%0 Magazine Article %K Demand-side management (DSM) %A Donald Schultz %A Joseph H Eto %B The Electricity Journal %D 1990 %N 10 %R 10.1016/1040-6190(90)90038-B %T Carrots and Sticks: Shared-Savings Incentive Programs for Energy Efficiency %V 3 %2 LBNL-29503 %8 12/1990 %X

The focus of this work is on the practical issues that emerge when regulators review utility incentive proposals for energy efficiency programs. We examine one particular type of incentive mechanism-shared savings, in which the net benefits from the energy efficiency investment are shared between ratepayers and utility shareholders. The primary basis for the analysis is the shared-savings mechanisms recently put in place by two California investor-owned utilities, Pacific Gas and Electric (PG&E) and San Diego Gas and Electric (SDG&E). The discussion centers on the regulatory concerns and resolutions that arose in reviewing the shared-savings mechanisms proposed by these two utilities. The problems included establishing the basis for determining net benefits, establishing minimum levels of utility performance, rewarding cost-minimizing and resource-value maximizing behavior, and equitable allocating the risks associated with uncertainty in the performance and value of demand-side programs. We suggest that in some cases practical implementation considerations override the theoretically superior choice when addressing these issues. We also argue that important differences between utility demand-side programs make it unreasonable to apply the same incentive mechanism uniformly to all types of DSM programs.