A Federal System Benefits Fund: Assisting States
to Establish Energy Efficiency and Other System Benefit Programs
— One of a Series of ACEEE Fact Sheets
What Are System Benefits?
Historically, regulated electric utility companies have provided a number
of energy-related public services beyond simply supplying electricity. Such
services have included: bill payment assistance and energy conservation measures
for low-income households; energy efficiency programs for residential and
business customers; pilot programs and other efforts to promote renewable
energy resources; and research and development (R&D) efforts to foster
the development of new energy supply and delivery technologies. The term
"system benefits" has been coined to describe these corollary benefits of
a regulated utility system.
Achievements of Past System Benefit Programs
Approximately 60% of historic system benefit funding has been spent on energy
efficiency and load management programs, which have:
- Saved 50–60 billion kilowatt-hours (kWh) annually in recent years, resulting
in consumer energy bill savings of about $4 billion annually.
- Reduced peak electric demand by 25,000–30,000 megawatts (MW) in recent
years, the equivalent of 80–100 typical (300 MW) power plants. Without
these savings, current reliability problems in many regions of the country
would be much worse.
-
Generally cost less than $0.03/kWh saved, much less than the cost to produce
a kWh.
Under Utility Restructuring, System Benefit Programs Are Threatened
The shift to "competition" in the electric industry has caused utilities
to cut their costs and eliminate spending on activities that are not seen
as directly contributing to profits. The damage includes:
-
Utility spending on energy efficiency and load management programs peaked
at $2.7 billion in 1993 (worth more than $3 billion in 1999$). Since then,
spending has declined more than 50% in real terms, with 1999 spending totaling
only $1.4 billion.
-
Savings (energy and peak demand) from these programs rose steadily in the
early 1990s but since 1995 savings have leveled off. From 1990 to 1995, peak
load savings grew by 16,000 MW; if these trends had continued, savings in
2000 would have been 46,000 MW, representing about 20,000 additional MW of
savings that were lost due to funding cutbacks (actual savings were 26,000
MW in 1999, the last year for which data are available).
- Programs to support renewable energy and energy R&D have been scaled
back by many utilities. For example, a Government Accounting Office analysis
found that utility spending on R&D declined by one-third between 1993
and 1996.
System Benefit Funds Address this Problem
To address this problem, twenty states have established system benefit funds
to pay for system benefit programs. These funds are supported by a small
charge (typically around 1 tenth of a cent/kWh) on distribution service that
is paid by all electricity users, regardless of whom they buy power from.
-
State system benefit funds have generally been quite successful. For example,
within the last 3 years, New York's program has secured commitments that
will reduce electric demand in the state by more than 140 MW while saving
consumers tens of millions of dollars annually. Consumer savings are providing
a 1.4-year payback on funds invested. For each $1 spent out of the fund,
customers, energy service companies, and others are investing $3, providing
good leveraging of fund expenditures. These programs are also reducing emissions
from power plants and helping economic development in the state.
Need for a National System Benefits Fund
Thirty states do not yet have system benefit funds, and with restructuring
problems in California, the remaining states are unlikely to proceed with
restructuring legislation soon. These states now enjoy some of the benefits
of programs from adjoining states, such as reduced pollutant emissions and
improved regional electric reliability, but don't pay for these programs.
A national system benefits "matching fund" (such as those proposed by Senator
Jeffords' S.1369 and Representative Pallone's H.R.2569 in the last Congress)
could be used to support states that adopt their own system benefits funding
mechanisms with an infusion of matching funds (up to a ceiling—e.g.,
2 tenths of a cent/kWh in the Jeffords and Pallone bills). In this manner,
states would be rewarded, not penalized, for using their own resources to
support programs that provide important regional and national benefits. This
matching fund approach would provide broad policy support at the federal
level but allow states to design the details of their system benefits programs
to best suit their individual state circumstances.
A national matching fund would also provide important energy-saving, peak
reduction, economic, and environmental benefits for the nation. ACEEE estimates
that a nation-wide program would provide the following benefits over and
above the benefits of current state-system benefit programs:
-
Save more than 300 billion kWh annually by 2010.
-
Provide net benefits to consumers of about $40 billion from investments made
through 2010.
-
Reduce peak electrical demand by about 80,000 MW in 2010.
-
Reduce power plant emissions including cutting greenhouse gas emissions by
the equivalent of at least 70 million metric tons of carbon in 2010.
For more information contact:
Bill Prindle, Deputy Director
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