Stimulus or political business as normal?

By Kennedy Maize

“Stimulus” has become the universal political solvent in Washington since the advent of the Obama administration. No matter what narrow special interest, no matter what piece of local pork or advocacy policy preference, it all gets dissolved and incorporated into the administration’s stimulus package.

You call it “stimulus.” I call it “earmarks.” The stimulusificators are winning.

Unfortunately, this means that a lot of what is touted as stimulus is considerably less than what meets this jaundiced eye.

A classic example is a provision in the House-passed bill that mandates that state electricity regulators adopt “decoupling” of sales and revenues before the jurisdictional utilities can access new federal energy efficiency funds. This has nothing whatsoever to do with economic stimulus, but is a long-sought goal of some energy efficiency advocates.

The evangelists of decoupling – in a policy debate going back to the early 1990s – argue that traditional practices in most states, which set electric rates and profit levels and let the utility earn on sales, discriminate against conservation programs. The utilities, the case goes, have an incentive to sell more electricity under traditional regulation, not conserve, because the more they sell, the more than earn. By reversing the incentives – giving the utility a reason to encourage energy conservation over usage – the utilities will reduce existing generation, and slash the need for new generation.

It’s an argument that has won support from some utilities, most notably San Francisco-based Pacific Gas & Electric Co. In PG&E’s case, there is no way the utility is going to be able to build new generation anywhere anytime soon, so it must convince its customers to use less electricity. It will have to spend to accomplish that conservation. Under conventional ratemaking, that means PG&E would see revenues declining as its customers use less electricity as a result of its conservation spending.

So for PG&E, decoupling is the Big Rock Candy Mountain, complete with cigarette trees and soda-water fountains. Consumers buy less electricity, while revenues rise, costs are stable, and profits climb. The utility can spend to cut energy use, without paying the penalty of seeing its revenues fall when consumers use less electricity, and still earn a return on its capital investment. Yow!

How did the provision get into the House Appropriations Committee bill language? “It’s the hidden hand of (Democratic House Speaker Nancy) Pelosi,” a veteran energy lobbyist told POWER Blog. “PG&E likes it, the greens like it, Pelosi likes it. It’s in.”

But does that make sense for the rest of the nation? I think it’s a dangerous game, as it leads to underinvestment in new generation, declining reliability margins, and a beggar-your-neighbor attitude. California has already decided that it will not allow new coal-fired generation instate, and that it won’t buy power generated by coal anywhere in the universe. It’s a “greener-than-thou” approach that jeopardizes the Rocky Mountain west.

Does this make sense for the entire nation? Three important electric lobbying groups argued against the provision in the House bill, section 6001(a)(1)(A). They failed to highlight the issue in the House, but may get some traction in the Senate.

In a January 22 letter to House and Senate leaders in both parties, Chuck Gray, executive director of the National Association of Regulatory Utility Commissioners, wrote, “We respectfully submit that imposition of specific sets of regulatory requirements on 51 state commissions is inconsistent with Congress’s goal of promoting cost-effective energy efficiency and stimulating the economy.” The Gray letter, referencing the currently omnipotent political mantra, said that the provision could delay “delivery of stimulus funding into the economy.”

Subsequently, the Electricity Consumers Resource Council (ELCON), representing large industrial electric consumers, and the National Association of State Utility Consumer Advocates (NASUCA), champion of the little guys, also opposed the House language. NASUCA’s Charlie Acquard said, “A one-size-fits-all approach mandating that states adopt one specific regulatory approach to achieve energy efficiency simply does not recognize that different approaches may be more appropriate, depending on the state.”

ELCON’s John Anderson said, “revenue decoupling basically guarantees each utility a level of revenues ‘decoupled’ from its volumetric sales. Without revenue decoupling, large and small consumers can and will make energy efficient investments, and they will enjoy the savings. With revenue decoupling, a utility would manage the energy efficiency program and consumer savings could be reduced or eliminated in order to maintain the utility’s revenue level.”

There’s an interesting debate here, and I’d like to see it played out in public. But the way to resolve it isn’t to declare the winner and mandate the outcome in federal law. Decoupling sure as heck isn’t economic stimulus; that’s a major problem with the Obama stimulus package as it passed it House. It’s loaded with extraneous, non-stimulus provisions. These are the moral (and practical) equivalents of earmarks.

The administration and its congressional allies chose to engage in the traditional practice of log-rolling in order to get quick action on the legislation. Was that wise? We will see as time passes, but the process still has to odor of rancid bacon fat.