By using energy more efficiently, consumers can lower their energy use. In turn, this reduces their energy costs. For example, most electric and natural gas utilities offer energy efficiency programs. They conduct energy audits. They may also provide free or discounted insulation, as well as efficient lighting and appliances. These programs aim to reduce the utility’s spending on electricity generation and natural gas usage. Thus, they are funded through rates.
One particularly controversial issue related to energy efficiency is revenue decoupling, which guarantees a utility a certain amount of revenue, even if sales decline due to energy efficiency. It is intended to prevent utilities from trying to generate and sell as much energy as possible to increase revenue, canceling out the benefits of energy efficiency programs.
ENERGY EFFICIENCY PROGRAMS: Policy
Creating consumer-focused programs
Policymakers should encourage the development of energy efficiency programs. These programs should be affordable, cost-effective, and measurable. Policymakers should also ensure that programs for residential customers are 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.
Energy efficiency programs should specifically target customers who have low incomes, renters, and other hard-to-reach customers.
Regulators should consider assigning the responsibility of administering ratepayer-funded energy efficiency programs to an independent entity.
Policymakers should ensure that the cost recovery, utility incentives, and any form of revenue decoupling associated with utility-implemented energy efficiency programs are fair, reasonable, and include consumer protections. In determining whether this is the case, policymakers should ensure that:
- decoupling and incentive mechanisms are conditioned upon the utility meeting performance standards for minimum energy efficiency;
- 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 an-y 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.
Policymakers should ensure that ratepayers will see smaller utility bills if they consume less energy.