AARP Eye Center
Background
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. In some jurisdictions, rebates are available for heat pumps for home heating and cooling. These programs aim to reduce the utility’s spending on electricity generation and natural gas usage. Thus, they are funded through rates in addition to federal funding from the Low Income Home Energy Assistance Program and the Weatherization Assistance Program.
Energy efficiency programs are designed to reduce overall energy usage. This can lower utility revenues. When this has happened, utilities have requested additional revenue from regulators to address financial shortages. These utilities typically ask for a separate rate clause to allow them to recover lost revenues from efficiency programs. Revenue decoupling is one method for doing this. It is controversial because it guarantees a utility a certain amount of revenue in between rate cases regardless of energy usage. This may result in higher profits even if sales declines are not due to energy efficiency. For example, in an unusually cool summer, consumers would be expected to use less air conditioning because of the weather, not because of energy efficiency programs. Yet under revenue decoupling, utilities could have guaranteed revenue regardless of the reason for decreased demand. Proponents of revenue decoupling often point to this program as an incentive for utilities to invest in energy efficiency.
Property Assessed Clean Energy (PACE) loans: These are loans for homeowners to make energy efficiency home improvements. They are offered by private contractors but are secured by a property tax lien and are collected through the tax bill. An increasing number of consumers, many of them older adults, have been harmed by PACE loans. Harmful practices include fraud, dishonest contractors, and unaffordable loan terms. Reports show that older adults with low incomes are being targeted. Some older adults complain that they took out loans without understanding the terms and can’t afford to repay them. This puts them at risk of losing their homes.
ENERGY EFFICIENCY PROGRAMS: Policy
ENERGY EFFICIENCY PROGRAMS: Policy
Consumer-focused programs
Policymakers should encourage the development of energy efficiency programs. These programs should be affordable and cost-effective. Regular evaluations should demonstrate measurable results.
Policymakers should also ensure that programs for residential customers are accompanied by a consumer education component. The education plan should, at 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.
Cost-recovery and utility incentives should be fair, reasonable, and include consumer protections.
Policymakers should not adopt decoupling proposals. If they do, they should ensure that:
- the utility is required to meet performance standards for minimum energy efficiency results,
- decoupling rate increases are allowed only when decreased sales directly result from utility-sponsored conservation and energy efficiency programs rather than other factors such as economic downturns or abnormally mild weather,
- 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.
Ratepayers who consume less energy as a result of energy efficiency programs should benefit through lower bills.
Property Assessed Clean Energy (PACE) loans
Policymakers should ensure strong consumer protections against unfair, deceptive, or abusive acts and practices related to Property Assessed Clean Energy (PACE) loans.
Policymakers should:
- require an assessment of the borrower’s ability to repay the loan (see also Financial Services Principles);
- not be offered to borrowers who qualify for free or lower-cost energy efficiency programs; and
- comply with consumer finance laws to ensure transparency in costs and loan terms. This includes the Truth in Lending Act and the Real Estate Settlement Procedures Act.
An independent energy audit should be required to verify cost-effective improvements and reduce the risk of unnecessary work.
If work is needed, an independent process should be put in place to ensure that:
- the consumer understands the costs and risks before the work begins, and
- the work has been completed properly before paying the contractor.