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December 09, 2009


Paul Craig

Excellent job. Thanks, Christopher and Steve, and the rest of the committee.

My comments cover six areas:

1) Task force members

2) Numbers

3) Supply and demand side comparative pricing

4) “Undue Compensation”

5) Utility Regulation

6) Conservation programs could impede innovation.

7) Data

8) Future Directions: The Club needs to find a way to generate early warning input and to continually track changes in this and other fast-changing areas.


1) Task force members deserve credit. List them all.


2) Exclude numbers, unless the documentation behind them is presented

Numbers, if used, need to be justified. At present none are.

In the report, under item 2: . Delete “(perhaps on the order of 5% of utility revenues)”. This number isn’t well known. It’s subject to lots of debate and is inevitably a changing target. Replace by a strong qualitative statement.

[If the relevant data is included in the homework the committee did in response to charge items #2 & #3, this data should be included as appendices]

Possible language:

Utility investment is justified when the total (direct plus environmental) value of the energy saved is less than the cost of the measure. “Cost of conserved energy” (CCE) analysis has shown that potential energy savings can be a large fraction of total energy use (e.g. http://www.ucei.berkeley.edu/PDF/pwp028.pdf ) . The Sierra Club supports utility investment up to the point where it is cost effective, taking account of total cradle-to-grave dollar and (not necessarily monitized) environmental costs. Environmental costs include, but are not limited to: environmental costs of land lost for transmission lines, CO2 (and other greenhouse gases) and particulate emissions from avoided power plants; costs of natural gas oil etc exploration, development and delivery; coal costs (mountain top renewal, stream damage, Appalachian health effects, etc). The optimal investment will vary from one utility to another, will change over time, and will vary with geographical location.

There has been a lot of emphasis on ‘low hanging fruit’. It keeps on growing, so low-hanging fruit keeps appearing.


3) Supply and Demand Side Pricing & Peak Load Pricing

This section has more specifics than I think are appropriate for a policy document. Best would be to pull out the specifics and put them in a technical appendix. Include a discussion of rates, especially peak rates.

Discuss superpeak power. On a few days per year the value of a kilowatt hour can approach a dollar. Point out that some places (California is one) are experimenting with super-peak rates, and many places are offering substantial rates to encourage renewables.

Efficiency needs to be compared with renewables, which are increasingly being priced high. As an international example, a document recently forwarded by Paul Gipe gives many examples of feed-in tariff rates, including Bulgaria at $0.74/kwh (US$ equivalent) with a guaranteed 20-year duration. Why not similar prices for efficiency measures, and especially peak-measures.

4) Undue Compensation

In the section “Context for Understanding the Proposed Policy” the document refers to “Extracting undue compensation from ratepayers…”. I know of no instance in which the Sierra Club has advocated extracting ‘undue compensation’ from anyone. This is a “red herring’ phrase. The Club has long been in favor of comprehensive lifetime analysis including environmental (and sometimes social) externalities. That is the right position to take, and the one the Committee ought to adopt explicitly.


5) Utility Regulation: Reasons and emerging issues

Paragraph beginning: “If the building owner/ratepayer gets all the benefits….”

Start by emphasizing the basic reason why utilities are regulated. Utility regulation is justified when technical considerations require a large capital investment to provide service to a consumer. The classic examples are electrical, gas and telephone distribution wires and pipes. It’s expensive and inefficient to have multiple lines to houses and businesses. The term justifying regulation is “natural monopoly. (This term goes back a century).

Today the Club wants to use the existing natural monopolies (electricity and gas companies) to provide efficiency services. The right approach is to reward companies for capital investment in efficiency. Such investments should be allowed in the ‘rate of return’ calculations before public utility commissions.

The document asserts that cost-sharing should be 50%. This specific number is controversial and isn’t defended. Unless a defense is added to the document or an appendix it should be deleted .

Utility investment in energy reduction is clear in situations without ‘side effects’. The classic example is CFLs (compact fluorescent lamps).

Most situations are far more complex. For example, increased insulation also enhances building livability (draft reduction) and resilience (slower cooling following an energy interruption).

Most examples are far more complex. Example: Replacing a tower computer by a (computationally equivalent) portable saves energy, but has many other implications (portability). Should the utility (and hence the utility investors) pay a portion of a computer replacement program?? That’s a very tricky question. What about a new more energy efficient factory that increases throughput by automation?

My present feeling is that the “regulated utility” model is going to change a lot. The draft recognizes this nicely in the concluding paragraph discussing the changing nature of ‘utility services’. Change has happened and more will happen. Over the last decade or so many utilities have gone out of the power generation business; merchant power plants have emerged. Many (possibly most) new solar and wind plants are merchant plants, selling their output to the highest bidder. Computers are allowing smart grids, with implications we’re only begin to understand (see below for an example). Demand can be moderated so as to match variations in renewable (and other) supply. Price signals can play a demand-side as well as the traditional supply side role. The Club needs to be able to roll with the coming changes.

The policy statement is strong in recognizing the dynamics of a very dynamic situation. It does not offer guidance on how the Club should respond to emerging proposals.

6) Conservation programs could impede innovation.

The greatest savings will likely come from entirely new technologies, where energy use is only one element. [A classic century-old example is introduction of electricity to replace gas, candles etc for lighting].

Utility programs make most sense when the benefits are almost entirely energy savings (insulation, CFLs). But this is only one of many drivers of changes in energy use. Efficiency along can’t possibly lead to the 80% energy reduction the Club needs must occur over the next half century. Most of the job will be done by innovation.

When a new house is designed or a company plans a new factory, energy use is only one element (and generally a minor one) of many to be considered. It can be hard or impossible to determine how much of the investment is in energy.

Accordingly, there is a danger that too much money put into utility energy efficiency programs will end up hampering qualitative change from innovations.

This is a complex and difficult area. I’m not making an argument against utility efficiency programs per se. Rather, I’m warning that there can be too much of a good thing. [Example – full retrofits of existing homes can easily cost many tens of thousands of dollars – in some instances a $100k. Such investments may be warranted in some special instances, but more often than not the best way to achieve the goal is to invest instead in highly efficient new houses.]


7) Data.

Items two and three of the Committee charge were:

2. Compare the pricing structures of programs in states with Renewable Energy Standards with those in states lacking them.

3. Assess available evidence on the effect of pricing for renewables and efficiency programs on demand reduction.

The report should include this information, along with relevant citations. This information should go in appendices.


8) Future Directions -

The Committee is heading in the right direction.

The Club needs to understand that utilities are changing and the target is moving. The Club needs to find ways to integrate supply and demand in the context of a changing regulatory and technical environment.

“Smart grids” will affect the nature of the utility industry and bring in new players. We’re at the earliest stages of these changes. [see example below]

I urge the Committee to ask the BoD to extend the time frame so as to allow the Committee to do a comprehensive job.

The Board of Directors and the Club as a whole needs sustained technical support so that it can lead the way, rather than following other organizations.

The present Sierra Club organization (upstream and downstream) does not lend itself to this process. The Board of Directors needs a process that will use the expertise within the Club to provide early warning and analysis.

Paul Craig

Innovation Example: load leveling using commercial building HVAC automation.

Wind and solar power are variable energy sources. The variability can be reduced in various ways. One way is by transferring power over large areas. Impacts of variability can also be reduced by clever energy storage and load reduction. One approach now being analyzed would vary HVAC system temperatures systematically. Thermal mass of buildings means that it takes a while for them to respond to changes in thermostat settings. Small changes in temperature – a degree of less – are typically not noticed by occupants. Computer controlled management of thermostat settings in thousands of buildings simultaneously can act as a huge ‘flywheel’ or effective storage capability to level out supply changes. This is a wonderful application of ‘smart grid’ ideas. It will not be easy to implement it. The Club should be out-in-front advocating this kind of thing.

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