metering, as well as ways of remotely shutting off customers’ air conditioners, freezers and hot water heaters for

brief

periods of time. The idea is to save energy without inconveniencing

people.

These steps would reduce demand by 1,700 megawatts by 2012. To sweeten

the

deal, Duke would retire 800 megawatts of its oldest, dirtiest coal

plants

as the energy savings come online. Nobody in North Carolina disputes that Duke’s save-a-watt plan is

an

innovative approach. The question now is whether North Carolina

regulators

will go along with it. The hang-up may be deciding whether Duke is

trying

to make efficiency too profitable. “The incentives are larger than

what

you’d normally see,†Sedano says. “What a commission tries to

decide about

any cost it asks consumers to pay is, is it worth it?†James

McLawhorn,

director of the electric division of the North Carolina commission’s

public

advocacy arm echoes the concern. “We recognize there needs to be

some

incentive,†McLawhorn says. “But how much is enough and how much

is too

much?â€

More resources on electric utilities and energy efficiency:

Delaware sustainiable energy utility report http://www.seu-de.org/docs/final_report_4-21.pdf

ACEEE energy efficiency policy toolkit http://www.raponline.org/showpdf.asp?PDF_URL=Pubs/Efficiency%5FPolicy%5FTool...

2Epdf

ACEEE decoupling http://www.aceee.org/pubs/u061.htm

Duke's "save a watt" http://ncuc.commerce.state.nc.us/cgi-bin/webview/senddoc.pgm?dispfmt=&it...

=TAAAAA72170B&parm3=000126792

3. Amory Lovins: How to Face Today's Greatest Energy Challenges

Read this interesting interview on Alternet at

http://www.alternet.org/environment/58460

4. Scientific American magazine on Liquid Coal

July 15, 2007 The full article, "Worse Than Gasoline," can be found at www.sciam.com

.. . . The conversion technology is well established (the Germans used it

during

World War II), and liquid coal can power conventional diesel cars and trucks as well as jet engines and ships. Coal industry executives

contend

that it can compete against gasoline if oil prices are $50 a barrel

or

higher. But liquid coal comes with substantial environmental and

economic

negatives. On the environmental side, the polluting properties of coal—starting with mining and lasting long after burning—and

the large

amounts of energy required to liquefy it mean that liquid coal

produces

more than twice the global warming emissions as regular gasoline and

almost

double those of ordinary diesel. As pundits have pointed out, driving

a

Prius on liquid coal makes it as dirty as a Hummer on regular

gasoline.

One ton of coal produces only two barrels of fuel. In addition to

the

carbon dioxide emitted while using the fuel, the production process

creates

almost a ton of carbon dioxide for every barrel of liquid fuel. Which

is to

say, one ton of coal in, more than two tons of carbon dioxide out. Congressional and industry proponents of coal-to-liquid plants argue

that

the same technologies that may someday capture and store emissions

from

coal-fired plants will also be available to coal-to-liquid plants. But

even

if the carbon released during production were somehow captured and sequestered—a technology that remains unproven at any meaningful

scale—some

studies indicate that liquid coal would still release 4 to 8 percent

more

global warming pollution than regular gasoline. Liquid coal is also a bad economic choice. Lawmakers from coal

states are

proposing that U.S. taxpayers guarantee billions of dollars in

construction

loans for production plants, guarantee minimum prices for the new

fuel, and

guarantee big purchases by the government for the next 25 years.

Their

mantra is that coal-based fuels are more American than gasoline. But

no

operating coal-to-liquid plants exist in the U.S., and researchers at

the

Massachusetts Institute of Technology estimate it will cost $70

billion to

build enough plants to replace 10 percent of American gasoline

consumption.

Some energy experts worry that the scale of the incentives could lead

to a

repeat of the disastrous effort 30 years ago to underwrite a

synthetic

fuels industry. The country would be spending billions in loans, tax incentives and

price

guarantees to lock in a technology that produces more greenhouse gases

than

gasoline does. This is unacceptable at a time when leading scientists

from

all over the world are warning that greenhouse gases must be cut by

at

least 60 percent over the next half a century to avert the worst consequences of global warming. Instead of spending billions to

subsidize a

massively polluting industry, we should be investing in efficiency and

in

renewable energy technologies that can help us constrain global

warming

today.

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