Energy Efficiency Programs

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. These programs aim to reduce the utility’s spending on electricity generation and natural gas usage. Thus, they are funded through rates.

Revenue decoupling is controversial because it 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. Doing so cancels out the benefits of energy efficiency programs.

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, 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.

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;
  • 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.