Avoid Backlash from Mandates to Achieve All Cost-Effective Efficiency Potential
Published: April 20, 2011
Tim Stout
At least five U.S. states—Massachusetts, Connecticut, Rhode Island, New Mexico, and Washington—now have legislative or regulatory mandates that require utilities to achieve all cost-effective efficiency potential. The intent of these mandates is to pursue energy efficiency as a resource before other, more-traditional resources are considered to meet future load growth. Lower costs and reduced carbon-dioxide emissions are two of the key justifications for these mandates. The challenge is that such mandates place upward pressure on rates. This can lead to consumer and regulatory backlash if the process isn’t properly managed.
Pursuing all cost-effective efficiency potential means going beyond lighting measures that cost less than 3 cents per saved kilowatt-hour (kWh) to more-expensive efficiency opportunities such as complex HVAC measures and industrial processes that may be well over 5 cents per saved kWh. As utilities pursue more costly savings, they’ll need to increase the energy-efficiency charge, and that will be difficult for regulators and consumers to accept. These savings are considerably less expensive than bringing new generation on-line, but if stakeholders don’t understand up front that the higher energy-efficiency charge is less than what they would have otherwise paid for traditional resources, they may still fight the efficiency charge increase.
Rhode Island presents an interesting example. In 2006, the state legislature approved the Comprehensive Energy Conservation, Efficiency and Affordability Act (PDF) requiring the state to pursue all cost-effective efficiency potential. In 2009, National Grid, which serves electricity and gas to over 95 percent of the state, filed programs for 2010 with goals that were 45 percent larger than the 2009 goals, which were in turn 30 percent greater than the 2008 goals. National Grid requested a 19 percent increase in the energy-efficiency charge to fund the achievement of the higher savings goals. The Rhode Island Public Utilities Commission rejected the proposal, ordered the utility to keep program funding at 2009 levels, and required the utility to achieve the higher goals. In short, National Grid was ordered to achieve a 45 percent increase in goals without any increase in budget from the efficiency charge! Ultimately, National Grid was able to secure funding from other sources to supplement its budget and succeeded in achieving its goals.
To avoid getting caught in the cross fire between regulators, legislators, and consumers, utilities can help set the stage to minimize the backlash that can occur as a result of higher rates. Successful approaches include:
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Establishing relationships with stakeholder groups that represent low-income, large business, and environmental consumers as well as with relevant state agencies and other consumer-advocacy organizations
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Keeping legislators, particularly those that originally supported the mandate, fully apprised throughout the development of the plan
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Preparing and distributing succinct materials that highlight the purpose and long-term benefits of the plan to society
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Ensuring that executives and others within the utility who frequently interact with customers are aware of and support the central tenets of the plan
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Illustrating the potential rate impacts of more aggressive demand-side management goals in all communications
If you have experience with such mandates in your states, we’d love to hear about them. E Source has more information on this topic and examples of materials that have been used in various states for securing support for mandates. Contact us to learn more. |
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About the Author
Tim Stout
DIRECTOR, E SOURCE EFFICIENCY SERVICES
Tim Stout leads the E Source Efficiency & Demand-Response Programs, Technology Assessment, and Intelligent Grid Services. For 23 years, he worked at National Grid, a gas and electric utility serving more than 7 million customers in the Northeast. Beginning in 2002, he served as National Grid’s vice president of Energy Efficiency and Distributed Resources. In this capacity, Tim was responsible for the design, implementation, evaluation, and regulatory approval of the company’s electric and gas energy-efficiency programs in New England and New York. He currently serves on the board of directors of the American Council for an Energy-Efficient Economy and previously served on the boards of the Consortium for Energy Efficiency and the Northeast Energy Efficiency Partnerships. Tim holds an MA from Boston University and a BA from Middlebury College. |
