Changes in regulatory requirements, market structures, and operational technologies have introduced complexities that traditional ratemaking approaches can’t address. Poorly designed rates lead to...
Setting the stage for conservation.
must be sustainable. The revenue-recovery mechanism and the incentive mechanism must be durable across time and be reasonably certain: Customers need long-term incentives for energy efficiency to make a difference; regulators need to see cost-savings and customer benefits so that the efficiency programs make economic sense and are in the public interest; electric utilities need the long-term support of regulators to ensure the certainty of their investments and planning; and Wall Street needs to see the commitment to take efficiency investments seriously.
The big jump in utility efficiency budgets that has taken place during the past two years is attributable in large part to the regulatory progress that has been made in turning energy efficiency into a scalable and sustainable business. And the future looks bright. Lawrence Berkeley National Laboratory is forecasting energy-efficiency budgets will reach $12.4 billion annually by 2020 under its high scenario, representing a three-fold increase from today. However, given recent progress, the intense interest in efficiency, and the energy-management potential enabled by smart meters, efficiency investments seem likely to exceed that amount.
The electric power industry is committed to transforming the nation to a more energy-efficient economy. At the same time, the federal government is spending billions of dollars to advance efficiency nationwide. To maximize both efforts, the industry is working more closely with the DOE and the Environmental Protection Agency (EPA) to create an aggressive national commitment to energy efficiency. The latest example of this partnership is the State Energy Efficiency Action Network (SEE Action Network). Launched in February, the SEE Action Network will build upon the progress of the national action plan for energy efficiency, which was initiated in the fall of 2005 by DOE and EPA. The action plan created a blueprint of options for utilities, regulators, energy consumers, and non-governmental groups to consider in encouraging greater energy-efficiency investment.
As part of the SEE Action Network, utilities will work with DOE, EPA and other member organizations to assist the states in advancing energy-efficiency policies and programs, removing barriers and disincentives to investments in efficiency, and growing state-level investments in cost-effective efficiency. Additional efforts address the key areas of evaluation, measurement, and verification of energy savings (EM&V).
EM&V is a critically important issue and source of uncertainty for utilities making energy-efficiency investments. Major EM&V issues arose in California in late 2008, when final energy savings were being verified for electric utilities so that their performance incentives could be finalized, which involved the state retroactively going back and re-calculating savings for specific measures.
Utilities that thought they were getting performance incentives for their efficiency achievements were faced with the potential of having to pay penalties. The California Public Utilities Commission (CPUC) amended its process so the first two (out of three) annual performance incentives were paid to the utilities in the years they were supposed to be paid. For the final true-up performance incentive for the 2006-08 cycle, the matter hasn’t yet been resolved. The CPUC has a process underway that will provide it with the ability to resolve the final claim this year, but