Fundamentals of Financing Energy Conservation Projects

Abstract

Approximately three years ago, the utilities started preparing for
deregulation. Energy savings concerns and rebate program s were sus-
p ended by the fear of retail wheeling. Utilities wer e becoming more in-
terested in increasing load and their customer base because, under de-
r egulation , competitors would be stealing their customer ba se with
cheaper prices and incentive packages. Thu s, the commitment of utilities
sh ifted from supplying power under their obligation to serve the cu s-
t omer , and to obtain a reasonable return for the stockholder to incr easing
their market share.
It sho uld be pointed out , ho wever, that rebates by the utilities will
persist, but onl y to the extent mandat ed by polit ical pre s sur e and as a
part of a comp romise for the utilit y to achi eve stran de d asset cost recov-
ery. Stranded asset s, or inefficient gen erating assets, are incurred und er
regulation that cannot be recovered through lower comp etitive pric es
und er deregulation. Such assets include inv estm ents in exp en sive gener-
atin g plant s and high-cost contracts for fuel and wh ole sal e electric
pow er . An Energ y Information Administration new s relea se indicates
that in the absence of mandated asset cost recovery, "Electricity prices
ar e expected to fall over the short term relative to where they would
hav e been und er traditional cost of service regulation (by 8 to 15 percent,
as suming stranded cost recovery, or 24 percent with out stranded cost
recov er y)...In the long term , prices will be reduced (by 16 perc ent in 2015
relative to traditional regulated prices) if there are efficiency improve-
m ent s or othe r cost redu ctions that result from c omp et itive pre s sures ."