Energy Efficiency Progress at America's Utilities: The Year in Review

Part of NRDC's Year-End Series Reviewing 2015 Energy Developments

America's utilities are now our nation's most important investors in smarter use of electricity and natural gas, helping all of us reduce both energy bills and pollution. NRDC's advocacy over the past year helped achieve major gains in both utilities' energy efficiency efforts and the regulatory reforms needed to sustain them - and ensure that energy services remain affordable for all utility customers.

utility center.jpgAccording to the Institute for Electric Innovation, U.S. utility investment in efficiency programs, such as weatherization and rebates for highly efficient appliances, continues on an upward path and exceeded $7 billion in 2014 (the latest available figures). This is well over double the $2.7 billion total for 2007. A survey by the American Council for an Energy-Efficient Economy (ACEEE) indicates that that the amount of electricity saved from the hundreds of utility-administered energy efficiency programs nationwide grew by almost 6 percent from the year earlier, with natural gas savings up by an even larger percentage. (Every dollar invested typically returns at least double that amount in avoided costs of energy supply).

This progress is remarkable in the face of strong regulatory pressure on utilities to reduce costs and investments in all categories. It is also a tribute to the diversity and depth of support for energy efficiency investment, which NRDC has helped to build and sustain. For the United States as a whole, the average growth rate for electricity consumption remains well below that for the nation's population. A review of these and related trends appears in NRDC's Third Annual Energy Report: A Tectonic Shift in America's Energy Landscape.

Helping progress continue

An NRDC priority is to persuade state utility commissions to adopt a policy called "revenue decoupling," which is a rate adjustment mechanism that prevents reductions in sales of electricity and natural gas from inflicting financial harm on the utilities themselves (although it doesn't guarantee utility profits or increase their authorized costs). This means that when their customers do the right thing and use less energy, the utilities still can recover their authorized costs for grid maintenance and modernization (one action is "decoupled" from the other) - and this helps remove a disincentive for the utilities to invest in programs to help customers optimize their energy use. That's good for utilities and better for their customers, who are the principal beneficiaries from inexpensive energy efficiency improvements in their homes and businesses. And if utilities slip up and let electricity use grow faster than anticipated, the excess revenues go right back to customers in the form of rate reductions. More details on these and related issues appear in this NRDC issue brief by Sheryl Carter.

In January 2008, just five states had adopted revenue decoupling for at least one electric utility and 13 states had done so for natural gas. The count of decoupled electric utilities stood at seven; the count for natural gas utilities was approximately 20. Just starting to emerge was a worrisome countervailing trend to displace decoupling with rate designs that moved increasing fractions of utility customers' bills into fixed charges, meaning they would be charged a set amount no matter how much electricity they used, which also reduces rewards for their smarter energy use.

As of December 2015, the count of states with decoupling in place had risen to 15 for electric and 22 for natural gas utilities, and the number of utilities covered stood at 34 and 55, respectively (more than a three-fold increase in the total from five years earlier).

The past year saw Minnesota adopt electric decoupling for Xcel Energy (March 2015) and New York do so for the Long Island Power Authority (March 2015). Additional proposals are pending in New Mexico (PNM), Washington (PacifiCorp), Idaho (Avista), Oregon (Avista), and Michigan (Consumers), with preliminary proceedings also underway in Missouri and Pennsylvania. By our calculations, decoupled investor-owned utilities now receive 25 percent of industry-wide retail electricity revenues, while the decoupled publicly owned utilities account for 12 percent of their sector's retail revenues. But with new proposals now advancing in at least seven states, we are poised to add significantly to those totals in the coming year.

Additional positive signs

Finally, regressive electric rate structures that reduce rewards for energy savings are in retreat, thanks to a national campaign linking consumer, environmental and clean energy advocates. This "Nix the Fix" coalition, which NRDC co-chairs, won 32 of 38 cases over the past year, after persuading many state and local rate regulators that it's the wrong time to reduce customers' financial rewards for cutting back on electricity use.

Adding momentum to all these positive trends is the EPA's Clean Power Plan to limit power plant emissions, finalized in August, which provides further incentives for utilities to help their customers make smarter use of energy and cut back on carbon pollution from power generation.

It was heartening recently to see some of America's largest utilities and power producers join in the fight to protect the Clean Power Plan against misguided court challenges. The list of heroes in this fight includes Austin Energy, Calpine Corporation, National Grid, New York Power Authority, NextEra Energy, Pacific Gas and Electric, Sacramento Municipal Utility District, Seattle City Light, and Southern California Edison. They all deserve recognition for leadership in a clean energy transition that is now well underway across the United States.

And they are showing that both utilities and their customers can thrive as the world throttles down on carbon pollution.

About the Authors

Ralph Cavanagh

Codirector, Energy program

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