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Kristin Eberhard’s Blog

LADWP Takes An Essential Step Forward By Setting Clean Energy Goals

Kristin Eberhard

Posted December 8, 2011

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Unanimous Board Vote on Energy Efficiency

On Tuesday the LADWP Board voted unanimously to approve an energy efficiency goal of 8.5% savings by 2020.  The leadership of Ron Nichols, the still relatively new GM, was evident in several things that he and his senior staff presented to the Board:

  • They strongly made the case that energy efficiency is the cheapest energy resource available to LADWP, it creates local jobs, protects public health, and the public is clamoring for it. They explained that, in order to build their programs and achieve savings for their customers, they need a sustained commitment to energy efficiency, not an on-again-off-again strategy.
  • They want consistency. In order to build their programs and achieve savings for their customers, LADWP needs a sustained financial investment in energy efficiency, not an on-again-off-again strategy.
  • They know DWP can do more.  State law sets a goal of 10% energy efficiency savings by 2020 (or about 1%/year), and LADWP saved only 0.66% last year. The goal the Board adopted – 8.5% by 2020 – does not meet the goal set out by state law, or the goal of 1%/year that LADWP set for itself in 2006, nor does it measure up to investments in energy efficiency at other utilities.  They said they hope to come back next year and ask for a goal exceeding the state requirement.  The reason staff did not present such a goal to the Board this year is they don’t have the budget to make it happen, however, there are some assurances the budget for next year will be better. They would need about $100 million per year to meet the state goal (about $2/household/month. Compare to Southern California Edison, which spends about $3.30/household/month); this year LADWP has $50 million in the budget (about $1/household/month), and that is only due to Ron Nichols’ dedication to energy efficiency, as he raised the budget from its previous level of $33 million. (NOTE: in case you are tempted to think that it is prudent for LADWP to invest less because it will cost customers less, it is important to realize that every dollar spend on energy efficiency results in $3 of benefits to customers.  So the longer LADWP has to wait to do the energy efficiency it wants to do, the greater the loss to customers)

What does this mean?

Energy efficiency is widely-recognized as a win-win-win solution.  It saves money for the customers who participate in the program and pay lower bills as a result; it saves money for all customers (whether they participate or not) because LADWP doesn’t have to spend money on other resources that are more expensive like coal or natural gas; it creates local jobs implementing the programs; and it reduces pollution.  LADWP recognizes these benefits and is trying to do more.  However, they are stalled on this and many other issues due to their budget impasse.

What is needed?

In order to keep costs lower for customers, LADWP needs to make energy efficiency its number one energy resource (as required by state law). To accomplish this, LADWP needs a sustained budget (see below), but perhaps more importantly, they need the different departments within LADWP to come together in a truly integrated resource planning process that looks at and treats energy efficiency as the real resource that it is.

No one at LADWP would say “the budget is tight right now, so we just don’t have the money to keep our coal plant running.  We’ll have to throttle back for a while until we can get a bigger coal budget.” State law, and prudent planning, says that LADWP shouldn’t do that with energy efficiency either.  Efficiency is the cheapest and cleanest energy resource available to LADWP, so it does not make sense for them to throttle back on it.  In fact, greater savings from energy efficiency will enable LADWP to throttle back on those coal plants – not because they don’t have the budget, but because they will need them less. This will save money and the environment.

The transition that LADWP is trying to make – from an old-school, coal-dependent utility to a cutting edge utility making use of energy efficiency, distributed renewables, and clean technologies – cannot be accomplished in silos. If LADWP tries to solve one challenge at a time with a separate budget for each (ramp up renewable energy: $X; shut down coal plants: $X; comply with Once-Through-Cooling requirements: $X) it will end up being a lot of $XX.  But if they can think about each of those challenges at once, they will find solutions that kill many birds with one stone (energy efficiency is probably the best example), and end up being much less costly overall. The challenges of transforming to a smarter grid that integrates a greater variety of resources is big and complicated, but the payoff for doing it right is a utility that provides better service, is much more protected from risk than if they just stay addicted to fossil fuels, and helps the local community.

LADWP is trying to make this transition, but they need support from City Council and the public.

The Ratepayer Advocate and the Coming Rate Increase

The clear undercurrent throughout the Board meeting was that LADWP needs a rate increase in order to do the right thing (in this case: invest more in the cheapest cleanest resource available for customers.) LADWP has been waiting for a year for the Ratepayer Advocate to be appointed so that he or she can analyze LADWP’s rate proposal and report to City Council so that they can then vote.  The Advocate position is still vacant nine months after the position was created, and LADWP is facing more and more difficult decisions about how to move forward in responsible ways without the money to back its decisions. The Ratepayer Advocate needs to be appointed soon so that LADWP can move forward.  Once appointed, the Ratepayer Advocate is likely to find the following:

  • Energy prices are going up around the globe, and LA is no exception.
  • LA currently enjoys relatively low rates because it has put off necessary increases for too long, and a rate increase will bring it in-line with neighboring utilities. (see graph of rates below)
  • The best thing LA can do to minimize impacts to customers is invest in energy efficiency.

Rates and Energy Efficiency

Energy efficiency is a tiny part of the overall budget, but a huge contributor to benefits to customers and the local economy.  LADWP has been going into debt because it has not been collecting enough from customers to pay for increasingly expensive fossil fuels, and it needs to collect more to get out of the red.  Let me say that again: the first reason that LADWP needs a rate hike is to pay off the debt it has built up paying for fossil fuels.  Then, it needs to pay for upgrades to their powerplants and their powerlines, and to diversify the portfolio to increase reliance on renewables (currently about 1/5 of our power) and decrease reliance on dirty coal (currently about ½ our power) in order to protect the environment but also to protect customers from the risk of being too heavily dependent on fossil fuels. Doing all this might require an increase of about $1.50/household/month, or about 5 cents per day.  As the LA Times noted: see how far that will get you at Starbucks (or McDonald’s, or even at the dollar store). 

Energy efficiency, on the other hand, actually lowers your bill. This makes it an essential part of the portfolio so that LADWP can balance the increasing costs of fossil fuels with the lower costs of energy efficiency.  Fossil fuels are like a car that is accelerating towards ever higher prices, and energy efficiency is the brakes helping to slow the increase. Without efficiency, bills are just going up with no brakes.

The Take Away

The take away is that if LA wants to be one of the greenest cities in the country, meeting the requirements of our energy efficiency laws should be a bare minimum for success, and LA should really be aiming much higher.  At the moment, LA is aiming low by failing to implement an energy efficiency standard required by law and desired by most LADWP customers.  By being clear about where LADWP is now, Ron Nichols is laying the groundwork to make progress and bring LADWP’s actions in line with the city’s aspirations, but LADWP will need more support in order to invest in cleaner energy choices for the city. It’s clear LADWP wants to move in that direction, but the City Council and Angelinos need to back them.

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