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Energy Efficiency: Challenges and Opportunities for Electric Utilities

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Energy Efficiency: Challenges and Opportunities for Electric Utilities Energy Efficiency: Challenges and Opportunities for Electric Utilities September 1993 OTA-E-561 NTIS order #PB94-107547 Recommended Citation: U.S. Congress, Office of Technology Assessment, Energy Efficiency: Challenges and Opportunities for Electric Utilities, OTA-E-561 (Washington, DC: U.S. Gov ernment Printing Office, September 1993). Foreword his Report on energy efficiency and electric utilities was prepared as part of OTA’s assessment of U.S. Energy Efficiency: Past Trends and Future Opportunities. The assessment was requested by the Senate Committees on Governmental Affairs and Energy and Natural Resources and the House Committee on Energy and CommerceT and endorsed by the Chairman of the Subcommittee on Environment of the House Committee on Space, Science, and Technology. Other reports in this assessment examine energy efficiency in residential and commercial buildings, industry, transporta- tion, and the Federal Government, This Report focuses on the opportunities for advancing the energy efficiency of the U.S. economy through technology improvements and institutional change in the electric utility sector. In particular, the Report examines the prospects for energy savings through expansion of utility demand-side management and integrated resource planning programs and related Federal policy options. OTA appreciates the advice and assistance of the many individuals who contributed to this project, including the advisory panel, workshop participants, and reviewers. (7+- - Roger C. Herdman, Director iii Advisory Panel James F. Gibbons, Chairman Alan Miller Stanford University Center for Global Change University of Maryland-College Park Dale Compton School of Industrial Engineering Gary Nakarado Purdue University National Renewable Energy Laboratory formerly Commissioner, Public Utility Mark Cooper Commission of Colorado Consumers Federation of America John W. Rowe Robert deHaan New England Electric System Amana Refrigeration Co. (retired) Maxine L. Savitz Garrett Processing Co. Daniel A. Dreyfus1 Gas Research Institute Sherwood H. Smith, Jr. Carolina Power & Light Co. Clark W. Gellings Electric Power Research Institute Richard Tracey Ryland Homes David B. Goldstein Natural Resources Defense Council B.C. Waycaster Dow Chemical Cheryl Barrington Regulatory Assistance Project Irvin L. White formerly Commissioner, Battelle Pacific Northwest Laboratories Maine Public Utilities Commission Mason Willrich Kenneth Hickman Pacific Gas and Electric Enterprises The York International Corporation James L. Wolf Edward Mclnerney The Alliance to Save Energy General Electric Co. Eric R. Zausner Strategic Performance Management 1Until January 1993. NOTE: OTA appreciates and is grateful for the valuable assistance and thoughtful critiques provided by the advisory panel members. The panel does not, however, necessarily approve, disapprove, or endorse this report. OTA assumes full responsibility for the report and the accuracy of its contents. iv Project Staff Peter Blair PRINCIPAL STAFF Assistant Director Karen Larsen Industry, Commerce, and International Security Division Project Director (beginning February 1993) Program Manager, Energy and Materials Helene Kirwan-Taylor Program Contractor (until August 1993) Lionel S. Johns ADMINISTRATIVE STAFF Assistant Director, OTA Lillian Chapman (until February 1993) Office Administrator Emilia Govan Linda Long Program Manager Energy and Materials Program Manager Administrative Secretary (beginning August 1993) Tina Aikens Secretary workshop Participants Doug Bauer Ronald E. Russell Oak Ridge National Laboratory Commissioner Michigan Public Service Commission Michael Dworkin General Counsel Glenn Simpson Vermont Public Service Board Potomac Electric Power Co. Hossein Haeri Dennis Sumner Central Maine Power Co. City of Ft. Collins Light& Power Utility John Hughes Electricity Consumers Resource Lynn Sutcliffe council Sycom Enterprises, Inc. Gary Nakarado Marika Tatsutani Commissioner Natural Resources Defense Council Public Utility Commission of Colorado Nat Treadway Electric Division Wally Nixon Public Utilities Commission of Texas Entergy Services Co. James L. Wolf Paul Norman The Alliance to Save Energy Bonneville Power Administration Jackie Pfannenstiel Pacific Gas and Electric Co. OTA appreciates and is grateful for the valuable assistance and thoughtful critiques provided by the participants in OTA’S workshop on Energy Efficiency and Electric Utilities, September 9, 1992. The workshop participants do not, however, necessarily approve, disapprove, or endorse this report. OTA assumes full responsibility for the report and the accuracy of its contents. Reviewers John Anderson Steve Kline Electricity Consumers Resource Pacific Gas & Electric Co. council Paul Komor Joel Bladow U.S. Congress Western Area Power Administration Office of Technology Assessment Ashley Brown Ed Mayberry Commissioner, Public Utilities Potomac Electric Power Co. Commission of Ohio Barry Moline Ralph Cavanagh American Public Power Association Natural Resources Defense Council Andrew Moyad U.S. Congress Greg Collins Office of Technology Assessment PSI Energy, Inc. Steve Nadel Kurt Conger American Council for an Energy-Efficient American Public Power Association Economy Rich Cowart John Newman Commissioner, Vermont Public Service U.S. Congress Board Office of Technology Assessment Ron Eachus Karl Rabago Chairman, Oregon Public Utility Commissioner, Public Utilities Commission Commission of Texas Scott Hempling Margaret Rostker Attorney-at-Law Electric Power Research Institute Robert Hirsch Robin Roy Electric Power Research Institute U.S. Congress Office of Technology Assessment Eric Hirst Rick Tempchin Oak Ridge National Laboratory Edison Electric Institute Barbara Kates-Garnick Mark Wieringa Commissioner, Massachusetts Department of Public Utilities Western Area Power Administration c ontents 1 Introduction 1 Energy and Electric Utilities 3 Findings 4 2 Policy Issues and Options 9 Strategies for Energy Efficiency 12 Integrated Resource Planning 13 Demand-Side Management 16 &-$ U.S. Department of Energy Programs 16 Utility Rate Reforms 17 Federal Regulation of Power Transactions 18 Leading by Example: The Federal Government as Energy Consumer 19 Supporting Energy-Efficient Technologies 22 Increasing Utility Resource Options 23 Leveling the Playing Field in Resource Planning 24 3 Electric Utility Industry Structure, Regulation, and Operations 27 Electric Utilities in the U.S. Economy 27 Electric Power Regulation 34 Overview of Electric Utility Systems and Operations 48 4 Using Electricity More Efficiently: Demand-Side Opportunities 63 How Much Electricity Can Be Saved? 63 Energy-Efficiency Opportunities for Residential Customers 67 Energy Efficiency Opportunities in the >>>: ::: Commercial Sector 79 A Energy Efficiency Opportunities in the Industrial Sector 88 - Utility Energy Efficiency Programs and Experience 99 Scope of Utility Energy Efficiency Programs 99 Influencing Customer Behavior 100 Measuring Energy Savings and Evaluating Effectiveness 105 Mixed Results from Utility Energy Efficiency Programs 110 Incorporating Energy Efficiency Into Utility Operations: The Role of IRP 114 State Energy Efficiency Initiatives 117 Plannin g for Future Electricity Needs 117 IRP Requirements 122 State Incentives for Utility DSM Investments 129 Energy Efficiency Research and Development Programs 140 Federal Programs 143 The Federal Government and Energy Efficiency 143 U.S. Department of Energy Programs 144 Federal Power Systems 171 Rural Electrification Adrmru “stration 188 Federal Energy Regulatory Commission 189 Encouraging Voluntary Efforts 190 x Introduction nergy efficiency offers seemingly glittering promises to all-savings for consumers and utilities, profits for shareholders, improvements in industrial productivity, enhanced international competitiveness, and reduced environmentalE impacts. The technical opportunities are myriad and potential savings real, but consumers and utilities have so far been slow to invest in the most cost-effective, energy-efficient technologies available. The energy efficiency of buildings, electric equipment, and appliances in use falls far short of what is technically attainable. Energy analysts have attributed this efficiency gap to a variety of market, institutional, technical, and behavioral constraints. Electric utility energy efficiency pro- grams have great potential to narrow this gap and achieve significant. energy savings. But along with opportunities, greater reliance on energy efficiency as a resource to meet future electricity needs also entails risks—that efficient technologies will not perform as well as promised, that anticipated savings will not be truly cost- effective in practice, and that the costs and benefits of energy- efficiency programs will not be shared equitably among utility :, ,,t’ customers. .: More than 30 States have adopted programs for promoting “ energy efficiency through utility integrated resource planning (IRP) and demand-side management (DSM) and programs are rapidly being developed and implemented in most of the remaining States (see box l-A). These programs reflect a recognition that increasing the efficiency of energy use by consumers to offset demand growth can be a financially attractive and reliable alternative to the addition of new generating plants. They also reflect a belief by policymakers that tapping the economic and technical resources of electric utilities can be an effective strategy for speeding the adoption of energy-efficient technology
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