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DoGooder Equity, Michaels Energy

Upon reading some manager/principal/owner interviews in business publications, the publisher asks, “What keeps you awake at night?”  My answer to that would be: Nothing.  The reason for this is utilities are regulated monopolies and the energy efficiency program portfolios they run are cost effective.  I.e., we, as an industry, are contributing to net wealth generation for consumers and not just redistributing it – it’s EE or power plants, poles and wires and either way, the consumer pays, and we are helping them pay less.

A major reason I am a huge advocate of EE programs is that they are cost effective, and what does that mean? – it typically means it is cheaper to run programs than build power plants and requisite transmission systems to pipe the electricity to points of use (distribution).  I sleep knowing I’m contributing to a wealthier, more efficient society that also happens to burn less resources.

One such cost-effectiveness test is the ratepayer impact measure test or RIM test.  The RIM test “measures what happens to customer bills or rates due to changes in utility revenues and operating costs caused by the program”[1].  Programs that pass the RIM test have a benefit to cost ratio greater than 1.0, indicating unit energy costs are reduced as a result of programs and therefore, programs benefit all customers whether or not they participate in programs.

So, I’m really liking this.  Customers that choose to do nothing benefit, but participants benefit even more.  However, like everything else, politics, do-gooderism, and waste seep into program portfolios.

Regulators generally frown upon and disallow utilities to make money on their programs.  This needs to change, and I’ve discussed this in the past.  The regulated utility business was created on a forever upward trend in demand and sales.  This has ground to a halt, and in some cases reversing largely as a result of EE programs.  Well by golly, whaddya say we let utilities in on the action in a cost effective manner where all B/Cs are >1.0?  Not allowing this is kind of the mirror image of do-gooderism.  Do-gooders don’t allow utilities to make money because they are obliged to give it away, apparently.

Small business programs are generally not cost effective but they exist often in the form of direct install (DI) programs for equity, as in fairness, reasons.  Small businesses as a whole send millions of dollars in EE riders (EE charges, typically 1% of the bill) to fund programs, but they are very difficult to serve effectively for a whole raft of reasons that can be part of another rant.  Rather than market to, and actually get small businesses to pay for projects like everyone else, it is less expensive from a program perspective to just give them stuff – replace lighting for example.  I.e. cost of free < cost of laborious arm twisting.  I understand this angle, but it is doesn’t make a lot of sense in the presence of a RIM B/C > 1.

Another political thing that seeps in is workforce development and jobs.  This torques me as it often adds to the cost and subtracts from the benefits to ratepayers.  In our space (buzzword of the year, which means market), it takes years and years and years to gain expertise to look at a building and say, that was built in 1979[2], it has rooftop units[3], electric reheat[4], the comfort is terrible[5], and half the variable air volume boxes likely do not function properly[6], partitions (interior walls) have been erected and demolished four times over and the zoning is dorked – all information gathered by Google Earth and street views without even stepping foot in the building or even the state in which it resides.  And so on and so forth for 20s buildings, 60s buildings, 80s buildings, 90s buildings.  A person learns what to expect after having been in dozens of these buildings and simply looking at a satellite image, and a street view is a bonus.

Regulators, administrators, and possibly third-party program implementers in some jurisdictions expect to train contractors how to fix these buildings.  Again, it’s do-gooderism over greater net wealth generation.  I would hire business partners (subs) that are competent and highly qualified to deliver results, as needed and locally when it makes sense.  I do not want to teach a 7th grade science class to set a broken femur – pins, rods, casts and all, which is essentially the equivalent of effectively indentifying and developing all cost effective measures that exist in a typical poorly-performing, wasteful facility or process.  It takes years, not a couple days or week to develop these skills.  Doing so is expensive, inefficient, ineffective, and bad for ratepayers.

We will create the need to hire people for our subs and ourselves.  What difference does it make if Jimmy and Sue work on our team or someone else’s?  That’s the way it works – the best for everyone involved.  Does anyone expect Fluor to be forced to hire local schmucks to build its power plants?  When it makes sense, such as buying concrete locally rather than trucking it from three states away, yes.  For structural engineering, not so much.

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[1] California Public Utilities Commission

[2] From the architecture – dark and depressing.

[3] Can see them on Google Earth.

[4] Because Jimmy Carter thought we were going to run out of natural gas – no kidding.

[5] Because they distributed heat from the ceiling and heat rises.

[6] Everyone on the perimeter has a 1500 Watt space heater at their work station.

Jeff Ihnen

Author Jeff Ihnen

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