Regulation Reform in the Electricity Industry and its Effects

on Energy Efficiency

April Kinghorn, Tim Murphy, Stefan Piech, Leah Tivoli, Phelps Turner

Supervisor: Prof. George McCourtClient contact: Dr. Mounir Gouja

Overview

• Context • Research Question / Hypothesis• Case Studies: Argentina, California, Alberta

– Price– Demand– Nature of Programs– Expenditures– Savings

• Conclusions / Recommendations

Energy Efficiency: Definitions

• “An encompassment of all changes that result in decreasing the amount of energy used to produce one unit of economic activity or to meet the energy requirements for a given level of comfort”

• “Associated to economic efficiency and includes technological, behavioral and economic changes”

Context

ContextStructure of the Electricity Industry

(Brennan, A Shock to the System, 1996)

ContextRegulation Reform:

A Synopsis from our Three Case Studies

Region of Interest

Deregulated Date Began

Argentina Generation

Transmission Distribution

1992

California Generation

Transmission

1998

Alberta Generation Distribution

2001

Research Question:

What is the impact of electricity regulation reform on energy efficiency in the residential sector?

Hypothesis:

Electricity regulation reform will lead to the decline of energy efficiency in the residential sector.

Case Studies: Argentina, California and Alberta

• Price

• Demand

• Nature of Programs

• Expenditures

• Savings

Case Study 1: Argentina

Price

Tariff Structures for Greater Buenos Aires

(Pistonesi, 2000)

Price

40

50

60

70

80

90

100

J -

91

A-

91

J -

91

O-

91

J -

92

A-

92

J -

92

O-

92

J -

93

A-

93

J -

93

O-

93

J -

94

A-

94

J -

94

O-

94

J -

95

A-

95

J -

95

O-

95

J -

96

A-

96

J -

96

O-

96

J -

97

A-

97

J -

97

O-

97

J -

98

A-

98

J -

98

O-

98

1/ 1000 US $/ kw

Average Residential Prices in Greater Buenos Aires

(Pistonesi, 2000)

Demand

0.00

500.00

1000.00

1500.00

2000.00

2500.00

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998

Kwh per Capita

Electric Power Consumption (kwh per capita)

(Pistonesi, 2000)

Nature of Programs

• Only for past 3-4 years

• Aimed at improving or realigning incentives

• Short-lived/Ineffective

• Federal Level:

– National Entity for Electricity

Regulation

– Secretary of Energy

– National Office of Rational Energy

Nature of Programs

Nature of Programs

Donor, Multilateral, and Bilateral Assistance Programs:

• Involve institutions, companies, research organizations, technical assistance agencies and NGOs

Major players include: • The World Bank• Inter-American Development Bank (IADB)• U.S. Department of Energy (DOE)

Expenditures

• Governmental budgetary allocation to energy efficiency is unknown

• Total spending by International Donors on energy efficiency is unknown

Savings

• There are currently no programs that have resulted in measurable end-user savings

• These savings may be seen in the future as programs become more effective

Case Study 2: California

(CEC, 2002)

•Price spikes prevented by caps and rate freezes

•Increased costs absorbed at the wholesale level, leading to utility bankruptcies

Average Residential Price

0

2

4

6

8

10

12

14

Year

Pri

ce

(c

en

ts/k

Wh

)

Price

(CEC, 2002)

Residential Consumption

50,000

60,000

70,000

80,000

90,000

100,000

Year

Co

ns

um

pti

on

(mill

ion

kW

h)

•Increases in demand after deregulation do not represent departures from the long-term trend

Demand

(CEC, 2002)

Nature of Programs

• Before regulation reform:

– 1974: creation of the California Energy Commission

– 1974-1998: energy efficiency programs in full swing• demand-side management

Nature of Programs

• After regulation reform:

Similarities:

– Utilities and non-profit organizations advance information on energy efficiency

• Energy Star™ appliances, electronics, etc.

• Educational/financial incentives and rebates

• Low-income weatherization programs

Nature of Programs

• After regulation reform:

Differences:

– New venue (Internet)

– Organized by governmental, independent bodies

– Funded by residential consumers

– Performance-based regulation affected

Expenditures

Energy Efficiency Expenditures1990-2001

$0

$100

$200

$300

$400

(mill

ions

$)

PGE SCE SDGE SCG* Note: 2001 expenditures include actual dollars spent through 9/30/01.

(CPUC, 2001)

Savings

•1998-2001: Residential and total savings (of MWh) have increased since deregulation

(CPUC, 2001)

Case Study 3: Alberta

Average Pool Price

0

50

100

150

200

250

300

April

June

August

Octo

ber

Decem

ber

Febru

ary

April

June

August

Octo

ber

Decem

ber

Febru

ary

Months (2000-2002)

$/M

wh

Price

(Ministry of Energy, 2002)

Customer Usage

6000

6500

7000

7500

8000

1998 1999 2000 2001

year

mil

lio

ns

of

kil

ow

att

ho

urs

Demand

(Ministry of Energy, 2002)

Nature of Programs

• 1995: privatization of the Energy Conservation Branch of the Department of Energy

• 1995-2002: few energy efficiency programs in existence, especially residential sector

• No discernable difference in quantity/quality of programs before and after regulation reform

Nature of Programs

Utility Programs

• Very little incentive to provide customers with options for energy conservation

• Information-based efficiency initiatives are part of marketing strategies

• Atco EnergySense

Nature of Programs

Government Programs

• Provincial: all programs are information-based

• Municipal: none for residential sector

EXCEPT “Energy Awareness Week”

October 19th-26th, 2002

City of Edmonton

Nature of Programs

Private Programs

• Several small, regionally focused programs do exist in the Province

• Destination Conservation– Founded 1987– 171 primary schools across Alberta

Expenditures and Savings

• No data has been compiled

• Possible area of future research

Conclusions and Recommendations

The Effects of Regulation ReformRegion of Interest

Price Demand Nature of Programs

Expenditures

Savings

Argentina Stable Up Fleeting n/a n/a

California Stable Up Good Temp.

Dip up

Alberta Up Up Scant n/a n/a

Conclusion 1:Conclusion 1: – NO universal model for regulation reform– Uncertain impacts on energy efficiency– Evidence non-transferable, place specific

Recommendation 1:Recommendation 1: – To governments:

• Use caution when considering regulation reform

• Develop endemic strategy

– To consumers:• Be wary of government promises• Explore options for improving home

efficiency

Conclusion 2:Conclusion 2:– Difficulties in quantifying energy

efficiency– Lack of data– Need for clearer categorization of data– Regulation reform too recent to draw

definite conclusions

Recommendation 2:Recommendation 2:–To client:

• advocate for more stringent reporting mechanisms

Conclusion 3:Conclusion 3:– Electricity sector is unique

– Countless uses for electricity

– Reform in regulation has widespread effects

Recommendation 3:Recommendation 3:– Avoid comparisons to other network

utilities, such as airlines and telecommunications

Conclusion 4:Conclusion 4:– Free market approach enjoying increased

popularity – Strong public policy remains equally important

Recommendation 4:Recommendation 4:– To government:

• Full deregulation optimal• Allow price to reach natural equilibrium• Public benefit requires explicit attention

– To client:• Advocate strong public policy regardless of

regulatory structure• Push for more practical energy efficiency programs• Advocate provisions for low income households

Questions?Questions?