Before the House Consumer Affairs Committee
Hearing on Act 129 of 2008 — Energy Efficiency Mandates Imposed on Electric Utilities
Terrance J. Fitzpatrick
President and CEO
Energy Association of Pennsylvania
September 1, 2015
Good afternoon Chairman Godshall, Chairman Daley and members of the House Consumer Affairs Committee. I am Terry Fitzpatrick, President and CEO of the Energy Association of Pennsylvania (“EAP” or “Association”), a trade association comprised of electric and natural gas utilities operating in Pennsylvania. I am here today on behalf of the Association’s electric utility members, which are also known as electric distribution companies (EDCs).1 Thank you for this opportunity to appear before you today.
The purpose of this hearing is to review the energy efficiency and peak demand reduction mandates contained in Act 129 of 2008. Among other things, this law required EDCs with more than 100,000 customers to implement programs to reduce energy consumption by 1% by May 2011, and 3% by May 2013. It also required reductions in peak demand of 4.5% in the 100 hours of highest usage by May 2013. In the event EDCs did not persuade enough customers to participate in the programs in order to meet the targets, the law provided that they were strictly liable for penalties ranging from $1,000,000 to $20,000,000 regardless of fault. With the exception of one EDC that did not meet the interim 1% consumption reduction target (and paid a $1,000,000 penalty), EDCs satisfied these requirements.
Following the completion of the “Phase I” requirements described above, Act 129 directed the PUC to evaluate the costs and benefits of the programs, and to direct incremental additional reductions if the programs were cost-effective. The PUC conducted this analysis and ordered additional consumption reduction targets in “Phase II” covering the years 2013 to 2016. The EDCs are on track to meet the mandated targets established for Phase II. And, after conducting a second set of market potential studies this past year, the PUC established reduction targets for a “Phase III”, which will commence on June 1, 2016 and run through May 31, 2021. With regard to peak demand reduction requirements, the Commission concluded that the design required in Phase I was not cost-effective, so it did not order additional requirements in Phase II. However, following an independent study conducted in 2014, the PUC proposed additional requirements for Phase III based upon a finding that additional peak demand reductions can be designed to be cost-effective.
Act 129 allows EDCs to recover only the cost of implementing energy efficiency and peak demand reduction requirements and caps the cost of the combined programs at 2% of the EDC’s total annual revenues as of December 31, 2006. The law specifically precludes EDCs from recovering the revenue they lose due to customer usage reductions, except through a base rate case where rates may be set on a going forward basis to reflect the lower usage levels. EDCs spent close to $250 million last year alone on their Act 129 energy efficiency and conservation programs; an amount that is ultimately borne by all ratepayers and that does not include the cost of paying the statewide evaluator hired by the PUC or the cost of other utility-run conservation programs such as the Low-Income Usage Reduction Program (LIURP). This number represents the fifth-largest statewide spending on such programs in the nation.2
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