When the goals of a utility and its host community aren’t in sync, breakups happen.
The Trouble with Freeriders
The debate about freeridership in energy efficiency isn’t wrong, but it is wrongheaded.
The energy efficiency programs administered by California’s investor-owned utilities reported 6,500 GWh of electricity and 84 million therms of natural gas savings for the three-year program cycle from 2006 to 2008. Yet valuations of these programs later credited the utilities for less than two-thirds of the electricity and slightly more than just one-half of the natural gas savings the utilities claimed. The rest—2,400 GWh and 40 million therms, to be exact—was claimed by freeriders.
And for the next three-year program cycle, from 2010 to 2012, California utilities appear set to invest $3.1 billion from 2010 to 2012 to meet the saving targets, 6,965 GWh and 153 million therms, approved by the California Public Utilities Commission (CPUC). 1 However, if things go as they did before—and indications are that they might—much of these savings will again go to freeriders.
Investment in energy efficiency has been growing rapidly throughout the United States. In a recent report, the Consortium for Energy Efficiency (CEE) estimated that spending on ratepayer-funded energy efficiency programs was $5.3 billion in 2009, with planned expenditures of 6.6 billion in 2010. 2 More than 50 percent of the expenditures were concentrated in California, New York, Massachusetts, and the Pacific Northwest—a group of states that accounts for 20 percent of U.S. electricity and natural gas consumption. Expenditures are also growing geographically, as the number of states offering energy efficiency programs has increased from 37 to 46 in just the past three years.
This trend is likely to continue for at least the near future. Energy efficiency resource standards with aggressive saving targets are in effect in 26 states and probably will be put into place in more states through legislative action, regulatory mandates, or voluntary goals. Program administrators in these states are accelerating their programs to meet mandated saving goals. As these programs expand and investments in them increase, so will concerns about how freeriders factor into success and compliance metrics. And mechanisms for performance risk and reward appear even more controversial. 3 As a result, freeridership likely will continue playing a prominent part in the regulatory and policy discourse about ratepayer-funded conservation.
Signs suggest a coming shift in the focus in energy efficiency, from energy resource planning to greenhouse gas emission reductions. As the goals of the two policies converge, questions arise about how to track and appropriately credit energy savings attributable to a myriad of different programs, such as 1) the regional greenhouse gas initiatives, 2) regional market transformation initiatives, 3) the federal American Recovery and Reinvestment Act (ARRA), 4) state tax policies to promote energy efficiency, and 5) local stimulus funds earmarked for energy efficiency and creation of green jobs. Such questions will only intensify the debate over freeridership, and about monitoring and attributing savings.
The Origin of the Species