National Action Plan for Energy Efficiency Energy Efficiency Policy Options and Program Best Practices MD PSC Planning Conference on State’s Future Electricity Needs July 26, 2007 Stacy Angel Climate Protection Partnerships Division U.S. Environmental Protection Agency

Released on July 31, 2006 at the National Association of Regulatory Utility Commissioners meeting Goal: To create a sustainable, aggressive national commitment to energy efficiency through gas and electric utilities, utility regulators, and partner organizations Over 50 member public-private Leadership Group developed five recommendations and commits to take action Additional recommendation endorsements and commitments to energy efficiency – exceeds 90 organizations US DOE and US EPA facilitated National Action Plan for Energy Efficiency Recommendations 1.Recognize energy efficiency as a high- priority energy resource. 2.Make a strong, long-term commitment to implement cost-effective energy efficiency as a resource. 3.Broadly communicate the benefits of and opportunities for energy efficiency. 4.Provide sufficient, timely and stable program funding to deliver energy efficiency where cost-effective. 5.Modify policies to align utility incentives with the delivery of cost-effective energy efficiency and modify ratemaking practices to promote energy efficiency investments. National Action Plan for Energy Efficiency

Make the Business Case for Efficiency to the Customer, Utility and Society Customer bill savings estimated at 2-9% across report cases – Rate design may encourage customers to invest in energy efficiency – Persistent customer barriers to efficiency include “split-incentive,” lack of information and customer awareness, competing vendor claims, need for upfront capital Utility financials affected by changes in throughput, creating disincentive to support energy efficiency – Disincentive applies to distribution and supply services – Barrier exists regardless of energy efficiency program administration Energy efficiency provides net societal benefits – Quickest, cheapest and cleanest energy resource to meet today’s challenges of increased energy costs, rising demand, and reducing carbon emissions Source: Bill savings calculated using the Energy Efficiency Benefits Calculator ( cases discussed in National Action Plan for Energy Efficiency Report: Chapter 4, Business Case for Energy Efficiency (2006)

Policy Options to Encourage Investment in Cost-Effective Energy Efficiency Establishing policies to establish energy efficiency as a priority resource Establishing the potential for long-term, cost-effective energy efficiency savings Developing long-term energy saving goals as part of energy planning processes Integrating energy efficiency into utility/state/regional resource planning activities Designating organization(s) to administering the energy efficiency programs Align utility and program administrator financial incentives 1.Ensure Program Cost Recovery for Program Administrator(s) Utility revenue requirement / procurement funding, public benefit funds, utility tariff rider for energy efficiency, spending budgets / savings targets Capitalize or expense costs 2.Remove Utility Disincentives to Support Increased Energy Efficiency Decoupling revenues from sales, lost revenue adjustment, straight-fixed variable rate design 3.Provide Incentives for Delivering Energy Savings Performance incentives, shared savings, bonus rate of return Establishing appropriate cost-effectiveness tests that reflect the long-term benefits Developing robust evaluation, measurement and verification (EM&V) procedures Rates modified and energy usage information shared considering impact on customer financial incentives to invest in energy efficiency Source: Excerpts derived from Recommendations and Options to Consider in National Action Plan for Energy Efficiency Report: Executive Summary (2006)

Cost-Effective, Best Practice Efficiency Programs Can Meet % Load Growth Energy efficiency resources acquired at half the cost of new generation – Total cost of $0.02 to $0.03 per lifetime kWh – Funding at 1 to 3% of electric utility revenue Recent potential studies have shown energy efficiency can meet: – 10 to 40%+ of energy sales (kWh) – 9 to 20%+ of electric capacity (kW) Program best practices include: – Making Energy Efficiency A Resource Align organizational goals – Developing An Energy Efficiency Plan Offer programs for all key customer classes Use cost-effectiveness tests that are consistent with long-term planning Consider building codes and appliance standards when designing programs – Designing and Delivering Energy Efficiency Programs Leveraging existing infrastructure and demonstrated program models ENERGY STAR – Ensuring Energy Efficiency Investments Deliver Results Robust, transparent evaluation, measurement and verification Source: Excerpts from National Action Plan for Energy Efficiency Report: Chapter 6, Energy Efficiency Program Best Practices (2006)

Sample Progression of Energy Efficiency Program Designs Source: Adapted from the National Action Plan for Energy Efficiency: Chapter 6, Energy Efficiency Program Best Practices (2006)

Currently Available Resources for States, Utilities and Stakeholders National Action Plan for Energy Efficiency Report Energy Efficiency Benefits Calculator Consumer Energy Efficiency Fact Sheet Regional Implementation Meetings - New England, Midwest and Mid-Atlantic – Policy tracking tables – Presentations and meeting summaries Sector Collaborative on Energy Efficiency – Meeting Presentations – Background Paper on Utility Data Availability – Energy Consumption Profiles for Offices, Hotels, Supermarkets, & Retail Stores Draft Educational Briefings

Future Resources for States, Utilities and Stakeholders Available by end of July at – Communications Kit – Building Codes and Energy Efficiency Fact Sheet Available late summer at – Aligning Utility Incentives with Energy Efficiency Investment Paper – Guide on Energy Resource Planning and Procurement Processes – Guide on Conducting Potential Studies for Cost-Effective Energy Efficiency – Guide on Energy Efficiency Evaluation, Measurement and Verification Protocols – Resource database and sample docket/workshop material – Final Education Briefings – Policy tracking tables for West and Southeast Available Fall at – Regional Implementation Meeting Presentations and Summaries for West and Southeast – Action Plan Vision for 2025 – Demand Response and Energy Efficiency Integration