Massachusetts

Summary Massachusetts is a “leading state” with a long, successful record of implementing energy efficiency programs for all customer sectors. The state created an aggressive funding mechanism and required electric utilities to provide energy efficiency programs during its restructuring of the industry in 1997. The law governing these programs is Massachusetts General Law, Chapter 25 §19. The natural gas utilities in the state have offered energy efficiency programs to customers since the late 1980s. Massachusetts utilities spent $25.6 million on natural gas and $120.2 million on electrical energy efficiency programs in 2007, saving 8 million therms and 489,622 MWh. On July 2, 2008, the governor signed Chapter 169 of the Acts of 2008, An Act Relative to Green Communities. The new law altered the approval process and timeline for electric and natural gas utility energy efficiency plans and required the utilities to file the plans every three years. The law required the state’s regulatory authority, the Department of Public Utilities (DPU), to ensure that energy efficiency programs “are delivered in a cost-effective manner capturing all available efficiency opportunities, minimizing administrative costs to the fullest extent practicable, and utilizing competitive procurement processes to the fullest extent practicable.” In addition, the law directed the DPU to appoint and convene an Energy Efficiency Advisory Council (EEAC). The utility companies manage and implement the programs. The low-income residential demand-side management and education programs are implemented through the state’s low-income weatherization and fuel assistance program. Massachusetts has announced a regulatory policy in favor of decoupling for all of its gas and electric utilities and is requiring each gas and electric utility to include a decoupling proposal in its next rate case. Utility companies can earn a shareholder incentive of approximately 5% of energy efficiency program costs for meeting energy saving, benefit-cost, and market transformation goals.

Massachusetts has a restructured utility industry with competitive generation and retail markets. The distribution companies remain regulated and are required to offer energy efficiency and other demand-side management programs. The distribution utilities administer their own energy efficiency programs with collaborative input and oversight from the state Division of Energy Resources (DOER) and Department of Public Utilities (DPU).

Under the Green Communities Act, a new process has been put in place for design and approval of utility-administered efficiency programs.  The Act created an Energy Efficiency Advisory Council that works with the program administrators (utilities) to establish statewide plans for gas and electric utilities for 3 years into the future.  In the course of this process, the utilities work with independent consultants hired to advise the EEAC in establishing appropriately ambitious targets to meet the Act’s mandate that utilities plans “shall provide for the acquisition of all available energy efficiency and demand reduction resources that are cost effective or less expensive than supply and shall be prepared in coordination with the energy efficiency advisory council.”  After these statewide three-year plans have been developed, each individual utility designs its 3-year energy efficiency plan and submits to the Department of Public Utilities for approval.  This process is open to the public. Massachusetts utilities reported efficiency program savings of 8 million therms and 489,622 MWh.

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Massachusetts’ utilities have a long history of offering electric and natural gas efficiency programs to their customers. Funding for the programs is expected to increase with the implementation of Chapter 169 of the Acts of 2008. The proposed statewide plans are expected to invest $1.4 billion in energy efficiency and demand resources by 2012. Massachusetts utilities spent $25.6 million on natural gas and $120.2 million on electrical energy efficiency programs in 2007.

The electric energy efficiency and low-income programs are funded by a monthly charge (system benefits charge) on customers' electric bills (approximately .25 cents/kWh). The distribution utilities collect the charges, which go into a trust fund for administration. The Green Communities Act provides for additional funding to be allocated to energy efficiency programs.  It specifically expands funding to include (1) proceeds from the Forward Capacity Market, (2) not less than 80% of the proceeds from the Regional Greenhouse Gas Initiative (RGGI) auction: the Department of Energy Resources (DOER) has indicated that it will allocate 100% of the RGGI funds to EE programs, and (3) an adjustment to distribution charges to the extent that it is necessary to procure all cost-effective energy efficiency and demand resources.  Utilities have filed proposals for Energy Efficiency Reconciling Mechanisms which have been approved by the DPU. 

The distribution utilities develop estimated budgets and associated plans for energy efficiency programs. Each company submits annual energy efficiency program proposals to the EEAC. DOER is represented on the EEAC. The utilities work with a group of stakeholders (a “collaborative”) in developing these plans. [See above for the process.] EEAC is responsible for assisting with the design of the statewide plans as well as the allocation of monies to the various customer sectors. The plan is then reviewed by the state’s utility regulatory authority, DPU, for cost-effectiveness and approval. After the statewide 3-year plans have been developed, each individual utility designs its 3-year energy efficiency plan and submits it to the DPU for approval.  The DPU may also approve and fund energy efficiency programs proposed by gas distribution companies (including demand-side management programs). 

Energy efficiency program funds must be allocated to customer classes, including the low-income residential subclass, in proportion to these customers’ contributions to those funds. At least 10% of the funding for electric energy efficiency programs and at least 20% of the funding for gas energy efficiency programs must be spent on low-income residential demand-side management and education programs. 

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The Green Communities Act establishes the requirement that electric and gas utilities acquire all cost-effective energy efficiency that costs less than new energy supply as the first priority resource. A recent agreement of major stakeholders adopted a plan that sets an energy savings target of 2.4 percent of electricity sales in 2012. Utility energy efficiency programs have traditionally produced savings of 0.8 percent to 0.9 percent annually.

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Massachusetts has announced a regulatory policy in favor of decoupling for all of its gas and electric utilities. As such, gas and electric utilities must include a decoupling proposal in their next rate case. Target revenues are determined on a utility-wide basis (full decoupling) and can be adjusted for inflation or capital spending requirements if necessary. Although none of the utilities have mechanisms in place yet, the Massachusetts DPU expects that all utilities will have fully operational decoupling plans by 2012.  Some utilities are in the midst of current rate plans that may be implemented until their conclusion.  See DPU Docket 07-50-A (July 2008). Two utilities have now filed rate cases that include decoupling proposals.  National Grid Electric Company’s proposal is being reviewed in Docket 09-39, and Bay State Gas Company’s proposal is being reviewed in 09-30.

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A shareholder incentive is in place for utility energy efficiency programs that provides an opportunity for companies to earn about 5% of program costs as an incentive for meeting established program goals. The incentive is based on a combination of elements including energy savings, benefit-cost, and market transformation results. The order that approved the incentive is DTE Order 98-100 (DTE is now DPU). The incentive structure is developed on a program-by-program basis.   The EEAC and utilities are negotiating changes to the current methods for evaluation, monitoring, and verification.  One of these proposals includes a study by an independent third party that would be paid for by the utilities.  Details are still being worked out.  The Attorney General has taken the position that decoupling and shareholder incentives are not compatible, but the Green Communities Act clearly mandates the use of shareholder incentives, and the implementation of decoupling should not change that.

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The Green Communities Act requires electric and gas utilities to acquire all cost-effective energy efficiency that costs less than new energy supply as the first priority resource. Utilities are now preparing plans for the Dept. of Public Utilities that will establish annual budgets and goals.

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• Department of Public Utilities

• Division of Energy Resources

• Massachusetts General Law Chapter 25 §19

• Chapter 169 of the Acts of 2008, An Act Relative to Green Communities

• Energy Efficiency Advisory Council (EEAC)

• Plan drafts on the EEAC web site

• Conservation Law Foundation summary of the statewide plans

• Massachusetts State Incentives for Renewables and Efficiency

Last Updated 11/12/2009

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