As state and federal energy-efficiency policies are changing and measure baselines are rising, utilities are shifting their demand-side management (DSM) budgets to find more cost-effective savings opportunities. To understand how DSM budgets are changing, we analyzed planned utility budgets from 2016 to 2020, using E Source DSM Insights—our tool containing data on DSM program goals, budgets, spending, and savings from DSM regulatory filings—and we found:

  • Utilities are allocating more of their budget to administrative spending
  • Customer incentives still make up the biggest portion of the budget
  • Utilities are shifting budgets from residential to nonresidential programs

These trends are consistent with what we’ve been hearing from utilities as they address cost-effectiveness challenges due to rising baselines, most notably changes from the Energy Independence and Security Act of 2007 (EISA)—for more information, see our blog post Preparing Your DSM Portfolio for EISA Uncertainty. Residential lighting measures are most affected by EISA, and many utilities are shifting their focus toward commercial savings opportunities to make up for the lost residential savings. As a result, utilities are testing new, more-expensive program models that come with higher administrative costs, such as pay-for-performance programs—which track energy savings using real-time monitoring data.

At the Spring 2019 E Source DSM Executive Council in Boston, a few attendees shared that contractor payments have moved into administrative spending, which has increased administrative costs. Overall, the DSM budgeting process is inconsistent across organizations, which makes it challenging to provide a comparison.

Utilities are allocating more of their budget to administrative spending

Looking at all available budgets from 2016 to 2020 in DSM Insights, we found that utilities are increasing the percentage of budget allocated to administration and customer incentives by 3.3% and 1.7%, respectively (figure 1). They’re also decreasing the percentage of total budget spent on delivery.

Figure 1: Utilities shift funding into the administrative budget category

Utilities are spending more on administration and customer incentives and decreasing spending on delivery through 2020.
Bar chart showing E Source DSM Insights data on budget allocation change from 2016 to 2020. Administration grew 3.3%, Customer incentives grew 1.7%, Performance incentives grew 0.1%, Upstream incentives stayed the same, Evaluation decreased 0.5%, Marketing decreased 0.5%, Design decreased 0.7%, Delivery decreased 1.4%, and Other decreased 2.0%.

Customer incentives still make up the biggest portion of the budget

In 2020, the average planned DSM budget is primarily composed of incentives, administration, and delivery (figure 2).

Figure 2: The utility budget of 2020

Customer incentives make up over half of utility budgets in 2020, followed by administration and delivery.
Budget categoryPercentage of budget
Note: Percentages may not equal 100 due to rounding. © E Source (DSM Insights)
Customer incentives60.8
Admin24.4
Delivery12.0
Evaluation1.0
Marketing0.9
Design0.2
Utility performance incentives0.2
Other0.4

Utilities are shifting budgets from residential to nonresidential programs

For electric efficiency programs, we identified a 4% swing from residential to commercial sector spending for utilities with planned data for 2016 to 2020 (figure 3). Planned commercial sector spending will increase from 53% to 57% of DSM budgets, while residential sector spending will decrease from 47% to 43%.

Figure 3: Utilities are spending more on nonresidential electric efficiency programs

Utilities are shifting electric spending dollars into nonresidential programs through 2020.
Bar chart showing commercial and residential budget allocation from 2016 to 2020. In 2016, 53% commercial and 47% residential. In 2017, 53% commercial and 47% residential. In 2018, 56% commercial and 44% residential. In 2019 58% commercial and 42% residential. In 2020, 57% commercial and 43% residential.

For gas efficiency programs, we identified a 2% swing from residential to commercial sector spending for utilities with planned data for 2016 to 2020 (figure 4). Planned commercial sector spending will increase from 26% to 28% of DSM budgets, while residential sector spending will decrease from 74% to 72%.

Figure 4: Utilities are spending more on nonresidential gas efficiency programs

Utilities are shifting natural gas spending dollars into nonresidential programs through 2020.
Bar chart showing commercial and residential percentage of spending from 2016 to 2020. In 2016, 26% commercial and 74% residential. In 2017, 27% commercial and 73% residential. In 2018, 31% commercial and 69% residential. In 2019 29% commercial and 71% residential. In 2020, 28% commercial and 72% residential.

Contributing Authors

Data Analyst, Customer Energy Solutions

As a data analyst on the Customer Energy Solutions team, Liza uses E Source’s tools and databases to report the latest program trends and...