Opinion: Decoupling damages businesses
By Robert Rio
In a recent filing with the Massachusetts Department of Public Utilities, the Associated Industries of Massachusetts stated that electric utility revenue decoupling is not needed. Decoupling represents a new way of allowing electric utility companies to structure rates and raise revenue. Depending on implementation, decoupling could allow electric utility companies to recoup revenues otherwise reduced as a result of individual customer's energy conservation measures. In other words, when consumers implement conservation measures to save energy and money, the utility earns the same revenue as before the implementation of the conservation efforts.
We think this is bad public policy.
While some assert this would result in more system-wide energy efficiency investments and lower prices, we are more doubtful. Since Massachusetts has near the highest per capita energy efficiency program in the country (funded by a surcharge on electric rates), we question the premise that the current rate system impedes energy efficiency investments and doubt that current demand response programs have a significant financial impact on electric utilities. Moreover, the proposed rate change may actually discourage energy efficiency and demand response by weakening price signals to consumers that drive the need for energy conservation initiatives in the first place, and by making paybacks on efficiency investments less attractive.
Massachusetts has the highest cost of electricity in the continental United States, striking at the heart of the commonwealth's competitiveness. While energy conservation is very important, medium and large commercial and industrial companies constantly cite the price of electricity as an impediment to remaining or expanding in Massachusetts. In a recent survey conducted by AIM, 95 percent of respondents said electricity costs are a serious problem. Almost 80 percent said high electricity costs forced them to cut back on employee salaries and benefits, lowered their profit margin or forced them to stop producing certain products in the Commonwealth. Almost 50 percent of respondents indicated that conservation had reduced their overall use of electricity, while their total cost of electricity has risen.
Commercial and industrial customers are highly sensitive to marginal increases in electricity cost. As a result, about half of the survey respondents indicated that they believe the high cost of electricity will drive future investment and location considerations out of the state
Companies conserve electricity and energy as a matter of financial survival.
Instead of focusing on decoupling, AIM believes that the DPU should investigate the true costs and benefits of the current efficiency and renewable energy programs. Currently, through surcharges, consumers are paying more than $200 million annually to support conservation and renewable programs, with the possibility of at least at least another $125 million in rate increases as a result of Massachusetts joining the Regional Greenhouse Gas Initiative. These charges represent almost 1 cent on every kilowatt of electricity used, a significant cost. We do not need additional money - we need better accounting, coordination, return-on-investment, and oversight for all of these programs.
Massachusetts needs to explore and seize every opportunity to reduce the cost of electricity. AIM believes that the DPU should focus on more traditional rate cases and rate design as the surest way to advance conservation, efficiency, and overall load reduction. Decoupling is a distraction on the road to lower cost electricity.
Robert Rio is senior vice president of government affairs at Associated Industries of Massachusetts, an employer association of more than 7,000 Bay State companies and institutions employing more than 600,000 people.
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