Policies Matter: Creating a Foundation for an Energy-Efficient Utility of the Future

This paper is one in a three-part ACEEE series on utility business models for energy efficiency. The two other reports examine state-by-state experience with utility performance incentives and lost revenue adjustment mechanisms. This white paper updates our 2011 report about utilities’ conflicting objectives under traditional regulation—namely, to help their customers save energy and at the same time to earn profits—as well as state policy options to resolve this conflict. Here we draw together our findings regarding several regulatory tools that many states have used to encourage utility energy efficiency efforts. Our analysis shows that regulatory tools intended to affect the utility business model play a critical role in elevating the interest in efficiency within utility companies; however these tools by themselves have not been as successful as specific energy efficiency targets at driving high levels of efficiency. A comprehensive strategy—getting the business model right and setting specific efficiency targets—is most closely associated with achieving high savings. Such a strategy is essential to sustaining long-term utility interest in capturing cost-effective energy efficiency resources.