Can’t markets encourage a desirable level of energy efficiency? Why are utilities involved?
The answers to these questions lie in how the electric utility industry was founded and how it evolved. Its economics are driven by high capital costs and low operating costs. This made investments early in the creation of electric utilities very risky. Furthermore, competition led to outcomes that were not satisfactory (i.e. competing wires in neighborhoods).
For this reason, utilities and policy makers created the regulatory compact, giving authority to determine obligation to serve, cost recovery and rates determination and to achieve other worthy societal goals to public commissions. At the same time providing utilities with access to capital and setting rates at cost to serve rather than willingness to pay. Only when competition and technology advanced enough could this arrangement be seriously challenged.
That day is here.
Technology has created supply options that are modular and can be sited in local neighborhoods. Customers are now supplying themselves with environmentally benign (zero emission) power and oft times have enough surplus to supply their neighbors. Digital technology has created the possibility of metering at the individual customer level, at allowing for transactions between customers and the ability to modify the level of energy service that meets customers’ needs and preferences, short term and long term. The days of one size fits all average rates and service design are coming to a close.
So why energy efficiency?
Despite the changes in supply and demand technologies, there are market barriers which prevent customers from being able to make the most efficient choice in their energy consumption decisions. These markets barriers take the form of financial, informational, transactional and behavioral. Squeezing out inefficiencies creates value that eventually is shared by all consumers. EPRI seeks to help utilities overcome inefficiencies through its public benefits mission. Helping utilities identify those inefficiencies and publishing those results is a responsibility that EPRI takes seriously.