MISSION: Southwest Research and Information Center is a multi-cultural organization working to promote the health of people and communities, protect natural resources, ensure citizen participation, and secure environmental and social justice now and for future generations

Using Energy Wisely

Around the United States there exists a cadre of individuals and organizations toiling away to convince consumers and businesses to save money by eliminating the wasteful uses of energy that exist all around us. These efficiency advocates go even farther and tirelessly explain to all who will listen that not only will you save money, but you’ll probably have a better quality of energy service, as well. For example, if you eliminate the drafts in your house that let heated air leak out into the winter cold, you might well cut your heating bills by twenty percent or more. And your house will be cozier because it won’t have those cold, unpleasant drafts along the floors and walls.

Several well-respected organizations around the U.S. focus exclusively on energy efficiency. The premier group is the American Council for an Energy Efficient Economy (ACEEE), based in Washington DC. Its website holds hundreds of well-researched reports about the benefits of energy efficiency. We, in New Mexico, are benefiting directly from an ACEEE spin-off, the Southwest Energy Efficiency Project (SWEEP), founded in 2001 by Howard Geller, longtime director of ACEEE.

In fact, most of the environmental organizations in the country list energy efficiency as the number one action that should be pursued to seriously address climate change in the near term. Advocates also point out that energy efficiency is a “renewable” technology, because we are always finding new ways to use energy more efficiently - witness the recent development of LED lights, which are more than twice as efficient as compact fluorescent lights.

Preeminent researchers can provide anyone who asks with long lists of money saving and energy saving opportunities, from installing better insulation, to upgrading standard industrial motors to variable frequency drive motors. And they will point out repeatedly that these actions are cost-effective. Cost effective means that you will save more money than you will spend, even accounting for the fact that you will have to make an upfront investment and then recoup your savings over 3 or 5 or 10 years. The cost-effectiveness calculations take into account the lost opportunity costs for your money which you could have otherwise invested in some other lucrative endeavor.

So...Why isn’t everyone doing every cost-effective energy efficiency measure they can find as soon as possible? Why aren’t we aggressively taking the available steps to avoid the need to build 500 new power plants, or more in the United States over the next 20 years? Why aren’t governments protecting consumers by insisting that energy efficiency be carried out in every possible way?

BARRIERS

The answer given by those well-respected advocates is that “there are barriers” to energy efficiency, even though it is the economically rational thing to do.

One barrier is simply a lack of information on the part of consumers, vendors, manufacturers and policy makers. Many consumers are leery, for example, of “CFLs” or “compact fluorescent bulbs.” Those greenish, flickering fluorescent tubes that were in schools and government offices have been thoroughly modernized to provide warm, broad-spectrum, flicker-free light that turns on instantly. Converting to CFL use in New Mexico has the potential to reduce energy consumption by more than 1,300 gigawatt hours (GWh) per year in 2020. Given that then expected energy consumption is around 30,000 GWh/year, that’s 4.3 percent of the total. One 500 MW coal-fired power plant generates about 3,700 GWh/year, so more efficient light bulbs alone could avoid the need for about one-third of a new coal-fired power plant.

Another barrier can be the initial investment, even though there will be a net savings over the life of the product. For example, while purchasing CFLs can cost between 3-8 times more than traditional incandescent bulbs, the lifespan of a CFL is 6 to 8 times longer than that of an incandescent – which makes the cost of the bulbs comparable. The true savings come over the life of the bulb – up to $30 in electricity savings. Imagine how much you could save if all of the bulbs in your house were replaced? Another source of savings is replacing older appliances with energy efficient Energy Star ones. Replacing the home thermostat with a programmable one – it turns on your heat or air conditioning only at preset times, also saves. Various utilities offer rebates on these and other energy saving measures.

Another barrier to energy efficiency investments is, to put it simply, the reluctance of electric and gas utilities to make efforts to sell less of their product because reduced sales can mean reduced profits, or even an inability to cover operating costs. Utilities are theoretically prohibited from recovering the costs of promoting increased electricity sales from their ratepayers. But conversely, they don’t have any precedent for collecting the costs of promoting reduced energy sales. The utility, by virtue of its role in providing electricity or natural gas, is in a position to encourage customers to reduce their consumption. Other utilities around the country have, over the years, done a great deal of “demand side management” (DSM), when a utility helps its consumers reduce their energy use. Austin (Texas) Energy, which is a municipally owned utility, has provided energy efficiency programs for more than twenty years. The utility only has 350,000 customers, but according to the Energy Efficiency Task Force Report of the Western Governors’ Association Clean and Diversified Energy Initiative published in January, 2006,
“Since 1982, there have been 374,000 residential participants, and all of Austin Energy’s top 200 commercial customers have participated in energy efficiency programs. In recent years, over 30,000 households participated each year.”

Thus, when utilities make a concerted effort to help their customers save energy, they can eventually reach effectively all of them, so that everyone benefits from the small additional expense of investing in energy efficiency. While Austin’s program is one of the best in the country, and they spend around three percent of revenues on their programs, the customers who participate reduce their energy consumption by around ten percent. More importantly, the utility can avoid the need to spend hundreds of millions of dollars, or even billions of dollars, on building new power plants and other infrastructure.

New Mexico utilities are saying they need to start building new power plants to satisfy an increasing demand. If those utilities had been promoting energy efficiency for the past twenty years, it is quite possible that they could have achieved comparable savings to those of Austin Energy, and there would be plenty of room to grow without building new power plants.

The opportunity, however, still exists to reduce energy use in New Mexico in order to avoid the need to build new power plants. Studies of the amount of energy savings available suggest that among our utilities alone, energy consumption could be reduced by around ten percent over the next 10 or 15 years. Leading utilities in the U.S. are reducing their customer’s electrical consumption by about 1% per year and gas consumption by around 0.5% per year through DSM programs.

In 2005, New Mexico passed the Efficient Use of Energy Act. The act was developed by a task force appointed by Governor Richardson in 2004. The task force included stakeholders from environmental and consumer groups, as well as from utilities. A key provision of the bill directed utilities to promote energy efficiency, and allowed them to recover their costs through an added charge on customer’s bills. As a result of the law, the Public Service Company of New Mexico (PNM), New Mexico’s largest utility, hired several new staff members to develop and promote energy efficiency measures for the first time in its history, not counting a few minor educational efforts. In 2005, the company proposed a suite of natural gas efficiency programs that were approved by the Public Regulation Commission (PRC) in December 2005, and rolled out on January 31, 2006. In 2007, PNM’s first suite of electric efficiency programs was developed and reviewed in June. These programs, which include efforts to upgrade commercial and residential lighting and cooling systems, were approved by the PRC in August, and the first program to recycle old refrigerators was launched in October. If you visit PNM’s website, you are likely to see a promotion for its latest energy efficiency programs.

Currently the state’s other utilities, including El Paso Electric (EPE) and Southwestern Public Service (SPS) have filed the necessary documents to request approval from the PRC, and they could start programs by summer 2008. SPS is part of a larger company (Xcel) with a fairly long history of energy efficiency, especially in Minnesota, and previously offered a number of energy efficiency programs as a routine part of its efforts to provide customers with the most cost-effective and reliable level of service. With the adoption of the Efficient Use of Energy Act, SPS withdrew the programs it was offering, while developing the new programs.

However, the disincentive for utilities to voluntary encourage reduced consumption still exists, and the methods for removing them are complicated. The diverse stakeholders involved in electricity and gas rates include the Attorney General, the PRC staff, the utilities, large consumers such as Intel, as well as consumer groups like AARP and environmental groups. These groups hold many views about how to promote energy efficiency in a way that is fair to all customers, and because there is almost no experience with energy efficiency and DSM programs and demand side management in New Mexico, the stakeholders are wary of new ideas. However, because utilities in New Mexico operate as a regulated monopoly, it is up to the regulators to ensure that utilities aggressively pursue energy efficiency.

Some of the ideas that are being considered include “decoupling” and incentives to encourage utilities to promote energy efficiency. “Decoupling” refers to severing utility profits from their sales volume, so that they do not have a financial incentive to try and sell more gas and electricity. Incentives are rewards given to utilities if they achieve verified energy savings goals. Either of these ideas would be a departure from traditional ratemaking in New Mexico, although other jurisdictions are experimenting with these methods. As one consultant pointed out, “no utility has ever left incentive money on the table by failing to achieve the efficiency targets assigned to it.” However, such a reward depends on having a robust monitoring and verification system to prove that the savings were actually achieved.

The Coalition for Clean Affordable Energy is working with stakeholders to encourage development and adoption of policies to ensure that energy efficiency efforts expand significantly in New Mexico over the next few years. We would like to see utilities ramp up to save at least 1% of electricity per year, and even go beyond that to 1.5%, which some other utilities have started to reach for in 2007.

Utilities are not the only place to pursue energy efficiency. Appliance standards and building codes also provide a great opportunity to transform the market so consumers can save money and use less energy. Since the 1980’s, appliance standards have been applied to many products. However, there are still devices with no efficiency requirements. The Appliance Standards Assistance Project estimates that we could reduce the need for new power plants by requiring energy efficiency in a number of projects: metal halide light fixtures (19 megawatts [MW]), single-voltage AC to DC power supplies (4.2 MW), incandescent reflector lamps not covered by federal standards (9.2 MW), and walk-in refrigerators and freezers (6.4 MW)

GREEN BUILDING

The buildings that we live and work in consume roughly 40% of the energy our society uses. The opportunities to reduce that energy consumption are enormous For example, Energy Star homes are at least 15% more efficient than a home built to the minimum building energy code. A zero (net) energy home (ZEH) uses roughly 70% less energy than a standard home and adds solar energy options to supply the additional energy. The U.S. Department of Energy has been piloting programs over the last few years to build ZEHs. The Building Industry Research Alliance (BIRA) calculated that a 2500 square foot ZEH home in New Mexico would cost an additional $20,000 up front to build. While the mortgage would increase by about $134/month to pay the additional cost, the homeowner would have no utility bill, and would, in fact, receive payments from the utility for excess electricity, which would yield a $7/month cash flow (utilizing the net-metering tariff that the utility pays to customers connected to the electricity grid.) If the builder took advantage of the various state and federal tax credits available, they would reduce the up front cost by $14,000, and the net result would be a home that was $102/month cheaper to own and operate, when mortgage and utility payments were considered.

These calculations are based on models that calculate energy use and the cost of materials to build such a house. There are demonstration projects popping up around the country. In addition, several hundred Energy Star and ZEH homes have been built in the last few years, mostly in California, Nevada and Arizona. Unfortunately, in New Mexico less than 5% of homes are built to Energy Star standards – the lowest in the southwest region. In Nevada 71% of homes in 2006 were built to Energy Star standards, while in Texas and Arizona, 37% and 36% of new homes, respectively, were Energy Star. PNM, to its credit, has initiated a program to provide a $500 rebate for homes that are certified as Energy Star. It is expected that this program will help transform the homebuilding market in New Mexico, as similar incentives have done in other states.

Now that some of these ZEH-like homes have been standing for several years, the National Renewable Energy Lab has published several reports detailing their actual performance, along with customer satisfaction and resale value. The report on a development in San Diego with 306 high performance homes concluded that customers were happy with their homes and were able to reduce energy costs by an average of 54% compared to similar homes. Another DOE study of 95 homes with zero net energy features showed an average reduction in energy consumption of 44%. While some of the homes had a July electric bill of more than $100, comparable homes without ZEH features had bills that averaged at least $70/month more. These results show that the goal of energy efficiency is attainable now.

– Gail Ryba
Director, The New Mexico Coalition
for Clean Affordable Energy

FOR MORE INFORMATION American Council for an Energy Efficient Economy: www.aceee.org National Renewable Energy Laboratory: www.nrel.gov New Mexico Coalition for Clean Affordable Energy: www.cfcae.org Western Governors' Association Energy Efficieny Task Force Report: www.westgov.org/wga/initiatives/cdeac/Energy%20Efficiency-full.pdf