Taxpayer-funded federal agency shows utility companies and regulators how to game the system and charge the public to “restore profitiability” and “mitigate financial impacts” from conservation, efficiency, and solar

From Electricity Markets and Policy Group, Lawrence Berkeley National Laboratory

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New LBNL report finds earnings impacts to utility shareholders can be mitigated through many existing ratemaking and regulatory approaches but with important implications for customer rates and bills

Dear Colleague,

We are pleased to announce the release of a new report from Lawrence Berkeley National Lab (LBNL) examining the financial impacts of a combined portfolio of energy efficiency (EE) and distributed photovoltaic (PV) systems on a prototypical northeast utility’s shareholders and ratepayers. The report also considers business model reforms that could be pursued by utilities and regulators to mitigate the financial impacts. Finally, the report assesses bill impacts on participating and non-participating customers using illustrative EE program types and PV investments.

The analysis is the first effort to jointly assess the financial impacts of EE and PV. The study relies upon a pro-forma utility financial model that LBNL developed and previously deployed for the purpose of analyzing the utility shareholder and ratepayer impacts of utility-sponsored energy efficiency programs and customer-sited PV in isolation. For the present study, we enhanced the financial model to take into account more granular modeling of the relationship between impacts of EE and PV on utility load and costs, and how that relationship changes at increasing EE and PV penetration levels over time.

An EE and PV portfolio, representing the most aggressive savings goals and PV adoption forecasts in the northeast region, resulted in about a 24 percent reduction in shareholder earnings and ROE for the northeast, distribution-only utility. Impacts on average retail electricity rates were also significant, increasing by about 22 percent over 20 years (i.e., 3% per year compared to 2% per year in the business as usual case).

We also examined the impact of a number of possible business model reforms, including alternative rate designs (e.g., adding a residential demand charge, increasing customer fixed charges), utility revenue decoupling, utility ownership of distributed PV, and targeted shareholder performance incentives. The report shows that a number of these reforms could restore utility profitability to levels similar to what would occur in the absence of distributed PV.

Finally, the report makes important findings about the financial impacts of aggressive EE and PV on the utility bills of participating and non-participating customers. We found that increases in average retail rates had real financial implications for not just non-participants, but also for those whose investments in EE measures (e.g., residential product rebate and low income programs) generate more modest savings of energy and demand that are unable to keep pace with the rising retail rates. In contrast, residential customers who invest in PV systems or EE measures that produce greater energy savings (e.g., whole home retrofit) experience bill savings that offset most or all the increase in retail rates.

A webinar presentation of key findings from the report will be conducted on Thursday, May 11 at 10:00am Pacific Time.

We appreciate the funding support of the U.S. Department of Energy Office of Electricity Delivery and Energy Reliability.

Best regards, and we apologize in advance for any cross-postings,

Andrew Satchwell, Peter Cappers, and Charles Goldman
Lawrence Berkeley National Laboratory

Contacts
Andrew Satchwell
(510) 486-6544
ASatchwell at lbl.gov

Peter Cappers
(315) 637-0513
PACappers at lbl.gov

Charles Goldman
(510) 486-4637
CAGoldman at lbl.gov

Electricity Markets and Policy Group
Lawrence Berkeley National Laboratory
emp(dot)lbl(dot)gov

 Electricity Markets and Policy Group, Lawrence Berkeley National Laboratory, 1 Cyclotron Road, MS 90-4000, Berkeley, CA 94720

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