Boosting utility companies' energy efficiency

Let’s be frank: As things stand, America’s power companies have little reason to go green. They’re in the business of selling electricity, not saving the planet, and to maximize their profits, they need to sell more - and more, and more - juice to American consumers. That means that while environmentalists are calling for power companies to promote energy efficiency, the laws of supply and demand are pushing utility companies in precisely the opposite direction. Rather than trying to spread their current capacity further, energy companies are looking to build ever-larger plants using the cheapest, dirtiest technology available: coal.

It doesn’t have to be this way. Consider, if you will, the case of California: In the past three decades, the Golden State’s energy consumption has remained almost static while the rest of the country’s per-capita demand for electricity has risen by 50 percent. If the whole of America could keep up with California, we’d never need another polluting power plant; what’s more, we’d be able to slash our national greenhouse emissions by a quarter without adding a dime to household electricity bills.

So how has California achieved this minor miracle? Well, it’s partly due to state regulations that have helped make energy-efficient construction, heating, and lighting the rule rather than the exception. Crucially, though, California has also taken steps to fundamentally change the economics of electricity generation: In the Golden State, power companies can make money by delivering less electricity to consumers.

The Californian revolution is underpinned by a process known as “decoupling," in which energy companies no longer make a profit on each unit of electricity they sell; instead, they are assured a set return based on their estimated sales and revenue needs. That effectively eliminates the zero-sum game that afflicts most energy supply chains; instead, power companies actually benefit from their customers’ energy savings.

So far, depressingly few states have tried to follow California’s lead; the most promising project is in New England, where regulators plan to auction off energy contracts to whichever company promises the greatest energy savings. It’s becoming clear that if decoupling is going to catch on, we’re going to need the federal government to get involved. A national program providing matching funds for states’ energy-efficiency spending might cost a few billion dollars a year, but the energy savings produced would repay that investment many times over.

There’s little chance of the Bush administration embracing decoupling; the current president has actually cut funding for programs intended to boost utility companies’ efficiency. For the next president, however, reproducing California’s successes on the national stage could be the key to solving America’s energy crisis.

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