A kWh Saved Costs Triple A kWh Used. You Pay.

Third generation Nest programmable thermostat. You may be asked to buy one for your neighbor, with a sweetener for Dominion.

Buying yourself a kilowatt hour of electricity costs about twelve cents.  Persuading your next-door neighbor or the store at the corner to use less electricity is three times as expensive, costing about 35 cents per kilowatt hour.

That figure comes from a fresh exhibit filed by Dominion Energy Virginia with the State Corporation Commission, an exhibit only filed because a member of the court asked a simple question from the bench:  What has all the spending on energy efficiency programs cost to date and what has been the result?  If that information was buried in the thousands of pages of data on the case, he hadn’t found it.  

The data Judge Mark Christie sought appeared on the case record Wednesday, here (see page 4), with a bottom-line cost of $198.8 million dollars to save (net) about 570 million kWh.  That works out to 35 cents per kWh saved.  The report covers all the energy efficiency programs for Dominion from their first authorization in 2011 to the end of 2017, about six years.

The report is cumulative and does not indicate how much electricity Dominion avoided selling year to year.  But had it avoided the entire 570 million kWh over one year, that would still be less than the output of a small 100 MW generating unit operating at 75 percent capacity for that year.  Looked at another way, that 570 million kWh, or 570,000 megawatt hours, is less than one percent of the 77.7 million MWh Dominion generated in 2018.  It’s a rounding error.

The 17 different programs have run for different periods of time and overlap in their activities.  Many are among the programs Dominion is seeking to continue, tweak and expand in this new review of its efforts, supercharged by a legislative directive in the 2018 Ratepayer Bill Transformation Act.  That law mandates $870 million in new spending (paid by ratepayers) through 2028 and Dominion is before the SCC seeking permission to increase the rate adjustment clause on monthly bills which pays for all this.

The issue isn’t the wisdom of energy efficiency and conservation.  Smart homeowners and business managers focus on that.  The issue is how do you motivate those not otherwise interested, and if you do that with cash, who provides the cash?  The General Assembly says we do.

Down at the General Assembly, a hearing room packed with lobbyists and lawyers usually indicates money is changing hands in the legislation on the docket.  The same phenomenon was on display Wednesday of last week during the packed hearing on the pending energy efficiency programs.  Hundreds of millions of dollars from ratepayers will be spent on contractors, equipment and incentive payments to participants – some who need the money and some who don’t.  Also included will be overhead and profit for the utility.

Most of the argument March 20 and in the case’s written record has been over the question of whether the $870 million legislative mandate did or did not include payments for lost revenue.  Dominion has now unilaterally agreed not to claim that as part of the spending cap, leaving more on the table for…contractors, equipment and incentive payments, plus utility overhead and profit.

The first step in any hearing is testimony from the public, and the first public witness was a gentleman from Google.  Google manufactures and sells programmable “smart” thermostats, one of the things approved contractors will install in the course of these efficiency upgrades.  Not too surprisingly, “if they provide an incentive, it increases the installation rate,” he testified.

He also praised a Dominion proposal to add a new program, already used by numerous other utilities, where the company operates its own on-line store for energy efficiency products, directly competing with other retailers and enhancing that competition with cash incentives.  Other ratepayers, of course, provide the cash for the incentives.

The Google witness called that “a very powerful market channel, because utilities have credibility with their customers.”  In response to a question from Judge Christie, he conceded Google is not yet one of Dominion’s suppliers.  Here is an example of such a marketplace, for PPL in Pennsylvania, which does offer Nest thermostats.

You can get some idea how the existing energy efficiency programs work by perusing Dominion’s own propaganda on success stories.  Virginia Family Dentistry is presumably a thriving and profitable business, yet we paid it $383 to install window film (also our cost) which reduces solar heating on its premises, reducing its cooling costs.

A small manufacturer received a $27,000 incentive (from us) to install more efficient water chillers for use in its process, saving 22 percent on its energy bill.  What possible sense does it make to pay a manufacturer to do something with that kind of payback, something it could afford to do and should do without any cash from our pockets?

Some of the programs are aimed at homeowners without the means to buy more expensive LED light bulbs or a new high efficiency heat pump or refrigerator.  Installing the new efficient lighting has been the low-hanging fruit over the years.  Programs where the utility takes control of your thermostat or turns off your air conditioning on hot days have the highest cost-benefit results of all.

Such an offer appeared in customer bills recently, a $40 cash incentive if you would let the utility install a cycling switch and turn off the air at times of its choosing next summer.  In the new batch of programs, people will be asked to give over control of their thermostats (Google hopes one of theirs) to the utility for what is called a demand response program.  It even passes the cost-benefit test the advocates hate.

That’s the future, and the real potential for demand management will arrive if Dominion ever builds that true smart grid it talks about but never delivers.  The utility and its customers will have real time usage data, and the company can move toward time of day pricing.  What we have now is like that story with the blind philosophers trying to describe the elephant by feeling each part.  The energy efficiency plan, the integrated resource plan and the (still awaited) revised grid plan might as well be separate animals.

Or, as environmental attorney Nate Benforado said in one of the more cogent statements of that day-long hearing last week, “our belief is Dominion lacks a long-term strategy” and is offering up things “piece meal.”  Which would be easier to watch if it were the utility’s money, not ours, going down the drain.

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14 responses to “A kWh Saved Costs Triple A kWh Used. You Pay.

  1. I think your title is not correct. It SHOULD SAY:

    A kWh Saved Costs Triple A kWh Used. You Pay – IF Dominion runs the program.

    that’s the problem.

    Everything in their eyes, including Conservation and demand-side reductions has to result in INCREASED profit for them or it’s not a plan they want.

    Simply stated their approach to these issues is cynical and arrogant and the rest of us are rubes for standing around with our thumbs in our ears as this plays out.

    You’re right – it’s all about money – to the inside-baseball players – and not the consumers and rate-payers.

    This is why we need to pursue RGGI. That model WILL result in real benefits to consumers and ratepayers because it will be out of the hands of Dominion.

    Dominions aggressive stance on this is proof positive that they do not intend to work with consumers and ratepayers to reduce consumption and at least some of those benefits actually go to the consumers and ratepayers.

    Hells Bells, if you believe Dominion, things like LED lights and Smart Thermostats and window film and cycling switches should not be on the market to start with because they do not “save” money. That consumers are being “scammed” by Google and Nest… etc.

    We’ve got this Alice-in-wonderland system where Dominion and special interests get to joust with each other over who gets what and the consumer is a pawn, who, if Dominion gets their way – either gets nothing or pays more.

  2. I’m sure somebody will come along soon to argue that math shows a very good payback period indeed, and starting the argument is part of my goal (along with just raising awareness). But the 35 cent cost of “savings” I cite is not really comparable to the 12-cent per kWh cost of usage, because that 12-cent kWh price includes the fixed costs which customers continue to pay. Maybe half of the bill is generation and fuel, so whoever is doing the math its about 6 or 7-1…..ASSUMING the customer doesn’t turn around and crank up the thermostat or buy a new giant TV.

    • More exceptional reporting, Steve, a great public service BR is performing here.

    • Typically, people make calculations and decisions on their own with respect to more efficient lights – LED, smart thermostats, appliances, HVACs and more efficient cars.

      But one thing that holds people back on some things is the higher up-front cost including even lower priced things like LED which are still several times more expensive than basic incandescent lights – but over time people do replace even expensive equipment like HVAC with more efficient units. Our HVAC is near the end of it’s life and the replacement units are quite a bit more efficient but what’s slowing us down is the up-front costs and I bet we are not alone on that – we’ll probably wait until the HVAC techs that come twice a year pronounce the system near death. If there were incentives or rebates – we’d replace quicker.

      So that’s what these energy efficient programs are all about. We incentivize people to replace equipment with more newer, and more efficient equipment with uses less energy and when enough people do this – overall demand for electricity will reduce and people’s bills will go down.

      This is a good thing for consumers and ratepayers but it’s less revenue and profits for Dominion. It’s a simple thing except Dominion is not going to stand by and watch their revenues and profits decrease and they’re exercising all their options corporately and politically to achieve that. The win-win is not their preferred outcome. They want all of it.

      For us and our elected, it’s MORE than just the AG – we should expect our elected guys/gals in the GA to be on our side on this.

      I don’t blame Dominion – that’s what any business or Corporation does. But I do blame the folks we elect – to do what’s right for us and that includes the SCC which is appointed by elected and governed by laws and regulation approved by our elected.

      We do not let Dominion run the state. We do not do that. And some of our elected have gone astray on that issue.

    • Net of program costs, a utility energy savings program should benefit the retail utility (thus lowering retail rates). It should ALSO save the customer an additional amount due to his energy savings, that is, his reduced bill for consumption. Keep these separate! Never let the utility bamboozle you with a “program net savings” calculated using the customer’s reduced bill as part of the UTILITY’s savings.

      Here, based on what you’ve reported, this Dominion set of energy savings programs isn’t even close to net beneficial to the utility — even without taking customer bill reductions into account.

      This is not an energy savings program but corporate image advertising under another name.

  3. So, what’s the payback for energy efficiency programs in other states? Is the problem unique to Dominion, or does it reflect the fact that consumers don’t see a lot of benefit to energy-efficiency investments because it’s not a good use of their money?

    An entire industry has arisen around building automation for commercial and industrial customers where buildings and building complexes are big enough to create economies of scale. Another place is in new home construction. It’s cheaper to make a house energy efficient when you build it than when you come back later and retrofit it. That’s where Virginia should be focusing its efforts, not on these ridiculous, low-payback residential programs that Dominion is pursuing only to appease environmentalists.

    • Jim, using a test year ratemaking calculation the payback should be immediate once the program is up and running. For an energy savings program there should be almost zero up- front investment (ratebase) costs to “pay back.”

      Here is how the Commission will do this calculation: The operating expense of the energy savings program is the sum of the annual cost to run the program plus the depreciation expense if any of investment in program give-aways (like LED light bulbs) and equipment purchases plus the carrying cost of the undepreciated investment if any. That’s mostly out of pocket expenses, here. Against that, the utility should accrue savings from deferred investment in the distribution grid and in ratebased generation due to lowered customer demand – an annual avoided cost calculation. The net savings to the retail utility subsidiary should be positive IMMEDIATELY. [Do not include the customer benefit from lowered consumption if any; that is not a utility benefit.]

    • Further on that payback calculation:. Steve cites this example:. “A small manufacturer received a $27,000 incentive (from us) to install more efficient water chillers for use in its process, saving 22 percent on its energy bill.”. That’s a program expense to the utility in the annual period. That and all other program expenses should be measured against the UTILITY’s savings in that same annual period from deferred (avoided) investment cost in system upgrades (wires, transformers, switchgear) due to the reduced load growth attributable to the program.

      In addition the customer saves 22% on his bill; but that is NOT a utility savings. As Steve said, “What possible sense does it make to pay a manufacturer to do something with that kind of payback, something it could afford to do and should do without any cash from our pockets?”. But in any event, it would make sense for the utility on behalf of other ratepayers to pay this customer $27K to reduce demand IF the savings to those same ratepayers in system upgrade costs deferred were greater. That is the measure of “energy savings” success, here. That is what the Commission is trying to determine.

  4. Dominion is very good about protecting their financial interests. All successful companies are.

    The error was for interests who wanted to reduce our energy usage to expect that Virginia utilities would be effective at accomplishing that. Several nationwide studies show that Dominion is one of the least effective utilities in the nation when it comes to energy efficiency.

    In Virginia’s regulatory scheme investor-owned utilities earn more when they obtain a higher rate of return on their ratebase or increase that base of assets by building something new. Something new can include a new power plant, a substation, an offshore wind facility, undergrounding distribution lines, or investing in energy efficiency programs.

    The best strategy for Dominion is to design a program that just barely meets the minimum requirements, enough to be approved, then get paid back 3+ times the cost of the project through rate recovery.

    It appears to the public that something good is happening and the ratepayers pay more and shareholders get more. All is well in the 20th-century world of utility regulation.

    Except we are no longer in the the 20th century. We are nearly two decades into the 21st century with no change in our approach here in Virginia. Numerous states have found successful methods to successfully reduce energy consumption. Customers gained more comfort and efficiency at a lower cost and the energy companies were unharmed and often more prosperous.

    What made the outcomes in those states different from Virginia? Typically, the utilities in those states did not put the generating plants in the ratebase. The power plants had to earn their keep in the wholesale marketplace. The utilities had no incentive to build something that did not benefit their customers. The utilities’ profits were not dependent on how much electricity they generated and sold.

    As long as we hang on to an old way of regulating our utilities here in Virginia, energy efficiency programs and many other types of projects will be marginally effective, at best, and very expensive.

    The thrust of the energy policy in Virginia is to benefit shareholders at the customers’ expense, but make it appear that we are doing something that is beneficial.

    We need our energy companies and they deserve to make a fair profit. But until we realign the interests of the shareholders with what is good for the customers, we are headed for trouble.

  5. SH, you say, “That works out to 35 cents per kWh saved. The report covers all the energy efficiency programs for Dominion from their first authorization in 2011 to the end of 2017, about six years.”. You need an annual figure, say the latest annual period, but it should be in the ballpark of that year average figure. But that has to be balanced against the UTILITY’s savings in the same annual period from deferred investment and deferred O&M. I don’t see that even mentioned! Only if THAT net savings TO THE UTILITY is positive annually is this energy savings gambit a good deal for ratepayers generally.

  6. I had to go in for blood pressure check, so I had to stop reading Steve’s articles for a few days.

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