Thursday, October 15, 2009

Ohio Governor Halts Utility "Free" Efficient Bulb Program after Customers Get Smart About "Revenue Decoupling"

With a great wave of PR fanfare that sloshed into the New York Times, Ohio utility FirstEnergy announced in early October that it would distribute four million efficient compact fluorescent light (CFL) bulbs to its 3.75 million residential customers. See FirstEnergy Ohio Residential Customers Get Bulbs, N.Y., October 5, 2009. John Funk, FirstEnergy to Give Away 3.75 Million Low-Energy Light Bulbs, Cleveland Plain Dealer, Oct. 5, 2009.

The FirstEnergy notice to customers provided with the bulbs did not reveal, however, that the utility would actually collect all the cost of the program -- and more -- from utility customers. It later emerged the two-bulb plan was no "give away." The utility would have charged its customers for
  • the cost of the bulbs,
  • the cost of their delivery to each residential customer,
  • the program administrative costs,
  • plus an amount to compensate the utility for estimated future reduction in electricity used, based on assumptions that customers would actually use the CFLs to displace less efficient ones that are in regular use.
The FirstEnergy plan had been approved by the Public Utilities Commission of Ohio (PUCO), which regulates rates and charges of Ohio utilities. Like Ohio, the New York PSC joined in the "revenue decoupling" fad when it issued an order in 2007 requiring New York utilities to include "revenue decoupling" proposals in their future gas and electric rate case filings. Like the Ohio plan now suspended, New York's regulator would allow utilities to raise prices based on estimates of customer conservation due to utility funded efficiency programs. New York, however, has a third party energy efficiency program operated with SBC utility bill surcharge funds paid over to NYSERDA that is not dependent on utility sponsorship and administration. There seems to have been no real need to coax New York utilities into spending on customer efficiency with "revenue decoupling" candy.

Ohio customer reaction to this utility "revenue decoupling" fad, which pays utilities more based on the assumption customers will be using less electricity by installing and using the bulbs for an estimated number of hours each day, was swift and furious.
The PUCO approved the plan last month without comment, though it did not approve the exact rate increase the company has announced.

CFL bulbs use one-quarter of the power of a standard 100-watt incandescent bulb, so FirstEnergy said consumers would save $60 in energy costs over the bulbs' lifetimes - far more than the extra charges of $21.60.

Thousands of enraged customers didn't buy the argument and swamped the
PUCO's call center as well as FirstEnergy on Tuesday and Wednesday demanding that the program be halted or significantly changed.

Most irritating to the more than 100 who called The Plain Dealer was that customers would have to pay for light bulbs they did not request and, in many cases, didn't want. Many callers said they already had
CFL bulbs in their homes. Others said they feared them because of the mercury they contain, though it is far less than the mercury in a standard fluorescent tube.
The Ohio Governor asked the Chairman of the Ohio PSC, which, embarrassingly, had previously approved it, to stop the FirstEnergy CFL program:
A plan by a Midwest utility to distribute energy-efficient light bulbs to customers backfired when it was learned that the recipients would not only have to pay for the bulbs, but also pay the utility for the electricity they wouldn't be using.

Ohio's governor sent a letter to regulators who pulled the plug on the program for now, or at least on the charges that caught consumers off guard.Total planned charges for unsuspecting customers for two light bulbs was $21.60, though it cost only $3.50 to buy and distribute them. To make up the cost plus lost electricity sales,
FirstEnergy planned to charge customers using an average amount of electricity 60 cents a month for three years.
Mark Williams, Light Bulb Program has Some Customers Seeing Red, AP October 9, 2009.
Following the math, if the cost of bulbs is $3.50 each, the utility would collect an additional $14.60 per customer, totaling $54.75 million, which would be added to future customer bills.

In response to the Governor's request, the Chairman of PUCO, Alan Schriber, postponed the program :
The PUCO has received a large volume of calls and emails in response to the compact fluorescent light bulb program approved last month for FirstEnergy. Today, I received a letter from Gov. Strickland asking that the PUCO postpone the program until such time as we can address several questions raised by the governor, members of the Ohio General Assembly and FirstEnergy customers related to program details and costs.

As a result, I have asked
FirstEnergy to postpone deployment of its compact fluorescent light bulb program until the Commission can thoroughly assess the costs associated with this program. The PUCO approved the program following consensus reached during discussions among the company and other organizations including the Office of the Ohio Consumers’ Counsel and the Natural Resources Defense Council.
Although the PUCO allowed FirstEnergy to implement its program, we did not approve the charge that will appear on monthly bills as a result. Reports in the media place the cost to customers at sixty cents per month for three years, which equates to $21.60 over the life of the program. The PUCO has not approved these additional dollars nor have we received a request by the company to do so.
Statement from PUCO Chairman on FirstEnergy’s compact fluorescent light bulb program, PUCO Press Release, Oct. 7, 2009.

Similar "revenue decoupling" schemes jointly promoted by the Natural Resources Defense Council (NRDC), utilities, and pro-deregulation state utility regulators have drawn considerable skepticism from consumer advocates, who have long been supportive of energy efficiency policies that are more reality based than "revenue decoupling." The payment to utilities for "lost revenue" due to its efficiency program is the essence of "revenue decoupling," which is designed to maintain utility revenues when sales go down due to conservation measures, so as to induce the utility to run programs. When sales go down due to cool weather or a recession (U.S. electricity sales are down 4.1% so far this year), and when it is hard to figure out whether customers actually achieved real usage reductions with the efficiency measures (did the bulb get used at all, or was it put in a rarely used basement closet?), and when the normal business risk to the utility of customer conservation or use of more efficient appliances is being substantially reduced, "revenue decoupling" is fraught with risk to consumers.

Interestingly, NRDC reacted with outrage the other day to an international version of the same revenue decoupling notion it promotes so avidly in concert with U.S. utilities. Saudi Arabia suggested a revenue decoupling program for oil producers to compensate them if consumers use less gasoline due to the advent of more efficient engines or electric cars running on electricity produced from other sources, such as coal or nuclear fission.
Saudi Arabia is trying to enlist other oil-producing countries to support a provocative idea: if wealthy countries reduce their oil consumption to combat global warming, they should pay compensation to oil producers.
Environmental advocates denounced the idea, saying the Saudi stance hampered progress to assist poor nations that are already suffering from the effect of climate change, and that genuinely need financial assistance.
“It is like the tobacco industry asking for compensation for lost revenues as a part of a settlement to address the health risks of smoking,” said Jake Schmidt, the international climate policy director at the Natural Resources Defense Council.
Jad Mouawad and Andrew C. Revkin, Saudis Seek Payments for Any Drop in Oil Revenues, New York Times, Oct. 13, 2009. Would that NRDC stood for "progress to assist poor [U.S. electric consumers] that are already suffering from the effect of [utility charges to deal with] climate change, and that genuinely need financial assistance." Perhaps NRDC has yet to reach a joint understanding with the Saudis, as it apparently has with U.S. utilities, to put an environmental gloss on its decoupling proposal. Maybe NRDC would support the Saudis' plea for revenue decoupling if the Saudis would fund an efficiency program to increase gasoline mileage by adding more air to chronically underinflated auto tires.

Last year, service to 330,000 New York utility consumers was shut off because they could not afford their bills, putting about one million people in their households in the dark. They cannot afford expensive utility "give-aways" that would add to their already high utility bills when they shut the lights off. See PSC Reports on Devastating Termination Statistics, PULP Network, April 9, 2009; Candle Fires: A Symptom of "Rolling Blackouts" Affecting Low-Income Households.

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