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A Business Case: Energy Efficiency in the New Environment

Investments in energy efficiency can be a growing revenue source. Strong programs, in conjunction with effective monitoring and verification, are the keys to success.

Fortnightly Magazine - December 2006

Conditions are conspiring to make investments in energy efficiency a major strategic move on the part of utilities in the United States. It’s no longer just “the right thing to do.” There is a strong and growing business case for significant investment in energy efficiency on the part of utilities and their customers. For those utilities that can demonstrate effective measurement of this resource, investments in this area can be a growing revenue source. The key to success will be to develop strong programs, in conjunction with effective, serious monitoring and verification. Like the old industry mantra “meter – bill – collect,” energy efficiency impacts require the same quantification.

Furthermore, the resurgence in utility-implemented energy efficiency has been strengthened suddenly by five drivers: 1) public-benefits programs; 2) environmental markets; 3) capacity markets; 4) energy prices; and 5) corporate sustainability programs. In this article, we analyze each of these new trends.

Public-Benefits Programs

The Federal Energy Management Program (FEMP) notes that as of 2006, 22 states operate public-benefits funds (see the map in Figure 1) . In some states, like New York, where the fund is called a systems-benefits charge, or SBC, the money goes to a state agency to design, implement, and evaluate the programs, with virtually no involvement on the part of utilities. 1 In other states, like California, the state collects the money, but then gives it back to the electric utilities to implement the programs following approved statewide program designs that have been collectively developed by various stakeholders, including the utilities. New Jersey uses a similar model. In only two states—Maine and Wisconsin—does the regulatory agency itself implement the programs.

Regardless of which entity is responsible for implementing programs, utilities still have to play a role as they maintain the most direct and constant link to the energy users—their customers. In addition, they remain the keepers of the information necessary for proving success or failure.

Some states are starting to incorporate mechanisms to improve upon the cost-recovery formulas that made utilities at least “no worse off” for implementing programs in the 1980s and ’90s. As the American Council for an Energy Efficient Environment notes:

One key obstacle to expansion of utility [energy efficiency] programs is the inherent economic disincentive utilities face when customers reduce their energy use. As a result, a number of states have implemented policies to reduce or eliminate that disincentive ( i.e., “decoupling”) and/or create positive economic incentives for shareholders when utilities meet energy efficiency objectives. 2

Environmental Markets

The second factor supporting the business case for energy efficiency is a growing concern about environmental issues. Energy efficiency contributes to environmental improvements by reducing the need for electricity, and thus the need for fuel consumption in power plants.

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