Ratepayer-Funded Energy-Efficiency Programs in a Restructured Electricity Industry: Issues, Options, and Unanswered Questions

Regulated utilities have, in the past, been responsible for "public purpose" programs that contribute to the general social good, such as energy-efficiency programs. In several states, continuation of these programs has become a critical issue in forging the consensus required to proceed with restructuring. As a result of reviewing the restructuring process in several states, we expect this trend to continue, but do not believe a single, generic approach can or should be defined. Instead, we expect a variety of solutions based on considerations unique to individual states or regions. To help structure these discussions in states struggling with this issue, we pose a series of questions and describe a range of possible answers:

• We encourage state public utility commissions and legislatures to provide clear guidance on goals.
• Close attention to the primary objectives for energy efficiency is important because the objectives influence the choices of programs and activities to be supported.
• We advocate that states adopt a pragmatic approach to resolving the potentially contentious issue of determining whether or not utilities should continue to have primary responsibility for program administration, management, and design. The approach we propose involves assessing a utility's past performance, its current commitment to energy-efficiency activities, and the potential conflicts of interest presented, if the utility retains a central role in administering energy-efficiency programs after restructuring.
• A state should first assess policy options to mitigate adverse incentives and conflicts of interest in the utility before examining the possibility of having a non-utility entity assume responsibility for designing and managing energy-efficiency activities.
• If a state does pursue non-utility administration for ratepayer-funded energy-efficiency programs, explicit attention must be paid to governance and accountability issues.