Energy Efficiency Programs and Renewable Energy Programs

Franklin D. Munyan
Division of Legislative Services
August 16, 1999

Part 1: Activities of the SJR 91 Joint Subcommittee

The Joint Subcommittee studying restructuring of the electric utility industry pursuant to Senate Joint Resolution 91 (1998) appointed a Task Force on Consumer, Environment and Education. The Task Force was co-chaired by Delegates Plum and Jones. Senator Norment and Delegates Parrish and Kilgore also served on the Task Force. Among the topics addressed by this Task Force were energy efficiency programs and the use of renewable sources of energy.

The following briefly summarizes some of the material presented to the Task Force on Consumer, Environment and Education relating to (i) energy efficiency, including weatherization and demand side management programs, and (ii) renewables, including portfolio standards. Following summaries for each of these topics are excerpts from the Task Force matrix summary pertaining to the issue. The matrix summaries compiled the responses of stakeholders and other interested groups to a series of forty-five questions covering the seven topics addressed by the Task Force. These responses formed the basis for the Task Force's report to the full Joint Subcommittee, which appointed a Drafting Group to prepare legislation for the 1999 Session.

Interested groups submitted proposed language for inclusion in restructuring legislation to the Drafting Group in early December 1998. At its December 29, 1998, meeting, the Drafting Group recommended further study by the Legislative Transition Task Force of the issues of public purpose programs, environment, energy efficiency, and utility worker protection. Language directing this Task Force to examine these and other issues was included in § 56-595 of Senate Bill 1269.

I. Energy Efficiency Programs

A. Weatherization Assistance Program

1. Summary

Weatherization assistance for low-income families arguably fits into either category of low-income assistance, because the immediate beneficiaries of existing weatherization assistance programs are low-income families, or energy efficiency, because the results of such programs reduce waste of energy resources. Several of the states that have included energy efficiency programs as part of their restructuring legislation have allocated a portion of the funding for energy assistance specifically to aid those with low incomes. Consequently, weatherization is included in the energy efficiency portion of our agenda.

The Virginia Weatherization Assistance Program (WAP), administered by the Virginia Department of Housing and Community Development and operated through a network of weatherization providers, makes homes of low-income families more energy efficient, thereby reducing heating and cooling costs. In 1997 the WAP funded the weatherization of nearly 2,200 homes occupied by low-income Virginia families.

Billy Weitzenfeld of the Association of Energy Conservation Professionals (AECP) advised the Task Force that low-income families often will utilize 15 percent of their disposable income to pay the monthly energy bill, while a family of median income in Virginia will spend, on average, 3.5 percent of their disposable income on energy bills. Programs that provide opportunities for increased energy efficiency and that concentrate on reducing home energy consumption and the wasteful use of energy were touted as a cost-effective method of providing low-income citizens with services that save energy, save money, and save lives.

In fiscal year 1998, the WAP received $1.5 million from the federal Department of Energy, $1.5 million from the Low Income Home Energy Assistance Program (LIHEAP), and $800,000 from remaining Oil Overcharge funds. The LIHEAP funds are a result of General Assembly legislation mandating a percentage of LIHEAP funds be allocated to WAP. This became necessary due to a 50 percent cut in Department of Energy funds in fiscal year 1996.

Mr. Weitzenfeld suggested that electrical restructuring provides an excellent opportunity to provide stable funding for weatherization and other energy efficiency programs. A system benefits charge was touted as an excellent way to achieve stable funding for the program. Robert Goldsmith of the Virginia Council Against Poverty (VACAP) also endorsed the funding of the weatherization program through a "consumer benefits charge" in the form of a nonbypassable wires charge. The charge would be paid by all consumers regardless of class, and be calculated on a per kilowatt hour (kWh) basis. According to Mr. Goldsmith, a charge of 3/100 of a cent (of three tenths of a mill) per kWh would generate $25 million per year--approximately the current federal funding level for LIHEAP and Weatherization.

The Southern Environmental Law Center (SELC) also voiced support for weatherization programs. Such programs, he noted, result in a dual benefit of reducing the energy costs of low-income households while reducing emissions associated with generating electricity.

2. Matrix Summary of Stakeholder Responses.

The following is a summary of responses by stakeholders and other interested parties that were supplied in response to questions regarding public benefit charges for the benefit of low income households:

• The SELC, the Virginia Citizens Consumer Council (VCCC), VACAP and others expressed support for programs that provided weatherization assistance to low-income households.
• The Consensus Group, consisting of the SELC, VACAP, Sierra Club, Virginia State Conference NAACP, VMH, Inc., AECP, International Brotherhood of Electrical Workers System Council U-1, and Virginia Power, said that home weatherization and energy conservation programs designed to assist low-income citizens should be established.
• Virginia’s utilities and cooperatives provided wide-ranging responses. AEP said that mandating low-income assistance is not appropriate. Allegheny Power, on the other hand, said that such assistance programs are both necessary and desirable—provided there are adequate funding mechanisms. Virginia’s cooperatives recommend that policy makers recognize the additional costs of such programs and consider all of the other costs of restructuring in evaluating whether such programs would be appropriate.
• All respondents agreed that any such programs should be administered by the Virginia State Corporation Commission, or by some other agency. Virginia’s cooperatives and others noted that state agencies and non-profit organizations that are experienced in working with the low-income population administering social and public welfare programs could assist in coordinating such programs.
• The VCCC and VCAP proposed a specific eligibility benchmark: households with income at 150% of federal poverty guidelines—an eligibility standard currently used for both the Weatherization Assistance Program and LIHEAP. Other respondents suggested general support for means-tested eligibility criteria.

B. Demand Side Management Programs

1. Summary

Efforts to promote electric utility energy efficiency fall into two broad categories: conservation programs, and load management programs. Conservation involves reducing usage. Load management seeks to shift usage patterns to allow generating units to be used more efficiently. Collectively, conservation and load management are referred to as demand side management (DSM) programs. A measure of such programs' effectiveness is the amount of costs the utilities avoid as a result of reductions in the need to build new generation facilities.

DSM programs have become less attractive to utilities for many reasons. The reduced costs of new gas-fired generation proportionately reduces the avoided costs a utility would recognize by not building new generation capacity. Shortened planning horizons make utilities reluctant to commit capital to the lengthy payback periods required of DSM programs. Declining power prices have led to the elimination of some DSM programs.

The SELC and some other groups have expressed concern that restructuring will put a premium on short-term profits, making DSM programs unappealing. To counter this trend, the SELC proposed implementing a public benefits charge (a usage-based surcharge paid by electricity customers) to ensure that DSM and renewable technology research are encouraged in a post-restructuring energy market. This proposal prompted two broader policy questions: (i) how energy efficiency programs should be supported during and after restructuring and (ii) whether a public benefits surcharge is an appropriate way to fund energy efficiency and conservation.

The SCC staff did not support a DSM program-related systems benefit charge last year. SCC staff recommended that Virginia wait to see what competition brings to the energy services market. With appropriate price signals, DSM programs may flourish. Additionally, innovation in a competitive market could bring new energy efficiency products into the market without government promotion or intervention.

VMH, Inc. encouraged Virginia to undertake several actions to encourage energy efficiency in conjunction with restructuring, including unbundling electricity pricing, increasing the state building efficiency codes, and establishing portfolio standards. This organization also supported implementing emissions reductions credits for energy efficiency.

2. Matrix Summary of Stakeholder Responses.

• The VCCC, VCAP, AECP, and SELC suggested that the best way to promote energy conservation is through a public benefits charge for energy investments.
• The Consensus Group said that funding for programs that promote energy efficiency and conservation should be provided by a nonbypassable public benefits charge imposed on all purchasers of electric energy. These funds should be administered by an independent entity.
• The electric utilities fell into three camps on this issue: those who opposed public benefits charges for energy efficiency (Allegheny and the cooperatives); those who supported them (Virginia Power) and those who took no position (AEP).
• Allegheny Power suggested the use of tax incentives to promote energy efficiency initiatives.
• The Maryland-D.C.-Virginia Solar Energy Industries Association (MDV-SEIA) believes that the Commonwealth should set the example by directly investing in energy efficiency "seed projects" through its capital outlay for new and renovated public facilities.
• The SCC did not support a public benefits charge for energy efficiency.
• The AARP also expressed broad support for an affordable, cost-effective and efficient program to ensure energy conservation and environmental protection.

II. Renewable Energy Programs

1. Summary

According to the SELC, electrical generation has a negative impact on the environment. The SELC testified that electrical generation contributed nearly two-thirds of the sulfur dioxide, and one-third of the nitrogen oxides, carbon dioxides and mercury emitted in the country. Several groups have suggested that the transition of the electric utility industry to a restructured competitive market for generation provides an opportunity to reduce the environmental effects of electrical generation.

Several groups have cautioned that retail competition for generation (with its emphasis on price) will extend the operation of older, less efficient power plants entitled to emit at higher levels under federal clean air laws—plants that might otherwise have been retired in a regulated environment. They suggested that the General Assembly counter the effects of this possible development by adopting a renewables portfolio standard. Under such a standard, a fixed percentage of generation offered for sale in Virginia must be generated from renewable sources.

SCC staff stated that renewables portfolio standards would be difficult to monitor. Because Virginia has not required electric utilities to meet portfolio standards, it was suggested last year that the transition to competition may not be an appropriate time to impose such a requirement.

Ogden Energy Group, Inc., which convert trash into electricity that is sold to Virginia Power, recommended that the General Assembly include language in its restructuring bill calling for a renewables portfolio standard or similar mechanism. Any such standard should include waste-to-energy (WTE) in its definition of renewables.

A second policy favored by advocates of renewable energy is a systems benefit charge. Funds generated from such charges are used for research and development of renewables technologies, incentives for implementing renewables, and consumer education.

A third method that has been proposed to increase the use of renewables is to require electricity suppliers to disclose data about their generation sources. The Restructuring Act, at § 56-592, requires the SCC to establish billing information standards and standards for marketing information that requires suppliers and aggregators to disclose, to the extent feasible, fuel mix and emissions data on at least an annual basis.

Generation disclosures typically require each energy provider to disclose to customers and prospective customers its mix of generation sources, including renewables, and possibly emissions rates and pricing information. The purpose of these laws is to provide consumers who wish to support the use of renewables and other environmentally-benign generation sources with the ability to make informed choices. The SELC contended that environmental disclosure requirements could reduce the advantage a competitive market might other wise bestow on older, dirtier plants -- subject to less stringent federal emissions standards than those applicable to newer plants and thus operated at comparably lower costs -- in a competitive market.

Representatives of the solar energy industry appeared before the task force to urge the adoption of restructuring legislation that fosters the growth of solar energy. Solarex emphasized the aggressive steps taken in other Eastern states to promote renewables, including the passage of legislation in New York and Massachusetts establishing net metering and tax credits linked to the purchase of rooftop solar applications. Solarex's representative urged the adoption of (i) one or more policy goals for renewable energy, and (ii) designation within its restructuring legislation of the entity responsible for the development and advocacy of steps to implement renewable energy policy goals.

2. Matrix Summary of Stakeholder Responses.

• Allegheny Power, and American Electric Power and CNG were firmly opposed to mandated renewables portfolio standards.
• Virginia’s cooperatives said it was an issue for the General Assembly to determine, particularly in light of increased costs associated with such standards.
• Virginia Power supported research and development in this area, using funds generated by a nonbypassable wires charge.
• The SELC, VCCC, and MDV-SEIA supported a statutory renewables portfolio standard.
• The Consensus Group said that funding for programs to encourage the use of renewable energy resources should be provided by a non-bypassable public benefits charge imposed on all purchasers of electric energy. These funds should be administered by an independent entity.
• Ogden Energy Group supported voluntary programs designed to help consumers identify green, clean electricity products.

Part 2: Provisions of Electric Utility Restructuring Legislation Enacted by Other States

Twenty states other than Virginia have enacted legislation deregulating their electric utility industries. Several other states, including New York, are implementing restructuring at the direction of the public utility regulatory commission.

Sixteen of the states with restructuring legislation have established funding for energy efficiency and/ or conservation programs through a "system benefit charge" or similar mechanism. Several of these specifically provide that a portion of the revenue generated from a line charge for low-income assistance programs is to be used for energy efficiency programs for low-income families, or weatherization. Weatherization funding may be included in the energy efficiency program funding charges in place in several other states.

The chart attached as Appendix 1 notes those states that have adopted (as part of their restructuring legislation) provisions imposing systems benefit charges, wire charges, or similar fees to fund energy efficiency, conservation, and/or demand side management programs. The second column identifies states that have earmarked a portion of the energy efficiency funding charge, or a separate charge, for energy efficiency or weatherization programs for low-income residents.

The chart also notes which of the states that have enacted restructuring laws have (i) instituted wires charges to fund renewable energy initiatives, (ii) adopted a renewable portfolio standard, and (iii) require a disclosure of information regarding the type, emissions, price volatility, or other aspects about generation sources.

Appendix 2 summarizes various provisions of other states' restructuring acts that pertain to energy efficiency programs and renewable energy programs.

Appendix 1:
State Electric Restructuring Laws --
Provisions Addressing Energy Efficiency and Renewables Programs