Energize America has sent a comprehensive people-powered message to the Hill that endorsed proven renewable technologies and distribution. What stopped The Efficient American Homes Act (EAHA) was one question.
How much does EAHA overlap other federal and state energy efficiency policies?
The EAHA is committed to establishing national standards of energy efficiency. We've identified shortcomings of federal mechanisms to implement minimum efficiency ratings. We've leveraged the value of financial incentives for household "investments." We've debated payback, though HUD recognizes 4 different valuation methods, and everyone relies on DOE's spurious data to discount residential projects.
Let's look at how the EAHA standards may actually relate to conditions at state level. Politics, utility structure, and development can create either a hostile or constructive environment for energy efficiency enforcement and positive outcomes.
Many thanks for dkos real-life contributions to the EAHA (hat tips to Conchita, emmasnacker, xaxnar, Mataliandy) and constructive criticism (hat tips to alizard, HeyMikey, netguyct, deb9, and dearNRG guy
Chewing up trickle-down energy policy
The next four EAHA posts will concern regional energy efficiency regulation. In a transparent market, we'd have state latitudinal and longitudal data to observe and by which to predict outcomes. But real data isn't always HTML accessible, and EIA data is three years behind the eight ball. None of this is simple to represent in a blog. So we'll content ourselves in the meantime with an introduction to Efficient American Homes Charts (below) and, later, a couple of base case narratives to represent residential energy efficiency "conditions at state level" in each region.
Differences in capacity, rate structure, and fossil fuel consumption affect the EAHA viability. Right now, a few observations are driving EAHA revision.
- The states leading global climate change (GCC) management practices are leaders -- or outliers. These states appear to share certain structural and legislated characteristics not found elsewhere. And that means any federal energy efficiency standards proposed will surely be accompanied by vociferous, political compromise on energy market restructure.
- Consumers are not energy market agents in any case. In the wonk literature, the unstated assumption driving policy is that distribution utilities (DUs) are monopolies, regardless of utility type. Household energy efficiency and generation are presumed to be DU assets -- like substations, renewable energy certificates, and carbon offsets. Duke Energy CEO James Rogers has termed energy efficiency our "fifth fuel". (D. Reicher, Senate Committee on Finance, 27 Feb 2007)
- Cost avoidance is the antonym of demand in any market. Productivity is unrealized operating cost. Suppliers want to commercialize, sell, these "negawatts." Retail rates do not yet signal the value of high-performance end-use (diminishing marginal cost, fuel consumption, and CO2 emissions). This fact alone makes dynamic price clearing, much less return on individual household capital investment, impossible to obtain quantitatively as PharLap has repeatedly demonstrated in household NPV.
- As the Chicago Federal Reserve Board index at right suggests, as aggregate consumption increased consumer migration to fossil fueled electricity supply increased. Coal prices fell on DU volume, yet household expenditure increased in any given state in part because end-use demand exceeds local DU capacity. But note this awkward explanation of wholesale payments among DUs: [Electricity price volatility] may be due to efficiences resulting from increased [price] deregulation and to declines in the price of coal, the primary input in electricity generation, throughout the 1980s and 1990s. The low relative volatility of electricity prices is likely due to the price-regulated environment in which electric utilities continue to operate (CFRB, June 2006pdf)
- The EAHA objective is to reduce absolute CO2 emissions not to generate profits.
The paradox of reducing CO2 emissions in this sector of our "consumer-driven" economy is manifold. But it is called "price impact" and understood always to project a retail price increase. At one extreme, the Inhoof poster-child cannot afford heating, whether her home is "tight" and her use is "off-peak", because a DU requires customers pay its cost to comply with her state's GHG regulation, if any. Absent GHG regulation, her DU will still apply for rate increases to subsidize its operating margins and inefficiencies. Inhoof fails to explain that the poster-girl is a utility slave.
At the other extreme, a utility customer in a "competitive" market pays continuously for DU tradeable credits, whether his home is "saving" or not, because the DU requires customers pay its cost to comply with state GHG regulation in order to trade the maximum number of credits. Thus, states' energy policies tend to focus households on minimizing inevitable DU "bill impact" achieved through energy efficiency rather than ways to distribute capital gains obtained by DUs fairly. A policy battle over restricting household "investment" tax credits created in the EPAct of 2005 is forming already.
Reicher, again, has the temerity to quote a McKinsey newsletter. "By looking merely in terms of shrinking demand, we are in danger of denying opportunities to consumers ... Rather than seeking to reduce end-user demand -- and thus the level of comfort, convenience and economic welfare demanded by consumers -- we should focus on using the benefits of energy most productively." [op.cit] He goes on to skip the Electric Utility Cap and Trade Act of 2007 (S.317) to chain Renewable Portfolio Standarda (RPS, map) and the EXTEND EPAct of 2005 (2006, S. 3628) to a ACEEE/Google policy proposal, Energy Efficiency Resource Standard (EERS). Increasing household "energy productivity": Now that's what I call a beating.
I Want Energy Independence!
You want performance-based incentives? I'll give you some performance incentives... some NCLB-quality, asset-based performance incentives...
We presume EAHA will be in force 2009-2020. EAHA 1(b) and 2(a) provide for "public-private partnership" in energy efficiency education and incentives. In most cases, states already partner with local utilities and private sector entitities to fulfill rebate programs as well as to rehabilitate or construct "energy efficienct" housing for public authorities and private property development. This error is insidious.
The Public Utilities Holding Act passed in 1935 was repealed in 2006. PUHCA outlawed interstate (international, implied) utility holding companies, and made it illegal for a holding company to claim less than 10% of a public utility for tax benefits. If a company claimed greater than 10% ownership, it had to register with the SEC and provide detailed accounts of all financial transactions. Between 1938 and 1958 the number of holding companies fell from 216 to 18, forcing divestiture until incremental antitrust deregulation, from Reagan through GWB. knock yourself out. PwC notes
The rise [in global M&A] is all the more astonishing as it comes in a year when deal activity from corporate US utility players plummeted. The sharp downturn in North America came as companies took stock of aggressive regulatory stances from some state regulators during a US midterm election year that coincided with the ending of rate freezes and reaction to the repeal of the Public Utilities Holding Company Act. North American electricity deal values by bidder fell 64% to US$20.7bn, not far above the US$16.7bn level of 2003.
... North American target values rose 15% on 2005 levels, maintaining the headline momentum that began in 2004. But this headline growth was sustained only by two large bids involving players outside the immediate US corporate utility sector – the Kinder Morgan management buy-out financed by a group of investment firms and the move by UK utility company, National Grid, for KeySpan. In contrast, American power utilities declined to make any big deal bids. Were it not for the Kinder Morgan and KeySpan deals, total target values in North America would be 40% down on 2005 levels.
The global, Kyoto-leveraged capital market isn't as stupid as the last session of the Republican-controlled Congress which hoped to profit by unsecured carbon credit trade. Assholes. Privatizing energy efficiency enforcement introduces management conflict in addition to the public burdens of underfunding household switching cost and over-compensating commercial operating "innovations."
EAHA will restore and modernize certain provisions of the PUHCA. To begin with:
Federal EAHA funding and fulfillment for residential incentives will be managed exclusively by state agencies. EAHA funds can add 47 FTEs to energy agency staff size in each state and DOE for $2B. EAHA state subsidy will increase full-time staff for enforcement and/or federal certified "home energy audit" technicians.
EAHA will generate "carbon revenue" to match energy efficiency "tax relief." This old-fashioned measure balances the books of a Renewable Portfolio Standard and housing "asset management" technique currently in vogue at HUD. Utilities, regardless of type (customer-owned, investor-owned, public, or federal), will be required to report certain balance sheet and revenue data quarterly to the state energy agency. If assets of the utility's Renewable Portfolio do not reduce kWh generation or NG cu.ft consumption by 2% as compared to the prior reporting period, the utility and its property-owning customers will be each penalized by the state for nonperformance through one method.
- 75% premium set by the utility's current retail rate per kWh or cu.ft. added to consumption exceeding monthly base federal "home energy audit" kWh and NG cu.ft, FYE 2015 and FYE 2020 targets. The bases will be reset once during the EAHA period, from 20% to 100% compliance.
- The audit rule will be 50% renewable fuel source, regardless of geographical siting or generator within the contiguous 48 states, Hawaii and Alaska.
- The audit rule will preempt state limits to and disclosure of renewable fuel sources (heh heh heh) and engross state Energy, Universal Service, Environmental, and Generation Procurement surcharges.
- Presentation of a "home energy audit" will NOT indemnify utility customers, UNLESS the audit is federal certified AND (a) the customer is a private property or public housing authority tenant or public housing authority mortgage holder; or (b) the property owner is an "off-grid" generator; or (c) the status of the utility service area is designated "emergency power".
Why a renewable rule? Uh, that's where the money is in real household property (CHP), DU-independent generation, or DU proxy shares -- Renewable Energy Credits, RECs. (cf. S.317, Feinstein, Carper; S.280, Lieberman 9) Limitations on utility renewable source are coupled to Net Meter rules (IRR proxy) ranging from 1% to 24% renewable source by 2025 (to manipulate credit auction price and quantity). And renewable consumption is limited by household energy efficiency investment and barriers to RPS market entry (Net Meter + Disclosure).
Furthermore, 82% of households' main fuel for HVAC is either gas or electricity. Yet residential "energy efficiency" improvement can be a poor predictor of actual "price impact" mitigation. Take Howard W., a homeowner in Flossmoor, IL, a state that completed its energy market "restructure" as of Jan 2007.
"Over the last few years, Howard used all the knowledge that is readily available to consumers to make what he felt were informed decisions about his house," Lotesto says. "The year before last, he spent quite a bit of money to install a high-efficiency boiler, add insulation in the attic and crawl spaces, re-side the house with rigid foam insulation board, and replace all the windows with energy-efficient ones, only to realize his investments weren't paying off as he had hoped.PATH
Uncertainty about cost-effective attributes of energy saving and the affordability of energy efficiency investment undermine household commitment to reducing energy consumption. Uncertainty is created by the federal governement's inability to set minimum energy efficiciency ratings and Congressional abrogation of enforcement to failed market mechanisms. Where financial metrics are used to justify expenses, short-term payback rewards minimum investment. Where behavioral research is used to explain minimum investment, studies demonstrate that voluntary household measures are strongly correlated to fuel price shocks or retail utility costs. As a nation, our consumer-driven desire for energy efficiency bears no resemblance to "buy-and-hold" wisdom in the equity market, much less real estate appreciation. So long as this condition is acceptable to the market, residential property owners will be unable to recover investment or contest local building codes that drive the value of energy efficient assets on their property.
Spitting in the Wind
This call from businesses to establish uniform rules for emissions of carbon dioxide and other greenhouse gases continues what Ginny Worrest, a senior policy advisor to Senator Olympia Snowe, told LiveScience was a "grassroots" effort to establish caps of greenhouse gas emissions started by many states. Live Science
Actually, this particular article links "many states" to a unilateral agreement between the UK and Gov. Schwartzenegger to establish a carbon credit exchange. The Regional Greenhouse Gas Initiative (RGGI) --7 states in the Northeast plus MD developing a cap 'n' trade exchange-- is not mentioned. Neither is Big 3 vs Vermont emissions caps litigation. Nor does the article refer to grassroots-financed clean energy such as the Green Path Project in CA that Boston-based Citizens Energy helped to package.
Players: Imperial Irrigation District (IID), Los Angeles Department of Water & Power (LADWP), San Diego Gas & Electric (SDG&E), California Independent System Operator (Cal-ISO), and Citizens Energy
The Sun Path Project creates a new 500-kV bay at the Imperial Valley Substation, a new San Felipe substation, 2 new substations between Indian Hills and LA, and over 150 miles of new 500-kV transmission lines. Interconnection will add at least 1,000 MW from Green Path renewable resources (geothermal and solar thermal generation). The whole project is expected to be operational by June 2010 at a cost of $1.26B.
- SDG&E invests about $910M in San Diego County and will recover this investment through the Cal-ISO Transmission Access Charge over 41 years. SDG&E will own the infrastructure within San Diego County.
- IID invests about $150M within Imperial County and will own the transmission infrastructure within that county.
- Citizens Energy will invest about $200M in Imperial County and become a Cal-ISO Participating Transmission Owner. Citizens Energy will recover its investment through the Cal-ISO Transmission Access Charge over 30 years.
- Citizens Energy will reinvest 50 percent of the profits from this investment to assist low-income customers of LADWP and IID Energy through electric bill subsidies and other need-based assistance programs.
Thank The Cunctator for spotting a paradigm shift in a recent Senate finance committee hearing. The EXTEND Act (Feinstein, Snowe, Kerry, Santorum) lurks under the radar of other "investment" household tax credit adjustments circulating both chambers and the media. As Dan Reicher summarized above, no energy efficiency plan is complete without "sticks":
"A goal of this bill is to provide a transition from the EPACT 2005 retrofit incentives, which are based partially on cost and partially on performance, to a new system that provides greater financial incentives based on performance." cf. S.3628
Actually, the bill complicates qualification for the credit, while marginally increasing the tax credit caps for various projects. This "performance" bill requires households to document "price impact" savings greater than 20% to obtain tax relief. It outsources efficiency certification to private contractors and differentiates tax credit value per unit relative to performance of the system replaced. More, please.
The Efficient American Homes Charts
Rules that categorically reduce CO2 emissions from fossil fuel make lifestyle choices and household investment decisions easier to make. The EAHA intends to return tax revenue to households to minimize the cost of complying with minimum energy efficiency standards that reduce fossil fuel consumption. Those standards are certified and enforced by public energy agencies.
The BLS counted 8,000 electricity DUs and 2,700 gas distributors in the US (2004). EIA grossly understates this number. Following BLS, the number of investor-owned utilities (IOUs) represents nearly two thirds of all utilities. "Outsiting" among IOUs was identified over 25 years ago. It was understood even then to signal the divorce of utility operations from demand-side management to achieve utility operating efficiencies. Oak Ridge conference report, osti.gov, 1980. I compiled the charts below. I see a fight. What do you see?
Sources: eere.energy.gov; CS Monitor; Wikipedia; R. Vanderbei 2006; State Policies; RPS map
Efficient American Homes Charts ©2007 EnergizeAmerica2020.org