Meeting Aggressive New State Goals for Utility-Sector Energy Efficiency: Examining Key Factors Associated with High Savings

The role of utility-sector1 energy efficiency has undergone a dramatic transformation. In just the last few years, energy efficiency has evolved from being largely a token gesture or a “public benefits” set-aside, to being a top-priority utility system resource. Indeed, several states have established state policies which mandate that energy efficiency is “first” in the “loading order” of utility resources, and/or that their states should capture all cost-effective energy efficiency.

The causes of this profound increase in prominence are painfully familiar to those associated with electric utility industry. They include: (1) dramatic increases and great volatility in the prices of all fuels; (2) large and unprecedented increases in the costs of constructing new power plants; (3) shrinking reserve margins leading to concerns about electric system reliability in many regions; (4) growing concerns about the ability to finance and secure cost-recovery for large electric generation construction projects; and (5) mounting concerns about global warming and the realization that some type of monetization of carbon costs is probably inevitable. Together these factors have helped elevate energy efficiency to the status of an essential core utility system resource.

For all of the above reasons, states have been rushing to establish aggressive new energy savings goals for utility-sector energy efficiency programs. In just the last two years, Minnesota has passed legislation requiring energy efficiency savings equivalent to 1.5% of total sales each year; Illinois and Ohio have passed legislation requiring a ramp-up to 2% per year in the next decade; New York and Maryland are discussing policies that would require over 2% per year by 2015; and Vermont is heading toward a commitment of over 2% per year in the next few years. A number of other states are discussing goals in the 1% to 2% range or more. To put this in context, in our last comprehensive review (Kushler, York & Witte 2004), the very few top performing states in the nation were only achieving savings in the area of 0.8% per year.

Not surprisingly, the gap between past experience and the new policy requirements has led to questions such as: “Are these goals reasonable?” and “How are we going to accomplish this?” Broadly stated, the purpose of this study is to gather information to help address those questions.

More specifically, this project has two basic objectives: First, to identify the historical top-performing states in terms of utility-sector energy efficiency programs (e.g., using such indicators as energy efficiency savings as a percentage of total sales) and seek to identify factors that have contributed to their high level of performance; and second, to identify factors that may enable significant increases in those top levels of performance, both by examining states currently engaged in preparing for such increases and by consulting with leading industry experts.