The Regulatory Assistance Project 177 Water St. Gardiner, Maine USA Tel: Fax: State Street, Suite 3 Montpelier, Vermont USA Tel: Fax: Website: Maryland PSC Electricity Planning Conference July 26, 2007 Cheryl Harrington for RAP

Overview of Remarks  Why Energy Efficiency and DSM should be an integral part of MD’s Electricity Plan.  Key Policy Steps needed for the successful implementation of Demand Side Resources.  Financial incentives for successful Utility demand side efficiency implementation.

Albany NY, Optimal Energy

Commission Leadership and Policy Clarity  Policy Leadership is very important with energy efficiency –It is a departure from traditional utility strategies for meeting energy needs, and some highly experienced utility professionals may be skeptical of EE value. –It relies on investments in assets not owned or controlled by the utilities. –EE investment must be sustained over several years to realize the real public cost savings, so the regulatory policy must be sustained and unequivocal over time.

Energy Efficiency and DM Resources  It can be difficult to get out of the mindset that EE or conservation is a social program.  EE is very large and largely undeveloped resource – easily up to 33% of current electricity use is available at a reasonable cost.  It takes clear and consistent policy support to develop the demand side resource.

Traditional Regulation: The Throughput Problem  Traditional ROR regulation sets prices, not revenues –The revenue requirement is simply an estimate of the total cost to provide service  Without adjustment, consumption-based rates ($/kWh and $/kW) link profits to sales –The more kilowatt-hours a utility sells, the more money it makes –This is because, in most hours, the price of electricity is greater than the cost to produce it Utility makes money even when the additional usage is wasteful, and loses it even when the reduced sales are efficient  The profit incentive to increase sales is extremely powerful

Capture all Value Energy Capacity – PJM rules need attention Transmission Distribution Carbon reduction - RGGI

What are the Major “Reservoirs” of Achievable EE Potential in 2013? #2: By End Use Residential SavingsC&I Savings NEEP assessment of New England, 2004 Clothes Washers 2% Pool 1% Cooling 2%