Paying to Lose

9 02 2010

Jenny Craig customers do it all the time – pay money to consume less.  This may make perfect sense to people who understand customers’ needs, but to others it seems really stupid to pay somebody to help use less of something.  This is a bit like utility programs that spend money for customers to use less of their product.

The vast majority of our energy work comes from referrals and repeat clients.  On numerous occasions, we seemed to have customers at the tipping point, only to have them bail out at the last minute.  Why?  The utility introduced us to the client, and knowing that we are more or less paid by the utility to provide energy efficiency services to the end user, they believe this is a conflict of interest and/or they don’t trust the utility to lead the end user to use less of the utility’s product – power or gas.

Memo to end-users:  Utilities have to generate energy savings.  They have no choice.

Investor owned utilities are in most states fully regulated monopolies.  The only way a consumer can buy from another utility in regulated states is to move to a different service territory.  This isn’t very practical for a school, hospital, or pretty much anybody.  In exchange for a virtually guaranteed consumer base, utilities’ profits and prices are essentially determined by regulators and consumer advocacy groups.

Saving energy, or using energy efficiency as a resource, is less expensive than building power plants, transmission, and distribution systems, Willie Nillie.  Therefore, regulators and consumer advocacy groups require the utilities to run energy efficiency programs.  As a result, utilities that run energy efficiency programs can either exceed goals or come up short.  Guess which outcome the regulators want to see.  Get it?  If they come up short, raising prices and building required infrastructure becomes really difficult politically – it’s difficult enough anyway.

“Yes, but they’ll just cheat or make up savings”, some people may think.  Wouldn’t be prudent.  Programs have third party evaluations to determine program cost effectiveness and actual savings compared to utility-claimed savings.  Lousy energy-saving estimates will come back to bite the utility hard.  This is detrimental to their next rate case, which is a request to raise prices and therefore, profit.

Smart utilities will genuinely encourage and achieve greater savings for their customers, first because they have no other choice, but second because reducing their customers’ costs improves their bottom line.  Like paying taxes, it is better to have a customer that pays a little less than none at all after they flee the service territory or go broke.  Moreover, if the customer is more profitable, eventually they will expand their business and use more energy, but efficiently.

To sum things up, utilities have to save energy or making return on investment for their shareholders gets really difficult.  Saving energy for customers also improves the bottom line resulting in long-term customers that will hopefully expand business in the utility’s service territory.

When the utility wants to help you save energy, believe it.

written by Jeffrey L. Ihnen, P.E., LEED AP





Incentive or Discount?

12 01 2010

I read this article http://www.usatoday.com/tech/news/2010-01-05-home-energy-efficiency-demand_N.htm and the thought came to mind, “are energy efficiency incentives really incentives pushing people to implement energy efficiency – or coupons offering a discount for energy efficiency measures?”  What’s the difference?  I would say it’s huge.

Retailers abhor it when the trained shopper waits for deep discounts to buy, obviously at a much lower profit margin.  Likewise, there is nothing airlines hate worse than an airfare war.  Buyers of “American made” automobiles (GM, Ford, Chrysler) have been trained to wait for huge incentives, which is one of the reasons two of three essentially failed.  Again, the price-sensitive buyer waits for the discounts to surface.

Energy efficiency programs to many, if not most consumers really represents a means to discount new stuff they want and they go coupon clipping through their energy efficiency program to get it.  If the coupon isn’t there they will often times wait for it.

The goal of many energy efficiency programs is “market transformation”.  Transformation to what?  Transformation to a free-market no-incentive energy efficiency industry, or transformation to dependency perpetuating programs?  I would argue the latter has occurred to a large extent.  End users demand free money before they implement energy efficiency measures, even if they are excellent investments.  Perhaps this is why some programs have dropped the catch phrase” market transformation”.

What is the problem here?  In short, energy savings are typically invisible and saving money isn’t as attractive as getting free money.  (which reminds me, it always cracks me up when people tell me they like higher withholding on their taxes so they get a check after the first of the year – of their own money)

What’s the solution?  Demonstrate the savings!  How can this be done?  It depends on the level of energy savings.  We have started to track energy bills on all commercial energy efficiency projects we’re involved with.  We can use energy bills because typically, savings estimates are greater than 20% of the bill and we’re not afraid to look at the results.  In fact, we’re looking to the results to build a long case study list to sell more projects.

For the home there are several home monitors that not only track total energy consumption, they track consumption of every circuit in the distribution panel.  So if your kids take 15 minute showers you may be able to meter your water heater and charge them for it.  Think about that!

The other major benefit of monitoring energy consumption is persistence of savings over the long term.  When people have access to energy consumption data, I believe they naturally start to monitor and use less energy, that is, if they care in the first place.

So what is the conclusion here?  Maybe utility and other energy efficiency programs should start incentivizing metering and energy tracking.  There are challenges with this but they can be overcome.  In addition to saving more energy as described above, it will expose snake-oil salesmen.  Everyone could use fewer of these guys.  In fact, that will be the subject of another rant.

written by Jeffrey L. Ihnen, P.E., LEED AP