The other day in the mail, Pacific Gas & Electric, my utility provider, sent me a letter. I opened it thinking it was my utility bill. Instead, it was an offer to pay me $25 if I will give PG&E permission to cycle my air conditioner off during peak use periods to manage demand on the utility more efficiently.
I received this same flyer before and always tossed it along with the rest of the junk mail the USPS spends millions delivering so that I can contribute to the waste stream by throwing it out. Why not apply a carbon tax in the form of increased postage rates to junk mail which I do NOT want anyway to reduce the volume and THUS enable USPS to reduce costs, reduce emissions, and save me this aggravation? WAIT! I’ll save this rant for later lest I get side-tracked.
Back to PG&E, this time I actually read the offer all the way through. This was actually a very clever experiment on the part of my utility. If PG&E can aggregate a gazillion of its customers to gain control over peak demand from A/Cs for a one-time cost of $25 per customer, can it offset the need for an incremental MW or more of new power generation and save even more?
This is 2009. Back in 1985, at the city of Austin, Texas, where I ran Austin Energy and Austin Water, we developed an integrated resource plan strategy called “The Conservation Power Plant” with the stated goal of substituting enough savings from efficiency and demand response measures to replace the need for a 230MW power plant. The American Public Power Association (APPA) awarded Austin Energy its highest achievement award for that program, and today, Austin Energy is an internationally recognized model for demand management, renewable energy, and efficiency programs. So naturally, my reaction to the PG&E offer was a very smug—attaboy!!!
It also got me to thinking about the utility business model and how the convergence of the three drivers: the economy; energy reliability including security and technology choice; and the environmental impacts of greenhouse gas emissions seem to be aligning for fundamental change for the future.
These three drivers along with California’s ambitious goals for increasing renewable energy market share, reduction in greenhouse gas emissions, and bragging rights for the next “green” Oscar, make PG&E and California’s other investor owned utilities perfect laboratories for changes in the regulatory business model from paying a return on equity for investing capital in building new central station generators to paying a return on equity through California’s equivalent of our 1985 Conservation Power Plant example:
- One million Solar homes
- 33% market share for renewable energy in the utility portfolio
- Substantial reductions in GHG emissions to 1990 levels
Let this idea “soak in” for a while as you contemplate the fundamental changes in business strategy such a change in incentives might produce at PG&E or your own utility provider.