Letters
DSM and UK deregulation
I was pleased to see my letter about DSM in the IAEEL Newsletter 3/93. The point you make about the UK position being different from that in countries where utilities have a supply monopoly is an important one, but it is only one of many differences between the UK and, in particular, North America. Thus the idea of imposing on UK utilities the duty of promoting energy conservation by means such as funding demand-side measures is a very dubious one. I therefore disagree with your view that "the challenge is to find a sound regulatory strategy ... to help bridge the gap between the utility perspective and the societal perspective."The real challenge, I suggest, is to step back from the "problem" of how to regulate and ask the more fundamental question of what we as a nation are trying to achieve overall. What "societal" benefits do we want, how can they be achieved and what are we prepared to pay (in every sense) for them? My preference would be to count as "societal" benefits only those that accrue to society as a whole, for example via reductions in CO2 emissions. Therefore, I am unhappy about the prospect of including in "societal" benefits those benefits that accrue solely to the individuals who participate in the utilities' conservation schemes.
If we are to have taxes and subsidies designed to conserve energy I would prefer to have them levied and distributed as part of ordinary taxation rather than at the whim of a utility regulator who tends to have a narrow perspective.
John A Feather
Dr., Energy policy consultant
UK
Reply: There is a popular view held by many economists that if we only could "get the prices straight" (i.e., including in the ordinary taxation any externalities we may identify) market mechanisms would take care of the rest. However, for several reasons we are convinced that this will not happen.
A saved kWh will typically be valued lower than a supplied one because utilities will always be better at supplying energy than their typical customer will be at conserving it. Utilities have access to capital and knowledge, and since energy is their main concern their actions will be based on long-term considerations. On the other end, we have their customers to whom energy always will be a marginal concern.
The difference in perspectives between utilities and customers is often described as the payback gap. Pricing reform and deregulation can narrow this gap, but the energy users will always be dealing with a market characterized by insufficient/inaccurate information, lack of investment capital, landlord-tenant problems (or other cases where the decisionmaker doesn't pay for energy), limited availability of products, equity issues (e.g., greater obstacles for low-income consumers), etc.
Utilities given the right incentives are in a unique position of being able to help their customers conserve energy. Utilities committed to energy efficiency can be perceived as neutral partners by customers needing advice. Utilities also have the financial strength to implement programs. By searching for a regulatory strategy, we do not simply mean that we must find a way of imposing the US-style regulatory system on the UK or any other country. But we believe that conservation programs are needed to complement taxation and other pricing reforms.
As for the UK, the Energy Saving Trust seems to offer an attractive solution: The Trust can be seen as a nationwide "conservation utility" that implements conservation measures in cooperation with electric utilities in programs financed by funds from the utilities (and eventually from the customers). The role for the regulator here is reduced to defining the overall rules, and that perspective should not be any narrower than the one of a legislative body deciding on taxation and environmental fees.
Editors
Note: This disucssion was started by an article in IAEEL 1/93: Britain: Barriers and Opportunities.