March 15, 2008

Conservation and the law of the jungle

Dr. Robert Peltier, PE

No risk, no reward

By law, Duke could roll out Save-A-Watt today as an unregulated business venture without waiting for regulatory approval. Few utilities would consider making such a bold move because they are risk-averse and lack the experience to avoid being eaten alive in the unregulated world, where ratepayers can't backstop poor business decisions.

Duke is entitled to ask for a fair share of the savings that conservation projects it invests in would produce. In this respect, the company is making an investment similar to that made by a property owner who expects lower electric bills to amortize the cost of buying and installing rooftop solar panels. But in both cases, the investment decision should stand solo, and the rate of return should be based on realistic projections of future savings. That's how the real world works. Regulators should hold Duke's conservation projects to the same investment standard that applies to any business: Bad investments reduce shareholder value; good ones produce shareholder profits.

As electric rates have risen nationwide, more private companies have found that investing in energy conservation pays off. It's time for self-styled “forward-thinking” utilities to walk the talk. They should show some leadership by modernizing their approach to the “business threat” of conservation, rather than insisting on use of the old funding paradigm that does little to protect ratepayers. When a hammer is the only tool you have, every problem looks like a nail.