We Need Better Incentives for Households to Reduce Electricty Consumption
Just like the NH and US economies are producing more goods and services with less and less energy content (as measured in BTUs per dollar of gross domestic product), so too is the NH economy producing more goods and services with the same or less electricity content. As the chart below shows, over the previous decade the total electricity consumed in NH (in kwhs) increased by just over 7% while real gross state product increased over 36%. The result is that electricity content (in terms of khws) per dollar of real NH GDP declined during the decade.
Conservation and a changing industry mix have gone a long way toward restraining electricity consumption but a steep recession also contributed. High electricity prices play a role in creating incentives for conservation but as the chart also shows, despite only a 7% increase in electricity consumption during the decade, total expenditures on electricity in NH increased by over 40% while expenditures by residential customers increased by over 50% during the decade. Unfortunately, in a regulated market that guarantees a rate of return for some producers of electricity and which depends on variable fuel costs, consumption of electricity and expenditures on electricity do not (for long) show the negative relationship that they do in many markets. I think this tends to discourages household conservation efforts because they see less evidence of the payback from their efforts, even less so than say in oil and gasoline markets. With gasoline or heating oil markets an individual or household can take steps to reduce consumption that yield tangible results in terms of reducing energy expenditures. Reducing oil or gasoline consumption won’t always reduce absolute expenditures, as in the case of very dramatic price spikes seen in the recent past, but consumers at least see (and feel) a direct impact on their cash outlays as a result of their conservation or consumption behaviors. But how do financial incentives for conservation affect consumers of electricity when guaranteed rates of return allow for electricity prices that offset the impact on expenditures of their conservation efforts? I think they produce what appears to be happening now in NH, the conservation efforts transform into just a quest for lower prices. Electricity consumers seek lower-cost providers of electricity who may not offer ceilings on future prices but who also don’t set a floor on prices because of guaranteed returns or because a shrinking base of customers requires guaranteed returns be paid for by fewer customers. I am all for lower electricity prices but I get to call myself an environmentalist when I support incentives for conservation. Such incentives will work best when they don’t yield only intermittent or temporary benefits
I don’t know whether the proposed Northern Pass Transmission Project (NPT) will actually result in lower prices for wholesale electricity or not. I’ve seen conflicting studies from proponents and opponents (by way of disclosure I conducted a study of the NPT employment impacts for competitors of the companies planning NPT but I did not examine impacts on electricity prices nor do I have any contracts or agreements with anyone opposing or competing with NPT). I do know that NH spent an estimated $1.616 billion on electricity in 2010 (the last year for which data is available from the U.S. Energy Information Agency).
That means if proponents of NPT are correct, and wholesale electricity prices in NH are reduced by about $25 million, and that wholesale price results in a similar reduction in retail electricity prices (?), then electricity expenditures in NH would be about 1.5% lower then they otherwise would be. Whether illusory or not, given the consumption and expenditure trends lines above, it is hard to see that this impact on wholesale electricity prices will have much of an impact on the high cost of electricity in NH.