The Most Important Words in the Stimulus Package for Energy Efficiency

The most important provision in the stimulus package for promoting energy efficiency in the U.S. could be a piece of ambiguous language wrapped up in a section on state energy grants. A few sentences encourages states to consider a policy for utilities known as decoupling (though the stimulus text doesn’t name it specifically) in return for energy grants. Decoupling, a strategy that has proven successful at promoting energy efficiency in states like California, disconnects utilities’ sales from their profits, and thus encourages utilities to implement energy efficiency programs. The text in the stimulus bill doesn’t require decoupling per se in order to get funds, but requires the state governors to get certification from their respective commissions that the states in question will:

“….seek to implement…a general policy that ensures that utility financial incentives are aligned with helping their customers use energy more efficiently and that provide timely cost recovery and a timely earnings opportunity for utilities associated with cost-effective and verifiable efficiency savings, in a way that sustains or enhances utility customers’ incentives to use energy more efficiently.”

Yeah it’s ambiguous, but industry watchers say if that text has the desired effect it could be a landmark on two fronts: For one of the first times in years, the federal government will lead the states in terms of energy conservation, and energy efficiency programs will get a dramatic boost over the long term by encouraging reform of state utility policy.

Fans of energy efficiency were electrified when House Energy and Commerce Committee Chairman Henry Waxman (D-Calif.) introduced “decoupling” as a condition for state energy grants in the House’s version of the stimulus package. But the language in the final package, which Obama signed into law this week, was toned down from Waxman’s original provision.

Before the stimulus package passed the Alliance to Save Energy, the Edison Electric Institute, the Energy Future Coalition, and the Natural Resources Defense Council all called for this provision and said that major changes to utility regulation in the stimulus package would “create long-term incentives to encourage major investments in energy efficiency. Without making such long-term changes, the benefits of federal funding under the block grant program likely would not be as sustainable.” Reid Detchon, executive director of the Energy Future Coalition, said: “Most utilities make more money by selling more energy than they do by saving it. Flipping that incentive structure is the key to unlocking greater national investment in energy efficiency.”

So did the final language that passed into law meet those goals? While the language in the provision is open to interpretation and is just starting to be studied, Joe Fagan an attorney for the law firm Pillsbury, says that “decoupling is clearly the intent.” Fagan says the language is as strong as it could possibly be given the federal government doesn’t have authority to regulate state utilities’ prices and cost recovery.

Lowell W. Ungar, the director of policy for the Alliance to Save Energy, which supports the decoupling provision, explains the nuance of the sentences further:

As the bill is intended to get the money to the states within a few weeks, Congress could only set criteria that the states can meet right now. But it typically takes months (or longer) to reform utility rates or to update building energy codes. Thus the key limitation is that Congress could only require that governors make a statement about future action, in some cases action by other government bodies.

But Ungar is heartened by Congress’s move to highlight the need for regulation reform at the state level, saying, “We hope that states will follow through on their commitments and actually implement these changes, which are critical to the success of the billions of dollars for energy efficiency in the stimulus, and to the future growth of the clean energy economy after the stimulus funding goes away.”

Of course not everyone supports the provision. Opponents argue that it will lead to higher electricity rates for consumers, while others say it infringes on states’ rights. Rob Thormeyer, director of communications for The National Association of Regulatory Utility Commissioners (NARUC), which does not support federal decoupling policies, released a statement that said:

[T]he language agreed to by House and Senate lawmakers conditions federal funding for energy efficiency programs on State commissioners providing advance assurances on how regulatory matters will be addressed — assurances that, by law, many regulators cannot make. These ambiguous conditions will create confusion and legal uncertainty and will likely delay or preclude the release of these critical funds. This benefits neither the States the utilities, nor, most importantly, the citizens they serve.

Overall, advocates of decoupling see the stimulus package language as a very significant step that could open doors for state-level utility reform, but that the effect will largely depend on how state utility regulators respond. And states can’t implement policies overnight — it will take time. But with the promise of more funds and many states facing budget crises, we don’t see how the states could pass this up.

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