One way some new players in the power generation market are looking at the valuation is to separate out “extrinsic” value and apply a higher discount rate or “haircut.” An alternative approach is...
Performance standards are a valid idea—if targets are achievable.
The Northwest Power and Conservation Planning Council (NPCPC ) was formed under the authority granted by the 1980 Federal Power Act (FPA). The primary role of the NPCPC is to assure an adequate and reliable supply of electricity in the Pacific Northwest. Every five years, the council forecasts the region’s long-term demand for electricity and examines different ways to meet it. The result is a 20-year resource plan that recommends a mix of power supply and cost-effective conservation options, always treating conservation as the highest priority.
The NPCPC produced the first regional power plan in 1983, projecting on average as much as 4,790 MW ( e.g., 42 million MWh) of cost-effective conservation likely would be achievable by 2002. Under the FPA, the Bonneville Power Administration, which is the regional federal power marketing agency, is required to make resource acquisition decisions consistent with the power plan, including the acquisition of all identified cost-effective conservation. Publication of the 1983 power plan, therefore, marked what is possibly the first formal energy-efficiency performance standard (EEPS) in the United States. 1
In 1999, Texas became the first state to institute an EEPS through legislative action, requiring the state’s utilities to reduce their load growth by 10 percent through end-use efficiency improvements. 2 Two recent reports by the American Council for an Energy-Efficient Economy (ACEEE) and the Pew Center for Climate Change show EEPS have been enacted in 23 states at an accelerating pace. Approximately one-third of all of the standards in place today have been adopted since 2007. 3
Efficiency goals and standards are necessary for improving the industry’s efficiency and performance on conservation efforts. But such initiatives will be most successful if they’re realistic and reasonably achievable. The effectiveness of conservation efforts so far has been driven largely by the rationality of programs. A uniform, market-based approach would give retailers flexibility and spur innovation—and have a greater chance of achieving efficiency policies.
Paths to a Common Goal
An energy-efficiency resource standard (EERS), or energy-efficiency performance (or portfolio) standard, is a regulatory mechanism for encouraging greater efficiency in energy use. An EEPS is similar to a renewable portfolio standard (RPS) in that it requires energy utilities to reduce energy use by a specified—and often increasing—amount each year for a specified period. Most states have a separate EEPS and RPS, while others such as Connecticut, Nevada and North Carolina combine the two mechanisms by allowing energy efficiency to meet part or all of an RPS.
In the majority of states with an EEPS, targets are set by legislative mandates, but in several cases, they have been mandated by state regulators. In Arizona, the state with the most aggressive EEPS, targets were ordered by the Arizona Commerce Commission. In California, which has one of the longest histories of active conservation, energy-efficiency requirements were established by the California Public Utilities Commission. In Iowa and Indiana, state regulators set the saving