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Serving Northern St. Louis County, Minnesota

The price of power

We need new ways of compensating utilities to encourage conservation


Minnesota Power’s proposed rate increase is further evidence that we need new ways to compensate utilities for the services they provide to society. Electrical utilities are in the business of selling power, yet we know that the generation of that power has environmental consequences. Even renewable sources of energy, like wind and solar, which we think of as the greenest sources of electrical energy, require resources and manufacturing production that impacts the environment.
There is, however, a totally clean and sustainable source of electrical power: energy conservation. It was energy expert Amory Lovins who coined the term “negawatt” to refer to the energy we can “produce” simply by never having to produce it at all.
For years, Minnesota has required utilities to invest in energy efficiency, which most have done through various rebate programs. But utilities have an obvious disincentive to really ramp up their conservation efforts. As Minnesota Power noted in its rate increase submittal, the company’s customers have been quite good at finding ways to cut their power usage in recent years. Appliances have become much more efficient and LEDs have transformed lighting in the U.S., both thanks to requirements put in place by the Obama administration. This saves consumers each month on their power bills.
Those savings, however, mean lost revenue for utilities that make their money by the kilowatt-hour sold. Which is part of the reason that Minnesota Power says it needs a rate increase. Ideally, home and business owners should respond to higher electric rates by continuing to reduce their power usage, which could easily blunt the impact of an increase in rates. The technologies that are readily available today that can help us manage our electrical use are remarkable. Keep in mind, we use electricity to provide the conveniences we expect these days. If we can enjoy all those conveniences with less electricity (i.e. less money out of the wallet each month), the better for everyone.
Everyone except Minnesota Power, that is. This is why we need to rethink how utilities reap the economic rewards for the essential service they provide.
For example, currently, regulated utilities like Minnesota Power are guaranteed a certain rate of return, based on the capital investments they make to produce and distribute power to customers. That means utilities have less incentive to invest in energy conservation programs, which aren’t considered capital investments, as compared to new investments in power generating facilities or distribution capacity. By allowing for investments in energy efficiency to be included in those rate of return calculations, utilities would have a major incentive to boost their conservation efforts. Tax incentives and grants for meeting conservation targets, would be another way to provide utilities with the incentives needed as we transition away from a carbon-based power generation system.
Energy conservation is one of the best investments we can make as a country. This doesn’t mean sacrifice. In fact, it means just the opposite. It means equal or even greater convenience for customers at lower cost. It also means huge numbers of productive new jobs for Americans that help in the fight against climate change and habitat destruction that follows every new investment in new power production capacity.
We know that there will be a need for new power generating capacity in the very near future. The stage is now being set for a transition from oil as the primary source of energy in our transportation system to electricity, and that transition will require new sources of electrical generation. We can help to limit the impacts from those new sources of power by doing all we can to improve efficiency at every level on the consumption side.
Our electric utilities have a major role to play in that effort, and many, like Minnesota Power, are proving that they are taking their role seriously. But they could do more, especially if we ramp up the rewards for investments in energy conservation and efficiency. As regulated industries, our laws guarantee power companies a certain rate of return on the megawatts they generate. We need to start providing the same guarantees on the negawatts they could, and should, be producing. That’s how we’ll transition to carbon-free power with minimal impact to customers.


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  • Bill Hansen

    Excellent analysis, as always.

    Sunday, November 14 Report this