Originally posted by Energy Central

May 7, 2003 | By Stephen Heins

With deregulation of the retail electric utility industry a distant memory for all but a few states, it appears to be a good time to return to basics for regulation of the utility sector. This means that the U.S Government along with the 50 states, their legislators, and their Public Service Commissions should revisit the original purpose for creating portfolio standards for energy policy. Essentially, the standards were created to serve as a guide and score card to measure results in the highly regulated marketplace for electricity.

While most states and the federal government have already instituted portfolio standards for renewables, only Texas has an energy efficiency standard that requires utilities to pay for established rates of energy efficiency. To date, Colorado, Washington, and Wisconsin are considering policy changes that would mandate measures to limit demand of electricity and directing their public utilities to adopt energy efficiency portfolio standards for electric utilities.

This is particularly important in 2003, because many experts including Secretary of Energy Spencer Abraham believe that a large percentage of the nation’s anticipated electrical load growth over the next two decades can be displaced energy efficiency, pricing reform, and load management programs. In front of the 2002 Energy Efficiency Forum held in Washington, DC, Secretary Abraham stated that 2/3 of load growth can be supplied by energy efficiency alone.

Additionally, the Electric Power Research Institute (EPRI) has found that a 1% reduction in load during high peak periods can reduce wholesale prices by 10% and a 5% reduction load can reduce peak prices by as much as 20%. In California’s case, the threat of blackouts forced the state to adopt a series of energy efficiencies resulting in an overall reduction of electricity use of 5% in 2001.

The most compelling reason to make energy efficiency portfolios a significant part of any energy strategy is that, like renewables, energy efficiencies preserve our natural resources. Using a new generation of metering tools, energy efficiencies can more perfectly be measured and verified, plus they are as sustainable as renewables. Other advances in on-site metering will allow companies to systemically cut chosen areas of consumption during high peak periods. Frankly, an argument could be made that energy efficiency is a renewable.

The other compelling reasons for energy efficiency standards and for an energy efficiency portfolio are as follows:

1. Energy efficiency does not have the reliability challenges associated with renewables, like windless hours and sunless days;
2. Energy efficiency does not require transmission and transmission lines;
3. Energy efficiency can be achieved by individuals and individual companies working with their utilities;
4. In this “Golden Age of Energy Efficiency,” the results can be measured and verified; and finally,
5. It is the most cost-effective way to create new electrical supply.

The purpose of this energy efficiency legislation is to strengthen the current state statutes regarding energy efficiency, develop a portfolio approach which recognizes verifiable energy efficiency as a supply-side option (renewable portfolio standard approach), and create a financial mechanism which reduces overall energy costs.

The following are five basic tenets of any energy efficiency portfolio legislation:

1. Establish energy efficiency goals for all energy providers, both in the context of annual targets plus as an adjunct to any new power plant or transmission line projects. This can be done as a percentage of load, load growth, or stand-alone annual targets. Begin with a two-year goal beginning three months after passage of legislation equal to 250 Mega-watts for each state or 5,000 Mega-watts for the U.S. government.
2. Establish a rate of return criteria, which is reasonable for the utility providers and encourages their involvement, support, and implementation.
3. Establish the criteria for energy efficiency that is both measurable (to a baseline minimum) and verifiable.
4. Encourage the inclusion of energy efficiency in the planning process by the federal government, each state’s legislature, and their Public Service Commissions, with an eye to viewing energy efficiency as an alternative supply-side option.
5. Administer the program verification through a third party.

We are entering a “Golden Age of energy efficiency” and conservation where large amounts of energy savings is finally possible. Many believe that new energy efficiency legislation will assist economic development throughout the U.S.; and, at the same time, it will provide the most environmentally sound option for the citizens of each state and the U.S.

In a recent market study done by Orion Energy Systems, commercial and industrial lighting fixture energy efficient replacements in the United States could reduce demand by approximately 22,000 Megawatts (MW), the Reduced Consumption (also known as Displaced Capacity Energy Model) concept employing well-rounded and robust energy efficient initiatives, including all forms of energy efficiency, could probably deliver over 1500 Megawatts in Wisconsin and 100,000 Megawatts of reduced consumption in the U.S.

Ultimately, the energy efficiencies concept would reduce the need for 200 new 500 Megawatt coal-burning power plants in the U.S. The environmental and economic benefits of such a concept will transform the marketplace for electricity and the future need for new power plants.

With careful stewardship, the United States has an opportunity to conserve its natural resources, reduce pollution, save business and residential consumers money, and enhance the reliability of its electric supply by actively promoting the use of available and cost-effective energy efficiency measures by utilities serving the U.S. population. With a rebalanced portfolio of energy efficiency and renewable energy sources, federal government can provide national leadership at a time when the United States needs a practical energy policy that encourages economic development and environmentalism.

On both a state and federal level, the best place to start is to rebalance the energy assets with the targeted approach found in energy efficiency and renewable energy portfolios. The portfolio approach for both will allow the U.S. government and the states to be agnostic about the means of supplying the electricity while focusing on the more important matter of results. Our environmental future depends on it.