[BETA] Fortnightly

As new energy efficiency programs proliferate, regulators increasingly will seek to use the associated demand reductions to reduce capital expenditures on new transmission and distribution assets. However, forecasting the expected geographic distribution of these demand reductions within the grid and integrating this information into a utility’s capital planning process is a challenging task.

Regulators across the country are relying on conservation-potential assessments to guide their policy decisions. Models based on macroeconomic analysis, end-use forecasting and accounting measurements provide different ways to assess the achievability of conservation and efficiency goals.

Performance standards are a valid and necessary idea to drive conservation, but only if targets are realistic and achievable. So far, success has been determined by program rationality. A uniform, market-based approach would give retailers flexibility to spur innovation.

In June 2008, the New York Public Service Commission (PSC) established the electric energy-efficiency portfolio standards for New York’s investor-owned utilities. In its order, the PSC directed utilities to file three-year energy-efficiency plans. Later that year, the PSC issued a supplemental order approving shareholder incentives for utilities successfully implementing their portfolios. If all goes according to plan, the six affected IOUs stand to earn about $27 million annually in performance incentives over three years. The structure of the incentive mechanism approved by the PSC presents risk factors that might affect utilities’ ability to realize the full earning potentials the mechanism offers.