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Extreme Efficiency

Performance standards are a valid idea—if targets are achievable.

Fortnightly Magazine - September 2010

targets now in effect. In Florida, a decision on EEPS is pending before the Florida Public Utility Commission. Washington is the only state where EEPS legislation originated with a direct voter initiative (WA I-937) in 2006.

There also are instances in which performance standards were set by public utility boards and municipal governments. For example, aggressive saving targets were approved by the boards of municipal utilities for Sacramento Municipal Utility District in California and Austin Energy in Texas. Performance standards in the form of energy reporting requirements and disclosure ordinances are in effect in San Francisco and Seattle, among others, and now are being considered by several other cities such as Portland, Ore., and New York.

Performance standards can apply to electricity, natural gas, or, in a handful of cases, to both. Electric performance standards may include goals for energy savings, capacity savings, or both. In some states, eligible savings are restricted to energy-efficiency measures and practices approved in statewide technical reference manuals.

Several states allow flexibility in how saving targets are satisfied. For example, in Connecticut, energy-efficiency targets may be met partially through distributed generation resources such as combined heat and power. In California, Minnesota and Washington, efficiency savings resulting from new appliance standards and building energy codes may be counted toward the target. In other states, utility system improvements qualify. The California PUC recently allowed quantifiable savings from behavior-based energy-efficiency initiatives to be counted toward saving targets.

The allowed period of performance also varies from state to state and ranges from as few as four years in Pennsylvania to 15 years in Ohio, with 10 years appearing to be the norm. In most cases, targets also include phase-in provisions. Cost-effectiveness is a universal condition, and many states mandate ceilings on expenditures. In several states, performance regulations include penalties for failure to meet the mandated targets and awards, typically in the form of shareholder incentives, for outperforming them.

How Performance Is Measured

EEPS are basically annual energy savings targets; however, even a cursory survey of performance standards in effect today reveals how diversely they are defined and structured. Performance standards in effect today generally are defined in one of four ways.

• Fraction of annual sales is the most common approach. The fraction generally is calculated against sales in a particular historical baseline year ( e.g., Pennsylvania), or the previous year ( e.g., Arizona and Michigan), or an average of several past years ( e.g., three years in Indiana, Minnesota, and Ohio).

• In several states, such as California, Hawaii, Massachusetts, and Vermont, targets are set as absolute amounts of energy and capacity savings.

• In other states, including Massachusetts, Rhode Island, and Washington, utilities are required to acquire all cost-effective conservation. In Washington state, utilities must acquire all cost-effective and reasonably achievable levels of the projected energy-efficiency potential.

• Texas is the only state where savings are measured against load growth.

Variations in existing EEPS might be characterized in terms of at least four general features: target levels, complexity, governing rules, and constraints. These features are significant