Critical Thinking on California IOU Energy Efficiency Performance
Incentives from a Consumer Advocate’s Perspective
William B. Marcus, JBS Energy, Inc.
Cynthia K. Mitchell, Energy Economics, Inc.
to be presented to American Council for an Energy Efficient Economy (ACEEE)
Summer Study on Energy Efficiency in Buildings
Asilomar Conference Center, Pacific Grove, California
August, 2006
Critical Thinking on California IOU Energy Efficiency Performance
Incentives from a Consumer Advocate’s Perspective
William B. Marcus, JBS Energy, Inc.
Cynthia K. Mitchell, Energy Economics, Inc.
ABSTRACT
As Integrated Resource Planning (IRP) is experiencing a regulatory renaissance,
recast as resource procurement or portfolio management, investor-owned utilities (IOU)
are in large part being given regulatory authority to administer multi-million to billion
dollar annual ratepayer-funded energy efficiency (EE) portfolios. While all parties
recognize there is an inherent financial conflict of interest between selling and saving
energy, parties differ on the extent to which regulatory mechanisms can align IOU and
customer interests.
Based on their decades of experience with IRP, IOU-administered EE, and
regulatory EE performance incentives both in California and on the national level, the
authors discuss how the various financial and non-financial incentives for utilities to
promote increased sales cannot be wholly eliminated, and even if significantly reduced,
that reduction comes at a very high price.
The authors explain why they believe the most fundamental way to motivate
IOUs to procure “least cost best fit” (LCBF)1 energy efficiency is to stop making supply-
side investments so attractive by more closely aligning the utilities’ authorized returns
with the cost of equity capital observed outside the regulatory arena.
If EE performance incentives are adopted for IOUs, the authors describe how to
design incentives strategically. Such incentives could promote a diverse energy se