Three cheers for Maryland!

Blog | July 27, 2015 - 12:35 pm
By Brendon Baatz, Senior Research Manager

Last week the Maryland Public Service Commission released its long-awaited order on several key energy efficiency issues. The decisions in the order placed Maryland in the forefront of national energy efficiency leadership. Several key decisions highlight how important energy efficiency is to the future of the state of Maryland, and the value the Public Service Commission places on using energy efficiency to save customers money, reduce environmental pollution, and reduce utility costs. ACEEE worked closely with a large coalition of energy efficiency advocates to propose recommendations for several of the key issues in the order.

Here are highlights from three key decisions in the order:

2% Annual Savings Goal

The order established a new annual energy savings goal of 2% of baseline retail weather-normalized gross electric sales for each utility, for the five largest electric utilities in the state. Each utility will have until 2020 to reach the 2% annual goal, with a requirement to update 2017 efficiency plans to ramp up 0.2% annually to reach the goal. The new energy savings goal departs significantly from the previous goal, which required utilities to achieve per capita energy savings of 15% by 2015. The 2% goal puts Maryland in line with other leading states, such as Massachusetts, Rhode Island, Arizona, and Vermont, in terms of energy savings targets.

Cost Effectiveness Standards

The order also established new standards for testing programs for cost effectiveness. The cost effectiveness rules are critical because these tests produce one of the metrics that determine which programs a utility will offer. Previously, Maryland primarily relied on the total resource cost test to screen programs. Now, the societal cost test will also be used to evaluate programs. This test considers costs and benefits of a program from a societal perspective and is not as limited as the total resource cost test, which only includes a narrow list of benefits. In short, the societal cost test is a better indicator of the value of energy efficiency programs because it considers a broader perspective. The societal cost test will also rely on a different discount rate than the total resource cost test. A discount rate is used to calculate the benefits of a program in the future and is an extremely important part of the program screening process. If the discount rate is too high, the benefits in later years will appear to be less than they really are. The societal test will use a lower discount rate meant to represent the value of future benefits from a societal prospective. A lower discount rate is also better in this case because it reflects the reduced level of risk a utility takes on when making investments in energy efficiency.

Multiple Benefits

The order also directed utilities to include the multiple, non-energy benefits of energy efficiency when evaluating programs, such as increased comfort, reduced utility carrying cost for arrearages, and air pollution benefits (for more information on this topic, see our recent reports on the multiple benefits of energy efficiency programs in the multi-family and business sectors). The non-energy benefits approved by the Commission include multiple benefits beyond the societal prospective, including participant and utility-specific non-energy benefits. While the number of states including multiple benefits has increased in recent years, still only a handful of states consider these valuable benefits in program screening. The inclusion of multiple benefits is important because it allows consideration of all relevant benefits when implementing energy efficiency programs. Excluding benefits can have adverse impacts on resource selection and lead to higher costs for customers when higher-cost resources are used instead of lower-cost efficiency.

State of the Future

This landmark order will have positive effects on the state of Maryland for years to come. The EmPower Maryland energy efficiency programs have been highly successful to date, and the Commission’s guidance in this order will only bolster the success of the programs. The order also directed working groups to propose specific energy savings goals for natural gas utilities and limited-income electric programs. The goals will drive greater performance in both of these areas, providing reduced costs and substantial benefits to all utility customers in Maryland.