Energy Efficiency Policy at the Federal, State, and Local Levels: Power (States-Must-Consider, Decoupling, End-User Incentives, R&D); Trends in EE Policy Development

This is the third post summarizing a late 2009 paper by the National Renewable Energy Lab titled “Energy Efficiency Policy in the United States: Overview of Trends at Different Levels of Government” that details various federal, state, and local policies for promoting energy efficiency across a variety of sectors. Part one on buildings is here. Part two on transportation and industry is here.

5. Power

There is significant overlap between power and the industrial and building sectors as it also accounts for 40% of primary U.S. energy consumption. Policies in this arena typically target one side of the supply/demand relationship or the other: plant efficiency/production or end-use efficiency/consumption.

Here again, effective policy requires effective public/private collaboration as utilities continue to play a pivotal role in developing and implementing EE policy. Utilities are key as they have direct contact with their customers, know what their customers need re: delivery and capacity, and can leverage this information to tailor EE pricing systems and incentive programs (eg: by time of day, month, season.)

The federal government typically interacts with the power sector in an indirect, advisory capacity, enacting a “states-must-consider” approach through the Public Utility Regulatory Policies Act (PURPA, 1978) which has since been expanded.* It also offers funding to entice state adoption of certain policies and supports a variety of R&D projects.

There is also the National Action Plan for EE, a federally facilitated strategy for policy implementation collaboratively developed by stakeholders including DOE, EPA, utilities, consumer advocates, and other regulatory agencies. Though this method does not mandate policy, it does provide a mechanism for knowledge sharing, progress tracking, and peer-level exchanges. 

In contrast, state and local involvement tends to be regulatory in nature. In past years much of this has focused on “decoupling” where an inversion of the rate/demand relationship incentivizes utilities to help customers reduce demand, tying utility profits to reduced demand rather than volumetric consumption. Decoupling has been pursued in California (since 1981; again) and nine other states, with legislation pending in five others, but includes implementation challenges that vary state to state. 

5.1 Incentives

Decoupling changed utility incentives, giving them reason to offer customers subsidized energy audits and technical assistance. At the same time, the advent of smart meters can make rate-setting practices more responsive to demand peaks and lulls, in turn giving end-users a financial reason to reduce peak consumption. One strategy focused on reducing total consumption is the tiered pricing structure, which rewards end-users for staying below PUC-determined usage thresholds. State-sponsored EEF models, previously discussed here, also employ incentives to reduce end-user energy consumption.

5.2 Research and Development

The federal government is a major proponent of R&D. More fun examples include high-temperature superconductivity wires, smart grid innovations, and energy storage.

6. Trends in EE Policy Development (Conclusions)

  • Leadership is necessary at every level of government  -  State and local government can draw on their diverse political and economic climates to incubate and scale up a variety of innovates ideas (like California has with decoupling, strict building and fueling efficiency standards, the carbon market, etc.) while the federal government leverages its resources, connections, and scale to fuel the impetus for EE.
  • There is no widely accepted way of evaluating EE policy  -  Measuring policy impact and effectiveness is critical but difficult owing to the layering of various policies, circumstances, and degrees of public/private/jurisdictional involvement. 
  • Coordination among sectors and across levels of government is crucial and can be improved  -  As policies (necessarily/myopically?) focus on individual situations and circumstances, they create a disaggregated and patchwork environment for EE improvement that leads to regulatory uncertainty and inaction in the private sector. We need to harness technological innovations (like the smart grid) to cull a more strategic and cohesive national approach that still takes into account different regional/jurisdictional requirements. Collaborative stakeholder-based projects are a step in the right direction.
  • Efficiencies can be gained when one sector’s experience informs another’s progress  -  Returning back to the inherent tension at different levels of government between leveraged investment and tailored policy, each level has its strengths and weaknesses. Acknowledging these differences and internalizing lessons already learned can yield a comprehensive policy approach to EE that allocates decision-making and implementation responsibilities at the most appropriate level. 

*PURPA forced utilities to purchase power from more efficient (read: domestic renewable) producers if that purchase cost would be lower than the utility’s own ‘avoided cost’, or the marginal cost of producing the additional power itself. In this scenario, the supplied renewable power replaces the energy produced at the utility’s more expensive (and generally older, dirtier) facilities. PURPA was implemented to varying degrees at the state level depending on each state’s unique circumstances. The Energy Policy Act of 2005 expanded PURPA, requiring utilities to offer net metering, smart meters, and peak-load reduction agreements. The Energy Independence and Security Act of 2007 further mandated the consideration of integrated resource planning, rate design modification to promote EE investment, and smart grid information and investment at the state level.

There have been a number of heated discussions about net metering over the last few months. In essence, net metering sets the buyback rate at the customer’s retail rate. As the solar PV market grows, utility companies and regulators are struggling to determine what is or is not a fair way to handle net metering. 

So is it a net benefit or a net cost? Read the facts on SolarReviews and decide for yourself.