Well, I’m back from North Carolina, where I watched Wake Forest (my wife’s alma mater) triumph over the University of Connecticut in the Meineke Car Care Bowl. (Yes, that’s actually the name of the Bowl game — not one of your more prestigious events.) Thank you to EMR for stimulating discussion during my absence of Peter Galuszka’s important article raising concerns about the proposed third reactor at North Anna. While my inclination is to favor the expansion of nuclear power, there’s no gainsaying the legitimate concerns that Peter and others have raised.
I would like to draw attention to another significant article related to energy policy, “Cleaner, Cheaper, Better,” by Jim Kibler, vice president of governmental relations for the energy company that owns Virginia Natural Gas. Kibler outlines a schema for overhauling the rate structure for natural gas prices so as to encourage conservation of the fuel.
As Kibler explains, traditional rate structures were devised decades ago, when fuel was cheap and plentiful but the cost to build a grid to provide universal service was staggeringly expensive. Rate makers encouraged gas consumption: The more fuel the gas companies sold, the more money they had to continue investing in inter-regional transmission lines, storage facilities and pipes to the home. Writes Kibler:
Economists devised an effective mechanism to create the economies of scale necessary to provide universal service: Tag each molecule of the gas with a piece of the cost of infrastructure. Because utilities earned more money the more gas they sold, they had an incentive to encourage consumption, and that’s exactly what they did.
But policy priorities have changed. The infrastructure for delivering natural gas to homes and businesses has been built, and gas is no longer cheap. As the cleanest of non-renewable fuels and as a fuel that can be stored and burned to generate electricity during periods of peak power consumption, natural gas also is experiencing tremendous growth in demand.
Recognizing the desirability of conserving natural gas, other states have “decoupled” rates for gas utilities, Kibler observes. The structure works like this:
Under a decoupling model, the fixed costs of natural gas utility service are truly separated from the variable component – customer energy use. … No longer is each molecule of gas tagged with a slice of the infrastructure. The customer pays one charge based on the cost of building and maintaining the system (the only part of the bill that the utility controls) and another for his consumption (the only part of the bill that he controls). Natural gas utilities in Virginia would continue to pass through commodity prices at cost.
When gas companies are no longer incentivized to sell more gas, they can make money by selling energy-saving services and appliances to consumers. As Kibler says, “Utilities with a profit motive to encourage conservation can use their access to customers and heft in the marketplace to contract for cost-effective customer energy audits, lower prices on programmable thermostats and obtain good deals and rebates on more efficient appliances, among other things.”
Makes sense to me! Am I missing something?