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ACEEE Study: States That Spend on Energy-Efficiency May Be Good Bets

Although spending on energy-efficiency programs is uneven across the nation, an ACEEE study shows an overall upward trajectory over the past 30 years, and such spending may help to lure companies to those states with EERS in place.

July 2012
The American Council for an Energy-Efficient Economy (ACEEE) recently conducted a study on electric utility energy-efficiency activity in the United States from the 1970s to date: "Three Decades and Counting: A Historical Review and Current Assessment of Electric Utility Energy-Efficiency Activity in the States." The study notes that in response to the energy crisis of the 1970s, electric utility companies developed energy-efficiency programs that emphasized energy conservation. These programs grew rapidly in the 1980s, at which time utilities instituted a practice known as demand-side management (DSM). Through DSM, utilities could influence and manage their customers' needs. Spending on such programs reached nearly $2 billion by 1993. However, with the deregulation of the utility industry in the mid-1990s, funding for utility energy-efficiency programs fell to just $900 million by 1998.

At this time, states began to establish new funding mechanisms for energy-efficiency programs. They enacted "public benefits charges," consisting of small, non-bypassable per Kwh charges on electric distribution service. Some states also created organizations to administer and provide energy-efficiency programs, with spending on such programs increasing to $1.1 billion by 2000. At this time, though, just 16 states accounted for 86 percent of total U.S. spending on energy-efficiency programs. Although there was a renewed focus on these programs from 2000 on, funding only reached $1.45 billion by 2004, with 20 states then accounting for 88 percent of nationwide spending on electric-energy efficiency programs.

From the mid-2000s on, however, funding on such programs grew rapidly, increasing from $1.6 billion in 2006 to $4.6 billion by 2010. This growth in spending was driven by "energy efficiency resource standards" (EERS), which are measurable, long-term energy-savings targets for states and, often, other jurisdictions including regions or utilities. The EERS specify the percentage of future electricity needs that must be met using energy-efficiency measures, typically equal to a specific percentage of the projected load. Efficiency programs run by utilities or a third party help to ensure that the goals are met. Currently, 25 states have EERS in place and the concept of using energy efficiency as a resource has evolved in a relatively short time with unprecedented spending on energy-efficiency programs and corresponding energy savings.

In many of these states, EERS are included in or complement a Renewable Energy Standard (RES) or a Renewable Portfolio Standard (RPS). Some states have a separate EERS and RPS, while other states combine the mechanisms by allowing energy efficiency to meet part or all of an RPS. Taken together, these standards are an important factor when companies are considering where to expand or relocate. According to Ed McCallum, Senior Principal at McCallum Sweeney Consulting, states without an RPS may be eliminated from consideration for this factor alone, unless there are powerful incentives that make a location in a non-RPS state a reasonable option. Additionally, he notes that how states approach their RPS should be a sign to companies on how they are going to approach the renewable energy sector overall.

However, a recent article on TransmissionHub.com says that having an RPS could have unintended consequences. For instance, in Oregon, where large data centers are creating hundreds of jobs, they are also using large amounts of electricity from smaller, consumer-owned electric cooperatives. The larger load is causing the smaller co-ops to be reclassified for RPS rules, whereby they would need to spend millions of dollars to be in compliance with Oregon's RPS ahead of an originally created schedule. This would push rates up for consumers. That would give states that don't have an RPS a competitive advantage over those that do, i.e., they could offer lower electric rates to energy-hungry data centers.

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