Energy Efficiency 6: Program Best Practices Energy efficiency programs have been operating successfully in some parts of the country since the late 1980s. From the experience of these successful programs, a number of best practice strategies have evolved for making energy efficiency a resource, developing a cost-effective portfolio of energy efficiency pro­ grams for all customer classes, designing and delivering energy efficiency programs that optimize budgets, and ensuring that programs deliver results. Overview Challenges that limit greater utility Cost-effective energy efficiency programs have been investment in energy efficiency include delivered by large and small utilities and third-party pro­ the following: gram administrators in some parts of the country since the late 1980s. The rationale for utility investment in effi­ • The majority of utilities recover fixed operating costs ciency programming is that within certain existing mar­ and earn profits based on the volume of energy they kets for energy-efficient products and services, there are sell. Strategies for overcoming this throughput disin­ barriers that can be overcome to ensure that customers centive to greater investment in energy efficiency are from all sectors of the economy choose more energy- discussed in Chapter 2: Utility Ratemaking & Revenue efficient products and practices. Successful programs Requirements. have developed strategies to overcome these barriers, in • Lack of standard approaches on how to quantify and many cases partnering with industry and voluntary incorporate the benefits of energy efficiency into national and regional programs so that efficiency pro­ resource planning efforts, and institutional barriers at gram spending is used not only to acquire demand-side many utilities that stem from the historical business resources, but also to accelerate market-based purchases model of acquiring generation assets and building by consumers. transmission and distribution systems. Strategies for overcoming these challenges are addressed in Chapter 3: Incorporating Energy Efficiency in Leadership Group Recommendations Resource Planning. Applicable to Energy Efficiency • Rate designs that are counterproductive to energy Program Best Practices efficiency might limit greater efficiency investment by large customer groups, where many of the most • Recognize energy efficiency as a high priority cost-effective opportunities for efficiency program­ energy resource. ming exist. Strategies for encouraging rate designs that are compatible with energy efficiency are dis­ • Make a strong, long-term commitment to cussed in Chapter 5: Rate Design. cost-effective energy efficiency as a resource. • Efficiency programs need to address multiple cus­ • Broadly communicate the benefits of, and oppor­ tomer needs and stakeholder perspectives while tunities for, energy efficiency. simultaneously addressing multiple system needs, in many cases while competing for internal resources. • Provide sufficient and stable program funding to This chapter focuses on strategies for making energy deliver energy efficiency where cost-effective. efficiency a resource, developing a cost-effective port­ A list of options for promoting best practice energy folio of energy efficiency programs for all customer efficiency programs is provided at the end of classes, designing and delivering efficiency programs this chapter. that optimize budgets, and ensuring that those pro­ grams deliver results are the focus of this chapter. To create a sustainable, aggressive national commitment to energy efficiency 6-1 Programs that have been operating over the past accelerate energy efficiency program success. decade, and longer, have a history of proven savings in Organizations reviewed for this effort have a sustained megawatts (MW), megawatt-hours (MWh), and therms, history of successful energy efficiency program imple­ as well as on customer bills. These programs show that mentation (See Tables 6-2 and 6-3 for summaries of energy efficiency can compare very favorably to supply- these programs) and share the following characteristics: side options. • Significant investment in energy efficiency as a This chapter summarizes key findings from a portfolio­ resource within their policy context. level1 review of many of the energy efficiency programs that have been operating successfully for a number of • Development of cost-effective programs that deliver years. It provides an overview of best practices in the results. following areas: • Incorporation of program design strategies that work • Political and human factors that have led to increased to remove near- and long-term market barriers to invest­ reliance on energy efficiency as a resource. ment in energy efficiency. • Key considerations used in identifying target measures2 for • Willingness to devote the necessary resources to make energy efficiency programming in the near- and long-term. programs successful. • Program design and delivery strategies that can maxi­ Most of the organizations reviewed also have conducted mize program impacts and increase cost-effectiveness. full-scale impact evaluations of their portfolio of energy efficiency investments within the last few years. • The role of monitoring and evaluation in ensuring that program dollars are optimized and that energy efficiency The best practices gleaned from a review of these organ­ investments deliver results. izations can assist utilities, their commissions, state energy offices, and other stakeholders in overcoming barriers to Background significant energy efficiency programming, and begin tapping into energy efficiency as a valuable and clean Best practice strategies for program planning, design resource to effectively meet future supply needs. and implementation, and evaluation were derived from a review of energy efficiency programs at the portfolio level across a range of policy models (e.g., public benefit charge administration, integrated resource planning). The box on page 6-3 describes the policy models and Table 6-1 provides additional details and examples of programs operating under various policy models. This chapter is not intended as a comprehensive review of the energy efficiency programs operating around the country, but does highlight key factors that can help improve and 1 For the purpose of this chapter, portfolio refers to the collective set of energy efficiency programs offered by a utility or third-party energy efficiency program administrator. 2 Measures refer to the specific technologies (e.g., efficient lighting fixture) and practices (e.g., duct sealing) that are used to achieve energy savings. 6-2 National Action Plan for Energy Efficiency Energy Efficiency Programs Are Delivered Within Many Policy Models Systems Benefits Charge (SBC) Model Request For Proposal (RFP) Model In this model, funding for programs comes from an SBC In this case, a utility or an independent system opera­ that is either determined by legislation or a regulatory tor (ISO) puts out a competitive solicitation RFP to process. The charge is usually a fixed amount per acquire energy efficiency from a third-party provider kilowatt-hour (kWh) or million British thermal units to meet demand, particularly in areas where there are (MMBtu) and is set for a number of years. Once funds transmission and distribution bottlenecks or a gener­ are collected by the distribution or integrated utility, ation need. Most examples of this model to date have programs can be administered by the utility, a state been electric only. The focus of this type of program agency, or a third party. If the utility implements the is typically on saving peak demand. programs, it usually receives current cost recovery and a shareholder incentive. Regardless of administrative Portfolio Standard structure, there is usually an opportunity for stake­ In this model, the program adminstrator is subject to holder input. a portfolio standard expressed in terms of percentage of overall energy or demand. This model can include This model provides stable program design. In some gas as well as electric, and can be used independent­ cases, funding has become vulnerable to raids by ly or in conjunction with an SBC or IRP requirement. state agencies. In areas aggressively pursuing energy efficiency as a resource, limits to additional funding Municipal Utility/Electric Cooperative Model have created a ceiling on the resource. While predom­ In this model, programs are administered by a munic­ inantly used in the electric sector, this model can, and ipal utility or electric cooperative. If the utility/cooper­ is, being used to fund gas programs. ative owns or is responsible for generation, the energy efficiency resource can be part of an IRP. Cost recovery Integrated Resource Plan (IRP) Model is most likely in base rates. This model can include gas In this model, energy efficiency is part of the utility’s as well as electric. IRP. Energy efficiency, along with other demand-side options, is treated on an equivalent basis with supply. Cost recovery can either be in base rates or through a separate charge. The utility might receive a sharehold­ er incentive, recovery of lost revenue (from reduced sales volume), or both. Programs are driven more by the resource need than in the SBC models. This gen­ erally is an electric-only model. The regional planning model used by the Pacific Northwest is a variation on this model. To create a sustainable, aggressive national commitment to energy efficiency 6-3 Table 6-1. Overview of Energy Efficiency