AARP Hearing Center
Background
By using energy more efficiently, consumers can lower their energy use and lower their energy costs. In turn, this should reduce their energy costs. Most electric and natural gas utilities offer energy efficiency programs, including energy audits. They may also provide free or discounted insulation as well as energy-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 in addition to federal funding from the Low Income Home Energy Assistance Program and the Weatherization Assistance Program (see also Energy Affordability).
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.
Decoupling: This form of alternative ratemaking guarantees a utility a certain amount of revenue in between rate cases regardless of energy usage (see also Energy Rates). This can provide the utility with an incentive to invest in energy efficiency. However, decoupling can keep rates high even when declines in energy usage are not due to energy efficiency. For example, during an unusually cool summer, consumers will use less air-conditioning because of the weather, not because of energy efficiency. Nevertheless, decoupling programs may guarantee revenue regardless of the reason for decreased demand.
Property Assessed Clean Energy (PACE) loans: These are loans for homeowners to make energy-efficient home improvements. They are offered by private contractors. However, they are secured by a property tax lien and 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 (see also Credit Products and Services). 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 cannot afford to repay them. This puts them at risk of losing their homes.
ENERGY EFFICIENCY PROGRAMS: Policy
ENERGY EFFICIENCY PROGRAMS: Policy
Consumer protections in energy efficiency programs
Energy efficiency programs should be affordable and cost-effective. Regular evaluations should demonstrate measurable results.
Programs for residential customers should be accompanied by a consumer education component that helps customers understand 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.
Ratepayers who consume less energy as a result of energy efficiency programs should benefit through lower bills.
Cost-recovery and utility incentives should be fair and reasonable (see also Energy Rates). They should include consumer protections.
Decoupling
Policymakers should not adopt decoupling proposals, which guarantee a utility a certain amount of revenue in between rate cases regardless of energy usage (see also Energy Rates). If they do, they should adopt consumer protections. This includes ensuring 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,
- any over-recoveries are refunded to consumers,
- the amount that a customer’s electric bill can increase in any year is capped,
- costs are not unfairly allocated to residential customers, and
- rates reflect the benefit of the revenue stability provided to the utility by decoupling and similar mechanisms.
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 (see also AARP Financial Services Principles). Borrowers who qualify for free or lower-cost energy efficiency programs should not be offered PACE loans.
Policymakers should require:
- an independent energy audit to verify cost-effective improvements and reduce the risk of unnecessary work,
- an assessment of the borrower’s ability to repay the loan while affording essential expenses,
- require transparency. This includes compliance with the Truth in Lending Act and the Real Estate Settlement Procedures Act to ensure transparency in costs and loan terms. Consumers should also understand the costs and risks before the work begins.
Contractors should not be paid until work has been completed properly.