The business model for electric utilities has always been simple. They made money selling power to run electric devices, from city streetcars in the 1920s to today’s iPads, smart phones and plasma televisions. The more energy they sold, the more money they made.
But if state regulators approve an agreement between Ameren Missouri utility and various consumer advocates and environmental groups, the utility will soon have a new profit motive — helping those same customers save energy.
The agreement represents the most ambitious energy efficiency plan ever proposed in the Show-Me State, and the product of years of debate over how to encourage utilities and consumers to work together to reduce electricity use.
“It’s a shift toward an energy policy where we partner with our customers,” said Warren Wood, Ameren Missouri’s vice president of legislative and regulatory affairs.
The three-year plan would directly cost Ameren’s customers about $145 million. Consumers would also reimburse Ameren for tens of millions of dollars in fixed costs – investments in power plants, poles and wires used to generate and distribute electricity – that the utility wouldn’t recover if energy sales decline.
The Public Service Commission hasn’t yet scheduled a vote on the plan, but will host a public presentation on it Monday in Jefferson City. Ameren hopes to launch the efficiency program in January.
Under the proposal, a residential customer who uses 1,000 kilowatt-hours a month would see electric rates rise by roughly $2 to $3 a month, or about 3 percent based on current rates. The increase represents about 20 percent of the $376 million, 15 percent rate increase that Ameren is currently seeking.
But unlike ordinary rate increases where consumers are asked to pay a higher price for the same services, money spent on energy efficiency will produce huge benefits, utility and consumer advocates say.
“Both the utility and ratepayers are going to win because the benefits are so huge,” said Rebecca Stanfield, a senior energy advocate at the Natural Resources Defense Council.
For instance, Ameren estimates the proposed three-year efficiency program will save an estimated 800,000 megawatt-hours by 2015 — the equivalent of the energy consumed by 60,000 homes over the same period.
In financial terms, those savings equal almost $500 million in fuel not burned and power plants and transmission lines not constructed — benefits to be shared by Ameren and its customers.
Public Counsel Lewis Mills Jr., Missouri’s consumer advocate in utility cases, is among those who signed off on the program. He said the efficiency programs would benefit everyone, not just those who directly participate by avoiding, or at least deferring the need for new power plants.
“Even if you are not one of the customers to get a rebate, the energy delivered to you over the long term will be cheaper because of the energy your neighbor isn’t using,” he said.
Just as importantly, the benefits of reduced energy use, such as an energy efficient furnace, will last far beyond the three years that consumers are asked to pay for the efficiency programs.
Energy efficiency isn’t totally new for Ameren, but they’ve never been pushed as aggressively as is currently proposed.
From 2009 to 2011, the utility invested $70 million in efficiency and reduced energy use by the equivalent of 42,000 homes over that period, Wood said. The results far exceeded the utility’s goals of saving energy use of 33,000 homes, he said.
But last year, the company abruptly announced it would drastically scale back energy efficiency spending in 2012 because existing programs didn’t reimburse the utility for lost energy sales. That shortchanged shareholders, Ameren said.
The company’s current proposal, filed with the PSC in January, is the outgrowth of the Missouri Energy Efficiency Investment Act. The 2009 measure lets utilities earn the same return on energy efficiency investments that it does when it builds a new power plant.
Ameren aspires to be the first utility in Missouri to implement an energy efficiency program under the law.
“What it really does is it sets it up as a business case,” Wood said. “I consider it a very significant step forward for the state’s energy policy.”
The cost of the program would be shared among all of Ameren’s 1.2 million electric customers. The exception is industrial customers, who are allowed by the 2009 efficiency law to opt out of utility programs because, in general, they aggressively invest in energy efficiency on their own.
Under the plan, Ameren would offer seven different efficiency programs for residential customers, including three new ones. It would also extend four existing efficiency programs for business customers.
All of the programs are proven to save utility customers more money than they cost to implement, Wood said.
And while Ameren would recover most of the costs of implementing the programs and recoup most of fixed costs from lost energy sales upfront, it won’t get all the money its eligible for until programs are evaluated afterward.
Ameren is also eligible to qualify for about $15 million in performance bonuses depending on how much energy it helps its customers save.
“We and the other advocates wanted to make sure they had a little skin in the game,” Stanfield said.
The three-year, $145 million energy efficiency plan being proposed by Ameren and consumer and environmental advocates contains seven different programs for the utility’s residential customers and four for business customers. Offers for residential customers include discounts and incentives for:
• Energy Star lighting products;
• Energy Star water heaters, window air conditioners and smart strips;
• Air conditioning system tune-ups or replacement air conditioners, heat pumps and cooling systems;
• Incentives for recycling inefficient refrigerators and freezers;
• Home energy audits;
• Energy Star-rated homes;
• Efficiency measures and energy-saving appliances for low-income customers.