Analysis

posted on 04 August 2008 08:10

Pacific Gas & Electric (PG&E) , a California energy-supply company, will give customers rebates if they buy more energy-efficient IT kit, including storage gear. It says paying customers to use green kit saves it cash it would have to build on new electrity generating plant.

This is a very odd business model. Normally PG&E would sell electricity from any new plant at a price to cover the cost of building the plant and generating the electricity. This is just an normal business investment decision and millions of businesses worldwide make similar decisions everyday on whether or not to increase production capacity and so generate more revenue.

Could you imagine Seagate, faced with rising demand for disk drives, deciding to give customers a rebate on existing drives because doing so saved Seagate the expense of having to build a new drive manufacturing plant? Utter nonsense. Bilge water. Lunatic ravings. Bill Watkins would pull your head off if you seriously suggested it.

Why does PG&E then operate this perverse business model? 

It operates in an artifical busness environment because of state controls. The California state regulatory structure embraces a policy known as decoupling, which breaks the linkage between energy sales and utility profit.

PG&E's environmental report states: 'Under decoupling, utilities collect a fixed level of revenue, regardless of their actual energy sales. If energy sales are higher than the target level, the excess revenues go back to the customer. And if sales are lower than the target, utilities recover the shortfalls the following year. Utilities are still responsible for managing their expenses, but this neutralizes the incentive that most utilities have to sell more energy. Rather than focusing on how much energy we can sell, PG&E can focus on helping our customers save energy, money and the environment.'

In this specifically green-moderated business normal rules no longer apply. PG&E is giving away money in a green gush because, simplisticly, the California state doesn't want any more polluting power stations. The state authority has created a controlled energy market in which energy generators can transfer cash from customers using kit which guzzles electricity to those buying kit which doesn't.

^{[Chris Mellor.]}