Austin, Texas, March 28– Investor owned utilities are usually reluctant to help their customers save too much energy, because it reduces their profits, but that doesn’t need to be the case, according to a new report from SPEER (the South-central Partnership for Energy Efficiency as a Resource).  How utilities earn their revenues, and their returns on investment, rests on how their revenue recovery is structured by regulators. The SPEER report, Energy Efficiency and Ratemaking: Aligning the Interest of Utilities and their Customers, discusses ways that other states have attempted to resolve the conflict.

“The ‘end state’ sought,” said Bob King, SPEER’s CEO, “is a financial structure within which the utility can actually increase its profits by reducing its overall spend and reducing rates, so everyone wins.”

While this has been a top priority for SPEER, since its statewide Commission recommended action on this in 2015, now it could also be the subject of an official enquiry.  Senate Bill 774, adopted in the 84th Regular Session of the Texas Legislature, included language directing the PUC to reconsider the manner of utility rate regulation in the state, considering what other jurisdictions have adopted.  The PUCT has hired a consultant, Christensen Associates, to provide the background research for its report back to the legislature by next January.  The consultant report is due in May or June.

“The PUC of Texas will consider a broader range of issues than we do in this report,” added King, “They will likely be looking at appropriate ways to send price signals to both regulated utilities and to consumers that lead to rational behavior.”

The primary focus of the report released today is on how to create a regulatory environment in which a utility that encourages, or even helps, its customers cut back, can improve its bottom line.  If designed properly, the utility itself will also strive to improve the efficiency of its own operations internally.   SPEER hopes to complete additional research on these internal improvements and the design of customer rates as well in coming months.

Ratemaking can be a baroque and complex undertaking, but the report concludes simply that efficiency programs are most successful in States where a commitment to efficiency is clear and three things are in place for the utilities:

  1. They are allowed to recover their efficiency program costs;
  2. They are made whole for constricting sales; and
  3. They see a financial incentive to reduce overall costs and/or improve service to consumers.

While the PUCT investigation will address a broader range of issues than this, SPEER has presented the study results to the agency staff and the consultants in hopes that it can contribute to the policy dialogue that will come back to the Legislature in January.

To learn more about SPEER please visit www.eepartnership.org. To see the entire report, please visit https://eepartnership.org/wp-content/uploads/2016/03/SPEER-Efficiency-and-Ratemaking-report-2.pdf.