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Extreme Efficiency

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

Fortnightly Magazine - September 2010

in that not only do they demonstrate extreme diversity, but they are also important indicators as to whether the targets ultimately are achievable.

Target Levels

The defining feature of an EEPS—and the primary measure of performance in most cases—is the expected level of energy savings, whether measured as an absolute amount, a fraction of sales, or a portion of expected load growth. The mandated saving targets and allowed performance periods vary widely among states. The impact of these variations becomes apparent when examining the annual and cumulative electricity saving targets mandated in Arizona, Illinois, Indiana, Ohio, Minnesota, and Indiana (see Figure 1) . Performance standards in all of these states were adopted in a rather short time span, from 2007 to 2010, and all include a phase-in provision of at least 10 years.

Arizona has the most aggressive target among the six states, and, for that matter, any state. According to the 2009 ruling of the Arizona Corporation Commission, utilities providing retail electricity in the state are required to produce electricity savings equivalent to at least 22 percent of their previous year’s sales by 2020. The 10-year standard begins at 1.25 percent of the previous year’s retail electricity sales in 2011, grows to 2 percent in 2013 and 2.5 percent in 2016, where it remains through the end of the performance period in 2019. Demand response and energy savings achieved in earlier years do count toward meeting the targets. 4

The Illinois Legislature passed Public Act 96-0033 in June 2009, which sets annual energy saving targets for electric and natural gas utilities. Beginning in 2010, electric utilities are required to generate annual savings that begin with the equivalent of 0.2 percent of their previous year’s sales in 2008. The savings increase gradually to 2 percent in 2016 and continue at that rate through 2018, establishing the second-highest cumulative saving target among the six states. The legislation also sets relatively modest peak-load saving targets of 0.1 percent annually over the course of the 10-year plan.

In Indiana, which has the third-highest performance standard among the six states, saving targets begin at 0.3 percent of the average annual sales for the previous three years. This number increases to 1.1 percent in 2014 and 2 percent in 2019.

In Ohio, Senate Bill 221 sets annual saving rates beginning in 2009 at 0.3 percent of the average sales for the previous three years, ramping up to 1 percent by 2012, followed by 1 percent annual savings through 2018 and 2 percent every year thereafter until 2025, requiring utilities to accumulate savings of at least 22 percent by 2025.

Savings targets in Minnesota and Michigan are similar to those set in Ohio, but have lower cumulative targets. In Michigan, where cumulative performance standards are the lowest, annual targets start at 0.5 percent of the previous year’s sales in 2010, increase to 1 percent in 2012 and remain at that level through 2020.

How Targets Were Selected

Statutes prescribe; they don’t explain. So it’s difficult to know the rationale behind states’ specific performance targets—both levels and performance periods—without