Reaching the Kyoto Targets, ACEEE Pennsylvania found that cost-effective efficiency measures can reduce electricity use in the region 33 percent by 2010 (Nadel et al. 1997). With a cumulative investment of $27 billion in efficiency measures during 1997-2010, consumers could realize electricity bill savings of $79 billion during the same period, according to this study. Barriers Restructuring, by design, is intended to spur price competition between electricity suppliers, with the result that all nonessential costs, including public benefit expenditures, are likely to be slashed. There is already ample evidence that public benefit expenditures have declined significantly since the publication of California's landmark restructuring proposal in April 1994. For example, total utility spending on demand-side management (DSM) was $1.9 billion in 1996, down from a peak of $2.7 billion in 1993 (ELA 19971). Utility direct spending on energy efficiency programs peaked in 1993 at $1.61 billion per year, declining to $1.05 billion in 1996 (see Figure 2). Incremental energy savings from utility energy efficiency programs (additional savings relative to savings achieved in the prior year) have plunged even further, from nearly 10 billion kWh in 1993 to 4.3 billion kWh in 1996 (see Figure 3). And according to a recent study by the General Accounting Office (GAO 1996), electric utility R&D expenditures declined from approximately $710 million in 1993 to $476 million in 1996, a drop of 33 percent. From all informal reports, these declines continued during 1997 and 1998. Strategy In order to ensure that important public benefit activities continue to take place following restructuring, several states have established public benefit funds. Funds are raised from a small Reaching the Kyoto Targets, ACEEE charge on electricity distribution service, with charges ranging from 0.3 to 4.0 tenths of a cent per kWh. (Note: a tenth of a cent is often referred to as one mil.) All electricity providers who use the T&D grid (whether traditional utilities, independent power producers, or others) are assessed the charge and contribute to the fund, thereby "leveling the playing field” among providers. As of June 1998, nine states had adopted public benefit funds-California, Connecticut, Illinois, Massachusetts, Montana, New Hampshire, New York, Pennsylvania and Rhode Island.' Funds raised are allocated by state officials to a variety of public benefit activities. Of the funds already established, nearly all cover programs for low-income households, energy efficiency, and renewable energy, and some explicitly list R&D and unique state-specific activities (Energetics 1998).* At the national level, Chairman Richard Cowart of the Vermont Public Service Board has proposed that a National Systems Benefits Trust be created to match, on a dollar for dollar basis, state expenditures on specified public benefit activities (Cowart 1997). Two legislative proposals S. 686 authored by Senator Jeffords (R-VT) and H.R. 1359 authored by Congressman DeFazio (D-OR)-incorporate the Cowart proposal. The proposal has since been endorsed by 30 other state public utility commissioners and numerous consumer, environmental and industry groups. It is also included in the Clinton Administration's restructuring proposal released in March 1998. Specifically, the Administration has proposed a $3 billion per year public benefit fund (PBF) to provide matching funds to states. Under all of these proposals, states would make decisions on how to spend funds, choosing among four areas-services for low-income households, energy efficiency, renewable energy sources not receiving credit through a renewable portfolio standard, and public interest R&D (i.e., R&D activities with significant public benefits that are not likely to be funded through the private market). Funds would be collected by transmission system operators under FERCapproved transmission tariffs, and paid over to an independent administrator designated by FERC. Program governance (e.g., developing detailed implementation policies) would be the responsibility of a Joint Federal-State Board made up of FERC commissioners and state 'In addition, Arizona, Maine, and Maryland have decided to fund certain public benefit activities through the rates of distribution utilities. Several other states are close to finalizing public benefit funds including New Jersey, Oregon, Vermont and Wisconsin. * In states without Renewable Portfolio Standards, a variety of renewable energy activities are funded through the Public Benefit Fund. In states with Renewable Portfolio Standards, expenditures from Public Benefit funds are generally limited to development and demonstration of pre-commercial renewable energy sources. State-specific public benefit activities include environmental protection programs in New York and clean coal technology development in Illinois. 'In addition, Jeffords includes “universal” and “affordable” service, meaning reasonably priced services for rural residents. Reaching the Kyoto Targets, ACEEE regulators nominated by the National Association of Regulatory Utility Commissioners (NARUC) and appointed by the Secretary of Energy. Funds would be collected, per kWh, as power leaves the generating station and enters the transmission grid. This arrangement is based closely on the Universal Service Fund established under the Telecommunications Act of 1996, administered by the National Exchange Carriers Association (an independent administrator appointed by the FCC) and governed by a joint federal (FCC)/state utility commission representatives board (Scheer, Brinch, and Eto 1998). Our strategy is based on the Clinton Administration's PBF proposal. Analysis To estimate the likely impacts of the proposal on consumers, U.S. energy use, and emissions from electric generating plants, we developed a computer spreadsheet model. Our analysis includes only the energy efficiency portion of the PBF — which we estimate to be 59 percent of the total PBF. Expenditures and benefits of renewable energy, R&D, and non-efficiency lowincome programs are not included in our analysis. Our analysis begins by examining the full impacts of the PBF, including both federal and state programs. We then estimate the portion of costs and benefits that can be specifically attributed to a federal PBF, and the portion likely to occur in the absence of further federal action. We only count the former since ELA's Reference Case Forecast implicitly assumes continuation of ongoing utility DSM and energy efficiency efforts. Other key assumptions in the analysis are as follows: A one-mil PBF is adopted by Congress in 1999 and begins operation January 1, 2000. The PBF accumulates a small surplus in the early years, before most states have an opportunity to act, but the surplus is soon used up and by 2006 available federal PBF funds are rationed as state requests modestly exceed the federal PBF funding available. Although the PBF in the Administration's restructuring proposal would sunset after 15 years, we assume the policy remains in effect indefinitely. Fifty-nine percent of PBF funds are used for energy efficiency (including low-income energy efficiency) with the remainder used for other public benefit activities. This share is based on the split between efficiency, non-efficiency low-income programs, and utility R&D in 1995, but assume that R&D expenditures increase 25 percent due to increased attention to renewables R&D. Energy efficiency measures implemented as part of the PBF program have an average levelized cost of $0.03 per kWh saved. On average, PBF funds are used to pay one-third of measure costs, with the remaining two-thirds of funding coming from customers, energy service companies, and other efficiency service providers. These values are based in part on the broad array of past utility demand-side management (DSM) programs and in part on a subset of programs that have emphasized the market transformation approach to program design. Increasingly, states and utilities are emphasizing the market transformation approach (Nadel and Latham 1998). Our analysis takes into account the cost for administering utility Reaching the Kyoto Targets, ACEEE energy efficiency programs as well as "free riders" (i.e., program participants who would still adopt the efficiency measures without utility incentives). Efficiency measures on average have a life of 13 years but savings degrade at the rate of 3 percent annually, starting in the second year. Thus, savings in the tenth year are approximately 75 percent of first year savings. Once measures wear out, we assume that 75 percent will be replaced at owner expense because owners are satisfied with the savings and performance and wish to continue them. In the absence of federal action, we assume state PBFs totaling $1.9 billion annually will be adopted ($1.06 billion already adopted plus $0.8 billion from states that are now considering PBFS-details are provided in the Appendix C). This $1.9 billion represents 28 percent of the total federal/state pool available, leaving 72 percent of the pool that can be directly credited to a federal PBF. Energy savings will reduce carbon, sulphur dioxide and nitrogen oxide emissions in proportion to emissions from all fossil fuel plants (weighted average of coal, gas and oil). Emissions rates show a gradual decline over time as power plant efficiency improves and natural gas accounts for a growing share of the generation mix (see Appendix A). Transmission and distribution losses of 6-7 percent are included in the calculation of avoided emissions. Assumptions used in the analysis and year by year results are provided in Appendix C. The results are summarized in Table 3. Overall, federal plus state public benefit funds will have a substantial positive impact on consumer energy bills, national energy use, and pollutant emissions. Impacts include: By 2010, energy efficiency expenditures attributable to public benefit activities will reduce annual U.S. electricity consumption by 411 billion kWh. Of these savings, 296 billion kWh (7.1 percent of projected electricity consumption in 2010 in the Reference Case) are attributable to a federal PBF. By 2020, we estimate that public benefit activities will reduce national electricity use by 714 TWh, while the federal PBF alone will reduce electricity use by 514 billion kWh (11.1 percent of consumption in the Reference Case). The energy savings attributable to a federal PBF will reduce U.S. carbon emissions by 69 MMT in 2010 and 111 MMT by 2020. Substantial reductions in emissions of sulfur dioxide (0.96 million tons in 2010), nitrogen oxides (0.61 million tons in 2010), and other air pollutants will also occur. Over the 1999-2010 period, we estimate that the federal PBF will result in incremental investments of $86 billion in energy efficiency measures along with energy bill savings of about $124 billion over the lifetime of these measures (on a net present value basis in 1996$). Thus, the federal PBF would result in net savings of around $38 billion. Reaching the Kyoto Targets, ACEEE Table 3. Estimated Impacts of the Federal Public Benefits Fund These benefits are based on a national charge of one mil per kWh, matched by an equivalent state charge. The combined national/state charge will raise electric rates by 3 percent above otherwise projected levels in 2010. But by reducing electricity consumption by an average of 10 percent, the combined PBF will result in reductions in the average electric bill of approximately 7 percent (since bills are the product of rates times consumption). Thus, consumers as a whole will realize significant financial benefits while contributing towards the goal of reducing greenhouse gas emissions. |