A Message from the Executive Director

Energy Efficiency - A First Order Resource for the Northeast?

In 2005, energy issues became a major focus for policymakers and citizens across the Northeast region. A constrained energy supply coupled with an increase in demand has led to soaring prices and concerns over the stability and reliability of our energy future. There are many options for dealing with this crisis, but most are problematic. For example, siting new power plants and burning more fossil fuels are expensive and environmentally risky. However, increased energy efficiency has tremendous public support and a lot of very cost-effective potential. As we head into a new year, Northeast states should establish energy efficiency as a first order resource to address our energy problems.

Effectively capturing this significant and abundant resource requires vision, planning, leadership, commitment and coordination. Policymakers in the Northeast would be well served to learn from the examples set by California and the Pacific Northwest. But the Northeast states really need look no further than the region's own energy history to understand the opportunity for efficiency as a first order resource.

Facing decades of energy price increases, supply shortages and blackouts, California successfully integrated energy efficiency into resource planning by adopting a statewide loading order plan. All government agencies, the legislature and the Governor committed to this policy that requires California utilities to meet growing energy needs first through cost effective energy efficiency. The implementation and execution of this efficiency policy was made possible because government leaders had the vision to establish it as priority and were committed to carrying it out.

Similarly, the Northwest Power and Conservation Planning Council this year adopted its second 20-year power plan that again establishes energy efficiency as a first order resource to meet their power needs.

While examples from other areas of the country can help inform our energy resource plans, our own regional experiences speak volumes. In the late 1980s and early 1990s, the Northeast states faced similar energy supply issues. Recognizing that energy efficiency could help reduce the risk of power shortages and reduce the need for power plant construction, state public utility commissions required regulated utilities to ramp up energy efficiency programs. Funding peaked at $900 million in 1993 for New England, New York and New Jersey with great results.

However, utility restructuring policy in the mid-'90s relegated energy efficiency to a "public benefit" program with the hope that competitive market forces would respond with additional energy efficiency. With that, legislators capped energy efficiency spending and, in some cases, later diverted efficiency funds to serve other "public benefits." In most cases, this funding cap prevented public utility commissions from increasing efficiency even if it would help control the wholesale price of energy and help consumers better manage their energy bills.

The region's policy makers can retake control of our energy future by first establishing energy efficiency as a first order resource to meet future energy needs. Doing so is consistent with recent reports by Sue Tierney and Paul Hibbard for the New England Energy Alliance and by Carrie Conaway for the Federal Reserve Bank of Boston that both note the important role of increased energy efficiency to reduce the risk of power shortages and the negative economic impacts of high energy costs. Likewise, Northeast state climate change action plans depend largely on energy efficiency to reduce carbon emissions.

While these plans and reports concur on the benefits of increasing our energy efficiency, what they lack is a set of recommendations to how energy efficiency will become part of our public policy framework. While there seems to be no shortage of policy recommendations on how to increase energy supply- ranging from more liquefied natural gas (LNG) terminals, pipelines or power plants- the same cannot be said for policies to increase our commitment to energy efficiency.

The good news is that there are examples to learn from, precedents to follow and a wide range of options to consider. To start, Northeast states need to:

Establish long-term state energy savings goals and plans that at a minimum offset gas and electric load growth with increased energy efficiency (e.g., reduced per capita energy use).
Establish minimum efficiency portfolio requirements for all electricity suppliers (e.g., minimum percentage of energy supplies or minimum spending).
Direct regional transmission organizations/independent system operators to include energy efficiency as a resource option in transmission and resource adequacy planning.

To make the most effective use of these options, policymakers also need to make sure that the market rules are written fairly to reward increased efficiency and remove distribution company profit incentives to sell more energy.

Beyond a plan, however, what's needed most is leadership. Implementing these policies requires commitments from state legislatures, governors, public utility commissions and air regulators. Who among us will stand up for efficiency as a resource? Credit is due to those states who have acted to capture the potential of energy efficiency: Maine has issued a call to the region for action on natural gas efficiency programs; New Jersey led the region in calling for a strong role for energy efficiency in the Regional Greenhouse Gas Initiative model rule; Connecticut passed legislation to establish an energy efficiency portfolio standard; Vermont lifted the cap on ratepayer-funding for energy efficiency; and six states (Maryland, Connecticut, New Jersey, New York, Rhode Island and Massachusetts) adopted state appliance efficiency standards.

But we can - and we must - do more.

A Message from the Executive Director
Energy Efficiency - A First Order Resource for the Northeast? In 2005, energy issues became a major focus for policymakers and citizens across the Northeast region. A constrained energy supply coupled with an increase in demand has led to soaring prices and concerns over the stability and reliability of our energy future. There are many options for dealing with this crisis, but most are problematic. For example, siting new power plants and burning more fossil fuels are expensive and environmentally risky. However, increased energy efficiency has tremendous public support and a lot of very cost-effective potential. As we head into a new year, Northeast states should establish energy efficiency as a first order resource to address our energy problems. Effectively capturing this significant and abundant resource requires vision, planning, leadership, commitment and coordination. Policymakers in the Northeast would be well served to learn from the examples set by California and the Pacific Northwest. But the Northeast states really need look no further than the region's own energy history to understand the opportunity for efficiency as a first order resource. Facing decades of energy price increases, supply shortages and blackouts, California successfully integrated energy efficiency into resource planning by adopting a statewide loading order plan. All government agencies, the legislature and the Governor committed to this policy that requires California utilities to meet growing energy needs first through cost effective energy efficiency. The implementation and execution of this efficiency policy was made possible because government leaders had the vision to establish it as priority and were committed to carrying it out. Similarly, the Northwest Power and Conservation Planning Council this year adopted its second 20-year power plan that again establishes energy efficiency as a first order resource to meet their power needs. While examples from other areas of the country can help inform our energy resource plans, our own regional experiences speak volumes. In the late 1980s and early 1990s, the Northeast states faced similar energy supply issues. Recognizing that energy efficiency could help reduce the risk of power shortages and reduce the need for power plant construction, state public utility commissions required regulated utilities to ramp up energy efficiency programs. Funding peaked at $900 million in 1993 for New England, New York and New Jersey with great results. However, utility restructuring policy in the mid-'90s relegated energy efficiency to a "public benefit" program with the hope that competitive market forces would respond with additional energy efficiency. With that, legislators capped energy efficiency spending and, in some cases, later diverted efficiency funds to serve other "public benefits." In most cases, this funding cap prevented public utility commissions from increasing efficiency even if it would help control the wholesale price of energy and help consumers better manage their energy bills. The region's policy makers can retake control of our energy future by first establishing energy efficiency as a first order resource to meet future energy needs. Doing so is consistent with recent reports by Sue Tierney and Paul Hibbard for the New England Energy Alliance and by Carrie Conaway for the Federal Reserve Bank of Boston that both note the important role of increased energy efficiency to reduce the risk of power shortages and the negative economic impacts of high energy costs. Likewise, Northeast state climate change action plans depend largely on energy efficiency to reduce carbon emissions. While these plans and reports concur on the benefits of increasing our energy efficiency, what they lack is a set of recommendations to how energy efficiency will become part of our public policy framework. While there seems to be no shortage of policy recommendations on how to increase energy supply- ranging from more liquefied natural gas (LNG) terminals, pipelines or power plants- the same cannot be said for policies to increase our commitment to energy efficiency. The good news is that there are examples to learn from, precedents to follow and a wide range of options to consider. To start, Northeast states need to: Establish long-term state energy savings goals and plans that at a minimum offset gas and electric load growth with increased energy efficiency (e.g., reduced per capita energy use). Establish minimum efficiency portfolio requirements for all electricity suppliers (e.g., minimum percentage of energy supplies or minimum spending). Direct regional transmission organizations/independent system operators to include energy efficiency as a resource option in transmission and resource adequacy planning. To make the most effective use of these options, policymakers also need to make sure that the market rules are written fairly to reward increased efficiency and remove distribution company profit incentives to sell more energy. Beyond a plan, however, what's needed most is leadership. Implementing these policies requires commitments from state legislatures, governors, public utility commissions and air regulators. Who among us will stand up for efficiency as a resource? Credit is due to those states who have acted to capture the potential of energy efficiency: Maine has issued a call to the region for action on natural gas efficiency programs; New Jersey led the region in calling for a strong role for energy efficiency in the Regional Greenhouse Gas Initiative model rule; Connecticut passed legislation to establish an energy efficiency portfolio standard; Vermont lifted the cap on ratepayer-funding for energy efficiency; and six states (Maryland, Connecticut, New Jersey, New York, Rhode Island and Massachusetts) adopted state appliance efficiency standards. But we can - and we must - do more.
Susan Coakley Executive Director

				*A quarterly publication of*
Fourth Quarter 2005