AUSTIN – Texas consumers may have to pay hundreds of millions of dollars for an energy efficiency program that may not be effective, according to a report released today by the Texas Public Policy Foundation and the Institute for Energy Research. The report, "Energy Efficiency: Is Texas Getting Its Money's Worth?" is on the Foundation's website, www.TexasPolicy.com.
"There is simply no way, given the existing data and methodology employed by the PUC, to properly determine the efficiency – or inefficiency – of the state's energy efficiency program," says Dr. Robert J. Michaels, professor of economics at California State University-Fullerton and co-author of the report.
On Friday, the Public Utility Commission is scheduled to consider proposed rules that would increase the state's energy efficiency goals. Third-party estimates on file at the PUC show the proposal would cost Texas consumers as much as $1.5 billion in its first four years, with annual costs between $344 million and $681 million per year beginning in 2015.
The model used by the PUC estimates that the current energy efficiency program has produced $2.44 in savings for every $1.00 in additional costs. But the Foundation's research identifies several factors, e.g., free riders, customer costs, and capacity factors, not properly accounted for in their estimates that result in an overstatement of the benefits and an understatement of the costs – possibly to the point where the cost-benefit analysis could turn negative.
"The PUC's evaluation methods virtually guarantee that the program benefits will be overstated and costs will be understated," the report said. "Attaching reasonable values to these amounts can, under some assumptions, turn seemingly glowing estimates of the program's benefits into losses that are ultimately borne by ratepayers."
The Foundation urged the PUC to postpone action regarding the state's energy efficiency goals.
"The Commission should have complete and accurate information before making a decision that will increase Texans' electricity bills. Today, it does not," said Bill Peacock, Director of TPPF's Center for Economic Freedom. "The commissioners should consider the data and methodology concerns we have raised and develop a more authoritative assessment of Texas' current energy efficiency program before expanding it."
Bill Peacock is Vice President of Research and Director of the Center for Economic Freedom at the Texas Public Policy Foundation.
Dr. Robert J. Michaels is a Professor of Economics at California State University-Fullerton and a Senior Fellow at the Texas Public Policy Foundation and the Institute for Energy Research. His writings on competition, market power, deregulation, and a range of restructuring issues have appeared in industry, academic, and legal publications.
The Texas Public Policy Foundation is a non-profit, free-market research institute based in Austin.
The Institute for Energy Research (IER) is a not-for-profit organization that conducts intensive research and analysis on the functions, operations, and government regulation of global energy markets.
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