1996

Executive Summary

In the past two years, the dominant topic of discussion among utility companies, regulators, and other utility industry observers has been increased competition in the utility industry, including increased wholesale competition as well as the coming of retail competition. The general tenor of these discussions is that increased competition is coming (although there is a wide range of opinions as to what form[s] this increased competition will take and how long the transition will take) and that utilities should begin preparing for this increased competition now, primarily by reducing costs wherever possible.

In this report, we do not attempt to discuss the coming of increased competition to the utility industry, nor do we discuss the advisability of undertaking major cost-cutting efforts at this time (these topics are discussed in another ACEEE paper--Nadel, Geller, and Pye 1995). We also do not discuss the best structure(s) for delivering energy efficiency services in the post-competitive age (this is the topic of an upcoming ACEEE report). Instead, we begin with the understanding that many utilities are now trying to reduce costs, and one area where they are looking for cost savings is in budgets for energy efficiency programs. While most utilities understand that energy efficiency has many benefits for society, in an effort to cut costs, as part of broader cost-cutting efforts, many utilities are seeking to lower the amount of money they spend on energy efficiency programs. In some cases utilities are trying to reduce energy efficiency budgets in absolute terms, in other cases they are seeking to slow the growth in energy efficiency budgets. In an effort to assist with utility efforts to "get the most bang for the buck," in this report we attempt to summarize current thinking and research on how to maximize long-term, sustained energy savings while minimizing costs. Also, in some cases, energy efficiency programs will not be offered by utilities but instead will be offered by other independent entities, such as energy service companies or agencies affiliated with state government. These organizations will also be interested in maximizing savings within budget constraints. In discussing reduced costs, we focus on costs to the utility (or the non-utility implementing entity) instead of costs to society because utilities are primarily interested in lowering their costs, in an effort to keep electricity rates down.

The focus of this report is on energy efficiency strategies utilities can use during the transition period from a heavily regulated market to a more competitive market. Until the forms of increased competition are decided, it is premature to recommend energy efficiency strategies for the competitive age. However, many of the strategies discussed below could serve as a cornerstone of energy efficiency efforts in a highly competitive market.

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51 pp., 1996, $13.00 U963

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