Ratepayer-Funded Efficiency through Regulatory Policy

Regulatory policy can have a significant impact on investment in energy efficiency.  Developing a set of regulatory policies appropriate for each individual state’s context will set a foundation for achieving all cost-effective energy efficiency.  

Photo of an electricity pylon

Key Focus Areas

Electric and natural gas utilities can play a vital role in deploying all of our nation's available cost-effective energy efficiency—but traditional utility regulation can create unintended obstacles for the utilities.

Under the conventional regulatory framework, a utility's financial health can be negatively impacted when it delivers energy efficiency to its customers.  State utility regulators are using a variety of incentives for overcoming these barriers.  SEE Action has identified seven key focus areas to assist state utility regulators:

  • Utility financial incentives. Incentivize utilities to deliver energy efficiency through energy efficiency cost recovery, mitigating or eliminating the throughput incentive, and aligning customer and utility interests.
  • Bill and rate impacts.  Account for the long-term savings as well as short-term costs of efficiency programs, and design programs in ways that mitigate rate increases.
  • Method of energy efficiency program delivery. Understand successful examples of different choices in efficiency program delivery including investor or public owned utilities; independent, non-government statewide organizations (“3rd Parties”); state agencies; and hybrid models.
  • Building Codes and appliance standards. Building energy codes and appliance efficiency standards are likely to capture significant energy efficiency savings over the coming years. This has implications for existing utility energy efficiency program design and utility involvement in codes and standards.
  • Customer service and satisfaction.  Energy efficiency programs contribute significantly toward customer satisfaction, and the desire to improve customer satisfaction can motivate utilities to offer or expand energy efficiency programs.
  • Integrated resource planning (IRP).  An IRP can be a powerful impetus for energy efficiency and other demand management alternatives to new supply, especially where the planning process is mandatory and overseen by a PUC, because the IRP may require utilities to consider demand side resources that benefit ratepayers even if those resources do not benefit utility shareholders.
  • Targets and goals.  A growing number of states are setting mandatory energy-saving targets. Experience to date indicates that most states are on track to meet the targets that have been set, and that establishing such targets is driving significant and cost-effective energy-efficiency savings. However, targets need to be developed with care and many issues considered in setting targets.

Key Initiatives

SEE Action is currently working on several initiatives that will provide state utility regulators and stakeholders the tools and information they need to create utility motivations that will lead to a significant increase in energy efficiency. These include: 

  • Hosting regional Regulatory Policy Exercises - informative, interactive, day-long exercises that enable regulators to explore a variety of energy efficiency policies in a consequence-free environment.  Participants—including utility commissioners, commission staff, and state consumer advocates—experience a variety of utility and consumer perspectives in a mock scenario in which they:
    • Act as regulators and explore a variety of stakeholder perspectives in a mock scenario
    • Hear live "testimony" and discuss policy options with fellow commissioners
    • Select from several regulatory approaches and use a modeling tool to observe, analyze, and discuss the financial impacts on a hypothetical utility
    • Leave with resources—relevant decisions, orders, and additional resources to explore.
  • Promoting best practice utility planning processes that allow demand side resources to compete as a cost-effective alternative to supply side resources, including generation, transmission, and distribution infrastructure investments.
  • Understanding how electric and natural gas utilities can be motivated by the establishment of numeric energy savings targets and goals for energy efficiency program results.
  • Providing regulators with a comprehensive approach to analyze impacts of energy efficiency programs on rates and bills, when concerns about rate impacts pose a barrier to energy efficiency programs either for utilities or regulators
  • Identifying and advancing the understanding of factors that should be considered in evaluating choice of model for administering ratepayer funded energy efficiency programs, given that energy efficiency runs counter to the traditional/core business model for utilities.
  • Highlighting the customer satisfaction benefits of utility sponsored energy efficiency programs, and encouraging policymakers and other stakeholders to recognize and consider these benefits during their review of proposals.