Um… It is 6:07 a.m. and I am still on my first cup of coffee so I had to read parts of this KansasCity.com story twice before I would accept what Red State pointed out in a post in their morning brief.
The state of Missouri is on the verge of charging consumers a hefty fee for the energy they don’t use. Missouri governor Jay Nixon explains, “To save power is the equivalent of making power.”
(Hm. Where have I heard this “saved” equals “created” claim before? Oh yes! President Obama has repeatedly claimed that the actions of his administration have “saved or created” hundreds of thousands of American jobs. Got it.)
Anyhoo, here’s the AP reporter’s sum-up of the MO policy in a nutshell:
Though it might seem illogical, the new energy efficiency charge has support from utilities, most lawmakers, the governor, environmentalists and even the state’s official utility consumer advocate. The charge covers the cost of utilities’ efforts to promote energy efficiency and cut power use.
The assumption is that charging consumers for those initiatives ultimately will cost less than charging them to build the new power plants that will be needed if electricity use isn’t curtailed.
May seem illogical? How about inherently unfair? Anti-free market? How about downright criminal?
How about: if a new power plant is needed based on consumer demand, then you build it and charge for energy accordingly, and if it ain’t, you don’t? And how about: if people find ways to use less electricity, you let them keep and enjoy their savings? Or is that all way too simple and sensible for the MO governor and his pals?
Missouri’s state motto is “Salus Populi Suprema Lex Esto,” which means, “Let the welfare of the people be the supreme law.” If this energy policy passes, they ought to change the word “people” to “energy companies and their bureaucrat friends.”
(And don’t miss the part of the story where one of Missouri’s “popular” energy initiatives was for KCP&L to give consumers “free” thermostats – that can be remotely controlled:
One of the company’s more popular energy-saving initiatives has provided free programmable thermostats to about 34,000 residential customers in Missouri and Kansas. KCP&L can remotely control the devices to reduce the frequency at which air conditioners run during peak demand times. The power company overrode customers’ air conditioners four times last year and twice so far this summer, Caisley said.
Yup.)
E!!
Casey Hendrickson
7 July 2009
This idea is actually pretty pervasive. About half the states now have what is called an “energy efficiency charge” or a “public benefits charge” (which is the same thing). This is an assessment against your energy usage that is factored into your electricity bill (usually at a rate of around $0.004 per kWh) and is used by the utility to provide financial incentives for customers to purchase energy efficient appliances or light bulbs, for example.
The new wave of this idea was originally developed by Duke Energy and was called “Save-a-Watt.” This Missouri program sounds similar to that. Under this type of plan, the utility will charge you at the same rate for energy that is saved from some efficiency measure as if it had actually produced the energy and sold it to you. Utilities claim that this idea allows them to overcome their financial disincentive to promote energy efficiency by “de-coupling” sales from profits. In fact, because the cost to utilities for implementing an energy efficiency program is often far less than producing energy, the concept allows them to collect windfall profits.
The scheme amounts to a collectivization of energy efficiency and has several problems. First, the collectivized savings from energy efficiency improvements solely benefit the utility company. There is a disincentive for individual customers to pursue energy efficiency because they will no longer be able to reap the reward in terms of savings on their utility bill. This particularly penalizes low-income families who may choose not to cool their homes as much, for example, in order to save money. Under this type of scheme it is the utility who would benefit from that savings.
Second, there is no realistic way to know what level of energy savings would have been achieved on a market basis as individuals try to save money. It is also impossible to know what total demand for electricity would have been absent the program. Hence, the utility essentially makes up a number and says “this is what demand would have been” and all savings are then attributed to their collectivized program. State utilities commissions are generally forced to accept whatever claims the utility makes about this.
Third, not all of the costs are considered when evaluating a collectivized energy efficiency plan. The utility provides financial incentives in the form of direct subsidies for individuals who buy energy efficient products. However, those subsidies typically only cover about half the cost of the purchase. The other half is borne directly by the customer and this cost is never considered in the utility company’s estimates.
Fourth, the unique incentives provided by the utility company determine the types of investments that will be made. This doesn’t mean that they would necessarily be the most efficient investments. For example, the most economical way for me to save energy might be to replace the HVAC system in my home, however the incentive being offered by the utility company is for a washing machine. So, I buy the washing machine even though I am now less energy efficient than I would have been if my decisions were made in a market setting. This type of distortion would not occur if energy efficiency decision were not collectivized, but were made by individuals.
This type of scheme should really be called “Centrally-Plan-a-Watt.”
During my two years at the John Locke Foundation I worked exclusively on energy policy, so I’m always willing to engage in this debate. For more info, check out this report: http://johnlocke.org/spotlights/display_story.html?id=208.