Feb 132007

A WSJ article about the utility industry, one of a set of article in the Monday February 12 issue:
The Bottom Line

In the power business, the more electricity you sell, the more money you make.

Now state officials and electric utilities — backed by environmental groups — have begun to change that equation. Faced with growing demand for electricity and the environmental consequences of generating it, states and utilities are considering new regulatory regimes that remove the incentive for selling more power — and give utilities a financial stake in saving energy.

The ultimate goal is to eliminate the need for new power plants.

And just how would this be done? Count on the governing class to do anything, just anything, to avoid the use of market pricing mechanisms.

States are considering two major regulatory remedies. The first is “decoupling,” in which utilities receive a predetermined profit each year — thereby separating their earnings from the volume of electricity they deliver.

Here’s how it works. A utility and state regulators hammer out how much profit the company will be allowed to earn. At the end of the year, if the utility’s actual profit is lower than that amount, the company charges customers to make up the difference. If the actual profit is higher, customers get a rebate.

I like that phrase, “utility and state regulators hammer out.” In other words, they get together for some corrupt dealing and influence peddling. Well, that sort of corruption is the fuel that powers the modern state.

But under current rules in most states, utilities can’t earn a return on their efficiency spending — they can only recover the cost. A proposal being considered in California, Texas and several other states would change that.

Under such a system, “the people running the energy-efficiency departments in these utilities will become on a par with those running the transmission and distribution departments,” predicts Mr. Gallagher. “There will be more of a corporate focus on energy efficiency.”

In other words, there will be more emphasis on utilities figuring out how to make regulators happy than on energy production, or profit, or even energy efficiency.