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Why Do Utilities Give Away Money? Connecting the disconnect.

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A conversation with Steve Moritz, President & CEO of Encentiv Energy

 

On the first floor of a black, mirrored office building in Pittsburgh, president and CEO Steve Moritz is leading the company on a mission to make the world more energy efficient, both for the planet and for the people living on it. In a recent conversation with Encentiv Energy’s Director of Marketing Ashley Garia, Moritz - who has worked for many years in the industry - discussed all aspects of utility rebates, from inception to the present. He has championed the company’s shift away from consulting, several years ago, to the digitization of utility rebate and program data delivered in a technology platform for many different markets - including lighting manufacturers and utilities.

Edited excerpts follow.

 

EE: You’ve been in the [energy] industry for almost 25 years. The last ten seem to have had a big shift toward saving energy/energy efficiency and renewables. Why did utilities start to offer incentive programs in the first place?

MORITZ: When I first started the company I wasn’t sure whether utility rebate programs would really help move the needle in getting customers to upgrade their homes or buildings. We were hired by our first utility client in 2009 to help promote their new program and it felt like we were always pushing hard just to give money away. At the time, the biggest opportunities were replacing T12 tubes with T8s, and incandescent bulbs with CFLs. The energy savings were good and the product prices weren’t that high so rebates weren’t necessarily a big driver in the decision. The impact of rebates really kicked in when LED products started to hit the market.

I remember meeting with a regional restaurant who wanted to install LED fixtures but really needed the utility to help “make the deal happen.” This was a major turning point in the important role utility rebate programs can have - bringing new technology to market. Instead of building more power plants it’s more cost effective to reduce demand on the existing grid. Upgrading buildings to LED is still moderately expensive, but with commercial utility rebates it becomes more affordable and greatly reduces the strain on the grid.

 

Now that we covered the background on utility incentive programs, why do utilities provide them at all? It seems mysterious, and counterintuitive, that utilities pay out almost 10 billion dollars each year. Free money?

Utilities operate as for-profit monopolies so their business rationale doesn’t always make sense. Imagine if there was only one car company that made only one kind of car and everyone was required to buy that car regardless of the quality or price. This is the model that the U.S. created over 100 years ago with the electric utility industry. Deregulation in 14 states has helped give customers a choice on who generates and supplies their power, but the delivery through the power lines is still a monopoly. Pricing for delivery is regulated by each state’s public utility commission (PUC) to keep the system fair, but even then delivery prices can vary widely from one utility to another. The only real control customers have over the price is to limit how much they use and it is a benefit to society that we don’t waste energy. Incentive programs give the customer the power to permanently reduce their use by installing the most efficient products at a reasonable price. Utilities want to help facilitate this because they like the monopoly model and the incentive money doesn’t come out of their pockets. They collect the money from every customer as part of our electric bill and then redistribute it to anyone that qualifies.

 

In the past, you’ve mentioned that utility rebates impact several segments in the energy efficiency industry. Can you describe these segments and how each one is affected?

It sometimes feels like our company sits at the intersection of three completely different industries who are highly dependent on each other but don’t really understand how the other ones operate. The first is the product manufacturers who are trying to innovate and build energy efficiency products in a hyper-competitive industry with shifting sales channel models. The second is the utilities who operate under complex state and federal regulations, but are also facing a major disruption of their business model. The third is the building owners and operators who are fighting an uphill battle to understand all the new building technology. All three segments are theoretically aligned towards the same mission which is to permanently reduce our carbon footprint by installing the latest technology in our buildings and homes at the most cost effective price.

 

It sounds as though the process of utility rebates is arduous on both the utility side and on the user side. How do utilities keep track of all these rebates and why do they track them?

Because the utilities serve as the facilitators of the rebate programs, they have a heavy responsibility to keep track of how the money is spent and to ensure there is not any fraud. They usually have their own project tracking system built and maintained by a third party implementer. They need to keep track of everything to report on it for their state evaluator or PUC. Administrative costs for these programs can often be as much as 40% of the money collected. But this model isn’t scalable and is quickly becoming ineffective. They need to find a way to help more customers participate and reduce the administrative barriers and costs.

 

Given that Encentiv Energy is on a mission to make the world more energy efficient through education and technology, where do you see the industry in the next five years? And what technology do you see making a big impact?

Simply put, our vision is that every customer should have the opportunity to get the benefit of these programs. Customers today expect information in real-time and being able to find the right solution at the right price (with the right rebate) should be just one click away. It has taken us a few years and lots of trial and error to develop truly innovative solutions using the latest mobile and web tools in the market. The most exciting part is that cool new energy saving products that are being developed at a crazy pace and our platform will be ready for them. We are working with solar companies, horticultural lighting products, and are also seeing technology coming on the market that operate completely off the grid.

 

Ashley Garia
Ashley Garia
Director of Marketing, Encentiv Energy

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