Efficiency, Flexibility, and Rate Design Programs

Aligning utility incentives with customer and efficiency outcomes.

The rates that utility regulators set,  and the business models they reward, have an outsized effect on energy bills and whether utilities help customers reduce waste. Utility business models and incentive structures also strongly influence the extent to which a utility helps its customers reduce energy waste through efficiency programs or shift their energy demand away from grid peaks to use grid resources more cost-effectively through demand response and demand flexibility programs. 

Traditional business models that prioritize increasing sales and infrastructure investment can create a disincentive for utilities to choose the lowest-cost options, such as energy efficiency and demand flexibility, to meet energy needs and maintain safety and reliability. Some states have implemented improvements like performance-based incentives and revenue decoupling that better align utility business incentives with improved economic outcomes for customers. These business model reforms help align utility decision-making with more cost-effective grid investment strategies.

ACEEE engages with state decision-makers to advocate for policies that better align utility investments with what is fair for customers. This includes more equitable rate designs which lower bills for vulnerable households, more fairly distribute grid costs, and avoid overcharging customers who switch to more efficient electric appliances.