Valuing Energy Efficiency


The search for a better yardstick.

The search for a better yardstick.

Fortnightly Magazine - July 2013

a quick fix. But if we are to heed the evidence of global climate change and its potential economic and social effects, and if we believe that energy efficiency can help mitigate them, it would be worthwhile to step up the task. Now more than ever it would be wise to take the long-term view and remind ourselves that for now energy efficiency remains, as a 2010 McKinsey & Co. report puts it, “a compelling global resource.” 26

The distributional impacts of energy efficiency can be mitigated with creative programs that offer new products and services to a broad spectrum of consumers. Policy makers and regulators interested in adopting a guideline for their decisions might want to consider a simple, three-step process, a variant of which was proposed more than 20 years ago by Gelling and Chamberlin, two pioneers of energy efficiency analysis: 1) implement all programs that pass the RIM test, 2) eliminate all programs that don’t pass the PAC test, and 3) carefully evaluate the distributional impacts of the remaining programs. 27

To some the current conditions presage a decline like what was experienced in the mid-1990s, a time when utilities apprehensive of the stranded-cost implications of open access mostly abandoned – or drastically curtailed – energy efficiency investments. The risks are real and all involve thinking short term. The big questions are what regulators will make of current conditions and how they will react. Implementing new guidelines for screening energy efficiency measures doesn’t require a grand-scale policy overhaul, merely refinements to well-established procedures. But the regulatory process being as it’s, the change is unlikely to catch on quickly.


1. For a discussion of energy efficiency resource standards see “ Extreme Efficiency ,” by Haeri, Hossein and Eli Morris, Public Utility Fortnightly, September 2010.

2. California Standard Practice Manual: Economic Analysis of Demand-Side Management Programs, October 2001.

3. “ Valuation of Non-Energy Benefits to Determine Cost-Effectiveness of Whole-House Retrofit Programs: A Literature Review, ” by Amann, Jennifer, ACEEE Report Number A061, 2006.

4. “The Most Value Test: Economic Evaluation of Electricity Demand-Side Management Considering Customer Value,” by Hobbs, Benjamin F ., The Energy Journal, Vol. 12, No. 2, 1991, pp. 67-91.

5. Demand-Side Management: Concepts and Methods, by Gellings, C.W. and J.H. Chamberlin, Fairmont Press, Liburn, Ga., 1993.

6. A National Survey of State Policies and Practices for the Evaluation of Ratepayer-Funded Energy Efficiency Programs , Report No. U122, by Kushler, Martin, et al., American Council for an Energy Efficient Economy, February 2012. See also Concept Paper: Discussion of and Recommendations for Issues Surrounding Energy Efficiency Savings Targets in Florida , prepared by GDS Associates for the Florida Public Service Commission, March 4, 2009.

7. “Least-cost Planning and Demand-side Management: Six Common Fallacies and One Simple Truth,” by Ruff, Larry, E., Public Utilities Fortnightly,” April 28, 1988.

8. “Ten Myths of Energy Conservation,” by Costello, Kenneth W., Public Utilities Fortnightly , March 19, 1987.

9. Planning and Pricing in the Energy Conservation Business , by Ruff, Larry E., Putnam, Hayes & Bartlett, June 1992.

10. For a comprehensive list of