Begin: Amusing, Worthwhile, Important, True Story

I went to one of those puny schools we see in rural America today: originally built in the 1920s, with a 1960s addition.  Guidance/career counselor?  Never heard of it.  School nurse?  Are you kidding me?

In grade school we played kickball on a concrete platform, maybe 50 feet by 100 feet.  On both ends were basketball hoops mounted on two five inch steel pipes (no padding), each about four feet apart anchored in concrete – like I-beams but without dangerous sharp edges!  On the middle of each side of this court was another such pipe – making a rectangular kickball diamond – two basketball hoops for home plate and second base, two side pipes for first and third.

This was near the end of the cold war, and I remember nuclear fallout instruction films featuring school children crawling under desks in case of attack[1].  That kickball court was designed to withstand a direct attack by Soviet missiles.  I’ve discovered why anything built by my 1970s vintage boss – bookshelf, table, picture frame, coat hanger, is built to withstand a nuclear blast.

Kickball worked like this: “pitcher” rolls the ball toward the “batter” who kicks the ball and if he/she makes it to first base (the five inch steel pipe with no padding) before being nailed with the ball by a fielder, safe at first base!

Mike Arp kicks a worm killer and sprints for first base.  The pitcher takes the grounder and throws a laser hitting Mike in full sprint between one leg and the other, tying up his legs (tripping).  He face plants on concrete directly into first base, with his head.  We laid him out on a table inside with a half grapefruit bulge on his head.  He’s ok.  Nurse?  Hell no.  He may have been awarded the rest of the day off.

As a product of this rough and tumble school, I didn’t even know what engineering was, but my high school educated parents were plenty smart to insist we take all the math and science we could devour. By freshman year in college I had found my major – engineering.  It met all criteria above: competence, demand, and high pay – gee, just like today!

Engineering still has top-of-the-chart salaries and demand.  Any list of top careers is full of engineering and various healthcare slots.  Example of engineering demand: at the depth of the “great recession”, what was the unemployment rate for engineers?  Two percent[2].  And believe me, there are PLENTY of crappy engineers, so this was/is amazing.

Promoting STEM: high pay and virtual guaranteed job.  What else is there to know?  I just don’t understand kids who go to college to major in African Art History, and then with graduation looming realize nobody needs this.  This too was not made up.  We met such a woman working a hotel front desk in Madison a year ago.  Good grief man (or woman), think about the destination before you start the trip!

Resume: Energy Efficiency

Energy programs are similarly myopic, and this will come around to bite commodity programs that go through the motions like the infamous basket weaving major.  A commodity program, as you would imagine, is most common, and their mission is pimping widgets – light bulbs, energy star this and that, and maybe some variable frequency drives if they are really progressive.

In the future, programs need to do more than throw money at customers. Programs need to HELP customers – provide valuable services to inform and guide them to the right choices.  Audits and studies often take a beating by commodity seeking administrators.  Why?  Because the studies themselves are commodities and/or the program has major flaws that throw up barriers to participation.

Studies are not the end game.  Implemented projects are the end game.  Programs need to be designed with the end in mind, customer by customer.

I froth at the mouth when I listen to hand wringers hem and haw about “dry holes” – as in dry oil wells representing studies that get shelved and result in no action.  This is bologna.  The program is flawed – it doesn’t serve the customer well; it is overly burdensome; it throws up barriers; it takes too long; it’s too risky for the customer; or the providers are not qualified or sufficiently competent.

We don’t have this problem with detailed studies.  Our studies almost always get implemented with 10-40% savings, but we can’t take full credit.  The program and utility contributions actually make it easy, not hard for customers.

Design programs and hire providers to serve the interests of the customer, and the results will be there in the end.

[1] I kid you not, at all.

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Alright Rant fans.  You may want to don one of these to hold your skull together as your brain fills with more information than it can contain.  This week we will cover the results of the Energy Rant survey.  Thank you all (y’all) for participating. 

The first question: How often do you read the energy rant?  Essentially half the survey takers read it every week and the other half usually read it.  A few cheesers must have been looking for prizes for taking surveys – as if we would have given them the prize. 

Most are good with the current rant length.  As a few people noted, I sometimes ramble, rumble, and stumble, but I correct most of that.  You should see the rough draft sometimes.  I watch the word count all the time and shoot for about 800 words, and now with a hard cap of 900 words.  This is a reduction from the first couple years when they were in the 1300-1400 range.  Why 800-900 words?  That is the length of typical weekly opinion pieces published in archaic things known as newspapers.  I figure they must know what they are doing, acknowledging that peoples’ attention spans are getting shorter than the typical three year old nowadays (no offense).

The next question concerned topics.  Truthfully, these categories were developed after almost two hundred Energy Rants were published.  We developed the categories by viewing the subject matter and kept the number of categories reasonably limited.  Rant fans like the broad swath of topic areas.  Incidentally, we are providing the topic shares of each category of Energy Rant in the exploded pie chart.  For orientation, the three big pieces, red, green, and purple are federal policy, consumer behavior, and programs and evaluation.  You can follow the rest around the rosy. 

Question 4 concerned guest bloggers.  Eighty five percent of survey takers said they would be interested in guest bloggers.  The Michaels’ marketing geniuses discussed how to approach this.  Imagine yourself a parent of a fourth grader who asks to drive the family sports car to the convenience store for an ice cream.  It may be fine, or it may be a disaster.  Hell, growing up on the farm I was driving lots of stuff by sixth grade, and doing it well.  The only substantial “accident” I’ve had in thousands of hours of driving tractor, lawnmower, combine, truck, backhoe, skid loader, pickup trucks, and automobiles was plopping a skid loader on its side – no harm no foul, no damage.  Jeff is rambling. 

Anyway, the answer: Desirous guest bloggers need to post comments to audition for the role.  The other issue is, Jeff writes the rant as a hobby and form of entertainment and he enjoys the “fix”.  Post some decent comments and we will see how it goes.

The next question:  What do you like and dislike about the rant?  This was one of the most important questions.  Fortunately, people like it.  Again, we categorized answers to this open-ended question into a limited number of bins.  A solid majority of readers find the rant to be funny, informative, unvarnished, and true-to-life and “like it is”. 

A number of folks found it to be too negative.  To this I respond, this is the Energy Rant, not the Energy Glazed Donut or Energy Cream Puff.  There are plenty of Kool Aid, rah, rah, bloggers in the vastness of cyberspace.  A primary objective of the Rant is to be the antithesis of Kool Aiders.  Not everything is wonderful.  Not everything is true, accurate, correct, known, or settled. 

The Energy Rant is a haven to spout off about things without the constraints of protecting the guilty, as is normally required.  Take programmable thermostats as an example.  I demonstrated in Oh Behave why only rarely they save energy, particularly for home owners.  As energy program evaluators we are compelled to put a happy face on these execrable intruders, and we are pressured to revise outcomes.  Fugetaboutit. 

An overarching theme of the rant is, we can’t have it all.  At Michaels, we do a lot of in-house training, and one of the first sessions for new employees is EE Programs 101, an early slide from which is presented next door.  We can’t have all that.  BANANA[1] people, aka chimpanzees, have no credibility to me. 

An alternative is Fresh Energy, a Minnesota based advocacy group that is virulently anti-coal, anti-carbon, and deathly concerned about climate change.  I noticed recently in my email feed from them that they are pro-nuclear.  This gives them enormous credibility in my view.  They are tolerant of risk that is unavoidable in a modern, safe, civil society.  Wind turbines, solar panels, and electric cars aren’t going to cut the mustard.  They get it.  I like it.

Closing, in last week’s post I discussed a new, albeit ignorant business model for utilities as demand for their product shrinks.  What I didn’t mention is that obviously they are not counting on load building from electric cars, which would cause explosive growth never seen before.  Meanwhile, in the past week, yet another electric car startup filed for Chapter 11 bankruptcy.  It’s a matter of physics, folks.  Maybe these venture capital firms, auto execs, battery makers, bureaucrats and Lenard DeCrapios should subscribe to the Energy Rant, or consult with a utility executive.

[1] Build absolutely nothing, anywhere, near anything.

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This post is brought to you by the report The Old Model Isn’t Working: Creating the Energy Utility for the 21st Century, by the American Council for an Energy Efficient Economy (ACEEE).

Since there are always new readers, I’ll say it for the 300^th time, investor owned utilities are regulated monopolies.  As ACEEE points out, just imagine how ridiculous it would be to have duplicative competitive delivery of power to your house.  It wouldn’t work for a bunch of reasons but space is limited so I’m not going to explain any of that.

Rates are comprised of investor return on the rate base plus operating expenses.  Consider the rate base to be long-term hard assets – power plants, transmission and distribution (T&D), and the opulent headquarters buildings downtown, complete with restaurants, Starbucks, and spas.  The cost of owning this stuff is stock dividends, bond dividends/yields, and bank interest.  Operating costs obviously include fuel, and I would guess trucks.  And despite what they say, employees are an expense and not an asset [1], [2].

Take the cost of all that stuff, including profit for investor/banker, and divide by energy sales to arrive at the allowed cost of energy.  Here I go out on a limb.  Profits are very sensitive to economic activity.  Since utilities are monopolies with not-quite-guaranteed profit, their profit margins are low.  Sales growth is tiny, if anything.  Return on investment for investors is primarily the dividend yield, which is protected like Fort Knox.  The first thing I’m thinking is yields are 3-4% for major utilities in the US.  It would seem[3] very foolish to buy US bonds at a yield of 1.5% against this kind of return.

Energy efficiency programs are obviously at odds with the utility business model.  It would be like Carl’s Jr. running ads: “Feeling a little chubby today?  Get a clue: 67,000 calories in one of these babies.”  I’m not sure why they erode the appeal with that slice of tomato.

The programs cost the utility money to run (reduced earnings), erode sales (reduced earnings), and provide no ROI on the dollars spent (no earnings).  Cost recovery for energy efficiency programs gets all the hype.  I’m going to run out on a limb again at the risk of revealing my ignorance of this subject.

What does DSM stand for?  Demand side management.  (I’m firmly on the ground hugging the tree trunk still; not out on a limb yet)  By what measure are goals set for energy efficiency programs?  Energy, NOT demand.  Now I’m on the branch ready to go out on a limb.

What if we incentivized utilities for energy savings by allowing them to hike demand charges while decreasing energy prices somewhat?

To get higher return on assets for investors, one way to do it is use the stuff more.  It’s obvious.  There are lots of megawatts of generating capacity that get used a couple hours, a day, or few days a year.  Charging more for demand will increase investor ROI and incentivize customers to squish their annual peak demand lower, but get more full load hours from the rate base.

Unfair for large power users?  Not really.  It is like lowering and flattening tax rates while removing deductions.  Taxpayers would squeal that their health insurance, mortgage, property tax, kid, this that and the other expenses will no longer be written off, and they will pay more taxes.  NO!  Cut the rates so by the end of the year, the same dollars are paid.  Ditto for tariffs.  Increase demand charges, cut energy charges, and pay the same by the end of the year.

Let’s see.  Return comes from the assets.  The operating costs are a pass through.  Well, let’s heap some of the pass through cost onto return on assets for investors.  But this will not make utilities whole for their operating expenses.  Good!  Therefore, they will have an incentive to reduce their operating expenses/losses – a huge one of which is fuel, coal, natural gas, all producing CO2.  This would reward energy efficiency, pressure end users to reduce peak and run flatter, and get more operating hours and revenue from utility assets.

What is the problem here?  I don’t get it.

[1] It all boils down to this – you always need to be a step smarter than the software developer who is continuously developing software to replace you with a server in a data center in Singapore.  Never forget.

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Our friends at the American Council for an Energy Efficient Economy (ACEEE) define market transformation as, “The strategic process of intervening in a market to create lasting change in market behavior by removing identified barriers or exploiting opportunities to accelerate the adoption of all cost-effective energy efficiency as a matter of standard practice.”  I think I am correct in saying that behavior in this sentence includes consumers choosing CFLs over incandescent as one example, and in a broad sense, consumer choices.

Some market transformation, per my definition, has been very successful, including the CFL example mentioned previously.  ENERGY STAR® appliances, including refrigerators, have been another one, to the point that some programs are dropping refrigerators from their portfolios.  Another odd one is ground source heat pumps.  In certain spheres, ground source heat pumps have taken on a cult-like following, and to say ground source heat pumps don’t make the meter spin backwards in every application is blasphemy[2].  After beatings from “trade allies” for a heat pump study Michaels completed a few years back, I found last winter that MidAmerican Energy is dropping them from their energy efficiency plan going forward due to lack of cost effectiveness.  Touché.

Aside from equipment choice, market transformation to its advocates includes training the masses to be energy experts – contractors, controls companies, architect and engineering (design) firms, and so on.  This sort of market transformation is never going to happen.  Why?  It is easy to teach people to care for their lawn.  It isn’t easy or cheap to teach people how to successfully replace four knee joints per day.  Have you ever seen a knee surgery performed?  To an ignoramus it looks easy – like carpentry, cobbling, and seamster rolled into one.

Barrier number one, therefore, is time and money.  It reminds me of a manufacturer one time that wanted us to show them in a day or two how to be do-it-yourselfer energy efficiency experts.  That would be like satiating a couple thousand ravenous souls with two croissants and a few mackerel.  That is, give “us” the equivalent of an engineering degree and 10-20 years’ experience in a couple days.  If only it could be reproduced and stored on a micro SD chip placed under the tongue, dissolved into the bloodstream, and stored permanently in the brain.

Barrier number two:  Few capable of sawing lumber and wielding a hammer and chisel are interested in becoming an orthopedic surgeon.  Nor does the orthopedic surgeon really want to become a neurosurgeon or dermatologist.  The core building blocks of the MD profession, as they are with engineering, are similar.  Energy efficiency, particularly for large commercial and industrial systems and process optimization, requires highly trained and experienced talent.  Even converting a commissioning agent to retrocommissioning (RCx) agent is no small feat because they are substantially different services.  In the former, the professional is ensuring the systems are built and operating as intended, while the latter only cares about the design intent for purposes of understanding how it is supposed to work.  Any RCx agent worth paying is going to go far beyond the design intent to capture savings in addition to recognizing design flaws or mistakes that result in waste – and how to fix it.

Like consumer choice, markets can be transformed and are transformed on the demand side of the equation.  While buyers obviously don’t understand the details of RCx, or they would do it themselves, they love the benefits and the word spreads to propagate the service/program – transforming the market.

Lastly, when it comes to market transformation, supply cannot be dictated.  The market, like every other, gravitates to the best products and services.  A layperson example of this is farming.  Many today would like the family farm of the 1950s – the ones that include 25 head of swine, a dozen dairy cows, a few beef cattle, seven egg-laying chickens, a collie, and three cats to take care of the mice.  That doesn’t work anymore.  Why?  Because the market calls for cheap food, and that’s why prices for many items have remained the same or even fallen in the past 25 years – for sure when adjusted for inflation.

A prosperous market serving these advanced programs consists of few firms that really know what they are doing.  Spreading it around isn’t cost effective, nor will it last; i.e., transform the market.  Market transformation agents want the 1950s farm with today’s cheap food.  They cannot both be had.

[1] Locked out of the market means other firms provide program funded services to end users, free or massively subsidized by the program.

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