Energy Efficiency Programs

Background

By adopting and implementing various energy efficiency programs, consumers have the ability to lower their energy use and thus their energy costs. In most states, energy efficiency programs are funded through electricity or natural gas rates and provided by utilities. However, in some states, independent entities exist to administer ratepayer-funded energy efficiency programs. When energy efficiency programs are less costly than additional generation, the benefit should be shared by all customers through lower utility spending. A controversial issue related to energy efficiency is revenue decoupling. According to the National Association of Regulatory Utility Commissioners, “Decoupling severs the link between sales volume and revenue for the utility. Under decoupling, a utility has the opportunity to recover the authorized revenue requirement, determined in a base rate case proceeding, without regard to the amount of sales.” Decoupling has also recently been called “revenue regulation.”

Energy Efficiency Programs: Policy

Creating consumer-focused programs

In this policy: FederalLocalState

Policymakers should encourage the development of affordable, cost-effective, and measurable energy efficiency programs and ensure that any program for residential customers is accompanied by a consumer education component. The education plan should at a minimum inform customers of both the costs and benefits associated with the selection of the program and how to determine the program’s impact on annual electricity use and costs.

Policymakers should ensure that energy efficiency programs include a component program that specifically targets customers who have low incomes, renters, and other hard-to-reach customers.

Regulators should consider giving an independent entity the responsibility of administering ratepayer-funded energy efficiency programs.

Policymakers should ensure that the cost recovery, utility incentives, and any form of revenue decoupling associated with utility-implemented energy efficiency programs are fair and reasonable and consistent with the following principles:

  • Decoupling and incentive mechanisms are conditioned upon the utility meeting minimum energy efficiency performance standards;
  • Decoupling mechanisms are symmetrical so that any over-recoveries are refunded to consumers;
  • A cap exists on the amount that a customer’s electric bill can increase in any year;
  • Costs are not unfairly allocated to residential customers; and
  • Ratemaking incorporates the benefit of the revenue stability provided to the utility by decoupling and similar mechanisms.

In adopting any energy efficiency program, policymakers should ensure that ratepayers will see smaller utility bills if they consume less energy.