Sleeping Giants: TVA and Georgia Power Stuck in Second Gear on Energy Efficiency

This is the third entry in a new blog series entitled Energy Savings in the Southeast. We will dive into the recent performance of Southeastern utilities’ energy efficiency programs, and highlight how the region can achieve more money-saving and carbon-reducing energy savings. Future posts in this series can be found here.

While even the region’s top achievers have room for improvement, some of the largest utilities in the Southeast are seriously falling behind on energy efficiency. In particular, the Tennessee Valley Authority (TVA) and Georgia Power are two enormously capable utilities that appear to be stuck in second gear.

Huge Potential, Anemic Growth

TVA

The nation’s largest public power provider, TVA provides generation and transmission to 154 electric cooperatives and municipal utilities serving more than 9 million people across seven states. In addition, TVA provides power to 59 directly served industrial customers.

TVA started ramping up its energy savings in 2011, following a relatively favorable outcome for energy efficiency in its 2011 integrated resource plan (IRP). Apart from the IRP, the federal utility also signed a 2011 EPA Consent Decree settlement over coal-plant emissions violations that, among other things, called for TVA to spend at least $240 million on energy efficiency. Following up on the IRP, the TVA Board challenged its staff to achieve savings equivalent to the output of a new nuclear plant, and TVA did just that with its EnergyRight Solutions programs, reporting 1,126 MW in avoided capacity additions from fiscal year 2008 through fiscal year 2014.

Not surprisingly, the cost of TVA’s energy savings – about $0.02 per kWh – was far lower than the $0.10 to $0.14 per kWh cost of new nuclear energy reported by Lazard. However, the ultra-low cost energy savings also indicate that they could be doing a lot more. TVA’s net savings rate of 0.25% ranks in the bottom half of major Southeastern utilities.

Georgia Power

Georgia Power is the largest subsidiary of Southern Company, one of the largest power providers in the country. As the only investor-owned electric utility in Georgia, the company serves more than 2.4 million customers, including the Atlanta metro area.

While it has achieved higher savings than TVA, Georgia Power has been on a slow growth trajectory over the past few years, and just under half of its 0.43% 2014 savings came from prescriptive commercial incentives, such as fluorescent lighting retrofits. Commercial lighting is a fairly easy way for utilities to achieve a base level of energy savings at an extremely low cost, but it is critical to also invest fully in the many other opportunities for cost-effective savings.

Non-Residential Savings

Both TVA and Georgia Power derive about three-quarters of their energy savings from non-residential customers, but both utilities are still far from fully capturing their huge non-residential savings potential – for completely opposite reasons having to do with their industrial energy efficiency programs.

On the one hand, Georgia Power has no energy efficiency programs for large industrial customers – industrial interest groups maintain an active stance against developing programs tailored to their members’ needs. But just to the north, TVA’s industrial program is limited not by opposition from industrial interest groups, but by TVA’s budget. Industrial customer interest in the program is so high that TVA has suspended new applications for months at a time when funds have run out. Thankfully, TVA’s programs are currently all funded and operating.

The Role of Resource Planning

One of the biggest opportunities to increase energy savings is in the treatment of energy efficiency in integrated resource planning. Utilities typically just pick a modest number as an energy efficiency target, and then subtract that figure from their demand forecasts prior to modeling generation resources based on costs.

The problem with that approach is that energy efficiency is actually the least-cost resource available (and clean!), so it’s wasteful not to maximize cost-effective energy efficiency. A better approach is to model energy efficiency as an energy resource on equal footing with generation resources, but very few utilities have tried it.

TVA’s 2015 IRP

With its 2015 IRP, TVA broke new ground by becoming the first Southeastern utility to model energy efficiency as a resource, something SACE had recommended in our 2011 IRP comments. Unfortunately, TVA developed a methodology that inappropriately inflated the cost of energy efficiency and placed unreasonable limits on its ability to compete on a level playing field with other resources. However, TVA has been sharing its experience and could inspire other utilities to model energy efficiency, possibly with better methodologies.

In a year full of changes, it appears that TVA’s fiscal year 2015 net savings have declined to about 0.2% of sales, but new programs could drive growth in the near future. TVA launched a promising new residential audit and retrofit program called eScore in early 2015, and has recently been exploring options for serving lower-income customers, who are generally unable to access TVA’s energy efficiency rebates due to high upfront costs. SACE is engaging on those efforts, and we commend TVA for its interest in providing equitable offerings for lower-income customers.

Georgia Power’s 2016 IRP

Georgia Power filed its 2016 IRP in late January, and unfortunately, it represents more of the same. The company has not modeled energy efficiency as a resource, and its plan provides for only modest growth in energy savings. SACE will testify as an intervenor in the IRP proceeding and recommend ways the company could significantly increase its cost-effective energy savings. One solution we plan to recommend is a tariff-based on-bill financing program that would enable customers to make energy efficiency upgrades with no money down, and achieve immediate bill savings that are greater than the monthly payments.

SACE will continue pushing TVA and Georgia Power to increase their energy savings to catch up with regional leaders such as Entergy Arkansas. We are hopeful that a healthy spirit of competition, as well as Southeastern utilities’ growing experience with energy efficiency, will help to drive significant growth across the region over the next few years.

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1 Comment

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One factor not often included in savings calculations is taxes, except for specific incentives, like the ITC and state income tax credits. But most utility customers, at least in TN, pay about 10% sales tax on power purchases. So, the true cost of 10¢/kWh power is actually 11¢. If that kWh is not purchased, the savings is not 10¢, as usually discussed, but 11¢/kWh.

In addition, there are federal income taxes. Purchased power must be paid for with after-tax cash. At a tax rate of 20% – 30%, a “10¢ kWh” really costs 12¢ – 14¢/kWh. (Plus state income tax, if any.) True, income taxes must be paid on the income regardless of its use, but if that cash does not have to be spent on power, it is available for rent, food, whatever.

Combined, the value of the two taxes is 30% – 40%! So, if 13¢ – 15¢ does not have to be spent on power, those savings amount to a substantial raise in pay for a family or gross margin for a business.


Comment by John Atkins on March 23, 2016 1:03 pm


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