Why Place Matters in Energy Policy. Scott Bernstein, President, Center for Neighborhood Technology, Chicago, Illinois 60647

Traditional utility policy and rate setting are based on a view that there are a limited number of customer types for a service (residential, commercial, industrial) and that their rates should be set according to profiles of how these basic customer types use energy, irrespective of location. What traditionally resulted was the familiar two-part tariff of discrimination, more commonly known as block rates.

But where you consume makes a difference. There is an underlying geography to the distribution of electricity, a set of maps if you will that relate to substations and feeders more than to the kind of customer. The T&D system of major utilities is a the single largest asset on their books, and the spending on renewal and maintenance dwarfs spending on new capacity, these lines crossed after 1988.

This kind of mapping has been performed in Chicago in a joint project with the Commonwealth Edison Company, and enables measurement of load shapes on a small area, as opposed to a customer class basis.

Since the assets of distribution are so large, marginal improvements in peak to base ratios and utilization rates can be expected to have large effects. This bodes well over the long term for two emerging strategies. The first is distributed generation, and the second is demand side management for small as well as large customers.

Based on these economics, a successful energy efficiency and load management cooperative has been created to serve four communities: Pilsen and Galewood in the City of Chicago, and in the city of Elgin and the village of Park Forest. Public benefits in the range of $200- 600 per kilowatt have been measured, and the cooperative has grown in just a year to 6,000 members. This has worked in part because of the hidden asset of community organization: this enabled the assembly of existing organizations for new purposes and kept the transaction costs at a minimum.

This same geographic approach on the supply side reveals another hidden asset: emergency diesel generator sets exist almost everywhere, and the technology exists to retrofit these for duel fuel (natural gas and diesel) clean operation. The benefit of such a retrofit would be to extend the safe hours of operation from 50 to 200 hours per year, and in the aggregate, create between 500 and 1,000 megawatts of clean production over the next five years.

The recommendations for public policy that emerge from our experience are: (1) accounting geographically pays, so provide a regulatory framework that enables recognition of the net benefits of place-based demand side and distributed resources; (2) social capital investment (in community organizations and in business capacity) pays, so find ways to tie utility policy to economic policy; (3) "fixing it first," a policy that has emerged in the transportation investment field, appears to have strong benefits for the utilities and their consuming public, so develop a framework to encourage long-range investment strategies that make the most of existing systems first, develop clean alternative energy sources from new technology second, and only use "dirtier", supply-side only strategies as a matter of last resort.

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