Financing Clean Energy Investments of Large Industrial Consumers: What is the Role of Electric Utilities?

Large industrial consumers compete in global markets and are not insulated from competitive pressures.  Any increase in their costs will have a negative effect on their competitiveness, and therefore investments to improve the energy efficiency of their industrial processes are an essential component of their business model—and this includes meeting corporate sustainability objectives.  They have no choice—they have to invest in energy efficiency as energy and other costs continue to increase.

In recent years states have mandated that their jurisdictional electric utilities increase expenditures for ratepayer-funded energy efficiency (EE) programs and renewable portfolio standards (RPSs).  For EE programs, utilities are directed to act as tax collector and banker, EE facilitator and educator, and/or EE program administrators and/or impact evaluators.  Utility EE programs are almost always implemented using mass marketing techniques.

ELCON believes that regulatory policies designed to mandate the funding of RPS by large industrial consumers, or their forced participation in utility EE programs, may be counter-productive and result in less efficient implementation of the overall policy goals or improvements at higher than necessary cost.  Large industrial consumers have historically not supported such mandates and seek to opt-out from participation because:

• They can and have already increased energy efficiency and have voluntarily adopted corporate sustainability targets more cost effectively with their own funds rather than relying on and paying for utility programs, which may not be as effective in realizing the expected returns for the dollars expended.
• Utility programs are not typically designed to meet the specific needs of a large industrial facility where energy efficiency improvements are intertwined with complex industrial processes and the facility’s often unique operational characteristics.
• Utility programs often do not fit with a company’s investment planning and approval cycle.
• Utility programs tend to emphasize inflexible mandates without considering whether the intended results can be more cost effectively obtained by other means such as distributed generation or CHP (combined heat and power) technologies, which typically burn natural gas or biomass fuels.
• The higher rates that industrial customers pay to participate in utility-sponsored programs or to subsidize RPS reduce the funds available to the customer for investing in higher value projects that make the most sense in the customer’s business situation.
• No provision is made for rewarding industrial facilities that make clean energy investments on their own, and in some cases such industrials are punished by being forced to subsidize the investments of their competitors or other ratepayer classes.

ELCON Position and Recommendations

• Government policies and mandates that intend to promote ratepayer-funded clean energy investments should recognize the investments that large industrial customers have already implemented at their own expense.
• An overarching principle of federal and state policies and mandates to promote clean energy in the industrial sector should be to “first, do no harm.”
• Large industrial consumers that invest in energy efficiency improvements at their own expense are entitled to any energy efficiency certificates (e.g., White Tags™) imputed from such investments. Large industrial consumers that invest in renewable energy resources at their own expense are entitled to any renewable energy credits (e.g., RECs) imputed from such investments.
• Government policies and mandates that target electric power use reductions should recognize that often the most cost-effective measures to improve energy efficiency require net increases in electricity consumption to offset greater reductions (in terms of BTUs) in the use of natural gas or other fossil fuels.
• Large industrial consumers should not be forced to “borrow” money from a utility to fund clean energy improvements at an effective cost of capital that exceeds a participating customer’s own cost of capital.
• Large industrial consumers should not be required to pay for the so-called system benefits alleged from clean energy measures of other ratepayers.
• Energy policies that force large industrial consumers to become “free riders” of utility clean energy programs are counter-productive and wasteful.
• Utility expenditures and investments for all resources used to serve utility customers should be put in base rates. Utilities should not be given special riders or single-issue cost recovery methods to increase rates absent a showing that current procedures for establishing base rates have disadvantaged utilities in any way.
• The fixed costs associated with a utility’s acquisition of renewable energy resources and demand-side measures that are claimed as a substitute for supply-side resources should be allocated in a traditional demand component of rates.
• Large industrial consumers strongly support the development of advanced tariffs and business practices that increase their opportunities to provide demand response for price mitigation, least-cost economic dispatch and improved reliability.