Regulating Electric Distribution Utilities as if Energy Efficiency Mattered

Martin Kushler and Margaret Suozzo

May 1999

Abstract

The electric industry in the U.S. is undergoing a substantial restructuring in an effort to interject competition into the electric generation market. At the same time, however, there are enduring societal interests associated with electricity which need to be considered. These include achieving reliable, least-cost electric supply and securing the economic and environmental benefits of energy efficiency.

In the emerging electric industry paradigm, "distribution utilities" will be very powerful institutions in shaping how, and how much, electricity is used in this nation. Unfortunately, as this report explains, there are a number of reasons why distribution utilities may not be inclined to pursue energy efficiency, either in their own distribution functions or among their end use customers. Fortunately, as regulated monopolies, their operating rules and regulations can be structured to reflect important public policy objectives. The crucial question will be whether policymakers and regulators take advantage of the policy opportunities that are available to encourage energy efficiency, as the new ground rules for the electric industry are being written.

This report examines the role of electric distribution utilities (DISCOs) in promoting energy efficiency in a restructured electric industry. Reasons for continuing utility involvement are discussed; barriers and disincentives to DISCO involvement in energy efficiency are identified; and regulatory policy strategies to overcome these obstacles are suggested. A brief summary of policies that have been adopted thus far in restructured states is also presented.

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40 pp., 1999, $14.00, U993