Clean Energy-Environment Guide to Action 

Policies, Best Practices, 

and Action Steps for States 

Clean Energy-Environment Guide to Action
 

Policies, Best Practices,
 

and Action Steps for States
 

April 2006
 

 

 

 

 

 

 

 

 

 

 

 

 

 

EPA Clean Energy-Environment Guide to Action
 

Contents 

Acknowledgements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ii
 

Preface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iii
 

List of Figures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iv
 

List of Tables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . vi
 

Key Acronyms and Abbreviations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . viii
 

Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ES-1
 

Chapter 1: Introduction and Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1-1
 

Chapter 2: Developing a Clean Energy-Environment Action Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-1
 

Chapter 3: State Planning and Incentive Structures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-1
 

Section 3.1: Lead by Example . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-3
 

Section 3.2: State and Regional Energy Planning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-28
 

Section 3.3: Determining the Air Quality Benefits of Clean Energy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-47
 

Section 3.4: Funding and Incentives. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-64
 

Chapter 4: Energy Efficiency Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-1
 

Section 4.1: Energy Efficiency Portfolio Standards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-3
 

Section 4.2: Public Benefits Funds for Energy Efficiency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-19
 

Section 4.3: Building Codes for Energy Efficiency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-37
 

Section 4.4: State Appliance Efficiency Standards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-54
 

Chapter 5: Energy Supply Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . 5-1
 

Section 5.1: Renewable Portfolio Standards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5-3
 

Section 5.2: Public Benefits Funds for State Clean Energy Supply Programs . . . . . . . . . . . . . . . . . . . . . . . . 5-21
 

Section 5.3: Output-Based Environmental Regulations to Support Clean Energy Supply . . . . . . . . . . . . . . 5-32
 

Section 5.4: Interconnection Standards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5-43
 

Section 5.5: Fostering Green Power Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5-59
 

Chapter 6: Utility Planning and Incentive Structures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-1
 

Section 6.1: Portfolio Management Strategies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-3
 

Section 6.2: Utility Incentives for Demand-Side Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-24
 

Section 6.3: Emerging Approaches: Removing Unintended Utility Rate Barriers to 


Distributed Generation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-40
 

Appendices 

Appendix A: Federal Clean Energy Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
 

Appendix B: Energy Efficiency Program Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-1
 

Appendix C: Clean Energy Supply: Technologies, Markets, and Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . C-1
 

� Contents
 i 
EPA Clean Energy-Environment Guide to Action
 

Acknowledgements 

The U.S. Environmental Protection Agency would like 

to acknowledge the many individual and organizational researchers, government employees, and consultants whose efforts helped bring this extensive 

report to fruition. The following key contributors and 

reviewers provided significant assistance: 

Neil Elliott, Marty Kushler, Bill Prindle, and Dan York, 

of the American Council for an Energy Efficient 

Economy; Andrew DeLaski, Appliance Standards 

Awareness Project; Gwen Fuertes and David Weitz, 

Building Codes Assistance Project; Sylvia Bender, 

Michael Martin, and Mike Messenger, California 

Energy Commission; Lainie Motamedi and Brian 

Prusnek, California Public Utilities Commission; Lew 

Milford, Clean Energy States Alliance; Bryan Garcia, 

CT Clean Energy Fund; Chris James, Connecticut 

Department of Environmental Protection; James Bush 

and John Davies, Kentucky Office of Energy Policy; Ed 

Vine, Lawrence Berkeley National Laboratory; 

Michelle New, National Association of State Energy 

Officials; Matthew Brown, National Conference of 

State Legislatures; Blair Sweezey, National 

Renewable Energy Laboratory; Ralph Cavanagh and 

Devra Wang, Natural Resources Defense Council; 

Paul DeCotis, New York State Energy Research and 

Development Authority; Jim O’Reilly, Northeast 

Energy Efficiency Partnerships; Sara Ward, Office of 

Energy Efficiency, Ohio Department of Development; 

Cheryl Harrington, Rich Sedano, and Rick Weston, 

Regulatory Assistance Project; Scott Weiner, Rutgers 

University; Colin Murchie and Rhone Resch, Solar 

Energy Industries Association; Amy Royden-Bloom, 

STAPPA-ALAPCO; Pierre Landry, Southern California 

Edison; Howard Geller, Southwest Energy Efficiency 

Project; Theresa Gross, Texas Public Utility 

Commission; Sean Casten, Turbosteam Corporation; 

Dan Beckley, Jean J. Boulin, Jerry Kotas, Larry 

Mansuetti, and Linda Silverman, U.S. Department of 

Energy; John Byrne and Noah Toly, Center for Energy 

and Environmental Policy, University of Delaware; 

and Suzanne Watson, Watson Strategy Group. 

The Guide to Action was developed by the Climate 

Protection Partnerships Division in EPA’s Office of 

Atmospheric Programs. Steve Dunn managed the 

overall development of the Guide to Action. Julie 

Rosenberg and Andrea Denny provided content and 

editorial support for the entire document. EPA staff 

who contributed to the Guide are listed below by 

section of the Guide to Action: 

•	 Developing a Clean Energy-Environment Action 

Plan: Nikolaas Dietsch and Denise Mulholland 

•	 State Planning and Incentive Structures: Art Diem, 

Steve Dunn, Sue Gander, Caterina Hatcher, Laura 

Helmke, and Edgar Mercado 

•	 Energy Efficiency Actions: Art Diem, Nikolaas 

Dietsch, Sue Gander, Maureen McNamara, and 

Sam Rashkin 

•	 Energy Supply Actions: Joe Bryson, Kurt Johnson, 

Tom Kerr, and Katrina Pielli 

•	 Utility Planning and Incentive Structures: Stacy 

Angel, Joe Bryson, Sue Gander, Tom Kerr, and 

Katrina Pielli 

A multi-disciplinary team of energy and environmental consultants provided research, analysis, and technical support for this project. They include: Eastern 

Research Group (Lynne Agoston, Sue Eisenfeld, and 

Scott Warner); Energy and Environmental Analysis 

(Joel Bluestein); Kajal B. Kapur; Navigant Consulting, 

Inc. (Lisa Frantzis, Shannon Graham, and Ryan 

Katofsky); Stratus Consulting (Nimmi Damodaran, 

Chuck Herrick, Joanna Pratt, and Heidi Ries); Summit 

Blue (Kevin Cooney); and Synapse Energy Economics, 

Inc. (Bruce Biewald, Bob Fagan, Lucy Johnston, Geoff 

Keith, Amy Roschelle, and Bill Steinhurst). 

ii � Acknowledgements
 
EPA Clean Energy-Environment Guide to Action
 

Preface 

The Clean Energy-Environment Guide to Action is a 

cornerstone of U.S. Environmental Protection 

Agency’s Clean Energy-Environment State 

Partnership Program, a voluntary program to help 

states incorporate clean energy into a low-cost, 

clean, and reliable energy system. The Guide to 

Action provides in-depth information about 16 clean 

energy policies and programs that states are using to 

meet their energy, environmental, and economic 

objectives. Each policy description is based on states’ 

experiences in designing and implementing policies 

that enhance energy efficiency and/or increase the 

use of renewable energy and clean distributed generation (including combined heat and power). States 

have found that these 16 clean energy policies and 

programs offer numerous opportunities to save energy, improve air quality, reduce greenhouse gas emissions, improve system reliability and security, and 

enhance economic development. 

The Guide to Action is intended for use by state energy, environment, and economic policymakers and 

public utility commissions. States participating in the 

Clean Energy-Environment State Partnership Program 

will use the Guide to Action to develop a Clean 

Energy-Environment Action Plan for employing existing and new clean energy policies to increase their 

use of clean energy. Other states are also encouraged 

to use the Guide to Action to examine the role clean 

energy can play. Any comments, questions, and corrections related to the Clean Energy-Environment 

Guide to Action and the State Partnership Program 

can be directed to the contacts provided in the Guide 

to Action on page ES-29. 

� Preface
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EPA Clean Energy-Environment Guide to Action
 

List of Figures 

Executive Summary 

Figure ES.1: Clean Energy Is Competitive with Fossil Fuel and Nuclear Generation Technologies . . . . . . . ES-2
 

Chapter 1: Introduction and Background 

Figure 1.1a: Nonattainment Areas Ozone (8-hour) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1-3
 

Figure 1.1b: Nonattainment Areas PM2.5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1-3
 

Figure 1.2a: Energy Savings from California’s Energy Efficiency Programs. . . . . . . . . . . . . . . . . . . . . . . . . . . 1-5
 

Figure 1.2b: Comparison of Energy Efficiency Program Costs to Supply Generation 


Costs (2000 to 2004). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1-5
 

Figure 1.3: Clean Energy Is Competitive with Fossil Fuel and Nuclear Generation Technologies . . . . . . . . . 1-7
 

Chapter 2: Developing a Clean Energy-Environment Action Plan 

Figure 2.1: Tools and Resources for Assessing the Benefits of Clean Energy . . . . . . . . . . . . . . . . . . . . . . . . . 2-6
 

Figure 2.2: Sample Outline for a Clean Energy-Environment Action Plan. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-8
 

Chapter 3: State Planning and Incentive Structures 

Figure 3.3.1: Map of Interconnections. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-50
 

Figure 3.3.2: NO and SO2 Emissions by Capacity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-50
 x
 

Figure 3.3.3: Historical Emissions Data (New England 2000). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-51
 

Figure 3.3.4: Estimated NO Reductions from Energy Efficiency/Renewable Energy (EE/RE). . . . . . . . . . . . . 3-56
 x
 

Figure 3.3.5: Marginal Emission Rates in Wisconsin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-57
 

Figure 3.4.1: States with Revolving Loan Funds for Renewable Energy . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-66
 

Figure 3.4.2: States with Grant Programs for Renewable Energy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-68
 

Figure 3.4.3: Grid-Connected PV Capacity Installed in California (cumulative) . . . . . . . . . . . . . . . . . . . . . . 3-82
 

Chapter 4: Energy Efficiency Actions 

Figure 4.1.1: States That Have Adopted or Are Developing EEPS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-5
 

Figure 4.2.1: Cost of Energy Saved (cents/kWh) for Six State Public Benefits Funds . . . . . . . . . . . . . . . . . 4-20
 

Figure 4.2.2: States with PBFs for Energy Efficiency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-20
 

Figure 4.2.3: Ratepayer-Funded Energy Efficiency Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-21
 

Figure 4.3.1: States with Residential and Commercial Building Energy Codes. . . . . . . . . . . . . . . . . . . . . . . 4-39
 

Figure 4.4.1: States with or Considering Appliance Standards. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-56
 

Figure 4.4.2: Load Savings from Appliance Efficiency Standards As Compared to Other 


Energy Efficiency Programs in California . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-56
 

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EPA Clean Energy-Environment Guide to Action
 

Chapter 5: Energy Supply Actions 

Figure 5.1.1a: Projected New Renewable Capacity by 2015 Attributable to Existing RPS Requirements
 

(California compared to all other states) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5-3
 

Figure 5.1.1b: Projected New Renewable Capacity by 2015 Attributable to Existing RPS Requirements 


(comparison of all other states) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5-3
 

Figure 5.1.2: A Sampling of the Impacts of RPS Requirements on Ratepayers. . . . . . . . . . . . . . . . . . . . . . . . 5-5
 

Figure 5.1.3: States with RPS Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5-5
 

Figure 5.1.4: State RPS Requirements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5-6
 

Figure 5.1.5: Eligible Technologies Under State RPS Requirements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5-7
 

Figure 5.1.6: Illustration of Renewable Energy Credits (RECs) and Power Markets . . . . . . . . . . . . . . . . . . . 5-10
 

Figure 5.2.1: Estimated 2005 Funding Levels for State Renewable Energy Programs . . . . . . . . . . . . . . . . . 5-22
 

Figure 5.2.2: Map of State Renewable Energy Funds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5-23
 

Figure 5.3.1: CHP System Efficiency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5-34
 

Figure 5.4.1: States with DG Interconnection Standards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5-44
 

Figure 5.4.2: States with Net Metering Rules. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5-45
 

Figure 5.5.1: Renewable Energy Capacity Added to Meet Voluntary Green Power Demand Through 2004. . . 5-60
 

Figure 5.5.2: States with Utility Green Pricing Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5-62
 

Figure 5.5.3: States with Competitive Green Power Marketing Activity in Competitive Electricity Markets . . 5-62
 

Chapter 6: Utility Planning and Incentive Structures 

Figure 6.1.1: A Laddered Approach to Default Service Contracts Offers Flexibility and Price Stability . . . . 6-6
 

Figure 6.3.1: Effect of Rate Structure on Electric Savings Revenue for 1.4 MW CHP Project . . . . . . . . . . . 6-40
 

Appendices 

Figure B.1: Energy Efficiency Program Costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-5
 

Figure C.1: Typical CHP Configurations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C-6
 

Figure C.2: Annual Worldwide Installations for Wind Power and PV. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C-7
 

Figure C.3: U.S. Renewable Energy Snapshot (2003 Data) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C-8
 

Figure C.4: U.S. CHP Capacity (2004). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C-9
 

Figure C.5: Size Distribution of U.S. CHP Projects (2004). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C-9
 

� List of Figures
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EPA Clean Energy-Environment Guide to Action
 

List of Tables 

Executive Summary 

Table ES.1: Summary of Clean Energy Policies by Type of Clean Energy . . . . . . . . . . . . . . . . . . . . . . . . . . . . ES-5
 

Table ES.2: Summary of Clean Energy Policies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ES-6
 

Table ES.3: Federal, State, and Nonprofit Resources for Enhancing State Clean Energy Programs . . . . . . ES-24
 

Chapter 1: Introduction and Background 

Table 1.1: 2003 Energy Efficiency Spending As a Percentage of Utility Revenues . . . . . . . . . . . . . . . . . . . . . 1-8
 

Table 1.2: Summary of Clean Energy Policies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1-10
 

Chapter 3: State Planning and Incentive Structures 

Table 3.1: State Planning and Incentive Structures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-2
 

Table 3.1.1: State of Colorado Performance Contracting Results Through June 2003 ($ Millions) . . . . . . . 3-15
 

Table 3.3.1: Existing Policies to Reduce CO2 Emissions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-59
 

Table 3.4.1: Economic Multipliers Used for Washington’s Production Incentive Program. . . . . . . . . . . . . . 3-83
 

Chapter 4: Energy Efficiency Actions 

Table 4.1: Energy Efficiency Policies and Programs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-2
 

Table 4.2.1: Comparison of 11 State PBFs for Energy Efficiency (sorted by charge level at 1 mill/kWh 


Table 4.4.1: Estimated Energy Savings and Economics of Appliance Standards 


Table 4.1.1: Current and Pending State EEPS Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-6
 

and greater) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-22
 

Table 4.2.2: Common Cost-Effectiveness Tests. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-25
 

Not Covered by Federal Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-55
 

Table 4.4.2: States with Adopted or Pending Appliance Efficiency Standards . . . . . . . . . . . . . . . . . . . . . . . . 4-57
 

Table 4.4.3: Products Subject to Existing Federal Appliance Efficiency Standards. . . . . . . . . . . . . . . . . . . . 4-60
 

Chapter 5: Energy Supply Actions 

Table 5.1: Energy Supply Policies and Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5-2
 

Table 5.2.1: Emerging Policies and Innovative Approaches. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5-29
 

Table 5.3.1: Design Flexibility Offered by Output-Based Standards. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5-33
 

Table 5.3.2: State Output-Based Regulations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5-35
 

Table 5.5.1: Green Pricing Programs Offered in Washington (as of May 2005) . . . . . . . . . . . . . . . . . . . . . . 5-70
 

Chapter 6: Utility Planning and Incentive Structures 

Table 6.1: Utility Planning and Incentive Structures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-2
 

Table 6.1.1: States That Use Diverse Contract Terms. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-5
 

Table 6.2.1: Simplified Illustration of Decoupling Rate Effect. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-25
 

Table 6.2.2: Approaches for Removing Disincentives to Energy Efficiency
 

Investment: Decoupling vs. Lost Revenue Adjustments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-27
 

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EPA Clean Energy-Environment Guide to Action
 

Appendices 

Table B.1: Common Cost-Effectiveness Tests. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-6
 

Table B.2: Examples of Evaluation Activities by Energy Efficiency Program Phase. . . . . . . . . . . . . . . . . . . B-9
 

Table B.3: Issues to Consider When Documenting Energy Efficiency Program Logic . . . . . . . . . . . . . . . . . . B-11
 

Table B.4: IPMVP Measurement and Verification Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-13
 

Table C.1: Comparison of Key Clean Energy Technology Options. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C-2
 

Table C.2: Emerging and Innovative Clean Energy Supply Policies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C-11
 

� List of Tables
 vii 
 

 

EPA Clean Energy-Environment Guide to Action
 

Key Acronyms and Abbreviations 

A 

ACEEE American Council for an EnergyEfficient Economy 

ACP Alternative Compliance Payment 

AEPS Alternative Energy Portfolio 

Standard 

ALAPCO Association of Local Air Pollution 

Control Officials 

APPA American Public Power Association 

APR Annual Percentage Rate 

ASAP Appliance Standards Awareness 

Project 

ASE Alliance to Save Energy 

ASHRAE American Society of Heating, 

Refrigerating and Air Conditioning 

Engineers 

ASME American Society of Mechanical 

Engineers 

ASTM American Society for Testing and 

Materials 

B 

BCAP Building Codes Assistance Project 

BECI Building Energy Conservation 

Initiative 

BETC Business Energy Tax Credit 

Btu British Thermal Unit 

C 

CAIR Clean Air Interstate Rule 

CALMAC California Measurement Advisory 

Council 

CCEF Connecticut Clean Energy Fund 

CEC California Energy Commission 

CEDC Clean Energy Development Council 

CESA Clean Energy States Alliance 

CFC Chlorofluorocarbon 

CFL Compact Fluorescent Lighting 

CHP Combined Heat and Power 

CIP Conservation Improvement 

Program 

CO Carbon Monoxide 

CO2 Carbon Dioxide 

COBRA Co-Benefits Risk Assessment 

CONEG Coalition of Northeast Governors 

CPUC California Public Utilities 

Commission 

D 

DEER Database for Energy Efficient 

Resources 

DG Distributed Generation 

DOC U.S. Department of Commerce 

DOE U.S. Department of Energy 

DSIRE Database of State Incentives for 

Renewable Energy 

DSM Demand-Side Management 

E 

ECPA 

EEPS 

EE/RE 

EGRID 

EIA 

EPA 

EPAct 

ERAM 

ERCOT 

ESCO 

ESL 

ESP 

ESPC 

Energy Conservation and 

Production Act 

Energy Efficiency Portfolio 

Standards 

Energy Efficiency/Renewable 

Energy 

Emissions and Generation 

Resources Integrated Database 

U.S. Energy Information 

Administration 

U.S. Environmental Protection 

Agency 

Energy Policy Act 

Electric Rate Adjustment 

Mechanism 

Electric Reliability Council of Texas 

Energy Service Company 

Energy Systems Laboratory at 

Texas A&M University 

Electric Service Provider 

Energy Savings Performance 

Contracting 

viii � Key Acronyms and Abbreviations
 
 

 

EPA Clean Energy-Environment Guide to Action
 

F
 

FEMP Federal Energy Management 

Program 

FERC Federal Energy Regulatory 

Commission 

G 

GCVTC Grand Canyon Visibility Transport 

Commission 

GPCP Green Power Choice Program 

GSA U.S. General Services 

Administration 

GSC Governor’s Steering Committee 

GSP Gross State Product 

GW Gigawatt 

GWh Gigawatt-hour 

H 

HERS Home Energy Rating System 

Hg Mercury 

HVAC Heating, Ventilation, and Air 

Conditioning 

I 

IC Internal Combustion 

ICC International Code Council 

ICLEI International Council for Local 

Environmental Initiatives 

IECC International Energy Conservation 

Code 

IEEE Institute of Electrical and 

Electronics Engineers, Inc. 

IEPR Integrated Energy Policy Report 

IES Illuminating Engineering Society 

IESNA Illuminating Engineering Society 

of North America 

IOU Investor-Owned Utility 

IPM Integrated Planning Model 

IPMVP International Performance 

Measurement and Verification 

Protocol 

IREC Interstate Renewable Energy 

Council 

IRP Integrated Resource Planning 

IRS Internal Revenue Service 

ISO Independent System Operator 

J 

K
 

kW Kilowatt 

kWh Kilowatt-hour 

L 

lb/kWh Pounds per Kilowatt-hour 

lb/MMBtu Pounds per Million British Thermal 

Units 

lb/MWh Pounds (of Emissions) per 

Megawatt-hour 

LBNL Lawrence Berkley National 

Laboratory 

LCOE Levelized Cost of Electricity 

LEED Leadership in Energy and 

Environmental Design 

LEV Low Emission Vehicle 

LRAM Lost Revenue Adjustment 

Mechanism 

M 

MADRI Mid-Atlantic Distributed 

Resources Initiative 

MAIN Mid-Atlantic Interconnected 

Network 

MAPP Mid-Continent Area Power Pool 

MCS Model Conservation Standards 

MEC Model Energy Code 

MEEA Midwest Energy Efficiency Alliance 

Midwest ISO Midwest Independent System 

Operator 

MLP Master Lease Purchase 

MLPP Master Lease Purchase Program 

MMBtu Million British Thermal Units 

MMTCE Million Metric Tons of Carbon 

Equivalent 

MMTCO2e Million Metric Tons of Carbon 

Dioxide Equivalent 

MRA Monthly Revenue Adjustment 

MRO Midwest Reliability Organization 

� Key Acronyms and Abbreviations
 ix 
 

 

EPA Clean Energy-Environment Guide to Action 

MSW Municipal Solid Waste 

M&V Measurement and Verification 

MW Megawatt 

MWh Megawatt-hour 

N 

NABCEP	 North American Board of Certified 

Energy Practitioners 

NAECA	 National Appliance Energy 

Conservation Act 

NARUC	 National Association of Regulatory 

Utility Commissioners 

NBI	 New Buildings Institute 

NCSL	 National Conference of State 

Legislatures 

NEDRI	 New England Demand Response 

Initiative 

NEEP	 Northeast Energy Efficiency 

Partnerships 

NEGC	 New England Governors’ 

Conference 

NEPOOL	 New England Power Pool 

NERC	 North American Electric Reliability 

Council 

NESCAUM	 Northeast States for Coordinated 

Air Use Management 

NESHAP	 National Emission Standards for 

Hazardous Air Pollutants 

NO	 Nitrogen Oxide x 

NRDC	 Natural Resources Defense Council 

NREL	 National Renewable Energy 

Laboratory 

NSPS	 New Source Performance 

Standards 

NYSERDA	 New York State Energy Research 

and Development Authority 

O 

OMS	 Organization of Midwest 

Independent System Operator 

States 

OTC	 Ozone Transportation Commission 

P
 

PBF 

PBR 

PM2.5 

PNNL 

ppm 

PRAM 

PRC 

PSC 

PTC 

PUC 

PUD 

PURPA 

PV 

PVE 

Q 

Public Benefits Fund 

Performance-Based Ratemaking 

Particulate Matter 

(2.5 micrometers or smaller) 

Pacific Northwest National 

Laboratory 

Parts Per Million 

Periodic Rate Adjustment 

Mechanism 

Public Regulation Commission 

Public Service Commission 

Production Tax Credit 

Public Utility(ies) Commission 

Public Utility District 

Public Utilities Regulatory Policy 

Act 

Photovoltaic 

Petroleum Violation Escrow 

QF Qualifying Facilities 

Quad Quadrillion British Thermal Units 

R 

RACT Reasonably Available Control 

Technology 

RAP Regulatory Assistance Project 

R&D Research and Development 

REC Renewable Energy 

Credit/Certificate 

REPP Renewable Energy Policy Project 

RES Renewable Energy Standard 

RESNET Residential Energy Services 

Network 

RETC Residential Energy Tax Credit 

RFP Request for Proposals 

RGR Renewable Generation 

Requirement 

RIM Rate Impact Measure 

ROE Return on Equity 

RPS Renewable Portfolio Standard 

RTO Regional Transmission 

Organization 

x � Key Acronyms and Abbreviations
 

 

EPA Clean Energy-Environment Guide to Action
 

S X
 

SBC 

SELP 

SEP 

SGIP 

SIP 

SIR 

SO2 

STAPPA 

SWEEP 

System Benefits Charge 

State Energy Loan Program 

Supplemental Environmental 

Project 

Self-Generation Incentive Program 

State Implementation Plan 

Standard Interconnection 

Requirements 

Sulfur Dioxide 

State and Territorial Air Pollution 

Program Administrators 

Southwest Energy Efficiency 

Project 

Y 

Z 

T 

T&D 

TRC 

T-REC 

TWh 

Transmission and Distribution 

Total Resource Cost 

Tradable Renewable Certificate 

Terawatt-hour 

U 

UL 

USAEE/IAEE 

USCHPA 

USGBC 

Underwriters Laboratory 

U.S./International Association for 

Energy Economics 

U.S. Combined Heat and Power 

Association 

U.S. Green Building Council 

V 

W
 

WAP Weatherization Assistance 

Program 

WGA Western Governors’ Association 

WIEB Western Interstate Energy Board 

WRAP Western Regional Air Partnership 

� Key Acronyms and Abbreviations
 xi 

 

 

ES-1

Executive Summary
 

Overview 

Across the country, states are using clean energy 

policies to help meet their expanding energy demand 

in a clean, low-cost, reliable manner. In addition, a 

growing number of states are interested in learning 

about successful clean energy strategies and their 

economic and environmental benefits. 

The U.S. Environmental Protection Agency’s (EPA’s) 

Clean Energy-Environment Guide to Action is 

designed to share the experiences and lessons 

learned from successful state clean energy policies 

and help states evaluate these options, programs, 

and policies to determine what is most appropriate 

for them. The Guide to Action describes 16 clean 

energy policies, details the best practices and attributes of effective state programs, and provides 

resources for more information. The policies were 

selected from among a larger universe of clean 

energy strategies because of their proven effectiveness and their successful implementation. 

States that are developing new clean energy programs or 

enhancing existing ones can use the Guide to Action to: 

• Develop clean energy programs and policies appropriate to their state. 

• Identify the roles and responsibilities of key decisionmakers—such as environmental regulators, 

state legislatures, public utility commissioners, and 

state energy offices. 

• Access and apply technical assistance resources, 

models, and tools available for state-specific 

analyses and program implementation. 

• Learn from each other as they develop their own 

clean energy programs and policies. 

EPA’s Clean Energy-Environment State 

Partnership Program 

The Clean Energy-Environment State Partnership 

Program is a voluntary program designed to help 

states analyze and implement available policies and 

programs that effectively integrate clean energy into a 

low-cost, clean, reliable energy system for the state. 

States participating in the Clean Energy-Environment 

State Partnership Program will use the Guide to Action 

to develop a Clean Energy-Environment State Action 

Plan for implementing existing and new energy policies 

and programs to increase their use of clean energy. 

The EPA Clean Energy-Environment Guide to Action 

identifies and describes 16 clean energy policies and 

strategies that are delivering economic and environmental results for states. These policies focus on clean energy opportunities for public entities, industry, electricity 

generators and suppliers, homes, and businesses. There 

are also opportunities for states to promote clean energy in the transportation sector. These policies and programs are beyond the scope of the current Guide to 

Action but may be addressed in future editions. 

Why Clean Energy? 

Clean energy offers a cost-effective way to meet our 

nation’s growing demand for electricity and natural 

gas while reducing emissions of air pollutants and 

greenhouse gases, lowering energy costs, and 

improving the reliability and security of the energy 

system. 

States and the U.S. energy industry face multiple 

energy and environmental challenges in providing 

affordable, clean, and reliable energy in today’s complex energy markets. In terms of energy challenges, 

total U.S. energy demand is expected to increase by 

more than one-third by 2025, with electricity 

� Executive Summary
 ES-1 
 

 

 

 

 

 

 

 

 

 

Coal 

Gas

Combined

Cycle 

Wind 

Nuclear 

Energy

Efficiency 

EPA Clean Energy-Environment Guide to Action
 

demand rising by almost 40% (EIA 2005a). This 

growth stresses current systems, reduces reliability, 

and requires substantial new investment in system 

expansions. In addition, higher natural gas prices 

increase energy costs for households and businesses 

and raise the financial risk associated with the 

development of new generation based on gas technologies. Environmental challenges stem from fossil 

fuel-based electricity generation, which is a major 

source of air pollutants that form ground-level ozone 

and fine particulate matter, as well as greenhouse 

gases. Although emission levels are declining, high 

pollution levels persist in many parts of the United 

States—nearly half of the U.S. population lives in 

counties where air quality sometimes exceeds the 

federal 8-hour standard for ozone (EPA 2005a).1 

Clean energy includes demand- and supply-side 

resources that deliver clean, reliable, and low-cost 

ways to meet energy demand and reduce peak electricity system loads. Energy efficiency measures 

reduce demand for energy generation, which reduces 

What Is Clean Energy? 

the amount of fuel needed to power our daily lives. 

Renewable energy sources avoid the use of fossil 

fuels, and combined heat and power (CHP) can provide much greater energy output for the amount of 

fuel used. 

States are finding clean energy to be cost-competitive 

with traditional sources of generation. Figure ES.1 

illustrates the comparative cost of electricity from a 

range of sources, including energy efficiency and 

wind. More specifically, states’ experiences with clean 

energy programs and policies have shown that: 

•	 Well-Designed Energy Efficiency Programs Cost 

Less Than Supplying New Generation from Power 

Plants. Energy efficiency programs are saving 

energy at an average life cycle cost of about $0.03 

Figure ES.1: Clean Energy Is Competitive with 

Fossil Fuel and Nuclear Generation Technologies 

10.0 

8.0 

Clean energy includes energy efficiency and clean
 

energy supply, which refers to clean distributed generation and renewable energy. 


Energy efficiency (EE) reduces demand for energy and
 

peak electricity system loads. Common energy efficiency measures include hundreds of technologies
 

and processes for practically all end uses across all
 

2002 cents/kWh

6.0 

4.0 

2.0 sectors of the economy. 


Renewable energy (RE) is partially or entirely generated from non-fossil energy sources. Renewable energy
 

definitions vary by state, but usually include wind, 

solar, and geothermal energy; some states might also 

include low-impact or small hydro, biomass, biogas, 

and waste-to-energy. 

0.0 

Combined heat and power (CHP), also known as cogeneration, is a clean, efficient approach to generating 

electric and thermal energy from a single fuel source. 

Clean distributed generation (DG) refers to noncentralized—usually small-scale—renewable energy 

and CHP. 

Capital Costs O&M Costs Fuel Costs Transmission Costs 

Note: The costs for nuclear, coal, wind, and gas combined cycle are 

projections for the cost of producing energy from new plants in 2010. 

The cost for energy efficiency is a median figure based on recent 

reports of the cost of energy saved over a portfolio of programs in leading states. 

Sources: ACEEE 2004, EIA 2004. 

1 In April 2005, 134 million people were living in 470 counties where the air quality sometimes exceeds the federal 8-hour standard for ozone.
 

Seventy-five million people were living in more than 200 counties that do not meet the PM2.5 standard (EPA 2005a).
 

ES-2	 � Executive Summary 
 

ES-3

 

EPA Clean Energy-Environment Guide to Action
 

Energy Savings Potential from State Clean 

Energy Actions 

The potential energy savings achievable through 

state actions is significant. EPA estimates that if each 

state were to implement cost-effective clean energyenvironment policies, the expected growth in demand 

for electricity could be cut in half by 2025, and more 

demand could be met through cleaner energy supply. 

This would mean annual savings of more than 900 billion kilowatt-hours (kWh) and $70 billion in energy 

costs by 2025, while preventing the need for more 

than 300 power plants and reducing greenhouse gas 

emissions by an amount equivalent to emissions from 

80 million of today’s vehicles.a 

a This estimate is based on EPA analysis of independent evaluations 

of the potential for cost-effective energy efficiency investments to 

help meet the nation’s growing demand for energy and electricity. 

Evaluations include a 2004 meta-analysis that examined the results 

of 11 different studies that estimated the potential for energy efficiency in various states and regions in the country and for the 

United States as a whole (Nadel et al. 2004). 

per kilowatt-hour (kWh) saved, which is 50% to 

75% of the typical cost of new power sources and 

less than one-half of the average retail price of 

electricity (ACEEE 2004a, EIA 2005b). 

•	 There Is Significant Potential for Additional CostEffective Investment in Energy Efficiency. State and 

regional energy efficiency potential studies have 

found that adoption of economically feasible and 

technically achievable, but as yet untapped, energy 

efficiency could yield a 24% savings in total electricity demand nationwide by 2025, which is 

equivalent to a 50% or greater reduction in electricity growth (SWEEP 2002, Nadel et al. 2004, 

NEEP 2005, NWPCC 2005). Many states could 

capture a greater portion of achievable energy 

potential and lower energy costs for consumers 

and businesses by increasing spending on costeffective energy efficiency. 

•	 Renewable Energy Technologies Are Increasingly 

Competitive with Conventional Generation. 

Renewable energy continues to grow rapidly, in 

part because state policies are helping increase its 

cost competitiveness. For example, depending on 

geographic location, wind energy technology can 

produce power at about $0.04 to $0.06/kWh, 

which is competitive with conventional natural 

gas combined cycle generation (Navigant 2003). In 

2004, approximately 18 gigawatts (GW) of nonhydro renewable capacity was operational in the 

United States, representing about 2% of total U.S. 

electricity generation capacity (EIA 2005c). 

•	 CHP Systems Are Substantially More Efficient Than 

Traditional Electricity Generation Purchased from 

the Grid and for Meeting Thermal Needs with a 

Boiler or Process Heater Alone. CHP systems 

achieve fuel use efficiencies that typically range 

between 60% and 75%, a significant improvement 

over the average efficiency of separately generated heat and power. In 2004, approximately 80 GW 

of CHP were operational in the United States (EPA 

2004a). 

States are also using clean energy to promote economic development by reducing energy costs, creating jobs, and attracting business investments in 

clean energy technologies and services. For example, 

investment in energy efficiency leads to energy bill 

savings, with those savings being reinvested in the 

economy and supporting more jobs than if the energy were purchased (SWEEP 2002). Clean energy projects create short-term construction and installation 

jobs and provide numerous long-term opportunities 

associated with new clean energy businesses. 

Clean energy addresses environmental challenges by 

helping improve air quality. Energy efficiency, renewable resources, and clean energy technologies such 

as CHP systems can reduce air pollution and greenhouse gas emissions. States are implementing a 

range of innovative approaches that are achieving 

quantifiable reductions in air pollutants through 

clean energy programs, policies, and measures. 

� Executive Summary
 ES-3 
 

ES-4

EPA Clean Energy-Environment Guide to Action
 

Opportunities for State Action 

State governments are increasingly developing policies and programs that address their energy challenges and spur greater investment in energy efficiency, renewable energy, and clean distributed 

resources. For example, states are: 

•	 Leading by example by establishing programs that 

achieve substantial energy cost savings within 

their own state facilities, fleets, and operations 

and encouraging the broader adoption of clean 

energy by the public and private sectors. State 

governments across the country are collaborating 

with state agencies, local governments, and 

schools to identify and capture energy savings 

within their facilities and operations, purchase or 

generate renewable energy, and use clean DG/CHP 

in their facilities. 

•	 Establishing ratepayer-funded energy efficiency 

programs (e.g., public benefits funds) to help overcome a variety of first-cost, informational, splitincentive, and other market barriers that limit 

greater reliance on energy efficiency. Seventeen 

states and Washington, D.C. have adopted public 

benefits funds (PBFs) for energy efficiency, and 16 

states have developed PBFs for clean energy supply (ACEEE 2004b, ACEEE 2004c, UCS 2004, DSIRE 

2005, Navigant 2005). 

•	 Adopting state minimum appliance efficiency standards for products not covered by the federal government that yield net cost savings to businesses 

and consumers. Ten states have adopted appliance 

standards covering 36 types of appliances (Delaski 

2005, Nadel et al. 2005). 

•	 Establishing renewable portfolio standards (RPS) 

that direct electric utilities and other retail electric 

providers to supply a specified minimum percentage (or absolute amount) of customer load with 

eligible sources of renewable electricity. Twentyone states and Washington, D.C. have adopted RPS 

requirements, which are expected to generate 

more than 26,000 MW of new renewable energy 

capacity by 2015 (Navigant 2005). 

•	 Reviewing utility incentives and planning processes 

and designing policies that accurately value energy efficiency, renewables, and distributed 

resources in a way that “levels the playing field” 

so public utility commissions and consumers can 

make fair, economically based comparisons 

between clean energy and other resources. More 

than 12 states have developed approaches that 

remove disincentives for utilities to invest in 

demand-side resources. 

ES-4 � Executive Summary
 
 

ES-5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EPA Clean Energy-Environment Guide to Action
 

The Guide to Action 

The Guide to Action presents a menu of 16 clean 

energy strategies that states can review and choose 

from when developing their clean energy policies or 

Clean Energy-Environment Action Plans (see What 

States Can Do, page ES-21, for additional information about Clean Energy-Environment Action Plans). 

States have found that a combination of clean 

energy policies, developed as a coordinated package, 

is the most effective approach. Typically, states have 

chosen policies to address each of the clean energy 

areas: energy efficiency (EE), renewable energy (RE), 

and clean DG. 

Table ES.1 provides an overview of the policies 

addressed in the Guide to Action and the type(s) of 

clean energy targeted by each policy. These policies 

were selected for inclusion in the Guide to Action 

because of their proven effectiveness, their ability to 

help overcome the barriers states face as they promote clean energy, and their successful implementation by a number of states. The information presented about each policy is based on proven models, 

state experiences, and lessons learned. 

Table ES.2 presents additional detail about each of 

the 16 policies, including information on specific 

approaches states can use to implement each policy, 

key design issues and resources, and states that can 

serve as examples of each policy. (Note that many 

other states have also implemented these policies; 

for more information, see the policy sections in the 

Guide to Action.) A brief description of each of the 

16 policies, including highlights of state experiences 

with each policy, follows Table ES.2. 

Table ES.1: Summary of Clean Energy Policies by 

Type of Clean Energy 

Clean Energy Policy 

Guide to 

Action 

Section 

Type of Clean E

EE RE 

nergy 

Clean 

DG/ 

CHP 

State Planning and Incentive Structures 

Lead by Example 3.1 ● ● ●

State and Regional Energy 

Planning 3.2 ● ● ●

Determining the Air Quality 

Benefits of Clean Energy 3.3 ● ● ●

Funding and Incentives 3.4 ● ● ●

Energy Efficiency Actions 

Energy Efficiency Portfolio 

Standards (EEPS) 4.1 ●

Public Benefits Funds (PBFs) 

for Energy Efficiency 

4.2 ●

Building Codes for Energy 

Efficiency 4.3 ●

State Appliance Efficiency 

Standards 

4.4 ●

Energy Supply Actions (Renewable Energy 

and Combined Heat and Power) 

Renewable Portfolio 

Standards (RPS) 5.1 ● ●

Public Benefits 

Funds (PBF) for State Clean 

Energy Supply Programs 

5.2 ● ●

Output-Based Environmental 

Regulations to Support Clean 

Energy Supply 

5.3 ● ●

Interconnection Standards 5.4 ● ●

Fostering Green Power 

Markets 5.5 ● ●

Utility Planning and Incentive Structures 

Portfolio Management 

Strategies 6.1 ● ● ●

Utility Incentives for DemandSide Resources 6.2 ● ● ●

Emerging Approaches: 

Removing Unintended Utility 

Rate Barriers to Distributed 

Generation 

6.3 ● ●

� Executive Summary
 ES-5 
 

ES-6

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EPA Clean Energy-Environment Guide to Action
 

Table ES.2: Summary of Clean Energy Policies
 

Policy Description Specific Approaches Design Issues State Examples 

Key Resources in 

the Guide to Action 

State Planning and Incentive Structures 

Section 3.1 Lead by Example 

States lead by example 

by establishing pro-­

grams that achieve sub-­

stantial energy cost sav-­

ings within their own 

operations, buildings, 

and fleets and demon-­

strate the feasibility and 

benefits of clean energy 

to the larger market. 

• Energy savings targets for 

public buildings. 

• Renewable and energy efficiency 

purchase commitments for state 

facilities. 

• State loan and incentive programs 

for public buildings. 

• Energy performance contracting. 

• Technical support and training. 

• State clean energy planning. 

• Understand state’s own energy use 

and then set aggressive goals. 

• Collaborate across public agencies, 

local governments, schools, private 

sector, and nonprofit organizations. 

• Identify funding sources and develop 

funding mechanisms. 

• Measure, verify, and communicate 

energy savings. 

CA, CO, IA, NH, NJ, 

NY, OR, TX 

• Details about statespecific “lead by 

example” program 

design. 

• Evaluation guidelines 

and information 

resources. 

• Examples of legislation 

and executive orders 

passed by states related to lead by example 

actions. 

Section 3.2 State and Regional Energy Planning 

Energy planning at a 

state or regional level 

can be an effective 

means for ensuring that 

clean energyis consid-­

ered and used as an 

energy resource to help 

states address their 

multiple energy, eco-­

nomic, and environmen-­

tal goals. 

• Clean energy plan. 

• Clean energy included within a 

comprehensive state energy plan. 

• Planning conducted by energy 

providers. 

• Analyze a full range of impacts for a 

variety of policy scenarios. 

• Establish specific quantitative and 

other goals; monitor and report 

progress regularly. 

• Link the plan to action by developing 

specific steps for plan adoption and 

implementation, and making these 

actions enforceable where appropriate. 

CA, CT, NM, NY, OR, 

Northwest Power 

Planning and 

Conservation 

Council, New 

England Governors’ 

Conference, 

Western Governors’ 

Association, 

Western Interstate 

Energy Board 

• Design information. 

• Benefits of energy 

plans. 

• Program implementation and evaluation. 

• Links to existing state 

and regional energy 

plans. 

• References to articles 

on energy planning. 

Section 3.3 Determining the Air Quality Benefits of Clean Energy 

States estimate the 

emission reductions 

from their clean energy 

programs, incorporate 

those reductions into air 

quality programs, and 

evaluate and report the 

emission reduction ben-­

efits of their clean ener-­

gy programs and poli-­

cies. 

• Incorporating clean energy into air 

quality plans and long-term utility 

planning requirements. 

• Developing set-asides for energy 

efficiency and renewable energy 

projects. 

• Tracking and reporting emission 

reductions. 

• Choose the most appropriate methodology for the given purpose, geographic scope, time scale, magnitude 

of energy savings, available 

resources, and available data. 

• Make all assumptions and inputs 

transparent; identify how to address 

electricity dispatch, imports and 

exports, line losses, and transmission 

constraints. 

• Understand and account for how the 

results will interact with other programs. 

LA (local), MD 

(local), TX, WI, 

Western Regional 

Air Partnership 

• Information about EPA 

guidance and analyses. 

• General and specific 

information about 

quantification methods 

and tools. 

• Articles about quantifying emission reductions. 

• State examples. 

(continued on next page)
 

ES-6 � Executive Summary
 
 

ES-7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EPA Clean Energy-Environment Guide to Action
 

Table ES.2: Summary of Clean Energy Policies (continued)
 

Policy Description Specific Approaches Design Issues State Examples 

Key Resources in 

the Guide to Action 

State Planning and Incentive Structures (continued) 

Section 3.4 Funding and Incentives 

States implement a range of 

targeted funding and incen-­

tives strategies that encour-­

age governments, business-­

es, and consumers to save 

energy through cost-effective 

clean energy investments. 

Between 20 and 30 states 

have revolving loan funds for 

energy efficiency, tax incen-­

tives for renewable energy, 

grants for renewable energy, 

or rebates for renewable 

energy. 

• Revolving loan funds. 

• Energy performance contracting. 

• Tax incentives. 

• Grants, rebates, and generation incentives. 

• NOx set-asides for energy 

efficiency and renewable 

energy projects. 

• Supplemental Environmental 

Projects (SEPs). 

• Develop specific target markets and 

technologies based on technical and 

economic analysis. 

• Use financing and incentives as part of 

a broader package of services designed 

to encourage investments. 

• Establish specific technical and 

financial criteria for clean energy 

investments. 

• Track program participation, costs, and 

energy savings to enable evaluation 

and improvement. 

CA, CO, IA, MT, NY, 

OR, TX, WA 

• Program design information, including funding sources, levels, and 

duration. 

• Implementation and 

evaluation information. 

• Information about federal incentives and 

existing state programs. 

• Examples of legislation. 

Energy Efficiency Actions 

Section 4.1 Energy Efficiency Portfolio Standards (EEPS) 

Similar to Renewable 

Portfolio Standards (see 

Section 5.1), EEPS direct 

energy providers to meet a 

specific portion of their elec-­

tricity demand through ener-­

gy efficiency. Seven states 

have direct or indirect EEPS 

requirements. 

• Energy efficiency targets for 

energy providers as a percentage of load growth, 

base year sales, or fixed 

energy savings (e.g., kWh). 

• Use economic potential studies and 

other analyses to help establish the 

energy savings target. 

• State the target clearly (e.g., as a percentage of base year energy sales) and 

establish a robust measurement and 

verification process. 

• Ensure workable funding mechanisms 

are available to meet the goal. 

CA, IL, NJ, NV, PA, 

TX 

• Information about state 

experiences. 

• Information about 

measurement and verification. 

• Examples of legislation 

and PUC rulemakings. 

Section 4.2 Public Benefits Funds (PBFs) for Energy Efficiency 

PBFs for energy efficiency • Funds for efficiency pro­ • Establish funding via a universal, non- CA, NY, OR, WI • Descriptions of costare pools of resources used grams based on a system­ bypassable charge at a rate that cap- effectiveness tests and 

by states to invest in energy wide charge (mills per kWh). tures economic energy efficiency information on energy 

efficiency programs and 

projects and are typically 

created by levying a small 

charge on customers’ elec-­

tricity bills. Seventeen states 

and Washington, D.C. have 

established PBFs for energy 

efficiency. 

• Grants, rebates, and loans. 

• Technical assistance, education, and training support 

for energy efficiency investments. 

potential, but is not a cap on investments. 

• Set the duration for an extended period 

of time (e.g., five to 10 years) to provide 

continuity and certainty for investors. 

• Select the most appropriate administering organization for the given conditions 

(e.g., utilities, state agencies, independand cost savings. 

• Information about PBF 

program designs, funding levels, and evaluation methods. 

• Examples of legislation 

and PUC rulemakings. 

ent organizations). 

• Regularly evaluate the program’s quantitative impacts (e.g., energy saved, emissions avoided, dollars saved, jobs created) and the effectiveness of program 

operations and delivery. 

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� Executive Summary ES-7 
 

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EPA Clean Energy-Environment Guide to Action
 

Table ES.2: Summary of Clean Energy Policies (continued)
 

Policy Description 

Specific 

Approaches 

Design Issues 

State 

Examples 

Key Resources in 

the Guide to Action 

Energy Efficiency Actions (continued) 

Section 4.3 Building Codes for Energy Efficiency 

Building energy codes estab-­

lish energy standards for resi-­

dential and commercial build-­

ings, thereby setting a mini-­

mum level of energy efficiency 

and locking in future energy 

savings at the time of new con-­

struction or renovation. More 

than 40 states have implement-­

ed some level of building codes 

for residential buildings and/or 

commercial buildings. 

• Minimum energy efficiency requirements 

for residential and 

commercial buildings. 

• Periodic review and 

updates to existing 

codes. 

• Code implementation, 

evaluation, and compliance assistance. 

• Develop effective program implementation, evaluation, 

and enforcement approaches. 

• Work collaboratively with builders, developers, and 

building owners to ensure compliance. 

• Establish requirements and process for periodically 

reviewing and updating codes to reflect changes in 

building technology and design. 

• Promote “beyond code” building programs to achieve 

additional cost-effective energy efficiency. 

AZ, CA, 

OR, TX, 

WA 

• Information about 

individual state codes. 

• Compliance and analytic 

tools. 

• Examples of code 

language. 

Section 4.4 State Appliance Efficiency Standards 

State appliance efficiency 

standards set minimum ener-­

gy efficiency standards for 

equipment and appliances 

that are not covered by fed-­

eral efficiency standards. Ten 

states have adopted appli-­

ance standards. 

• Minimum energy efficiency levels for consumer products and 

commercial equipment. 

• Periodic evaluation 

and review of standards, markets, and 

product applications. 

• Identify the products covered by federal law and carefully define the set of appliances to be covered by the 

state standard. 

• Use established test methods, as developed by federal 

agencies, other states, or industry associations, to set 

efficiency levels for the state appliance standards. 

• Consider implementation issues, including 

product certification, labeling requirements, and 

enforcement. 

CA, CT, 

NJ, NY 

• General and state-specific 

information about standards. 

• Definitions of products covered by federal and state 

standards. 

• Examples of enabling legislation, state rulemakings, 

and requests for preemption waivers. 

Energy Supply Actions 

Section 5.1 Renewable Portfolio Standards (RPS) 

RPS establish requirements 

for electric utilities and other 

retail electric providers to 

serve a specified percentage 

or amount of customer load 

with eligible resources. 

Twenty-one states and 

Washington, D.C. have adopt-­

ed RPS. 

• Promoting specified 

technologies through 

”technology tiers” 

and ”credit multipliers.” 

• Alternative compliance payments. 

• Renewable Energy 

Certificates (RECs) 

trading. 

• Develop broad support for an RPS, including top-level 

support of the governor and/or legislature by performing 

studies that analyze job creation, economic development, and customer bill impacts. 

• Specify which renewable energy technologies and 

resources will be eligible, based on clearly articulated 

goals and objectives. 

• Consider using energy generation (not installed capacity) as a target, make compliance mandatory for all 

retail sellers, allow utility cost recovery, establish cost 

caps, and consider flexible compliance mechanisms. 

AZ, CA, 

MA, TX, 

WI 

• Information on state RPS 

requirements and eligible 

technologies. 

• Information on selected 

state RPS program 

designs. 

• Description of renewable 

energy credits and power 

markets. 

Section 5.2 Public Benefits Funds (PBFs) for State Clean Energy Supply Programs 

PBFs are a pool of resources 

used by states to invest in 

clean energy supply projects 

and are typically created by 

levying a small charge on 

customers’ electricity bills. 

Sixteen states have estab-­

lished PBFs for clean energy 

supply. 

• Funds for emerging 

and commercially 

competitive technologies and clean energy 

market development 

programs based on a 

system-wide charge 

(mills per kWh). 

• Grants, rebates, and 

generation incentives. 

• Protect funding from being diverted for other uses. 

• Consider the importance of technology stages. 

• Ensure that PBFs support the state’s energy and environmental goals and work in concert with other state 

renewable energy initiatives (e.g., RPS and tax credits). 

CA, CT, 

MA, NJ, 

NY, OH 

• Information on federal 

resources. 

• General and specific information on state approaches and models. 

• Information on funding levels 

and technologies supported 

by PBFs. 

• State examples. 

ES-8 

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EPA Clean Energy-Environment Guide to Action
 

Table ES.2: Summary of Clean Energy Policies (continued)
 

Policy Description Specific Approaches Design Issues 

State 

Examples 

Key Resources in 

the Guide to Action 

Energy Supply Actions (continued) 

Section 5.3 Output Based Environmental Regulations to Support Clean Energy Supply 

Output-based environmen-­ • Conventional emission limits • Determine the types of DG and CHP tech- CT, IN, MA, • Information on federal and 

tal regulations establish using an output formula. nologies and applications that may be TX other resources. 

emissions limits per unit of 

productive energy output 

of a process (i.e., electrici-­

ty, thermal energy, or shaft 

power), with the goal of 

encouraging fuel conver-­

sion efficiency and renew-­

able energy as air pollution 

control measures. Twelve 

• Special regulations for small distributed generators that are output based. 

• Output-based allowance allocation methods in a cap and trade 

program. 

• Output-based allowance allocation set-asides for energy effiaffected and if the regulation needs to 

address any specific technology issues. 

• Gather/review available output-based emissions data for regulated sources. 

Alternatively, convert available data to output-based format. 

• Evaluate alternative approaches to account 

for multiple outputs of CHP units. 

• Articles on output-based 

regulation. 

• Examples of federal and 

state legislation and program proposals. 

states have established ciency and renewable energy. 

output-based environmen-­ • Multi-pollutant emission

tal regulations. regulations using an output-based 

format. 

Section 5.4 Interconnection Standards 

Standard interconnection • Standard interconnection rules • Develop standards that cover the scope of MA, NJ, • State-by-state assessrules establish processes for DG systems through defined the desired DG technologies, generator NY, TX ment and references. 

and technical require-­

ments that apply to utilities 

within the state and 

reduce uncertainty and 

delays that clean DG sys-­

tems can encounter when 

obtaining electric grid con-­

nection. Fourteen states 

have standard intercon-­

nection rules, and 39 

application processes and technical requirements. 

• Net metering, which defines 

application processes and technical requirements, typically for 

smaller projects. 

types, sizes, and distribution system types. 

• Address all components of the interconnection process, including issues related to the 

application process and technical requirements. 

• Create a streamlined process for generators 

that are certified compliant with technical 

standards such as IEEE Standard 1547 and 

UL Standard 1741. 

• Information on federal and 

other resources. 

• National standards organizations. 

• Examples of standard 

interconnection rules. 

states offer net metering. • Consider adopting portions of national models and successful programs in other states. 

Section 5.5 Fostering Green Power Markets 

States play a key role in • Customer access to green power • Encourage new resources to ensure that CT, MA, • Information about state 

fostering the development markets. renewable benefits are realized. NJ, NM, programs. 

of voluntary green power 

markets that deliver costcompetitive, environmen-­

tally beneficial renewable 

energy resources by giving 

customers the opportunity 

to purchase clean energy. 

Green power is available 

• Green pricing tariffs. 

• Green “check-off” programs. 

• Establishing quantitative goals 

and objectives for green power 

markets. 

• Create real value for green power customers (e.g., by exempting them from utility 

fuel adjustment charges or developing 

recognition programs for commercial customers). 

• Create programs with sufficiently long time 

horizons to encourage long-term power 

WA • Examples of state 

legislation and regulations. 

• Information on federal and 

other resources. 

in more than 40 states. contracts. 

• Determine the appropriate relationship 

between green power purchases and compliance with RPS. 

(continued on next page) 

� Executive Summary ES-9 
 

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EPA Clean Energy-Environment Guide to Action
 

Table ES.2: Summary of Clean Energy Policies (continued)
 

Policy Description 

Specific 

Approaches 

Design Issues 

State 

Examples 

Key Resources in 

the Guide to Action 

Utility Planning and Incentive Structures 

Section 6.1 Portfolio Management Strategies 

Portfolio management strate-­ • Energy resource • Identify state policy goals for portfolio management, such CA, CT, IA, MT, • Design guidance. 

gies include energy resource 

planning approaches that 

place a broad array of sup-­

ply and demand options on a 

level playing field when com-­

paring and evaluating them 

in terms of their ability to 

planning and procurement. 

• Integrated resource 

planning (IRP). 

• Retail choice portfolio management. 

as cost, environmental impacts, resource diversity, and 

risk management. 

• Identify the entities that procure and plan for energy supply, transmission, and distribution. 

• Determine the appropriate process for acquiring and comparing alternative resource options. 

NV, OR, PA, 

VT, Idaho 

Power, 

Northwest 

Power and 

Conservation 

Council, 

• Information on program implementation and evaluation. 

• State and regional 

examples and links 

to key references. 

meet projected energy • Establish clear roles for utility and regulatory authorities in PacifiCorp, 

demand and manage uncer-­ selecting evaluation criteria, reviewing proposals, and Puget Sound 

tainty. choosing final resources. 

• Require that all demand and supply resources be considered in meeting identified needs. 

Energy 

Section 6.2 Utility Incentives for Demand Side Resources 

A number of approaches— • Decoupling utility • Understand state utility ratemaking and revenue require- AZ, CA, CT, ID, • Design guidance. 

including decoupling and per-­

formance incentives—remove 

disincentives for utilities to 

consider energy efficiency 

and clean distributed genera-­

tion equally with traditional 

electricity generation invest-­

ments when making electricity 

profits from sales 

volume. 

• Program cost recovery. 

• Shareholder 

performance 

incentives. 

ments. 

• Determine if utility rates create financial disincentives for 

energy efficiency and clean distributed generation. 

• Gather information and stakeholder input on utility incentive options. 

• Devise an implementation plan to remove disincentives. 

MA, MD, ME, 

MN, NM, NV, 

NY, OR, WA 

• References to state 

incentive regulation 

efforts. 

• References to articles and Web sites 

on utility incentives. 

market resource planning 

decisions. 

Section 6.3 Emerging Approaches: Removing Unintended Utility Rate Barriers to Distributed Generation 

Electric and natural gas • Utility ratemaking • Ensure that state PUC commissioners and staff have cur- Exit Fees: • Examples of state 

rates, set by Public Utility and revenue require- rent and accurate information on rate issues for CHP and CA, IL, MA legislation and 

Commissions, can be 

designed to support clean 

DG projects and avoid unin-­

tended barriers, while also 

providing appropriate cost 

recovery for utility services 

on which consumers 

depend. 

ments. 

• Revised standby rate 

structures. 

• Exit fee exemptions. 

• Natural gas rates for 

DG and/or CHP. 

• In regulated markets, 

help generators and 

utilities establish 

appropriate buyback 

rates. 

renewables and their potential benefits for the generation 

system. 

• Open a generic PUC docket, if needed, to explore the actual costs and system benefits of onsite clean energy supply 

and rate reasonableness. 

• Engage energy users to accurately examine the costs and 

system benefits of existing and planned onsite clean DG. 

Standby 

Rates: 

CA, NY 

Gas Rates: 

NY 

rules. 

• Information on federal resources. 

• Articles about 

ratemaking. 

ES-10 � Executive Summary
 
 

 

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EPA Clean Energy-Environment Guide to Action
 

State Planning and Incentive 

Structures 

States are substantially reducing energy costs and 

emissions and are supporting in-state economic 

development through clean energy policies. The 

Guide to Action provides resources on the following 

policies that states have successfully implemented to 

promote clean energy within their own operations, 

through state and regional energy and air quality 

planning efforts, and funding and incentive programs. 

Lead by Example 

State and local governments are implementing a 

range of “lead by example” programs and policies 

that advance the use of clean energy within their 

own facilities, fleets, and operations, substantially 

reducing their energy bills. These bills are sizable— 

states are responsible for more than 16 billion square 

feet of building space and spend more than $11 billion annually on building energy costs, which can 

account for as much as 10% of a typical government’s annual operating budget (DOE 2005a). In 

addition to achieving energy savings within state 

States Are Leading by Example 

•	 New York’s “Green and Clean” State Buildings and 

Vehicles, administered by the New York State Energy 

Research and Development Authority (NYSERDA), 

sets aggressive targets for reducing energy use in 

state buildings and vehicles, green power purchasing, and purchasing energy efficient products. 

•	 Iowa’s Executive Order Number 41 directs state agencies to obtain at least 10% of their electricity from 

renewable energy sources by 2010. To satisfy this 

requirement, agencies may generate their own renewable energy or may participate in their utility’s green 

power programs (Iowa 2005). 

•	 New Hampshire’s Executive Order 2005-4 requires 

state agencies to reduce energy use by 10% and 

purchase ENERGY STAR equipment. Executive Order 

2004-7 requires state staff to conduct an inventory of 

annual energy use by all state facilities, using EPA’s 

Energy Performance Rating System to assess energy efficiency, and to conduct audits to identify energy efficiency opportunities in state facilities. 

facilities, lead by example initiatives promote the 

adoption of clean energy technologies by the public 

and private sectors. 

States have initiated lead by example initiatives 

through executive orders, legislation, and agency 

rulemakings. Typically, these initiatives are coordinated by the state energy office, and involve multiple 

agencies and programs across state and local government and other public agencies. 

State and Regional Energy Planning 

Energy planning at a state or regional level is an 

effective means for ensuring that clean energy is 

considered and used as an energy resource to help 

states address their multiple energy and nonenergy 

States and Regions Are Developing Energy Plans 

•	 California’s Integrated Energy Policy Report (IEPR) 

is an extensive assessment prepared biennially at 

the direction of the state legislature. It includes policy recommendations for addressing multiple goals, 

including conserving resources; protecting the 

environment; ensuring reliable, secure, and diverse 

energy resources; enhancing the state’s economy; 

and protecting public health and safety. The IEPR is 

complimented by a brief “blueprint” for energyrelated actions, the California “Energy Action Plan” 

(CEC 2005a). 

•	 The Connecticut Energy Advisory Board develops 

an Annual Energy Plan that includes specific strategies to support energy efficiency and renewable 

resources based on a detailed assessment of supply and demand options and related policy opportunities and challenges. The Plan describes how programs and policies across the state help advance 

Connecticut’s energy and other goals and includes 

a progress report on the Connecticut Climate 

Change Action Plan, as a significant energy-related 

initiative (CEAB 2005). 

•	 The Western Governors’ Association’s Clean and 

Diversified Energy Advisory Committee (CDEAC), 

created by the governors of 18 western states, 

recently undertook an extensive analysis to explore 

how to meet a regional goal of developing 30,000 

MW of clean energy by 2015 and increasing energy 

efficiency 20% by 2020 (WGA 2005). 

� Executive Summary
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EPA Clean Energy-Environment Guide to Action
 

challenges. Energy planning helps support a costeffective response to projected load growth (possibly 

avoiding the need for new power plants and infrastructure); improves system reliability, supply diversity, and security; reduces energy prices and price 

volatility; and reduces the environmental impact of 

energy generation. Energy plans are usually developed by one or more state agencies. Typically, the 

state energy office leads the planning effort, and a 

variety of public and private sector stakeholders play 

a role in developing the plan or providing input. 

Energy planning takes place in several contexts—it 

can be part of a broad, multi-faceted strategy (e.g., 

the New York State Energy Plan), or a more targeted 

effort that specifically addresses one or more clean 

energy goals (e.g., the Illinois Sustainable Energy 

Plan). At the regional level, planning typically occurs 

in two separate but related forums. In one approach, 

government or quasi-government entities (e.g., governors’ associations) focus on developing broad 

regional policy approaches. Alternatively, power system operators engage in rigorous power system 

planning (with input from states) that focuses on 

providing reliable and adequate power supplies within their region. Both forums offer opportunities to 

consider clean energy as a way of meeting future 

energy demand. 

Determining the Air Quality Benefits of Clean 

Energy 

Meeting energy demand through clean energy 

sources can reduce emissions from fossil-fueled generators and provide many emissions benefits. States 

are employing a number of methods to quantify the 

emission reductions from their clean energy programs and policies and incorporate those reductions 

into documentation for air quality planning efforts, 

energy planning, and clean energy program results. 

Quantifying emission reductions from clean energy 

options provides states with additional information 

to use when selecting among alternative clean energy solutions, determining the best way to design 

clean energy programs to comply with existing and 

prospective regulations, and determining the best 

investment opportunities for a specific clean energy 

States Are Identifying the Air Quality Benefits 

of Clean Energy 

•	 The Texas Legislature passed the Texas Emissions 

Reduction Plan in 2001, requiring counties to implement energy efficiency measures and reduce electricity consumption 5% a year for five years to help 

the state comply with federal emissions limits and 

standards. The Texas Commission on Environmental 

Quality worked with EPA and several Texas organizations to develop a methodology for quantifying the 

nitrogen oxide (NO ) emission reductions associat­ x

ed with energy savings from individual clean energy 

projects. 

•	 The Western Regional Air Partnership (WRAP) was
 

established in 1997 to help incorporate 10% renewable energy into its resource mix by 2010 and 20%
 

by 2015 in an effort to reduce regional haze. A
 

WRAP study of the air emission reductions from
 

state clean energy programs estimated that NO
x 

emissions would be reduced by about 14,000 tons 

and carbon dioxide (CO2) emissions by about 56 million metric tons by 2018 (WRAP 2003). 

program. Some states are working with EPA to 

include clean energy as an emission reduction measure in air quality plans. EPA provides guidance and 

can help states identify ways to use emission reduction data and appropriate quantification methods 

and documentation requirements (EPA 2004b). 

Funding and Incentives 

States are using well-designed, targeted funding and 

incentives for a broad range of clean energy technologies and services. State funding and incentive 

programs, some of which are self-sustaining (e.g., 

revolving loan funds), deliver energy and cost savings 

for governments, businesses, and consumers. These 

programs help overcome barriers, stimulate markets 

and build infrastructure, and leverage public and private sector investment. States have made additional 

investments and achieved subsequent savings by 

coordinating financial incentives with federal incentives (e.g., the production tax credit for renewable 

energy generation), other state programs, and utilitybased clean energy programs. 

ES-12 � Executive Summary
 
 

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EPA Clean Energy-Environment Guide to Action
 

States Are Providing Funding and Incentives 

for Clean Energy 

•	 The Texas LoanSTAR program is a self-sustaining 

program that provides low-interest loans to finance 

energy conservation retrofits in state public facilities. Loans are repaid in four years or less using 

cost savings from verified energy reductions. Public 

agencies in Texas have reduced their energy costs 

by more than $150 million through the LoanSTAR 

program (DOE 2005c, Texas SECO 2005). 

•	 Oregon offers the Business Energy Tax Credit 

(BETC) and Residential Energy Tax Credit (RETC) to 

businesses and residents. Through 2004, more than 

12,000 energy tax credits worth $243 million have 

been awarded. Altogether, these investments save 

or generate energy worth about $215 million a year 

(Oregon DOE 2005). 

Energy Efficiency Actions 

States have implemented a variety of policies and 

programs that encourage investment in and adoption 

of energy efficiency. Cost-effective energy efficiency 

programs can be structured to help remove the key 

market, regulatory, and institutional barriers that 

might otherwise hinder investment in energy efficiency measures by consumers, businesses, utilities, 

and public agencies. The Guide to Action describes 

four energy efficiency policies that a number of 

states have successfully implemented to support 

greater investment in and adoption of energy efficiency. 

Energy Efficiency Portfolio Standards (EEPS) 

EEPS require energy providers to meet a specific portion of their electricity demand through energy efficiency. A relatively recent policy tool, EEPS have been 

developed primarily in states with restructured utility 

markets, typically as a partial replacement for their 

Integrated Resource Planning (IRP) requirements. 

EEPS offer several policy advantages, including simplicity, specificity, and economies of scale. 

To date, seven states have adopted EEPS either 

directly or indirectly (with energy efficiency as a 

component of a larger clean energy target or goal). 

Overall, these EEPS targets range from the equivalent 

of a 10% to 50% reduction in energy demand 

growth (EPA 2005b). Specific EEPS designs vary by 

state. Some states, such as California, have established specific energy savings goals defined in terms 

of the amount of savings (e.g., expressed as MW, 

megawatt-hours [MWh], and/or therm savings) 

required over a specified time frame. Other states 

(e.g., Connecticut, Texas, and Illinois) require utilities 

to use energy efficiency to meet a specified percentage of total energy sales or forecast load growth 

over a certain time period. EEPS targets have been 

established by state legislatures and are administered 

by the state public utility commission (or other regulatory body), with input from utilities, public interest 

organizations, and the general public. 

States Are Adopting Energy Efficiency 

Portfolio Standards 

•	 The California EEPS sets ambitious annual energy 

savings goals for the period 2004 to 2013 for the 

state’s four largest investor-owned utilities (IOUs). 

The cumulative effect of these goals is estimated to 

result in annual savings in 2013 of 23,183 GWh, 4,885 

MW of peak demand, and 444 million therms of natural gas and to meet more than half of the IOUs’ 

electricity sales growth and nearly half of natural 

gas sales growth (CPUC 2004, CEC and CPUC 2005). 

•	 Texas was the first state to implement an EEPS. The 

Texas PUC calculated that it has exceeded its target 

of a 10% reduction in load growth by 2004 and has 

saved more than 400 million kWh of electricity at a 

cost of $82 million, for a net benefit of $76 million to 

date (Gross 2005). 

� Executive Summary
 ES-13 
 

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EPA Clean Energy-Environment Guide to Action
 

Public Benefits Funds (PBFs) for Energy 

Efficiency 

Many states have found that PBFs, also known as 

system benefits charges (SBCs) or clean energy 

funds, are an effective mechanism for securing 

investment in cost-effective energy efficiency, resulting in lower-cost, cleaner energy. PBFs are typically 

created by levying a small charge on every customer’s electricity bill, thus providing an annual revenue stream to fund energy efficiency programs. 

States with restructured as well as traditional electricity markets are using PBFs as a component of 

their clean energy policy portfolios. 

To date, 17 states and Washington, D.C. have established PBFs to support energy efficiency at various 

levels of funding (ACEEE 2004b, ACEEE 2004c). For 

the more comprehensive programs, funding levels 

range from about 1% to 3% of total utility revenues. 

PBF charges range from 0.03 to 3 mills2 per kWh and 

are equivalent to about $0.27 to $2.50 on a residential customer’s monthly energy bill (ACEEE 2004b). 

PBFs have supported programs that reduce energy 

demand and related emissions at a lower cost than 

new supply. For example, for just 12 of the states 

with energy efficiency PBFs, total annual investments 

of about $870 million in 2002/2003 yielded nearly 

2.8 million kWh of electricity savings. Emission 

reductions from nine of these states included a total 

of 1.8 million tons of CO2. The median program cost 

was $0.03 per kWh saved, which is 50% to 75% of 

the typical cost of new power sources and less than 

half of the average retail price of electricity (ACEEE 

2004a, EIA 2005b). 

States Are Establishing Public Benefits Funds 

for Energy Efficiency 

•	 In New York, NYSERDA administers the PBF program with the goals of improving system-wide reliability, reducing peak load, improving energy efficiency and access to energy options for underserved 

customers, reducing environmental impacts, and 

facilitating competition in the electricity markets. 

NYSERDA has invested more than $350 million in 

energy efficiency programs and brought about an 

estimated additional investment of $850 million, for a 

total of $1.2 billion in public and private sector energy- and efficiency-related investments in the state. 

The program is expected to result in a total of $2.8 

billion in new public and private investment in New 

York (NYSERDA 2004). 

•	 California established the first PBF for energy efficiency in 1996. The California Public Utility 

Commission (CPUC) provides policy oversight of the 

state PBF (known in the state as the "Public Goods 

Charge"), approves plans for efficiency programs in 

each of the utility service areas, and coordinates 

statewide activities. The PBF provides $289 million 

annually for energy efficiency programs, at a cost of 

less than 3 cents per kWh saved. The CPUC has 

adopted aggressive energy efficiency savings goals 

for regulated electric and natural gas utilities, which 

will capture additional cost-effective energy savings, with $2 billion authorized for energy efficiency 

programs in 2006–2008. This investment will achieve 

$2.7 billion in net savings to consumers and meet 

more than half of future electricity load growth over 

the next decade—avoiding the need for three large 

(500 MW) power plants (CPUC 2005). 

•	 The Wisconsin PBF, Focus on Energy, is a publicprivate partnership with the goals of encouraging 

energy efficiency and renewable energy, enhancing 

the environment, and ensuring a future supply of 

energy. This program realized a total lifetime energy 

savings of $214.5 million during FY 2004 for a program benefit-cost ratio of 5.4 to 1 (WI DOA 2004). 

2 A mill is equivalent to one-tenth of a cent. 

ES-14 � Executive Summary
 
 

ES-15

 

 

 

Building Codes for Energy Efficiency 

Building energy codes establish standards that set a 

minimum level of energy efficiency for residential 

and commercial buildings, thereby locking in the 

energy savings at the time of new construction or 

renovation. Well-designed, implemented, and 

enforced codes can help eliminate inefficient construction practices and technologies with little or no 

increase in total project costs. 

Codes typically specify requirements for “thermal 

resistance” in the building shell and windows, minimum air leakage, and minimum heating and cooling 

equipment efficiencies. These measures can reduce 

energy use by 30% or more, resulting in cost savings 

for businesses and consumers (DOE 2005b). Building 

energy codes also reduce peak energy demand, air 

pollution, and greenhouse gas emissions. Recognizing 

these benefits, a majority of states have adopted 

building energy codes in some form for residential 

and commercial construction. 

State Appliance Efficiency Standards 

State appliance efficiency standards establish minimum energy efficiency levels for appliances and 

other energy-consuming products that are not 

already covered by federal efficiency standards. 

Federal laws such as the recent Energy Policy Act of 

2005 (EPAct 2005) have established appliance efficiency standards for more than 40 products. States 

are preempted from setting their own standards for 

the products covered by federal standards but can 

enact standards for products that are not yet covered 

by federal law (which in many cases emerged from 

state standard-setting activities) or may petition for 

a waiver under particular circumstances. Ten states 

have adopted standards covering a total of 36 types 

of appliances and at least two additional states are 

considering adopting standards (Delaski 2005, Nadel 

et al. 2005). 

EPA Clean Energy-Environment Guide to Action
 

States Are Implementing Building Energy 

Codes for Energy Efficiency 

•	 California’s Title 24 standards for residential and 

commercial buildings are stringent and well 

enforced. They include a combination of performance-based and mandatory provisions that are 

expected to yield $43 billion in electricity and natural gas savings by 2011. The standards are expected 

to reduce annual energy demand by 180 MW, equivalent to the electricity requirements of 180,000 average-sized California homes (CEC 2003). 

•	 Oregon and Washington take a simple and prescriptive approach to building energy codes. The result 

is a high level of code compliance; a recent construction practice survey found that 94% of homes 

surveyed in Washington and 100% in Oregon met or 

exceeded code requirements for the building envelope (Ecotope 2001). 

States Are Implementing Appliance Efficiency 

Standards 

•	 California was the first state to initiate an appliance 

efficiency standards program (in 1977) and maintains the most active and well-funded standards 

program of any state. California law now covers 30 

products; new or upgraded standards are under 

consideration for three products. Operated by the 

California Energy Commission (CEC), the appliance 

standard program is currently reducing peak electric demand by about 2,000 MW or about 5% of peak 

load. These savings account for about 20% of 

California’s total peak demand reductions from all 

efficiency programs over the past 20 years (CEC 

2005a, CEC 2005b). 

•	 New York’s Appliance and Equipment Energy 

Efficiency Standards Act of 2005 established state 

energy efficiency standards for 14 household appliances and electronic equipment not covered by federal standards. The law also requires efficiency standards for electronic products that use standby power 

when they are turned off but remain plugged in (e.g., 

DVD players and recorders) to reduce “phantom” 

energy consumption. These standards are expected 

to save 2,096 GWh of electricity annually, enough to 

power 350,000 homes. This equates to annual savings 

of $284 million per year (State of New York 2005). 

� Executive Summary
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Energy Supply Actions 

States can achieve a number of environmental and economic benefits by encouraging the development of clean 

energy supply (i.e., renewable energy and CHP) as part of 

a balanced energy portfolio. The Guide to Action describes 

five policies that states have successfully used to support 

and encourage continued growth of clean energy supply 

in their state. 

Renewable Portfolio Standards (RPS) 

RPS provide states with a tool to increase the amount of 

renewable energy using a cost-effective, market-based 

approach. RPS, which can be used in both regulated and 

restructured electricity markets, require electric utilities 

and other retail electric providers to supply a specified 

minimum percentage or amount of customer load with 

eligible sources of renewable electricity. As of September 

2005, RPS requirements have been established in 21 

states and Washington, D.C. More than 2,300 MW of 

new renewable energy capacity (through 2003) is attributable to RPS programs. RPS is cited as the driving force 

behind the installation of approximately 47% of new 

wind capacity additions in the United States between 

2001 and 2004 (Bird and Swezey 2004). 

PBFs for State Clean Energy Supply Programs 

PBFs for clean energy supply accelerate the development of renewable energy and CHP within a state. 

They are typically created by levying a small fee or 

surcharge on customers’ electricity rates (e.g., for 

renewable energy, this fee ranges from approximately 

0.01 to 0.1 mills/kWh). While PBFs have traditionally 

been used to fund energy efficiency and low-income 

programs, states have recently begun to implement 

PBFs to support clean energy supply. PBFs were initially established by states undergoing electricity market 

restructuring but are now used by both restructured 

states and states with traditional electricity markets. 

As of 2005, 16 states had established renewable 

energy programs that are expected to provide more 

than $300 million annually in support of clean energy supply. PBFs will provide much of this funding; 

according to one estimate, clean energy funding will 

total $4 billion by 2017 (UCS 2004, DSIRE 2005, 

Navigant 2005). 

States Are Implementing Renewable Portfolio 

Standards 

•	 Texas was among the first states to establish a RPS 

requirement and is considered by many policymakers and advocates to be among the most successful. Between 1999, when the RPS was initiated, and 

February 2005, 1,187 MW of renewable energy 

capacity was installed in Texas. The Texas RPS 

includes long-term contracts, penalties for noncompliance, and RECs trading. 

•	 California’s RPS—enacted by the state legislature in 

September 2002—is among the most aggressive in 

the country. The RPS requires retail sellers of electricity to purchase 20% renewable electricity by 2017. 

At a minimum, retailers must increase their use of 

renewable electricity by 1% each year. California is 

considering increasing the RPS requirement to 33% 

by 2020 (CEC 2005a). 

States Are Establishing Public Benefits Funds 

for State Clean Energy Supply Programs 

•	 New Jersey’s clean energy initiative, administered by 

the New Jersey Board of Public Utilities, provides 

information and financial incentives and creates 

enabling regulations designed to help New Jersey 

residents, businesses, and communities reduce their 

energy use, lower costs, and protect the environment. 

New Jersey’s Clean Energy Program has three components: residential programs, commercial and industrial programs, and renewable energy programs. CHP 

is funded as an efficiency measure through the commercial and industrial programs. 

•	 In New York, the New York State Energy Research 

and Development Authority (NYSERDA) administers 

the New York Energy $mart program, which is 

designed to support certain public benefits programs 

during the transition to a more competitive electricity 

market. About 2,700 projects in 40 programs are funded by a charge on the electricity transmitted and 

distributed by the state’s investor-owned utilities. 

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EPA Clean Energy-Environment Guide to Action
 

Output-Based Environmental Regulations to 

Support Clean Energy 

Designing environmental regulations that account 

for the emission reduction benefits of energy efficiency, renewable energy, and CHP increases the 

attractiveness for facilities to install clean energy 

technologies and increase efficiency. Output-based 

environmental regulations, which relate emissions to 

the productive output of a process, accomplish this 

by encouraging the use of fuel conversion efficiency 

and renewable energy as air pollution control measures. For electric generation, this unit of measure is 

the amount of emissions per MWh (lb/MWh). In contrast, most environmental regulations for power generators and boilers have historically established 

emission limits based on heat input or exhaust concentration (lb/MMBtu or parts per million [ppm]). 

These traditional input-based limits do not account 

for the pollution prevention benefits of process efficiency in ways that encourage the application of 

more efficient generation approaches. 

Interconnection Standards 

Standard interconnection rules encourage the connection of clean distributed generation (DG) systems 

(i.e., renewable and CHP) to the electric grid by 

establishing uniform processes and technical requirements that apply to utilities within a state. These 

rules reduce the uncertainty and prevent long delays 

and costs that clean DG systems may encounter 

when obtaining approval for grid connection. In 

addition, some states use net metering rules to 

States Are Developing Output-Based 

Regulations 

•	 Connecticut has adopted an output-based regulation for NO , particulate matter, carbon monoxide
 x

(CO), and CO2 from small distributed generators 

(< 15 MW capacity), including CHP. The regulation 

values the efficiency of CHP based on the emissions that are avoided by not having separate electric and thermal generation. Connecticut also allocates allowances based on energy output in its 

NO trading program. x 

• Massachusetts has incorporated the output-based 

approach in several important regulations. The 

Massachusetts NO cap and trade program allo­ x 

cates emission allowances to affected sources 

(generators > 25 MW) on an output basis, including 

the thermal output of CHP. This approach provides a 

significant economic incentive for CHP within the 

emissions cap. Massachusetts also has a multi-pollutant emission regulation (NO , sulfur dioxide [SO2], x

mercury [Hg], CO2) for existing power plants, which 

uses an output-based format for conventional emission limits. In addition, Massachusetts allocates 5% 

of its NO state trading program budget to a public x 

benefits set-aside account to provide for allocations 

for energy efficiency and renewable energy. 

govern interconnection of smaller DG systems. Net 

metering, which can be considered a subset of interconnection standards for small-scale projects, allows 

smaller DG owners to offset power that they obtain 

from the grid with excess power that they can supply 

States Are Establishing Interconnection Standards 

• In New Jersey, the New Jersey Board of Public 

Utilities developed net metering and interconnection 

standards for Class I renewable energy systems. 

These rules, which became effective on October 4, 

2004, are separated into three levels based on system 

size and technical certification. Each level has specific interconnection review procedures and timelines 

for each step in the review process. The New Jersey 

interconnection standard is designed to support systems up to 2 MW. 

• In Texas, the Texas Public Utility Commission adopted 

substantive rules in November 1999 that apply to generation facilities of 10 MW or less that connect to distribution-level voltages at the point of common coupling. 

These rules are intended to streamline the interconnection process for applicants, particularly those with 

smaller devices and those that are likely to have minimal impact on the electric utility grid. This ruling applies 

to both radial and secondary network systemsa and 

requires Texas utilities to evaluate applications based 

on pre-specified screening criteria, including equipment size and the relative size of the DG system to 

feeder load. 

a A radial distribution system is the most common electric power system. In this system, power flows in one direction from the utility 

source to the customer load. 

� Executive Summary
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EPA Clean Energy-Environment Guide to Action
 

through their grid connection. As of November 2005, 

14 states had adopted standard interconnection 

requirements for distributed generators and seven 

additional states were in the process of developing 

similar standards. As of early 2005, 39 states and 

Washington, D.C. had rules or provisions for net 

metering (Navigant 2005). 

Fostering Green Power Markets 

Green power is a small but growing market that 

provides electricity customers the opportunity to 

make environmental choices about their electricity 

consumption by purchasing electricity generated by 

renewable resources. Green power programs in more 

than 40 states currently serve approximately 

540,000 customers, representing nearly 4 billion 

kWh annually. These green power markets have 

resulted in the construction of more than 2,200 MW 

of new renewable capacity over the past 10 years. A 

recent study estimates this could reach 8,000 MW 

by 2015 by giving customers the choice to support 

cleaner electricity generation options in both vertically integrated and competitive retail markets 

(Wiser et al. 2001). 

Because participation in green power programs is 

voluntary, the role for states may be more limited 

than with other clean energy policy options, but it is 

still important. In vertically integrated markets (i.e., 

states where regulated utilities perform generation, 

transmission, and distribution functions), several 

states require utilities to offer a green pricing tariff. 

This policy ensures that all customers have the 

option available to them. In restructured markets, 

green power products are available from a range of 

competitive suppliers. Customers are also increasingly able to add renewable energy to their default service with “green check-off” programs, which enable 

customers to select green power while maintaining 

service with the default provider. 

Utility Planning and Incentive 

Structures 

Long-term utility planning policies and incentive 

structures play an important role in determining the 

attractiveness of investments in energy efficiency 

States Are Encouraging Green Power Markets 

•	 New Jersey is the first state with restructured electricity markets to institute a statewide voluntary 

green power program. The New Jersey Clean 

Energy Council established a goal to double the 

amount of green electricity purchased by electric 

customers and increase the load served by qualified 

renewable resources by 50% over the Class I RPS. 

The state’s Green Power Choice Program supports 

this goal by implementing a statewide green checkoff program that requires utilities to offer retail electricity customers the option of selecting an energy 

product with a higher level of renewable energy 

than required by the state RPS. 

•	 New Mexico provides a state-mandated utility 

green pricing program that was created by regulatory authority. In 2002, the New Mexico Public 

Regulation Commission (PRC) adopted regulations 

requiring all investor-owned utilities and electric 

cooperatives in the state to offer their customers a 

voluntary renewable energy tariff. These tariffs 

allow consumers the option of purchasing more 

renewable energy than is required by the RPS, 

range from 1.8 cents/kWh to 3.2 cents/kWh, and 

combine varying mixes of wind, solar, and biomass. 

Utilities are also required to develop educational 

programs for their customers on the benefits and 

availability of the voluntary renewable energy program (DOE 2005d). 

and clean DG. In many states, utility profits are 

reduced if they experience decreased energy sales as 

a result of aggressive investments in energy efficiency or customer-sited DG. The Guide to Action 

describes specific approaches state PUCs can use to 

address these disincentives to creating low-cost, 

clean energy markets by allowing for a fair, economically based comparison between supply- and 

demand-side resource alternatives. 

Portfolio Management Strategies 

Portfolio management refers to the electric utility’s 

energy resource planning and procurement strategies, covering both supply- and demand-side 

resources. State PUCs are requiring electric utilities 

to conduct portfolio management as a way to provide least-cost and stable electric and natural gas 

ES-18 � Executive Summary
 
 

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EPA Clean Energy-Environment Guide to Action
 

States Are Requiring Utilities to Manage Their 

Portfolios 

•	 The Northwest Power and Conservation Council’s 

Fifth Northwest Electric Power and Conservation 

Plan includes policies to enable the region to manage uncertainties that affect the power system and 

mitigate risks associated with these uncertainties. 

Clean energy options promoted in the plan include 

energy conservation and efficiency (targeted at 700 

MW between 2005 and 2009), demand response (targeted at 500 MW between 2005 and 2009), and wind 

power (targeted at 1,100 MW between 2005 and 2014 

from system benefits charges and utility integrated 

resource plans) (Northwest Power and Conservation 

Council 2005). 

•	 In California, the CPUC requires each utility to submit a 10-year procurement plan biennially. Each 

plan must demonstrate that the utility has adequate, 

reliable supplies and complies with CPUC goals for 

efficiency and renewable energy. Utilities must prioritize their resource procurements by following the 

“loading order” established in the state’s Energy 

Action Plan (EAP), as follows: (1) energy efficiency 

and demand response, (2) renewable energy 

(including renewable DG), and (3) clean fossilfueled DG and clean fossil-fueled central-station 

generation. CPUC authorized $2 billion in procurement funding for energy efficiency programs from 

2006 to 2008. These measures are expected to 

achieve $2.7 billion in net savings to consumers and 

avoid the need for three large (500 MW) power 

plants (CPUC 2005). 

service to customers over the long term. Portfolio 

management can also increase energy efficiency, 

renewable generation, and clean DG in order to 

address reliability, safety, and environmental issues. 

Portfolio management strategies are implemented 

through individual utilities’ integrated resource plans 

in states served by regulated, vertically integrated 

utilities. These plans consider a broad array of supply 

and demand options using predefined criteria for 

evaluating options to meet projected needs. They 

compare a utility’s current and projected future generation needs to all of its available generation 

demand- and supply-side options. ”Retail Choice” 

portfolio management strategies refer to portfolio 

management by deregulated utilities. These strategies strive to protect consumers from high electricity 

prices by requiring competitive procurement policies. 

In either case, an ideal portfolio is diversified and 

involves choosing among a variety of electricity 

products and contracts, including energy efficiency, 

renewables, and clean DG, to enable the utility to 

adapt to shifting market conditions. 

Utility Incentives for Demand-Side Resources 

States are reworking traditional electric and gas utility 

rate structures to incorporate incentives for demandside resources (e.g., energy efficiency and clean DG). 

Traditional ratemaking structures link a utility’s financial health to the volume of electricity or gas it sells, 

thus providing a disincentive to investing in costeffective demand-side resources that reduce sales. 

Aligning utilities’ investment incentives with state 

interests of providing efficient, affordable, and reliable 

energy can “level the playing field” to allow for a fair, 

States Are Creating Incentives for Utilities to 

Invest in Demand-Side Resources 

•	 In 2005, California re-adopted a revenue balancing 

mechanism that applies between rate cases and 

removes the throughput disincentive by allowing for 

rate adjustment based on actual electricity sales. 

The California public utilities are also returning to 

larger-scale promotion of energy efficiency through 

their demand-side management programs. 

Simultaneously, the CPUC is revising its policies to 

establish a common approach for evaluating the 

performance of energy efficiency programs that 

defer more costly supply-side investments (CEC and 

CPUC 2005). 

•	 In September 2002, the Oregon PUC adopted a partial decoupling mechanism for one of its gas utilities, Northwest Natural Gas, that uses a price elasticity adjustment and a revenue deferral account 

(Oregon PUC 2002). An evaluation found that the 

mechanism reduced, but did not completely 

remove, the link between sales and profits and that 

it “is an effective means of reducing NW 

[Northwest] Natural’s disincentive to promote energy efficiency” (Hansen and Braithwait 2005). 

� Executive Summary
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EPA Clean Energy-Environment Guide to Action
 

economically based comparison between supply- and 

demand-side resource alternatives. 

States with incentive policies for demand-side 

resources have implemented policies that: (1) remove 

disincentives by “decoupling” profits from sales volumes, (2) ensure that utilities recover their costs for 

effective, economic energy efficiency and clean DG 

programs, and (3) create incentives for utility managers and shareholders to actively invest in well-run 

and high-performing energy efficiency and clean DG 

programs. 

Emerging Approaches: Removing Unintended 

Utility Rate Barriers to Distributed Generation 

The unique operating profile of clean energy supply 

projects (i.e., renewable energy and CHP) may require 

different types of rates and different rate structures. 

However, if not properly designed, these rates and 

charges can create unnecessary barriers to the use of 

renewables and CHP. Appropriate rate design is critical to allowing utility cost recovery while also providing appropriate price signals for clean energy supply. 

Customer-sited clean energy supply projects are 

usually interconnected to the power grid and may 

States Are Developing Utility Rates to Support 

Clean Energy Supplies 

•	 In California, several types of exit and transition fees 

exist that are handled differently depending on the utility. Fee exemptions exist for various classes of renewable and CHP systems, including: systems smaller than 

1 MW that are net-metered or are eligible for CPUC or 

CEC incentives for being clean and super-clean; ultraclean and low-emission systems that are 1 MW or 

greater and comply with California Air Resources 

Board (CARB) 2007 air emission standards; and zeroemitting or highly efficient (> 42.5% efficiency) systems 

built after May 1, 2001. 

•	 In New York, the New York State Public Service 

Commission (NYPSC) voted in July 2003 to approve new 

purchase electricity from or sell to the grid. Electric 

utilities typically charge these customers special 

rates for electricity and for services associated with 

this interconnection. These rates include exit fees, 

standby rates, and buyback rates. A key state PUC 

objective is to ensure that consumers receive reliable power at the lowest cost. In approving these 

rates, the PUC can support renewable and CHP projects and avoid unanticipated barriers while also providing appropriate cost recovery for the utility services on which consumers depend. 

As of early 2005, several states had evaluated or 

begun to evaluate utility rate structures and had 

made changes to promote CHP and renewables as 

part of their larger efforts to support cost-effective 

clean energy supply as an alternative to expansion of 

the electric grid. This type of work is typically conducted by the state PUC through a formal process 

(i.e., docket or rulemaking) that elicits input from all 

stakeholders. 

standby rates for utilities’ standby electric delivery 

service to DG customers and standby service to independent wholesale electric generating plants that 

import electricity as “station power” to support their 

operations. A key consideration was for the rates to 

result in onsite generation running when it is less 

expensive than purchasing power from the grid. The 

NYPSC has also directed electric utilities to consider 

DG as an alternative to traditional electric distribution 

system improvement projects. It required natural gas 

companies to create a natural gas rate class specifically for DG users that provides predictable gas rates for 

the emerging DG industry (ceilings are frozen until at 

least the end of 2007). 

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EPA Clean Energy-Environment Guide to Action
 

What States Can Do 

As described previously in this Executive Summary, 

states are supporting clean energy through a diverse 

range of programs and policies. Each policy description in the Guide to Action includes specific action 

steps and best practices drawn from state experiences for designing, implementing, and evaluating 

clean energy programs. When developing a comprehensive approach to clean energy, states can use this 

information to: 

• Develop a Clean Energy-Environment Action Plan 

that establishes clean energy goals to increase the 

use of cost-effective clean energy in their state 

and identifies programs and policies to achieve 

these goals. 

• Implement a coordinated package of policies, programs, and strategies defined in the Clean EnergyEnvironment Action Plan. 

• Draw on federal, state, and other resources to help 

achieve clean energy goals. 

Develop a Clean Energy-Environment 

Action Plan 

A Clean Energy-Environment Action Plan describes a 

clear strategy for delivering clean, low-cost, reliable, 

and stable-priced energy to state residents through a 

portfolio of energy efficiency, renewable energy, and 

clean DG policies and programs. Chapter 2 of the 

Guide to Action details the key steps involved in 

developing this clean energy strategy. These steps 

typically include: 

1. Create a Collaborative. States have found it particularly useful to reach out to the parties in their 

states that are interested in and/or may be affected by changes in energy use within the state. Key 

players in the collaborative can include representatives from the governor’s office, state legislature, 

state agencies, and universities. Stakeholders 

include utilities; independent system operators and 

regional transmission organizations; independent 

power producers, independent transmission system 

Using the Guide to Action 

The Guide to Action provides a menu of clean energy 

policies and programs that states have successfully 

implemented. When using the Guide to Action: 

•	 Select from the menu of policies by reviewing Table 

ES.2 and the chapter introductions to identify policies that are most likely to meet state goals. Crossreferences are provided within each section to help 

efficiently navigate the document. 

•	 Keep in mind that some of the policies described in 

the Guide to Action represent different paths to the 

same goal or can be used in combination to achieve 

a goal. 

•	 Consider designing clean energy programs by building upon the established models, examples, and 

action items described for each policy. 

owners, and energy suppliers; environmental and 

consumer organizations; other private sector interests; and the public. 

2. Establish a Quantitative Goal Based on Future 

Energy Use Expectations and the Potential for 

Clean Energy in the State. A quantitative clean 

energy goal defines a specific level of costeffective clean energy the state can strive to 

acquire during a particular period of time. To 

define their goals, states can: 

• Develop or refine a baseline inventory of their 

energy use and emissions and make projections 

about the future. 

• Conduct energy efficiency and/or renewable 

energy potential analyses to determine areas of 

greatest opportunity for energy savings. These 

findings help states identify opportunities and 

determine the feasibility of different goals 

based on technologies or resource availability. 

Understanding and quantifying the potential for 

clean energy within the state also helps states 

ensure that they are providing adequate funding 

to make cost-effective investments in clean 

energy. 

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• Quantify the full range of savings to maximize 

the benefits of clean energy. By assessing and 

quantifying the full range of short- and longterm energy, environmental, and economic benefits from energy efficiency and renewable 

energy, states can ensure that their policy decisions are based on a complete accounting of 

the benefits of clean energy. 

3. Identify Both Existing and New Clean Energy 

Policies and Programs. As states develop their 

Clean Energy-Environment Action Plans, they identify policies that could help achieve their goal by 

conducting an inventory of existing policies, identifying new clean energy policies that build on lessons learned from their own experience and other 

states’ experiences, and establishing criteria to 

evaluate the policies. When selecting policies to 

include in their plan, states also can identify the 

market, regulatory, and/or institutional barriers to 

implementing the clean energy programs and 

develop approaches to mitigate or remove these 

barriers. Finally, states can also target support for 

investment in new clean energy technologies as 

they emerge in the marketplace. 

4. Design Policies and Evaluate Their Impacts. States 

compare the impacts of different clean energy 

policies to ensure that they work well together. 

They also find it advantageous to identify the type 

of action, key players required, and time frame for 

implementation when designing a policy. Once 

policies are initially designed, states use analytic 

tools to evaluate the options based on the criteria 

they have developed. The tools enable states to 

quantify the impacts of the various policies and 

rank them according to the agreed-upon criteria. 

This usually includes an assessment of the energy, 

economic, and/or environmental and public health 

impacts of the options. 

5. Develop a Measurement, Evaluation, and Reporting 

Plan. As states design and evaluate clean energy 

policy options, they often find it beneficial to consider in advance the ways they will measure the 

success of the implemented policies. This measurement, evaluation, and reporting plan enables 

states to regularly check their progress against 

their goals and adjust their course as needed. 

6. Recommend Specific Actions for State DecisionMakers. Once policy options have been assessed 

and ranked according to the desired criteria, the 

collaborative typically reviews the findings. Based 

on the rankings and discussion among the stakeholders, recommendations for action are presented 

in the Clean Energy-Environment Action Plan. 

Implement the Clean EnergyEnvironment Action Plan 

The actions required to design and implement the 

clean energy programs articulated in a Clean EnergyEnvironment Action Plan vary according to type of 

program. Nevertheless, the following key themes 

have emerged that apply to all clean energy programs and that states can follow to help ensure the 

success of their programs: 

•	 Involve Stakeholders in Clean Energy Program 

Development and Deployment. Clean energy policy 

objectives require broad public and political support to be successful. Successful states have 

implemented clean energy policies with the support of their governor, legislature, and state agencies. If support is lacking, states can consider 

implementing education programs on the environmental and economic benefits of clean energy. 

When support for clean energy activities is established, it is important to involve multiple stakeholders during discussions and negotiations about 

clean energy objectives. 

•	 Incorporate Clean Energy As a Resource in Other 

State and Utility-Level Resource Planning 

Decisions. States can look for opportunities to 

incorporate clean energy policies as part of other 

state and utility-level planning decisions. 

•	 Evaluate the Effectiveness of Clean Energy Programs. 

Evaluation is important to sustaining the success of 

state clean energy programs. By measuring program 

success against stated objectives on a regular basis 

and in a transparent way, states can identify problems, develop approaches for addressing these 

issues, and ensure continued support from stakeholders. Evaluating energy efficiency programs can 

also entail using special techniques to measure and 

verify the energy savings from these programs. 

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EPA Clean Energy-Environment Guide to Action
 

•	 Communicate Program Results. States communicate the findings from their program evaluation to 

key players and stakeholders on a regular basis. By 

reporting on the progress and lessons learned for 

each clean energy policy and for the overall program and soliciting feedback on these findings, 

states can ensure a transparent implementation 

process and continued support for their program. 

States can also help ensure continued support for 

clean energy policies by communicating the energy, economic, and environmental benefits accrued 

from these programs to stakeholders. 

Each of the policy description sections in the Guide 

to Action describes how states consider these and 

other themes as they develop and implement clean 

energy programs and policies. 

Leverage Federal, State, and Other 

Resources 

As states pursue policies and programs for promoting 

clean energy, they can work with a variety of federal, 

state, and nonprofit organizations to help enhance 

their clean energy programs. Table ES.3 provides 

examples of how these federal, state, and other 

resources can be used when developing each of the 

16 clean energy policies and programs covered in the 

Guide to Action. The following section, Information 

Resources, provides a list of the key federal voluntary 

program resources available to states (a more 

detailed description is provided in Appendix A, 

Federal Clean Energy Programs) and a summary of 

the Web sites for each of the resources described in 

Table ES.3. 

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Table ES.3: Federal, State, and Nonprofit Resources for Enhancing State Clean Energy Programs
 

Policy Name 

(Section No.) Examples of State Actionsa 

Chapter 3. State Planning and Incentive Structures 

Lead by Example (3.1) • Establish energy savings and renewable energy goals for state and local government facilities (including leased 

space), schools, colleges, and universities. Use ENERGY STAR tools, guidelines, and partnerships and join the ENERGY 

STAR Challenge to improve building energy efficiency by 10% or more. 

• Procure ENERGY STAR-qualified products using ENERGY STAR product procurement information and online training 

resources. 

• Require ENERGY STAR certification as part of green building/energy efficiency standards in new state and local government buildings, K-12 schools, and colleges and universities. 

• Purchase renewable energy for state facilities under EPA’s Green Power Partnership Program. 

• Use CHP in public facilities with help from EPA’s CHP Partnership. 

• Leverage ENERGY STAR consumer education activities, such as National Campaigns. 

State and Regional • Develop and implement a Clean Energy-Environment Action Plan with guidance and support from EPA’s Clean EnergyEnergy Planning (3.2) Environment State Partnership Program. 

• Leverage DOE State Energy Program funding (to state energy offices) and grants authorized by EPAct 2005 (Section 

140) to support state energy planning and deploy clean energy technologies. 

Determining the Air • Use the software tools, analyses, and EPA guidance described in Section 3.3 of the Guide to Action to evaluate the air 

Quality Benefits of quality benefits of clean energy policies and programs. 

Clean Energy (3.3) • Incorporate emission reductions from clean energy into air quality planning using EPA’s Guidance: Incorporating 

Emerging and Voluntary Measures in a State Implementation Plan (2004). 

Funding and • Use ENERGY STAR financing information and training sessions for public and private sector organizations. 

Incentives (3.4) • Learn about federal and state funding opportunities using EPA’s Funding Opportunities Directory and CHP and biomass/biogas funding opportunities database. 

• Use EPA’s Supplemental Environmental Projects Toolkit to convert environmental enforcement settlements into environmentally beneficial projects. 

• Include provisions for energy savings performance contracting using the information resources in Section 3.4. Identify 

energy service companies in your state using ENERGY STAR’s online directory of service and product providers. 

• Leverage federal tax incentives authorized by EPAct 2005 for energy efficiency and renewable energy. 

Chapter 4. Energy Efficiency Actions 

Energy Efficiency 

Portfolio Standards 

(EEPS) (4.1) 

• Assess energy efficiency potential, evaluate past successes, and then design, develop, implement, and evaluate a customized EEPS program for your state. Contact EPA’s Clean Energy-Environment State Partnership Program for more 

information and technical assistance to support the design of an EEPS for your state. 

Public Benefits Funds 

(PBFs) for Energy 

Efficiency (4.2) 

• Enhance PBF programs by leveraging ENERGY STAR’s portfolio of energy efficiency program and service delivery 

models, building performance and product specifications, network of partners, and consumer education and awareness campaigns. 

Building Codes for • Regularly update, implement, evaluate, and enforce building codes using compliance tools, technical assistance, and 

Energy Efficiency (4.3) other code information and support available from DOE and the Building Codes Assistance Project. 

• Encourage construction of beyond-code ENERGY STAR-qualified new homes using ENERGY STAR education and training resources. 

State Appliance • Use DOE’s information resources to identify products that are covered by federal standards and obtain information 

Efficiency Standards about state appliance standards. 

(4.4) • Identify potential products for which standards could be established, and estimate the overall benefits and costs of 

upgrading current standards or setting new standards using the information resources provided by the California 

Energy Commission and the Appliance Standards Awareness Project. 

a	 See Federal, State, and Nongovernmental Clean Energy Resources on page ES-27 for the URLs for the underlined (continued on next page)

resources listed in this table. 

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Table ES.3: Federal, State, and Nonprofit Resources for Enhancing State Clean Energy Programs (continued)
 

Policy Name 

(Section No.) Examples of State Actionsa 

Chapter 5. Energy Supply Actions 

Renewable Portfolio • Determine the renewable energy and CHP potential in your state and develop an RPS for your state with assistance 

Standards (RPS) (5.1) from the National Renewable Energy Lab (NREL) and EPA’s CHP Partnership. 

• Leverage the federal production tax credit and other federal incentives to advance renewable energy resource development and achieve standards. 

Public Benefits Funds • Use lessons learned from other state PBF programs described in Section 5.2 of the Guide to Action to establish or 

(PBF) for State Clean enhance your state programs. 

Energy Supply • Leverage other funding sources without activating “double-dipping” clauses. For example, incentives for wind projects

Programs (5.2) allow developers to take advantage of federal incentives such as the production tax credit (PTC) and accelerated 

depreciation. 

• Contact EPA’s CHP Partnership for assistance in designing a CHP incentive program. 

Output-Based • Review federal programs that have adopted output-based regulations with recognition of CHP, including the proposed 

Environmental New Source Performance Standards (NSPS) for NOx from electric utility boilers and combustion turbines, and the new 

Regulations to EPA cap and trade programs (Clean Air Interstate Rule and the Clean Air Mercury Rule). For more information, visit the 

Support Clean Energy CHP Partnership State Resources Web site. 

Supply (5.3) • Use EPA’s CHP Partnership resources, including Output-Based Regulations: A Handbook for Air Regulators to evaluate 

opportunities to adopt output-based regulations. 

Interconnection 

Standards (5.4) 

• Review existing model rules, such as those developed by FERC, NARUC, and IREC, as well as other state rules 

described in Section 5.4. 

• Develop an interconnection standard for clean DG/CHP projects with assistance from EPA’s CHP Partnership. 

Fostering Green • Use EPA’s Green Power Partnership resources and partners to enhance green power markets programs. 

Power Markets (5.5) • Learn about other state Green Power programs and policy approaches using the information resources available in 

Section 5.5 of the Guide to Action and from the DOE Green Power Network. 

• Take advantage of federal renewable energy incentives to complement state efforts to foster green power markets. 

Chapter 6. Utility Planning and Incentive Structures 

Portfolio • Link portfolio management policies to other state policies described in Section 6.1, such as RPS, energy efficiency poliManagement cies, and energy planning policies. 

Strategies (6.1) • Incorporate lessons learned from other states and regions as described in Section 6.1 of the Guide to Action. 

• Contact the EPA-State Energy Efficiency and Renewable Energy Projects staff and/or EPA/DOE Energy Efficiency 

Action Plan staff for further assistance. 

Utility Incentives for • Incorporate lessons learned from states to remove financial disincentives and create incentives for utilities to invest in 

Demand-Side demand-side resources as described in Section 6.2 of the Guide to Action. 

Resources (6.2) • Contact the EPA-State Energy Efficiency and Renewable Energy Projects staff and/or EPA/DOE Energy Efficiency 

Action Plan staff for further assistance. 

Emerging • Contact EPA’s CHP Partnership for assistance in evaluating current utility rate structures for DG, such as standby rates, 

Approaches: and developing rate structures that avoid unwarranted barriers, while also providing appropriate cost recovery for utiliRemoving Unintended ty services. 

Utility Rate Barriers to • Review the Regulatory Assistance Project’s report, Accommodating Distributed Resources in the Wholesale Market. 

Distributed 

Generation (6.3) 

a See Federal, State, and Nongovernmental Clean Energy Resources on page ES-27 for the URLs for the underlined resources listed in this table. 

� Executive Summary ES-25 
 

ES-26

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EPA Clean Energy-Environment Guide to Action
 

Information Resources 

Key Federal Program Resources 

A list of key EPA and DOE voluntary program resources available to states is provided below. 

EPA and DOE administer a number of 

voluntary programs that promote the 

production and use of clean energy and 

complement the Clean EnergyEnvironment State Partnership 

Program. These programs include: 

ENERGY STAR 

ENERGY STAR is a voluntary, publicprivate partnership designed to reduce 

energy use and related greenhouse gas 

emissions. The program, administered 

jointly by EPA and DOE, has an extensive network of partners including 

equipment manufacturers, retailers, 

builders, energy service companies, private businesses, and public sector 

organizations. EPA and DOE invest in a 

portfolio of energy efficiency efforts that 

state and utility energy efficiency programs can leverage to further their 

energy efficiency programs, including: 

• Establishing performance specifications and performing outreach on 

efficient products. 

• Establishing energy efficiency delivery models to existing homes. 

• Establishing performance specifications and performing outreach for 

new homes. 

• Improving the performance of new 

and existing commercial buildings. 

• Conducting education and awareness building. 

More information about ENERGY STAR 

can be found at: 

http://www.energystar.gov. 

EPA-State Energy Efficiency and 

Renewable Energy Projects 

This program is a joint initiative between 

EPA, the National Association of 

Regulatory Utility Commissioners 

(NARUC), and individual state utility commissions. It explores utility regulatory and 

market-based approaches that deliver 

significant energy cost savings and other 

benefits through greater use of energy 

efficiency, renewable energy, and clean 

distributed generation. More information 

can be found at: 

http://www.epa.gov/cleanenergy/ 

utilitypolicy/. 

Energy Efficiency Action Plan 

This joint effort between DOE and EPA 

engages energy market leaders— 

including electric and gas utilities, state 

utility regulators and energy agencies, 

energy consumers, energy service 

providers, and environmental/energy 

efficiency advocates—in the development of an Energy Efficiency Action 

Plan. Action Plan participants will identify key barriers limiting greater U.S. 

investment in energy efficiency and 

develop and document sound business 

practices for removing these barriers. 

More information is available at: 

http://epa.gov/cleanenergy/ 

eeactionplan.htm. 

The Combined Heat and Power 

(CHP) Partnership 

This EPA partnership seeks to reduce the 

environmental impact of power generation by fostering the use of CHP. The CHP 

Partnership works closely with energy 

users, the CHP industry, state and local 

governments, and other stakeholders to 

support the development of new policies, 

programs, and projects and promotes 

their energy, environmental, and economic benefits. More information is 

available at: http://www.epa.gov/chp. 

The Green Power Partnership 

EPA’s Green Power Partnership is a voluntary partnership between EPA and 

organizations that are interested in buying green power. Through this program, 

EPA supports organizations that are 

buying, or planning to buy, green power. 

As a Green Power Partner, an organization pledges to replace a portion of its 

electricity consumption with green 

power within one year of joining the 

partnership. See http://www.epa.gov/ 

greenpower. 

State Activities and Partnerships 

DOE’s Office of Energy Efficiency and 

Renewable Energy (EERE) provides 

technical assistance to state and local 

jurisdictions that enables them to adopt 

renewable energy and energy efficiency technologies. The program offers 

training, technical assistance, and 

information on state activities. More 

information can be found at: 

http://www.eere.energy.gov/states/. 

The State Energy Program 

DOE provides grants to states and 

directs funding to state energy offices 

from technology programs in EERE. 

States use grants to address their energy priorities and program funding to 

deploy emerging renewable energy and 

energy efficiency technologies. More 

information is available at: 

http://www.eere.energy.gov/ 

state_energy_program/. 

Technical Assistance Program (TAP) 

TAP provides state and local officials 

quick, short-term access to experts at 

DOE national laboratories for assistance 

with crosscutting renewable energy and 

energy efficiency policies and programs. 

TAP helps states in crosscutting areas 

not currently covered by an existing DOE 

program. More information is available 

at: http://www.eere.energy.gov/ 

wip/informationsources/Tap.html. 

Federal Clean Energy Programs 

For more information on EPA, DOE, 

and other federal agency clean 

energy efforts, see Appendix A, 

Federal Clean Energy Programs. 

ES-26 � Executive Summary
 
 

 

 

ES-27

EPA Clean Energy-Environment Guide to Action
 

Federal, State, and Nongovernmental Clean Energy Resources 

The following Web sites provide links to the federal, state, and nonprofit information resources and technical assistance opportunities that are described in Table ES.3. 

Organization Resource URL 

Federal Resources 

EPA and DOE ENERGY STAR http://www.energystar.gov/index.cfm?c=hom.index 

Energy Efficiency Action Plan http://www.epa.gov/cleanenergy/eeactionplan.htm 

ENERGY STAR Financing Strategies http://www.energystar.gov/index.cfm?c=business.bus_internet_presentations#money 

ENERGY STAR for Government http://www.energystar.gov/index.cfm?c=government.bus_government 

ENERGY STAR National Campaigns http://www.energystar.gov/index.cfm?c=promotions.pt_national_promotions 

ENERGY STAR Online Training 

Sessions http://www.energystar.gov/index.cfm?c=business.bus_internet_presentations#procure 

ENERGY STAR Purchasing & 

Procurement http://www.energystar.gov/index.cfm?c=bulk_purchasing.bus_purchasing 

ENERGY STAR Qualified New Homes http://www.energystar.gov/index.cfm?c=new_homes.hm_index 

ENERGY STAR Qualified Products http://www.energystar.gov/index.cfm?fuseaction=find_a_product 

ENERGY STAR Residential 

Marketing and Sales Materials http://www.energystar.gov/index.cfm?c=bldrs_lenders_raters.pt_ResMktgSalesMaterials 

ENERGY STAR Service and Product 

Provider Directory http://www.energystar.gov/index.cfm?fuseaction=SPP_DIRECTORY 

Federal Tax Credits for Residential 

Energy Efficiency http://www.energystar.gov/index.cfm?c=products.pr_tax_credits 

EPA Clean Energy-Environment State 

Partnership Program http://www.epa.gov/cleanenergy/stateandlocal/ourpartners.htm 

Combined Heat and Power 

Partnership 

• CHP Partner Resources, Funding 

Opportunities 

• CHP Partnership State Resources 

• CHP Partnership State Resources: 

Output-Based Regulations 

• CHP Partnership State 

Resources: Utility Rates 

http://www.epa.gov/chp/ 

http://www.epa.gov/chp/funding_opps.htm 

http://www.epa.gov/chp/state_resources.htm 

http://www.epa.gov/chp/state_resources/output_based_reg.htm 

http://www.epa.gov/chp/state_resources/utility.htm 

EPA Guidance Documents: 

Incorporating Emerging and 

Voluntary Measures in a State 

Implementation Plan 

http://www.epa.gov/ttn/oarpg/t1/memoranda/evm_ievm_g.pdf 

(http://www.epa.gov/cleanenergy/stateandlocal/guidance.htm) 

EPA-State Energy Efficiency 

Renewable Energy Projects http://www.epa.gov/cleanenergy/utilitypolicy/ 

Funding Opportunities: A Directory 

of Energy Efficiency, Renewable 

Energy and Environmental 

Protection Assistance Programs 

http://www.epa.gov/cleanenergy/pdf/eere_fun.pdf 

� Executive Summary
 ES-27 
 

ES-28

 

 

EPA Clean Energy-Environment Guide to Action
 

Organization Resource URL 

Federal Resources (continued) 

EPA Green Power Partnership http://www.epa.gov/greenpower/ 

Supplemental Environmental 

Projects Toolkit http://www.epa.gov/cleanenergy/pdf/sep_toolkit.pdf 

DOE Appliances and Commercial 

Equipment Standards http://www.eere.energy.gov/buildings/appliance_standards/ 

Building Energy Codes Program http://www.energycodes.gov/ 

Energy Policy Act of 2005: Tax 

Credits for Renewable Energy http://www.energy.gov/taxbreaks.htm 

The Green Power Network http://www.eere.energy.gov/greenpower/ 

National Renewable Energy 

Laboratory http://www.nrel.gov/ 

State Energy Program http://www.eere.energy.gov/state_energy_program/about.cfm 

State and Nonprofit Resources 

Appliance 

Standards 

Awareness 

Project 

Appliance Standards Awareness 

Project Web site http://www.standardsasap.org 

Building Codes 

Assistance 

Project 

Building codes implementation and 

technical assistance http://www.bcap-energy.org 

California 

Energy 

Commission 

Appliance efficiency regulations 

and products database http://www.energy.ca.gov/appliances/ 

DSIRE 

Information on federal incentives 

for renewable energy and energy 

efficiency 

http://www.dsireusa.org/library/includes/genericfederal.cfm?CurrentPageID=1&state=us 

The Regulatory 

Assistance 

Project (RAP) 

RAP report: Accommodating 

Distributed Resources in the 

Wholesale Market 

http://www.raponline.org/showpdf.asp?PDF_URL=%22Pubs/DRSeries/DRWhllMkt.pdf%22 

U.S. Green 

Building Council LEED certification requirements http://www.usgbc.org 

ES-28 � Executive Summary
 
 

ES-29

 

EPA Clean Energy-Environment Guide to Action
 

EPA Clean Energy-Environment State Partnership Program Contact Information 

To download the Clean Energy-Environment Guide to Action, visit EPA’s Clean Energy Web site at:
 

http://www.epa.gov/cleanenergy/stateandlocal/.
 

To order a print copy of the Guide to Action, contact the National Service Center for Environmental Publications
 

(NSCEP) at: http://www.epa.gov/ncepihom/ordering.htm. Or call NSCEP at: 1-800-490-9198.
 

Request EPA Publication No. 430-R-06-001. 


For more information about the Guide to Action, please contact the EPA Clean Energy-Environment State
 

Partnership Program staff:
 

EPA Clean Energy-Environment State Partnership Program Contacts: 

Julie Rosenberg, Branch Chief 

Phone: 202-343-9154 

E-mail: rosenberg.julie@epa.gov 

Steve Dunn, Policy Analyst 

Phone: 202-343-9341 

E-mail: dunn.stevev@epa.gov 

Mailing Address: 

U.S. Environmental Protection Agency 

1200 Pennsylvania Avenue, NW 

6202J 

Washington, DC 20460 

� Executive Summary
 ES-29 
 

ES-30

EPA Clean Energy-Environment Guide to Action
 

References
 

Title/Description URL Address 

ACEEE. 2004a. A Federal System Benefits Fund: Assisting States to Establish Energy 

Efficiency and Other System Benefit Programs. American Council for an EnergyEfficient Economy, Washington, DC. http://www.aceee.org/energy/pbf.htm 

ACEEE. 2004b. Five Years In: An Examination of the First Half-Decade of Public 

Benefits Energy Efficiency Policies. Report # U041. American Council for an EnergyEfficient Economy, Washington, DC. April. 

http://www.aceee.org/pubs/u041.htm 

ACEEE. 2004c. Summary Table of Public Benefit Programs and Electric Utility 

Restructuring. American Council for an Energy-Efficient Economy, Washington, DC. http://www.aceee.org/briefs/mktabl.htm 

Bird, L. and B. Swezey. 2004. Green Power Marketing in the United States: A Status 

Report. Seventh Edition. NREL/TP-620-36823. National Renewable Energy Laboratory, 

Golden, CO. September. 

http://www.eere.energy.gov/greenpower/pdfs/36823.pdf 

CEC. 2003. Initial Study/Proposed Negative Declaration for the 2005 Building Energy 

Efficiency Standards for Residential and Nonresidential Buildings. P400-03-018. 

September. California Energy Commission. 

http://www.energy.ca.gov/reports/ 

2003-09-12_400-03-018.PDF 

CEC. 2005a. California Energy Commission. Integrated Energy Policy Report. Adopted 

November 21, 2005. Docket #04-IEP-1 et. al. http://www.energy.ca.gov/energypolicy/index.html 

CEC. 2005b. California Appliance Efficiency Regulations. CEC-400-2005-012. April. http://www.energy.ca.gov/appliances/2005regulations/ 

index.html 

CEC and CPUC. 2005. California Energy Commission and California Public Utilities 

Commission. Energy Action Plan II, Implementation Roadmap for Energy Policies. 

October. 

http://www.cpuc.ca.gov/PUBLISHED/REPORT/51604.htm 

CEAB. 2005. Energy Plan for Connecticut. Prepared by the Connecticut Energy 

Advisory Board for the Connecticut General Assembly. January. http://www.cerc.com/pdfs/ceabenergyplan_final05.pdf 

CPUC. 2004. Order Instituting Rulemaking to Examine the Commission’s Future 

Energy Efficiency Projects, Administration and Programs, September 23, 2004, 

Decision 04-09-060, Rulemaking 01-08-028 “Interim Opinion: Energy Savings Goals for 

Program Year 2006 and Beyond.” California Public Utilities Commission. 

http://www.cpuc.ca.gov/PUBLISHED/FINAL_DECISION/ 

40212.htm 

CPUC. 2005. Press Release: Comments at September 22, 2005 PUC Meeting by 

Commissioner Susan P. Kennedy. “PUC Launches Groundbreaking Energy Efficiency 

Effort.” September 22, 2005. 

http://www.cpuc.ca.gov/PUBLISHED/NEWS_RELEASE/ 

49757.htm 

Delaski. 2005. Personal memo from Andrew Delaski, Appliance Standards 

Awareness Project. August 1. N.A. 

DOE. 2005a. State Energy Program: Projects by Topic—What Are State and Local 

Government Facility Projects in the States? 

http://www.eere.energy.gov/state_energy_program/ 

topic_definition_detail.cfm/topic=115 

DOE. 2005b. State Energy Alternatives: Energy Codes and Standards. Energy Efficiency 

and Renewable Energy Web Site. U.S. Department of Energy, Washington, DC. 

http://www.eere.energy.gov/states/alternatives/ 

codes_standards.cfm 

DOE. 2005c. Texas Revolving LoanSTAR Conservation Update Feature Story. U.S. 

Department of Energy, Energy Efficiency and Renewable Energy, State Energy 

Program Web site. January/February. 

http://www.eere.energy.gov/state_energy_program/ 

feature_detail_info.cfm 

DOE. 2005d. Green Power Markets: Green Pricing Utility Programs by State. Energy 

Efficiency and Renewable Energy, DOE Web site. December 9. 

http://www.eere.energy.gov/greenpower/markets/ 

pricing.shtml?page=1 

DSIRE. 2005. Database of State Incentives for Renewable Energy Web site. http://www.dsireusa.org/index.cfm?&CurrentPageID=2 

ES-30 � Executive Summary
 
 

ES-31

EPA Clean Energy-Environment Guide to Action
 

References (continued)
 

Title/Description URL Address 

Ecotope. 2001. Baseline Characteristics of the Residential Sector: Idaho, Montana, 

Oregon, and Washington. Northwest Energy Efficiency Alliance, Portland, OR. 

December. 

http://www.nwalliance.com/resources/reports/95.pdf 

EIA. 2005a. Annual Energy Outlook 2005. DOE/EIA-0383(2005). U.S. Energy Information 

Administration, Washington, DC. January. http://www.eia.doe.gov/oiaf/archive/aeo05/index.html 

EIA. 2005b. Electric Power Monthly, December 2005. Table 5.6.A. Average Retail Price 

of Electricity to Ultimate Customers by End-Use Sector, by State, September 2005 and 

2004. U.S. Energy Information Administration, Washington, DC. 

http://tonto.eia.doe.gov/ftproot/electricity/epm/02260512.pdf 

EIA. 2005c. U.S. Electric Net Summer Capacity, data for 2004. Coal, Nuclear, Electric 

and Alternate Fuels, August 2005. U.S. Energy Information Administration, 

Washington. DC. 

http://www.eia.doe.gov/cneaf/solar.renewables/page/ 

trends/table12.html 

EPA. 2004a. Output-Based Regulations: A Handbook for Air Regulators. 

Environmental Protection Agency. April 22. http://www.epa.gov/chp/pdf/output_rpt.pdf 

EPA. 2004b. Incorporating Emerging and Voluntary Measures in a State 

Implementation Plan. U.S. Environmental Protection Agency, Office of Air Quality 

Planning and Standards. September. 

http://www.epa.gov/ttn/caaa/t1/meta/m8507.html 

EPA. 2005a. Air Data Web site. 2005 data. Environmental Protection Agency. 

Accessed November 2005. 

http://www.epa.gov/air/data/index.html and 

http://www.epa.gov/air/data/nonat.html? 

us~usa~United%20States 

EPA. 2005b. EPA Research. Complied by EPA from various state legislation and regulations. N.A. 

Gross, T. 2005. Texas PUC personal communication with Theresa Gross. N.A. 

Hansen, D.G. and S.D. Braithwait. 2005. Christensen Associates. A Review of 

Distribution Margin Normalization as Approved by the Oregon Public Utility 

Commission for Northwest Natural. March. 

Contact: 

Christensen Associates Energy Consulting, LLC 

4610 University Avenue, Suite 700 

Madison, Wisconsin 53705-2164 

Phone 608-231-2266 Fax 608-231-2108 

Iowa. 2005. Governor Vilsack Directs State Agencies to Improve Their Energy 

Efficiency. April 22. 

http://www.governor.state.ia.us/news/2005/april/ 

april2205_1.html 

Nadel, S., A. Shipley, and R.N. Elliott. 2004. The Technical, Economic and Achievable 

Potential for Energy Efficiency in the U.S.—A Meta-Analysis of Recent Studies. 

American Council for an Energy-Efficient Economy, Washington, DC. From the proceedings of the 2004 ACEEE Summer Study on Energy Efficiency in Buildings. 

http://www.aceee.org/conf/04ss/rnemeta.pdf 

Nadel, S., A. deLaski, J. Kleisch, and T. Kubo. 2005. Leading the Way: Continued 

Opportunities for New State Appliance and Equipment Efficiency Standards. Report 

Number ASAP-5/ACEEE-A051. American Council for an Energy Efficiency Economy, 

Washington, DC, and Appliance Standards Awareness Project, Boston, MA. January. 

http://www.standardsasap.org/a051.pdf 

Navigant. 2003. The Changing Face of Renewable Energy. October. URL not available. 

� Executive Summary
 ES-31 
 

ES-32

EPA Clean Energy-Environment Guide to Action
 

References (continued)
 

Title/Description URL Address 

Navigant. 2005. Company intelligence. Navigant Consulting Inc. Also see: Katofsky, R. 

and L. Frantzis. 2005. Financing renewables in competitive electricity markets. Power 

Engineering. March 1. 

http://www.navigantconsulting.com/A559B1/navigantnew. 

nsf/vGNCNTByDocKey/PPA91045514813/$FILE/Financing

%20Renewables%20in%20Competitve%20Electricity% 

20Markets_Power%20Engineering_March%202005.pdf 

NEEP. 2005. Economically Achievable Energy Efficiency Potential in New England. 

Northeast Energy Efficiency Partnerships by Optimal Energy. Updated May 2005. 

http://www.neep.org/files/Updated_Achievable_Potential_ 

2005.pdf 

Northwest Power and Conservation Council. 2005. The 5th Northwest Electric Power 

and Conservation Plan. Northwest Power and Conservation Council. May 2005. 

http://www.nwppc.org/energy/powerplan/default.htm 

NYSERDA. 2004. New York Energy $martSM Program Evaluation and Status Report. 

Report to the System Benefits Charge Advisory Group. Final Report. New York State 

Energy Research and Development Authority, Albany. May. 

http://www.nyserda.org/Energy_Information/04sbcreport.asp 

Oregon DOE. 2005. Oregon Business Energy Tax Credit (BETC) and Residential Energy 

Tax Credit (RETC). Oregon Department of Energy Conservation Division, Salem. 

http://egov.oregon.gov/Energy/CONS/BUS/BETC.shtml 

http://egov.oregon.gov/Energy/CONS/RES/RETC.shtml 

Oregon PUC. 2002. Order No. 02-634, Application for Public Purposes Funding and 

Distribution Margin Normalization. Oregon Public Utility Commission. September 12. 

http://apps.puc.state.or.us/ 

Click on Orders, View Orders 2000 to Current, List Orders for 

2002, Order No. 02-634. 

SWEEP. 2002. The New Mother Lode: The Potential for More Efficient Electricity Use 

in the Southwest. Report for the Hewlett Foundation Energy Series. Southwest 

Energy Efficiency Project. November. 

http://www.swenergy.org/nml 

State of New York. 2005. Governor Pataki’s press release for the Appliance and 

Equipment Energy Efficiency Standards Act of 2005. 

http://www.state.ny.us/governor/press/05/april20_2_05.htm 

Texas SECO. 2005. Texas State Energy Conservation Office. LoanSTAR Revolving 

Loan Program Web site. 

http://www.seco.cpa.state.tx.us/ls.htm 

UCS. 2004. Table of State Renewable Energy Funds. Union of Concerned Scientists. http://www.ucsusa.org/clean_energy/ 

clean_energy_policies/ 

clean-energy-policies-and-proposals.html 

Click on PDF Link: State Renewable Energy Funds 

WGA. 2005. The Potential for More Efficient Electricity Use in the Western U.S.: 

Energy Efficiency Task Force Draft Report to the Clean and Diversified Energy 

Advisory Committee of the Western Governors’ Association, Draft Report for Peer 

Review and Public Comment. Western Governors’ Association. September 15, 2005. 

http://www.westgov.org/wga/initiatives/cdeac/ 

Energyefficiencydraft9-15.pdf 

WI DOA. 2004. Wisconsin Public Benefits Programs Annual Report. July 1, 2003 to 

June 30, 2004. Department of Administration, Division of Energy, Madison, WI. 

http://www.cleanenergystates.org/library/wi/ 

2004FocusAnnualReport.pdf 

Wiser, R., M. Bolinger, E. Holt, and B. Swezey. 2001. Forecasting the Growth of Green 

Power Markets in the United States. NREL/TP-620-30101, Golden, CO. National 

Renewable Energy Laboratory, October. 

http://www.eere.energy.gov/greenpower/resources/ 

pdfs/30101.pdf 

WRAP. 2003. Renewable Energy and Energy Efficiency as Pollution Prevention 

Strategies for Regional Haze. Prepared by the Air Pollution Prevention Forum for the 

Western Regional Air Partnership. April. 

http://www.wrapair.org/forums/ap2/docs.html 

ES-32 � Executive Summary
 
 

 

 

 

Chapter 1. 


Introduction and Background
 

Summary 

Across the nation, states are developing and adopting a variety of clean energy policies and programs 

to meet energy, economic, and environmental goals. 

These efforts are significantly increasing end-use 

energy efficiency, production of renewable energy, 

and the efficiency of energy generation. They have 

resulted in substantial energy savings, improved air 

quality, reduced greenhouse gas emissions, improved 

reliability, and security of the electric grid. They have 

also enhanced economic development and created 

new jobs. 

Clean energy policies and programs with which 

states now have considerable experience include: 

• Providing sufficient energy efficiency program 

funding (through a variety of means) to capture 

significant portions of the cost-effective energy 

efficiency potential in the state. 

• Developing utility incentives and removing disincentives to encourage greater utility investment in 

energy efficiency. 

• Establishing state-level appliance efficiency standards for products and equipment. 

• Establishing or updating residential and commercial building codes and improving building design 

and operation practices. 

• Setting electricity portfolio requirements for energy efficiency, renewable energy, and combined 

heat and power (CHP) and other clean distributed 

resources. 

• Developing electricity market rules that remove 

obstacles to advanced high-efficiency clean distributed generation (DG) systems, including CHP. 

• Leading by example by promoting and investing in 

energy efficiency and renewable energy for state 

buildings and facilities, among other initiatives. 

EPA’s Clean Energy-Environment State 

Partnership Program 

The Clean Energy-Environment State Partnership Program 

is a voluntary program designed to help states review and 

adopt available policies and programs that effectively integrate clean energy into a low-cost, clean, reliable energy 

system for the state. Clean energy includes energy efficiency and clean energy supply, which includes clean distributed generation (DG)a. 

States participating in the Clean Energy-Environment State 

Partnership Program will use the Guide to Action to develop a Clean Energy-Environment State Action Plan for using 

existing and new energy policies and programs to 

increase the use of clean energy. 

The U.S. Environmental Protection Agency’s (EPA’s) Clean 

Energy-Environment Guide to Action identifies and 

describes 16 clean energy policies and strategies that are 

delivering economic and environmental results for states. 

These policies focus on opportunities for homes, public and 

private organizations, businesses, and electricity generation. While there are also opportunities for states to promote clean energy in the transportation sector, the Guide to 

Action does not currently include these policies. EPA is 

exploring the addition of these policies at a later date. 

The Guide to Action helps state energy and environmental 

policymakers design and implement a clean energy plan 

that will: 

• Save money by lowering energy demand and supply 

costs. 

• Lower emissions of greenhouse gases and improve air 

quality. 

• Reduce price volatility in energy markets. 

• Enhance the reliability of the electric system. 

• Avoid the need for new power plants and related fuel 

and supply infrastructure. 

• Create economic development opportunities and new 

jobs. 

a Throughout the Guide to Action, “clean DG” refers to non-centralized, 

usually small-scale, renewable energy and combined heat and power 

(CHP). “Clean energy supply” refers to renewable energy and CHP in both 

distributed and centralized applications. 

� Chapter 1. Introduction and Background
 1-1 
 

 

 

 

EPA Clean Energy-Environment Guide to Action
 

The U.S. Environmental Protection Agency (EPA) has 

developed this Clean Energy-Environment Guide to 

Action to help states build upon this broad experience, evaluate a suite of clean energy options, and 

develop a Clean Energy-Environment Action Plan to 

outline the programs and policies that will increase 

their use of cost-effective clean energy. The Guide to 

Action describes 16 clean energy policies and strategies that states have used to meet their clean energy 

objectives. For each policy, the Guide to Action provides an overview of the benefits and details how 

states have successfully designed and implemented 

the policy. 

The 16 clean energy policies focus on the role of 

demand- and supply-side resources (i.e., energy efficiency/renewable energy [EE/RE] and CHP) in providing clean, reliable, and affordable energy for homes, 

businesses, and public institutions. Clean energy also 

plays an important role in reducing emissions from 

the transportation sector. Examples of the types of 

clean energy transportation policies that states are 

implementing and resources for further information 

are shown in the box entitled State Clean Energy 

Policies for Transportation on page 1-3. 

Why Clean Energy? 

States are facing a number of environmental, public 

health, energy, and related challenges. Clean energy, 

where cost-effective, offers a way to meet these 

challenges, which continue to expand as energy 

demand continues to grow. The benefits of clean 

energy include: 

• Reduced emissions of air pollution and greenhouse 

gases. 

• Lower customer energy bills. 

• Enhanced economic development and job creation. 

• Improved reliability and security of the energy 

system. 

A more detailed discussion of the challenges states 

are facing and how clean energy policies and programs can help address them follows. 

What Is Clean Energy? 

Clean energy includes demand- and supply-side 

resources that deliver clean, reliable, and low-cost 

ways to meet energy demand and reduce peak electricity system loads. Clean energy resources include 

energy efficiency and clean energy supply, which 

includes renewable energy and CHP in distributed and 

centralized applications. 

Energy efficiency reduces demand for energy and 

peak electricity system loads. Common energy efficiency measures include hundreds of technologies 

and processes for practically all end uses across all 

sectors of the economy. 

Renewable energy is partially or entirely generated 

from non-fossil energy sources. Renewable energy 

definitions vary by state, but usually include solar, 

wind, geothermal, biomass, biogas, and low-impact 

hydroelectric power. 

CHP, also known as cogeneration, is a clean, efficient 

approach to generating electric and thermal energy 

from a single fuel source. 

For more information, visit EPA’s Clean Energy Web site 

(http://www.epa.gov/cleanenergy) and the 

ENERGY STAR Web site (http://www.energystar.gov). 

Environmental and Public Health 

Challenges 

Fossil fuel-based electricity generation is a major 

source of air pollutants and greenhouse gases, which 

pose serious risks to public health and the environment, as summarized as follows: 

•	 Fine-particle pollution may raise the risk of heart 

attack and worsen respiratory disease in vulnerable people, leading to perhaps 60,000 premature 

deaths per year in the United States (Kaiser 2005). 

•	 Ground-level ozone can cause a variety of health 

problems including aggravated asthma, reduced 

lung capacity, and increased susceptibility to respiratory illnesses such as pneumonia and bronchitis. It can also cause damage to plants and ecosystems, including reduced crop and forest yields and 

increased plant vulnerability to disease, pests, and 

harsh weather (EPA 2005b). 

1-2 � Chapter 1. Introduction and Background
 
 

 

 

 

 

 

EPA Clean Energy-Environment Guide to Action
 

•	 Greenhouse gases are another byproduct of fossil 

fuel combustion. The levels of heat-trapping carbon dioxide (CO2) in the atmosphere are expected 

to rise in the future as energy use and fossil fuelbased generation increase. States are concerned 

about how their economies, natural resources and 

ecosystems, water supplies, and public health 

could be affected by global climate change and 

are taking action to reduce their greenhouse gas 

emissions (Rabe 2004). 

Figure 1.1a: Nonattainment Areas Ozone (8-hour) 

Nonattainment Status 

Attainment 

Part of County 

Whole County 

Figure 1.1b: Nonattainment Areas PM2.5 

Nonattainment Status 

Attainment 

Part of County 

Whole County 

Although emissions of sulfur dioxide (SO2) and nitrogen oxide (NO ) from power generation are declining, x

ground-level ozone exceeds federal standards for the 

protection of public health in many areas of the 

country. In April 2005, with the designation of nonattainment areas for ozone (8-hour) and fine particulate matter (PM) in effect, 134 million people were 

living in more than 470 counties where the air quality sometimes exceeds the federal 8-hour standard 

for ozone (see Figure 1.1a). Seventy-five million people were living in more than 200 counties that do 

not meet the PM2.5 standard (i.e., for PM that is 2.5 

micrometers or smaller; see Figure 1.1b) (EPA 2005a). 

States with counties that are not in attainment with 

these standards need to develop and implement programs that reduce air pollution so that these areas 

meet federal air quality standards. 

State Clean Energy Policies for Transportation 

The Clean Energy-Environment Guide to Action focuses on clean energy opportunities for homes, businesses, and electricity generation. There are also many 

opportunities for states to promote clean energy in the 

transportation sector, which represents approximately 

one-third of U.S. energy consumption. In some states 

(e.g., California), transportation represents more than 

half of the state’s total energy consumption. States are 

developing their own clean energy transportation policies and initiatives that are helping to improve air quality, save energy, and reduce dependence on imported 

energy sources. These policies and initiatives include 

setting minimum requirements for the use of biofuels, 

purchasing efficient vehicles for state fleets, and 

developing refueling infrastructure for alternative fuel 

vehicles (AFVs) (e.g., E-85 refueling stations). 

For example, Minnesota’s clean fuels program uses 

renewable fuels produced in Minnesota, such as 

ethanol and biodiesel, to reduce air pollution, promote 

economic development, and reduce dependence on 

imported energy supplies. The program is credited 

with helping the state achieve an acceptable level of 

ozone in every county (Minnesota Chamber of 

Commerce 2003). 

For more information about EPA’s voluntary transportation programs, visit the EPA Office of Transportation 

and Air Quality Planning’s Voluntary Programs Web 

site (http://www.epa.gov/otaq/voluntary.htm). 

Source: EPA 2005a. 

� Chapter 1. Introduction and Background 1-3 
 

 

 

 

EPA Clean Energy-Environment Guide to Action
 

Energy Challenges 

States and the U.S. energy industry face multiple 

challenges in providing affordable, clean, and reliable 

energy in today’s complex energy markets. These 

challenges include: 

•	 Electricity demand continues to rise. Given current 

energy consumption and demographic trends, the 

U.S. Department of Energy (DOE) projects that U.S. 

energy consumption will increase by more than a 

third by the year 2025. Electric power consumption is expected to increase by almost 40%, and 

total fossil fuel use is projected to increase similarly (EIA 2005a). This growth in demand stresses 

current systems and requires substantial new 

investments in system expansions. 

•	 Energy reliability and security is crucial. Recent 

events, such as the Northeast electricity blackout 

of August 2003, increased focus on the need for 

energy reliability and its economic and human 

welfare affects. These concerns, combined with 

Energy Savings Potential from State Clean 

Energy Actions 

The potential energy savings achievable through state 

actions is significant. EPA estimates that if each state 

were to implement cost-effective clean energyenvironment policies, the expected growth in demand 

for electricity could be cut in half by 2025, and more 

demand could be met through cleaner energy supply. 

This would mean annual savings of more than 900 billion kilowatt-hours (kWh) and $70 billion in energy 

costs by 2025, while preventing the need for more than 

300 power plants and reducing greenhouse gas emissions by an amount equivalent to emissions from 80 

million of today’s vehicles.a 

a This estimate is based upon EPA analysis of independent evaluations of the potential for cost-effective energy efficiency investments to help meet the nation’s growing demand for energy and 

electricity. One of these independent evaluations is a 2004 metaanalysis that examined the results of 11 different studies that estimated the potential for energy efficiency in various states and 

regions in the country and for the United States as a whole (Nadel 

et al. 2004). This meta-analysis shows that the adoption of economically feasible and technically achievable, but as yet 

untapped, energy efficiency could yield a 24% savings in total 

electricity demand nationwide, which would result in a 50% or 

greater reduction in the growth in electricity demand by 2025. 

the year-to-year uncertainty surrounding availability of hydro resources and continued public 

uncertainty about the safety of nuclear power and 

its waste products, represent risks for many of the 

current generation methods. In addition, owners of 

energy generation, transmission, and distribution 

assets, and all levels of government, are paying 

increased attention to the security risks surrounding our critical energy supply, transmission, and 

distribution infrastructure. 

•	 Transmission systems are overburdened in some 

places, limiting the flow of economical generation 

and, in some cases, shrinking reserve margins of 

the electricity grid to inappropriately small levels. 

This can cause reliability problems and high electricity prices in or near congested areas. 

• Many existing base load generation plants are 

aging. Significant retrofits are needed to ensure 

old generating units meet current and future 

emissions regulations. 

•	 Energy prices are high. Higher natural gas prices 

increase energy costs for households and businesses and raise the financial risk associated with the 

development of new generation based on gas 

technologies, which had been expected to make 

up more than 60% of capacity additions over the 

next 20 years (EIA 2005a). Coal prices are also 

increasing and contributing to higher electricity 

costs. 

Related Challenges 

In addition to environmental and energy challenges, 

other challenges facing states include: 

• Addressing concerns about energy prices and the 

ability of consumers, especially low-income households, to pay energy bills. Inability to pay energy 

bills has repercussions for individuals and the 

economy. 

• Addressing economic development needs, particularly in rural areas and small communities. 

• Educating the public about energy issues, including raising awareness about using energy wisely 

and the consequences of energy use, and motivating behavior changes. 

1-4 � Chapter 1. Introduction and Background
 
 

 

 

 

 

 

 

EPA Clean Energy-Environment Guide to Action 

Clean Energy Can Be a Big Part of the Solution Figure 1.2a: Energy Savings from California’s Energy 

Efficiency Programs 

Recent state analyses have found that that there is 

potential for clean energy to cost-effectively meet 45,000 much of the growth in energy demand expected over
 40,000 the next 10 to 20 years (Rufo and Coito 2002, Nadel et
 35,000 

15% of Annual Electricity Use in California in 2003 

al. 2004, and Geller et al. 2005). Analyses have also
 

shown that energy efficiency can be delivered through
 30,000 GWh25,000 programs at a cost ($0.02–0.04/kWh) much less than
 20,000

new generation, offering a low-cost means of increas­ 15,000 

ing the overall reliability of the system as both base
 

load and peak load demand are reduced (Nadel and
 10,000 

5,000 

Geller 2001). 
 0 

1975 1980 1985 1990 1995 2000 As an example, from 1975 through 2003 California’s
 

energy efficiency programs have saved 40,000
 Utility Programs 

Building Standards 

gigawatt-hours (GWh), 15% of the annual electricity 

use. California’s recent energy efficiency programs 

continue to deliver efficiency at half the cost of base 

load generation (see Figures 1.2a and 1.2b) while having played a key role in mitigating the effects of the 

state’s electricity crisis in 2001 (Wiser et al. 2004). The 

state’s enhanced efforts to utilize energy efficiency as 

an in-state energy resource are expected to meet 

about half of the expected growth in electricity
 

Appliance Standards 

Figure 1.2b: Comparison of Energy Efficiency 

Program Costs to Supply Generation Costs 

(2000 to 2004) 

18.0 

the price of peak power by 30% to 40% (NEDRI 2003). 

• Addressing community opposition to siting new 

energy generation, transmission, and distribution 

facilities and concerns about environmental 

impacts of energy resource development (e.g., oil, 

gas, liquefied natural gas [LNG] terminals, and 

transmission lines). 

How Does Clean Energy Address These 

Challenges? 

States are finding that energy efficiency and clean 

energy supply, which includes renewable energy and 

clean DG technologies (e.g., CHP), can play an important role in helping meet their energy and environmental challenges. Clean energy can: 

Average Cost of 

EE Program for 

Base Load 

Generation 

Shoulder 

Generation 

Peak 

Generation 

Demand 

Supply Options 

0.0295 

0.056 

0.118 

0.167 

12.0 

10.0 

8.0

cents/kWh 

6.0 

2000−2004 

Sources: 1.2a: CEC 2003. 1.2b: CEC 2005. 

•	 Reduce Energy-Related Air Emissions. Using energy 

more efficiently through more efficient end uses, 

or through more efficient generation such as CHP, 

reduces the amount of fuel required for a given 

service or to produce a unit of energy output and 

reduces the corresponding emissions of pollutants 

and greenhouse gases. Electricity from renewable 

resources such as solar, geothermal, and wind 

technologies generally does not contribute to 

global climate change or local air pollution since 

no fuels are combusted in these processes. 

demand by 2013 through energy efficiency in addition 16.0 

to reduced demand for natural gas (CPUC 2004). 14.0 

System reliability also benefits from clean energy
 

strategies by reducing peak load demand, as the
 

shrinking load and stress in the power distribution system decreases the likelihood of failure. For example, 4.0 

the demand-side management (DSM) program in 2.0 

Massachusetts has reduced peak demand by 7.2% and 0 

� Chapter 1. Introduction and Background
 1-5 
 

EPA Clean Energy-Environment Guide to Action
 

•	 Increase Power Reliability. CHP and renewable 

energy, as DG, can reduce electricity infrastructure 

vulnerability, improve security of the electricity 

system, and reduce grid congestion. These technologies can be operated independently in the 

event of a disruption to central systems and targeted to load pockets to reduce grid congestion, 

potentially deferring or displacing more expensive 

transmission and distribution infrastructure investments. A 2005 study for the California Energy 

Commission (CEC) found that strategically sited 

DG yields improvements to grid system efficiency 

and provides additional reserve power, deferred 

costs, and other grid benefits (Evans 2005). Energy 

efficiency can also improve electric system reliability since energy efficiency reduces both base 

load and peak power requirements, thus decreasing the likelihood of system failure (Nadel and 

Geller 2001). 

•	 Increase Fuel Diversity. Increased fuel diversity 

avoids over-reliance on a single fuel, which can 

cause disruption or price volatility if supply of that 

fuel is constrained. Renewable energy technologies 

broaden the energy mix. CHP can be fueled by a 

variety of fuels, including natural gas, coal, biomass, and biogas. 

•	 Provide More Efficient Use of Natural Resources. 

Energy efficiency reduces demand for energy generation, which reduces the amount of fuel—coal, 

natural gas, or oil—needed to power our daily 

lives. CHP can provide much greater energy output 

for the amount of fuel used and renewable energy 

sources avoid the use of fossil fuels. Each of these 

clean energy sources also results in water savings 

through reduced water use and avoided thermal 

pollution. 

•	 Increase State Economic Development. Investments 

in clean energy can promote economic development in a variety of ways. According to several 

studies, energy efficiency leads to energy bill savings, with re-spending of these savings supporting 

more jobs than if the energy were purchased 

(SWEEP 2002). Clean energy projects create shortterm construction and installation jobs and provide 

numerous long-term opportunities associated with 

new clean energy businesses (Rabe 2004, Geller et 

al. 2005). EE/RE and CHP may help reduce fuel 

price volatility and increase fuel diversity, leading 

to a more stable energy supply portfolio (Wiser et 

al. 2005). Energy efficiency and renewable energy 

also draw on local resources that can offset 

imports from out-of-state. Use of these in-state 

resources improves the state balance of trade and 

can create long-term economic value. 

Opportunities for State Action 

State policies and programs are successfully expanding the role of clean energy in the U.S. energy system. States are finding clean energy to be costcompetitive with traditional sources of generation, as 

demonstrated in Figure 1.3, which illustrates the 

comparative cost of electricity from a range of 

sources, including energy efficiency, under typical 

assumptions. 

To help capture the cost savings and other benefits 

of clean energy, many states have implemented policies and programs to increase the use of clean energy alongside other sources. For example: 

• Seventeen states and Washington, D.C. have 

adopted public benefits funds (PBFs) for energy 

efficiency that provide more than $1 billion annually to support cost-effective clean energy (ACEEE 

2004b). 

• Twenty-one states and Washington, D.C. have 

adopted renewable portfolio standards (RPS) to 

increase the amount of wind, solar, biomass, and 

other renewable resources in their energy portfolios. Existing RPS requirements are expected to 

result in the generation of more than 25,000 

megawatts (MW) of new renewable energy by 

2017—enough power for nearly 17 million homes 

(Wiser et al. 2004). 

Nevertheless, there remain significant additional 

opportunities for states to implement policies and 

programs and spur greater investment in clean energy. This section provides an overview of opportunities 

for state action for each of the clean energy areas: 

energy efficiency, renewable energy, and CHP. 

1-6 � Chapter 1. Introduction and Background
 
 

 

 

 

 

 

 

Coal 

Gas

Combined

Cycle 

Wind 

Nuclear 

Energy

Efficiency 

Figure 1.3: Clean Energy Is Competitive with Fossil 

Fuel and Nuclear Generation Technologies 

EPA Clean Energy-Environment Guide to Action
 

potential would generate $3 in benefits for each $1 

invested—equivalent to net benefits of $1.8 billion 

(Schlegel 2004, Environment Northeast 2005). 

Chapter 2, Developing a Clean Energy-Environment 

Action Plan, presents more information about state 

clean energy potential studies and links to individual 

state analyses. Other studies indicate similar levels of 

10.0 

8.0 

6.0 

4.0 

2.0 

savings for California, the Northwest, the Northeast, 

and other locations. These potential studies build on 

more than a decade of experience showing that 

well-designed energy efficiency efforts cost less than 

traditional sources of generation, while offering a 

range of environmental and economic benefits that 

continue to accrue year after year. These programs 

are saving energy, on average, at a life cycle cost of 

about $0.03/kWh saved, which is 50% to 75% of the 

typical cost of new power sources and less than 50% 

2002 cents/kWh 

0.0 

of the average retail price of electricity (ACEEE 

2004a, ACEEE 2004b, EIA 2005b). 

As of 2003, about $1.4 billion is being spent annually 

Capital Costs O&M Costs Fuel Costs Transmission Costs 

Note: The costs for nuclear, coal, wind, and gas combined cycle are projections for the cost of producing energy from new plants in 2010. The 

cost for energy efficiency is a median figure based on recent reports of 

the cost of energy saved over a portfolio of programs in leading states. 

Sources: ACEEE 2004, EIA 2004. 

Energy Efficiency 

States are finding that well-designed and administered energy efficiency programs can cost-effectively 

offset a significant portion of expected growth in 

energy demand. 

Achievable savings range from 10% to 35% of electricity demand and up to 10% of natural gas demand 

(Nadel et al. 2004). For example, a recent study of 

Connecticut’s energy efficiency potential found that 

there is significant potential in all sectors of the state 

and that the state could reduce both peak demand 

and electricity use by 13% between 2003 and 2012 

at an average cost of 1.4 cents/kWh saved over the 

lifetime of the investment. In addition, capturing the 

achievable and cost-effective energy efficiency 

on ratepayer-funded energy efficiency programs in 

the electricity sector nationwide to capture this 

energy efficiency potential (York and Kushler 2005). 

This funding is provided through PBF programs (see 

Section 4.2, Public Benefits Funds for Energy 

Efficiency) and programs developed as part of utility 

integrated resource plans (see Section 6.1, Portfolio 

Management Strategies). These programs are reducing electricity demand by about 0.8% to 1% per year 

in states with comprehensive energy efficiency programs, which will result in cumulative energy savings 

of 10% or more over the next decade (ACEEE 2004b). 

There is an opportunity to provide greater funding to 

capture the cost-effective potential that remains in 

most states. Across the 50 states, 2003 spending on 

energy efficiency programs as a percentage of utility 

revenues averaged 0.5%. The top 10 states (shown in 

Table 1.1) are spending between 1% and 3% of utility revenues on energy efficiency (York and Kushler 

2005). In many states, the level of energy efficiency 

spending is much less than what would be needed to 

capture a substantial portion of the economic and 

achievable potential over the next decade (Nadel et 

al. 2004). 

� Chapter 1. Introduction and Background
 1-7 
 

 

 

 

 

 

 

 

 

EPA Clean Energy-Environment Guide to Action
 

Table 1.1: 2003 Energy Efficiency Spending As a 

Percentage of Utility Revenues 

Spending As a Percent of 

Top 10 States Annual Total Revenues 

Vermont 3.0 

Massachusetts 2.4 

Washington 2.0 

Rhode Island 1.9 

New Hampshire 1.8 

Oregon 1.7 

Wisconsin 1.4 

New Jersey 1.4 

Montana 1.3 

Iowa 1.2 

U.S. Average 0.5 

Source: York and Kushler 2005. 

Clean Energy Supply Programs 

Renewable Energy 

Renewable energy is partially or entirely generated 

from non-fossil energy sources. Definitions of renewable energy vary by state but usually include wind, 

solar, biomass, and geothermal energy; some states 

also include low-impact or small hydro, biogas, 

waste-to-energy, and CHP. 

Renewable energy technologies continue to experience rapid growth in the United States due to state 

activity and increased cost-competitiveness. As of 

2004, 2,300 MW of new renewable energy capacity 

had been developed as a result of state requirements, 

with an additional 1,600 MW coming online to serve 

voluntary green power market demand (Bird and 

Swezey 2004). 

Renewable technologies are experiencing market 

growth due to several drivers. First, the cost of 

renewable energy technologies is approaching competitiveness with fossil fuel-fired technologies in 

some regions. For example, depending on geographic 

location, wind energy technology can produce power 

at about $0.04–$0.06/kWh,3 compared to the 

$0.30/kWh it cost in the early 1980s (Bird and 

Swezey 2004). This compares favorably to an average 

cost of conventional natural gas combined cycle 

generation, which was about $0.065/kWh in October 

2005. Due to renewable energy’s low or free fuel 

costs, it is also attractive in markets where fuel price 

volatility is increasing. 

Wind and photovoltaic (PV) markets have experienced double-digit growth over the past decade, 

mainly as a result of the policies and benefits 

described above. In the United States, annual installations of renewable energy exceeded 800 MW in 

2004 (excluding large hydroelectric power) and are 

expected to reach almost 4,000 MW per year by 

2013. State RPS are spurring rapid growth in renewable energy installations in the United States, with 

RPS cited as the driving force behind the installation 

of approximately 47% of new wind capacity additions in the United States between 2001 and 2004 

(Wiser 2005). 

Combined Heat and Power 

CHP, also known as cogeneration, is the simultaneous generation of electric and thermal energy from a 

common fuel source. CHP is not a specific technology, but an efficient application of technologies to 

meet an energy user’s needs. 

Typically, two-thirds of the energy in a conventional 

power plant is lost when the waste heat is not 

recovered. CHP captures and uses the waste heat to 

meet the thermal needs (e.g., process heat, space 

heating, cooling hot water) of commercial and 

industrial facilities. A CHP system is substantially 

more efficient than purchasing electricity from the 

grid and meeting thermal needs with a boiler or 

process heater. CHP systems achieve fuel use efficiencies that typically range between 60% and 75%, 

a significant improvement over the average efficiency of separate heat and power (EPA 2004). This 

improvement in efficiency is an effective pollution 

3	 Based on the results of the Navigant Consulting, Inc. (NCI) proprietary Levelized Cost of Electricity (LCOE) Model. This number is based on a range of 

recent NCI LCOE runs for different types of financing and wind speeds. This cost excludes the production tax credit (PTC) but includes accelerated 

depreciation. Without accelerated depreciation, the range is $0.04–0.07/kWh (Navigant 2003). 

1-8	 � Chapter 1. Introduction and Background 
 

 

 

EPA Clean Energy-Environment Guide to Action
 

prevention strategy that reduces air pollutant emissions as well as fuel costs for a given energy output. 

In 2004, approximately 80 gigawatts (GW) of CHP 

were operational in the United States, up from less 

than 10 GW in 1980 (EPA 2004). There is potential 

for additional CHP in a variety of applications, 

including district energy at universities and downtown areas, industrial scale CHP in many industry 

sectors, and in commercial buildings such as hotels 

and casinos. 

The Clean Energy-Environment 

Guide to Action 

EPA developed the Clean Energy-Environment Guide 

to Action to help states evaluate clean energy 

options and develop their own Clean EnergyEnvironment Action Plans for implementing costeffective clean energy programs that meet their 

environmental, energy, and economic goals. The 

Guide to Action: 

• Identifies and analyzes a suite of cost-effective 

state clean energy policies and describes best 

practices, potential models, key features, and 

examples of effective state implementation for 

each policy. 

• Helps states understand the analytical tools and 

methods that can be used to estimate the environmental and economic benefits of their clean 

energy programs. 

• Links states to relevant guidance and technical 

support resources. 

The Guide to Action identifies and describes 16 clean 

energy policies and strategies that states have used 

to pursue cost-effective clean energy. These policies 

are categorized according to whether they involve 

state planning and incentives programs, energy efficiency actions, energy supply actions (i.e., renewable 

energy and CHP), or utility planning and incentive 

structures. Table 1.2 describes each policy and lists 

many of the more specific approaches that can be 

used to implement each type of policy. 

Using the Guide to Action 

The Guide to Action provides a menu of clean energy 

policies and programs with which states have considerable experience and success. When using the Guide 

to Action: 

•	 Select from the menu of policies by reviewing Table 

1.2 and the chapter introductions to identify policies 

that are most likely to meet state goals. The process 

for developing a state Clean Energy-Environment 

Action Plan is described in Chapter 2. 

•	 Keep in mind that some of the policies described in 

the Guide to Action represent different paths to the 

same goal or can be used in combination to achieve 

a goal. 

•	 Design clean energy programs by building upon the 

established models, examples, and action items 

described for each policy, rather than starting “from 

scratch.” 

The policies in the Guide to Action can be viewed as 

a menu of policies and programs with which states 

have significant experience. Some of these policies 

represent different paths to a goal or can be used in 

combination to achieve a goal. States can select the 

appropriate mix of policies to achieve their goals. For 

example, in its 2005 Climate Change Action Plan, 

Connecticut developed a coordinated package of 55 

recommended actions that include appliance standards, building codes, government green power purchases, a production tax credit, an RPS, and other 

clean energy policies (see Chapter 2, Developing a 

Clean Energy-Environment Action Plan). 

For each of the 16 policies, the Guide to Action provides the following information: 

• The objectives and benefits of the policy. 

• Examples of states that have implemented the 

policy. 

• Responsibilities of key players at the state level, 

including typical roles of the main stakeholders. 

• Opportunities to coordinate implementation with 

other federal and state policies, partnerships, and 

technical assistance resources. 

� Chapter 1. Introduction and Background
 1-9 
 

 

 

 

 

 

 

 

 

EPA Clean Energy-Environment Guide to Action
 

• Best practices for policy design, implementation,	 • Resources for additional information on individual 

and evaluation, including state examples.	 state policies, legislation and regulations, and analytical tools and methods to quantify emission • Action steps for states to take when adopting or 

modifying their clean energy policies, based on
 reductions and estimate energy and cost savings.

established state programs. 


Table 1.2: Summary of Clean Energy Policies
 

Policy Description State Examples Specific Approaches 

Guide 

Section No. 

State Planning and Incentive Structures 

Lead by Example States lead by example by 

establishing programs that 

achieve substantial energy 

cost savings within their own 

operations, buildings, and 

fleets and demonstrate the 

CA, CO, IA, NH, NJ, NY, OR, 

TX 

• Energy savings targets for public buildings. 

• Renewable and energy efficiency purchase commitments for 

state facilities. 

3.1 

feasibility and benefits of clean 

energy to the larger market. 

• State loan and incentive programs for public buildings. 

• Energy performance contracting. 

• Technical support and training. 

• State clean energy planning. 

State and Regional Energy planning at a state or CA, CT, NM, NY, OR, • Clean energy plan. 3.2 

Energy Planning regional level can be an effective means for ensuring that 

clean energy is considered 

and used as an energy 

resource to help states 

address their multiple energy, 

economic, and environmental 

goals. 

New England Governors’ 

Conference (NEGC), 

Northwest Power and 

Conservation Council, 

Western Governors’ 

Association (WGA), Western 

Interstate Energy Board 

(WIEB) 

• Clean energy included within a 

comprehensive state energy 

plan. 

• Planning conducted by energy 

providers. 

Determining the Air States estimate the emission LA (local), MD (local), TX, WI, • Incorporating clean energy into 3.3 

Quality Benefits of reductions from their clean Western Regional Air air quality plans and long-term 

Clean Energy energy programs, incorporate 

those reductions into air quality programs, and evaluate and 

report the emission reduction 

benefits of their clean energy 

programs and policies. 

Partnership (WRAP) utility planning requirements. 

• Developing set-asides for energy efficiency and renewable 

energy projects. 

• Tracking and reporting emission 

reductions. 

(continued on next page)
 

1-10 � Chapter 1. Introduction and Background
 
 

 

 

 

 

 

 

 

EPA Clean Energy-Environment Guide to Action
 

Table 1.2: Summary of Clean Energy Policies (continued)
 

Policy Description State Examples Specific Approaches 

Guide 

Section No. 

State Planning and Incentive Structures (continued) 

Funding and States implement a range of CA, CO, IA, MT, NY, OR, TX, • Revolving loan funds. 3.4 

Incentives targeted funding and incentives strategies that encourage 

governments, businesses, and 

WA • Energy performance contracting. 

consumers to save energy • Tax incentives. 

through cost-effective clean • Grants, rebates, and generation 

energy investments. Between incentives. 

20 and 30 states have revolving 

loan funds for energy efficiency, tax incentives for renewable energy, grants for renew­

• NOx set-asides for energy efficiency and renewable energy 

projects. 

able energy, or rebates for • Supplemental Environmental 

renewable energy. Projects (SEPs). 

Energy Efficiency Actions 

Energy Efficiency Similar to Renewable Portfolio CA, IL, NJ, NV, PA, TX • Energy efficiency targets for 4.1 

Portfolio Standards Standards (see Section 5.1), energy providers as a percentEEPS direct energy providers age of load growth, base year 

to meet a specific portion of sales, or fixed energy savings 

their electricity demand (e.g., kWh). 

through energy efficiency. 

Seven states have direct or 

indirect EEPS requirements. 

Public Benefits PBFs for energy efficiency are CA, NY, OR, WI • Funds for efficiency programs 4.2 

Funds for Energy pools of resources used by based on a system-wide charge 

Efficiency states to invest in energy effi­ (mills per kWh). 

ciency programs and projects 

and are typically created by • Grants, rebates, and loans. 

levying a small charge on cus­ • Technical assistance, education, 

tomers’ electricity bills. Seven- and training support for energy 

teen states and Washington, efficiency investments. 

D.C. have established PBFs for 

energy efficiency. 

Building Codes for Building energy codes estab- AZ, CA, OR, TX, WA • Minimum energy efficiency 4.3 

Energy Efficiency lish energy standards for resi­ requirements for residential and 

dential and commercial build- commercial buildings. 

ings, thereby setting a minimum level of energy efficiency 

and locking in future energy 

• Periodic review and updates to 

existing codes. 

savings at the time of new con­ • Code implementation, evaluastruction or renovation. More tion, and compliance assisthan 40 states have implement­ tance. 

ed some level of building codes 

for residential buildings and/or 

commercial buildings. 

State Appliance State appliance efficiency CA, CT, NJ, NY • Minimum energy efficiency lev­ 4.4 

Efficiency standards set minimum energy els for consumer products and 

Standards efficiency standards for equipment and appliances that are 

not covered by federal efficiency standards. Ten states have 

adopted appliance standards. 

commercial equipment. 

• Periodic evaluation and review 

of standards, markets, and product applications. 

(continued on next page) 

� Chapter 1. Introduction and Background 1-11 
 

 

 

 

 

 

EPA Clean Energy-Environment Guide to Action
 

Table 1.2: Summary of Clean Energy Policies (continued)
 

Policy Description State Examples Specific Approaches 

Guide 

Section No. 

Energy Supply Actions 

Renewable RPS establish requirements for AZ, CA, MA, TX, WI • Promoting specified technolo­ 5.1 

Portfolio Standards electric utilities and other 

retail electric providers to 

serve a specified percentage 

or amount of customer load 

with eligible resources. 

Twenty-one states and 

Washington, D.C. have adopted RPS. 

gies through “technology tiers” 

and “credit multipliers.” 

• Alternative compliance payments. 

• Renewable Energy Certificates 

(RECs) trading. 

Public Benefits PBFs are a pool of resources CA, CT, MA, NJ, NY, OH • Funds for emerging and com­ 5.2 

Funds for State used by states to invest in mercially competitive technoloClean Energy clean energy supply projects gies and clean energy market 

Supply Programs and are typically created by 

levying a small charge on customers’ electricity bills. Sixteen 

states have established PBFs 

for clean energy supply. 

development programs based 

on a system-wide charge (mills 

per kWh). 

• Grants, rebates, and generation 

incentives. 

Output-Based Output-based environmental CT, IN, MA, TX • Conventional emission limits 5.3 

Environmental regulations establish emissions using an output formula. 

Regulations to 

Support Clean 

Energy Supply 

limits per unit of productive 

energy output of a process 

(i.e., electricity, thermal energy, 

or shaft power), with the goal 

• Special regulations for small 

distributed generators that are 

output based. 

of encouraging fuel conversion • Output-based allowance allocaefficiency and renewable ener­ tion methods in a cap and trade 

gy as air pollution control program. 

measures. Twelve states have • Output-based allowance allocaestablished output-based envi­ tion set-asides for energy effironmental regulations. ciency and renewable energy. 

• Multi-pollutant emission regulations using an output-based format. 

Interconnection Standard interconnection rules MA, NJ, NY, TX • Standard interconnection rules 5.4 

Standards establish processes and tech- for DG systems through defined 

nical requirements that apply application processes and techto utilities within the state and nical requirements. 

reduce uncertainty and delays 

that clean DG systems can 

encounter when obtaining 

electric grid connection. 

Fourteen states have standard 

• Net metering, which defines 

application processes and technical requirements, typically for 

smaller projects. 

interconnection rules, and 39 

states offer net metering. 

(continued on next page)
 

1-12 � Chapter 1. Introduction and Background
 
 

 

 

 

EPA Clean Energy-Environment Guide to Action
 

Table 1.2: Summary of Clean Energy Policies (continued)
 

Policy Description State Examples Specific Approaches 

Guide 

Section No. 

Utility Planning and Incentive Structures 

Fostering Green States play a key role in foster- CT, MA, NJ, NM, WA • Customer access to green 5.5 

Power Markets ing the development of volun­ power markets. 

tary green power markets that 

deliver cost-competitive, envi­ • Green pricing tariffs. 

ronmentally beneficial renew­ • Green “check-off” programs. 

able energy resources by giv­ • Net metering. 

ing customers the opportunity 

to purchase clean energy. 

Green power is available in 

more than 40 states. 

Portfolio Portfolio management strate- CA, CT, IA, MT, NV, OR, PA, • Energy resource planning and 6.1 

Management gies include energy resource VT, Idaho Power, Northwest procurement. 

Strategies planning approaches that 

place a broad array of supply 

and demand options on a level 

Power and Conservation 

Council, PacifiCorp, Puget 

Sound Energy 

• Integrated resource planning 

(IRP). 

playing field when comparing 

and evaluating them in terms 

of their ability to meet projected energy demand and manage uncertainty. 

• Retail choice portfolio management. 

Utility Incentives A number of approaches— AZ, CA, CT, ID, MA, MD, ME, • Decoupling utility profits from 6.2 

for Demand-Side including decoupling and per- MN, NY, NM, NV, OR, WA sales volume. 

Resources formance incentives—remove 

disincentives for utilities to • Program cost recovery. 

consider energy efficiency and • Shareholder performance 

clean DG equally with tradi­ incentives. 

tional electricity generation 

investments when making 

electricity market resource 

planning decisions. 

Emerging Electric and natural gas rates, Exit Fees: CA, IL, MA • Utility ratemaking and revenue 6.3 

Approaches: 

Removing 

Unintended Utility 

set by Public Utility 

Commissions (PUCs), can be 

designed to support clean DG 

Standby Rates: CA, NY 

Gas Rates: NY 

requirements. 

• Revised standby rate structures. 

Rate Barriers to projects and avoid unintended • Exit fee exemptions. 

Distributed barriers, while also providing • Natural gas rates for DG and/or 

Generation appropriate cost recovery for 

utility services on which consumers depend. 

CHP. 

• In regulated markets, help generators and utilities establish 

appropriate buyback rates. 

� Chapter 1. Introduction and Background
 1-13 
 

 

 

EPA Clean Energy-Environment Guide to Action
 

Who Will Use the Guide to Action? 

The Guide to Action is intended for use by state energy, economic, and environmental policymakers. It 

demonstrates a range of clean energy policy options, 

best practices, and lessons learned that can inform 

decisionmaking and policy design. 

States participating in the Clean Energy-Environment 

State Partnership Program will use the Guide to 

Action to: 

• Develop their own Clean Energy-Environment 

Action Plan that is appropriate to their state. 

• Build on established models and practices adopted 

by other states. 

• Identify the roles and responsibilities of key decisionmakers, such as environmental regulators, 

state legislatures, public utility commissioners, and 

state energy offices. 

• Access and apply technical assistance resources, 

models, and tools available for state-specific 

analyses and program implementation. 

• Learn from each other as they develop their own 

clean energy programs and policies. 

States that have not yet developed comprehensive 

clean energy policies can begin by familiarizing 

themselves with the material in the Guide to Action 

and contacting EPA for guidance and referral to 

other resources. For states that are interested in 

adopting new clean energy policies, the Guide to 

Action provides a proven set of effective policies that 

draw upon the experiences, insights, and approaches 

that have been vetted and refined by other states. 

Contents of the Guide to Action 

The Guide to Action contains the following chapters 

and appendices: 

•	 Executive Summary, provides a summary of the 

Guide to Action, tailored for state decisionmakers 

and others who want a concise description of the 

Guide’s key findings and recommendations. 

•	 Chapter 1, Introduction and Background, defines 

the term clean energy; describes the environmental, public health, energy, and other challenges 

that clean energy can address; and summarizes 

state opportunities for implementing clean energy 

policies. A summary of the 16 clean energy policies 

is also presented. 

•	 Chapter 2, Developing a Clean Energy-Environment 

Action Plan, provides information about the steps 

states have used to develop a Clean EnergyEnvironment Action Plan, including establishing a 

collaborative process, setting goals, identifying 

policies and analyzing their impacts, and developing an implementation strategy. It also provides 

examples of state plans and an overview of the 

analytical tools and resources available to help 

states select and evaluate their clean energy 

options. 

•	 Chapter 3, State Planning and Incentive Structures, 

describes four policies that states have used to 

help shape their clean energy strategy, quantify 

and integrate the environmental benefits of clean 

energy with other programs, and encourage other 

organizations in the state to invest in clean energy. 

•	 Chapter 4, Energy Efficiency Actions, describes four 

policies that states have used to support greater 

investment in, and adoption of, energy efficiency 

through cost-effective programs. 

•	 Chapter 5, Energy Supply Actions, describes five 

policies and emerging approaches that support 

greater investment in clean energy supply 

resources, including renewable energy and CHP. 

•	 Chapter 6, Utility Planning and Incentive 

Structures, describes three utility-based policies 

that remove disincentives for utilities to consider 

energy efficiency, renewable energy, and clean DG 

equally with traditional electricity generation 

investments. 

• Technical Appendices include: 

- Appendix A, Federal Clean Energy Programs 

- Appendix B, Energy Efficiency Program Resources 

- Appendix C, Clean Energy Supply: Technologies, 

Markets, and Programs 

1-14 � Chapter 1. Introduction and Background
 
 

 

 

 

 

 

 

 

EPA Clean Energy-Environment Guide to Action
 

Information Resources 

Federal Partnerships 

As states pursue policies and programs for promoting 

clean energy, they can work with a variety of federal 

programs for assistance as described in Appendix A, 

Federal Clean Energy Programs. 

For More Information About the 

Guide to Action 

To download the Guide to Action, visit EPA’s Clean 

Energy Web site at: 

http://www.epa.gov/cleanenergy/stateandlocal/. 

To order a print copy of the Guide to Action, visit the 

National Service Center for Environmental 

Publications (NSCEP) Web site at: 

http://www.epa.gov/ncepihom/ordering.htm 

or contact NSCEP at: 1-800-490-9198. 

Request EPA Publication #430-R-06-001. 

For more information about this Guide to Action, 

please contact the EPA Clean Energy-Environment 

State Partnership Program: 

Clean Energy-Environment State Partnership 

Program Contact Information 

Julie Rosenberg 

Branch Chief 

Phone: 202-343-9154 

E-mail: rosenberg.julie@epa.gov 

Steve Dunn 

Policy Analyst 

Phone: 202-343-9341 

E-mail: dunn.stevev@epa.gov 

Mailing address: 

U.S. Environmental Protection Agency 

1200 Pennsylvania Avenue, NW 

6202J 

Washington, DC 20460 

� Chapter 1. Introduction and Background
 1-15 
 

EPA Clean Energy-Environment Guide to Action
 

References
 

Title/Description URL Address 

ACEEE. 2004a. A Federal System Benefits Fund: Assisting States to Establish Energy 

Efficiency and Other System Benefit Programs. American Council for an EnergyEfficient Economy (ACEEE), Washington, D.C. 

http://www.aceee.org/energy/pbf.htm 

ACEEE. 2004b. Five Years In: An Examination of the First Half-Decade of Public 

Benefits Energy Efficiency Policies. Report # U041. ACEEE, Washington, D.C. April. 

http://www.aceee.org/pubs/u041.htm 

Bird, L. and B. Swezey. 2004. Green Power Marketing in the United States: A Status 

Report. Seventh Edition. NREL/TP-620-36823. National Renewable Energy Laboratory 

(NREL), Golden, CO. September. 

http://www.eere.energy.gov/greenpower/ 

pdfs/36823.pdf 

Bird, L., B. Parsons, T. Gagliano, M. Brown, R. Wiser, and M. Bolinger. 2003. Policies 

and Market Factors Driving Wind Power Development in the United States. 

NREL/TP-620-34599. NREL. July. 

http://www.nrel.gov/docs/fy03osti/34599.pdf 

CEC. 2003. CEC. Public Interest Energy Strategies Report. Final Commission Report. 

Publication #100-03-012F. November. 

http://www.energy.ca.gov/reports/ 

100-03-012F.pdf 

CEC. 2005. CEC. August. Funding and Energy Savings From Investor-Owned Utility 

Energy Efficiency Programs In California for Program Years 2000 Through 2004. 

http://www.energy.ca.gov/ 

2005publications/CEC-400-2005-042/ 

CEC-400-2005-042-REV.pdf 

CPUC. 2004. Order Instituting Rulemaking to Examine the Commission’s Future Energy 

Efficiency Projects, Administration and Programs, September 23, 2004, Decision 04­

09-060, Rulemaking 01-08-028. “Interim Opinion: Energy Savings Goals for Program 

Year 2006 and Beyond.” CPUC. 

http://www.cpuc.ca.gov/PUBLISHED/ 

FINAL_DECISION/40212.htm 

EIA. 2004. Annual Energy Outlook 2004. DOE-EIA-0383(2004). U.S. Energy Information 

Administration, Washington, D.C., January. 

http://www.eia.doe.gov/oiaf/archive/ 

aeo04/index.html 

EIA. 2005a. Annual Energy Outlook 2005. DOE/EIA-0383(2005). U.S. Energy Information 

Administration (EIA), Washington, D.C. February. 

http://www.eia.doe.gov/oiaf/archive/ 

aeo05/index.html 

EIA. 2005b. Electric Power Monthly, Data for May 2005. Table 5.6.A. Average Retail 

Price of Electricity to Ultimate Customers by End-Use Sector, by State, April 2005 and 

2004. EIA, Washington, D.C. 

http://www.eia.doe.gov/cneaf/electricity/ 

epm/table5_6_a.html 

Environment Northeast. 2005. Environment Northeast. Energy Efficiency Potential: 

Energy Conservation Management Board, Maximum Achievable Potential Report 

Summary Information. Energy Efficiency Standards, Environment Northeast, 

Rockport, ME. 

http://www.env-ne.org/Publications/ 

Potential%20Energy%20Conservation%20 

Available%20to%20CT.pdf 

EPA. 2004. Output-Based Regulations: A Handbook for Air Regulators. EPA. April 22, 

2004. 

http://www.epa.gov/chp/pdf/output_rpt.pdf 

EPA. 2005a. Air Data Web site. 2005 data. EPA. Accessed November 2005. http://www.epa.gov/air/data/index.html and 

http://www.epa.gov/air/data/ 

nonat.html?us~usa~United%20States 

EPA. 2005b. Health and Environmental Impacts of Ground-Level Ozone. July. EPA. http://epa.gov/air/urbanair/ozone/hlth.html 

Evans, P.B. 2005. Optimal Portfolio Methodology for Assessing Distributed Energy 

Resources Benefits for the Energynet. CEC-500-2005-061-D. CEC, PIER EnergyRelated Environmental Research. 

http://www.energy.ca.gov/2005publications/ 

CEC-500-2005-061/CEC-500-2005-061-D.pdf 

Geller, H., C. Mitchell, and J. Schlegel. Nevada Energy Efficiency Strategy, January 

2005. Southwest Energy Efficiency Project (SWEEP). 

http://www.swenergy.org/pubs/ 

Nevada_Energy_Efficiency_Strategy.pdf 

1-16 � Chapter 1. Introduction and Background
 
 

EPA Clean Energy-Environment Guide to Action
 

References (continued)
 

Title/Description URL Address 

Kaiser, Jocelyn. 2005. Science, “Mounting Evidence Indicts Fine-Particle Pollution,” 

Science. March 25, 2005, Vol. 307. 

http://www.sciencemag.org 

Minnesota Chamber of Commerce. No date given. Developing Fuels to Benefit 

Minnesota’s Environment and Economy. 

http://www.state.mn.us/mn/externalDocs/ 

Commerce/Clean_Fuels_110802014604_ 

RenewableAFV2003.pdf 

Nadel, S. and H. Geller. 2001. Smart Energy Policies: Saving Money and Reducing 

Pollutant Emissions through Greater Energy Efficiency. Report #E012. ACEEE, 

Washington, D.C. September. 

http://www.aceee.org/pubs/e012full.pdf 

Nadel, S., A. Shipley, and R.N. Elliott. 2004. The Technical, Economic and Achievable 

Potential for Energy-Efficiency in the U.S.-A Meta-Analysis of Recent Studies. 

ACEEE, Washington, D.C. From the proceedings of the 2004 ACEEE Summer Study on 

Energy Efficiency in Buildings. 

http://www.aceee.org/conf/04ss/ 

rnemeta.pdf 

Navigant. 2003. The Changing Face of Renewable Energy. Navigant Consulting Inc. 

October. 

URL not available. 

NEDRI. 2003. Dimensions of Demand Response: Capturing Customer Based 

Resources in New England’s Power Systems and Markets. Report and 

Recommendations of the New England Demand Response Initiative (NEDRI). July 23. 

http://nedri.raabassociates.org/Articles/ 

FinalNEDRIREPORTAug%2027.doc 

Rabe, B.G. 2004. Statehouse and Greenhouse: the Emerging Politics of American 

Climate Change Policy. Brookings Institution Press, Washington, D.C. 

http://www.brookings.edu 

Rufo, M. and F. Coito. California’s Secret Energy Surplus: The Potential for Energy 

Efficiency. The Hewlett Foundation Energy Series, The Energy Foundation and The 

Hewlett Foundation, September 23, 2002. 

http://www.ef.org/documents/ 

Secret_Surplus.pdf 

Schlegel, J. 2004. Conservation and Energy Efficiency: Recent Performance, Future 

Potential. Study conducted for the Connecticut Conservation Management Board. 

PowerPoint presentation. December 2. 

http://www.easternct.edu/depts/ 

sustainenergy/Upcoming%20events/ 

CT%20Energy%20Future/Presentations/ 

SchlegelC&LM_ 

CTEnergyFuturesDec04f.ppt 

SWEEP. November 2002. The New Mother Lode: the Potential for More Efficient 

Electricity Use in the Southwest. Report for the Hewlett Foundation Energy Series. 

http://www.swenergy.org/nml 

WGA. 2005. The Potential for More Efficient Electricity Use in the Western U.S.: 

Energy Efficiency Task Force Draft Report to the Clean and Diversified Energy 

Advisory Committee of the Western Governor’s Association, Draft Report for Peer 

Review and Public Comment. WGA. September 15, 2005. 

http://www.westgov.org/wga/initiatives/ 

cdeac/Energyefficiencydraft9-15.pdf 

Wiser, R. 2005. An Overview of Policies Driving Wind Power Development in the 

West. Ernest Orlando Lawrence Berkeley National Laboratory (LBNL), Berkeley, CA. 

February. 

http://www.nationalwind.org/events/ 

transmission/western/2005/ 

presentations/Wiser.pdf 

Wiser, R., M. Bolinger, and M. St. Clair. 2005. Easing the Natural Gas Crisis: Reducing 

Natural Gas Prices through Increased Deployment of Renewable Energy and Energy 

Efficiency. LBNL-56756. LBNL, University of California, Berkeley. January. 

http://eetd.lbl.gov/EA/EMP/reports/56756.pdf 

Wiser, R., K. Porter, and R. Grace. 2004. Evaluating Experience with Renewables 

Portfolio Standards in the United States. LGNL-54439. LBNL, University of California, 

Berkeley. 

http://eetd.lbl.gov/ea/ems/reports/54439.pdf 

York, D. and M. Kushler. 2005. ACEEE’s 3rd National Scorecard on Utility and Public 

Benefits Programs: A National Review and Update of State-Level Activity. Report No. 

U054. ACEEE, Washington D.C. October. 

http://www.aceee.org/pubs/u054.htm 

� Chapter 1. Introduction and Background 1-17 

 

 

Chapter 2. 

Developing a Clean EnergyEnvironment Action Plan 

Summary 

This chapter describes the process for developing a 

Clean Energy-Environment Action Plan that helps 

states provide for clean, low-cost, reliable energy. 

Drawing upon states’ experiences, it describes the 

typical steps for establishing a collaborative process, 

setting clean energy goals, identifying and evaluating 

clean energy policies, and developing an implementation strategy. 

The Guide to Action helps states analyze and compare policies to develop a plan for meeting their 

clean energy objectives: a Clean Energy-Environment 

Action Plan. It helps states implementing a Clean 

Energy-Environment Action Plan: 

• Assess the environmental, energy, and economic 

benefits of their clean energy portfolios. 

• Identify and remove market, regulatory, and institutional barriers to clean energy. 

• Integrate clean energy with specific environmental 

protection or economic development objectives. 

• Enhance coordination across state agencies and 

develop partnerships with electric and natural gas 

utilities, businesses, environmental groups, and 

clean energy industries. 

• Identify opportunities to coordinate and leverage 

ongoing state activities and investments, federal 

programs, and private sector investments. 

• Implement policies with effective design and evaluation characteristics. 

The Clean Energy-Environment Action Plan 

Under the U.S. Environmental Protection Agency’s 

(EPA’s) Clean Energy-Environment State Partnership 

Program, states create a Clean Energy-Environment 

Action Plan that outlines policies to further clean energy and environmental goals and provide public health 

and economic benefits. 

EPA provides planning, policy, technical, analytical, 

and information resources, like the Clean EnergyEnvironment Guide to Action, to help states develop 

and implement their plans. 

The Clean Energy-Environment 

Action Plan 

A Clean Energy-Environment Action Plan outlines a 

clear strategy to deliver clean, low-cost, and reliable 

energy to state residents through the use of energy 

efficiency, renewable energy, and clean distributed 

generation (DG). The plans focus explicitly on clean 

energy but may be developed in conjunction with 

broad state planning processes, such as comprehensive energy or air quality planning (see Section 3.2, 

State and Regional Energy Planning), state-wide 

sustainability planning, and resource-specific planning for energy efficiency or clean energy supplies. 

In addition, many states have developed climate 

change action plans that include clean energy as a 

key strategy for saving energy and lowering greenhouse gases.4 States have also developed “lead by 

example” action plans focused on state facilities and 

operations (see Section 3.1, Lead by Example). 

Twenty-eight states and Puerto Rico have developed climate change action plans (EPA 2005). 

� Chapter 2. Developing a Clean Energy-Environment Action Plan 2-1 

4 
 

 

 

EPA Clean Energy-Environment Guide to Action
 

States use a range of programs and strategies to 

achieve their clean energy goals. These programs 

take many forms and are developed and implemented through multiple agencies and regulatory jurisdictions. A Clean Energy-Environment Action Plan can 

serve as a platform and roadmap for engaging relevant state agencies, including nongovernment stakeholders. In addition, states often work beyond state 

boundaries on a collaborative basis to develop 

regional clean energy strategies (e.g., the Western 

Governors’ Clean and Diversified Energy Initiative). 

In each case, the steps involved in developing a Clean 

Energy-Environment Action Plan are similar from 

state to state. They typically include the following: 

1. Create a collaborative. 

2. Establish a quantitative goal or goals based upon 

future energy use expectations and the potential 

for clean energy in the state. 

3. Identify both existing and new clean energy policies and programs. 

4. Design and evaluate the impacts of policies. 

5. Recommend specific actions for state decisionmakers. 

The order of these steps can vary from state to state. 

For example, some states develop broad goals before 

conducting stringent analysis. These goals may be 

based on regional goals or agreements, other state 

activities, or political considerations. After the goal is 

adopted, state agencies typically determine the most 

effective way to achieve it. Alternatively, some states 

conduct thorough analyses of their clean energy 

potential, evaluate policy options, and assess related 

opportunities before determining a goal. This range 

of approaches to goal-setting allows each state to 

proceed in a manner suited to local circumstances. 

Regardless of the order, however, these steps are 

common across all plans. Each step is described in 

greater detail as follows. 

1. Create a Collaborative 

States have found it particularly useful to reach out 

to the parties in their states that are interested in 

and/or may be affected by changes in energy and 

environmental policies within the state. Key players 

typically include but are not limited to: 

•	 The governor and his/her staff, who can provide 

leadership and ensure follow-through. 

•	 State legislatures, that will ultimately need to provide leadership on policies requiring legislative 

action. State legislatures’ interests and concerns 

may vary depending on the impact of energy policies on their constituents, including citizens and 

representatives from various economic sectors. 

•	 State agencies, which maintain government data 

and analytic capacity, and have policy and implementation jurisdiction in the sectors of interest. 

•	 Universities, which may provide expertise, analytic 

support, and/or a neutral forum to convene stakeholder meetings. 

Stakeholders can include: 

•	 Utilities, which can provide technical expertise and 

data. 

•	 Independent system operators (ISOs) and regional 

transmission organizations, which can provide 

technical analyses and information and which are 

key stakeholders in many clean energy policies. 

•	 Independent power producers, independent transmissions owners, and energy suppliers, which can 

provide information and analysis about electricity 

markets. 

•	 Environmental and consumer organizations, which 

can provide data, analysis, and feedback. 

•	 Other private sector interests, which often maintain significant data and analytic capabilities relevant to energy planning, and which may be affected by new energy policies. 

•	 The public, which provides new ideas, input, and/or 

feedback to the state. 

2-2 � Chapter 2. Developing a Clean Energy-Environment Action Plan
 
 

 

 

EPA Clean Energy-Environment Guide to Action
 

2. Establish a Quantitative Goal or Goals 

Each state has its own unique clean energy potential 

and economic, environmental, energy, and other priorities. Quantitative clean energy goals take those 

attributes into account and define a specific level of 

cost-effective clean energy the state can strive to 

acquire during a particular period of time. Clear policy objectives, such as the development of a clean 

energy goal or usage targets for specific resources, 

ensure that all players know the expected outcome. 

Quantitative goals can be short-term and/or longterm and can include interim milestones. They provide for ease of measurement and reporting, offering 

a straightforward means of evaluating progress and 

providing feedback when mid-course corrections are 

necessary. 

Several states have set clear quantitative clean energy goals and are working toward achieving them. For 

example, New York adopted “the goal of reducing 

statewide primary energy use in 2010 to a level that 

is 25% below 1990 energy use per unit of Gross 

State Product (GSP) and...the goal of increasing the 

share of renewable energy as a percentage of primary energy use 50% by 2020, up from 10% in 2000 

to 15% in 2020” (NYSERDA 2002). The Oregon 

Renewable Energy Action Plan established a goal to 

meet 25% of state government’s total electricity 

needs through new renewable energy sources by 

2010 and 100% by 2025 (State of Oregon 2005). 

More examples of state energy goals are presented in 

Section 3.2, State and Regional Energy Planning. 

Successful states have considered the following two 

actions, at a minimum, as they developed their goals. 

Develop a Baseline and Forecast 

States begin by developing or refining a baseline 

inventory of their energy use and emissions and 

making projections about the future. This typically 

includes making a projection of energy use by enduse sector across the state and load growth forecasts 

that provide utility-specific data. The baseline and 

projection enable a state to understand energy and 

emissions growth expectations and identify particular sectors or sources that might be key targets for 

policy intervention. 

The U.S. Department of Energy (DOE) offers statelevel energy use data that can be projected into the 

future. Some states, such as New York, have their 

own data or support state university energy models 

and methods that enhance DOE state energy data 

and generate a customized baseline and forecast. 

Alternatively, other states such as Connecticut and 

Hawaii have used proprietary models, such as the 

Integrated Planning Model or Energy 2020, to help 

with state energy modeling. These models make predictions of energy usage and emissions for the electricity sector and the entire energy sector, respectively. Whichever model states choose, they have 

found it useful to select one that is widely accepted 

by experts in the field and is clear or “transparent” in 

its assumptions or workings. This prevents challenges 

or confusion later when trying to interpret the 

results. 

Assess Energy Efficiency and/or Renewable 

Energy Potential 

States have found it particularly useful to conduct 

energy efficiency and/or renewable energy potential 

analyses to determine where the greatest opportunities exist. The findings of these analyses help states 

identify opportunities and determine the feasibility 

of different goals based upon technologies or 

resource availability. 

For example, Georgia recently commissioned a study, 

Assessment of Energy Efficiency in Georgia, that 

“identified substantial, cost-effective energy efficiency potential.” The state “commissioned the report to 

guide the state’s efforts in developing the most energy-efficient economy possible (and)...believes the 

results of this study provide an accurate roadmap 

toward achieving this goal” (ICF Consulting 2005). 

Another energy efficiency potential study, Nevada 

Energy Efficiency Strategy, identified policies that 

would yield about $4.8 billion in net economic benefits, save more than 8,000 gigawatt-hours (GWh) of 

electricity and 16 billion cubic feet of natural gas per 

year, and lower projected statewide electricity use by 

more than 20% by 2020 (Geller et al. 2005). Similar 

studies can be conducted to assess the resource 

potential for renewable energy in particular states. 

One study, Energy Efficiency and Renewable Energy 

� Chapter 2. Developing a Clean Energy-Environment Action Plan
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EPA Clean Energy-Environment Guide to Action
 

Resource Development Potential in New York State, 

“found large amounts of technical potential for efficiency and renewable energy...that...would be economical compared to conventional electricity generation” (NYSERDA 2003). 

3. Identify Clean Energy Policies and 

Programs: Existing and New 

Clean Energy-Environment Action Plans are intended 

to help states identify policies currently in place, as 

well as best-practices from other states. Chapter 3 

through Chapter 6 of the Guide to Action provide 

information and resources pertaining to 16 specific 

programs and policies states have found particularly 

promising for furthering cost-effective clean energy. 

States have discovered that these policies help level 

the playing field for clean energy options that are 

hindered by existing policy barriers. 

The Guide to Action helps states determine an appropriate mix of policies to consider for further analysis 

under their Clean Energy-Environment Action Plan. 

Table 1.2 in Chapter 1 presents details about programs and policies that focus on clean energy opportunities for homes, businesses, public institutions, 

and electricity generation. While not covered in the 

Guide to Action, transportation sector policies are 

also important. Several states are integrating transportation policies into their clean energy planning 

processes. 

When identifying promising policies, states typically 

follow three steps: inventory policies currently in 

place, identify new policies, and establish criteria to 

assess policies. 

Inventory Existing Policies 

States often evaluate the success of existing clean 

energy programs to determine if they should be 

extended, expanded, or modified to support the new 

or revised clean energy-environment goal. States can 

start by using the policies in the Guide to Action as a 

checklist. States can also review energy plans, air 

quality plans, and greenhouse gas emission reduction 

strategies developed by other states. 

When considering policy options, states can simultaneously evaluate barriers to advancing cost-effective 

clean energy. For example, approval processes 

designed for large distributed generation systems 

seeking to connect to the grid may be too onerous to 

allow small systems to come online. Reexamining 

interconnection standards (discussed in Section 5.4, 

Interconnection Standards) can stimulate the growth 

of clean energy by making the process more appropriate to the size and scale of the project and costeffective for the generation owners. 

Identify New Policies 

Once states have determined which clean energy 

programs and policies they already have in place, 

they can use the Guide to Action to identify new 

ones that they might consider implementing. For 

each policy or program, the Guide describes objectives and benefits, state examples, roles and responsibilities of key players, opportunities for coordination with other programs or policies, best practices 

for policy design and evaluation, action steps for 

states, and resources for additional information. 

States can use the information about other states’ 

successes and best practices to identify those options 

that they would like to explore further for their own 

Clean Energy-Environment Action Plan. 

Establish Criteria to Assess Policies 

States determine the criteria they use to evaluate 

their clean energy options. The criteria vary from 

state to state depending on each state’s unique goals 

and circumstances. Criteria can include but are not 

limited to: cost-effectiveness, ease of implementation, political feasibility, pollution reduction effectiveness, payback period, and benefit to the economy 

(e.g., impacts on jobs). To avoid confusion, states 

have found it useful to define the criteria upfront. 

For example, when using cost-effectiveness as a criterion, states typically clarify whether they are using 

dollar per kilowatt hour saved or dollar per unit of 

emissions saved. States have discovered that this 

prevents confusion and helps to identify the types of 

information and tools needed to assess the policies. 

States have found it helpful to evaluate initial policy 

recommendations according to qualitative criteria 

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(e.g., ease of implementation, political feasibility), to 

identify options suitable for further consideration. 

These policies can then be ranked and sorted according to the criteria chosen. 

4. Design Policies and Evaluate 

Their Impacts 

Once states determine the policies they would like to 

consider for inclusion in their Clean EnergyEnvironment Action Plan, they proceed to design 

their specific policies and evaluate the quantitative 

impacts of the various options. There are several 

design issues that have arisen as states move forward with the policy evaluation process. The design 

of the policies can have a profound effect on the 

impact of the policy. The impacts frequently considered include, but are not limited to, impacts upon 

energy use and supply, economic indicators, greenhouse gas levels, air quality, and human health. There 

are numerous tools available to states to help them 

assess the impacts of the policies. 

Design Issues 

The impacts of a policy vary depending upon the 

design of the policy. Clearly, the impact of a renewable portfolio standard set at 2% to be achieved in 

10 years will differ significantly from one set at 25% 

to be achieved in five years. States have found it 

valuable to evaluate policies using different designs 

or specifications to find the ones that best meet 

their criteria. 

It is often practical for states to consider how policies relate not just to their goal but to each other. 

Some policies may effectively complement each 

other while others may create barriers for other policies. For example, public benefits funds (PBFs) for 

energy efficiency can be used to bolster the effectiveness of building codes through support for implementation and enforcement. (More information 

about both of these options is available in Section 

4.2, Public Benefits Funds for Energy Efficiency and 

Section 4.3, Building Codes for Energy Efficiency, 

respectively.) As mentioned above, some interconnection standards policies can impede clean energy, 

depending on how they are defined (see Section 5.4, 

Interconnection Standards). 

Finally, states have found it advantageous to identify 

the type of action, the key players required, and the 

time frame for implementation when designing a 

policy. For example, a regulatory action would 

require one set of specific agencies, stakeholders, 

and participants and occur on one time line, whereas 

an energy efficiency public awareness campaign may 

require an entirely different set of players and take 

place over varying time frames. States have found it 

helpful to identify this information upfront so that 

the appropriate experts can be involved and contribute their expertise early in the process. These 

experts assist in shaping the policy to maximize its 

effectiveness. States have realized that this type of 

planning and specificity upfront improves coordination across programs, ensures that key players know 

what is expected of them, and facilitates future 

measurement, evaluation, and communication of 

results. This process also facilitates the development 

of an implementation strategy that is a key component of a Clean Energy-Environment Action Plan. 

Impact Analyses 

Once policies are designed, states can use analytic 

tools to evaluate the options based on the criteria 

they have developed. The tools enable states to 

quantify the impacts of the various policies and rank 

them according to the agreed upon criteria. Usually, 

this includes an assessment of the energy, economic, 

and/or environmental and public health impacts of 

the options, sometimes referred to collectively as cobenefits. States have found it particularly helpful to 

measure the impact of the policies against the goal 

established in Step 2. This will enable the collaborative to choose those policies that bring a state closest to its goal. 

While analytic tools necessarily involve predictions 

and uncertainty, they can address a number of specific questions. It is important to thoroughly understand the strengths and weaknesses of the models 

used, the ways they interact with each other, and the 

underlying assumptions to avoid misinterpreting the 

results. As described above, states have found it useful to select models that are widely accepted by 

experts in the field and are clear or “transparent” in 

their assumptions and structures. 

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EPA offers or supports several tools or resources to 

help states assess the impacts of policies. States can 

use the tools listed in Figure 2.1 to enhance their 

assessment of clean energy-environment policies. 

Connecticut provides an example of how states can 

use these tools and resources when developing their 

plan. The state’s 2005 Climate Change Action Plan 

includes 55 specific recommendations (over 30 of 

which promoted cost-effective clean energy) to the 

Governor’s Steering Committee (GSC) on Climate 

Change. The governor and the GSC accepted the 

majority of the 55 recommendations and requested 

that the state conduct additional analyses on the rest. 

During the policy analysis phase, Connecticut used 

several modeling tools to conduct customized 

macroeconomic analyses of four clean energy 

options. Connecticut worked with EPA specifically to 

quantify the economic, air quality, and health cobenefits. EPA’s new Co-Benefits Risk Assessment 

(COBRA) model showed that while “the state’s (existing) energy efficiency program...was known to 

achieve a $3 to $1 direct return on investment based 

on electricity savings...an additional $4 to $1 payback in terms of reduced health costs and public 

health benefits was identified (through COBRA) as a 

result of reductions in criteria air pollutants” 

(Connecticut GSC on Climate Change 2005). 

Connecticut also used the Greenhouse Gas 

Equivalencies Calculator to estimate the potential 

impacts of the 55 recommendations. The state presented its findings to the state legislature in the 

revised Climate Change Action Plan 2005. Four key 

Figure 2.1: Tools and Resources for Assessing the Benefits of Clean Energy
 

EPA offers or supports several tools or resources to 

help states assess the benefits of clean energy policies. Information about these and other tools can be 

found at: http://epa.gov/cleanenergy/stateandlocal/ 

resources.htm. 

Energy-Related Tools for States 

To learn more about modeling energy policies, EPA 

provides: 

•	 Guidance on how to effectively model energy efficiency and/or renewable energy policies. 

•	 Support for customized analyses of energy efficiency and/or renewable energy policies for states. 

Economic Benefits-Related Tools for States 

To determine the technological and economic potential 

of energy efficiency and/or renewable energy for 

states, EPA supports: 

•	 Energy efficiency and/or renewable energy potential 

studies. 

To assess the macroeconomic impacts of policies or 

technological opportunities, EPA supports: 

•	 Rocky Mountain Institute (RMI) Community Energy 

Opportunity Finder. 

•	 Customized analyses of the impacts of energy efficiency and/or renewable energy policies for partners in the Clean Energy-Environment State 

Partnership Program. 

Environmental and Human Health Benefits 

To assess air pollution and greenhouse gas effects of 

clean energy projects, EPA supports: 

•	 Clean Air and Climate Protection Software, developed 

by State and Territorial Air Pollution Program 

Administrators (STAPPA), Association of Local Air 

Pollution Control Officials (ALAPCO), and International 

Council for Local Environmental Initiatives (ICLEI). 

To assess the air quality, public health benefits, and 

health cost savings of air pollution reductions, EPA 

developed: 

•	 The Co-Benefits Risk Assessment (COBRA) screening 

model. 

To better understand greenhouse gas emissions and 

energy use in your state, EPA supports: 

•	 State Inventory Tool (SIT). 

•	 Emissions Forecasting Tool. 

•	 State Energy Carbon Dioxide (CO2) Data Tables. 

•	 Emissions and Generation Resources Integrated 

Database (eGRID). 

To translate greenhouse gas emissions into easily understood metrics, EPA developed the: 

•	 Greenhouse Gas Equivalencies Calculator. 

2-6 � Chapter 2. Developing a Clean Energy-Environment Action Plan
 
 

 

 

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committees of the Connecticut General Assembly 

(the Environment, Energy and Technology, Commerce, 

and Transportation committees) supported the new 

plan. 

5. Recommend Specific Actions for 

State Decisionmakers 

Once policy options have been assessed and ranked 

according to the desired criteria, the collaborative 

typically reviews the findings. Based upon the rankings and discussion among the stakeholders, recommendations for action are presented in the Clean 

Energy-Environment Action Plan. A sample outline 

for a state action plan, based on Connecticut’s 2005 

Climate Change Action Plan, is presented in Figure 

2.2 on page 2-8. 

State Clean Energy-Environment Action Plans typically include the following components: 

•	 The Clean Energy-Environment Goal(s), established 

in Step 2. 

•	 Descriptions of the Policies Recommended in Order 

to Achieve the Goal, developed in Steps 3 and 4. 

•	 Projected Impacts of the Policies As They Relate to 

the Goal, developed in Step 4. 

•	 An Implementation Strategy, outlined in Step 4. 

A fifth component is often: 

•	 A Measurement, Evaluation, and Reporting Plan. 

As states design and evaluate clean energy policy 

options, they find it beneficial to consider in 

advance how to measure success. States often 

specify an evaluation strategy, a time line for 

reporting progress, the key metrics to be reported, 

and the key players involved. This measurement, 

evaluation, and reporting plan enables states to 

regularly check their progress against their goals 

and adjust their course as needed. 

Together, these pieces present a strategy to deliver 

clean, low-cost, and reliable energy to a state and its 

constituents through the use of energy efficiency, 

renewable energy, and clean DG. Several states have 

successfully completed clean energy plans that provide useful models for other states interested in 

reaping the multiple benefits of cost-effective clean 

energy. Examples and links to many of these plans 

are listed in the Information Resources section presented on page 2-11. 

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Figure 2.2: Sample Outline for a Clean Energy-Environment Action Plan 

(Based on the 2005 Connecticut Climate Change Action Plan at: http://www.ctclimatechange.com/StateActionPlan.html) 

Connecticut’s Climate Change Action Plan is a blueprint for achieving cost-effective greenhouse gas emissions reductions by a specified future date. The Plan was developed by a multi-sector stakeholder group with guidance from 

state agencies. The resulting climate change policy recommendations support a range of clean energy options, 

including renewable energy, energy efficiency, and clean distributed generation. 

1. Goals 

The primary goal of Connecticut’s Climate Change Action Plan is to establish a timetable for achieving a specific 

greenhouse gas emission reductions target, as follows: 

To reduce greenhouse gas emissions to 1990 levels by 2010 and an additional 10% below that by 2020. 

Other states may elect to frame their goals in terms of metrics such as installed clean energy capacity, clean energy 

consumption, or air pollution effects. 

2. Policy Descriptions 

Connecticut stakeholders recommended the following policies to lower greenhouse gas emissions, encourage clean 

energy supply, and support efficient end-uses. 

Residential, Commercial, Industrial Sectors: 25 policies, 

including: 

•	 Appliance standards 

•	 Heat pump water heater replacement program 

•	 Weatherization Assistance Program (WAP) 

•	 ENERGY STAR Homes Program 

•	 High-performance buildings: schools and other
 

state-funded buildings
 

•	 Encourage CHP 

Agriculture, Forestry, Waste Sectors: 10 policies 

Transportation Sector: 9 policies 

Electricity Generation Sector: 9 policies, including: 

•	 Renewable energy strategy (RES) 

•	 Renewable portfolio standard 

•	 Government clean energy purchase 

•	 Production tax credit (PTC) 

•	 Clean Energy Choice (Green power option) 

•	 Renewable Energy Certificates (Green tags) 

•	 Restore Clean Energy Fund 

•	 Energy efficiency and CHP 

• Regional cap-and-trade program 

Education and Outreach: 1 policy 

Greenhouse Gas Reporting:1 policy 

(continued on next page) 

2-8 � Chapter 2. Developing a Clean Energy-Environment Action Plan
 
 

 

 

 

 

 

 

 

 

 

 

EPA Clean Energy-Environment Guide to Action
 

Figure 2.2: Sample Outline for a Clean Energy-Environment Action Plan (continued)
 

3. Policy Impacts and Recommendations 

Consistent with Connecticut’s focus on climate change, all recommended policies are evaluated for their potential to 

reduce greenhouse gases. Costs, benefits, and “payback” are also analyzed. For selected measures, the state measures co-benefits such as energy savings and air pollution reductions. 

Connecticut’s policy analysis framework establishes an emissions baseline forecast, sets a reductions goal (with 

respect to the baseline), and evaluates each measure in the context of the goal. This approach is summarized below 

on an aggregate and sector-by-sector basis. 

All Policies: 

Summary of Projected Connecticut Greenhouse Gas Reductions 

million metric tons of carbon dioxide-equivalent (MMTCO2e) 

2010 2020 

Future Baseline 48.14 56.15 

New England Governors/Eastern Canadian Premiers Targets 

(1990 levels by 2010, 10% below 1990 levels by 2020) 

42.40 38.16 

Reductions Needed to Meet New England Governors/Eastern Canadian Premiers Targets 5.74 17.99 

Projected Reductions By Sector 

Transportation 0.35 3.84 

Residential, Commercial, Industrial 4.03 7.29 

Agriculture, Forestry, Waste 1.21 1.30 

Electricity 3.07 6.89 

Connecticut Climate Change Action Plan Total Projected Reductions 8.66 19.32 

4. Implementation Strategy 

Following the release of Connecticut’s Climate Change Action Plan, the state established a policy implementation 

strategy consisting of the elements below. 

•	 Present recommendations to the governor and legislature for approval. 

•	 Conduct further analyses of the costs, benefits, and implementation pathways associated with the remaining action 

items in the stakeholder report that were not slated for immediate implementation. 

•	 Continue to seek public input for new ideas to reduce greenhouse gas emissions, along with information on their 

cost, benefits, and implementation pathways. 

5. Measurement, Evaluation, Reporting 

The state also established procedures to build on existing analysis, track progress, and maintain support. 

•	 Track progress on each of the measures approved for immediate implementation. 

•	 Continue to calculate greenhouse gas benefits and costs. 

•	 Continue to analyze the co-benefits of priority policy options. 

•	 Obtain stakeholder feedback on the Action Plan and its implementation. 

•	 Assess progress on each measure and develop an annual report on results. 

•	 Present first annual progress report to the General Assembly at the end of 2005. 

(continued on next page) 

� Chapter 2. Developing a Clean Energy-Environment Action Plan
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Figure 2.2: Sample Outline for a Clean Energy-Environment Action Plan (continued)
 

Progress to Date 

Connecticut’s experience demonstrates that fostering stakeholder buy-in and state government coordination can help 

achieve success. The following three policies—initially recommended in the Action Plan—are now in place: 

Appliance Standards 

•	 Connecticut adopted new energy efficiency standards for a range of residential and commercial appliances and 

products in May 2004. 

•	 An Act Concerning Energy Efficiency Standards will save more than $380 million in energy costs by 2020, conserve 

more than 430 GWh of electricity, reduce summer peak electricity demand by more than 125 MW, and avoid the 

emissions of about 65,000 metric tons of carbon. 

•	 The products covered by the Connecticut law include torchiere lighting fixtures, building transformers, commercial 

refrigerators and freezers, traffic signals, exit signs, large packaged air conditioning equipment, unit heaters, and 

commercial clothes washers. 

RPS 

•	 Connecticut’s RPS requires 10% of all retail electricity sales to come from renewable resources by 2010. 

•	 The legislature expanded it in June 2005 by adding new “Class III” requirements covering energy efficiency and 

CHP plants. 

•	 Under the new Class III requirements, electricity suppliers must purchase 1% of supply from efficiency and CHP by 

2007 and 4% by 2010. 

Leading by Example 

•	 Connecticut is committed to purchasing 20% of the state government’s electricity from “clean” sources by 2010. 

•	 To help accomplish this goal, the Department of Environmental Protection (DEP) announced in November 2005 that 

it will receive 100% of its yearly electricity (7.6 million kWh) from renewables. This will reduce CO2 emissions by 

3,716 tons a year, which is equivalent to the total electrical needs of 670 households or taking 730 cars off the road 

for one year. 

2-10 � Chapter 2. Developing a Clean Energy-Environment Action Plan
 
 

 

 

 

 

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Information Resources 

Clean Energy Potential Studies 

Title/Description URL Address 

State Clean Energy Potential Studies 

Assessment of Energy Efficiency in Georgia. 2005. Prepared for Georgia 

Environmental Facilities Authority by ICF Consulting. 

http://www.gefa.org/pdfs/assessment.pdf 

Connecticut Conservation and Energy Efficiency: Recent Performance, Future 

Potential. 2004. Study conducted for the Connecticut Conservation Management 

Board. December 2. 

http://www.easternct.edu/depts/ 

sustainenergy/Upcoming%20events/ 

CT%20Energy%20Future/Presentations/ 

SchlegelC&LM_CTEnergyFuturesDec04f.ppt 

Discussion of Proposed Energy Savings Goals for Energy Efficiency Programs in 

California. 2003. California Energy Commission (CEC). September. 

http://www.energy.ca.gov/reports/ 

2003-09-24_400-03-022D.PDF 

Energy Efficiency and Renewable Energy Resource Development Potential in New 

York State, Volume 1: Summary Report. Prepared by Optimal Energy Inc. for NYSERDA. August 2003. 

http://www.nyserda.org/sep/ 

EE&ERpotentialVolume1.pdf 

Nevada Energy Efficiency Strategy. 2005. Southwest Energy Efficiency Project 

(SWEEP): H. Geller, C. Mitchell, and J. Schlegel. January. 

http://www.swenergy.org/pubs/ 

Nevada_Energy_Efficiency_Strategy.pdf 

Nevada Statewide Energy Conservation Plan. http://dem.state.nv.us/ 

sweep.htm#INTRODUCTION 

The Potential for Energy Efficiency in the State of Iowa. Oak Ridge National 

Laboratory. June 2001. 

http://www.ornl.gov/sci/btc/apps/ 

Restructuring/IowaEEPotential.pdf 

Regional Energy Efficiency Potential Studies 

Air Pollution Prevention Forum Documents. Western Regional Air Partnership 

(WRAP). 

http://www.wrapair.org/forums/ap2/ 

docs.html 

A Balanced Energy Plan for the Interior West. Western Resource Advocates. 2004. http://www.westernresourceadvocates.org/ 

energy/bep.html 

Conservation Regional Technical Forum. http://www.nwppc.org/energy/rtf/ 

Default.htm 

Economically Achievable Energy Efficiency Potential in New England. Northeast 

Energy Efficiency Partnerships by Optimal Energy. 

http://www.neep.org/files/Full_Report.pdf 

Emerging Energy-Saving Technologies and Practices for the Buildings Sector As of 

2004. ACEEE. 

http://aceee.org/pubs/a042toc.pdf 

Energy Efficiency and Economic Development in New York, New Jersey, and 

Pennsylvania. 1997. American Council for an Energy-Efficient Economy (ACEEE), S. 

Nadel, S. Laitner, M. Goldberg, N. Elliott, J. DeCicco, H. Geller, and R. Mowris. 

http://www.aceee.org/store/ 

proddetail.cfm?CFID=784272&CFTOKEN= 

63415223&ItemID=98&CategoryID=7 

5th Northwest Power Plan. Northwest Power and Conservation Council. http://www.nwppc.org/energy/powerplan/ 

default.htm 

� Chapter 2. Developing a Clean Energy-Environment Action Plan
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Title/Description URL Address 

National Energy Efficiency Potential Studies 

The New Mother Lode: The Potential for More Efficient Electricity Use in the 

Southwest. November 2002. SWEEP. H. Geller, director of SWEEP; ACEEE, Tellus 

Institute, Etc Group, Robert Mowris and Associates, and MRG & Associates. 

http://www.swenergy.org/nml/ 

Southwest Energy Efficiency Project (SWEEP). http://www.swenergy.org/ 

Clean Energy Plans and Planning Processes 

(See also, Information Resources in Section 3.2, State and Regional Energy Planning) 

Title/Description URL Address 

State Energy Efficiency Plans 

California’s Secret Energy Surplus: The Potential for Energy Efficiency, September 

2002. XENERGY, Inc., M. Rufo and F. Coito. 

http://www.ef.org/documents/ 

Secret_Surplus.pdf 

Nevada Energy Efficiency Strategy, January 2005. SWEEP: H. Geller, C. Mitchell, and 

J. Schlegel. 

http://www.swenergy.org/pubs/ 

Nevada_Energy_Efficiency_Strategy.pdf 

Texas Emissions Reduction Plan. Texas Natural Resource Conservation Commission. 

2005. 

http://www.tnrcc.state.tx.us/oprd/ 

sips/terp.html 

State Renewable Energy Plans 

Oregon Renewable Energy Action Plan. Oregon DOE. 2005. http://egov.oregon.gov/ENERGY/RENEW/ 

docs/FinalREAP.pdf 

Regional Clean Energy Initiatives or Plans 

Harvesting Clean Energy. A New Economic Opportunity for the Rural Northwest. http://www.harvestcleanenergy.org/pdfs/ 

HCE_Action_Plan.pdf 

Powering the South: A Clean & Affordable Energy Plan for the Southern United 

States. Renewable Energy Policy Project. January 2002. 

http://www.repp.org/articles/static/1/ 

binaries/pts_repp_book.pdf 

Repowering the Midwest: The Clean Energy Development Plan. Environmental Law 

and Policy Center et al. 2001. 

http://www.repowermidwest.org/plan.php 

Southern Alliance For Clean Energy. http://www.cleanenergy.org 

Western Governors’ Association (WGA) Clean and Diversified Energy Initiative. http://www.westgov.org/wga/initiatives/ 

cdeac/ 

State Climate Change Plans 

EPA Global Warming Web site, Global Warming-Actions. Information on climate 

change plans. 

http://yosemite.epa.gov/oar/globalwarming.nsf/ 

content/ActionsState.html 

Several state climate change action plans, such as the Connecticut Climate Change 

Action Plan 2005, include clean energy policies as a key component of the state plan. 

http://www.ctclimatechange.com/ 

StateActionPlan.html 

Stakeholder Processes 

Rhode Island Greenhouse Gas Process. 2002. http://righg.raabassociates.org/index.asp 

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Title/Description URL Address 

Macroeconomic Impacts of Clean Energy Policies 

Clean Energy and Jobs: A Comprehensive Approach to Climate Change and Energy 

Policy. Prepared by J.P. Barrett, Economic Policy Institute, and J.A. Hoerner, Center 

for a Sustainable Economy, with S. Bernow and B. Dougherty, Tellus Institute. 2002. 

http://www.epinet.org/content.cfm/ 

studies_cleanenergyandjobs 

Developing a Renewable Energy Based Economy for South Texas: A Blueprint for 

Development. U.S. Department of Commerce (DOC). 2002. 

http://www.solarsanantonio.org/ 

EDAReport.html 

The Economic Impact of Generating Electricity from Biomass in Iowa: A General 

Equilibrium Analysis. G. Weisbrod and X. Lin. 1996. 

http://www.edrgroup.com/pages/pdf/ 

Biomass.pdf 

Economic Impact of Renewable Energy in Pennsylvania: Analysis of the Advanced 

Energy Portfolio Standard. R. Pletka, J. Wynne et al. 2004. Black & Veatch 

Corporation, Overland Park, KS. 

http://www.bv.com/energy/eec/studies/ 

PA_RPS_F_AEPS_Analysis.pdf 

Economic Impacts and Potential Air Emission Reductions from Renewable 

Generation & Efficiency Programs in New England: Final Report. W. Steinhurst, R. 

McIntyre et al. 2005. Synapse Energy Economics, Cambridge, MA. 

http://raponline.org/Pubs/ 

RSWS-EEandREinNE.pdf 

Energy Efficiency and Economic Development in New York, New Jersey, and 

Pennsylvania. ACEEE. Nadel, S. Laitner, M. Goldberg, N. Elliott, J. DeCicco, H. Geller, 

and R. Mowris. 1997. 

http://www.aceee.org/store/proddetail.cfm? 

CFID=784272&CFTOKEN=63415223&ItemI 

D=98&CategoryID=7 

Energy Efficiency and Economic Development in the Midwest. S. Laitner, J. DeCicco 

et al. 1995. ACEEE, Washington, D.C. 

http://www.aceee.org/pubs/ed951.htm 

Energy Efficiency and Renewable Energy Technologies as an Economic 

Development Strategy for Texas. M. Goldberg and S. Laitner. 1998. Economic 

Research Associates, Alexandria, VA. 

URL not available. 

Job Jolt. The Economic Impacts of Repowering the Midwest: The Clean Energy 

Development Plan for the Heartland. The Regional Economics Applications 

Laboratory for the Environmental Law & Policy Center. 2005. 

http://www.repowermidwest.org/ 

Job%20Jolt/JJfinal.pdf 

The Public Benefit of Energy Efficiency to the Commonwealth of Massachusetts. 

RAND. 2002. 

http://www.rand.org/publications/MR/ 

MR1588/MR1588.pdf 

The Public Benefit of Energy Efficiency to the State of Minnesota. M. Bernstein, C. 

Pernin et al. 2002. RAND Science and Technology, Santa Monica, CA. 

http://www.rand.org/publications/MR/ 

MR1587/MR1587.pdf 

Renewable Resources: The New Texas Energy Powerhouse. A report on the economic benefits of renewable energy in Texas and how to keep them growing. http://www.citizen.org/documents/ 

Tx%20Energy%20Powerhouse.pdf 

� Chapter 2. Developing a Clean Energy-Environment Action Plan
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References
 

Title/Description URL Address 

Connecticut GSC on Climate Change. 2005. CCCAP. GSC on Climate Change. 

Connecticut Climate Change Web site, State Action Plan. 

http://www.ctclimatechange.com/ 

StateActionPlan.html 

Environment Northeast. 2005. Energy Efficiency Potential: Energy Conservation 

Management Board, Maximum Achievable Potential Report Summary Information. 

Energy Efficiency Standards, Environment Northeast, Rockport, ME. 

http://www.env-ne.org/Publications/ 

Potential%20Energy%20Conservation%20 

Available%20to%20CT.pdf 

EPA. 2005. Global Warming-Actions. Global Warming Web site. Accessed July 2005. http://yosemite.epa.gov/oar/ 

globalwarming.nsf/content/ 

ActionsState.html 

Geller, H., C. Mitchell, and J. Schlegel. 2005. Nevada Energy Efficiency Strategy. 

Prepared for the SWEEP. January. 

http://www.swenergy.org/pubs/ 

Nevada_Energy_Efficiency_Strategy.pdf 

ICF Consulting. 2005. Assessment of Energy Efficiency Potential in Georgia. Prepared 

by ICF Consulting for Georgia Environmental Facilities Authority. Final Report. May 5. 

http://www.gefa.org/pdfs/assessment.pdf 

NYSERDA. 2002. New York State Energy Plan. New York State Energy Research and 

Development Authority, Albany, NY. 

http://www.nyserda.org/Energy_Information/ 

energy_state_plan.asp 

NYSERDA. 2003. Energy Efficiency and Renewable Energy Resource Development 

Potential in New York State, Volume 1: Summary Report. Final Report. Prepared by 

Optimal Energy Inc., American Council for an Energy-Efficient Economy, Vermont 

Energy Investment Corporation, and Christine T. Donovan Associates for NYSERDA. 

August. 

http://www.nyserda.org/sep/ 

EE&ERpotentialVolume1.pdf 

Schlegel, J. 2004. Conservation and Energy Efficiency: Recent Performance, Future 

Potential. Study conducted for the Connecticut Energy Conservation Management 

Board. December 2. 

http://www.easternct.edu/depts/ 

sustainenergy/Upcoming%20events/ 

CT%20Energy%20Future/Presentations/ 

SchlegelC&LM_CTEnergyFuturesDec04f.ppt 

State of Oregon. 2005. Oregon Renewable Energy Action Plan. Oregon DOE. April 12. http://egov.oregon.gov/ENERGY/RENEW/ 

docs/FinalREAP.pdf 

2-14 � Chapter 2. Developing a Clean Energy-Environment Action Plan
 
 

 

 

 

 

 

 

 

 

 

 

Chapter 3. 


State Planning and Incentive Structures
 

States are achieving substantial energy cost savings, 

emission reductions, and economic benefits by 

implementing planning approaches and incentive 

structures that advance the use of clean energy. This 

chapter describes four planning and incentive policies, beginning with state programs to “lead by 

example” by implementing clean energy actions 

within their internal operations. It also covers state 

and regional planning efforts to promote clean energy and quantify related air quality benefits. The last 

policy describes approaches for financing these clean 

energy activities. 

The policies shown in Table 3.1 were selected from 

among a larger universe of opportunities for supporting clean energy because of their proven effectiveness and their successful implementation by a number of states. The information presented in each policy description is based on the experiences and best 

practices of states that are implementing the programs, as well as on other sources, including local, 

regional, and federal agencies and organizations, 

research foundations and nonprofit organizations, 

universities, and utilities. 

Table 3.1 also lists examples of some of the states 

that have implemented programs for each policy. 

States can refer to this table for an overview of the 

policies described in this chapter and to identify 

other states that they may want to contact for additional information about their clean energy programs. The For More Information column shows the 

Guide to Action section where each in-depth policy 

description is located. 

In addition to these four policies, which are tied to 

state planning and incentive structures, states are 

adopting a number of other policies and programs to 

promote increased use of energy efficiency and clean 

energy supply that may interact with planning and 

Clean Energy Policies
 

Type of Policy 

For More 

Information 

State Planning and Incentive Structures 

Lead by Example Section 3.1 

State and Regional Energy Planning Section 3.2 

Determining the Air Quality Benefits of Clean 

Energy 

Section 3.3 

Funding and Incentives Section 3.4 

Energy Efficiency Actions 

Energy Efficiency Portfolio Standards Section 4.1 

Public Benefits Funds for Energy Efficiency Section 4.2 

Building Codes for Energy Efficiency Section 4.3 

State Appliance Efficiency Standards Section 4.4 

Energy Supply Actions 

Renewable Portfolio Standards Section 5.1 

PBFs for State Clean Energy Supply Programs Section 5.2 

Output-Based Environmental Regulations to 

Support Clean Energy Supply 

Section 5.3 

Interconnection Standards Section 5.4 

Fostering Green Power Markets Section 5.5 

Utility Planning and Incentive Structures 

Portfolio Management Strategies Section 6.1 

Utility Incentives for Demand-Side Resources Section 6.2 

Emerging Approaches: Removing Unintended 

Utility Rate Barriers to Distributed Generation 

Section 6.3 

incentives. These policies are addressed in other sections of the Guide to Action, as listed in the box, 

Clean Energy Policies, and described briefly in 

Chapter 1. 

� Chapter 3. State Planning and Incentive Structures
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EPA Clean Energy-Environment Guide to Action
 

Table 3.1: State Planning and Incentive Structures
 

Policy Description State Examples 

For More 

Information 

Lead by Example States lead by example by establishing programs that 

achieve substantial energy cost savings within their own 

operations, buildings, and fleets and demonstrate the feasibility and benefits of clean energy to the larger market. 

CA, CO, IA, NH, NJ, NY, 

OR, TX 

Section 3.1 

State and Regional 

Energy Planning 

Energy planning at a state or regional level can be an 

effective means for ensuring that clean energy is considered and used as an energy resource to help states 

address their multiple energy and nonenergy challenges. 

CA, CT, NM, NY, OR, 

New England Governors’ 

Conference (NEGC), 

Northwest Power and 

Conservation Council, 

Western Governors’ 

Association (WGA), 

Western Interstate Energy 

Board 

Section 3.2 

Determining the Air 

Quality Benefits of Clean 

Energy 

States estimate the emission reductions from their clean 

energy programs and incorporate those reductions into 

clean energy programs and policies. 

LA (local), MD (local), TX, 

WI, Western Regional Air 

Partnership (WRAP) 

Section 3.3 

Funding and Incentives States implement a range of targeted funding and incentives strategies that encourage governments, businesses, 

and consumers to save energy through cost-effective 

clean energy investments. Between 20 and 30 states have 

revolving loan funds for energy efficiency, tax incentives 

for renewable energy, grants for renewable energy, or 

rebates for renewable energy. 

CA, CO, IA, MT, NY, OR, TX, 

WA 

Section 3.4 

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EPA Clean Energy-Environment Guide to Action
 

3.1 Lead by Example 

Policy Description and Objective 

Summary 

State and local governments are implementing a 

range of programs and policies that advance the use 

of clean energy within their own facilities, fleets, and 

operations. These “lead by example” initiatives help 

state and local governments achieve substantial 

energy cost savings while promoting the adoption of 

clean energy technologies by the public and private 

sectors. 

States are leveraging their purchasing power, their 

control of significant energy-using resources, and the 

high visibility of their public facilities to demonstrate 

clean energy technologies and approaches that lower 

their energy costs and reduce emissions. They also 

work closely with local governments, schools, colleges and universities, parks and recreation facilities, 

and other public sector organizations to promote 

clean energy within their operations. Lead by example programs take many forms, including: 

• Incorporating clean energy principles into 

statewide energy policies. 

• Adopting energy efficiency savings goals for existing public buildings. 

• Establishing energy efficiency performance standards for new and renovated public buildings. 

• Procuring energy-efficient equipment for public 

facilities, including implementing “green fleets” 

programs. 

• Purchasing and using renewable energy and clean 

energy generation in public facilities. 

• Developing innovative financing mechanisms, 

including: 

- Establishing energy efficiency loan funds. 

- Creating a master financing program with private sector investors to capture energy savings. 

-	 Directing public pension fund trustees and managers to establish energy-efficient investment 

strategies for real estate and securities portfolios 

“Lead by example” programs offer states 

opportunities to achieve substantial energy 

cost savings within their own operations, 

demonstrate environmental leadership, and 

raise public awareness of the benefits of 

clean energy technologies. 

and/or allocate investment funds for 

energy-efficient and renewable energy technology development. 

- Approving legislation enabling state agencies 

(and other local governments) to enter into 

energy savings performance contracts that 

require that the savings cover the cost of 

financing the improvements out of current and 

future operating budgets. 

• Providing technical assistance and training to 

state and local facility managers and their staff, 

including, for example: 

- Developing building design and commissioning 

guidelines. 

-	 Assisting with energy audits and implementation of verified savings using Energy Service 

Companies (ESCOs). 

The potential energy and cost savings that can be 

achieved through energy-efficient improvements in 

public facilities are substantial. States are responsible for more than 16 billion square feet of building 

space and spend more than $11 billion annually on 

building energy costs, which can account for as 

much as 10% of a typical government’s annual operating budget (DOE 2005e). 

Objective 

The objectives of state lead by example programs 

vary from state to state. They include: 

• Serving as a leading component of comprehensive 

statewide clean energy programs and initiatives 

and encouraging action by a broad range of public 

and private sector organizations. 

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• Accelerating adoption of clean energy in the marketplace by setting an example and demonstrating 

cost-effectiveness. 

• Educating and informing policymakers and stakeholders and raising public awareness about the 

multiple environmental, economic, and energy 

benefits that clean energy offers. 

• Achieving cost savings through adoption of energy-efficient technologies and clean generation. 

Benefits 

Lead by example programs provide direct operational 

benefits to state and local governments, including: 

• Reducing facility operation costs and increasing 

funding available for nonenergy-related expenditures. 

• Encouraging clean energy development in the 

state and region and demonstrating environmental 

leadership. 

• Achieving substantial cost savings through aggregated purchasing of energy-efficient products and 

green power. 

• Supporting the development of in-state markets 

for clean energy products, manufacturers, and 

services (e.g., ESCOs, renewable energy equipment 

installers, and energy-efficient product retailers). 

Many state lead by example programs focus on 

improving the energy efficiency of equipment and 

building systems. Additional benefits, however, can 

be achieved by purchasing or generating clean power 

for public facilities. A number of options are available to state and local governments, including: 

• Purchasing green power for public facility consumption. 

• Using combined heat and power (CHP) technologies to reduce energy use through higher efficiency. 

• Developing onsite clean energy facilities, such as 

solar photovoltaic (PV), wind, and CHP. 

• Using existing government resources for clean 

power production (e.g., electricity generation from 

landfill gas, methane recovery at sewage treatment plants, and biomass resulting from tree and 

garden trimming). 

States with Lead by Example Programs 

While the possibilities for state lead by example initiatives are broad, current state lead by example initiatives typically fall into one of the following categories: 

•	 State Clean Energy Plans. Several states are incorporating specific clean energy goals and objectives 

for state facilities in their state energy plans. 

States that show leadership in this area include 

Iowa, Connecticut, and California. (See the State 

and Local Examples section on page 3-13.) 

•	 Energy Savings Targets. States also set energy savings goals for existing facilities, typically expressed 

as percentage targets with calendar milestones 

(e.g., reducing energy use per square foot by 20% 

by 2010). Several states have enacted legislation 

to set these targets. For example, in 2003, the 

Arizona legislature passed HB 2324 that requires 

state agencies and universities to achieve a 10% 

reduction in energy use per unit of floor area by 

2008 and a 15% reduction by 2011. California, 

New York’s “Green and Clean” State Buildings 

and Vehicles 

New York’s Executive Order 111, adopted in 2001, 

establishes a comprehensive energy efficiency and 

renewable energy program through government procurement standards and building design practices. 

Applicable to all state agencies and departments, the 

order: 

•	 Sets targets for reducing energy consumption in 

state buildings. 

•	 Sets goals and targets for purchasing renewable 

energy sources and clean fuel vehicles. 

•	 Establishes energy performance criteria and guidelines for new and existing buildings. 

•	 Requires purchase of ENERGY STAR products when 

purchasing new or replacement equipment (New 

York 2004). 

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New Hampshire, and New York have also adopted 

energy savings targets. 

•	 Energy Efficiency Performance Standards. Some 

states establish sustainable design principles that 

incorporate energy efficiency criteria in performance standards for new and renovated buildings 

and facilities. States that have established energy 

efficiency performance standards include Oregon 

and Massachusetts. 

•	 Energy-Efficient Purchasing. States are specifying 

minimum energy efficiency specifications for a 

range of products (e.g., appliances, equipment, 

green fleets of vehicles that use alternative fuels). 

In some cases, states establish procurement policies that reference the ENERGY STAR label. Where 

mandatory low-bid requirements are in place, legislative authority might be required to modify procurement regulations. States that have issued 

executive orders and/or legislation to require 

procuring energy-efficient products include 

Arizona, New Hampshire, New York, and California. 

•	 Clean Energy Generation. Purchasing and using 

renewable energy and clean energy generation for 

state and local facilities is another way states are 

leading by example. State and local agencies have 

established clean energy supply targets that are 

met through onsite generation or by purchasing 

green power electricity or renewable energy certificates. An increasing number of state and local 

governments, including New Jersey, New York, and 

Iowa, are aggregating electricity demand to purchase green power. States are also identifying 

Examples of State and Local Green Power 

Purchasing Contracting 

•	 In 1999, 178 public agencies in New Jersey aggregated power purchases with the goal of negotiating lower 

energy costs. A portion of the resulting savings was 

reinvested in clean energy. Now, 12% of the agencies’ 

energy needs are met with green power. 

•	 Montgomery County, Maryland, led a regional partnership to purchase wind energy. Participating entities 

include six Montgomery County agencies and 12 other 

Iowa’s Executive Order 41 

Iowa’s Executive Order 41, adopted April 22, 2005, 

directs state agencies to obtain at least 10% of their 

electricity from renewable energy sources by 2010. To 

satisfy this requirement, agencies may generate their 

own renewable energy or participate in their utility’s 

green power programs (Iowa 2005). 

opportunities to generate clean onsite power, such 

as CHP systems, and to use clean DG technologies 

for backup or emergency power. 

•	 Innovative Financing. States are developing a wide 

range of innovative financing mechanisms, including revolving loan funds, tax-exempt master leasepurchase agreements, lease revenue bonds, pension funds, and performance contracting. These 

financing mechanisms, used to finance programs 

to implement energy efficiency improvements in 

existing buildings, renovation projects, and new 

state facilities, are usually administered by the 

state energy office or other lead agency, which 

coordinates the program across multiple state 

agencies. 

Iowa has been a leader in state financing for public 

facilities. Legislation passed in the 1980s established the Iowa Energy Bank and the State Facilities 

Program. In Maryland, the State Agency Loan 

Program (SALP) provides 0% loans to state agencies 

for cost-effective energy-efficient improvements in 

state facilities. This self-sustaining fund is capitalized with national oil overcharge funds. Since its 

local government entities. Green power currently supplies about 5% of the aggregate demand in county 

facilities. 

•	 The Cape Light Compact in Massachusetts is an 

organization with members from all 21 towns of Cape 

Cod and Martha’s Vineyard, and Barnstable and Dukes 

counties. The Compact negotiates lower cost electricity and other benefits for all members. Recently the 

Compact began to offer customers green power products with up to 100% renewable energy (EPA 2004a, 

Montgomery County 2004, Cape Light Compact 2005, 

DOE 2005d). 

� Section 3.1. Lead by Example
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inception in 1991, SALP has funded more than $9 

million to upgrade lighting, controls, boilers, 

chillers, and other energy equipment. Agencies 

repay the loan through their fuel and utility budgets, based on the avoided energy costs of the project (MEA 2005). 

New Hampshire has a master lease program in 

place for state facilities that leverages energy savings from current and future operating budgets to 

cover the financing cost of new equipment. 

California offers a revenue bond program to provide low-cost financing of alternative energy 

equipment and for energy and water conservation 

measures by state and K-12 facilities. While performance contracts are not financing agreements, 

per se, they can assist with project funding and 

implementation. In Louisiana, state agencies will 

be able to issue Request for Proposals (RFPs) that 

essentially follow the performance contract model 

developed by the state Energy Fund. Colorado 

passed enabling legislation authorizing performance contracting in the early 1990s. 

•	 Technical Support. Many states lead by example by 

providing technical assistance, training, and evaluation support to state and local agencies and 

facility operators. State examples include 

California’s new building design and commissioning guidelines and Oregon’s Building 

Commissioning Program. California’s Energy 

Partnership Program provides a variety of services 

including conducting energy audits, preparing feasibility studies, and reviewing existing proposals 

and designs. In Washington, school districts are 

advised to seek the assistance of the General 

Administration’s Energy Savings Performance 

Contracting (ESPC) program for energy performance contracts and for project oversight. 

Designing an Effective Lead by 

Example Program 

Although specific program designs vary from state to 

state, a number of common elements exist that have 

helped states develop effective lead by example programs. These include: involving multiple agencies and 

levels of government, identifying funding sources, 

and leveraging federal and state programs. 

Participants 

•	 Executive Branch. The executive branch plays a key 

role in lead by example initiatives. Many state 

governors have issued executive orders that set 

energy savings targets for existing buildings, 

define energy and environmental performance 

standards for new buildings, set fuel economy targets for state-owned or -leased vehicle fleets, create green power purchasing policies, and create 

efficiency guidelines for purchasing energy-using 

equipment. Since most lead by example initiatives 

involve state-owned or -leased property, the executive branch typically has broad powers to change 

policies and practices involving state facilities, 

fleets, purchasing operations, and other aspects of 

state government. An example of this is New 

York’s Executive Order 111, Green and Clean State 

Buildings and Vehicles, which sets targets for 

100% of all new light-duty vehicles to be alternative-fueled vehicles by 2010 and for energy consumption in all buildings to be reduced by 35% 

(relative to 1990 levels) by 2010. 

•	 State Legislature. In many cases, legislative 

authority is not needed to launch lead by example 

initiatives. However, legislative authority may be 

required when modifying procurement regulations 

(e.g., to release state agencies from mandatory 

low-bid requirements when purchasing green 

power or to enable agencies to enter into longterm energy service agreements for performance 

contracting). For example, Washington’s 

Engrossed House Bill 2247 requires energy audits 

in state buildings, and if the audits produce 

opportunities to save energy, the improvements 

are to be accomplished by using performance 

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EPA Clean Energy-Environment Guide to Action
 

contracting. Performance contracting has been 

promoted by North Carolina’s state legislature as 

a means of reaching its energy savings goals and 

updating facilities without using limited capital 

budget dollars. 

•	 State Energy Office. In many states, the energy 

office develops and administers a range of clean 

energy programs and provides technical assistance 

and training to state and local agency staff and 

facility managers. State energy offices also work 

with other state agencies, local governments, 

school districts, and other public organizations to 

identify clean energy opportunities statewide. 

•	 State Department of General Services and 

Department of the Treasury. One of these agencies 

typically serves as the custodian of state facilities. 

They administer state capital construction programs and establish guidelines for construction, 

operation, and purchasing practices. 

•	 State Housing and Economic Development Offices. 

These agencies may operate a variety of programs, 

including low- and moderate-income housing and 

development programs, state mortgage financing 

programs, and enterprise zone and brownfield 

redevelopment initiatives. 

•	 Local Governments. In many cases, local governments have initiated and adopted their own lead 

by example programs. For example, in Maryland, 

Montgomery County has developed a green power 

purchasing program to leverage the buying power 

of multiple local jurisdictions. Some states work 

with local governments to educate local officials 

about these opportunities and to coordinate, pool, 

and set common criteria for such initiatives. States 

can also provide financial assistance, education, 

training, and technical assistance to local governments. For example, Arizona’s Municipal Energy 

Management Program (MEMP), administered by 

the Arizona Commerce Department, provides training, tools, technical assistance, and grants to 

municipal and tribal governments to help implement energy saving projects (Arizona Department 

of Commerce 2005). 

•	 School Districts, Colleges, and Universities. There 

are many opportunities to improve energy efficiency and purchase or generate clean onsite 

power at K-12 schools, colleges, and universities. 

One option is to use efficiency savings in operating budgets to finance new energy projects, thereby freeing up capital budget dollars for other uses. 

In fact, some colleges and universities have found 

that investing in energy efficiency projects provides better yields than the market. For example, 

Duke University has used endowment funds to 

finance energy efficiency projects. 

•	 Utility Energy Programs. Utilities that have energy 

efficiency and onsite distributed generation programs can support a state’s lead by example 

efforts by providing technical assistance to state 

facility managers and new facility design teams. In 

some cases, utilities provide funding and incentives to state agencies for clean energy projects. 

Utilities that administer PBFs or that have regulated efficiency acquisition mandates are typically 

best positioned to provide this kind of assistance. 

•	 ESCOs. ESCOs can perform energy project assessments and/or conduct full energy efficiency projects on a performance-contracting basis. In such 

projects, the state does not provide upfront capital; 

the ESCO develops and finances the project, using 

efficiency savings to cover the cost of capital. 

•	 Nonprofit Organizations. Some states designate 

and work with third-party nonprofit organizations 

to develop and administer lead by example programs. For example, Iowa established the State of 

Iowa Facilities Improvement Corporation (SIFIC), a 

nonprofit corporation that helps state agencies 

implement cost-effective energy efficiency 

improvements. Also of note is Efficiency Vermont, 

which was established in 1999 by the Vermont 

legislature and Public Service Board as the nation’s 

first statewide energy efficiency utility. Efficiency 

Vermont provides technical assistance and financial incentives to help Vermonters identify and pay 

for cost-effective energy-efficient building design, 

construction, renovation, equipment, lighting, and 

appliances. 

•	 State Treasurers and Public Pension Fund Managers. 

The role of pension fund trustees and state treasurers is to provide policy direction for fund managers 

and are increasingly looking for opportunities to 

improve the value of their portfolios. Some state 

� Section 3.1. Lead by Example
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treasurers and public pension fund managers invest 

in clean energy programs and energy audit investments to identify cost savings. For example, 

California’s state treasurer started the Green Wave 

program to encourage pension fund investment in 

energy efficiency and renewable energy retrofits 

and upgrades on state property. This type of investment not only provides an opportunity for fund 

managers to “green” their portfolios, but also saves 

money and increases the value of the assets and 

overall portfolio. 

Funding 

States sometimes pay for energy efficiency and 

renewable energy projects with general funds allocated through the budget and appropriations 

process. However, because of fiscal constraints, 

states are developing new funding approaches for 

their clean energy investments. One popular underlying strategy involves redirecting the operating budget dollars saved from the utility budget when energy 

conservation improvements are made and using the 

savings to pay for the financing of the needed equipment. Several states have adopted innovative funding mechanisms to support lead by example programs, including: 

•	 Revolving Loan Funds. These entities make loans 

and re-lend current loan payments to fund new 

projects. The original capitalization can come from 

a variety of sources including system benefits 

charges (SBCs) and oil overcharge refunds. They 

are typically low interest, long-term loans for 

energy conservation or renewable energy projects. 

They may cover all capital expenditures or may be 

on a cost-shared basis. The Iowa Energy Bank, 

described in the State and Local Examples section, 

on page 3-13, provides an example of how Iowa 

has structured its loan program. (For more detailed 

information on revolving loan funds, see Section 

3.4, Funding and Incentives. Also see the Texas 

LoanSTAR program in the State and Local 

Examples section.) 

•	 ESPC. The ESPC industry has developed over the 

past 25 years in response to the need for major 

new capital investments in energy efficiency, particularly in public and institutional facilities. 

Energy Performance Contracting is a construction 

method that allows a facility to complete energysaving improvements within an existing budget by 

financing them with money saved through reduced 

utility expenditures. Facilities make no initial capital investments and instead finance projects 

through guaranteed annual energy savings. Several 

states have created enabling legislation and developed model programs, helping to develop an 

industry capable of bringing significant capital 

investment to state governments. (See Section 3.4, 

Funding and Incentives.) 

•	 PBFs. PBFs are funds typically created by per kWh 

charges on electricity bills. Many states use PBF 

resources to help support clean energy programs. 

PBFs were initially developed during the 1990s to 

provide resources to help fund public benefits programs that utilities were not expected to pursue in 

a restructured electricity market. These funds are 

used to support renewable energy, energy efficiency, and low-income programs. (See Section 4.2, 

Public Benefits Funds for Energy Efficiency, and 

Section 5.2, Public Benefits Funds for State Clean 

Energy Supply Programs.) 

•	 Aggregated Purchasing Contracts for Green Power. 

An increasing number of organizations, including 

state and local governments, are aggregating electricity demand to purchase green power. By combining the electrical needs of a number of agencies, state and local governments are often able to 

negotiate lower prices for green power. It is easier 

to achieve savings from aggregated green power 

purchases in restructured markets where there are 

competing energy suppliers. 

•	 Pension Funds. Some states use pension funds to 

invest in clean energy projects. Pension fund 

managers seek a mix of investments that ensure 

stable returns for their contributors when they 

retire. Energy cost savings are captured over a set 

time period to pay off the capital investment, and 

generate a solid return to the pension fund. 

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For example, Washington Real Estate Holdings, a 

real estate manager for the Washington State 

Investment Board, which manages the state’s 

pensions, completed a $3.5 million SMART ENERGY and energy efficiency upgrade of Union Square 

that lowered the building energy costs by 40% 

and created 30 jobs for a year (Feldman 2005). 

•	 Use of Life Cycle Cost Accounting for Energy 

Efficiency Projects. Cost-effective energy efficiency 

investments more than pay for themselves in the 

form of reduced energy bills over the life of the 

investment. However, government procurement 

and capital budgeting practices frequently do not 

take life cycle costs into account. Procurement 

rules (e.g., applicable to small purchases, such as 

equipment replacement) often require states to 

accept the lowest bid, on a first-cost-only basis. 

Similarly, capital budgeting (e.g., applicable for 

larger investments such as new buildings or major 

renovations) often accounts only for the debt 

service obligations to the government and does 

not recognize operating budget savings that can 

more than offset the debt service payments. These 

practices often result in the rejection of costeffective energy efficiency investments because 

the accounting rules do not fully recognize the 

benefits of these investments. 

To overcome these problems, states have modified 

procurement rules by (1) specifying minimum efficiency levels for designated types of purchases 

(such as requiring certain product types to be 

ENERGY STAR-certified), or (2) instituting a life 

cycle-cost bid procedure, where vendors provide 

both equipment investment costs and estimated 

lifetime energy costs for designated equipment 

types. For capital projects, a similar approach can 

be used: either requiring projects to meet specified 

energy performance targets or including life cycle 

energy costs in the project accounting analysis. 

Interaction with Federal Policies 

Several federal programs, described as follows, provide resources for states as they develop lead by 

example programs. 

The ENERGY STAR Program 

The U.S. Environmental Protection Agency (EPA) 

offers its ENERGY STAR program to governments, 

schools, and businesses as a straightforward way to 

achieve superior energy management and realize the 

cost savings and environmental benefits that can 

result. EPA’s guidelines for building energy management promote a strategy that starts with the top 

leadership, engages the appropriate employees 

throughout the organization, uses standardized 

measurement tools, and helps an organization prioritize and gets the most from its efficiency investments. The following aspects of ENERGY STAR offer 

resources for states as they lead by example. 

•	 The ENERGY STAR Challenge. In March 2005, EPA, 

in partnership with more than 20 leading associations and states, launched the ENERGY STAR 

Challenge—Build a Better World 10% at a Time. 

The ENERGY STAR Challenge calls on governments, 

schools, and businesses across the country to 

identify the many buildings where financially 

attractive improvements can reduce energy use by 

10% or more and to make the improvements 

through proven methods such as low-cost building 

tune-ups, lighting upgrades, and replacement of 

old equipment. EPA estimates that if each building 

owner accepts this challenge, by 2015 Americans 

would save about $10 billion and reduce greenhouse gas emissions by more than 20 million metric tons of carbon equivalent (MMTCE)—equivalent 

to the emissions from 15 million vehicles. 

As participants in the ENERGY STAR Challenge, 

states are encouraging energy-efficient improvements in government buildings and facilities, 

including school districts and county and city governments, and reaching out to businesses in their 

communities (ENERGY STAR 2005d). 

•	 Targeted Assistance to States. ENERGY STAR provides targeted information resources, technical 

assistance, tools, and communications and outreach support to help state and local governments 

improve energy efficiency within their own operations. ENERGY STAR tools include guidelines for 

energy management that are helpful to states in 

improving their energy and financial performance, 

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as well as a portfolio manager that provides tools 

related to benchmarking, measurement and verification (M&V), and investment priorities (ENERGY 

STAR 2005b). 

•	 Purchasing and Procurement. As part of its targeted assistance to states, ENERGY STAR provides a 

comprehensive guide to purchasing energyefficient products. These purchasing and procurement resources include sample procurement language and energy efficiency specifications for 

many products. For products not covered under 

ENERGY STAR, EPA provides links to the U.S. 

Department of Energy’s (DOE’s) recommended 

energy-efficient products used by federal government procurement officials (ENERGY STAR 2005c). 

EPA Combined Heat and Power Partnership 

The CHP Partnership is a voluntary program to 

reduce the environmental impact of power generation by promoting the use of CHP. The partnership 

works closely with energy users, the CHP industry, 

state and local governments, and other stakeholders 

to support the development of new projects and promote their energy, environmental, and economic 

benefits. 

CHP Partner: Essex County New Jersey 

Correctional Facility 

The CHP Partnership recently helped develop a project 

for the Essex County New Jersey Correctional Facility 

in Newark, New Jersey. This project will provide 6 MW 

of electricity, 3,300 tons of chilled water, 80 million Btus 

(MMBtu) per hour of hot water, and 20,000 pounds per 

hour of steam for the new facility. The CHP system has 

been integrated into the design of the facility to maximize energy efficiency results (EPA 2005a). 

EPA Green Power Partnership 

The Green Power Partnership is a voluntary program 

developed by EPA to boost the market for clean 

power sources that do not result in the environmental and health risks associated with conventional 

electricity generation. State and local governments 

participating in the partnership receive EPA technical 

assistance and public recognition (EPA 2005b). 

Green Power Partner: California State 

University (CSU) at Hayward 

CSU at Hayward received the 2004 Green Power 

Leadership Award for installing the largest solar electric system at any university in the world. The 

1 megawatt (MW) system, which will deliver approximately 30% of the campus’ peak energy demand during the summer months, is installed on four of the university’s largest buildings and covers more than 

110,000 square feet. The solar electric installation is 

expected to reduce electricity bills by $200,000 annually. CSU at Hayward received a rebate from the electric 

utility and from the California Public Utilities 

Commission (CPUC) for half the project cost. The 

remainder of the project is financed with a 15-year 

loan, and loan payments will be made out of the energy savings from the solar electric system production 

(EPA 2005b). 

DOE State Energy Program 

The State Energy Program is a federally funded program administered by DOE that provides funding and 

technical assistance resources to state energy offices. 

Many states have used State Energy Program 

resources to support their lead by example programs 

and activities (DOE 2005e). 

DOE Federal Energy Management Program 

(FEMP) 

FEMP works to reduce the operating costs and environmental impacts associated with federal facilities 

by advancing energy efficiency and water conservation, promoting the use of distributed and renewable energy, and improving utility management 

decisions at federal facilities. Although the program 

focuses mainly on federal facilities, FEMP offers 

online information resources, an annual training 

conference, and workshops that are available to 

state and local government energy managers 

(DOE 2005b). The FEMP Web site also provides a 

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compendium of energy efficiency purchasing recommendations, interactive energy cost calculators, and 

other resources to help purchase energy-efficient 

products (DOE 2005c, DOE 2003). 

DOE Building Technologies Program 

The Building Technologies Program works in partnership with private and public sector organizations to 

improve building efficiency. This program supports 

research and development and provides assistance to 

those interested in building efficiencies through its 

Web site, which contains a host of tools, including 

guidelines, training information, and information 

about how to access financial resources (DOE 

2005a). 

The Energy Policy Act of 2005 (EPAct 2005) 

EPAct 2005 (Section 125) authorizes grants of $30 

million annually for each of fiscal years 2006 through 

2010 to fund energy-efficient public buildings (30% 

above the International Energy Conservation Code 

[IECC]) and requires that public housing authorities 

purchase energy-efficient products. In addition, EPAct 

2005 (Section 126) contains the Low-Income 

Community Energy Efficiency Pilot Program for local 

governments, which authorizes $20 million for each 

of fiscal years 2006 through 2008. 

Interaction with State Policies 

A variety of state programs and policies can be further leveraged by lead by example programs. Key 

opportunities include: 

•	 Procurement Policies and Accounting Methods. 

Over the last 30 years, some states have modified 

their public procurement and accounting methods 

to encourage energy efficiency investments and 

renewable energy procurements. These innovations 

include: 

- Permitting long-term contracts, which are often 

needed for performance contracting agreements. 

- Modifying low-bid requirements, since performance contracts and other energy-saving investments might increase up-front capital costs, but 

produce lower overall life cycle costs. 

- Revising leasing regulations, so that private 

entities can be owners of equipment for tax 

purposes. This can be key to attracting private 

investment in public facilities. 

-	 Modifying budgeting and accounting practices, so 

that facilities (e.g., schools) are allowed to keep 

some portion of energy savings from efficiency 

projects. Otherwise, energy bill savings could simply result in reduced budget outlays in subsequent 

years and would not encourage facility managers 

to develop energy efficiency projects. 

Best Practices: Designing Lead by Example Programs 

•	 Learn from Your Peers. Consult with other states that have implemented lead by example initiatives. 

•	 Secure High-Level Support. The support of top-level leadership can be critical to the successful revision of clean energy 

practices that affect state-owned facilities and fleets. For example, in some cases it may be appropriate for the governor 

(and legislature, if enabling laws are needed) to establish overall goals and/or to require specific rule changes. 

•	 Follow Up with Administrative Support. While a law or executive order provides the initial structure for lead by example 

programs, it is also important to design a strong administrative structure. This entails (1) establishing a lead agency with 

the authority to implement key targets, (2) setting up a coordinating structure among affected agencies to ensure that the 

agencies remain involved and that targets are met, (3) developing an approach for M&V of savings, (4) developing an 

annual reporting system to help ensure accountability for progress and results on stated goals, and (5) ensuring that 

funds are available for programs that exceed current staff and budget capacities. 

•	 Leverage Federal Programs. Review and assess existing federal programs to identify those that provide resources for 

designing and implementing a lead by example program. For example, the ENERGY STAR program provides energy efficiency specifications for products and building energy performance benchmarking tools. 

•	 Review and Update the Program. Periodically (e.g., every five years or less) review and update the state’s efforts to bring 

clean energy investments to its facilities and fleets. Expand efforts that show success and/or potential for success and 

revise or eliminate unproductive programs. 

� Section 3.1. Lead by Example
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EPA Clean Energy-Environment Guide to Action
 

- Changing state budget “scoring” rules, so that 

performance contracting, bond issues, or other 

debt obligations are treated comprehensively 

rather than simply as costs. Even though these 

state obligations are often covered by guaranteed-savings agreements, legislative budget 

procedures often fail to give them a net savings 

accounting treatment. 

- Requiring that state facilities procure a percentage of electricity demand from renewable 

resources. 

•	 State Bonding Authority. States can use public 

financing mechanisms, such as educational, health, 

and environmental bond issuance authorities, to 

help develop clean energy projects or add clean 

energy features to planned facility bond issues. For 

example, New Jersey’s Economic Development 

Authority, in partnership with New Jersey’s Board 

of Public Utilities, offers a variety of incentives for 

renewable and energy efficiency measures. 

•	 Air Quality Planning. EPA encourages states to use 

energy efficiency and renewable energy resources 

in their Clean Air Act compliance plans and related 

initiatives. Some states have developed specific 

calculation methods for quantifying the contribution that energy efficiency projects can make to 

emission reduction targets. 

For example, through the Texas Emissions 

Reduction Plan (also known as “Senate Bill 5”), 

Texas works with local governments to implement 

energy efficiency measures that will meet air 

quality goals through reductions in power plant 

emissions. (See Section 3.3, Determining the Air 

Quality Benefits of Clean Energy.) 

Program Implementation and 

Evaluation 

Because states can choose from a wide range of lead 

by example programs, specific design and implementation approaches might differ by program. For example, state policymakers may identify one state agency 

or department to administer and implement their 

energy efficiency programs and a different agency to 

lead efforts to encourage distributed generation or 

renewable energy. While multiple agencies may be 

involved in program design and implementation, the 

more successful state efforts typically include a 

multi-agency coordination structure. 

Successful program implementation flows from a sound 

design, which in turn flows from a carefully developed 

overall strategy or plan. For example, some states have 

developed clean energy plans that set targets for percentage reductions in state facility energy use by certain dates, followed by an implementation plan that 

includes the specific measures, budgets, timetables, and 

other details needed to reach those targets. 

Evaluation 

Evaluation of lead by example programs is important 

in determining the effectiveness of an initiative. 

While procedures for evaluating lead by example initiatives will vary according to specific project features, the following general guidelines are applicable 

to all programs: 

•	 Develop Baselines. Baselines will vary depending on 

the type of initiative. For buildings, current energy 

use or current building practices define baselines for 

energy performance. For fleets, estimated current 

fuel economy averages can serve as baseline data. 

For procurement procedures, baseline information 

can be based on current product specifications. 

•	 Measure and Verify Savings. Develop reporting and 

database systems as needed to document the 

impacts of program initiatives. For simpler efficiency measures whose performance characteristics are well known and consistent, a deemed savings approach, which involves multiplying the 

number of installed measures by the estimated (or 

“deemed”) savings per measure, is appropriate. 

Deemed savings values are derived from extensive 

field evaluations (CALMAC 2005). For larger and 

more complex efficiency projects, a project-specific M&V method might be more appropriate (IPMVP 

2005). (For more information, see Section 4.1, 

Energy Efficiency Portfolio Standards, and Section 

3.4, Funding and Incentives.) 

•	 Communicate Results. Use monitoring and tracking information to periodically report results. 

3-12 � Chapter 3. State Planning and Incentive Structures
 
 

 

 

EPA Clean Energy-Environment Guide to Action
 

Best Practices: Implementing Lead by Example Programs 

•	 Coordinate Across State Agencies. Involve multiple parties during the design, implementation, and evaluation 

stages of program development. 

•	 Assess Energy Use. Identify opportunities for energy efficiency improvements or more efficient generation and 

assess the potential energy savings from these options. 

•	 Select Cost-Effective Measures. Numerous handbooks and guidelines are available that provide comparative information about clean energy measures. For example, California provides sustainable building design guidelines that 

present both performance and prescriptive instructions regarding materials use, design principles, and construction techniques (IWMB 2005). 

•	 Aggregate Purchases. When implementing an aggregated green power purchases program, the lead agency can 

establish contracts to procure green power or green tags. In a competitive market, suppliers can be solicited using 

a competitive bidding process. The selected suppliers can either provide one bill or be asked to split the billing 

across participants in the aggregated purchase. Purchasing green power for aggregate demand will be more 

effective and economically feasible in active green power markets. 

•	 Develop Financing Mechanisms. A range of financing strategies is available to states for lead by example initiatives. In some cases, states may need to modify their rules to allow agencies to use certain financing mechanisms 

(e.g., performance contracting) or accounting methods (e.g., extended payback periods). (See Section 3.4, Funding 

and Incentives, for more detailed information on financing options.) 

Present impacts in meaningful ways that document the energy, economic, and environmental 

benefits derived from the program. 

•	 Review and Reinforce Effectiveness. Many worthy 

initiatives fade into inactivity after initial efforts 

are complete. Use evaluation efforts to ensure that 

innovations result in lasting changes in institutional behavior and become part of the organizational culture. 

State and Local Examples 

California 

The California Energy Commission (CEC) administers 

several lead by example programs. In addition, local 

governments participate in state programs, and have 

developed their own lead by example programs. 

•	 California Executive Order S-20-04. Issued in 

December 2004, this order requires state agencies 

and departments to reduce their energy consumption by 20% from 2003 levels by 2015. The order 

requires new and renovated state-owned facilities 

to meet the U.S. Green Building Council’s 

(USGBC’s) Leadership in Energy and Environmental 

Design (LEED) Silver certification,5 requires state 

agencies to seek office space in buildings with an 

ENERGY STAR rating for leases of 5,000 square 

feet or more, and sets procurement polices for 

ENERGY STAR qualified electrical equipment. The 

order further instructs the CEC to benchmark all 

state-owned buildings built by 2007 and requires 

buildings of 50,000 square feet or more to be 

retro-commissioned and then re-commissioned 

every five years.6 The executive order also directs 

the Division of the State Architect to develop new 

green design guidelines for public schools. 

Finally, it directs CPUC to ensure that its utility 

sector efficiency programs encourage owners of 

privately owned buildings to pursue similar 

energy efficiency and green-design measures. Both 

the CEC and CPUC buildings use CHP systems in 

5	 USGBC certifies new buildings based on a cumulative 69-point system at several possible levels: Certified (26-32 points), Silver (33-38 points), Gold 

(39-51 points), and Platinum (52-69 points). Points are based on a variety of criteria, including energy efficiency, ozone impacts, site development 

impacts, materials choices, and indoor air quality. 

6	 Retro-commissioning is defined as adjusting energy systems to operate at their intended efficiency levels. Re-commissioning is a periodic check on 

system performance. 

� Section 3.1. Lead by Example
 3-13 
 

EPA Clean Energy-Environment Guide to Action
 

their buildings to help meet these goals. Several 

state prisons in California also use CHP. 

Web sites: 

Executive Order S-20-04: 

http://www.energy.ca.gov/greenbuilding/
 

documents/executive_order_s-20-04.html
 

Green Building Action Plan: 

http://www.energy.ca.gov/greenbuilding/
 

documents/background/
 

02_GREEN_BUILDING_ACTION_PLAN.PDF
 

•	 Energy Efficiency Financing Program. Through this 

program, the CEC provides low-interest loans for 

public schools, public hospitals, and local governments to fund energy audits and install energy 

efficiency measures. The interest rate for 2005 is 

4.5%, and the maximum loan per application is 

$3 million. Recipients who complete their projects 

within 12 months of the loan and meet all 

requirements specified in the loan application 

receive a reduced interest rate of 4.1%. The repayment schedule is negotiable up to 15 years and is 

based on the annual projected energy cost savings 

from the aggregated projects. 

Web site: 

http://www.energy.ca.gov/efficiency/financing/ 

•	 Energy Partnership Program. The CEC offers this 

program to help cities, counties, hospitals, and 

other facilities target energy efficiency improvements for existing facilities and energy-efficient 

options for new construction. The CEC provides a 

variety of services including conducting energy 

audits, preparing feasibility studies, reviewing 

existing proposals and designs, developing equipment performance specifications, reviewing equipment bid specifications, and assisting with contractor selection and commissioning. The CEC also 

helps identify state loans and other financing 

sources for project installation. 

Web site: 

http://www.energy.ca.gov/efficiency/partnership/ 

index.html 

•	 Oakland Energy Partnership. The city of Oakland 

established the Oakland Energy Partnership to 

reduce energy costs and facilitate improved energy 

efficiency for Oakland businesses and residents. 

One component of the program focuses on adjusting large building systems for optimal energy use. 

This program is expected to reduce electricity 

demand by 4.6 MW and could reduce operating 

costs by up to 15% or $2.4 million per year across 

the city. Other program components involve 

installing energy-efficient ballasts in outdoor 

lighting, providing free design expertise and 

energy audits, and providing air conditioning tuneups to small residential and commercial buildings. 

Web site: 

http://www.oaklandenergypartnership.com/ 

•	 Other Local Programs. Local governments in 

California are actively involved in developing or 

purchasing clean energy supplies. For example, in 

2001, San Francisco residents passed a $100 million bond measure to fund the installation of solar 

power, wind power, and energy-efficient technologies on municipal property. This amount is sufficient to finance about 11 MW of solar power and 

30 MW of wind power, which would account for 

approximately 25% of the city government’s power 

consumption. The bonds will be paid for with energy savings from energy efficiency improvements in 

city facilities, thereby alleviating the need to cover 

the bonds with tax increases or other sources. 

Many other California cities have installed renewable energy systems, primarily solar PV, to power 

their buildings and facilities. Examples include: PV 

installations in a wastewater treatment facility in 

Oroville, a police department in Vallejo, carports in 

Chico, a municipal service center and bus shelters 

in Fresno, the Vacaville City Hall, San Diego 

schools, carports and the jail in Alameda County, 

and county buildings in Contra Costa County. In 

addition, San Diego is generating electricity at its 

wastewater facility using methane co-generation 

and a low-head hydro-electric generator. 

Web site: 

http://www.californiasolarcenter.org/
 

sfbond2001.html
 

3-14 � Chapter 3. State Planning and Incentive Structures
 
 

 

 

 

 

 

EPA Clean Energy-Environment Guide to Action
 

Colorado 

Colorado was one of the first states to pass enabling 

legislation in the early 1990s that authorized the performance contracting approach and financing mechanisms for local governments. The Colorado Governor’s 

Office of Energy Management and Conservation 

(OEMC) is the key coordinating agency for performance contracting projects. The OEMC facilitates privately funded performance contracting projects in 

public facilities; no state funding or financial incentives are involved. Eligible entities include school districts, state agencies, state colleges and universities, 

public housing authorities, cities, counties, special 

districts, and some nonprofit organizations (EPA 

2004b). As of June 2003, the program had completed 

or planned $90 million in energy efficiency upgrades, 

with annual energy savings of nearly $9 million (see 

Table 3.1.1). The performance contracting program is 

expected to create more than 400 jobs in Colorado. 

Web site: 

http://www.state.co.us/oemc/rebuildco/epc.htm 

Iowa 

Iowa has several financing-related programs to help 

public and private entities implement energy-efficient 

and renewable energy technologies, including a building energy management program for state agencies, a 

revolving loan fund, and sales tax exemptions for 

renewable energy equipment. 

•	 SIFIC. SIFIC is a nonprofit corporation established 

to help state agencies make cost-effective energy 

efficiency improvements in their buildings. The 

program covers all stages of the project, including 

feasibility assessments, financing, construction 

management, and energy savings monitoring. The 

projects are designed to pay for themselves 

through reduced energy use. 

Web site: 

http://www.state.ia.us/dnr/energy/MAIN/
 

PROGRAMS/BEM/SFP/
 

•	 The Iowa Energy Bank Program. This energy management program combines private funds and a 

small amount of state and federal funding to 

finance energy efficiency improvements in public 

and nonprofit facilities, including state facilities. 

The program uses saved energy costs to pay for 

the projects. The Energy Bank conducts an energy 

audit and engineering analysis and negotiates 

financing terms with private lenders. The program 

goal is to implement more than $500 million in 

energy efficiency improvements. 

Web site: 

http://www.state.ia.us/dnr/energy/MAIN/
 

PROGRAMS/BEM/EBANK/
 

Table 3.1.1: State of Colorado Performance Contracting Results Through June 2003 ($ Millions)
 

Completed Projects 

Type of Project Project Cost 

Annual Energy 

Savings 

School districts $21.28 $2.32 

Colleges and universities $4.51 $0.27 

Local and state buildings $4.51 $0.27 

Housing authorities - -

Total $30.30 $2.86 

Environmental Benefits (Tons/Yr) 

• Total SO2 savings 197 

• Total NOx savings 226 

• Total CO2 savings 158,434 

Committed Projects Total Projects 

Project Cost 

Annual Energy 

Savings Project Cost 

Annual Energy 

Savings 

$4.95 $0.56 $26.23 $2.88 

$20.50 $2.52 $25.00 $2.80 

$29.97 $2.85 $34.48 $3.12 

$5.00 - $5.00 -

$60.41 $5.93 $90.71 $8.79 

Economic Benefits 

• Jobs created 408 

• Local economic stimulus $36.3 

Source: EPA 2004b. 

� Section 3.1. Lead by Example 3-15 
 

 

 

EPA Clean Energy-Environment Guide to Action
 

•	 Executive Order 41. Iowa is joining other states in 

requiring its state agencies to obtain a percentage 

of their electricity from renewable energy sources. 

Executive Order 41, adopted April 22, 2005, 

requires state agencies to use green power for at 

least 10% of their electric energy consumption by 

2010. Agencies may generate their own renewable 

energy or participate in utility green power programs, where available. The order also directs state 

agencies to buy energy-efficient equipment and 

reduce energy use in buildings by 15% (relative to 

energy use in 2000) by 2010. With respect to 

transportation, by 2010, the state’s light-duty 

vehicle fleets (i.e., vehicles other than heavy 

trucks) must consist of hybrid-electric vehicles 

and/or vehicles that use alternative fuels, with the 

exception of law-enforcement vehicles. 

Furthermore, bulk diesel fuel purchased by the 

state must contain 5% renewable fuel (such as 

biodiesel) by 2007, increasing to 20% by 2010 

(DSIRE 2005). The state will monitor the program 

by requiring agencies to submit quarterly progress 

reports. 

Web sites: 

http://www.governor.state.ia.us/legal/41_45/
 

EO_41.pdf
 

http://www.dsireusa.org/library/includes/ 

incentive2.cfm?Incentive_Code=IA08R&state= 

IA&CurrentPageID=1 

New Hampshire 

The state government is the largest energy user in 

New Hampshire, with heating, cooling, and electricity costs of more than $18 million per year. New 

Hampshire has implemented several projects to 

measure energy efficiency, track energy savings, and 

fund related projects for public entities. 

•	 Executive Order 2005-4. This order, issued July 14, 

2005, requires state agencies to reduce energy use 

by 10%. State staff are required to purchase 

equipment with an ENERGY STAR rating. All construction and renovations of state facility design 

criteria must exceed the state energy code by 

20%. Every state agency must also implement a 

Clean Fleets program, requiring that all vehicles 

achieve at least 27.5 miles per gallon highway fuel 

economy to reduce energy waste (NH Press
 

Release 2005).
 

•	 Executive Order 2004-7. This order requires the 

New Hampshire Department of Administrative 

Services to develop an energy information system, 

which includes an energy efficiency rating system. 

State staff are required to conduct an inventory of 

annual energy use by each of the state’s 1,200 

facilities starting in 2001 and use EPA’s Energy 

Performance Rating System to assess each facility’s energy efficiency. Procedures for tracking and 

reporting energy use information by each state 

department are currently being developed. 

The executive order also authorizes a steering 

committee to develop an energy reduction goal 

and plan, a procedure for conducting audits of 

facilities that score between a 40 and a 60 on the 

rating system, procurement policies that require 

ENERGY STAR products, new energy efficiency 

standards for new construction, and a procedure 

for commissioning new facilities that ensures 

adoption of energy-efficient design specifications 

and equipment operations. The executive order 

also establishes specific policies for the transportation sector. The order stipulates that all new 

vehicles purchased by the state must achieve a 

highway fuel economy of 30 miles per gallon or 

better and an emissions classification for a Low 

Emission Vehicle (LEV) or better. Other efficiency 

measures affecting transportation include the purchase of low-rolling resistance tires, an anti-idling 

initiative, and the promotion of ride-sharing 

among agencies. 

Web site: 

http://nh.gov/oep/programs/energy/beci.htm 

•	 Building Energy Conservation Initiative (BECI). 

Established in 1997, New Hampshire’s BECI provides an innovative approach for financing and 

tracking energy efficiency improvements in public 

facilities. The BECI uses a “paid from savings” procedure (also referred to as “performance contracting”) that allows agencies to pay for energy retrofits and building upgrades with the energy savings 

from the project, rather than depending on funding through capital appropriations. Under the BECI 

program, a pre-qualified group of ESCOs submits 

3-16 � Chapter 3. State Planning and Incentive Structures
 
 

EPA Clean Energy-Environment Guide to Action
 

proposals to conduct the work based on a predetermined list of energy conservation measures 

established by the BECI. State facility managers 

work with performance contracting programs to 

analyze existing state buildings for energy and 

resource efficiency opportunities, such as lighting 

upgrades, heating, ventilation, and air conditioning 

(HVAC) upgrades, domestic hot water systems, 

energy management controls, water conservation 

measures, building envelope improvements, and 

other cost-effective measures. Measurement and 

verification requirements are included in each performance contracting proposal, using either a 

“stipulated savings” approach, in which savings are 

calculated before the work, or a “measured savings” approach, which involves metering and submetering to verify actual savings. Under the current arrangement, savings that exceed loan payments will revert to the state’s general fund. 

Building upgrades performed through the BECI 

have resulted in significant energy efficiency 

improvements and cost savings. Ten buildings have 

been renovated through the BECI program, including, for example, a New Hampshire Department of 

Justice building in Concord. Avoided energy costs 

for these facilities now exceed $200,000 annually 

(EPA 2005c). When fully implemented, it is anticipated that the BECI will be responsible for 

upgrades in more than 500 state-owned buildings, 

with energy savings of up to $4 million a year 

(Pew Center for Global Climate Change 2005). 

These energy efficiency improvements will reduce 

CO2 emissions by approximately 35,000 tons per 

year. To date, the state has arranged two rounds of 

Master Lease Purchase (MLP) funding for its facilities. The latest round of $10 million brings the 

state’s funding to approximately $25 million. 

Because a master lease is not considered to be 

additional debt, it has no negative impact on the 

state’s credit rating (Catalyst Financial Group 

2005). 

Web site: 

http://nh.gov/oep/programs/energy/beci.htm 

New Jersey 

New Jersey administers a number of programs that 

encourage public agencies and organizations to 

adopt energy efficiency and renewable energy. 

•	 Green Power Purchasing Program. This program is 

helping to reduce the state’s energy costs and 

support the state goal of reducing greenhouse 

gases to 3.5% below 1990 levels by 2005. 

Developed by the New Jersey Transit and the New 

Jersey Department of the Treasury in 1999, the 

innovative aggregated green power purchasing 

program is supplying 500 million kWh of green 

power to 178 state agencies. The program has 

expanded green energy markets in the state and 

encouraged increased private sector green power 

purchases. The reduced CO2 emissions are equivalent to removing 32,500 cars from the road for 

one year. 

New Jersey formed the New Jersey Consolidated 

Energy Savings Program (NJCESP) to oversee and 

coordinate the consolidated power purchases 

under the Green Power Purchasing Program. This 

involves (1) aggregating the power purchases, both 

green and conventional, for the 178 public agencies, and (2) negotiating power contracts through 

competitive bidding in the deregulated energy 

market. The power supply contracts were awarded 

based on a fixed price per kWh. Competitive bidding allowed these agencies to obtain much lower 

rates than they would have independently, with an 

estimated $100,000 savings, and also provided 

economies of scale in contract administration and 

management. Currently, the agencies aggregating 

electricity purchase in New Jersey are meeting 

12% of their needs with green power though 

green power contracts. 

Web site: 

http://www.state.nj.us/dep/dsr/bscit/ 

GreenPower.pdf 

•	 Clean Energy Financing for Schools and Local 

Government. This program encourages local governments and school districts to take advantage of 

New Jersey Clean Energy Program (NJCEP) grants 

and low-interest bond financing arranged by the 

� Section 3.1. Lead by Example
 3-17 
 

EPA Clean Energy-Environment Guide to Action
 

New Jersey Economic Development Authority 

(EDA) for energy efficiency and renewable energy 

projects. Clean Energy Financing for Schools and 

Local Governments offers financial incentives and 

low-interest financing to schools and governments. This program allows local governments and 

schools to develop comprehensive energy efficiency and renewable energy generation projects and 

to save money each month through the lowinterest financing program. The program combines 

the traditional rebate program with incentives and 

financing, giving schools and local governments 

the flexibility to implement cost-effective projects 

immediately. 

Web site: 

http://www.njcleanenergy.com/media/ 

CEF_Schools_and_Local_Govt_.pdf 

•	 Clean Energy Financing and Assistance Programs. 

The New Jersey Board of Public Utilities (NJBPU), 

in partnership with the New Jersey Economic 

Development Authority, provides funding and 

technical assistance to New Jersey based organizations. Various programs cover grants, rebates, 

and project financing. For example, grants of up to 

$500,000 are available in the form of seed funding 

and commercialization assistance to assist renewable energy companies in bringing their products 

and technologies to market. 

Web site: 

http://www.njcleanenergy.com/html/Combined/ 

cleanenergy_financing.html 

New York 

New York administers several lead by example programs, which are described as follows. 

•	 Executive Order 111, “Green and Clean” State 

Buildings and Vehicles. This executive order, adopted in 2001, is an example of a state comprehensive 

energy efficiency and renewable energy program. It 

sets aggressive targets for reducing energy use in 

state buildings and vehicles, green power purchasing, and purchasing energy-efficient products. 

Executive Order 111 has been cited as the basis for 

strong state support for CHP, although CHP is not 

specifically mentioned in the order. 

The order requires all agencies and departments 

(including state and quasi-independent agencies, 

such as state universities and the Metropolitan 

Transportation Authority) to: 

- Reduce energy consumption by 35% (relative to 

1990 levels) in all buildings that they own, 

lease, or operate, by 2010. 

- Strive to meet the ENERGY STAR building criteria for energy performance and indoor environmental quality in their existing buildings. For 

new construction, the order directs the agencies 

to follow guidelines for the construction of 

buildings that meet LEED certification and 

achieve a 20% improvement in energy efficiency performance relative to the state’s building 

code. 

- Purchase ENERGY STAR-qualified products when 

acquiring new products or replacing existing 

equipment. In categories lacking ENERGY STAR 

products, products must meet New York State 

Energy Research and Development Authority’s 

(NYSERDA’s) target efficiency levels. 

- Purchase increasing amounts of renewable
 

energy and “clean fuel vehicles” by 2010.
 

- Purchase at least 10% of their electricity from 

renewable sources by 2005 and 20% by 2010. 

State agencies have met their renewable energy 

obligations through onsite generation, green 

power purchases from the open market, or a 

mix of both options. 

Web site: 

http://www.nyserda.org/programs/
 

State_Government/exorder111guidelines.pdf
 

•	 Energy $mart Loan Program. The program is administered by NYSERDA and provides reduced interest 

loans (4% below the lender rate for 10 years) 

through an extensive network of local and regional 

lenders. Loan proceeds can be used to finance 

energy efficiency and renewable energy systems. 

Essentially, the program pays lenders interest subsidy payments on behalf of borrowers. Anyone can 

apply, including local and state government facilities. As of April 2005, NYSERDA had made 250 

loans and provided interest subsidies of $5.3 million on total loans valued at $42 million through 

3-18 � Chapter 3. State Planning and Incentive Structures
 
 

EPA Clean Energy-Environment Guide to Action
 

the Energy $mart Program. The program is funded 

annually and expires on June 30 of each year. 

Web site: 

http://text.nyserda.org/Energy_Information/
 

evaluation.asp
 

•	 New York City Local Law 30. On April 11, 2003, 

New York City enacted legislation that codifies its 

practice of energy-efficient purchasing, a practice 

dating from 1994. Local Law 30 requires that 

energy-using products procured by the city of New 

York be ENERGY STAR-labeled, provided that there 

are at least six manufacturers of the ENERGY STAR 

product. During fiscal year 2002, New York City 

spent $90.8 million for ENERGY STAR-labeled 

products, consisting mainly of computers, monitors, printers, photocopiers, fax machines, televisions, VCRs, air conditioners, and lamps. 

Web site: 

http://www.eere.energy.gov/femp/newsevents/
 

fempfocus_article.cfm/news_id=7214
 

Oregon 

Oregon promotes energy efficiency and renewable 

energy in state and local government facilities 

through a variety of mandated and voluntary programs. 

•	 State Energy Efficiency Design Program (SEED). The 

mandated SEED requires all renovation and construction projects for state facilities to exceed 

Oregon’s energy conservation building codes by at 

least 20%. The state’s DOE administers the program and provides technical expertise on each 

project, helping agencies identify and design the 

most cost-effective energy conservation measures. 

Web site: 

http://egov.oregon.gov/ENERGY/CONS/SEED/
 

SEEDhome.shtml
 

•	 State Energy Loan Program (SELP). Oregon also 

administers SELP, a voluntary program that provides low-interest loans for public, commercial, 

and residential energy efficiency projects. Eligible 

projects include energy production from renewable 

resources, using recycled materials to create products, using alternative fuels, and installing energy 

saving technologies such as efficiency lighting and 

weatherization. As of December 2004, 643 loans 

totaling $363 million had been made through 

SELP. Of these, 215 loans were for renewable energy and 428 were for energy efficiency. Program 

loans have varied from $20,000 to $20 million and 

there is no legal maximum loan. Loan terms vary 

from five to 15 years. The program is selfsupported, using no tax dollars, and most loans are 

designed so the energy savings from the project 

equal the loan payment. 

Web site: 

http://egov.oregon.gov/ENERGY/LOANS/
 

selphm.shtml
 

•	 Commissioning SB 1149 Energy-Related Capital 

Projects. Under its Building Commissioning program, the Oregon DOE provides technical assistance to managers of both public and private facilities. The commissioning process helps save energy 

by ensuring that the lighting, heating, cooling, ventilation, and other equipment in buildings work 

together effectively and efficiently. The state 

requires commissioning or retro-commissioning for 

specified energy-related capital projects that are 

funded through the state’s Public Purpose Fund 

(established by SB 1149). This includes HVAC 

and/or direct digital control (DDC) capital projects 

exceeding $50,000, boiler and chiller capital projects exceeding $100,000, and other energy-related 

capital projects (e.g., lighting and lighting controls, 

building envelope) exceeding $150,000. 

Web site: 

http://egov.oregon.gov/ENERGY/CONS/BUS/COMM/ 

bldgcx.shtml 

•	 State Business Tax Credit for Efficiency and 

Renewables. Oregon’s Business Energy Tax Credit 

(BETC) has stimulated significant business investment in energy conservation, recycling, renewable 

energy resources, and less-polluting transportation 

fuels since 1980. Any Oregon business may qualify 

for the tax credit, and a wide variety of businesses 

have benefited from the credit, including projects 

� Section 3.1. Lead by Example
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EPA Clean Energy-Environment Guide to Action
 

in manufacturing plants, stores, offices, apartment 

buildings, farms, and transportation. 

The tax credit is 35% of the eligible project costs 

(i.e., the incremental cost of the system or equipment that is beyond standard practice). The credit 

is taken over five years: 10% in the first and second years and 5% each year thereafter. The 

unused credit can be carried forward up to eight 

years. Recipients with eligible project costs of 

$20,000 or less may take the tax credit in one 

year. Through 2003, more than 7,400 Oregon 

energy tax credits have been awarded. Altogether, 

these investments saved or generated energy 

worth about $215 million a year. 

A key feature of the program is its innovative 

“pass-through option,” in which a project owner 

can transfer a tax credit to a pass-through partner 

in return for a lump-sum cash payment (the net 

present value of the tax credit) upon project completion. The pass-through option allows nonprofit 

organizations, schools, governmental agencies, 

tribes, and other public entities and businesses 

with and without tax liability to use the BETC by 

transferring their tax credit for an eligible project 

to a partner with a tax liability. Projects that use 

solar, wind, hydro, geothermal, biomass, or fuel 

cells (renewable fuels only) to produce energy, displace energy, or reclaim energy from waste may 

qualify for a tax credit. Renewable resource projects must replace at least 10% of the electricity, 

gas, or oil used. 

Projects that qualify for the BETC include retrofit 

(including lighting and weatherization for rental 

properties), new construction (including energy 

efficiency and lighting), co-generation, renewable 

resource, recycled materials, and transportation 

projects. Retrofit projects must be 10% more energy-efficient than existing installation, and lighting 

retrofit must be 25% more efficient than existing 

lighting. For new buildings, all measures must 

reduce energy use by at least 10% compared to a 

similar building that meets the minimum requirements of the state energy code. 

In 2001, the Oregon legislature added sustainable 

buildings to the list of measures and systems eligible 

for the tax credit. This addition became effective 

October 8, 2001 and is retroactive to January 1, 

2001. In addition to several requirements set forth 

by the Oregon DOE, the building must meet established LEED Silver certification standards. (See 

Section 3.4, Funding and Incentives.) 

Web sites: 

http://egov.oregon.gov/ENERGY/CONS/BUS/ 

BETC.shtml 

http://www.dsireusa.org/library/includes/ 

incentive2.cfm?Incentive_Code=OR03F&state= 

OR&CurrentPageID=1 

http://egov.oregon.gov/ENERGY/CONS/BUS/comm/ 

commissioning.shtml 

•	 Local Programs. The city of Portland, through its 

Office of Sustainable Development (OSD), has also 

been a pioneer in promoting business, residential, 

and government energy conservation through its 

City Energy Policy. Accomplishments attributable 

to this citywide policy include 22,000 weatherized 

apartment units, a 9% reduction in per capita 

energy use, and energy efficiency improvements 

installed in 40 million square feet of commercial 

and institutional space. 

Portland initiated the City Energy Challenge as one 

of its first programs to achieve the goals of its 

Energy Policy, to reduce energy use in city operations, and to set a good example for residents and 

businesses. Through projects such as innovative 

green power contracts, traffic signal retrofitting, 

and methane-powered fuel cells and microturbines, Portland has saved approximately $2 million 

annually, or 15% of its overall energy costs. 

Web site: 

http://www.sustainableportland.org 

Texas 

Texas’ State Energy Conservation Office (SECO) 

administers and delivers a variety of energy efficiency 

and renewable programs in all market sectors, including state and local facilities. The Energy Systems 

Laboratory (ESL) at Texas A&M University provides 

technical assistance to SECO, local governments, and 

3-20 � Chapter 3. State Planning and Incentive Structures
 
 

EPA Clean Energy-Environment Guide to Action
 

facility managers for improving energy efficiency in 

buildings and calculating and quantifying the energy 

savings and air emission reductions from energy efficiency programs (ESL 2005). ESL has developed eCalc, 

a Web-based calculator that helps government and 

building industry users design, evaluate and track a 

wide range of energy savings projects that result in 

emission reductions. 

•	 Alternative Fuels Program. The Alternative Fuels 

Program promotes using alternative transportation 

fuels in Texas by demonstrating their positive 

environmental impact, technical feasibility, and 

energy efficiency. 

Web site: 

http://www.seco.cpa.state.tx.us/alt.html 

•	 LoanSTAR Revolving Loan Program. The Texas 

LoanSTAR (Saving Taxes and Resources) Program is 

SECO’s most visible program. Legislatively mandated to be funded at a minimum of $95 million at 

all times, the LoanSTAR Program has saved Texas 

taxpayers over $146 million to date through energy efficiency projects, financed for state agencies, 

institutions of higher education, school districts, 

and local governments. Interest rates are currently 

set at 3% annual percentage rate (APR). The program’s revolving loan mechanism allows borrowers 

to repay loans through the stream-of-cost savings 

generated by the funded projects. 

Web site: 

http://www.seco.cpa.state.tx.us/ls.htm 

•	 Performance Contracting Guidelines and Reviews. 

SECO is charged with assisting state agencies with 

achieving greater energy efficiency, and specifically 

with reviewing and approving guaranteed energy 

savings performance contracting for state agencies. 

Web site: 

http://www.seco.cpa.state.tx.us/ 

sa_performcontract.htm 

•	 Energy Efficient Partnership Program. SECO has 

helped more than 400 Texas school districts identify $11 million in potential annual utility savings 

through participation in the Texas Comptroller of 

Public Account’s Energy Efficient Partnership 

Program. Annual savings range from $325,000 for 

a large west Texas district to $900 for a small east 

Texas district with less than 300 students. 

Web site: 

http://www.seco.cpa.state.tx.us/sch-gov_partner.htm 

•	 Senate Bill 5, the Texas Emissions Reduction Plan. 

The 77th Texas legislature passed S.B.5, known as 

the Texas Emissions Reduction Plan, which imposes new energy efficiency requirements on political 

subdivisions (i.e., cities and counties) in 38 urban 

and surrounding counties. The affected political 

subdivisions must implement energy efficiency 

measures designed to decrease electric consumption while improving air quality. SECO provides 

assistance and information to the political subdivisions to help them meet their goals of reducing 

energy consumption by 5% each year for five 

years (beginning in January 2001). 

Web site: 

http://www.seco.cpa.state.tx.us/sb5compliance.htm 

•	 Texas Public Finance Authority (TPFA) Master Lease 

Purchase Program (MLPP). This program is a leaserevenue financing program established in 1992 to 

finance capital equipment acquisitions or other 

projects by state agencies. It can be used to 

finance equipment purchases (including energy 

equipment) of at least $10,000 that have a useful 

life of three years or more. Under this program, 

the TPFA borrows money to pay for an agency’s 

equipment by issuing tax-exempt revenue commercial paper notes. The TPFA obtains title to the 

equipment and leases it to the agency, which 

makes lease payments to TPFA. TPFA uses the lease 

payments to repay the principal and interest on 

the commercial paper notes; the agency receives 

title to the equipment once the lease is fully paid. 

Web site: 

http://www.tpfa.state.tx.us/MLPPOverview.asp 

� Section 3.1. Lead by Example
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EPA Clean Energy-Environment Guide to Action
 

What States Can Do 

States have chosen from a wide variety of approaches and goals in developing their lead by example 

programs. These programs have reduced energy costs 

for state agencies, increased funding for nonenergy 

related expenditures, and helped stimulate development of clean energy projects and resources. States 

have also used lead by example programs to encourage other organizations to take actions that support 

clean energy. 

Action Steps for States 

Based on the best practices and examples of effective state programs described above, states can take 

the following action steps when developing their 

lead by example programs. 

• Look across the entire government to identify 

opportunities for the state to lead by example on 

clean energy. Communicate with state agencies, 

local governments, schools, and other public sector 

organizations to identify effective ways to incorporate clean energy into their activities. Engage 

facility managers and agency staff for program 

planning, implementation, training, tracking, and 

evaluation. 

• Explore requirements that ensure that costeffective energy efficiency improvements are 

implemented in both new and existing buildings, 

since these have provided a major opportunity for 

energy savings in many states. This includes: 

-	 Standards for New Buildings. Most states require 

that their new facilities meet the most recent 

version of the ASHRAE 90.1 standard. However, 

some states have adopted more advanced standards, such as CEC’s Title 24 Building Energy 

Standards (CEC 2005). Voluntary advanced 

building energy efficiency guidelines are available from ENERGY STAR and the New Buildings 

Institute (NBI 2004, ENERGY STAR 2005a). 

Some states have adopted green building standards (USGBC is leading this effort through its 

LEED certification program) (USGBC 2005). (For 

more information on building codes, see Section 

4.3, Building Codes for Energy Efficiency.) 

- Performance Targets for Existing Buildings. 

Typical targets have been set at 20% reduction 

in current energy use per square foot of floor 

area, using a recent base year and setting a 

compliance date of between five and 15 years 

from enactment of the target. 

• Consider procurement policies for products, equipment, and green power. 

• Investigate targets for using renewable energy to 

power state and local facilities, allowing flexibility 

for different agencies to either develop onsite 

generation or purchase green power, depending on 

local conditions. States can also explore opportunities to use CHP at state facilities. 

• Develop and enable financing mechanisms. States 

have developed a range of financing methods, 

including adoption of legislation or rules that 

ensure that state facilities can use financing 

strategies such as performance contracting and 

revolving loans. (See also Section 3.4, Funding and 

Incentives.) 

• Offer staffing, technical assistance, and training to 

facility managers and staff on developing energy 

efficiency programs. Some states have established 

accountability structures within and between 

agencies so that procurement, facility management, and accounting departments are all engaged 

in a common effort to save energy. 

• Ensure that agencies are authorized to use and are 

using ESCOs and performance contracting to 

implement energy savings projects in their facilities, if internal sources of project financing are 

lacking. States can adopt legislation authorizing 

the use of performance contracting in public facilities. 

3-22 � Chapter 3. State Planning and Incentive Structures
 
 

 

 

 

 

 

 

 

 

 

 

 

EPA Clean Energy-Environment Guide to Action 

Information Resources 

General Information About State and Local Programs 

Title/Description URL Address 

California Energy Commission: How to Finance Public Sector Energy Efficiency 

Projects. Describes strategies and funding sources that public sector agencies can 

use to finance energy efficiency projects. 

http://www.energy.ca.gov/reports/ 

efficiency_handbooks/400-00-001A.PDF 

California Energy Commission’s Title 24 Building Energy Standards. Describes the 

energy standards for residential and nonresidential buildings. 

http://www.energy.ca.gov/title24 

California Energy Partnership Program. Provides technical assistance to cities, counties, special districts, public or nonprofit hospitals, public or nonprofit public care 

facilities, and public or nonprofit colleges/universities to improve energy efficiency in 

new and existing facilities, and helps arrange financing to conduct projects. 

http://www.energy.ca.gov/efficiency/ 

partnership/ 

California Executive Order S-20-04. This order established a goal of reducing energy 

use in state-owned buildings by 20% by 2015 and directs compliance with the Green 

Building Action Plan, which provides details on how the state can achieve these 

goals. The commercial sector is also encouraged to comply with these two policies. 

They require CEC to develop a building efficiency benchmarking system and commissioning and retro-commissioning guidelines for commercial buildings. 

Executive Order S-20-04: 

http://www.energy.ca.gov/greenbuilding/ 

documents/background/ 

02_GREEN_BUILDING_ACTION_PLAN.PDF 

Green Building Action Plan: 

http://www.energy.ca.gov/greenbuilding/ 

documents/executive_order_s-20-04.html 

California Tier 1 and Tier 2 Energy Efficiency and Sustainable Building Measures 

Checklists. These checklists ensure energy efficiency and sustainable building 

measures are included in new building construction and renovations. Tier 1 checklist 

items have been evaluated as “cost effective” and must be incorporated into projects when part of the project scope. Tier 2 checklist items may or may not be costeffective, but should be considered for inclusion. While the checklists include some 

performance standards, they are primarily prescriptive in nature. 

http://www.ciwmb.ca.gov/GreenBuilding/ 

Design/Guidelines.htm#Whole 

Cape Light Compact. This regional services organization provides energy efficiency 

programs and aggregated power cost negotiations for its members. 

http://www.capelightcompact.org/ 

doc.ccml?24,15,215609, 

cap215609,,,Doc,page.html 

Center for Renewable Energy and Sustainable Technology Renewable Energy Policy 

Project (REPP). REPP supports the advancement of renewable energy technology 

through policy research. REPP disseminates information, conducts research, creates policy tools, and hosts online, renewable energy discussion groups. The Web 

site provides information on individual state initiatives. 

http://www.crest.org/ 

Consortium for Energy Efficiency. State and Local Government Purchasing Model 

Program Plan: A Guide for Energy Efficiency Program Administrators. Provides a 

step-by-step guide for developing and adopting a successful state and local government procurement program. 

http://www.cee1.org/gov/purch/ 

MPP_Final.pdf 

Efficiency Vermont. Vermont’s statewide energy efficiency utility provides technical 

assistance and financial incentives to help residents as well as public and private sector organizations identify and pay for cost-effective approaches to energy-efficient 

building design, construction, renovation, equipment, lighting, and appliances. 

http://www.efficiencyvermont.com/ 

index.cfm 

Energy Efficiency’s Next Generation: Innovation at the State Level. Provides a guide 

for model policy measures for energy efficiency. American Council for an EnergyEfficient Economy (ACEEE). November 2003. 

http://aceee.org/pubs/e031full.pdf 

� Section 3.1. Lead by Example
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EPA Clean Energy-Environment Guide to Action
 

Title/Description URL Address 

New Jersey Clean Energy Program. The New Jersey Board of Public Utilities administers this program, which provides information and financial incentives to help New 

Jersey residents, business, and communities to help reduce their energy use, lower 

costs, and protect the environment. 

http://www.njcleanenergy.com/ 

New Jersey’s Green Power Purchasing Program. This program allows the state to 

aggregate electricity purchases for 200 facilities and negotiate lower costs. 

http://www.state.nj.us/dep/dsr/bscit/ 

GreenPower.pdf 

New York Executive Order 111, Annual Energy Report. This report summarizes projects implemented under Executive Order 111, estimated energy savings, and energy 

savings and project goals for subsequent years. 

http://www.nyserda.org/programs/pdfs/ 

execorder111finalreport7-03.pdf 

New York Guidelines: Executive Order No. 111 “Green and Clean” State Buildings 

and Vehicles: Guidelines, Second Edition. Describes how state agencies can comply 

with Executive Order 111, including new construction, procuring energy-efficient 

products, using alternative fuel vehicles, and reporting requirements. 

http://www.nyserda.org/programs/ 

State_Government/ 

exorder111guidelines.pdf 

North Carolina State Energy Office. The Resources for Government Web page 

describes North Carolina’s Utility Savings Initiative, a comprehensive, multiprogrammed approach to reducing utility expenditures and resources in state buildings. 

http://www.energync.net/home/efficiency/ 

government.html 

Oregon Building Commissioning Program. Provides technical assistance to ensure 

that building systems are designed, installed, functionally tested, and capable of 

being operated and maintained according to the owner’s operational needs. 

http://egov.oregon.gov/ENERGY/CONS/BUS/ 

comm/bldgcx.shtml 

Oregon SEED. This program provides energy efficiency assistance for new and renovated public buildings. 

http://egov.oregon.gov/ENERGY/CONS/ 

SEED/SEEDhome.shtml 

Texas A&M ESL. ESL provides tools, technical assistance, and training to help government and building industry users design and evaluate a wide range of energy 

savings projects. 

http://energysystems.tamu.edu/ 

http://ecalc.tamu.edu/ 

Examples of Legislation and Model Language
 

State Title/Description URL Address 

California California Executive Order S-20-04. This executive order establishes energy conservation standards for state-owned buildings 

and encourages commercial building owners, local governments, and schools to take similar measures. 

http://www.governor.ca.gov/state/govsite/ 

gov_htmldisplay.jsp?sCatTitle= 

Exec+Order&sFilePath=/govsite/ 

executive_orders/ 

20041214_S-2004.html&sTitle= 

Executive+Order+S-20-04 

California State Administrative Manual-Energy and Water 

Conservation Revenue Bond Projects. This Web site describes 

the state Public Works Board (PWB) Lease-Revenue Bond 

Programs. 

http://sam.dgs.ca.gov/TOC/6000/6873.htm 

California State Senate Bill ABX1 29. This bill establishes the 

California energy efficiency financing program. 

http://info.sen.ca.gov/pub/01-02/bill/asm/ 

ab_0001-0050/ 

abx1_29_bill_20010412_chaptered.html 

California State Senate Bill 880 (1986). This bill helped establish 

the California Energy Partnership Program, which began in 

1989. 

http://solstice.crest.org/efficiency/irt/64.htm 

3-24 � Chapter 3. State Planning and Incentive Structures
 
 

 

 

 

 

 

 

 

 

 

 

 

 

EPA Clean Energy-Environment Guide to Action
 

State Title/Description URL Address 

Colorado Colorado Energy Performance Contracting. This Web site provides sample guidance and documents to assist with energy 

performance contracting. 

http://www.state.co.us/oemc/rebuildco/ 

resources/samples/default.htm 

Enabling Legislation for Performance Contracting. (See Title 29 

Local Government 29-12.5-101, 29-12.5-102, 29-12.5-103, 29-12.5­

104, and Title 24 State Government 24-30-2001, 24-30-2002, 24­

30-2003.) 

http://198.187.128.12/colorado/ 

lpext.dll?f=templates&fn= 

fs-main.htm&2.0 

Iowa Alternate Energy Revolving Loan Program: 2005 Iowa 

Code/Statutes. This legislation describes program administration, eligible entities and projects, and terms of any loans made 

under this program. 

http://nxtsearch.legis.state.ia.us/NXT/ 

gateway.dll/moved%20code/ 

2005%20Iowa%20Code/ 

1?f=templates&fn=default.htm 

Click “Search Form” tab and enter “476.46.” 

Executive Order 41. This order directs state agencies to implement cost-effective energy efficiency measures, purchase at 

least 10% of building energy requirements from alternative 

energy facilities, and use alternative fuel vehicles. 

http://www.governor.state.ia.us/legal/41_45/ 

EO_41.pdf 

Iowa Energy Bank Enabling Legislation. This bill authorizes 

state agencies to use lease-purchase financing for energy 

management improvements and authorizes loans for costeffective energy management improvements. 

http://www.state.ia.us/dnr/energy/MAIN/ 

PROGRAMS/BEM/EBANK/LEG.PDF 

State of Iowa Facilities Investment Corporation Enabling 

Legislation. This legislation describes the types of energy management improvement loans SIFIC can make. 

http://www.state.ia.us/dnr/energy/MAIN/ 

PROGRAMS/BEM/SFP/files/leg.pdf 

New Hampshire Executive Order 2004-7. Signed in October 2004, the order 

requires 10% efficiency improvement in 1,200 state buildings. 

http://nh.gov/oep/programs/energy/beci.htm 

New York New York State Executive Order 111. This order initiates a comprehensive renewable energy and energy efficiency program 

for New York. 

http://www.gorr.state.ny.us/gorr/ 

EO111_fulltext.htm 

http://www.nyserda.org/programs/ 

exorder111orig.asp 

Oregon Oregon State Law, ORS 276.900-915, State Agency Facility 

Energy Design. This law established the Oregon SEED program 

in 1991. SEED helps ensure that state facilities are designed, 

constructed, renovated, and operated to “minimize the use of 

nonrenewable energy resources and to serve as models of 

energy efficiency.” 

http://www.leg.state.or.us/ors/276.html 

Senate Bill 1149. Adopted in 1999, this bill restructured the 

electric power industry and created a Public Purpose Fund to 

finance specified energy-related capital projects, including 

building commissioning. 

http://www.leg.state.or.us/99reg/measures/ 

sb1100.dir/sb1149.en.html 

All States Consortium for Energy Efficiency: Model Energy Efficiency 

Purchasing Policy. This document includes model language to 

be used by state and local governments interested in directing 

agencies to purchase energy-efficient products. 

http://www.cee1.org/gov/purch/ 

Purch_policy.pdf 

� Section 3.1. Lead by Example
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EPA Clean Energy-Environment Guide to Action
 

References
 

Title/Description URL Address 

Arizona Department of Commerce. 2005. Arizona Municipal Energy Management 

Program. Phoenix, AZ. 

http://www.azcommerce.com/energy/ 

municipal.asp 

CALMAC. 2005. California Measurement Advisory Council. http://www.calmac.org 

Cape Light Compact. 2005. Cape Light Compact. http://www.capelightcompact.org/ 

Catalyst Financial Group, personal communication with Bob Barton, July 2005. N.A. 

CEC. 2005. California’s Energy Efficiency Standards for Residential and NonResidential Buildings. CEC. http://www.energy.ca.gov/title24/ 

DOE. 2003. Federal Energy Management Program Focus—Fall 2003. States and Cities 

Follow Federal Lead in Energy-Efficient Purchasing. DOE. 

http://www.eere.energy.gov/femp/ 

newsevents/fempfocus_article.cfm/ 

news_id=7214 

DOE. 2005a. EERE: Buildings Programs. http://www.eere.energy.gov/buildings 

DOE. 2005b. FEMP. http://www.eere.energy.gov/femp/index.cfm 

DOE. 2005c. FEMP, Energy-Efficient Products. http://www.eere.energy.gov/femp/ 

technologies/eeproducts.cfm 

DOE. 2005d. Green Power Network. http://www.eere.energy.gov/greenpower/ 

news/news_template.shtml?id=1046 

DOE. 2005e. State Energy Program: Projects by Topic—What Are State and Local 

Government Facility Projects in the States? 

http://www.eere.energy.gov/ 

state_energy_program/ 

topic_definition_detail.cfm/topic=115 

DSIRE. 2005. Database of State Incentives for Renewable Energy (DSIRE). Iowa 

Incentives for Renewable Energy. (Last DSIRE review, 4/27/05.) 

http://www.dsireusa.org/library/includes/ 

incentive2.cfm?Incentive_Code= 

IA08R&state=IA&CurrentPageID=1 

ENERGY STAR. 2005a. ENERGY STAR for Government. http://www.energystar.gov/ 

index.cfm?c=government.bus_ 

government 

ENERGY STAR. 2005b. ENERGY STAR Partner of the Year-Leadership in Energy 

Management. 

http://www.energystar.gov/ia/partners/ 

pt_awards/ 

2005_award_winner_profiles(ii).pdf 

ENERGY STAR. 2005c. Purchasing & Procurement. http://www.energystar.gov/index.cfm?c= 

bulk_purchasing.bus_purchasing 

ENERGY STAR. 2005d. The ENERGY STAR Challenge-Build a Better World 10% at a 

Time. 

http://www.energystar.gov/index.cfm?c= 

leaders.bus_challenge 

EPA. 2004a. Aggregated Green Power Purchasing Case Study on New Jersey. U.S. 

EPA Office of Atmospheric Programs, EPA-430-F-04-34. December. 

http://www.state.nj.us/dep/dsr/bscit/ 

GreenPower.pdf 

(November 2003 version) or contact EPA. 

EPA. 2004b. Integrating State and Local Environmental and Energy Goals: Energy 

Performance Contracting. Case Study (draft). September. 

Contact EPA. 

3-26 � Chapter 3. State Planning and Incentive Structures
 
 

EPA Clean Energy-Environment Guide to Action
 

References (continued)
 

Title/Description URL Address 

EPA. 2005a. CHP Partnership. http://www.epa.gov/chp/ 

EPA. 2005b. Green Power Partnership. http://www.epa.gov/greenpower/ 

EPA. 2005c. New England Press Releases. http://www.epa.gov/boston/pr/2005/apr/ 

dd050407.html 

ESL. 2005. Texas ESL. ESL Programs. http://energysystems.tamu.edu/programs/ 

programs.htm 

Executive Order No. 111 “Green and Clean” State Buildings and Vehicles: 

Guidelines, Second Edition. New York 2004. New York State Energy Research and 

Development Authority, Albany, NY. December. 

http://www.nyserda.org/programs/State_ 

Government/exorder111guidelines.pdf 

Feldman, R. 2005. Apollo Washington “policy menu” shoots for the stars. Sustainable 

Industries Journal Northwest. May 1. 

http://www.sijournal.com/ 

commentary/1512972.html 

Iowa. 2005. Iowa DNR Energy Web site. Executive Order 41 Guidance. http://www.iowadnr.com/energy/eo41.html 

IPMVP. 2005. Efficiency Evaluation Organization. International Performance 

Measurement and Verification Protocol (IPMVP). 

http://www.ipmvp.org 

IWMB. 2005. Sustainable Building Guidelines. California Integrated Waste 

Management Board, Sacramento. 

http://www.ciwmb.ca.gov/GreenBuilding/ 

Design/Guidelines.htm#Whole 

MEA. 2005. Maryland Energy Administration State Agency Loan Program Web site. 

Accessed November 2005. 

http://www.energy.state.md.us/programs/ 

government/stateagencyloan.htm 

Montgomery County. 2004. Montgomery County, Maryland, News Release. May 13. http://www.montgomerycountymd.gov/ 

Apps/News/Press/ 

DisplayInfo.cfm?ItemID=895 

New York 2004. Executive Order No. 111 “Green and Clean” State Buildings and 

Vehicles: Guidelines, Second Edition. New York State Energy Research and 

Development Authority, Albany NY. December. 

http://www.nyserda.org/programs/State_ 

Government/exorder111guidelines.pdf 

� Section 3.1. Lead by Example
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EPA Clean Energy-Environment Guide to Action
 

3.2 State and Regional Energy 

Planning 

Policy Description and Objective 

Summary 

Energy planning is, in its broadest sense, a strategic 

effort to develop energy-related goals and objectives 

and formulate related policies and programs. As the 

nexus for a variety of state concerns, energy planning can serve as an umbrella mechanism for simultaneously addressing energy, environmental, economic, and other issues. Energy planning can be 

undertaken at both a state and regional level. 

Many states have used their energy plans to support 

the development and use of cost-effective clean 

energy to help address multiple challenges including 

energy supply and reliability (including concerns with 

availability, independence, and security), energy 

prices, air quality and public health, and job development. 

Clean energy planning (as one aspect of energy planning) has taken place in several contexts. It has been 

part of a broad, multi-faceted strategy that incorporates clean energy as one element (along with conventional sources and end uses), as in the New York 

State Energy Plan. It has been incorporated into 

more targeted efforts as in the California Energy 

Action Plan, which was developed in the wake of an 

electricity and natural gas crisis and sought to prioritize cost-effective, environmentally sound options. 

States have approached clean energy planning as an 

exclusive focal point, such as in the Illinois 

Sustainable Energy Plan. Other planning approaches 

have included variations of these, including government-focused lead by example strategies. 

Energy planning can serve as a platform to promote 

or adopt significant policy initiatives including 

statewide clean energy goals, such as a renewable 

portfolio standard (RPS) or energy efficiency requirement, green power purchase levels for the state, or 

greenhouse gas reduction goals. The 2002 New 

Energy planning at the state or regional level 

is an effective means for ensuring that clean 

energy is considered and used as an energy 

resource to help states address their multiple 

energy and nonenergy challenges. 

York State Energy Plan, for example, included a 

renewable energy goal that helped spur the development of New York’s RPS and a greenhouse gas emission reduction goal that set the stage for the governor to solicit support for a regional greenhouse gas 

initiative across the Northeast. 

Energy plans are usually developed by one or more 

state agencies, typically led by the state energy 

office. These efforts may be at the direct behest of 

the governor or other top official or the state legislature. Frequently, public and private sector stakeholders, such as electricity and gas utilities, environmental organizations, equipment manufacturers, and 

others, provide input to the plan. Implementation 

likewise involves a variety of agencies and stakeholders, and possibly calls for specific legislative or executive level action. 

While some states require energy plans, the level of 

activity varies as does the scope and scale of efforts. 

Similarly, the inclusion of clean energy sources varies 

depending upon the state’s circumstances. However, 

with all regions facing significant costs for new 

resources, along with heightened reliability, security, 

and environmental concerns, there has been 

increased interest in energy planning that includes 

consideration of the energy, economic, and environmental benefits of clean energy. 

This section describes how states and regions have 

included clean energy in their energy planning 

efforts, discusses the role of various participants in 

the process, describes the interaction with federal 

and state policies or programs, and lays out several 

sets of best practice measures with respect to plan 

development, implementation, and evaluation. 

Chapter 2 of this Guide, Developing a Clean EnergyEnvironment Action Plan, provides additional detail 

on best practices for the development step, including 

3-28 � Chapter 3. State Planning and Incentive Structures
 
 

 

 

 

Examples of Clean Energy Goals from State 

Energy Planning Documents 

Below are examples of specific, quantitative clean 

energy goals (including recommendations and proposed strategies) that states have included in their 

state energy plans or related documents:a 

• Improve new and remodeled building efficiency by 5% 

and accelerate the state’s RPS by adding a net average of 600 MW of new renewable generation sources 

annually (California, Energy Action Plan, 2003). 

• By 2006, 2% of electricity sales generated by renewable energy; increasing annually by 1% until 2012. 

Reduce electricity consumption by 10% of projected 

annual load growth by years 2006 to 2008, rising to 

25% in years 2015 to 2017 (Illinois, Sustainable 

Energy). 

• Increase electricity production of solar energy in 

New Jersey to at least 120,000 MWh per year by 

2008 (New Jersey, Clean Energy Program Annual 

Report, 2003). 

• Reduce primary energy use per unit of gross state 

product by 25% below 1990 levels by 2010; increase 

renewable energy use as a percentage of primary 

energy use by 50% from 2002 levels to 15% by 2020; 

reduce greenhouse gas emissions by 5% below 

1990 levels by 2010 and 10% below 1990 by 2020 

(New York, State Energy Plan, 2002). 

• State agencies and universities reduce energy consumption in existing state building to save 20% by 

2008 (North Carolina, State Energy Plan, 2003). 

• 25% of state government’s total electricity needs 

met by new renewable energy sources by 2010 and 

100% by 2025 (Oregon, Renewable Energy Action 

Plan, 2005). 

• Establish a new standard for renewable energy use 

in the state, averaging 10% statewide by 2015 

(Wisconsin, Report to the Governor’s Task Force on 

Energy Efficiency and Renewables, 2004). 

a Note that these goals are not necessarily the only ones included 

in a particular state plan and that additional action is generally 

required to implement a goal. 

specifics on analytical tools, and lays out a number 

of action steps for states. Chapters 3 through 6 contain descriptions of 16 clean energy policies, programs, and strategies that states are pursuing and 

may be included in a clean energy plan. In keeping 

with the scope of the Guide to Action, this section 

� Section 3.2. State and Regional Energy Planning
 

EPA Clean Energy-Environment Guide to Action 

focuses on on the electricity and natural gas sectors. 

The role of transportation in energy planning is an 

important one, however, and one that at least several 

states are integrating into their processes. 

Objective 

State and regional energy planning can further multiply state goals and leverage tools, resources, and 

policy opportunities from many agencies/states. 

States have advanced clean energy through their 

planning efforts by: (1) identifying and promoting a 

package of cost-effective options to meet energy, 

environment, and economic goals, (2) recognizing 

and assessing a full range of short- and long-term 

benefits from energy efficiency and renewables, (3) 

engaging multiple agencies and stakeholders in the 

state planning process and implementation, and (4) 

helping state agencies from different states within a 

region coordinate their efforts to better achieve 

complementary goals. 

Benefits 

Energy plans that incorporate environmental considerations and related cost-effective clean energy 

options including energy efficiency, renewable energy, and combined heat and power (CHP) have helped 

lay the groundwork for the efficient use of energy 

and state resources and helped to achieve a broad 

set of energy, economic, and environmental policy 

goals, including: 

• Providing a cost-effective response to projected 

load growth, possibly avoiding the need for new 

power plants and infrastructure. 

• Helping to meet challenges that load growth 

places on an aging system, and/or alleviating congestion and related concerns with system stability 

and reliability. 

• Increasing energy supply diversity and security 

with greater reliance on domestic, regional, or instate resources. 

• Reducing energy prices and price volatility. 

• Reducing the environmental footprint of energy 

use. 

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In addition, integrated energy planning efforts have 

yielded many policymaking benefits, including: 

• Providing a framework to coordinate energy efficiency and renewable energy initiatives among 

state agencies and across states within a region. 

• Reducing the time and costs associated with 

meeting existing and future environmental 

requirements through more efficient deployment 

of agency resources and efforts and adoption of 

least-cost and least time-intensive measures. 

• Developing a climate in the state favorable to 

investment, innovation, and economic development of energy efficiency and renewables. 

• Providing technical insights and organizational 

relationships that are valuable in a crisis or unexpected situation where quick decisionmaking is 

required. 

• Conveying a sense of coherence and joint purpose 

to the public and other stakeholders. 

State Energy Planning 

States are using a variety of approaches to energy 

planning, ranging from establishing broad policy 

agendas to focusing exclusively on clean energy 

resources. Some states have also developed plans for 

how they can lead by example through governmentfocused initiatives. States may also look specifically 

at the electricity sector in their development of a 

clean energy plan. In addition, under the State 

Energy Program directed by the U.S. Department of 

Energy (DOE), state energy offices develop plans for 

how to invest support received through an annual 

federal funding appropriation to help promote energy 

efficiency and renewable energy (see Interaction with 

Federal Policies on page 3-35). 

The following approaches can be adapted and combined, with the appropriate combination based on a 

state’s priorities and resource availability: 

•	 Clean Energy Within a Comprehensive State Energy 

Plan. Several states have developed a comprehensive energy plan that includes specific policy goals, 

action items, and implementation steps to increase 

the use of energy efficiency and renewable energy 

sources as one of several complementary sources. 

Examples include New York’s State Energy Plan, 

Connecticut’s Energy Plan, and California’s 

Integrated Energy Policy Report and Energy Action 

Plan (EAP). Comprehensive energy plans have 

established specific targets for clean resources and 

identified strategies (e.g., a renewable energy 

and/or energy efficiency portfolio standard [EEPS]) 

for implementing policies and programs by a variety of state agencies. California has used its plan 

to prioritize clean energy as a way to meet future 

load growth by establishing the following “loading 

order” for resources: (1) conservation and energy 

efficiency, (2) new renewable generation, and (3) 

clean fossil fuel-fired central generation (CERCDC 

2003). The New York State Energy Plan includes 

goals for improving the combined contribution of 

energy efficiency and renewable energy in meeting 

the state’s energy needs. 

•	 Energy Plan Focused on Clean Energy. Some states 

have developed a targeted energy plan that 

emphasizes increasing penetration of renewable 

resources, boosting energy efficiency, and increasing demand response. Clean energy may also be 

included in plans that address related issues of 

natural gas dependency or climate change. 

Examples include Illinois’ Sustainable Energy Plan, 

New Mexico’s Clean Energy Plan, Pennsylvania’s 

Energy Harvest, and Wisconsin’s Report of the 

Governor’s Task Force on Energy Efficiency and 

Renewables. The Illinois plan sets a renewables 

goal for 2006 that at least 2% of the electricity 

sold to customers would come from renewables, 

with an annual increase of 1% until 2012. For 

efficiency, the goal is to reduce electricity consumption by at least 10% of projected annual load 

growth between 2006 and 2008, increasing to a 

25% reduction from 2015 to 2017. 

•	 Plan for Leading by Example. Many states have 

developed energy plans designed to help the 

state lead by example in its own use of resources. 

These state initiatives can jump-start the market 

for renewables and provide drivers for efficiency 

technologies and services. The lead by example 

3-30 � Chapter 3. State Planning and Incentive Structures
 
 

 

 

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approach can be incorporated into a broad energy plan or a targeted clean energy plan, or be 

pursued independently. Examples of measures 

that a state can pursue include: adopting a 

renewable energy goal for the electricity consumed by the state (e.g., its office buildings, 

vehicle fleets), setting efficiency thresholds for 

the purchase of energy consuming products or 

equipment, and improving energy efficiency to 

offset projected load growth. Connecticut, 

Virginia, Nevada, Oregon, South Dakota, and 

Vermont are among the states that use this 

approach. Oregon has decided to increase the 

energy efficiency of new or remodeled state 

buildings by 20% or better, and existing buildings 

are required to reduce energy consumption by 

10% relative to 2000. (See Section 3.1, Lead by 

Example, for more information.) 

•	 Planning by Regulated Entities. Given their significant role in energy supply and use, states can 

require that regulated electricity suppliers (i.e., 

electric utilities or electric distribution companies) 

develop electricity plans that are consistent with 

the state’s policy objectives. This effort can be 

connected to a broader energy planning effort or a 

targeted clean energy initiative, or be pursued on 

its own. In states where utilities are vertically 

integrated (the traditional approach to regulation 

in which generation, transmission, and distribution 

are provided by one entity), this takes the form of 

Integrated Resource Planning (IRP) (e.g., California, 

Minnesota, Washington). In states where the regulation of the electricity industry has been restructured, this can take the form of including clean 

energy in portfolio management (e.g., New Jersey, 

Illinois). Utilities may also develop comprehensive 

energy efficiency investment plans as part of their 

demand-side management or other efforts. IRP 

and portfolio management are discussed in more 

detail in Section 6.1, Portfolio Management 

Strategies. Utility funding for energy efficiency is 

discussed in Section 4.2, Public Benefits Funds for 

Energy Efficiency. 

Regional Energy Planning 

Regional planning typically occurs in two separate, 

but related, forums. Government or quasi-government 

entities, such as governors’ associations, may develop 

a coordinated approach for sharing information and 

developing broad regional policy approaches. These 

planning approaches are not usually binding, with 

the exception of the Northwest Power Planning 

Council. In addition, power system operators engage 

in rigorous power system planning that focuses primarily on a reliable and adequate power supply for 

an electrical region. These regional planning 

approaches are described as follows. 

•	 Regional Plan for Policy Coordination. In some 

regions, states are working together to create an 

energy plan that outlines shared policy goals. The 

Western Governors’ Association (WGA) has established a Clean and Diversified Energy Advisory 

Council to help pursue the regional goals of 

30,000 MW of clean energy by 2015 and increasing the efficiency of energy use by 20% by 2020. 

The New England governors have taken a coordinated approach to policy development in the areas 

of climate change, energy efficiency, and renewables through its New England Governors/Eastern 

Canadian Premiers Climate Change Action Plan, 

which includes the goal of increasing the amount 

of energy saved through conservation programs by 

20% by 2025. The Coalition of Northeast 

Governors (CONEG) has established an Energy 

Working Group and is active in pursuing biomass 

and other renewable options. 

Regional approaches have been pursued for a variety of reasons. Some of the motivation is the 

regional nature of power markets and the attempt 

to better align policy boundaries with those of the 

relevant independent system operator (ISO) or 

similar organization (see more in the “Clean 

Energy in Regional Power System Planning” bullet). 

In addition, many regions have a long history of 

working collectively to pursue public policy goals, 

and energy policy is a natural extension of this 

historic relationship. Regional efforts are also 

attractive for states that want to move forward 

with the support of neighboring states to create a 

� Section 3.2. State and Regional Energy Planning
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“level playing field” (e.g., with respect to prices) in 

their region. Regional approaches can also offer 

opportunities for economies of scale, for instance, 

under aggregated purchasing efforts. 

•	 A Federally Mandated Regional Energy Planning 

Process. The Northwest Power and Conservation 

Council, created by Congress in 1980, develops 

and maintains a regional power plan to balance 

the Northwest’s environment and energy needs. 

The council is explicitly charged with incorporating 

cost-effective measures in its plan according to 

the following priorities: (1) conservation, (2) 

renewable resources, (3) generating resources 

using waste heat or generating resources of high 

fuel conversion efficiency, and (4) all other 

resources (Pacific Northwest Electric Power 

Planning and Conservation Act 1980). 

In addition, the Northwest Power and 

Conservation Council provides an example of how 

regional state committees can examine the role of 

clean energy as a resource. These examples are 

discussed in more detail under the State and 

Regional Examples section on page 3-38. 

•	 Clean Energy in Regional Power System Planning. 

Regional power system operators conduct detailed 

ongoing planning efforts to ensure the reliable and 

efficient operation of the interconnected bulk 

electricity power systems. As such, their focus is 

narrower than a state energy plan that is undertaken by a government entity and reflects broader 

public policy goals. However, these plans increasingly attempt to consider how clean energy 

resources can be deployed to avoid the need for 

other grid resources such as new power lines. 

Plans are typically developed on an annual basis, 

with regular reviews throughout the year. The 

plans cover a long-term planning horizon of about 

10 years. Many states participate in these regional 

planning processes and support consideration of 

energy efficiency and renewables as supply 

resources and as alternatives to transmission system expansion. 

There have been some efforts to formalize state 

participation in regional power system planning 

processes. For example, states in the Midwest ISO 

region have created a new Organization of 

Midwest ISO States (OMS) as a coordination vehicle for state utility commissions in their response 

to Midwest ISO’s regional planning. OMS has a 

small staff and bylaws, and state commissions 

provide staff support. OMS is intended to coordinate the information needs and state responses to 

Midwest ISO regional transmission plans. This is 

one example of a Regional State Committee that 

the Federal Energy Regulatory Commission (FERC) 

has encouraged for state input into regional planning processes that could be used to foster clean 

energy planning. 

Designing an Effective State or 

Regional Energy Plan 

This section describes policy issues, approaches, and 

best practices for designing effective clean energy 

plans. The issues covered in this section are built on 

lessons learned from states’ experiences in developing and implementing energy plans. First is a discussion of important procedural issues: determining the 

participants that need to be involved; assessing 

funding necessary to support the effort; setting the 

planning horizon covered by the plan and related 

analysis; and, determining the frequency for planning, reviews, and updates. Next, this section contains insights into interactions of energy planning 

with other state and federal policies. 

Participants 

States have found that participation by a wide variety of stakeholders results in the most effective 

energy planning processes. Broad participation across 

agencies, states, and relevant external stakeholders, 

facilitates information sharing, promotes the consideration of a broad range of options and related tools, 

and enables participants to understand how their 

efforts fit into the broader plan. In some states, the 

legislature has created a board or council that 

includes multiple agencies and sometimes legislators 

and/or other stakeholders (e.g., Connecticut Energy 

Advisory Board, North Carolina Energy Policy Council, 

New York Energy Planning Board). In other states, 

3-32 � Chapter 3. State Planning and Incentive Structures
 
 

EPA Clean Energy-Environment Guide to Action
 

the governor has formed a task force or council that 

includes state agencies, legislators, and sometimes a 

variety of external stakeholders (e.g., Delaware, 

Illinois, Iowa, Kansas, Kentucky, Oregon, Wisconsin). 

External stakeholders can play a role in developing 

the energy plan through meetings, public comment 

processes, and expert presentations. Many of the 

same state-level participants play similar roles in the 

development of regional energy plans. 

•	 Governor. States have found that top-level commitment to clean energy policies and leadership 

on a coordinated approach is an important part of 

developing an effective energy policy and ensuring 

effective follow-through on implementing clean 

energy measures. The governor can establish priorities and policy objectives, and can ensure that 

appropriate agencies participate in the process. In 

recent years, governors have increasingly recognized the importance of energy planning and the 

link between energy, the environment, and the 

economy. For example, in their 2004 state of the 

state addresses, several governors recognized this 

linkage and proposed related programs or policies. 

A number of governors have created cabinet level 

task forces or similar bodies to study and/or 

implement clean energy policy goals (e.g., 

Delaware Energy Task Force, Iowa Energy 

Coordinating Council, Florida Energy 2020 Study 

Commission, New Mexico Solar Power Task Force, 

Oregon Renewable Energy Action Plan, West 

Virginia Energy Task Force, and Wisconsin Energy 

Efficiency and Renewables Task Force). 

•	 Legislature. Legislatures have played a variety of 

roles. Many of the action items in an energy plan 

may require legislative approval and/or funding. In 

some states, the legislature has mandated an energy planning process. Such a mandate can help 

clarify clean energy priorities, ensure that appropriate agencies participate, and increase the likelihood that adequate resources are devoted to energy planning and associated implementation steps. 

Examples of legislative initiatives include the 

Connecticut Energy Advisory Board, the North 

Carolina Energy Policy Council, California 

Integrated Energy Policy Reports, and the New York 

State Energy Plan. In many instances, legislators 

serve on an energy board or council (e.g., Delaware 

and North Carolina). 

•	 State Agencies. Agencies provide detailed knowledge and experience and dedicated resources. They 

are often looked to by the governor and/or legislature to define broad policy objectives, inform 

development of targets, develop policies and programs, identify feasible implementation steps, and 

develop action items. They are also key players in 

implementing specific programs and in reviewing 

plan implementation. Increasingly, states are looking to include the broadest array of agencies possible to enhance leveraging opportunities and harmonize efforts. States have included agencies covering a range of interests (e.g., education, energy, 

public utilities, environmental protection, transportation, housing, agriculture, economic development, consumer protection, human rights, government purchasing, administrative services) in the 

planning process. States may also provide their 

perspective as large end users. 

•	 Universities. Frequently, universities play an important role in developing and implementing an energy plan. For instance, faculty might be able to 

secure grant funding for analytical modeling that is 

not available in state government. Universities can 

also provide a neutral forum to engage stakeholders. Faculty at the Appalachian State University 

spearheaded the development of the North 

Carolina Energy Plan; similarly, the Florida Solar 

Energy Center at the University of Central Florida 

played a major role in Florida’s Energy Plan. The 

Center for Energy, Economic and Environmental 

Policy at Rutgers University serves as policy advisor 

and evaluator for the New Jersey Clean Energy 

Program and related planning efforts and as facilitator for the Clean Energy Council. 

•	 Utilities. Utilities, including investor-owned, municipal, and cooperative utilities, provide technical 

expertise and are sources of customer information. 

Utilities sometimes provide input as stakeholders, 

and sometimes serve directly on a board or council 

(e.g., Delaware, North Carolina, and West Virginia). 

They also participate in regional power system planning processes. They are also involved in implementing and evaluating programs and policies. 

� Section 3.2. State and Regional Energy Planning
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EPA Clean Energy-Environment Guide to Action
 

•	 ISOs and Regional Transmission Organizations 

(RTOs). These entities initiate and lead regional 

transmission planning processes. They provide 

information and analysis of the regional power 

system, solicit input from market participants and 

state entities, and develop the regional plan. They 

are also involved in implementing and evaluating 

programs and policies. 

•	 Independent Power Producers, Independent 

Transmissions Owner, and Energy Suppliers. One or 

more of these entities might be involved, depending on the issues being addressed by the energy 

plan. They can provide information and analysis, 

particularly as it relates to one of their assets (e.g., 

a generating source, transmission line, or pipeline). 

They are also involved in implementing and evaluating programs and policies. 

•	 Environmental and Consumer Organizations. These 

organizations often provide data and analysis, 

ideas on program design, and feedback on proposed policies, initiatives, goals, and programs. 

•	 Other Private Sector Entities. Many energy plan 

components are geared to motivating greater 

investment by the private sector in energy efficiency and renewables. The private sector also 

plays a key role in spurring technological innovation. Large end users, manufacturers, energy efficiency providers, and other entities that are 

directly affected by state energy programs might 

be particularly helpful in developing and implementing an energy plan. Energy planning processes can also include representatives (including 

management and labor) of fuel, biomass, Energy 

Service Companies (ESCOs), or renewables industries. 

•	 The Public. States involve the general public in the 

energy planning process by holding pubic hearings 

in different parts of the state and using the media 

and other information distribution outlets (e.g., 

agency Web sites and gubernatorial addresses) to 

raise awareness of pending issues. The public can 

provide feedback as well as new ideas and input to 

state officials. 

Funding 

Funding needs arise in both developing and implementing an energy plan. Developing a state energy 

plan can involve contributions of staff and other 

resources from multiple state agencies, the governor, 

the legislature, and sometimes private entities. Much 

of this support is typically in-kind because dedicated 

funding streams are rare. More common is a onetime appropriation. Development often calls for 

sophisticated energy system modeling, ideally coupled with economic and environmental analyses. This 

modeling can be costly to build and maintain, and 

funding is often a critical issue. A state may be able 

to fund this work through a utility gross receipts tax 

or other stable funding mechanism. For example, the 

New York State Energy Research and Development 

Authority (NYSERDA) is funded in part through a 

statutorily prescribed assessment on the intrastate 

sales of New York State’s investor-owned electric 

and gas utilities. 

Implementation of the plan, such as specific action 

items contained in the energy plan, could require 

special appropriations or mechanisms for funding 

(e.g., through a surcharge on electricity consumers or 

investment from the private sector such as for an 

RPS). For example, the plan could include recommendations for legislative action on financing renewable 

energy projects, energy tax credits, and other tax 

incentives or for allocating funding to data collection 

and research. 

On a regional basis, if there is an RTO, the governing 

board may approve the use of a wholesale tariff to 

help support energy planning activities. 

An energy plan can also direct investment by state 

agencies to meet specific purchasing targets for 

energy efficiency and renewables. For example, specific agencies can be charged with expanding 

cost/benefit analyses to include benefits of renewables and efficiency, allocating agencies’ funds to 

particular types of projects, ensuring agency incentives are consistent with overall policy, or pursuing 

specific demonstration projects. 

3-34 � Chapter 3. State Planning and Incentive Structures
 
 

 

 

 

 

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Planning Horizon 

Planning horizons included in energy plans vary from 

a few years to 15 or 20 years. A state may choose to 

limit the time frame based on a concern about 

achieving the greatest accuracy. Other states extend 

the horizon so that they can consider how long-term 

needs might be met and to more fully realize the 

costs and benefits of different energy resources. 

Timing and Duration 

There is a great variety in the timing and duration of 

energy planning. Some states have a regular planning cycle (ranging from once every year to once 

every five years) that may include a provision for 

updating and/or evaluating the plan in off-years 

(e.g., Connecticut, California, Iowa, New York, 

Oregon). Other states develop energy plans on a 

more ad-hoc basis, based on the perceived need, 

resource constraints, or other factors. Some states 

have become recently active after waiting 10 or 

more years before revising their energy plan (e.g., 

Delaware, Wisconsin, North Carolina, Florida). 

Interaction with Federal Policies 

Several federal programs can help support the integration of clean energy into state and regional energy planning: 

•	 DOE. DOE administers the State Energy Program, 

which provides grants to states and directs funding to state energy offices from DOE’s technology 

programs. States use grants to address their energy priorities and program funding to deploy 

emerging clean energy technologies. As part of the 

State Energy Program, states are required to have 

an energy strategy in place that describes how 

they will use their annual appropriation to help 

promote energy efficiency and renewable energy. 

In addition, DOE has been working with the U.S. 

Environmental Protection Agency (EPA) to explore 

how to reflect clean energy in state air quality 

planning (e.g., through a number of Air Quality 

Energy Efficiency/Renewable Energy [EE/RE] 

Integration Pilots and other efforts). 

•	 EPA. EPA supports energy planning efforts through 

technical assistance, analytical tools, and outreach 

support on a number of clean energy topics. Key 

programs include the Clean Energy-Environment 

State Partnership Program, Green Power 

Partnership, Combined Heat and Power 

Partnership, and ENERGY STAR program. Under the 

Clean Energy-Environment State Partnership 

Program, EPA helps partner states develop a Clean 

Energy-Environment Action Plan, which is a 

detailed, implementation-oriented strategy document aimed at identifying, assessing, and prioritizing energy policies, programs, and measures that 

can achieve cost-effective environmental benefits. 

This Guide to Action helps states with their assessment by providing information, data, case studies, 

and guidance on relevant tools and resources for 

16 clean energy policies. Specific guidance on 

developing a state Clean Energy-Environment 

Action Plan, including related efforts to convene a 

state collaborative, are presented in Chapter 2, 

Developing a Clean Energy-Environment Action 

Plan. 

•	 FERC. FERC requires RTOs, or ISOs, to be responsible for regional transmission planning. As part of 

this effort, FERC has enabled the creation of 

Regional State Committees for states to have 

input into regional transmission planning. FERC 

has taken steps toward working on facilitating 

transmission access for renewables, particularly 

wind. For example, it has held public technical 

conferences on assessing the state of wind energy 

in wholesale electricity markets. In addition, FERC 

is also supporting efforts to examine the role of 

distributed energy resources. 

•	 The Energy Policy Act of 2005 (EPAct 2005). EPAct 

2005 (Section 140) authorizes grants of $5 million 

annually for each of fiscal years 2006 through 

2010 for a pilot program for three to seven states 

with statewide plans for reducing electricity and 

natural gas consumption. The grants would be 

dependent on states proving independent verification of energy savings. 

� Section 3.2. State and Regional Energy Planning
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Interaction with State Policies 

By its nature, state energy planning is often an 

umbrella function, providing an opportunity and 

mechanism to address multiple state policy objectives with participation from a full range of government and private entities. As such, it is the nexus for 

a variety of state policies. Many states have used 

energy planning as a tool for addressing environmental policy objectives simultaneously with energy policy objectives. Indeed, it is when energy objectives are 

considered alongside environmental and economic 

development objectives that clean energy can take 

on a more prominent role in the energy plan. 

Best Practices: Developing and Adopting an Energy Plan 

The best practices identified below will help states develop an energy plan that incorporates clean energy and related environmental considerations. These best practices are based on the experiences of states across the country 

that have developed energy plans. (See Chapter 2, Developing a Clean Energy-Environment Action Plan, for more 

detail.) 

•	 Create a Collaborative. Create an advisory group to identify and assess resources and tools developed by other 

organizations, including state agencies, legislatures, universities, and the private sector. This group can inform the 

establishment of a multi-agency, multi-stakeholder collaborative process to develop a plan. At the regional level, 

work with ISOs and RTOs to establish processes, set policy goals, and implement programs. 

•	 Establish Quantitative and Other Goals. Identify policy objectives and specific goals, including areas for agency 

coordination as well as specific, quantitative clean energy goals, to help guide the work of the planning agency 

and provide the public and other stakeholders with expectations for the outcomes. Setting a quantitative goal may 

be tied to one or more of the analytical steps below. 

•	 Forecast Energy Demand. Develop forecasts of energy demand that are based on end uses (i.e., using detailed 

information on energy-using appliances/equipment, including model, size, and operating characteristics) rather 

than econometric drivers (i.e., “top down” drivers such as population, economic activity, weather, and more general assumptions on appliance and equipment use/penetration). 

•	 Assess Clean Energy Potential. Assess the technical, economic, and achievable potential for clean energy 

resources to help meet forecasted demand and integrate clean energy resources fully into the analysis. 

•	 Examine Policy Options. Consider how new and existing policies and programs can help expand the use of costeffective clean energy. The Guide to Action describes each of the 16 clean energy policies, programs, and strategies that states have found particularly promising and may include in their state or regional clean energy plans. 

States may develop several scenarios, based on a range of clean energy goals or policy variations. An important 

element of policy development is the equitable treatment of all energy resources in any recommendations/provisions for utility cost recovery decisions (i.e., avoid potential bias toward supply-side resources and transmission 

investments, and avoid policy recommendations that may inadvertently set a ceiling on clean energy investments). 

(See Section 6.2 for a broader discussion of utility regulations and incentives, and Sections 4.2 and 5.2 for information on public benefits funds [PBFs] for energy efficiency and energy supply, respectively.) 

•	 Evaluate Impacts of Policy Scenarios. Develop forecasts of energy use that include a full range of impacts for each 

scenario (e.g., environmental, economic, system reliability, and price). 

•	 Link Plan to Action. Develop steps for plan adoption and implementation, and make action items enforceable where 

appropriate. Identify specific action items and schedules for individual agencies, as well as for inter-agency coordination. 

•	 Coordinate Implementation. Provide for coordination of program administration and delivery—including coordination with enacting bodies (e.g., the legislature or executive branch) and implementing agencies (e.g., Public Utility 

Commissions [PUCs], state energy offices). 

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Several states have identified economic development 

or climate change concerns as key drivers in the 

shaping of their energy plan (e.g., Connecticut, 

Florida, Illinois, New York, Oregon, West Virginia, 

Wisconsin, Iowa, North Carolina, Vermont). For 

example, the Massachusetts Climate Protection Plan 

is premised on the interrelated nature of energy, 

environment, housing, and transportation issues. 

Similarly, Connecticut cites its Climate Change 

Action Plan as one of the key factors affecting its 

energy policy. State climate change action plans 

often include a number of clean energy policies that 

can help achieve greenhouse gas reductions, such as 

energy efficiency goals or targets, renewable energy 

portfolio standards, building energy codes, and provisions to increase the use of clean distributed generation. Energy plans are frequently linked to economic 

development and job creation. Regulatory policies 

that address decoupling utility profits from energy 

sales, portfolio management, demand response, and 

utility planning are also related and are discussed in 

Section 6.1, Portfolio Management Strategies. 

Some states have taken specific actions to ensure 

that utilities provide adequate access to transmission 

and distribution for renewables. Many utilities are 

determining how best to incorporate energy efficiency and distributed generation (DG) into distribution 

system planning. For example, New York has been 

evaluating DG in distribution system planning 

through several regulatory proceedings. Similarly, the 

Massachusetts DG Collaborative has a working group 

on DG distribution system planning. 

Program Implementation and 

Evaluation 

Roles and Responsibilities of 

Implementing Organizations 

• State Agencies. Energy plans usually include specific actions for a number of state agencies including 

energy offices, public utility commissions (PUCs), 

environmental agencies, administrative agencies (or 

other agencies charged with purchasing), and economic development agencies. For example, PUCs 

are often involved in developing efficiency plans 

and developing rules that specify actions regulated 

utilities must take to implement the policies and 

goals adopted in the plan. Agencies are key players 

in the implementation of specific programs and the 

review of plan implementation. 

• Legislature. Legislative action may be required to 

implement certain steps of a plan, such as special 

tax treatment or development of funding sources. 

The legislature also often oversees the implementation of plans and may intervene to make course 

corrections or to clarify ambiguities. 

• Universities. Universities often play a key role in 

energy research and development relating to clean 

energy options and are sometimes looked to as 

partners in initiatives to foster specific technologies. 

• Utilities. Utilities (both vertically integrated and 

distribution-only) are essential to the implementation of certain programs, such as efficiency programs, integrating renewables into power systems, 

portfolio procurement, and IRP. They also participate in regional power system planning processes. 

Even utilities that are not regulated by the state, 

including municipal utilities and cooperatives, may 

have roles to play in program implementation. 

Best Practices: Implementing Energy Plans 

States can use the best practices below to implement 

their energy plan. These best practices are based on 

the experiences of states that have energy plans. 

•	 Designate specific implementation tasks to specific 

agencies and staff. 

•	 Create an entity or working group to monitor plan 

implementation. 

•	 Link implementation to other policies so that state 

activities overall are compatible with the energy 

plan, including provisions that bind agencies to conduct certain activities, such as procuring certain 

resources or conducting key studies. 

•	 Require each agency to develop a plan for implementing the portions of the plan for which it is 

responsible and to demonstrate that its activities 

support the goals of the plan. 

� Section 3.2. State and Regional Energy Planning
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Evaluation 

Energy plan evaluation practices span a range of 

approaches from very broad review, to detailed program by program review and evaluation. 

Some energy plans are primarily tools to enunciate 

policies and do not include a specific mechanism or 

procedure for reviewing and evaluating the implementation of the plan. In contrast, some plans 

include specific reporting requirements (e.g., to the 

legislature or the governor). Energy plans also can 

include feedback loops to guide future iterations of 

the plan. For example, in New York, the Energy 

Coordinating Working Group, comprising staff representatives of the agencies on the Energy Planning 

Board, issues an annual Report and Activities Update 

that evaluates progress toward the goals of the most 

recent energy plan. Similarly, Oregon’s Biennial 

Energy Plan (2003–2005) includes a section on 

achievements, reviewing the results of the previous 

years’ energy programs. Oregon’s Renewable Energy 

Action Plan specifically charges a working group 

Best Practices: Evaluating Energy Plans 

The best practices identified below will help states 

evaluate their energy plans. These best practices are 

based on the experiences of states that have an energy plan. 

•	 Identify a specific schedule and steps for plan evaluation. 

•	 Designate an entity or working group responsible 

for monitoring plan implementation. 

•	 Develop a process for evaluating individual action 

items and success in achieving the stated objective. 

•	 Select appropriate measures to determine the success of programs (e.g., metrics can include kWh 

saved, appliances sold, dollars spent, and new 

renewables installed) and include metrics about 

environmental and economic benefits and results, 

such as emissions saved or jobs created. 

•	 Prepare a comprehensive report that examines all 

aspects of the energy plan as a whole. 

•	 Recommend adjustments to respond to new opportunities or barriers identified in the evaluation 

process. 

with evaluating implementation of the plan. The 

2005 Connecticut Energy Plan reviews the success in 

implementing the 2004 Energy Plan, and includes a 

section on evaluating and providing a progress report 

as part of the energy plan. The Iowa Department of 

Natural Resources (DNR) prepares a comprehensive 

energy plan update every two years, reporting on 

energy consumption as well as progress in improving 

energy efficiency and expanding renewable energy 

use. 

A thorough and well-documented evaluation 

process can help build confidence in the benefits 

associated with clean energy. In addition, evaluation results can help planners understand instances 

where projections did not materialize as expected 

and point to ways to address potential barriers to 

full policy success. 

State and Regional Examples 

California 

As directed by the state legislature in 2002, the 

California Energy Commission (CEC) prepares a biennial Integrated Energy Policy Report (IEPR). The IEPR 

addresses issues uncovered in an integrated assessment of major energy trends and challenges facing 

California’s electricity, natural gas, and transportation fuel sectors. It makes policy recommendations to 

conserve resources; protect the environment; ensure 

reliable, secure, and diverse energy resources; 

enhance the state’s economy; and protect public 

health and safety. This includes recommendations to 

further the goals included in the state’s EAP, 

described in the next paragraph. The IEPR includes a 

chapter dedicated to the issue of climate change and 

the related interactions with energy. 

The EAP is a brief blueprint developed by the CEC, 

along with the California Public Utilities Commission 

(CPUC), as a “living document” to guide energy related 

actions throughout the state. The goal of the EAP is to 

ensure that energy is available and affordable, with 

minimal environmental risks and impacts, when and 

where it is needed. Other participants involved in 

preparing the EAP include the State Business, 

3-38 � Chapter 3. State Planning and Incentive Structures
 
 

EPA Clean Energy-Environment Guide to Action
 

Transportation, and Housing Agency; the Resources 

Agency; the State and Consumer Services Agency; the 

California Independent System Operator (CAISO); the 

California Environmental Protection Agency (Cal EPA); 

and other agencies with energy-related responsibilities. 

The EAP II: Implementation Roadmap for Energy 

Policies, released in 2005, notes that California’s energy efficiency efforts, particularly efficiency requirements for appliances and new buildings, have already 

reduced peak capacity needs by more than 12,000 

MW and continue to save about 40,000 gigawatthours (GWh) of electricity annually. It adds that in 

2004, the CPUC adopted further energy savings goals 

for electricity and natural gas. In meeting these targets, investor-owned utilities (IOUs) will save an additional 5,000 MW and 23,000 GWh per year of electricity and 450 million therms per year of natural gas 

by 2013. The EAP II asserts that there is more to be 

done and lays out a series of key actions in the areas 

of energy efficiency, demand response, electricity adequacy, electricity market structure, and other areas. 

The original EAP, released in 2003, identifies a “loading order” for energy resources that requires (1) optimizing all strategies in conservation and energy efficiency to minimize demand increase, (2) meeting 

new generation needs first by renewable energy and 

distributed generation, and (3) supporting clean fossil 

fuel-fired central station generation. This loading 

order has since been codified in state legislation and 

extends the application to local publicly owned (i.e., 

municipal) utilities. 

Web site: 

http://www.energy.ca.gov/energypolicy/index.html 

Connecticut 

The Connecticut Legislature reconstituted the 

Connecticut Energy Advisory Board in 2003. The 

Board includes leaders from multiple state agencies 

who identify and coordinate state energy needs and 

recommend strategies and solutions. The Board provides an Annual Energy Plan to the legislature that 

includes specific strategies to support energy efficiency and renewable resources. The Board’s 2004 Plan 

included a detailed assessment of energy supply and 

demand options and an overview of related policy 

opportunities and challenges. It also presented 10 

energy-related strategies (and related examples of 

possible actions) including: continuing to support 

energy efficiency and conservation, supporting 

renewable energy technologies, supporting demand 

response, and supporting transportation and land use 

policies that reduce energy use and increase fuel 

diversity. 

The 2005 plan reiterates the importance of those 

strategies and identifies several related goals including: (1) initiating and implementing by year-end 

2005 a statewide public education and awareness 

program about the Board’s recommended strategies 

to reduce dependence on fossil fuels, and (2) initiating legislative efforts related to the strategies identified in 2004. The 2005 plan also reported on the 

progress of the governor’s Steering Committee (GSC) 

on Climate Change and the related Connecticut 

Climate Change Stakeholder Dialogue as a significant 

energy-related activity. It noted the governor’s adoption of 38 recommendations made by the stakeholder group, including implementing measures to create 

a voluntary clean energy “choice” program for 

Connecticut electricity users, developing new emissions standards for cars, and using energy-efficient 

materials and design concepts in the construction of 

new state buildings. 

Web site: 

http://www.cerc.com/pdfs/ceabenergyplan_final05.pdf 

New Mexico 

The governor of New Mexico articulated a goal for 

New Mexico to become a leader in renewable energy 

and clean energy technologies. The state is also pursuing economic development goals through development of clean energy. Executive Order 2004-019 

declared New Mexico the “Clean Energy State” and 

established an internal Clean Energy Development 

Council (CEDC) consisting of cabinet secretaries. The 

CEDC established task forces on concentrating solar 

power, electricity transmission, biomass, distributed 

solar, utility energy efficiency, and green building. 

Web site: 

http://www.emnrd.state.nm.us/ecmd/ 

� Section 3.2. State and Regional Energy Planning
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EPA Clean Energy-Environment Guide to Action
 

New York 

The New York State Energy Planning Board was created by the legislature to oversee the development and 

adoption of the Annual State Energy Plan. The Energy 

Planning Board comprises several agencies: NYSERDA, 

the New York State Department of Transportation 

(DOT), the New York State Public Service Commission 

(PSC), the New York State Department of Economic 

Development (DED), and the New York State 

Department of Environmental Conservation (DEC). 

While legislation creating the Energy Planning Board 

has expired, there are draft bills in both houses of the 

legislature to reauthorize it. 

The Energy Plan includes specific goals for the contribution of energy efficiency and renewables. The 

2002 Energy Plan included the following goals: (1) 

reduce primary energy use per unit of gross state 

product to 25% below 1990 levels by 2010, (2) 

increase renewable energy use as a percentage of 

primary energy use by half from 2002 levels to 15% 

by 2020, and (3) reduce greenhouse gas emissions 

5% below 1990 levels by 2010 and 10% below 1990 

levels by 2020. 

An annual report provides updates documenting 

progress in implementing policies and recommendations contained in the plan. This report provides an 

update to the Energy Planning Board on actions and 

initiatives the state has taken to implement the 

strategies and recommendations in the Energy Plan. 

It also summarizes the data and information filed 

with the board by major energy suppliers in 2004, 

under regulations promulgated by the board. An 

appendix to the report contains an extensive matrix 

that catalogs specific initiatives and programs undertaken in response to strategies in the 2002 plan. 

Policy objectives for the Energy Plan include increasing energy diversity (including energy efficiency and 

renewables) and promoting and achieving a cleaner 

and healthier environment. NYSERDA conducts comprehensive tracking of energy plan implementation, 

including specific actions by the government and private sectors. 

Web site: 

http://www.dps.state.ny.us/State_Energy_Plan.html 

Oregon 

Under the leadership of its governor, Oregon has 

developed a Renewable EAP (issued April 2005). The 

goals of the plan are to encourage and accelerate 

renewable resources, stimulate economic development (particularly in rural areas), and improve the 

environmental future of the state. The plan is intended to be central to progress on the governor’s initiatives on sustainability and global warming. 

The plan establishes long-term and short-term goals. 

The long-term goals include: (1) new post-1999 

renewables account for 10% of load by 2015—a 

growth rate of about 1% per year, and (2) 25% of 

state government electricity needs will be met using 

renewables by 2010, and 100% of electricity needs 

will be met with renewables by 2025. The short-term 

goals, to be achieved by 2006, include: (1) developing 300 new wind energy resources, (2) finding and 

implementing five solutions to transmission bottlenecks to provide access to load centers for renewables and other resources, (3) implementing specific 

targets for solar photovoltaic (PV), biomass, biogas, 

efficient CHP, fuel cells, and environmentally sound 

hydro, (4) ensuring that utilities offer stable price 

renewable products, (5) conducting a feasibility study 

of an RPS, and (6) meeting state government purchasing goals and others. 

The plan includes specific action items for the following entities in the state: Governor’s Office, 

Renewable Energy Working Group, Department of 

Energy, Economic and Community Development 

Department, Department of Administrative Services, 

Public Utility Commission, Department of Agriculture, 

Department of State Lands, Department of Consumer 

and Business Services’ Building Codes Division, 

Oregon University System and Community Colleges, 

and Oregon Solutions team. The Renewable Energy 

Working Group is specifically charged with guiding 

plan implementation. 

Web site: 

http://egov.oregon.gov/ENERGY/RENEW/docs/ 

FinalREAP.pdf 

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New England Governors’ Conference 

(NEGC) 

Governors of the six-state New England region, an 

informal alliance since colonial days, formally established the NEGC in 1937. The conference’s goal is to 

promote New England’s economic development. In 

1981, the conference incorporated as a nonpartisan, 

nonprofit, tax-exempt 501(c)(3) corporation. The 

region’s six governors serve as its board of directors. 

The NEGC coordinates regional policy programs in 

the areas of economic development, transportation, 

environment, energy, and health, among others. 

Through these efforts, the conference seeks to effectively and cost-efficiently coordinate regional policies that reflect and benefit the states. 

In 2001, the NEGC and the Eastern Canadian Premiers 

announced a Climate Change Action Plan. This plan 

contains short-term, medium-term, and long-term 

goals for reducing greenhouse gases and includes 

several specific measures to promote clean energy 

The short-term goal is to reduce greenhouse gas 

emissions to 1990 levels by 2010; the medium-term 

goal is to reduce emissions 10% below 1990 levels by 

2020; and the long-term goal is to reduce emissions 

by 75 to 85% below 2001 levels. To achieve these 

broad objectives, the plan includes goals to reduce 

greenhouse gas emissions from the electricity sector 

through clean energy options: (1) by 2025, to reduce 

carbon dioxide (CO2) emissions per kilowatt-hour 

(kWh) of electricity by 20% from current emissions 

through a combination of renewable energy sources, 

lower carbon fuel, energy efficiency, and efficient DG, 

and (2) by 2025, to increase the amount of energy 

saved by 20% from current levels. 

Web site: 

http://www.negc.org/documents/NEG-ECP%20CCAP.PDF 

Northwest Power and Conservation 

Council 

Created by Congress in 1980 to coordinate the federal power system in the Northwest, the Northwest 

Power and Conservation Council includes two representatives from each of the four states of Idaho, 

Montana, Oregon, and Washington. The council 

develops a 20-year electric power plan for reliable 

energy at the lowest economic and environmental 

cost. The energy plan gives highest priority to costeffective conservation, followed by renewable 

resources, to the extent they are cost-effective. The 

current plan includes specific targets and action 

items for conservation, demand response, and wind 

resources. The target for conservation is 700 average 

megawatt (MW) between 2005 and 2009, and 2,500 

average MW over the 20-year planning horizon. (An 

average MW is the amount of energy delivered or 

saved over a year’s time.) The plan also calls for over 

1,100 MW of wind from system benefits charge 

(SBC) programs and utility integrated resource plans. 

The Northwest Power and Conservation Council has 

created a Regional Technical Forum to develop standards to verify and evaluate energy conservation savings for system planning purposes, and assess how 

energy efficiency is increasingly being used as a 

hedging strategy to reduce risks associated with 

volatile electricity prices. 

Web site: 

http://www.nwcouncil.org/energy/powerplan/plan/ 

Default.htm 

� Section 3.2. State and Regional Energy Planning
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Western Governors’ Association (WGA) 

The governors of the 18 states in WGA created the 

Clean and Diversified Energy Advisory Committee 

(CDEAC) in 2004 to oversee the work of the following eight task forces associated with the Clean and 

Diversified Energy Initiative: 

• Advanced Natural Gas 

http://www.westgov.org/wga/initiatives/cdeac/ 

Advanced Coal-full.pdf 

• Biomass 

http://www.westgov.org/wga/initiatives/cdeac/ 

biomass.htm 

• Clean Coal 

http://www.westgov.org/wga/initiatives/cdeac/ 

coal.htm 

• Energy Efficiency 

http://www.westgov.org/wga/initiatives/cdeac/ 

Energy%20Efficiency.htm 

• Geothermal 

http://www.westgov.org/wga/initiatives/cdeac/ 

geothermal.htm 

• Solar 

http://www.westgov.org/wga/initiatives/cdeac/ 

solar.htm 

• Transmission 

http://www.westgov.org/wga/initiatives/cdeac/ 

transmission.htm 

• Wind 

http://www.westgov.org/wga/initiatives/cdeac/ 

wind.htm 

The governors are examining the feasibility of 

actions that would be needed to develop 30,000 MW 

of clean energy in the West by 2015, ensure adequate transmission capacity, and increase energy 

efficiency 20% by 2020. The Energy Efficiency Task 

Force of the CDEAC recently released an analysis of 

the potential for improving energy efficiency in the 

18-state WGA region; a review of barriers inhibiting 

greater investment in energy efficiency; and recommendations for how the region can increase energy 

efficiency through policy actions such as state appliance standards, building codes, enhanced electricity 

and natural gas DSM, utility pricing/rate structure 

adjustments, public sector initiatives, and education 

and outreach. The analysis found that a combination 

of current state and utility energy efficiency policies 

and programs and widespread adoption of best practice policies and programs would achieve the WGA’s 

goal of reducing electricity consumption in 2020 by 

20%. The absolute electricity savings projected by 

2020 are equivalent to the electricity supply of 100 

baseload power plants. 

Web site: 

http://www.westgov.org/wga/initiatives/cdeac/ 

Western Interstate Energy Board 

(WIEB) 

The WIEB is an organization of 12 western states 

and three Canadian provinces that operate under the 

auspices of WGA. WIEB conducts a broad menu of 

clean energy activities, including (1) helping develop 

a western renewable energy tracking system 

(Western Renewable Energy Generation Information 

System or WREGIS), (2) helping foster policies to 

enable wind energy siting and operation, and (3) 

developing transmission protocols that incorporate 

clean energy options. 

Web site: 

http://www.westgov.org/wieb/ 

What States Can Do 

States and regions have approached clean energy 

planning in a number of ways, including as part of a 

broad, multi-faceted strategy that incorporates clean 

energy as one element of a larger energy plan, as a 

targeted effort, and as an exclusive focal point. Clean 

energy planning has also involved variations of these 

three approaches, including government-focused lead 

by example strategies. The information in this guide 

describes best practices for design, implementation, 

and evaluation; summarizes a wide range of state 

experiences with energy planning; and offers a variety 

of information resources on energy planning strategies. Based on these state examples, action steps for 

states that want to establish their own energy 

3-42 � Chapter 3. State Planning and Incentive Structures
 
 

 

 

EPA Clean Energy-Environment Guide to Action
 

planning programs or strengthen and expand existing 

programs are described in the following section. 

Action Steps for States 

States interested in state or regional energy planning 

can take the following steps: 

•	 Create a Collaborative. Identify and assess 

resources and tools developed by other organizations, including state agencies, legislatures, universities, and the private sector. This group can 

inform the establishment of a multi-agency, multistakeholder collaborative process to develop a 

plan. At the regional level, work with ISOs and 

RTOs to establish processes, set policy goals, and 

implement programs. 

•	 Identify Policy Objectives and Specific Goals. These 

goals and objectives can include areas for agency 

coordination as well as specific, quantitative clean 

energy goals, to help guide the work of the planning agency and provide the public and other 

stakeholders with expectations for the outcomes. 

•	 Analyze and Evaluate Opportunities to Incorporate 

Clean Energy Within State and Regional Energy 

Plans. Develop forecasts of energy demand that 

are based on end-uses (i.e., using detailed information on energy-using appliances/equipment, 

including model, size, and operating characteristics), assess the technical, economic, and achievable potential for clean energy resources to help 

meet forecasted demand and integrate clean energy resources fully into the analysis, and consider 

how new and existing policies and programs can 

help expand the use of cost-effective clean energy. 

Integrate environmental and economic, as well as 

energy, benefits into the analysis to help further 

support the use of clean energy. 

•	 Link Plan to Action and Coordinate Implementation 

Across Agencies. Develop steps for plan adoption 

and implementation and make action items 

enforceable where appropriate. Identify specific 

action items and schedules for individual agencies, 

as well as for inter-agency coordination. Provide 

for coordination of program administration and 

delivery–including coordination with enacting 

bodies (e.g., the legislature or executive branch) 

and implementing agencies (e.g., PUCs, state energy offices). 

� Section 3.2. State and Regional Energy Planning
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EPA Clean Energy-Environment Guide to Action
 

Information Resources (

Information About State and Regional Plans 

The following are links to individual state energy (or related) plans or planning processes. The list covers many 

states, but it might not contain a link to every energy plan or process available. 

State Title URL Address 

Alaska Rural Energy Plan http://www.akenergyauthority.org/ 

publicationAREP.html 

Arizona Arizona Energy Infrastructure 2002 http://www.azcommerce.com/pdf/prop/ 

sesreports/energy.pdf 

California Integrated Energy Policy Reports http://www.energy.ca.gov/energypolicy/ 

index.html 

EAPs http://www.energy.ca.gov/ 

energy_action_plan/index.html 

Connecticut Energy Plan for Connecticut http://www.cerc.com/pdfs/ 

ceabenergyplan_final05.pdf 

Delaware Executive Order http://www.state.de.us/governor/orders/ 

webexecorder31.shtml 

Florida Florida’s Energy Future: Opportunities for Our Economy, 

Environment and Security 

http://www.dep.state.fl.us/energy/pdf/ 

fl_energy_future04.pdf 

Hawaii Hawaii Energy Strategy 2000 http://www.hawaii.gov/dbedt/ert/ 

hes2000sum/index.html 

Illinois Sustainable Energy Plan http://www.icc.state.il.us/ec/ecEnergy.aspx 

Iowa Iowa Energy Plan http://www.state.ia.us/dnr/energy/MAIN/ 

PUBS/CEP/ 

Kansas 2004 Kansas Energy Plan http://www.kansasenergy.org/ 

sercc_energyplan_2004.htm 

Kentucky Kentucky’s Energy Opportunities for Our Future: A 

Comprehensive Energy Strategy 

http://www.energy.ky.gov/energyplan/ 

Maine Energy Resources Council: 2005 Work Plan and Report to the 

Legislature 

http://www.maineenergyinfo.com/docs/ 

erc2005workplan.pdf 

Massachusetts Climate Protection Plan http://www.mass.gov/ocd/climate.html 

Michigan Nonprofit energy corporation to advance alternative energy 

technology 

http://www.nextenergy.org/ 

Missouri Integrated Strategic Plan http://www.dnr.mo.gov/energy/ 

strategicplan.htm 

Montana Montana Vision 2020 http://www.cte.umt.edu/MTFutures/ 

mv2020.doc 

3-44 � Chapter 3. State Planning and Incentive Structures
 
 

EPA Clean Energy-Environment Guide to Action
 

State Title URL Address 

Nevada State of Nevada Energy Conservation Plan Energy in state office buildings: 

http://dem.state.nv.us/necp2.pdf 

2003 Status of Energy in Nevada Status of Energy in Nevada: 

http://energy.state.nv.us/2003%20Report/ 

2003%20Report.htm 

New Hampshire New Hampshire’s 10 Year State Energy Plan http://www.nh.gov/oep/programs/energy/ 

StateEnergyPlan.htm 

New Jersey An Energy Plan for the 21st Century http://www.bpu.state.nj.us/governor/ 

smartGrid.shtml 

New Jersey’s Clean Energy Program: 2003 Annual Report http://www.njcleanenergy.com/media/ 

2003_NJCEP_Annual_Report.pdf 

New Mexico Governor’s policy priorities http://www.governor.state.nm.us/ 

priorities-energy.php?mm=4 

New York New York State Energy Plan—June 2002 http://www.nyserda.org/Energy_Information/ 

energy_state_plan.asp 

North Carolina North Carolina State Energy Plan 2003 http://www.energync.net/sep/docs/ 

sep03.pdf 

Oklahoma Oklahoma’s Energy Future: A Strategy for the Next Quarter 

Century 

http://www.iogcc.oklaosf.state.ok.us/ 

MISCFILE/oklahomaenergystrategy.pdf 

Oregon Renewable Energy Action Plan http://egov.oregon.gov/ENERGY/RENEW/ 

RenewPlan.shtml 

State of Oregon Energy Plan 2005–2007 http://egov.oregon.gov/ENERGY/docs/ 

EnergyPlan05.pdf 

South Carolina South Carolina Energy Office, Strategic EAP 2002–2003 http://www.state.sc.us/energy/PDFs/ 

strategic_plan_02_03.pdf 

South Dakota Statewide Energy Management, but no clean energy development plan. 

http://www.state.sd.us/boa/ 

EnergyMgt.htm 

Tennessee Report of Governor’s Interagency Policy Workgroup http://www.state.tn.us/ecd/pdf/energy/ 

energy_policy.pdf 

Texas Energy Planning Council http://www.rrc.state.tx.us/tepc/ 

Utah State Energy Program Plan http://www.energy.utah.gov/sep/sep.htm 

Vermont Comprehensive Energy Plan http://publicservice.vermont.gov/pub/ 

state-plans-compenergy.html 

Virginia The Virginia Energy Plan, December 2001 http://www.mme.state.va.us/de/chap2b.html 

Washington 2005 Biennial Energy Report http://www.cted.wa.gov/_CTED/documents/ 

ID_1872_Publications.pdf 

West Virginia West Virginia’s Energy Roadmap, 2001–2020 http://www.wvenergyroadmapworkshops.org/ 

reports/WestVirginiaEnergyRoadmap 

08-20-02.pdf 

� Section 3.2. State and Regional Energy Planning
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State Title URL Address 

Wisconsin State of Wisconsin 2001 Energy Policy http://www.wtpeople.com/energy/ 

energypolicy062101.pdf 

Report of the Governor’s Task Force on Energy Efficiency and 

Renewables 

http://energytaskforce.wi.gov/ 

section.asp?linkid=33 

Regional Planning 

Organizations or 

Efforts 

New England Governor’s Conference (NEGC’s) Climate Change 

Action Plan 

http://www.negc.org/documents/ 

NEG-ECP%20CCAP.PDF 

Northwest Power and Conservation Council http://www.nwcouncil.org/ 

Northwest Power and Conservation Council Regional Technical 

Forum 

http://www.nwcouncil.org/energy/rtf/ 

about.htm 

WGA Clean and Diversified Energy Initiative http://www.westgov.org/wga/initiatives/ 

cdeac/ 

Western Interstate Energy Board (WIEB) http://www.westgov.org/wieb/ 

General Articles About State and Regional Energy Planning
 

Title/Description URL Address 

Plugging in Renewable Energy, Grading the States. Union of Concerned Scientists. 

May 2003. This report evaluates the progress of individual states in renewable energy. 

http://www.ucsusa.org/clean_energy/ 

clean_energy_policies/plugging-inrenewable-energy-grading-thestates.html 

Powerful Solutions: Seven Ways to Switch America to Renewable Energy, as well as 

State Supplements, Union of Concerned Scientists. January 1999. 

http://www.ucsusa.org/clean_energy/ 

clean_energy_policies/ 

powerful-solutions-7-ways-to-switchamerica-to-renewable-electricity.html 

Powering the South: A Clean and Affordable Energy Plan for the Southern United 

States. Renewable Energy Policy Project. January 2002. 

http://www.poweringthesouth.org/report/ 

Repowering the Midwest: The Clean Energy Development Plan for the Heartland. 

Environmental Law and Policy Center et al., 2001. 

http://www.repowermidwest.org 

Transmission Planning and Wind Energy. National Wind Coordinating Committee. 

August 2004. 

http://www.nationalwind.org/publications/ 

transmission/transbriefs/Planning.pdfs 

References
 

Title/Description URL Address 

CERCDC. 2003. EAP. California Energy Resources Conservation and Development 

Commission (CERCDC), CPUC. 

http://www.energy.ca.gov/ 

energy_action_plan/ 

Pacific Northwest Electric Power Planning and Conservation Act. 1980. 839b(e)(1). 16 

United States Code Chapter 12H (1994 & Supp. I 1995). Act of December 5, 1980, 94 

Stat. 2697. Public Law No. 96-501, S. 885. 

http://www.nwppc.org/library/poweract/ 

poweract.pdf 

3-46 � Chapter 3. State Planning and Incentive Structures
 
 

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3.3 Determining the Air Quality 

Benefits of Clean Energy 

Policy Description and Objective 

Summary 

Meeting energy demand through clean energy 

sources can reduce emissions from fossil-fueled generators and provide many environmental and economic benefits. Some states are estimating emission 

reductions from their clean energy programs and 

incorporating those reductions into documentation 

for air quality planning efforts, energy planning, and 

clean energy program results. 

States are demonstrating a number of methods to 

quantify the emission reductions from clean energy 

policies. Approaches most useful to policymakers are 

cost-effective, rigorous, and address relevant emission market issues. 

Quantifying the precise environmental impact of a 

particular clean energy project can be challenging. To 

determine how clean energy affects air emissions, 

states first estimate how much generation would be 

displaced at which power plants. Then they can pinpoint the type and quantity of emissions that are 

avoided as a result of using clean energy sources. 

There are many opportunities and strategies for 

developing adequate quantification methods, 

depending on the purpose and scope of the clean 

energy program or policy. 

Several states are assessing the potential for clean 

energy to help meet air quality requirements within 

their State Implementation Plans (SIPs). A SIP is the 

official plan a state submits to the U.S. Environmental 

Protection Agency (EPA) that details how the state 

will attain or maintain the national ambient air quality standards. States are using a variety of approaches 

to estimate emissions benefits, based on the characteristics of their energy resources. These relatively 

new efforts are identifying opportunities to overcome 

traditional barriers to quantification, namely complexity and cost. Recent efforts are beginning to form 

Integrating energy efficiency and renewable 

energy in air quality planning offers states 

many opportunities and strategies to estimate emission reductions from clean energy 

programs. 

the “best practices” for quantifying the air quality 

benefits of clean energy resources. 

Objective 

States are estimating emission reductions from clean 

energy programs for a number of purposes, including: 

• Incorporating emission reductions in air quality 

planning documents. 

• Evaluating the benefits of energy programs, such 

as renewable portfolio standards (RPS) and public 

benefits funds (PBFs), and in designing new programs. (See Section 4.2, Public Benefits Funds for 

Energy Efficiency, Section 5.1, Renewable Portfolio 

Standards, and Section 5.2, Public Benefits Funds 

for State Clean Energy Supply Programs.) 

• Complying with legislative requirements for 

reporting the effectiveness of energy programs. 

• Standardizing the methods used by energy market 

participants who are calculating emission reductions. 

Benefits 

There are many benefits to calculating the emission 

reductions of clean energy. These efforts: 

•	 Add New Options for Environmental Solutions. If an 

agency gains information about the air quality 

benefits of clean energy, the agency can choose 

clean energy solutions from among a list of 

options designed to improve the environment. 

•	 Potentially Reduce Compliance Costs. Knowing the 

benefits and costs of alternative clean energy solutions allows an agency to better rank these programs to achieve the greatest benefits for the least 

� Section 3.3. Determining the Air Quality Benefits of Clean Energy
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costs. This analysis can help enable an agency to 

determine the best way to design its programs to 

comply with both existing and prospective regulations. 

•	 Help Agencies Choose the Best Investment. For a 

particular clean energy program, an agency can 

use information about emission reductions to 

determine the best investment opportunities. 

States Are Determining the Air Quality 

Benefits of Clean Energy 

Agencies in several states are working with EPA to 

develop methods for quantifying air emission reductions from clean energy policies and projects. States 

such as Texas and Wisconsin, states in the Western 

Regional Air Partnership (WRAP), as well as states in 

the Northeast have developed estimation methods 

appropriate for several objectives, including incorporating clean energy into air quality planning, providing comprehensive cost/benefit analyses, meeting 

legislative reporting requirements, and ensuring that 

clean energy measures are consistent with existing 

regulations. 

•	 Incorporating Clean Energy into Air Quality 

Planning. State and local air quality districts are 

increasingly seeking emission reductions from 

clean energy in their plans to achieve ambient air 

quality standards. Air quality plans that include 

the impacts of energy efficiency and renewable 

energy are more comprehensive than plans that 

ignore these resources. In addition, these resources 

can provide cost-effective emission reductions for 

regions that are attempting to attain air quality 

standards. In some areas, the air quality benefits 

may not occur unless they are clearly linked to 

clean energy policies that are specifically added as 

part of the air quality planning process. 

EPA issued guidance documents in 2004 that provide clarification on how clean energy measures 

can fulfill the requirements of a SIP. These documents set a flexible framework for quantifying 

clean energy policies and address many related 

issues. The documents outline two approaches a 

state may take to include clean energy in the SIP. 

The first approach is to include the clean energy 

measure in the projected future year emission 

baseline. The second approach is to include the 

clean energy as a discrete emission reduction 

measure. (For more information about these guidance documents, see the Information Resources 

section on page 3-60.) 

For example, Montgomery County, Maryland, 

incorporated nitrogen oxide (NO ) emission reduc­ x

tions associated with a renewable energy purchase into the SIP for the Washington D.C. nonattainment area and committed to retire NOx 

emission allowances to ensure the emission 

reductions actually occur. (For more information, 

see State Examples on page 3-54.) 

•	 Providing Comprehensive Cost/Benefit Analyses. 

Policymakers can make better decisions about air 

quality program design when they have complete 

information about the programs’ costs and benefits. Different types of energy efficiency programs 

can result in different levels of emission reductions, and this information can guide policymakers 

in selecting the appropriate suite of programs for 

their regions. Similarly, when selecting supply-side 

resources, utilities and regulatory agencies need to 

understand the benefits of various renewable 

resources. For example, New Jersey disburses some 

of its PBFs (see Section 5.2, Public Benefits Funds 

for State Clean Energy Supply Programs) to pay for 

solar energy. State officials determined that the 

benefit of solar energy providing electricity on 

sunny summer days, when demand peaks and concentration levels tend to be high, justifies the cost 

of incentives for the photovoltaic (PV) systems. 

•	 Meeting Legislative Reporting Requirements. Some 

regulatory agencies are under legislative mandates 

to periodically report on the results of their energy 

policies. For example, some legislatures require 

reporting on the cost and benefits of RPS or PBFs 

(see Section 4.2, Public Benefits Funds for Energy 

Efficiency, Section 5.1, Renewable Portfolio 

Standards, and Section 5.2, Public Benefits Funds 

for State Clean Energy Supply Programs), and in 

some cases, they require cost/benefit reports 

before they reauthorize the RPS or PBF. The New 

York State Energy Research and Development 

3-48 � Chapter 3. State Planning and Incentive Structures
 
 

EPA Clean Energy-Environment Guide to Action
 

Authority (NYSERDA) includes emission reductions 

as part of its reports detailing how the performance of PBFs helps achieve the state’s goal to 

reduce environmental impacts of energy production and use. 

•	 Ensuring Clean Energy Measures Are Consistent 

with Existing Regulations. Standardized methods 

for estimating emission reductions from clean 

energy will ensure that estimates made by different parties are accurate and comparable. They also 

help ensure that the estimates are consistent with 

other regulations such as cap and trade programs. 

For example, the Independent System Operator 

(ISO) New England’s Marginal Emission Rate 

Analysis and the Ozone Transport Commission’s 

(OTC’s) Emission Reduction Workbook were developed so that the emission impacts of different 

projects and programs could be evaluated in a 

consistent manner (OTC 2002, ISO New England 

2004). 

Quantifying Air Emission 

Reductions from Clean Energy 

Estimating the air emissions that will be avoided by 

clean energy programs and projects involves three 

key steps: 

• Establishing the operating characteristics of the 

program or project in terms of when and how much 

it will reduce demand for conventional energy. 

• Determining which generating units will be displaced and to what extent due to the program or 

project. 

• Calculating the avoided emissions using the emission factors associated with the generating units. 

Determining the load impact of the clean energy 

resource requires estimating at which times it will 

operate and at what levels. For example, will the 

energy efficiency savings be taking place on hot 

summer daylight hours or will it be occurring 24 

hours per day, seven days a week, 52 weeks per year? 

Different renewable resources have different operating profiles based on the availability of, for example, 

wind and sunlight. Knowing the load shape of the 

clean energy resource is helpful in predicting which 

generators would most likely be backed down and, 

consequently, where and how many emission reductions would occur. There also may be an accounting 

of emissions associated with the clean energy source, 

such as for biomass and landfill gas. 

The next step is estimating emission changes, typically by calculating the likely emission reductions 

based on either a model to assess which generating 

units will reduce generation due to the clean energy 

or historical trends. 

•	 Dispatch and Planning Models. Dispatch models 

estimate the air emission effects of clean energy 

by identifying the marginal generating units—the 

units that are assumed to be displaced by the 

clean energy program or project. States that use 

this approach estimate reductions by identifying 

the marginal units during the hours that the clean 

energy resources operate and applying the expected emission rate of the units to the displaced generation. An example is the analysis performed for 

the Montgomery County, Maryland, wind purchase 

(for more information, see State Examples on page 

3-54). 

A dispatch model is a comprehensive way to 

approximate plant dispatch, using software to 

simulate the operation of all the plants in the 

region. Because these models are designed to simulate all of the constraints facing power system 

operators, they provide realistic estimates of 

reduced emissions. 

Planning models are used for longer time horizons 

and can help discern the effect of clean energy on 

the construction of new plants and the retirement 

or modification of existing plants. For example, 

WRAP used the Integrated Planning Model (IPM) 

to analyze its renewable energy goals (for more 

information, see State Examples on page 3-54). 

Dispatch and planning models can be expensive to 

operate and maintain. Therefore, these models 

might not be an option for some uses. 

•	 Historic Trends Analysis. When resources are not 

available to run a dispatch model, states approximate plant dispatch by looking at historical plant 

� Section 3.3. Determining the Air Quality Benefits of Clean Energy
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How Is Electricity Dispatched? 

Deciding when and how to direct power plants to operate is 

a complex process. As a result, calculating the air emission 

reductions associated with displacing some of these plants 

with clean energy projects is also challenging. 

Understanding how electricity is dispatched and which 

power plants would be backed off at the margin by clean 

energy involves some key information about the U.S. electricity system. The continental United States is divided into three 

interconnected grids (the Eastern, Western, and Electric 

Reliability Council of Texas [ERCOT] Interconnections), shown 

in Figure 3.3.1. Within each of these grids, electricity can be 

imported or exported relatively easily between the numerous 

power control areas. However, it is difficult to transmit energy across the boundaries of these three interconnections. 

The demand for electricity varies by season and by time of 

day. Some power plants, known as baseload units, operate 

almost continuously. The output of other generators rises and 

falls throughout the day, responding to changing electricity 

demand. Other generators are used as “peaking” units; these 

are operated only during the times of highest demand. A 

group of system operators across the region decides when 

and how to make each power plant operational or “dispatch” 

them according to the demand at that moment. System operators decide which power plants to dispatch next based on 

the cost or bid price. The power plants that are least expensive to operate are dispatched first (the baseload plants). The 

most expensive generating units are dispatched last (the 

peaking units). The fuels, generation efficiencies, control 

technologies, and emission rates vary greatly from plant to 

plant. For example, Figure 3.3.2 shows how the SO2 and NOx 

emission rates in the New York power control area vary as a 

function of load. Note that hydro and nuclear generators that 

have no air emissions meet about 7,000 megawatts (MW) of 

demand. To meet the need for the additional demand, system 

operators dispatch fossil-fired power plants that have varied 

NOx and SO2 emissions. 

Other conditions also affect dispatch. Transmission constraints, when transmission lines become congested, can 

make it difficult to dispatch power from far away into areas of 

high electricity demand. Extreme weather events can 

decrease the ability to import or export power from neighboring areas. “Forced outages,” when certain generators are 

temporarily not available, can also shift dispatch to other 

generators. 

System operators must keep all these issues in mind when 

dispatching power plants. States can also take these issues 

into consideration by using dispatch models or other 

approaches to estimate which generators would likely 

reduce their output and their emissions in response to the 

use of clean energy. 

NERC Interconnections 

Western Interconnections 

Eastern Interconnections 

ERCOT Interconnections 

MRO 

NPCC 

ERCOT 

MAAC 

FRCC 

WECC 

SPP 

SERC 

MAIN ECAR

Figure 3.3.1: Map of Interconnections 

0 5,000 10,000 15,000 20,000 25,000 30,000 

Average NOx Rate (lb/MWh) 

NewYork Capacity (MW) 

Average SO2 Rate (lb/MWh) 

0 

2 

4 

6 

8 

1 

2 

3 

4 

5 

6 

7 

8 

10 

12 

14 

16 

18 

20 

0 5,000 10,000 15,000 20,000 25,000 30,000 

NewYork Capacity (MW) 

Figure 3.3.2: NOx and SO2 Emissions by Capacity 

Source: NERC 2005. 

Source: Keith et al. 2002. 

3-50 � Chapter 3. State Planning and Incentive Structures
 
EPA Clean Energy-Environment Guide to Action
 

operations. Data on historical plant use are available from the EPA eGRID database (EPA 2005) and 

from the U.S. Department of Energy’s (DOE’s) 

Energy Information Administration 

(http://www.eia.doe.gov). Additionally, by reviewing hourly data collected by emission monitoring 

devices, states reconstruct how system emissions 

changed as loads changed during a given day or 

season. This approach is especially effective for 

assessing historical emission reductions (see Figure 

3.3.3) (Keith et al. 2005). Historical analysis can 

also be used to project how plant emissions might 

be reduced in the future by clean energy. 

It is possible to combine the two approaches to generate a more complete view of the power system. For 

example, ISO New England uses both historical information and dispatch modeling to generate its annual 

reports on marginal emission rates in the New 

England Power Pool (NEPOOL). 

Finally, after considering the characteristics of clean 

energy projects and calculating marginal emission 

rates, the emission reductions can be estimated. The 

emission reductions are calculated by applying the 

emission rates of each of the electric generating 

units to the displaced generation at each generator. 

Figure 3.3.3: Historical Emissions Data 

(New England 2000) 

Annual Hours 

20,000 

16,000 

12,000 

8,000 

4,000 

8,000 11,000 14,000 17,000 20,000 23,000 

Load (MW) 

Note: Plots of power system emissions as a function of load can be 

used to develop marginal emission rates during different time periods. 

This plot is for the New England region in 2000. 

Source: Synapse Energy Economics (Date unknown). Pounds NOx 

Issues to Consider 

States are developing and evaluating ways to quantify how clean energy reduces air emissions. Their 

efforts have highlighted a number of important 

issues and strategies: 

•	 Purpose of Quantification. It is important to note 

that the proper quantification method and documentation will vary for different purposes. For 

example, when estimating emission reductions for 

use in an air quality plan (such as an SIP), a high 

level of rigor and comprehensive documentation 

are needed to meet public health and regulatory 

needs. To ensure that appropriate methods and 

documentation are used, states may contact EPA 

early in the process if assistance is needed. In contrast, for a report summarizing the benefits of 

clean energy programs, states tend to use less 

resource-intensive methods of quantification and 

documentation. 

•	 Prospective vs. Retrospective Analyses. Estimates of 

emission reductions from both existing projects 

and expected new projects are useful. States have 

much more information about existing projects 

than about future projects. This information 

includes data about the clean energy projects and 

the operation of the regional power grid. With this 

information, states can create accurate estimates 

of historical emission reductions. States face more 

uncertainty when projecting how future clean 

energy projects will contribute to air quality 

improvements. Thus, they have found that it is 

important to periodically review and revise estimates related to these projects. In addition, when 

states perform a prospective analysis, they consider how new emission control requirements for fossil fuel generators affect their calculations. If the 

clean energy displaces fossil fuel generation governed by future emission control requirements, 

then the clean energy will have less impact on 

emissions in the future. For example, the analysis 

performed for the Texas Emission Reduction Plan 

updates its estimates annually and accounts for 

NO control programs imposed on the electric x 

generators (for more information, see State 

Examples on page 3-54). 

� Section 3.3. Determining the Air Quality Benefits of Clean Energy 3-51 
 

EPA Clean Energy-Environment Guide to Action
 

•	 Power System Dispatch. Power plants in regional 

electric systems are dispatched in order of increasing costs or bids. Generally, the least expensive 

power plants are dispatched first, and the more 

expensive units are directed to operate in order of 

cost when needed. This process is described on 

page 3-50, How Is Electricity Dispatched? 

Estimating dispatch is a critical and complex component to estimating emission reductions. As new 

methods are being demonstrated by states, new 

opportunities for others to use or refine the successful methods are created. 

•	 Energy Imports and Exports. One of the key complexities in assessing emission reductions (either 

via dispatch/planning models or historical emissions analysis) lies in accounting for energy transfers between control areas. A control area is a 

geographic region in which most or all of the 

power plants are dispatched by a single set of system operators. Energy is commonly transferred 

among control areas via major transmission interfaces. The magnitude and pattern of energy transfers can affect the kind of emission reductions 

that a clean energy resource will provide. For clean 

energy resources located in control areas that do 

not import or export significant amounts of energy, energy transfers can be ignored. However, in 

control areas where significant amounts of energy 

are transferred, addressing these transactions may 

be an important part of the emission reduction 

calculations. 

•	 Load Pockets. Load pockets are places within a 

control area where transmission constraints make 

it difficult to meet peak electricity loads. In a load 

pocket, older, less efficient generation often operates because physical constraints prevent delivery 

of energy from newer units. Because a clean energy resource located within a load pocket will often 

reduce the operation of such units, the clean energy project may have different emission impacts 

than other resources. Additionally, clean energy 

resources can reduce or delay the need for new 

transmission and distribution equipment. For 

example, for the Southwest Connecticut Clean 

Demand Response Pilot Project, a clean distributed 

generation overlay tool was envisioned to help 

locate ideal placement of clean technologies. The 

map would identify locations where technologies 

or applications could be most effective at addressing reliability concerns within the load pocket. It 

also would identify which areas would benefit 

most from an air quality perspective. The tool 

would examine the area’s infrastructure, zoning, 

and existing developments to find areas that could 

be economically practical as well as technically 

feasible (GETF 2002). 

Designing an Effective Process 

This section identifies several key issues that states 

need to consider when quantifying emission reductions. These issues include participants, duration, 

evaluation, and interaction with federal policies. 

When designing an effective process, it is important 

to engage key participants, and match the purpose of 

the quantification with the level of rigor and cost 

associated with the quantification method. 

Participants 

•	 EPA. EPA is investigating several methods for estimating emission reductions and is working with a 

number of state agencies to test and compare 

these methods. 

EPA is working to assist states in defining potential emission reductions associated with the programs and policies outlined in this Guide to Action 

and to help states use the information to meet 

their environmental and energy goals. EPA is 

working to: 

- Identify clean energy projects and programs 

that may provide cost-effective emission reductions that states could capture. 

- Review methods that states can use to quantify 

emission reductions from clean energy and 

move toward best practice standards. 

-	 Provide states with guidance and assistance in 

their efforts to incorporate clean energy into air 

quality planning and other state initiatives. 

•	 DOE. In 2004, DOE’s Office of Energy Efficiency 

and Renewable Energy initiated pilot projects to 

3-52 � Chapter 3. State Planning and Incentive Structures
 
 

 

EPA Clean Energy-Environment Guide to Action
 

help states quantify the emission reductions from 

various clean energy programs to a level of rigor 

that would satisfy inclusion in air quality planning 

documents. These pilot projects provide the 

resources of DOE’s contractors and national laboratories to assist states. 

•	 State Energy Offices. State energy offices are 

involved in the design, implementation, and tracking of a variety of clean energy programs. They 

often track the performance of energy efficiency 

programs and renewable energy, and they are 

often required to report on these programs to legislatures. Information on emissions is an important 

component of energy program assessment. Data 

on emissions are also important to the long-term 

energy plans many energy offices develop. 

•	 State Air Pollution Control Agencies. State air pollution control agencies are working toward including emission reductions from clean energy in air 

pollution control plans. This process generally 

starts with several case studies. State regulatory 

agencies also work with EPA to establish methods 

of quantifying emission reductions. Working with 

state energy office staff provides the additional 

expertise that may be needed for a successful 

process. 

•	 State Utility Commissions. By involving utility 

commissions, states ensure that data are available 

for evaluating efficiency programs and the output 

of renewable generators. Also, coordination 

between utility commissions and air regulatory 

agencies ensures that clean energy policies are 

consistent with air quality regulations. 

•	 State Legislatures. Lawmakers in many states have 

adopted clean energy programs as a way to 

achieve multiple goals, including air quality 

improvements. Based on information from utility 

commissions, air regulatory agencies, and energy 

offices, lawmakers have adopted clean energy 

goals, such as RPS and PBFs, designed specifically 

to achieve air emission reductions. 

•	 Electricity Market Participants. Several market participants have an interest in quantifying emission 

reductions from clean energy, including energy 

service providers, renewable energy developers, 

and end users. These participants often work with 

state agencies to quantify and document emission 

reductions from clean energy. 

•	 Utilities. Utilities work with air and energy regulatory agencies to review the performance of clean 

energy programs and to help design programs that 

meet both energy and air quality goals. In particular, utilities have access to information on energy 

generation and use that is critical to program 

design and review. 

•	 Other Researchers. Nonprofit organizations and 

other groups are also evaluating how to quantify 

emission reductions from clean energy. Groups 

involved include the National Renewable Energy 

Laboratory (NREL), World Resources Institute (WRI), 

Lawrence Berkeley National Laboratory (LBNL), the 

National Association of Regulatory Utility 

Commissioners (NARUC), WRAP, and State and 

Territorial Air Pollution Program Administrators 

(STAPPA). 

Timing and Duration 

Electric power systems change over time. New plants 

and transmission lines are added and old ones are 

retired. These changes affect system emissions. There 

are two ways to address these changes when estimating emission reductions from clean energy projects. First, emission reductions can be quantified for 

the short term—for example, three to five years—and 

then updated as the power system changes. Second, 

states and others can make long-term projections of 

emission reductions using assumptions about how 

the power system is likely to change over time. Of 

course, long-term projections will only be as good as 

the assumptions on which they are based, so it is 

prudent to review these projections periodically and 

revise them if market conditions diverge from important assumptions. 

Clean energy programs such as RPS and PBFs also 

include uncertainties. States quantifying the emission reductions from an RPS, for example, will 

include an assumption about the technologies that 

would generate the new renewable energy. Further, 

policymakers may change the RPS after several years, 

� Section 3.3. Determining the Air Quality Benefits of Clean Energy
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EPA Clean Energy-Environment Guide to Action
 

perhaps increasing or decreasing the target energy 

levels. For both of these reasons, states periodically 

review projections of emission reductions from clean 

energy programs and make adjustments when necessary. 

Evaluation 

States periodically evaluate their clean energy programs to ensure that predicted emission reductions 

are being realized. For example, a state might 

assume that an RPS will result in 100,000 

megawatt-hours (MWh) of new renewable energy 

generation each year. The state would then verify 

this assumption once the data become available. To 

accomplish this, states typically use established 

measurement and verification (M&V) techniques for 

clean energy. Energy production is measured either 

at the point of generation (gross generation) or at 

the connection point to the electric grid (accounting 

for any in-plant use). There are various standard protocols to evaluate the performance of energy efficiency projects, including some that use customers’ 

energy consumption records. 

Understanding the types of clean energy program 

evaluations that will be needed helps a state determine the appropriate methods to perform both the 

initial prospective estimates of emission reductions 

and the retrospective evaluation of actual emission 

reductions. For example, legislatively mandated policies may require more rigorous evaluation than voluntary efforts. Policies that address energy supply 

may require different data to be collected and evaluated than policies that address energy demand. 

Considering the need for future evaluation ensures 

that the initial estimates will be sufficient to provide 

a basis for evaluation. 

Interaction with Federal Policies 

Some states are working with EPA to include clean 

energy as an emission reduction measure in a SIP. 

EPA released several documents that address how to 

accomplish this. These documents are: Guidance on 

State Implementation Plan (SIP) Credits for Emission 

Reductions from Electric-Sector Energy Efficiency and 

Renewable Energy Measures and Incorporating 

Emerging and Voluntary Measures in a State 

Implementation Plan (for more information, see 

Information Resources on page 3-60). 

States quantifying emission reductions from energy 

efficiency and renewable energy consider the effects 

of any applicable cap and trade programs. Under 

these programs, air regulatory agencies cap total 

emissions within a region. Allowances are allocated 

to generators. Generators may buy and sell 

allowances, but they must hold one allowance for 

each ton of pollution emitted. Typically, the level of 

the cap declines over time to meet air quality objectives. Subsequently, generators need to adopt more 

emission control strategies over time. 

Because emission allowances can be traded in a cap 

and trade area, it is important to consider two main 

issues: how much clean energy is implicitly assumed 

to occur in the design of the cap and trade program 

and how many allowances need to be retired to 

ensure the emission reductions from clean energy 

programs actually occur and endure. 

State Examples 

The Texas Emission Reduction Plan 

In 2001, the 77th Texas Legislature passed Senate 

Bill 5 (S.B.5), the Texas Emissions Reduction Plan, 

calling for energy efficiency and reduced electricity 

consumption to help the state comply with U.S. 

Clean Air Act standards. Forty-one urban and surrounding counties were required to: 

• Implement all cost-effective energy efficiency 

measures to reduce electric consumption by existing facilities. 

• Adopt a goal of reducing electric consumption by 

5% a year for five years, beginning January 1, 

2002. 

• Report annually to the State Energy Conservation 

Office. 

3-54 � Chapter 3. State Planning and Incentive Structures
 
 

 

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In 2002 and 2003, the Texas Commission on 

Environmental Quality (TCEQ) revised SIPs for the 

Houston-Galveston and Dallas-Ft. Worth areas. Early 

energy savings and emission reductions estimates 

relied on assumptions about the communities’ level 

of commitment to the 5% per year goal. Projects eligible for inclusion in the SIP include efficiency and 

renewable projects such as: building code upgrades, 

energy efficiency retrofits, renewable energy installations, and green power purchases. 

The TCEQ worked with EPA, ERCOT, and Texas A&M 

University’s Energy Systems Laboratory (ESL) to 

develop a methodology for quantifying the NOx 

emission reductions associated with energy savings 

from clean energy projects. The methodology was 

used to prepare emission reduction estimates for 

each power plant in the ERCOT region. The groups 

then submitted these estimates to relevant counties. 

EPA’s eGRID provided much of the data about electricity production, source, fuel mix, and emissions. 

This information was used to estimate demand and 

emission reductions in Texas (Haberl et al. 2003). 

The purpose of the air emission reduction estimates 

was to include the NO emission reductions as dis- x 

crete emission reduction measures in the air quality 

planning process for ground level ozone. The estimate is a prospective analysis. The analytic approach 

was based on historic trends analysis of operational 

data with modifications based on future emission 

controls, planned plant shutdowns, and planned new 

plants. The few imports and exports outside the 

ERCOT were ignored. The historic trends analysis was 

not able to accommodate explicit consideration of 

load pockets. Ultimately, the Houston area reductions 

were not included in the SIP due to a local cap and 

trade program. 

Web site: 

http://www.tnrcc.state.tx.us/oprd/sips/ 

mar2003dfw.html#revision 

Western Regional Air Partnership 

In 1996, the Grand Canyon Visibility Transport 

Commission (GCVTC) issued a report saying states 

that contribute to regional haze in the West should 

incorporate 10% renewable energy into their 

resource mix by 2005 and 20% by 2015. 

In 1997, western states and tribes established WRAP 

to help implement the GCVTC’s recommendations. In 

1999, EPA’s Regional Haze Rule required nine western states to prepare SIPs addressing regional haze. 

The rule specifically allowed those states to develop 

and implement regional approaches to improve visibility. Five states in the Transport Region (Arizona, 

New Mexico, Oregon, Utah, and Wyoming) chose to 

implement this regional approach and submitted 

their SIPs in December 2003. 

As part of its SIP, each state lists policies and programs at the regional and state levels that will help 

achieve the 10 and 20% goals (often indicated as the 

10/20 goals). These programs include RPS, PBFs, 

renewable energy purchases, net metering (when 

excess electricity produced by an electricity customer 

will spin the electricity meter backwards), green 

power marketing, as well as tax credits and other 

financial incentives. In addition, states may pursue 

clean energy initiatives that are not included in the 

SIP submissions. 

The Air Pollution Prevention forum of WRAP commissioned a detailed study of the impacts of policies 

that achieve the 10/20 goals. When both the 10/20 

goals and the energy efficiency recommendations are 

implemented, NO emissions are expected to be x 

reduced by about 14,000 tons in 2018 (see Figure 

3.3.4), and carbon dioxide (CO2) emissions by about 

56 million metric tons. These impacts represent 

about a 2% reduction of NOx emissions and about a 

14% reduction of CO2 emissions. The net avoided 

cost savings is expected to increase to about $1.8 

billion in 2018. Annual electricity production costs 

through 2022 will be reduced by about $751 million. 

� Section 3.3. Determining the Air Quality Benefits of Clean Energy
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Figure 3.3.4: Estimated NO Reductions from Energy x

Efficiency/Renewable Energy (EE/RE) Change in NOx Emission Relative to BAU (Thousands of Tons of NOx) 

16 10/20 Goals 

14 Energy Efficiency 

12 

10 

8 

6 

4
 

2
 

0
 

Energy Efficiency + 10/20 Goals 

2005 2010 2015 2018 

Source: WRAP 2003. 

Although energy efficiency and renewable energy 

reduce conventional electric generation requirements, they do not necessarily yield SO2 reductions. 

In this case, the regional SO2 cap and trade program 

was assumed to be in effect. As such, the renewable 

energy and energy efficiency was projected to reduce 

the cost of complying with the cap and trade program and reduce allowance prices rather than reduce 

emissions significantly. In this context, increasing the 

use of EE/RE reduces the costs of complying with the 

SO2 milestones in the Annex to the Regional Haze 

Rule developed by WRAP (APPF 2002, WRAP 2003). 

The purpose of the air emission reduction estimates 

was to determine the how much the GCVTC’s recommendations would help the region achieve its regional haze goals. The estimates are a prospective analysis. The analytic approach was based on a planning 

model. Imports and exports within the western grid 

were considered. The large regional planning model 

analysis was not able to accommodate explicit consideration of load pockets. Cap and trade program 

analysis was an integral part of the planning model. 

Web site: 

http://www.wrapair.org/forums/ap2/ 

Analyzing Efficiency Programs in 

Wisconsin 

The Wisconsin Department of Administration (DOA) 

recently funded an analysis of the emission impacts 

of the state’s energy efficiency programs. Recognizing 

that efficiency programs have multiple impacts (i.e., 

energy savings, demand reductions, and emission 

reductions), the DOA wanted to obtain better information about how programs could be targeted 

toward certain objectives. 

To analyze how efficiency programs affected air 

emissions, the evaluation team used EPA continuous 

emission monitoring data on historical plant operations and emissions to estimate which generating 

plants were “on the margin” during different time 

periods. These are the plants scheduled to become 

operational next—when the less expensive plants are 

running at full capacity. 

In this case, the DOA identified the units “on the 

margin” for given hours. These units are important in 

calculations because they are the units that are displaced by energy efficiency or clean energy. 

The DOA developed emissions factors for the marginal generating units for different time periods (e.g., 

peak and off-peak hours during winter and summer). 

The DOA then used these factors to analyze the 

effects of different energy efficiency programs. 

The study found that the marginal units’ emission 

rates tend to be higher during off-peak hours than 

on-peak hours, particularly winter off-peak hours 

(see Figure 3.3.5). This suggests that energy savings 

in off-peak hours produce the largest emissions savings in Wisconsin (Erickson et al. 2004). This is valuable information, given that savings during peak 

hours are considered to be most valuable to the 

power system (because peak savings reduce demand 

during high-demand periods). With this information, 

policymakers are better able to refine the state’s efficiency programs to meet different objectives as the 

power system evolves. 

3-56 � Chapter 3. State Planning and Incentive Structures
 
 

 

 

 

 

 

 

 

 

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Figure 3.3.5: Marginal Emission Rates in Wisconsin
 

Pounds Pounds Percent of Yearly Value 

/MWh /GWh 

Season and 

Hour NOx SOx CO2 Mercury NOx SOx CO2 Mercury 

Yearly 5.7 12.2 2.215 0.0489 

Broad Peak Scenario 

Winter Peak 5.9 13.9 2.027 0.0427 104% 114% 91% 87% 

Winter Off-peak 5.8 14.5 2.287 0.0536 102% 119% 103% 110% 

Summer Peak 4.6 9.8 1.788 0.0346 81% 80% 81% 71% 

Summer Off-peak 5.4 11.1 2.233 0.0524 95% 91% 101% 107% 

Narrow Peak Scenario 

Winter Peak No Winter Peak Hours
 

Winter Off-peak 5.1 11.0 2.078 0.0461 39% 90% 94% 94%
 

Summer Peak 2.9 6.0 1.476 0.0181 51% 49% 67% 37%
 

Summer Off-peak 5.4 11.2 2.073 0.0431 95% 92% 94% 88%
 

Source: Erickson et al. 2004. 

The purpose of this analysis was to update emission 

reduction factors being used to evaluate the PBF program in Wisconsin. The analytic approach as a loadduration curve dispatch model. The estimates are a retrospective analysis. The analysis includes consideration 

of dispatch within the Mid-Atlantic Interconnected 

Network (MAIN) and Midwest Reliability Organization 

(MRO) (previously named Mid-Continent Area Power 

Pool [MAPP]) North American Electric Reliability 

Council regions (see Figure 3.3.1 on page 3-50). The 

model did not explicitly define load pockets. The affect 

of cap and trade systems was not included in the 

emission reduction estimates. 

Web site: 

http://www.doa.state.wi.us/docs_view2.asp?docid=2404 

Performance Contracting in Shreveport, 

Louisiana 

As part of its SIP revision under sections 110 and 116 

of the Clean Air Act and in support of control measures for the purpose of attaining and maintaining 

the 8-hour ozone standard, the Louisiana 

Department of Environmental Quality (DEQ) submitted an Early Action Compact SIP for the Shreveport 

area to EPA on December 28, 2004. The SIP included 

the emission reductions expected to be achieved 

from performance contracting at particular municipal 

buildings in Shreveport. The performance contract is 

expected to save the city 9,121 MWh of electricity 

per year and achieve NO emission reductions of x 

0.041 tons per ozone season-day. 

The city arrived at this figure after employing several 

different methods of determining the emissions 

avoided through its programs (Chambers et al. 2005). 

EPA Region 6 published proposed approval of this SIP 

revision in the Federal Register at 70 FR 25000, May 

12, 2005, and published final approval at 70 FR 

48880, August 22, 2005. 

The purpose of this emission reduction analysis was 

to include the emission reductions within its SIP. The 

analytic approach was a comparison of results from 

an economic dispatch model and two historic trends 

analysis. The analysis is retrospective (year 2000). 

The economic dispatch analysis included consideration of dispatch within two power control areas that 

provide electricity in the Shreveport area. The model 

did not explicitly define load pockets. The affect of 

cap and trade systems was not included in the emission reduction estimates. 

Wind Power Purchase in Montgomery 

County, Maryland 

Montgomery County, Maryland, committed to purchase 5% of its municipal electricity from wind 

power through renewable energy credits (RECs). It 

incorporated the emission reductions for groundlevel ozone in the SIP for the Washington D.C. metropolitan area. 

The county made the business case for purchasing 

the renewable energy by demonstrating that the 

energy savings realized by very low cost energy efficiency measures would offset the incremental cost of 

the renewable energy purchase. The county also 

demonstrated that the emission reductions from the 

renewable energy purchase were less expensive on a 

dollar per ton basis than other measures. 

The expected emission reduction for the 30,000 

MWh per year of renewable energy is estimated to 

be 0.05 tons of NO per day during the ozone season. x 

To arrive at this estimate, the county employed a dispatch model covering the electricity grid in the western part of PJM Interconnection, which is the regional transmission organization that coordinates the 

dispatch of wholesale electricity in the region. 

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As mentioned previously, the state of Maryland committed to retire the NO allowances associated with x 

the claimed emission reductions (i.e., to permanently 

remove the allowances from the market and prevent 

their use). This is how the county met the requirements of the SIP measure (MWCOG 2004). EPA 

Region 3 published final approval of this revision to 

the SIP in the Federal Register (70 FR 24987, May 12, 

2005). 

The purpose of this quantification procedure was to 

provide NO emission reduction figures to be used in x 

the Washington, D.C. SIP. The analytic approach was 

based on an economic dispatch model. The analysis 

is prospective. The economic dispatch analysis 

included consideration of dispatch within the power 

control area of the region. The model did not explicitly define load pockets. Although cap and trade systems were not included in the emission reduction 

estimates, the retirement of emission allowances 

equivalent to the estimated emission reductions were 

included in the SIP. 

Web site: 

http://www.mwcog.org/environment/air/SIP/ 

default.asp 

On the Horizon 

Some state air quality officials are beginning to 

express interest in environmental dispatch of electricity generators. This concept would alter the way 

electricity generators are dispatched from a purely 

economic basis to one that incorporates some consideration of environmental emissions into the dispatch order. Emissions analysis coupled with air 

quality modeling could provide useful analytical 

information to help evaluate the conditions under 

which environmental dispatch may achieve significant benefits for the least cost. For example, if there 

are periods of time when the air quality is most vulnerable to additional emissions from power generation, the benefits of dispatching cleaner yet more 

expensive units may outweigh the additional cost. 

Additionally, if such conditions occur infrequently 

during the entire year, the overall cost increase to 

retail electricity customers could be negligible. 

Some states are also interested in tracking emission 

reductions of CO2 in addition to criteria air pollutants. The quantification methods discussed in the 

Guide to Action will be critical to these efforts. 

Unlike technologies to control air pollutants like NOx 

and SO2, technologies are currently not widely used 

to capture and control CO2 emissions from the emission stacks of electricity generators. Therefore, for 

the near future, most CO2 emission reductions will 

generally come from renewable energy sources and 

improved efficiency. 

A number of states are developing voluntary CO2 

reduction goals, and a growing number of companies 

are developing voluntary greenhouse gas strategies. 

They are working with the Greenhouse Gas Protocol 

Initiative, states, and EPA to document their efforts. 

Other states are incorporating CO2 reduction into 

long-term planning requirements for utilities, or 

requiring utilities to offset their greenhouse gas 

emissions from power plants with investments in 

renewable energy, energy efficiency, and other measures such as carbon sequestration. Several states are 

developing tracking programs to support such 

requirement and companies’ voluntary tracking 

efforts. Table 3.3.1 briefly describes CO2 reductions 

efforts under way. 

3-58 � Chapter 3. State Planning and Incentive Structures
 
 

 

 

 

 

 

 

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Table 3.3.1: Existing Policies to Reduce CO2 Emissions 

Policy/Description For More Information 

Tracking Progress Toward State Goals. New York and New 

Jersey have both adopted goals for greenhouse gas reductions, 

as have groups of states in New England and on the West 

Coast. 

• New Jersey Department of Environmental Protection (DEP), 

New Jersey Sustainability Greenhouse Gas Action Plan, April 

2000. 

http://www.state.nj.us/dep/dsr/gcc/gcc.htm 

• New York State Energy Plan, 2002. 

http://www.nyserda.org 

• New England Governors and Eastern Canadian Premiers 

(NEG/ECP): Climate Change Action Plan: 2001, August, 2001. 

CO2 Offset Requirements. Massachusetts and New Hampshire • MA DEP, Emission Standards for Power Plants (310 CMR 7.29). 

require large, fossil-fueled power plants to offset a portion of 

their CO2 emissions. Massachusetts, Oregon, and Washington 

require new power plants to offset emissions. 

• New Hampshire Clean Power Act (HB 284) approved May, 

2002. 

• Oregon Climate Trust. 

http://www.climatetrust.org 

CO2 Adders in Resource Planning. The California Public Utility 

Commission (CPUC) has developed an “imputed” cost for greenhouse gas emissions for use in utility planning. In addition, several utilities (PG&E, Avista, Portland General Electric, Xcel, 

Idaho Power, and PacifiCorp) have voluntarily used CO2 cost 

adders in resource planning. 

• CPUC, Decision 04-12-048, December 16, 2004. 

http://www.cpuc.ca.gov/PUBLISHED/ 

AGENDA_DECISION/42314.HTM 

Voluntary Quantification Efforts. Many companies have begun • EPA’s Climate Leaders program offers inventory guidance for 

tracking their annual greenhouse gas emissions and taking companies that voluntarily participate in the program. 

steps to reduce emissions. These companies are using a variety http://www.epa.gov/climateleaders 

of methods for calculating emission reductions. • Information on these efforts and tracking protocols used is 

available from the Greenhouse Gas Protocol Initiative. 

http://www.ghgprotocol.org 

• Information in voluntary efforts in California is available from 

the California Climate Action Registry. 

http://www.climateregistry.org 

What States Can Do 

To begin capturing the benefits of clean energy programs, states can identify ways to use emission 

reduction data, quantify emission reductions, identify 

programs and policies that provide reductions, and 

document reduction estimates. 

Action Steps for States 

•	 Begin Identifying Ways to Use the Air Emission 

Reductions That Result from Clean Energy 

Programs. Emission reduction data can be included 

in air quality plans and used in evaluating existing 

clean energy programs, developing new clean 

energy programs, and preparing reports to legislatures and the public. These different uses may 

require different quantification and documentation methods; thus, it is important to identify possible uses before developing emission reduction 

data. 

•	 Identify Clean Energy Programs That May Provide 

Emission Reductions. Many states have a range of 

clean energy policies (e.g., energy efficiency goals, 

RPS, PBFs, and appliance standards) that may result 

in emission reductions. Other programs may also 

provide emission reductions. These include 

enhanced building codes, green power purchases, 

net metering, tax incentives, and other financial 

incentives. The information resources on page 3-60 

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present data on clean energy programs that states 

have focused on to date. 

•	 Quantify Emission Reductions from Clean Energy 

Projects and Programs. States can use a number of 

methods to quantify emission reductions from clean 

energy, including simple approaches that are based 

on estimates of average fossil generation emission 

rates. More resource-intensive approaches are 

based on system dispatch modeling. The previous 

section on quantifying emission reductions provides 

a general overview of the key issues involved in 

quantification. The information resources provided 

below document a number of quantification efforts. 

States can talk with EPA to help identify the appropriate methods. As discussed, the proper quantification method and documentation requirements will 

vary, depending on the purpose of the effort. 

Information Resources 

•	 Document Emission Reduction Estimates. 

Documenting emission reduction estimates in as 

much detail as possible is an important step. 

When developing emission reduction estimates for 

an air quality plan, contact EPA early in the 

process to discuss methods and documentation 

requirements (see EPA’s Incorporating Emerging 

and Voluntary Measures in a State Implementation 

Plan [EPA 2004] for guidance). States are encouraged to seek information from other states and 

disseminate emission reduction studies widely to 

facilitate the movement toward standardized best 

practices. Documenting and publishing reports on 

emission reduction quantification efforts is one 

way to advance the art of quantification methods. 

The resources cited as follows provide more information about methods of quantifying emission reductions and 

the types of programs states are targeting. 

EPA Guidance 

Title/Description URL Address 

Guidance on State Implementation Plan (SIP) Credits for Emission Reductions from 

Electric-Sector Energy Efficiency and Renewable Energy Measures. EPA Office of 

Air and Radiation, August 2004. In this document, EPA provides detailed information 

on quantifying emission reductions from electric-sector programs. 

http://www.epa.gov/ttn/oarpg/t1/meta/ 

m25362.html 

Incorporating Emerging and Voluntary Measures in a State Implementation Plan. 

EPA Office of Air and Radiation, September 2004. In this guidance document, EPA 

lays out a basic methodology for approving nontraditional measures in a SIP through 

notice-and-comment rulemaking. 

http://www.epa.gov/ttn/caaa/t1/meta/ 

m8507.html 

Integration Pilots: Improving Air Quality through Energy Efficiency & Renewable 

Energy Technologies. EPA Concept Paper, August 26, 2004. This paper describes a 

DOE/EPA initiative pilot initiative demonstrating how states can use energy efficiency and renewable energy technologies to improve air quality while addressing energy goals. 

http://www.eere.energy.gov/regions/ 

mid-atlantic/cleanenergy_pres.html 

Incorporating Bundled Emissions Reduction Measures in a State Implementation 

Plan. August 2005. This guidance document describes how states can identify individual voluntary and emerging measures and “bundle” them in a single SIP submission. For SIP evaluation purposes, EPA considers the performance of the entire bundle (the sum of the emission reductions from all the measures in the bundle), not the 

effectiveness of any individual measure. 

http://www.epa.gov/ttn/oarpg/t1/meta/ 

m10885.html 

3-60 � Chapter 3. State Planning and Incentive Structures
 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EPA Clean Energy-Environment Guide to Action 

Information About States 

Title/Description URL Address 

Comparison of Methods for Estimating the NOx Emission Impacts of Energy 

Efficiency and Renewable Energy Projects: Shreveport, Louisiana Case Study. 

Chambers, A. et. al. NREL, revised July 2005, NREL/TP-710-37721. This report 

describes three methods for estimating emission reductions from electric-sector 

programs and provides a quantitative comparison of the methods. 

http://www.nrel.gov/docs/fy05osti/37721.pdf 

Estimating Seasonal and Peak Environmental Emission Factors—Final Report. 

Prepared by PA Governmental Services for the Wisconsin DOA, May 2004. This 

report summarizes work done in Wisconsin to evaluate the air emissions avoided by 

energy efficiency programs. 

http://www.doa.state.wi.us/ 

docs_view2.asp?docid=2404 

Prospective Environmental Report for Clipper Wind Power. Prepared by the http://www.eere.energy.gov/ 

Resource Systems Group, Inc. for Clipper Wind Power under contract with windandhydro/windpoweringamerica/ 

Environmental Resources Trust, April 2003. This report quantifies the air emissions pdfs/wpa/sips_model.pdf 

reduced by the operation of a wind plant located in the Mid-Atlantic United States. 

Renewable Energy and Energy Efficiency as Pollution Prevention Strategies for http://www.wrapair.org/forums/ap2/ 

Regional Haze. Prepared by the air pollution prevention forum for the Western 

Regional Air Partnership, April 2003. This report summarizes the renewable energy 

and energy efficiency goals adopted in several western states and projects the 

emission reductions that would result from the attainment of the goals. 

documents/WRAP_AP2_Policy.doc 

General Articles About Quantifying Emission Reductions
 

Title/Description URL Address 

2003 NEPOOL Marginal Emission Rate Analysis. Prepared for the NEPOOL 

Environmental Planning Committee, December 2004. ISO New England performs system modeling each year to estimate system marginal emission rates. 

http://www.iso-ne.com/genrtion_resrcs/ 

reports/emission/index.html 

Emerging Tools for Assessing Air Pollutant Emission Reductions from Energy 

Efficiency and Clean Energy. Global Environment & Technology Foundation, January 

31, 2005. This report presents a comparison of emission modeling tools that are currently under development. 

http://www.4cleanair.org/ 

EmissionsModelingPhaseIIFinal.pdf 

Estimating Carbon Emissions Avoided by Electricity Generation and Efficiency 

Projects: A Standardized Method (MAGPWR). LBNL, LBNL-46063, September 1999. 

This report describes a spreadsheet model developed for estimating emission 

reductions from electric-sector programs. 

http://eetd.lbl.gov/EA/EMS/reports/46063.pdf 

Methods for Estimating Emissions Avoided by Renewable Energy and Energy 

Efficiency. Prepared for EPA’s State and Local Capacity Building Branch, available in 

July 2005. This paper assesses quantification methods based on dispatch analysis 

and historical emissions and provides a quantitative comparison of the two 

approaches. 

http://www.synapse-energy.com 

National Assessment of Emissions Reduction of Photovoltaic Power Systems. 

Prepared for EPA’s Air Pollution Prevention and Control Division by Connors, S. et al. 

This paper lays out a method of estimating emissions avoided by small PV systems 

based on the analysis of historical emissions data. 

http://esd.mit.edu/symposium/pdfs/papers/ 

connors.pdf 

(provides information about this article) 

� Section 3.3. Determining the Air Quality Benefits of Clean Energy
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EPA Clean Energy-Environment Guide to Action 

Tools and Analyses 

Title/Description URL Address 

Clean Air and Climate Protection Software (CACPS). The State 

and Territorial Air Pollution Program Administrators and the 

Association of Local Air Pollution Control Officials 

(STAPPA/ALAPCO) have developed a software tool designed for 

use in creating emission reduction plans targeting greenhouse 

gas emissions and air pollution. 

http://www.4cleanair.org/InnovationDetails.asp?innoid=1 

ECalc. The eCalc tool was developed to assess emission reductions from energy efficiency in Texas. 

http://ecalc.tamu.edu/ 

Energy Efficiency/Renewable Energy Impact In The Texas Summary (Volume I): 

Emissions Reduction Plan (TERP). The Energy Systems Lab conducts this annual report of the energy savings and NOx reductions resulting from the statewide adoption of the Texas Building 

http://energysystems.tamu.edu/sb5/documents/tceq-report-2-14­

2005-vol-I.pdf 

Energy Performance Standards and from energy code compli- Technical (Volume 2): 

ance in new residential construction in 41 Texas counties. http://energysystems.tamu.edu/sb5/documents/ 

tceq-report-2-14-2005-Vol-II.pdf 

Appendix (Volume 3): 

http://energysystems.tamu.edu/sb5/documents/ 

tceq-report-2-14-2005-III.pdf 

OTC Emission Reduction Workbook 2.1, November 12, 2002. The http://www.otcair.org/document.asp?fview=Report 

OTC developed a spreadsheet tool, based on system dispatch 

modeling, for assessing emission reductions from EE/RE in the Excel File: 

northeastern United States. http://www.otcair.org/download.asp?FID=68&Fcat=Documents& 

Fview=Reports&Ffile=OTC%20Workbook%20version%202.1.xls 

Description and User’s Manual: 

http://www.otcair.org/download.asp?FID=69&Fcat=Documents& 

Fview=Reports&Ffile=Workbook%202.1%20Manual.pdf 

Power System Dispatch Models. Models that can be used to 

assess displaced emissions include: 

• GE MAPPS (GE Strategic Energy Consulting) 

• IPM (ICF Consulting) 

• NEMS (U.S. Energy Information Administration) 

• PROSYM (Global Energy Decisions) 

MAPPS: 

http://www.mapps.l-3com.com/L3_MAPPS/ 

Products_and_Services/Power_Systems_and_Simulation/ 

Power_Solutions/ppsim.shtml 

IPM: 

http://www.icfconsulting.com/Markets/Energy/ 

energy-modeling.asp#2 

NEMS: 

http://www.eia.doe.gov/oiaf/aeo/overview/index.html 

PROSYM: 

http://www.globalenergy.com/pi-market-analytics.asp 

3-62 � Chapter 3. State Planning and Incentive Structures
 
 

EPA Clean Energy-Environment Guide to Action
 

References
 

Title/Description URL Address 

APPF. 2002. Final Draft Report on Energy Efficiency and Renewable Energy. Prepared 

by the Air Pollution Prevention Forum for WRAP. December. 

http://www.wrapair.org/forums/ap2/ 

documents/draft/ 

Final_Draft_Report-AP2EE-RE.pdf 

Chambers, A., D.M. Kline, L. Vimmerstedt, A. Diem, D. Dismukes, and D. 

Mesyanzhinov. 2005. Comparison of Methods for Estimating the NOx Emission 

Impacts of Energy Efficiency and Renewable Energy Projects: Shreveport, Louisiana 

Case Study. NREL/TP-710-37721. Revised July 2005. NREL. 

http://www.nrel.gov/docs/fy05osti/37721.pdf 

EPA. 2004. Incorporating Emerging and Voluntary Measures in a State 

Implementation Plan. EPA’s Office of Air and Radiation. September. 

http://www.epa.gov/ttn/caaa/t1/meta/ 

m8507.html 

EPA. 2005. eGRID-Emissions and Generation Resource Integrated Database Web 

site. Accessed July 2005. 

http://www.epa.gov/cleanenergy/egrid/ 

index.htm 

Erickson, J., C. Best, D. Sumi, B. Ward, B. Zent, and K. Hausker. 2004. Estimating 

Seasonal and Peak Environmental Emission Factors—Final Report. Prepared by PA 

Governmental Services for the Wisconsin DOA. May 21. 

http://www.doa.state.wi.us/ 

docs_view2.asp?docid=2404 

GETF. 2002. Southwestern Connecticut Clean Demand Response Pilot Project, Phase 

I Report. Prepared for the OTC by the Global Environment & Technology Foundation. 

November. 

http://www.opm.state.ct.us/swct/ 

SWCTPhase1-Report-Final.pdf 

Haberl, J., C. Culp, B. Yazdani, T. Fitzpatrick, J. Bryant, and D. Turner. 2003. Energy 

Efficiency/Renewable Energy Impact in the Texas Emissions Reduction Plan (TERP), 

Volume I—Summary Report. Annual Report to TCEQ, September 2003–August 2004. 

ESL-TR-04/12-01. ESL. 

http://energysystems.tamu.edu/sb5/ 

documents/tceq-report-2-14-2005­

vol-I.pdf 

ISO New England. 2004. 2003 NEPOOL Marginal Emission Rate Analysis. Prepared 

for the NEPOOL Environmental Planning Committee. December. 

http://www.iso-ne.com/genrtion_resrcs/ 

reports/emission/index.html 

Keith, G. 2005. Methods for Estimating Emissions Avoided by Renewable Energy and 

Energy Efficiency. Prepared for EPA’s State and Local Programs. Capacity Building 

Branch. July 14. 

http://dep.state.ct.us/air2/siprac/2005/ 

emissionreduction.pdf 

Keith, G., D. White, and B. Biewald. 2002. The OTC Emission Reduction Workbook 2.1: 

Description and Users’ Manual. Volume 2.1. Prepared for the OTC by Synapse 

Energy Economics, Inc. November 12. 

http://www.otcair.org/ 

download.asp?FID=69&Fcat= 

Documents&Fview=Reports&Ffile= 

Workbook%202.1%20Manual.pdf 

MWCOG. 2004. Plan to Improve Air Quality in the Washington, D.C-MD-VA Region. 

Appendix J. Metropolitan Washington Air Quality Committee. February 9. 

http://www.mwcog.org/uploads/ 

committee-documents/ 

yFZaVg20040217142920.pdf. 

NERC. 2005. Regional Reliability Councils. North American Electric Reliability Council 

Web site. Accessed July 2005. 

http://www.nerc.com/regional/ 

NERC_Interconnections_color.jpg 

OTC. 2002. Emission Reduction Workbook 2.1, November 12, 2002. OTC. November 12. http://www.otcair.org/ 

document.asp?fview=Report 

Synapse Energy Economics. Date unknown. Unpublished emissions data, Synapse 

Energy Economics, Inc., Cambridge, MA. 

N.A. 

WRAP. 2003. Renewable Energy and Energy Efficiency as Pollution Prevention 

Strategies for Regional Haze. Prepared by the Air Pollution Prevention Forum for 

WRAP. April. 

http://www.wrapair.org/forums/ap2/ 

docs.html 

� Section 3.3. Determining the Air Quality Benefits of Clean Energy
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3.4 Funding and Incentives 

Policy Description and Objective 

Summary 

States are achieving significant energy and cost savings through well-designed, targeted funding and 

incentives for clean energy technologies and services. 

Key types of financial incentives programs states 

offer include: 

• Loans 

• Tax incentives 

• Grants, buy-downs, and generation incentives 

• Nitrogen oxide (NO ) set-asides x

• Energy performance contracting 

• Supplemental Environmental Projects (SEPs) 

States have achieved additional savings by coordinating financial incentives with other state programs and 

by leveraging utility-based clean energy programs. 

Over the past three decades, states have diversified 

their programs from grants or loans into a broader 

set of programs targeted at specific markets and 

customer groups. This diversification has led to portfolios of programs with greater sectoral coverage, a 

wider array of partnerships with businesses and community groups, and an overall reduced risk associated 

with programmatic investments in energy efficiency 

and clean supply options. 

Objective 

State-provided funding and incentives meet the 

public purpose objectives of supporting technologies and products that are new to the market and 

encouraging and stimulating private sector investment. Funding and incentives can also reduce market barriers by subsidizing higher “first costs,” 

increasing consumer awareness (the programs are 

often accompanied by education campaigns and the 

active promotion of products to help achieve a 

state’s energy efficiency goals), and encourage or 

“jump-start” private sector investment. 

States have developed a range of targeted 

funding and incentives strategies that are 

bringing clean energy to the marketplace, 

including loans, tax incentives, grants, buydowns, performance contracting, set-asides 

for energy efficiency/renewable energy 

(EE/RE), and supplemental environmental 

projects (SEPs). These programs help governments, businesses, and consumers invest in a 

lower cost, cleaner energy system. 

Benefits 

States provide funding and incentives through a 

combination of sources (i.e., state and federal 

funds, utility programs, and ratepayers), to support 

a broad range of cost-effective clean energy technologies, including energy efficiency, renewable 

energy, and combined heat and power (CHP). State 

funding and incentive programs, some of which are 

self-sustaining (e.g., revolving loan funds), deliver 

energy and cost savings for governments, businesses, and consumers. Program results vary depending 

on the configuration of funding and incentives used 

by each state. In Texas, the revolving loan fund has 

resulted in $152 million in savings since 1989 on 

an investment of $123 million (DOE 2005). In 

Oregon, more than 12,000 tax credits worth $243 

million have been issued since 1980, which save or 

generate energy worth about $215 million per year 

(Oregon DOE 2005b). 

Providing funding and incentives for clean energy 

can offer the following environmental, energy, and 

economic benefits: 

• Reduces energy costs by supporting cost-effective 

energy efficiency improvements and onsite generation projects. 

• Ensures that clean energy is delivered, specifies 

which technologies are used, and offers incentives 

to install technologies. Providing funding and 

incentives also accelerates the adoption of clean 

energy technologies by improving the project economics and offsets market, institutional, or regulatory barriers until those barriers can be removed. 

3-64 � Chapter 3. State Planning and Incentive Structures
 
 

 

 

 

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• Establishes a clean energy technology or project 

development infrastructure to continue stimulating the market after the incentives are no longer 

in effect. 

• Leverages federal incentives and stimulates private 

sector investment by further improving the economic attractiveness of clean energy. A small 

investment may lead to broad support and adoption of a clean energy technology or process. 

• Stimulates clean energy businesses and job creation within the state. 

• Supports environmental protection objectives, such 

as improving air quality. 

States with Funding and Incentive 

Programs 

States offer a diverse portfolio of financing and 

incentive approaches that are designed to address 

specific financing challenges and barriers and help 

specific markets and customer groups invest in clean 

energy. These programs include: 

• Revolving loan funds 

• Energy performance contracting 

• Tax incentives 

• Grants, rebates, and generation incentives 

• NO set-asides for energy efficiency and renew- x 

able energy projects 

• SEPs 

Revolving Loan Funds 

Revolving loan funds provide low-interest loans for 

energy efficiency improvements, renewable energy, 

and distributed generation (DG). Seven states currently operate a total of seven revolving loan programs that support energy efficiency, and 25 states 

have a total of 51 loan programs (including programs 

administered by the state, local government agencies, and utilities) that support clean generation 

(DSIRE 2005a, DSIRE 2006). 

Texas LoanSTAR Program 

The Texas LoanSTAR program is designed to provide 

low-interest loans to finance energy conservation 

retrofits in state public facilities. Loans are repaid in 

four years or less, depending on expected energy savings. Loans are often repaid using cost savings from 

reduced energy costs. Energy savings are verified by 

benchmarked energy use before retrofits are installed, 

followed by monthly energy use analysis for each 

building. 

The funds are designed to be self-supporting. States 

create a pool of capital when the program is 

launched. This capital then “revolves” over a multiyear period, as payments from borrowers are 

returned to the capital pool and are subsequently 

lent anew to other borrowers. Revolving funds can 

grow in size over time, depending on the interest 

rate that is used for repayment and the administrative costs of the program. 

Revolving loan funds can be created from several 

sources, including public benefits funds (PBFs), utility 

program funds, state general revenues, or federal 

funding sources. The largest state energy efficiency 

revolving fund, the Texas LoanSTAR program, provides loans for energy efficiency projects in state 

public facilities. The fund is based on a one-time 

capital investment of $98 million from federal oil 

overcharge restitution funds and is funded at a minimum of $95 million annually. Loan funds are typically created by state legislatures and administered by 

state energy offices. 

States have used revolving funds primarily for efficiency investments in publicly owned buildings or 

for facilities with a clear public purpose that are 

appropriate for any type of borrower. To contribute 

to state energy goals and be self-sustaining, states 

establish revolving funds that are either wellcapitalized (e.g., large enough to meet a significant 

portion of the market need) or long-term (e.g., to 

allow funds to fully recycle and be re-loaned to a 

sizable number of borrowers). Ideally, revolving loan 

� Section 3.4. Funding and Incentives
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Figure 3.4.1: States with Revolving Loan Funds for Renewable Energy
 

DC 

As of January 2006 

State and utility/local programs State program Utility or local programs 

Source: DSIRE 2006a. 

funds are both well-capitalized and long-term; however, it can be difficult to assemble the large pool of 

capital required to achieve both of these elements. 

In order to maintain a large pool of capital, it is 

important for states to consider several tradeoffs, 

including, for example, determining the balance 

between private and public sector loans, and 

between short-term and long-term loans. 

Additionally, if a fund holds only a few loans made 

to very similar types of commercial and industrial 

borrowers, it may be highly exposed to default; a 

fund with many diverse loans spreads the risks. 

Energy Performance Contracting 

Energy performance contracting allows the public 

sector to contract with private energy service companies (ESCOs) to provide building owners with energy-related efficiency improvements that are guaranteed to save more than they will cost over the course 

of the contracting period. ESCOs provide energy 

auditing, engineering design, general contracting, 

and installation services. They help arrange project 

financing and guarantee that the savings will be sufficient to pay for the project, where necessary, over 

the financing term (EPA 2004). (See Section 3.1, Lead 

by Example, for more information.) The contracts are 

privately funded and do not involve state funding or 

financial incentives. They have been used extensively 

by federal, state, and local facilities to reduce utility 

and operating costs and to help meet environmental 

and energy efficiency goals. These energy efficiency 

improvement projects can include the use of CHP. 

Twenty states have implemented performance contracting activities (ESC 2005), primarily through legislation. With the help of ESCOs, which provide energy efficiency expertise for project implementation, 

many facilities have experienced energy savings of 

10% to 40% or more. 

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Tax Incentives 

State tax incentives for energy efficiency, renewable 

energy, and CHP take the form of personal or corporate income tax credits, tax reductions or exemptions 

(e.g., sales tax exemptions on energy-efficient appliances, such as the sales tax holidays offered by some 

states), and tax deductions (e.g., for construction 

programs). Tax incentives aim to spur innovation by 

the private sector by developing more energyefficient 

technologies and practices and increasing consumer 

choice of energy-efficient products and services 

(Brown et al. 2002). Thirty-eight states currently 

have tax incentive programs for renewable energy 

(DSIRE 2005a). 

State tax incentives for renewable energy are a fairly 

common policy tool. While state tax incentives tend 

to be smaller in magnitude than federal tax incentives, they are often additive and can become significant considerations when making purchase and 

investment decisions. The most common types of 

state tax incentives are (1) credits on personal or 

corporate income tax, and (2) exemptions from sales 

tax, excise tax, and property tax. In addition, some 

states have established production tax credits. For 

example, New Mexico offers a $0.01 per kilowatthour (kWh) production tax credit for solar, wind, and 

biomass that can be taken along with the federal 

Production Tax Credit (PTC). Because different tax 

incentives are suitable to different taxpayers’ circumstances, states may want to consider using a 

range of tax incentives to match these circumstances. For example, property tax exemptions might 

be more attractive for large wind projects, while 

homeowners might prefer to claim an income tax 

credit for the purchase of a solar photovoltaic (PV) 

system. 

Several states provide tax incentives for CHP, including Connecticut, Idaho, Iowa, Nevada, New Mexico, 

North Carolina, Oregon, South Dakota, and Utah. The 

majority of these states also provide property tax 

credits that apply to renewable energy and CHP systems (e.g., Connecticut, Iowa, Nevada, North 

Carolina, Oregon, and South Dakota). Idaho offers a 

sales tax rebate on CHP equipment. New Mexico and 

Oregon Tax Incentives 

The Oregon Department of Energy offers the Business 

Energy Tax Credit (BETC) and Residential Energy Tax 

Credit (RETC) to Oregon businesses and residents that 

invest in qualifying energy-efficient appliances and 

equipment, recycling, renewable energy resources, 

sustainable buildings, and transportation (e.g., alternative fuels and hybrid vehicles). Through 2004, more 

than 12,000 Oregon energy tax credits worth $243 million have been awarded. All together, those investments save or generate energy worth about $215 million a year (Oregon DOE 2005a). 

Utah offer income tax credits for energy production 

from CHP systems. Iowa, Nevada, New Mexico, and 

North Carolina limit their tax incentives to biomass 

projects, while the other states allow a broader range 

of CHP system designs (EPA 2005b). 

States also offer tax incentives for energy efficiency 

investment. These incentives are typically offered as 

state income tax credits or deductions, but can also 

be structured as exemptions from state sales taxes 

on appliances or titling taxes on vehicles. The most 

active state in terms of tax incentives is Oregon, 

which maintains a set of business and residential tax 

incentives for energy efficiency measures. Other 

states with tax incentives for energy efficiency 

investment include Maryland, Indiana, Minnesota, 

New York, and Hawaii. (See the State Examples section on page 3-79 for more information.) 

Grants, Buy-Downs, and Generation Incentives 

Grants, buy-downs, and generation incentives provide funding and incentives for developing energy 

efficiency and clean generation technologies. 

Typically, states promote energy efficiency measures 

through buy-downs (also known as rebates), and 

support clean generation through both buy-downs 

and generation incentives. Although a major source 

of funding for efficiency activities comes from PBFs, 

states also fund these activities through alternative 

sources including direct grants, and rebates and generation incentives provided by utilities. States administer their own funding and incentives programs 

designed to leverage utility programs and promote 

� Section 3.4. Funding and Incentives
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Figure 3.4.2: States with Grant Programs for Renewable Energy
 

As of January 2006
 

DC 

State offers at least one grant program Private, utility, and/or local program 

Source: DSIRE 2006b. 

additional private sector investment. (For information 

about grants, buy-downs, and generation incentives 

funded through PBFs, see Section 4.2, Public Benefits 

Funds for Energy Efficiency and Section 5.2, Public 

Benefits Funds for State Clean Energy Supply 

Programs.) 

Grants. With respect to renewable energy, state 

grants cover a broad range of activities and frequently address issues beyond system installation costs. To 

stimulate market activity, state grants cover research 

and development, business and infrastructure development, system demonstration, feasibility studies, and 

system rebates. Grants can be given alone or leveraged by requiring recipients to match the grant or to 

repay it. Grants can also be bundled with other 

incentives, such as low-interest loans. Grant programs 

promoting renewable energy technologies are administered by states, nonprofit organizations, and/or private utilities in 28 states (DSIRE 2005a). 

State-appointed agencies are also finding ways to 

use limited funding for grants. For example: 

• Massachusetts uses grant funding to stimulate 

residential green power purchases. For every dollar 

a residential green power purchaser spends on the 

incremental cost of green power, the state grants 

up to $1 to the resident’s local government for use 

in renewable energy projects and up to $1 for 

renewable energy projects that serve low-income 

residents throughout the state. Renewable energy 

grants can range from tens of thousands to millions of dollars. In New Jersey, for example, the 

Renewable Energy and Economic Development 

program is funded at $5 million, from which it 

provides grants ranging from $50,000 to $500,000 

for market development activities. 

• Pennsylvania’s Energy Harvest program provides 

$5 million annually for clean and renewable energy projects. Since its inception in May 2003, the 

Pennsylvania Energy Harvest Grant Program has 

awarded $15.9 million for 34 advanced or renewable energy projects, and leveraged another $43.7 

million in private funds (PA DEP 2005). The 34 

Energy Harvest projects will produce or conserve 

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the equivalent of 37,800 megawatts per hour a 

year (enough to power 5,000 homes) and will 

avoid 85,000 pounds of nitrogen oxide (NO ), x

131,000 pounds of sulfur dioxide (SO2), 2,700 

pounds of carbon monoxide (CO), and 10 million 

pounds of carbon dioxide (CO2) (PA DEP 2005). 

Many programs also include grants for energy efficiency investment (and in some cases in-kind contributions such as direct installation of equipment or 

trade-in programs). Typically, the consumer does not 

directly invest in these programs. In California, the 

city of San Francisco’s Peak Energy Program (SFPEP) 

provides funding for torchiere trade-in programs, 

multi-family direct installation of hard-wired compact fluorescent lighting (CFL) fixtures, and free 

replacement of refrigerator gaskets at grocery stores. 

Some states award financial grants directly. For 

example, the Oregon Energy Trust provides incentives 

of up to $10,000 for homeowners and $35,000 for 

businesses for the purchase of rooftop PV systems. 

Rebates (Buy-Downs). Rebates, also called buydowns, are provided by the state to the end user and 

are a common form of state financial incentive. 

Typically, rebates are funded by utility customers and 

administered by utilities, state agencies, or other 

parties, with oversight from public utility commissions (PUCs) or other state agencies.7 Many states 

support their rebate programs through PBFs (see 

Section 4.2, Public Benefits Funds for Energy 

Efficiency and Section 5.2, Public Benefits Funds for 

State Clean Energy Supply Programs). 

Rebate levels vary by technology and state. Twentytwo states administer renewable energy rebate programs or have utility- or locally administered rebate 

programs in the state (DSIRE 2005b). In addition to 

rebates for renewable energy, states also offer rebates 

for a wide range of energy efficiency measures, 

including lighting, refrigeration, air conditioning, agricultural, and gas technologies. About 20 states conduct energy efficiency programs, and most of these 

states offer rebates or similar kinds of incentives. 

States frequently provide rebates for solar PV, but 

rebates are also provided for other technologies, such 

as wind, biomass, and solar thermal hot water. In 

general, rebates are provided on a per-watt basis, 

with the total rebate amount expressed either as 

maximum dollar amount or a maximum percentage 

of total system cost. In New York, the New York 

State Energy Research and Development Authority 

(NYSERDA) provides a $4.00 to $4.50 per watt rebate 

for solar PV and will cover up to 60% of the system’s 

total installed cost. In California, the Emerging 

Renewables Program provides rebates for systems up 

to 30 kilowatts (kW). Rebates are $2.80 per watt for 

PV systems and $3.20 per watt for solar thermal and 

fuel cells. For wind systems, rebates are $1.70 per 

watt for the first 7.5 kW with $0.70 per watt thereafter. Rebates are provided only for equipment that is 

certified by the state (CEC 2005a). 

Nevada offers a rebate program of $3 per watt (2006 

program year) for grid-connected PV installations on 

residences, small businesses, public buildings, and 

schools. Nevada’s utilities, Nevada Power and Sierra 

Pacific Power, administer the rebate program. The 

renewable energy credits (RECs) produced by their 

customers’ PV systems count towards the utilities’ 

solar goals under Nevada’s renewable portfolio standards (RPS) (DSIRE 2005b). 

States have coordinated their rebate programs with 

those offered by municipal utilities, governments, 

and others. For example, in California, rebate programs administered by investor-owned utilities 

(IOUs) are often tied directly to the values contained 

in the Database for Energy Efficient Resources (DEER) 

Measure Cost Database. This database provides statistically averaged cost differentials between baseline 

equipment and the energy efficiency measure 

designed to replace it (for example, T-8 fluorescent 

lamps with electronic ballasts vs. T-12 lamps with 

magnetic ballasts). The incremental energy savings of 

each measure in the database is also provided (CEC 

2005b). These data provide program planners with 

the necessary information to forecast energy savings 

A database of state utility sector efficiency programs can be found at: http://aceee.org/new/eedb.htm. 

� Section 3.4. Funding and Incentives 3-69 

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Massachusetts Provides Grants and Rebates for Renewable Energy 

The Massachusetts Technology Collaborative (MTC) administers grants and rebates in Massachusetts. With approximately $25 million per year, the MTC manages programs that target a broad range of recipients. Eligible technologies 

include wind energy, fuel cells, hydroelectric, PV, landfill gas, and low emission advanced biomass power. The project 

site must be a customer of one of the investor-owned utilities in Massachusetts. In addition, it must be grid-connected 

and use 50% of the power on site. Programs include the following: 

•	 The Small Renewable Energy Rebate Program provides rebates for PV, wind, and micro-hydro systems. Rebate levels vary by technology and system size. 

•	 The Green Building and Infrastructure Program provides grants to support the installation of clean energy, particularly solar PV, in buildings such as schools. Initial grants of $25,000 are provided for studies, followed by up to 

$500,000 grants for system installation. 

•	 The Clean Energy Choice Program provides tax incentives for customers’ green power purchases and provides 

matching grants that benefit consumers’ communities and low-income residents. 

•	 The Industry Support Program makes direct investments to catalyze new product commercialization, works to build 

networks and provide services that better enable companies to access capital and other vital resources, and 

strives to lower barriers to success for entrepreneurs in the state. 

of planned efficiency efforts, depending on market 

penetration levels. This helps provide stability and 

predictability in rebate programs, helping to create 

conditions for long-term market development and 

growth. However, in order to encourage and institutionalize renewable energy technologies and energyefficient equipment and to provide industry with the 

stability required for market transformation, it is 

important for states to institute a gradual and predictable reduction in rebates over time. 

In addition to rebates for renewable energy, states 

also offer rebates for a wide range of energy efficiency measures, including lighting, refrigeration, air 

conditioning, agricultural, and gas technologies. 

About 20 states conduct energy efficiency programs, 

and most of these states offer rebates or similar 

kinds of incentives. Typically, these rebates are funded by utility customers and administered by utilities, 

state agencies, or other parties, with oversight from 

PUCs or other state agencies. In most cases, utility 

bill charges are placed in a PBF; in a few states, programs are funded by utilities directly under utility 

commission directives. For example, Minnesota’s 

Conservation Improvement Program (CIP), is funded 

by the state’s utilities. (A database of state utilitysector efficiency programs can be found at: 

http://aceee.org/new/eedb.htm.) 

Generation Incentives. In contrast to incentives that 

help finance initial capital costs (e.g., rebates and 

sales tax exemptions), states provide generation 

incentives on the basis of actual electricity generated. In their most straightforward form, generation 

incentives are paid on a per kWh basis. For example, 

in 2005, California began a pilot performance-based 

incentive (PBI) that provides incentive payments of 

$0.50/kWh over the first three years of PV system 

operation. The rebate is based on the actual electricity generated by PV systems. System performance is 

measured using a revenue-quality meter. Participants 

report their system performance either through their 

utility or a Web-based, third-party reporting provider. 

The total dollar amount reserved for a system is 

based on the array capacity, PTC rating, and a 25% 

capacity factor. This reserve amount is likely to be 

higher than actual system performance, but any 

power generated above the actual amount will not 

be paid. In Pennsylvania, the Energy Cooperative, a 

nonprofit organization that is licensed as an electricity supplier by the Pennsylvania PUC, offers a Solar 

Energy Buy-Back program that pays its 6,500 members with 1 kW to 5 kW PV systems $0.20/kWh for 

the output of their systems. The program purchased 

70,740 kWh in 2004 (Energy Cooperative 2005). 

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x 

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NO Set-Asides for Energy Efficiency and 

Renewable Energy Projects 

Under the NO Budget Trading Program in effect as x 

of 2003 (Clean Air Act 1990 Part 96), 22 eastern 

states and Washington, D.C. allocate NO allowances x 

to large electric generating and industrial combustion units within state budgets. States may reserve 

allowances from the budget to address new units or 

to provide incentives for certain activities. 

States can use one type of incentive, an EE/RE setaside, to award NO allowances for EE/RE and CHP x 

projects. The allowances provide a financial incentive 

for projects that reduce energy demand or increase 

the supply of clean energy. To date, six states 

(Indiana, Maryland, Massachusetts, New Jersey, New 

York, and Ohio) have developed an EE/RE set-aside 

program, and Missouri has proposed a set-aside program. Thus, about one-third of the 22 affected states 

have elected to include an EE/RE incentive program. 

The size of the set-aside in each state ranges from 

454 tons (Ohio) to 1,241 tons (New York) and from 

1% to 5% of each state’s NO trading program x 

budget (EPA 2005c). 

Each state determines the projects that are eligible 

for allowance awards. Typical projects include: 

• Installation of a new CHP system project (provided 

allowances have not already been distributed to 

the project from the new source set-aside). 

• Renewable energy projects, including wind, solar, 

biomass, and landfill methane. 

• Demand-side management actions either within or 

outside the source’s facility (EPA 2005d). 

As in the NO budget trading program, states have x 

the flexibility to include a NO set-aside for EE/RE as x 

part of their NO allocation approach for the Clean x 

Air Interstate Rule (CAIR) (EPA 2005e). CAIR establishes a cap and trade system for SO2 and NO in 28 x 

states and Washington, D.C. Under CAIR, states may 

craft their allocation approach to meet their statespecific policy goals (EPA 2005e). 

Supplemental Environmental Projects 

An SEP is an environmentally beneficial project 

implemented through an environmental enforcement 

settlement. Under a settlement, a violator voluntarily 

agrees to undertake an SEP as a way to offset a portion of its monetary penalty. SEPs are commonly 

implemented through both federal and state 

enforcement actions. State SEPs can be a significant 

source of funding for new clean energy projects. 

There are many opportunities for states to implement 

clean energy SEPs through large and small enforcement settlements. Knowing the flexibility of a state’s 

SEP policy (which may be different from EPA’s SEP 

policy), making SEPs a routine part of the enforcement settlement process, and being aware of the 

opportunities for clean energy projects as SEPs are 

key ingredients for successfully increasing the number of clean energy projects funded through state 

SEPs. Depending on state and local needs, SEPs can 

involve the violator’s facilities or can be a project 

that provides local benefits. For example, in response 

to a violation of air quality standards, a Colorado 

manufacturer agreed to fund an energy efficiency 

assessment at its facility and implement some of the 

assessment recommendations. In Maryland, in 

response to a violation of visible emissions standards, 

a utility installed PV systems on three public buildings in the county. 

EPA’s SEP toolkit provides information for state and 

local governments on undertaking energy efficiency 

and renewable energy projects. The toolkit includes 

information on general SEP requirements at federal 

and state levels, potential benefits from EE/RE SEPs, 

project examples, and general implementation guidance (EPA 2005a). (The toolkit is available at: 

http://www.epa.gov/cleanenergy/pdf/sep_toolkit.pdf.) 

� Section 3.4. Funding and Incentives
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Designing Effective Funding and 

Incentive Programs 

When developing and implementing effective funding and incentive programs, states consider a variety 

of key issues including design principles, identifying 

key participants, assessing the level of funding, and 

determining program timing and duration. It is also 

important to consider interactions with federal and 

state policies and opportunities to coordinate and 

leverage programs. 

Design Principles 

States have developed extensive experience in funding and incentives programs. While program design 

considerations are somewhat specific to the markets 

and technologies involved, four general design principles have emerged: 

• Develop specific target markets and technologies 

based on technical and economic analyses of clean 

energy markets and technologies. 

• Use financing and incentives as part of a broader 

package of services designed to encourage investments. 

• Establish specific technical and financial criteria 

for clean energy investments. 

• Track details of program participation, costs, and 

energy savings and production to enable evaluation and improvement. 

In designing their funding programs, states assess their 

intended markets and other funding sources, particularly the competitive commercial financing options 

that are available to their target customers. State programs have been most successful when they target 

markets that currently receive little or no attention 

from the commercial financing industry, rather than 

competing with these private offerings. Alternatively, 

states can seek to augment the incentives offered 

through private financing by working with the financial industry to design effective programs that address 

market barriers other than lack of capital alone. 

States have found that coordinating funding and 

incentives with other program policies results in 

more effective programs and creates opportunities to 

leverage investments. For example, New Jersey offers 

a package of financial incentives, combined with its 

RPS and an REC program, which has reduced the 

payback period for solar home systems to less than 

five years (New Jersey 2005). Other program features 

that states bundle with financing and incentives 

include customer education and outreach, standardized and streamlined interconnection and permitting 

processes for clean energy production, and creation 

of effective partnerships with financial institutions, 

equipment providers, and installers. 

Participants 

Participants include both public and private sector 

organizations. Public sector participants include state 

and local government agencies, school districts, and 

nonprofit organizations. Private sector participants 

include large corporations, small businesses, and 

individual residents. Depending on a state’s energyefficiency goals, budgets, and general policy acceptance, certain stakeholders might be targeted more 

directly than others during the initial policy rollout 

phase or over the entire life of the program. 

Participants in funding and incentives programs and 

their typical roles and responsibilities include: 

•	 State Legislatures. State legislatures pass bonds, 

authorize appropriations, and authorize incentives. 

They also authorize changes to state tax laws and 

state accounting and procurement rules that 

enable clean energy funding programs. State legislatures or executive branches can give authority to 

outsource or conduct performance contracting in 

any facilities under their fiscal authority. 

•	 State Energy Offices and PUCs. Energy offices and 

PUCs administer financing programs, provide technical assistance, and measure and evaluate statefunded projects to ensure that intended results are 

being achieved. 

•	 Utilities. Utilities administer related programs that 

states and energy customers can leverage, such as 

rebates and buy-downs. 

•	 Third Parties. Third parties such as nonprofit organizations serve as financing centers to manage 

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funds (e.g., the Iowa Energy Investment 

Corporation) and can also serve as “trade allies” 

(e.g., equipment installers and ESCOs) and lending 

institutions. 

•	 Businesses. Businesses apply for funding and 

incentives and purchase and/or use clean energy 

technologies. 

•	 Residents and Other Consumers. Consumers apply 

for funding and incentives and purchase and/or 

use clean energy technologies. 

Funding 

State clean energy programs that offer financing or 

financial incentives have used a wide range of funding sources, including: 

•	 Utility Budgets. In states that have established utility incentives for demand-side resources, utilities 

provide funding support for clean energy as part of 

their responsibility to deliver least-cost reliable 

service to their customers. Utilities can fund these 

resources in different ways, such as within their 

resource planning budgets or as a percent of total 

revenues, as directed by state policy. 

•	 Petroleum Violation Escrow (PVE) Funds. Legal settlements stemming from 1970s-era oil pricing regulation violations generated billions of dollars, 

which states used primarily during the 1980s and 

1990s for clean energy programs. 

•	 PBFs. These are typically funded by small charges 

on utility customer bills (see Section 4.2, Public 

Benefits Funds for Energy Efficiency and Section 

5.2, Public Benefits Funds for State Clean Energy 

Supply Programs). 

•	 Annual Appropriations. Some states support energy financing and incentive programs with general 

state revenues appropriated through the annual 

budget process. 

•	 Bonds. States have used their bond issuance 

authority to raise capital for lending programs. In 

some cases, loan repayments are applied to bond 

debt service. 

•	 Environmental Enforcements and Fines. States 

that collect fines and penalties from environmental enforcement actions can use the proceeds to 

support clean energy financing and incentives. 

Alternatively, funds can come directly from a violator, through a supplemental environmental project. 

•	 CO2 Offset Programs. States have used their CO2 

offset programs as a source of funding. For example, Oregon’s 1997 state law HB 3283 required 

new power plants in the state to offset approximately 17% of their CO2 emissions. Power plants 

can do this directly or by paying the Oregon 

Climate Trust, which uses the funds to support 

offset projects, including sequestration, renewable 

energy projects, and energy efficiency projects. The 

program currently does not recognize CHP as an 

efficiency technology either in calculating the 

required offsets or in the generation of offsets. 

Washington and Massachusetts have similar offset 

funding programs. 

Funding Levels 

When designing financing and incentive programs, 

states have found that it is important to determine 

the financing limits and incentive levels that are 

appropriate to market conditions. Ideally, incentives 

provide just enough inducement to generate significant new market activity and limit financial risk. 

For loans or other credit-related incentives such as 

loan guarantees, public financing typically pays for 

just enough of the project cost to motivate private 

investment. If public financing covers too much of a 

project, it can promote projects that are not financially sound. It is believed that if investors invest a 

significant amount of their own money in the project, they will be motivated to make it succeed. 

Another method is to buy down the interest rates. 

This is often attractive to both businesses and homeowners. While different than loan guarantees, buydowns can help put monthly payments within budgetary reach. 

For financial incentives such as grants or rebates, the 

amount offered is often set at a level just large 

enough to induce private investment. Incentives that 

are too high can distort market behavior so that the 

technology does not sustain market share after the 

incentives end. 

� Section 3.4. Funding and Incentives
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Timing and Duration 

Another key consideration when developing funding 

and incentives programs is determining how long the 

program will be in effect and whether funding will 

be available on a consistent year-to-year basis. State 

incentive and funding programs have been more 

effective when they have been sustained and consistent over time (e.g., the Texas LoanSTAR program) 

(Prindle 2005). Several years are typically required 

for a significant effort to become known and accepted in the marketplace. States with effective programs typically have established five- to 10-year 

authorizations for their programs. In some markets, 

especially where projects require long lead times for 

design, permitting, construction, and underwriting, 

program cycles may be longer. In other cases—for 

example, in Oregon where faster-turnover consumer 

products are involved—programs can be conducted 

on a shorter time frame. Programs involving incentives, loans, or other forms of financial assistance 

that have been offered on a short-term basis have 

failed to allow time for markets to respond (Prindle 

2005). 

The appropriate duration of an incentive or financing 

program also depends on the characteristics of the 

target market and the goals of the program. A 

revolving loan program can continue indefinitely, 

since the fund typically requires a single initial capitalization. If the size of the target market is large 

relative to the size of the fund principal, the program 

can run productively for many years. In other cases, 

an incentive effort might be targeted at acquiring a 

specific level of resources in a given time frame; in 

such cases, funding levels would tend to be higher 

and the program duration shorter. Incentives are 

gradually reduced and ultimately eliminated when 

the technology or practice becomes standard practice in the target market. 

Interaction with Federal Policies 

Several kinds of federal policies and programs can 

interact with incentive and financing programs. 

These programs offer technical assistance, technical 

specifications for eligible products or projects, federal funding, and opportunities to coordinate delivery 

of state efforts with regional and national programs. 

Examples of federal initiatives with which state programs can form partnerships or otherwise interact 

include: 

•	 ENERGY STAR. States have used ENERGY STAR 

equipment and product specifications as the basis 

for qualification for incentives or financing. Since 

the late 1990s, EPA and DOE have worked with 

utilities, state energy offices, and regional nonprofit organizations to help them leverage ENERGY 

STAR messaging, tools, and strategies and to 

enhance their local energy efficiency programs. By 

working with EPA and DOE and using ENERGY 

STAR as their local platform, these organizations 

initiate their programs more quickly; increase their 

program uptake and impact; help drive local market share for ENERGY STAR-qualified products, 

homes, buildings, and related best practices; contribute to long-term change in the market for 

these products and services; and deliver on local 

objectives to increase energy efficiency, maintain 

electric reliability, and improve environmental 

quality. For example, states such as Texas, New 

Jersey, and Vermont have used the ENERGY STAR 

Homes program as the basis for financial incentives to home builders. In the Northeast, several 

states have used the ENERGY STAR criteria for 

clothes washers as the basis for a regionally coordinated network of incentive programs (for more 

information, see http://www.energystar.gov/). 

•	 Green Power Partnership. The Green Power 

Partnership is a voluntary program developed by 

EPA to boost the market for clean power sources. 

Although the program does not provide funding 

for green power purchases, state and local governments that participate in the partnership receive 

technical assistance and can use the program’s 

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Best Practices: Designing Clean Energy Funding and Incentive Programs 

The best practices identified below address common design elements for developing clean energy funding and incentives programs, based on experiences of states that have implemented successful programs. 

•	 Conduct robust technical and economic analyses to screen technologies and program designs and to ensure that 

the program is designed to achieve significant impacts and is cost-effective. 

•	 Conduct market research to understand customer preferences, market structures, and other factors that will affect 

program success, as appropriate. 

•	 Set technical requirements for eligible equipment and practitioners to encourage significant energy savings and 

system performance (for renewables and CHP) and to ensure that measures and projects receive appropriate quality control. 

•	 Consider how financial incentives can complement or leverage other state programs and policies and federal 

financial incentives. 

•	 Provide ongoing public education about clean energy technologies and available incentives. 

•	 Provide stable, long-term program funding where appropriate and plan for decreasing funding as markets change. 

•	 Keep program design and procedures as simple as possible, and make it easy to participate. 

•	 Cooperate with utilities, industry allies, and market participants to reach key market “gateways.” 

•	 Establish a consistent but cost-effective quality assurance mechanism. 

•	 Incorporate incentives into an overall market development strategy; include installer training and certification. 

•	 Develop a coordinated package of incentives and other services, including: 

- For energy efficiency: customer promotions, industry ally partnerships for marketing, training, and education. 

- For renewable energy: interconnection standards and net metering. 

•	 Provide for hard-to-reach market segments, including public facilities, low-income households, small businesses, 

and nonprofit organizations. 

•	 Design the program to be valuable, by creating program tracking and reporting systems that allow review of completed projects. 

•	 Allow flexibility for program modifications. 

Green Power Purchasing Guide to inform their 

green power purchasing decisions. (For more information, see http://www.epa.gov/greenpower/ 

index.htm.) 

•	 The Energy Policy Act of 2005 (EPAct 2005) provides tax credits for energy-efficient appliances 

and vehicles, and extends the PTC for renewable 

energy generation to 2007. EPAct 2005 also 

authorizes funding to support state energy efficiency programs, although many of the provisions 

will require congressional appropriations. 

The Energy Efficient Appliance Rebate Program 

authorizes matching appliance rebates to be operated by state energy offices. Through this program, 

states have an alternative source of funds and a 

state rebate program to purchase ENERGY STAR 

appliances to replace existing appliances. 

Under the Federal Production Tax Credit, defined 

renewable power technologies, such as wind, 

geothermal, and other grid-scale technologies, are 

eligible for federal credits for each kWh generated. 

State incentives have been designed to coordinate 

with the PTC to help spur renewable energy development in the state (LBNL 2002). For example, 

MTC invests in renewable energy in the state (for 

more information, see: http://www.mtpc.org). 

� Section 3.4. Funding and Incentives
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Interaction with State Policies 

States have combined their financial incentives with 

other state clean energy programs and policies to 

deliver even greater energy and cost savings. Funding 

and incentives programs interact with many state 

policies, including: 

•	 PBF Programs. PBFs can be used as a source of 

direct incentives, such as rebates, and also as a 

source of financing assistance. PBFs are funds typically created by levying a small fee on customers’ 

utility bills. PBFs in 17 states and Washington, D.C. 

support energy efficiency programs, and PBFs in 

16 states are used to promote renewable energy. 

(See Section 4.2, Public Benefits Funds for Energy 

Efficiency, and Section 5.2, Public Benefits Funds 

for State Clean Energy Supply Programs.) 

•	 Portfolio Management. Portfolio management 

refers to an electric utility’s energy resource planning and procurement strategies. Effective portfolios are diversified and include a variety of fuel 

sources and generation and delivery technologies 

and financial incentives to encourage customers to 

reduce their consumption during peak demand 

periods. Portfolio management delivers clean air 

benefits by shifting the focus of procurement from 

short-term, market-driven, fossil fuel-based prices 

to long-term, customer costs and customer bills by 

ensuring the consideration of energy efficiency 

and renewable generation resources. (See Section 

6.1, Portfolio Management Strategies.) 

•	 Environmental Enforcement Cases. Under a settlement, a violator may voluntarily agree to undertake an SEP (an environmentally beneficial project) 

as a way to offset a portion of its monetary penalty (see Supplemental Environmental Projects, on 

page 3-83). 

•	 Lead by Example Programs. Many states lead by 

example through the implementation of programs 

that achieve energy cost savings within their own 

facilities, fleets, and operations. Lead by example 

programs include innovative financing mechanisms, such as revolving loan funds, tax-exempt 

master lease-purchase agreements, lease revenue 

bonds, performance contracting, and procurement 

policies and accounting methods (for more information, see Section 3.1, Lead by Example). 

•	 RPS. In states with RPS requirements, financial 

incentives can be used strategically to support the 

development of more renewable energy generation 

in the state. Some states have decided to use 

financial incentives to support only renewable 

energy generation that occurs in addition to the 

state’s RPS requirements. States can also add efficiency to the RPS, as in Pennsylvania, or create a 

separate efficiency performance standard, as in 

Connecticut. (See Section 5.1, Renewable Portfolio 

Standards.) 

•	 Interconnection, Net Metering, and Standby Rates. 

Some states have modified their interconnection 

standards, net metering rules, and/or standby rate 

structure to facilitate easier interconnection for 

renewable energy systems, increase their profitability, and provide incentives for clean energy. 

In states where interconnection issues have not 

been addressed, renewable energy generators may 

face hurdles with connecting to the grid and may 

not have the financial incentives required to 

ensure the system is sufficiently profitable. Net 

metering rules enable renewable energy system 

owners to sell excess production to the utility at 

retail rates rather than wholesale rates, effectively providing a per-kWh incentive (see Section 5.4, 

Interconnection Standards). Some states are also 

reviewing utility standby rates to ensure that they 

are reasonable and appropriate and do not unnecessarily limit the development of clean and efficient onsite generation. (See Section 6.3, 

Emerging Approaches: Removing Unintended 

Utility Rate Barriers to Distributed Generation.) 

•	 Encouraging Green Power. Some states stimulate 

the green power market by establishing mandates 

for state government facilities to satisfy a percentage of their electricity demands with green 

power (e.g., RECs or green power electricity products). (See Section 3.1, Lead by Example, and 

Section 5.5, Fostering Green Power Markets.) 

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Implementation and Evaluation 

Implementing and Administering 

Funding and Incentives Programs 

The most appropriate agency to implement and 

administer funding and incentive programs varies, 

depending on the state and type of incentive program offered. In most states, the state energy office 

manages the program. Other agencies involved in 

program implementation include the state department of general services, treasury department, and 

others. In some states (e.g., Oregon and Iowa), a private nonprofit organization implements and evaluates funding and incentives programs. 

Objectives for the agency administering the incentives program include (Brown et al. 2002): 

• Create sufficient budget authorizations and appropriations to ensure the effectiveness of the program, measured against actionable performance 

criteria where possible. 

• Allow for an adequate time period (typically five 

to 10 years) for the funding to influence the 

market. 

• Determine an appropriate incentive level for targeted technologies and markets (e.g., incentives 

should be large enough to generate the investment needed to meet program goals and moderate 

enough to stay within the budget). 

• Establish funding caps per project and per customer to keep programs affordable and sustainable. 

• Focus on high-efficiency technologies and practices by setting technical criteria that target the 

high end of the target market. 

• Be flexible with respect to who receives the 

incentives so that the most appropriate parties 

can participate. 

• Incorporate sufficient reporting requirements to 

document program results accurately and prevent 

program abuse. 

• Budget adequately for evaluation and conduct 

evaluations on regular cycles. Allow for selected 

detailed audits of larger and more complex projects. 

The implementing/administering agency is also 

responsible for ensuring that an adequate program 

support structure is in place. This might entail the 

following actions: 

• Allocate sufficient personnel and time for program 

administration. 

• Collaborate with other agencies. 

• Establish agreements with equipment installers, 

manufacturers, and service providers. 

• Collaborate with utilities. 

• Conduct public outreach and education 

campaigns. 

• Conduct periodic program evaluations and take 

corrective measures, if necessary. 

Best Practices: Implementing Funding and 

Incentive Programs 

•	 Consult with other states to gain the benefit of their 

experiences with program implementation details. 

•	 Select the most appropriate delivery organization(s) 

for program delivery. 

•	 Approve long-term funding cycles (five to 10 years) 

to enable programs to achieve significant market 

acceptance and impacts. 

•	 Maintain stakeholder communications via working 

relationships and advisory groups. 

•	 Provide for adequate program tracking and reporting systems to enable effective evaluation and midcourse program corrections. 

Evaluation 

In general, states evaluate their state financial incentives programs based on quantitative metrics, such as 

the amount of money granted, energy savings, and 

the number of systems installed. In addition, the 

administrative process is frequently evaluated to track 

data such as the number of days it takes the state to 

process an application. While more challenging, 

states also attempt to determine if financial incentives have the desired effect on the marketplace (i.e., 

understanding the causal relationship between the 

incentives and the changes occurring in the market, 

accounting for “free riders” and estimating the net 

� Section 3.4. Funding and Incentives
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EPA Clean Energy-Environment Guide to Action
 

energy savings impacts achieved by incentives). 

Standardized reporting requirements and independent 

measurement and verification (M&V) of program 

impacts provide the information required to redirect 

future investment dollars for optimal effectiveness. 

States have found that M&V methods are critical to 

ensuring that sufficient projected savings are realized to determine if funding and incentive investments provide their expected return. For simpler 

measures with well-established savings performance 

records, a “deemed savings” approach can be used. 

For more complex measures, newer technologies, and 

larger projects, a project-specific M&V approach is 

warranted. (For more information on M&V methods, 

see Section 4.1, Energy Efficiency Portfolio Standards, 

and Section 4.2, Public Benefits Funds for Energy 

Efficiency.) Several states have established detailed 

procedures and technical support documents describing “deemed savings” methods, including: 

• The California Measurement Advisory Council 

(CALMAC) (CALMAC 2005). 

•	 Efficiency Vermont Technical Reference Users 

Manual, published by Efficiency Vermont (2004). 

For project-specific M&V methods, the following 

resources are helpful: 

•	 The International Program Measurement and 

Verification Protocol (IPMVP) (IPMVP 2005). 

• The Texas PUC’s Measurement and Verification 

Guidelines (Texas PUC 2005). 

• DOE Federal Energy Management Program (FEMP) 

guidelines, Measurement & Verification Resources 

and Training Opportunities (Webster 2003). 

Several states have conducted evaluations of their 

funding and incentives programs. For example, the 

California Public Utilities Commission (CPUC) evaluates the Self-Generation Incentive Program (SGIP) 

each year to assess process, impact, and cost-effectiveness (CPUC 2005b). Part of the state’s 2004 evaluation included interviews with 47 SGIP cogeneration system owners regarding their system implementation and operations experiences during the 

year. The evaluation found that, while the SGIP is 

very well subscribed, and program participants are on 

average satisfied with their SGIP systems, many 

cogeneration systems do not appear to be performing as well, or operating for as many hours, as originally expected (CPUC 2005b). 

NYSERDA evaluated its DG/CHP program to understand how the internal processes of the program 

have progressed, assess the progress of and barriers 

to technology transfer, and determine end users’ 

and consultants’ levels of satisfaction with the program. The evaluation involved a review of current 

savings procedures and data tracking, interviews 

with DG/CHP program managers, and a review of 

data summaries for projects. The evaluation results 

revealed that staff and participants are enthusiastic 

about the program and that many nonparticipants 

also have positive feelings about it. Several recommendations for improvements were received, 

including making the proposal and selection process 

Best Practices: Evaluating Funding and 

Incentive Programs 

Evaluating funding and incentives programs requires 

tracking program use, cost, and energy savings, as 

well as providing easy public access to program information. 

•	 Evaluate programs regularly, rigorously, and costeffectively. 

•	 Use methods proven over time in other states, 

adapted to state-specific needs. 

•	 Provide “hard numbers” on quantitative impacts 

and process feedback on the effectiveness of program operations and ways to improve service delivery. 

•	 Use independent third parties, preferably with reputations for quality and unbiased analysis. 

•	 Measure program success against stated objectives, providing information that is detailed enough 

to be useful and simple enough to be understandable to nonexperts. 

•	 Provide for consistent and transparent evaluations 

across all programs and administrative entities. 

•	 Communicate results to decisionmakers and stakeholders in ways that demonstrate the benefits of the 

overall program and individual market initiatives. 

3-78 � Chapter 3. State Planning and Incentive Structures
 
 

 

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less confusing, initiating better communication 

with utilities about interconnection and standby 

rate charges, and developing an incentive program 

with stable funding to allow for replication of projects (NYSERDA 2004). 

State Examples 

The following examples illustrate effective state programs, innovative approaches, and program results 

for each of the key types of financing and incentive 

programs. 

Revolving Loan Funds 

Texas LoanSTAR 

Texas LoanSTAR, also known as the Loans to Save 

Taxes and Resources program, began in 1988 as a 

$98.6 million retrofit program for energy efficiency 

in buildings (primarily public buildings such as state 

agencies, local governments, and school districts). 

The program is now funded at a minimum of $95 

million annually. The original funding for the program was from PVE funds. The Texas State Energy 

Conservation Office (SECO) administers the funds 

through DOE’s State Energy Program. 

SECO provides extensive program oversight and documentation, ensuring that the data used to establish 

claims for energy savings are accurate. SECO develops procedures and guidelines that allow LoanSTAR 

to prove that the financed energy retrofits would pay 

for themselves. As part of its quality control, SECO: 

• Issues energy assessment guidelines. 

• Trains energy engineering consulting firms on 

audit techniques and LoanSTAR guidelines. 

• Develops protocols to meter and monitor each 

LoanSTAR project to track pre- and post-retrofit 

energy consumption. 

• Develops new methods to analyze energy savings 

from retrofits. 

Public agencies in Texas have realized substantial 

savings on their energy bills through LoanSTAR that 

continue to accrue year after year. As measured from 

the beginning of the program through December 

2004, total savings amount to almost $152 million, 

on an investment of $123 million. This amount 

reflects measured savings from 1989, when the first 

loan was funded, through 2000, and stipulated savings from 2001 through December 2004. Total savings are calculated directly from metered and monitored energy consumption data collected before and 

after the energy retrofits. Stipulated savings are used 

for buildings where the energy-saving measures contribute year after year at an established level but 

where monitoring equipment is no longer in place 

(DOE 2005). 

Web site: 

http://www.seco.cpa.state.tx.us/ls.htm 

Iowa Energy Bank 

Iowa’s Energy Bank program provides technical and 

financial assistance to public and nonprofit facilities 

for installing cost-effective EE/RE improvements. This 

energy management program uses energy cost savings to repay financing for energy management 

improvements. It targets public schools, hospitals, 

private colleges, private schools, and local governments. The Iowa Energy Bank helped finance $150 

million in energy efficiency improvements in state 

and local facilities from 1989 through 2001. 

The Iowa Energy Bank program starts with an initial 

energy audit. This assessment may be an extensive 

energy audit, or for small facilities, a simpler assessment of energy consumption and potential improvements by Energy Bank program staff. If necessary, an 

engineering analysis is completed for the facility by a 

qualified consultant. A six-month, interest-free loan 

is available to pay the up-front expense of the energy audit and engineering analysis. Full-term, municipal lease-purchase agreements or capital loan notes 

from private lending institutions are available at 

interest rates negotiated for the client by the Iowa 

Department of Natural Resources (DNR). All clients 

of the program are eligible for financing of costeffective energy management improvements. 

Web site: 

http://www.state.ia.us/dnr/energy/MAIN/ 

PROGRAMS/BEM/EBANK/index.html 

� Section 3.4. Funding and Incentives
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EPA Clean Energy-Environment Guide to Action
 

Montana Alternative Energy Loan Fund 

Montana’s revolving loan fund, established in May 

2001, initially provided up to $10,000 (at a 5% interest rate in 2004) to individuals and small businesses 

for small renewable energy systems up to 1 MW in 

size. In March 2005, the Montana Legislature passed 

a bill that amended the loan program, raising the 

maximum loan amount to $40,000 and extending 

the repayment period from five years to 15 years. As 

of 2004, the Alternative Energy Loan Fund has more 

than $425,000 available for disbursement to loan 

applicants. Financial interest accruing to the fund, as 

well as interest generated from loan repayments, is 

re-deposited into the fund to sustain the program. 

The fund is managed by the Montana Department of 

Environmental Quality (DEQ) and is supported by 

penalties from air quality violations in Montana. 

Eligible resources include wind, solar, geothermal, 

fuel cells, biomass, hydroelectric, and solid waste 

methane. Montana also provides a 35% investment 

tax credit for businesses that manufacture alternative energy generating equipment, use energy from 

alternative energy generating equipment, or install 

net metering equipment for connecting alternative 

energy generation systems to the electrical grid 

(Montana DEQ 2005). The 2005 law also added local 

government agencies, universities, and nonprofit 

organizations to the list of eligible sectors. 

Web site: 

http://www.deq.state.mt.us/energy/Renewable/ 

altenergyloan.asp 

Energy Performance Contracting 

Washington 

In 2001, the Washington legislature adopted legislation requiring all state facilities to conduct energy 

audits to identify energy savings opportunities and to 

use performance contracting as their first option for 

achieving those savings (Washington HB 2247 2001). 

This law has led to a surge in performance contracting activity: $100 million has been invested in project implementation by the private sector, with net 

savings of over $8.3 million annually. 

The Washington Department of General 

Administration (DGA) energy team has designed an 

energy performance contracting (EPC) program 

specifically for state agencies, colleges and universities, cities and towns, counties, school districts, 

ports, libraries, hospitals, and health districts. The 

EPC program provides assistance to public facilities 

in completing energy performance contracting projects and includes free preliminary audits and consulting services. The program complies with competitive statutory requirements to save time and money. 

The DGA helps state agencies qualify for the lowinterest state treasury financing that is available for 

EPC projects. 

Tax Incentives 

Oregon 

The Oregon DOE offers BETCs and RETCs to Oregon 

businesses and residents that invest in qualifying 

energy-efficient appliances and equipment, recycling, 

renewable energy resources, sustainable buildings, 

and transportation (e.g., alternative fuels and hybrid 

vehicles). The BETC is for 35% of the eligible project 

costs and applies to the incremental cost of the system or equipment that is beyond standard practice. 

The RETC varies depending on the type of equipment 

purchased and amount of energy savings. Through 

2004, more than 12,000 Oregon energy tax credits 

worth $243 million have been awarded. Altogether, 

those investments save or generate energy worth 

about $215 million a year (Oregon DOE 2005a). 

Business owners who pay taxes for a business site in 

Oregon are eligible for the tax credit. Oregon nonprofit organizations, tribes, or public entities that 

partner with an Oregon business are also eligible, as 

are residents who have an Oregon tax liability. 

The BETC offers an innovative pass-through option, 

which allows a project owner to transfer the 35% 

BETC project eligibility to a pass-through partner for 

a lump-sum cash payment. The pass-through option 

rate for five-year BETCs (effective October 1, 2003) is 

25.5%. The pass-through option rate for one-year 

BETCs (those with eligible costs of $20,000 or less) is 

3-80 � Chapter 3. State Planning and Incentive Structures
 
 

 

EPA Clean Energy-Environment Guide to Action
 

30.5%. The Oregon Department of Energy sets these 

pass-through option rates (Oregon DOE 2005a). 

Web site: 

http://egov.oregon.gov/Energy/CONS/BUS/BETC.shtml 

New York 

New York operates three individual tax credit programs in addition to its suite of PBF-funded programs. The state began its Green Building Tax Credit 

Program in 2002. The income tax incentive is intended to spur growth of the green buildings market, 

including energy efficiency measures and incorporation of solar energy. This was the first state program 

of its kind and has been adapted by several other 

states. NYSERDA and the New York State Department 

of Environmental Conservation (DEC) administer the 

program. $25 million is available annually for the tax 

credit for buildings greater than 20,000 square feet 

(Brown et al. 2002). The PV credit is for 100% of the 

incremental cost of “building-integrated” PV modules 

(20% every year over a five-year period) with a cap 

of $3 per watt. 

In addition, New York provides a personal income tax 

credit for solar PV systems. The credit is for 25% of 

equipment and installation costs, with qualified 

expenditures capped at $6 per watt. Any portion of 

the system cost that is funded by a grant (from any 

source) cannot be counted toward the tax credit. 

New York also provides a 15-year property tax 

exemption for solar, wind, and biomass systems 

installed before January 1, 2006. 

Web site: 

http://www.dec.state.ny.us/website/ppu/grnbldg/ 

Grants, Buy-Downs, and Generation 

Incentives 

Grants, buy-downs, and generation incentives provide funding and incentives to invest in energy efficiency and clean generation technologies. Typically, 

energy efficiency measures can be promoted through 

buy-downs (also known as rebates), while clean generation is supported through buy-downs and generation incentives. 

California 

California operates a rebate program and a generation incentive program that, together with its PBFfunded Emerging Renewables Program, cover a broad 

range of renewable energy technologies from small 

customer-sited PV systems to large commercially 

owned wind and biomass facilities. (For more information on California’s generation incentives program, the Supplemental Energy Payments program, 

and Emerging Renewables Program supply, see 

Section 5.2, Public Benefits Funds for State Clean 

Energy Supply Programs.) 

The SGIP provides rebates for systems over 30 kW 

and up to 5 MW in size, including microturbines, 

small gas turbines, wind turbines, PV, and fuel cells. 

The program was authorized in 2001 by the CPUC 

and extended in 2003 by the state legislature. It provides $125 million per year for program administration and customer incentives. Funds are collected 

through an electricity distribution charge that is separate from the public goods charge and administered 

by the state’s four investor-owned utilities. The 

rebate amounts vary depending on the technology. 

The rebate for solar PV, for example, is $3.50 per 

watt. As with the Emerging Renewables Program (see 

Section 5.2, Public Benefits Funds for State Clean 

Energy Supply Programs), the SGIP is available for 

service customers in investor-owned utility territories. The SGIP offers incentives to encourage customers to produce electricity with microturbines, 

small gas turbines, wind turbines, PV, fuel cells, and 

internal combustion engines. The incentive payments 

range from $1 per watt to $4.50 per watt, depending 

on the type of system. CHP systems are eligible for 

the lowest incentive payment. CHP systems must be 

� Section 3.4. Funding and Incentives
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1981 

1982 

1983 

1984 

1985 1986 1987 

1988 1989 

1990 

1991 

1992 1993 

1994 1995 1996 

1997 

1998 1999 2000 

2001 2002 

2003 

2004 2005 

EPA Clean Energy-Environment Guide to Action
 

between 30 kW and 5 MW to qualify. The SGIP has Figure 3.4.3: Grid-Connected PV Capacity Installed in 

been instrumental in the increasing the number of California (cumulative) 

small PV (between 30 kW and 1 MW) and CHP systems (5 MW or smaller) in the state. As of 2004, the 

program has supported 388 systems (235 PV, 1 wind 

turbine, 2 fuel cells, and 150 CHP systems) with a 

total online capacity of 103 MW, including 82 MW 

of PV capacity (CPUC 2005b). As shown in Figure 

3.4.3, the total grid-connected PV capacity installed 

in California in 2005 was more than 130 MW (CEC 

2005c). 0 

20 

40 

60 

80 

100 

120 

140 

MW

Web sites: Year

http://www.ora.ca.gov/distgen/selfgen/sgips/ 

index.htm 

http://www.cpuc.ca.gov/static/energy/electric/ 

050415_sceitron+sgip2004+impacts+final+report.pdf 

New York 

NYSERDA implements a grant program to assist 

companies in developing, testing, and commercializing renewable energy technologies manufactured in 

New York. The program focuses on product and technology development rather than on installation of 

individual renewable energy systems. Projects are 

selected based on whether they will be commercially 

competitive in the near term and the ability of the 

company to achieve specific performance and quality 

milestones. Eligible technologies include solar thermal, PV, hydro, alternative fuels, wind, and biomass. 

Web site: 

http://www.nyserda.org/ 

Washington 

Senate Bill 5101 (S.B.5101), signed in May 2005, 

established a base production incentive of 

$0.15/kWh (capped at $2,000 per year and roughly 

tailored to the yearly market output of a typical 3.5 

kW PV system) for individuals, businesses, or local 

governments generating electricity from solar power, 

wind power or anaerobic digesters—the first use of 

this approach in a U.S. state. The incentive amount 

Unknown SMUD Energy Commission LADWP CPUC

Source: CEC 2005c. 

paid to the producer is adjusted based on how the 

electricity was generated by multiplying the incentive ($0.15/kWh) by the economic multipliers shown 

in Table 3.4.1. 

The economic multipliers favor equipment manufactured in Washington, with the goal of developing a 

renewable manufacturing industry in the state. The 

incentives apply to power generated as of July 1, 

2005 and remain in effect through June 30, 2014. 

The Washington Department of Revenue (DOR) is 

responsible for submitting a report measuring the 

impacts of this legislation, including any change in 

the number of solar energy system manufacturing 

companies in Washington and the effects on job creation (e.g., the number of jobs created for 

Washington residents). 

Publicly and privately owned utilities in Washington 

will pay the incentives and earn a tax credit equal to 

the cost of those payments. The credit may not 

exceed $25,000 or 0.025% of a utility’s taxable 

power sales, whichever is larger. Increased sales tax 

revenues from an expanded renewable energy industry are expected to offset reductions in revenues 

from utility taxes (Broehl 2005, Washington 2005). 

3-82 � Chapter 3. State Planning and Incentive Structures
 
 

 

 

 

 

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Table 3.4.1: Economic Multipliers Used for 

Washington’s Production Incentive Program 

Solar modules manufactured in Washington 2.4 

Solar and wind generation equipped with inverters 

manufactured in Washington 

1.2 

Anaerobic digester and other solar equipment or 

wind generator equipment with blades manufactured in Washington 

1.0 

All other electricity generated by wind 0.8 

Source: Washington 2005. 

NOx Set-Asides 

New York 

The New York State DEC administers the NO Budget x 

Trading Program and allocates the state’s NO emis­ x 

sion allowances, which are partially set aside for 

energy-efficient projects. In 2003, the size of the 

set-aside was 3% of the state’s NO trading program x 

(1,241 tons). Sites that meet the emissions 

allowances criteria may apply for the allowances and 

then sell them to other NO -emitting sources for x

cash. Eligible sites include end-use energy efficiency 

projects, renewable energy projects, in-plant energy 

efficiency projects, and fossil fuel-fired electricity 

generating units that produce electricity more efficiently than the annual average heat rate attributable to all fossil fuel-fired electricity generated within 

New York State. 

Web site: 

http://www.dec.state.ny.us/ 

Supplemental Environmental Projects 

Colorado 

The state of Colorado adopted an SEP policy as part 

of its environmental enforcement and compliance 

assurance strategy. Colorado’s Department of Public 

Health and Environment (CDPHE) uses decision 

criteria on a case-by-case basis to determine 

whether an SEP is appropriate. During routine 

inspections in 2000, a large Denver-based industrial 

gas compression company was found in violation of 

chlorofluorocarbon (CFC) emission regulations. The 

company was assessed a noncompliance fee of 

$30,000 and a civil penalty of $395,000. Through a 

settlement agreement with CDPHE, the company 

agreed to implement an SEP to reduce air pollution. 

Under the settlement agreement, the company 

agreed to pay a mitigated civil penalty—80% of the 

total, or $303,360—into an interest-bearing escrow 

account managed by Public Service of Colorado. The 

SEP will now fund five years of wind energy purchases, or approximately 2,426,880 kWh of electricity. 

The agreement also stipulates that the energy comes 

from new wind generation facilities. Public Service of 

Colorado must use funds remaining in the escrow 

account after the fifth year (2005) to continue purchasing wind power. Interest that accrues on the 

escrow account is similarly invested. 

Environmental and health benefits include avoided 

emissions of: 

• 3,640 metric tons of CO2 

• 73 metric tons of SO2 

• 97 metric tons of NOx 

These emission reductions are equivalent to avoiding 

58.2 million vehicle miles per year (NREL 2003). 

The SEP wind purchase also instituted a process for 

streamlining future renewable energy purchases at 

the Public Service of Colorado. This will provide substantial administrative savings to both providers and 

customers. 

Web site: 

http://www.cdphe.state.co.us/el/cross_media/ 

seps.html 

� Section 3.4. Funding and Incentives
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What States Can Do 

States have diversified what were originally simple 

grant or loan programs into a broader set of funding 

and incentive programs that encourage specific markets and customer groups to invest in energy efficiency and clean supply projects. The information in 

this Guide describes best practices for design, implementation, and evaluation; summarizes a wide range 

of state experiences with funding and incentive programs; and offers a variety of information resources 

on funding and incentive strategies. Based on these 

state examples, action steps for states that want to 

establish their own funding and incentives programs 

or strengthen and expand existing programs are 

described below. 

Action Steps for States 

States interested in creating or expanding clean 

energy funding and incentive programs can take the 

following steps: 

•	 Develop an Inventory of Current Financing and 

Incentive Programs. Review existing programs and 

identify the need for new or expanded offerings. 

Conduct market research, as necessary, to identify 

these needs. 

•	 Design Funding and Incentive Programs Based on 

the Best Practices Developed by Other States. 

States’ experiences with funding and incentive 

programs provide a rich source of information on 

how to develop successful programs. 

•	 Identify and Secure Funding Sources. This can be 

done via legislative and administrative initiatives, 

as appropriate. Seek to coordinate program targets 

and information collection efforts to avoid overlap 

and duplication. 

•	 Conduct Rigorous Evaluation. Upon completion, 

report the results to policymakers, industry, and 

the public. 

3-84 � Chapter 3. State Planning and Incentive Structures
 
 

 

 

 

 

 

 

 

 

 

EPA Clean Energy-Environment Guide to Action 

Information Resources 

Information About States 

Title/Description URL Address 

The Database of State Incentives for Renewable Energy (DSIRE). This database contains information on federal, state, and local incentives that promote renewable 

energy and energy efficiency. It provides information for all 50 states and is updated 

regularly. 

http://www.dsireusa.org 

Innovation, Renewable Energy, and State Investment: Case Studies of Leading Clean 

Energy Funds. This Lawrence Berkeley National Laboratory (LBNL) Web site contains case studies of various state clean energy funds. 

http://eetd.lbl.gov/ea/EMS/reports/51493.pdf 

The National Renewable Energy Laboratory (NREL), Case Studies on the 

Effectiveness of State Financial Incentives for Renewable Energy. This NREL report 

presents state case studies on financial incentives for renewable energy. NREL/SR620-32819. Gouchoe, S., V. Everette, and R. Haynes. 2002. NREL, DOE. September (vi). 

http://www.nrel.gov/documents/ 

profiles.html 

Performance Contracting Legislation By State. This Oak Ridge National Laboratory 

Web site contains information on performance contracting legislation by state. The 

site includes links to legislation and state performance contracting legislation. 

http://www.ornl.gov/info/esco/legislation/ 

State Environmental Resource Center Energy Efficiency Standards. This Web site 

offers the tools to bring energy efficiency standards to individual states. These tools 

include a model bill, talking points, press clips, a fact pack, links, and other background information. 

http://www.serconline.org/ 

efficiencystandards/pkg_frameset.html 

Union of Concerned Scientists. This report assigns grades to each of the 50 states 

based on their commitment to supporting wind, solar, and other renewable energy 

sources. 2003. Plugging In Renewable Energy: Grading the States. May. Accessed 

September 14, 2005. 

http://www.ucsusa.org/clean_energy/ 

clean_energy_policies/ 

plugging-in-renewable-energygrading-the-states.html 

� Section 3.4. Funding and Incentives
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EPA Clean Energy-Environment Guide to Action 

General Information 

Title/Description URL Address 

Designing Financial Incentives 

CESA Year One: A Report on Clean Energy Funds in the U.S. 2003–2004. Clean Energy 

States Alliance. August 2004. 

http://www.cleanenergystates.org/library/ 

Reports/CESA Year One Report Final.pdf 

Energy Efficiency’s Next Generation: Innovation at the State Level. This American 

Council for an Energy-Efficient Economy (ACEEE) report describes state energy efficiency activities. ACEEE, 2003. W. Prindle, N. Dietsch, R. Neal Elliot, M. Kushler, T. 

Langer, and S. Nadel. Report No. EO31. ACEEE. 

http://aceee.org/pubs/e031full.pdf 

State Initiatives for Clean Energy Development. Final Project Report. October 2001. 

Prepared for Mainewatch Institute, Hallowell, ME by Ed Holt and Associates. The 

Maine Center for Economic Policy. 

http://www.mecep.org/cleanenergy/ 

initiatives_for_clean_ener.html 

Revolving Loan Funds 

Iowa Energy Bank. This Iowa DNR Web site contains information about the Iowa 

Energy Bank. 

http://www.state.ia.us/dnr/energy/MAIN/ 

PROGRAMS/BEM/EBANK/index.html 

Texas Revolving LoanSTAR. The Texas SECO administers the LoanSTAR program. 

Additional information about the program is available at SECO’s Web site. 

http://www.seco.cpa.state.tx.us/ls.htm 

Texas Revolving LoanSTAR Conservation Update Feature Story. This DOE, EE/RE 

Web page presents a case study describing the Texas revolving loan fund program. 

January–February 2005. 

http://www.eere.energy.gov/ 

state_energy_program/ 

feature_detail_info.cfm/start=1/fid=45 

Energy Performance Contracting 

Energy Performance Contracting. The Energy Services Coalition is a nonprofit organization that promotes energy service performance contracting. 

http://www.energyservicescoalition.org/ 

The National Association of Energy Service Companies (NAESCO). NAESCO is a 

trade association in the energy services industry, representing ESCOs, distribution 

companies, distributed generation companies, engineers, consultants, and finance 

companies. The Web site contains information on energy efficiency for buildings. 

http://www.naesco.org 

Performance Contracting Activities by State. This section of the Energy Services 

Coalition Web site provides information and resources about performance contracting programs by state. 

http://www.energyservicescoalition.org/ 

resources/states/activities.htm 

Performance Contracting Legislation by State. This Oak Ridge National Laboratory 

Web site contains information on performance contracting legislation by state. The 

site includes links to legislation and state performance contracting legislation. 

http://www.ornl.gov/info/esco/legislation/ 

Tax Incentives 

The Database of State Incentives for Renewable Energy. This Web site provides 

information on state, local, utility, and selected federal incentives that promote 

renewable energy and energy efficiency. 

http://www.dsireusa.org/ 

State Environmental Resource Center Issue: Energy Efficiency Tax Incentives. This 

site includes a variety of examples of tax incentives and legislation that have been 

introduced by different states to decrease energy use. 

http://www.serconline.org/ 

energytaxincentives.html 

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Title/Description URL Address 

Tax Incentives (continued) 

State Taxation in a Changing U.S. Electric Power System: Policy Issues and Options. 

This paper includes an overview of state tax incentives related to electricity generation and describes options for designing incentives to support energy efficiency and 

renewable energy. M.H. Brown and C. Rewey. National Conference of State 

Legislatures, December 2004. 

http://www.ncsl.org 

Tax Credits for Energy Efficiency and Green Buildings: Opportunities for State 

Action. This ACEEE report analyzes state tax energy efficiency tax incentives provided by the states for the private sector. ACEEE, 2002. E. Brown, P. Quinlan, H.M. 

Sachs, and D. Williams. Report #E021, March. ACEEE. 

http://aceee.org/pubs/e021full.pdf 

Designing Financial Incentives 

Incentives, Mandates, and Government Programs Promoting Renewable Energy. 

This paper discusses major financial incentives used by federal and state governments and their effectiveness in promoting renewable energy. 

http://www.eia.doe.gov/cneaf/ 

solar.renewables/rea_issues/incent.html 

U.S. Combined Heat and Power Association (USCHPA). This Web site provides information on federal policies, including tax incentives, designed to promote more widespread use of CHP systems. 

http://uschpa.admgt.com/PolicyFed.htm 

Grants, Buy Downs, and Generation Incentives 

ACEEE. ACEEE Energy Efficiency Program Database. http://aceee.org/new/eedb.htm 

California Energy Commission (CEC), Emerging Renewables Program. This site provides information about the Emerging Renewables Program (formerly called the 

“Emerging Renewables Buy-Down Program”), which was created to stimulate market demand for renewable energy systems by offering rebates to reduce the initial 

cost of the system to the customer. 

http://www.energy.ca.gov/renewables/ 

emerging_renewables.html 

Connecticut Light and Power (CL&P). The CL&P Energy Efficiency at Work Web site 

describes the utility’s Express Rebate Program. The programs offer CL&P business 

customers an opportunity to improve the energy efficiency of their stores or 

buildings. 

http://www.cl-p.com/clmbus/express/ 

indexexpress.asp#lighting 

CPUC. The CPUC Web site provides information on CPUC activities and regulations. http://www.cpuc.ca.gov/ 

CPUC Self-Generation Incentive Program. This site provides information about this 

California program to provide rebates to encourage distributed generation technologies. 

http://www.ora.ca.gov/distgen/selfgen/ 

sgips/index.htm 

The New York State DEC. This Web site describes energy efficiency projects it 

administers, including details on the Green Building Initiative tax credits. 

http://www.dec.state.ny.us/ 

Northwest Solar Center Web site. This site provides information on the use of solar 

energy in the Northwest. It contains information on Washington’s production incentive program. 

http://northwestsolarcenter.org/ 

NYSERDA. This Web site provides information on NYSERDA’s projects, including 

those promoting energy efficiency. 

http://www.nyserda.org/ 

Renewable Resources Development Report. This report by the CEC provides details 

on actions the state is taking to promote development of renewable energy generation, with particular focus on RPS. 

http://www.energy.ca.gov/reports/ 

2003-11-24_500-03-080F.pdf 

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Title/Description URL Address 

NOx Set Asides for Energy Efficiency and Renewable Energy Projects 

Creating an Energy Efficiency and Renewable Energy Set-Aside in the NOx Budget 

Trading Program (Draft, April 2000 EPA-430-K-00-004). This EPA guidance document 

contains additional details on designing the set-aside application process, allocating 

to eligible projects, translating energy savings into emission reductions, determining 

a time frame for implementation and awards, and establishing documentation and 

reporting procedures. 

http://www.epa.gov/cleanenergy/ 

stateandlocal/guidance.htm 

Designing Measurement and Verification Requirements. This EPA document is under 

development and will provide additional guidance to states on options for measuring 

and verifying the potential emission reductions resulting from EE/RE projects. 

URL not available. 

Guidance on Establishing an Energy Efficiency and Renewable Energy (EE/RE) SetAside in the NOx Budget Trading Program. March 1999. This EPA guidance document 

discusses the elements that a state may consider when deciding whether to establish an EE/RE set-aside and how it should be designed (e.g., the size of the set-aside, 

eligibility, and the length of awards). 

http://www.epa.gov/cleanenergy/ 

stateandlocal/guidance.htm 

Supplemental Environmental Projects 

A Toolkit for States: Using Supplemental Environmental Projects (SEPs) to Promote 

Energy Efficiency and Renewable Energy. This EPA toolkit is intended to help state 

and local governments pursue energy efficiency or renewable energy projects 

through SEPs. It presents the case for pursuing energy efficiency and renewable 

energy within settlements, provides examples in which SEPs have been used to support such projects, offers additional ideas for projects, and includes a step-by-step 

regulatory “road map” for pursuing SEPs. 

http://www.epa.gov/cleanenergy/pdf/ 

sep_toolkit.pdf 

Measurement and Verification (M&V) 

CALMAC Web Site. California’s statewide CALMAC evaluation clearinghouse contains resources for deemed savings and project-specific M&V techniques. 

http://www.calmac.org/ 

Efficient Vermont Technical Reference User Manual. TRM 4-19, published by 

Efficiency Vermont, 255 S. Champlain Street, Burlington, VT 05401-4717 phone (888) 

921-5990. Vermont provides a set of deemed-savings methods in this manual. 

http://www.efficiencyvermont.org/ 

or contact Efficiency Vermont at 

1-888-921-5990. 

International Performance Measurement and Verification Protocol (IPMVP) Web 

Site. IPMVP Inc. is a nonprofit organization that develops products and services to 

aid in the M&V of energy and water savings resulting from energy/water efficiency 

projects—both retrofits and new construction. The site contains the IPMVP, a series 

of documents for use in developing an M&V strategy, monitoring indoor environmental quality, and quantifying emission reductions. 

http://www.ipmvp.org 

M&V Resources and Training Opportunities. DOE FEMP, Revision 5, June 16, 2003. 

This document describes and provides links to numerous resources on the engineering techniques and tools used for verification of energy savings. 

http://ateam.lbl.gov/mv/docs/ 

MV_Resource_ListR6 

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Examples of Legislation
 

State Title/Description URL Address 

Revolving Loan Funds 

Iowa State Facilities Legislation is the enabling legislation for state 

buildings energy management program. 

http://www.state.ia.us/dnr/energy/MAIN/ 

PROGRAMS/BEM/EBANK/LEG.PDF 

Montana Senate Bill 506 in 2001 established an Alternative Energy Loan 

Fund. 

http://data.opi.state.mt.us/bills/2001/ 

billhtml/SB0506.htm 

Senate Bill 50 in 2005 amended the Alternative Energy Loan 

Fund. 

http://data.opi.state.mt.us/bills/2005/ 

billhtml/SB0050.htm 

Texas Texas Administrative Code. Subchapter Loan Program for 

Energy Retrofits. This subchapter describes the Texas revolving 

loan program for energy efficiency retrofits. 

http://info.sos.state.tx.us/pls/pub/ 

readtac$ext.ViewTAC?tac_view= 

5&ti=34&pt=1&ch=19&sch=D&rl=Y 

Tax Incentives 

Maryland 2001 Clean Energy Incentive Act established tax incentives for 

energy-efficient equipment. 

http://mlis.state.md.us/PDF-documents/ 

2000rs/bills/hb/hb0020e.pdf 

2001 Green Building Tax Credit provides tax credits for buildings 

meeting aggressive energy efficiency standards. See text of 

House Bill 8. 

http://mlis.state.md.us/2001rs/bills/hb/ 

hb0008e.rtf 

New York The New York Assembly passed the Green Building Tax Credit 

legislation in May 2000. 

http://www.dec.state.ny.us/ 

website/ppu/grnbldg/a11006.pdf 

Oregon 1980 legislation established the BETC. In 2001, green buildings 

were added to the BETC. See Oregon Revised Statute 469. 

http://www.leg.state.or.us/ors/469.html 

Performance Contracting 

Colorado Enabling legislation for performance contracting. (See Title 29 

Local Government 29-12.5-101, 29-12.5-102, 29-12.5-103, 29-12.5­

104, and Title 24 State Government 24-30-2001, 24-30-2002, 24­

30-2003.) 

http://198.187.128.12/colorado/lpext.dll? 

f=templates&fn=fs-main.htm&2.0. 

Washington Engrossed House Bill 2247-Energy Audits, 2001 is that state’s 

enabling legislation for performance contracting. 

http://www.leg.wa.gov/pub/billinfo/2001-02/ 

House/2225-2249/2247_pl_09252001.txt 

Grants and Rebates (Buy Downs) 

California The California Solar Center tracks some of the legislation 

passed for financial incentives for solar in California. 

http://www.californiasolarcenter.org/ 

legislation.html 

Legislation for the Supplemental Energy Payments Program. http://www.dsireusa.org/library/docs/ 

incentives/CA22F.pdf (Senate Bill No. 

1038) 

http://www.dsireusa.org/library/docs/ 

incentives/CA22Fa.pdf (Senate Bill No. 

078) 

Massachusetts MTC’s Commercial, Industrial, and Institutional Initiative (CI3). http://www.masstech.org/ 

renewableenergy/CI3.htm 

� Section 3.4. Funding and Incentives
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State Title/Description URL Address 

Grants and Rebates (Buy Downs) (continued) 

New York The New York State Environmental Conservation Law (§§ 1­

0101, 3-0301, 19-0103,19-0105, 19-0305, 19-0311) provides the 

New York DEC’s authority. 

http://www.dec.state.ny.us/website/regs 

NYSERDA has information about its funding program. http://www.powernaturally.com/Funding/ 

funding.asp?i=2 

Washington Senate Bill 5101 Providing Incentives to Support Renewable 

Energy. This bill establishes production incentives and economic multipliers for renewable energy. 

http://www.leg.wa.gov/wsladm/billinfo1/ 

dspBillSummary.cfm?billnumber= 

51018year=2005 

References
 

Title/Description URL Address 

Broehl, J. (ed.). 2005. Washington Passes Progressive Energy Legislation. New 

Germany-Style Production Credit Should Spur Regional Clean Energy Market. 

Renewable Energy Access. May 10. 

http://renewableenergyaccess.com/rea/ 

news/story;jsessionid= 

auUEwRiMp22e?id=28478 

Brown, E., P. Quinlan, H.M. Sachs, and D. Williams. 2002. Tax Credits for Energy 

Efficiency and Green Buildings: Opportunities for State Action. Report #E021. ACEEE. 

March. 

http://aceee.org/pubs/e021full.pdf 

CALMAC. 2005. CALMAC Web site. http://www.calmac.org 

CEC. 2005a. California’s Emerging Renewables Program Rebates. CEC. http://www.consumerenergycenter.org/ 

erprebate/index.html 

CEC. 2005b. Database for Energy Efficient Resources (DEER). CEC. Accessed July 

2005. 

http://www.energy.ca.gov/deer/ 

CEC. 2005c. Emerging Renewables. CEC. http://www.energy.ca.gov/renewables/ 

emerging_renewables/ 

GRID-CONNECTED_PV.XLS 

CPUC. 2005a. Evaluation, Measurement and Verification. CPUC. http://www.cpuc.ca.gov/static/industry/ 

electric/energy+efficiency/rulemaking/ 

eeevaluation.htm 

CPUC. 2005b. CPUC Self-Generation Incentive Program. Fourth-Year Impact Report, 

Final Report. Southern California Edison and The Self-Generation Incentive Program 

Working Group. April. 

http://www.cpuc.ca.gov/static/energy/ 

electric/050415_sceitron+sgip2004+ 

impacts+final+report.pdf 

DSIRE. 2005a. Financial Incentives. DSIRE. http://www.dsireusa.org/summarytables/ 

financial.cfm 

DSIRE. 2005b. Rebate Programs. DSIRE. http://www.dsireusa.org/library/includes/ 

tabsrch.cfm?state=NV&type= 

Rebate&back=fintab&Sector= 

S&CurrentPageID=7 

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EPA Clean Energy-Environment Guide to Action
 

References (continued)
 

Title/Description URL Address 

DSIRE. 2006a. Loan Programs for Renewables. DSIRE. http://www.dsireusa.org/documents/ 

SummaryMaps/Loan_Map.ppt 

DSIRE. 2006b. Grants for Renewable Energy Technologies. DSIRE. http://www.dsireusa.org/documents/ 

SummaryMaps/Grants_Map.ppt 

Efficiency Vermont. 2004. Efficiency Vermont Technical Reference User Manual 

(TRM 4-19). Efficiency Vermont, 255 S. Champlain Street, Burlington, VT 05401-4717, 

Phone: (888) 921-5990. 

http://www.efficiencyvermont.org/ 

or contact Efficiency Vermont at 

1-888-921-5990. 

Energy Cooperative. 2005. Solar Power. Energy Cooperative Web site. http://www.theenergy.coop/solarpower.htm 

EPA. 2004. Integrating State and Local Environmental and Energy Goals: Energy 

Performance Contracting. Fact Sheet. EPA. September. 

Contact EPA. 

EPA. 2005a. A Toolkit for States: Using Supplemental Environmental Projects (SEPs) 

to Promote Energy Efficiency and Renewable Energy. EPA. January. 

http://www.epa.gov/cleanenergy/pdf/ 

sep_toolkit.pdf 

EPA. 2005b. Partner Resources. CHP Partnership Web site. EPA. http://www.epa.gov/chp/funding_opps.htm 

EPA 2005c. Fact Sheet: The Federal NOx Budget Trading Program, EPA web site. http://www.epa.gov/airmarkets/fednox/ 

fnbtp-fact.pdf 

EPA 2005d. State Set-Aside Programs for Energy Efficiency and Renewable Energy 

Projects Under the NOx Budget Trading Program: A Review of Programs in Indiana, 

Maryland, Massachusetts, Missouri, New Jersey, New York, and Ohio. Draft Report. 

EPA. September. 

http://www.epa.gov/cleanenergy/pdf/ 

eere_rpt.pdf 

EPA 2005e. Rule to Reduce Interstate Transport of Fine Particulate Matter and Ozone 

(Clean Air Interstate Rule); Revisions to Acid Rain Program; Revisions to the NOx SIP 

Call. EPA, pp. 580-581. 

http://www.epa.gov/cair/pdfs/ 

cair_final_preamble.pdf 

ESC. 2005. PC Activities by State. Energy Services Coalition Resources and 

Information Web site. 

http://www.energyservicescoalition.org/ 

resources/states/activities.htm 

IPMVP. 2005. The Efficiency Valuation Organization. IPMVP Web site. http://www.ipmvp.org 

LBNL. 2002. Analyzing the Interaction Between State Tax Incentives and the Federal 

Production Tax Credit for Wind Power. LBNL-51465. Prepared by R. Wiser, M. 

Bolinger, and T. Gagliano for the Ernest Orlando LBNL. September. 

http://eetd.lbl.gov/ea/ems/reports/51465.pdf 

Montana DEQ. 2005. Alternative Energy Loan Program. Montana DEQ Web site. http://www.deq.state.mt.us/energy/ 

Renewable/altenergyloan.asp 

New Jersey. 2005. New Jersey’s Clean Energy Program (NJCEP) Web site. http://www.njcep.com/html/2_incent.html 

NREL. 2003. A Different Kind of “Deal”: Selling Wind As Environmental Compliance. 

NREL/CP-500-33977. Prepared by C. Tombari and K. Sinclair for NREL, Golden, CO. 

http://www.nrel.gov/docs/fy03osti/33977.pdf 

NYSERDA. 2004. New York Energy $mart Program Evaluation and Status Report, 

May, Section 9.4 DG/CHP. NYSERDA. 

http://www.nyserda.org/ 

Energy_Information/04sbcreport.asp 

Oregon DOE. 2005a. Oregon BETC. Oregon DOE Conservation Division, Salem. http://egov.oregon.gov/Energy/CONS/BUS/ 

BETC.shtml 

Oregon DOE. 2005b. Personal communication with Charles Stephens, Oregon DOE, 

July 8, 2005. 

N.A. 

� Section 3.4. Funding and Incentives
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EPA Clean Energy-Environment Guide to Action
 

References (continued)
 

Title/Description URL Address 

Pennsylvania DEP. December 6 2005. Governor Rendell’s Energy Harvest Program 

Investing $6 Million in Pennsylvania’s Future. 

http://www.depweb.state.pa.us/news/cwp/ 

view.asp?a=3&q=481708 

Prindle, B. 2005. Personal communication with Bill Prindle, American Council for an 

Energy-Efficient Economy, July 29, 2005. 

N.A. 

Texas PUC. 2005. Measurement and Verification Guidelines. Texas PUC. http://www.puc.state.tx.us/electric/ 

projects/30331/052505/ 

m%26v%5Fguide%5F052505.pdf 

U.S. DOE. 2005. Texas Revolving LoanSTAR Conservation Update Feature Story. DOE, 

EE/RE, State Energy Program Web site. January/February. 

http://www.eere.energy.gov/ 

state_energy_program/ 

feature_detail_info.cfm 

Washington. 2005. Special Notice: Tax Incentives for the Production of Solar, 

Methane and Wind Power. Washington State DOR. June 16. 

http://dor.wa.gov/Docs/Pubs/ 

SpecialNotices/2005/sn_05_solar.pdf 

Washington HB 2247. 2001. Washington’s Engrossed House Bill 2247—Energy 

Audits. 

http://www.leg.wa.gov/pub/billinfo/ 

2001-02/House/2225-2249/ 

2247_pl_09252001.txt 

Webster, L. 2003. Measurement & Verification Resources and Training Opportunities. 

Prepared for DOE FEMP. Revision 5, June 16. 

http://ateam.lbl.gov/mv/docs/ 

MV_Resource_ListR5a.htm#_Toc43606797 

3-92 � Chapter 3. State Planning and Incentive Structures
 
 

 

 

 

 

 

 

 

 

 

 

Chapter 4. 


Energy Efficiency Actions
 

Saving energy through energy efficiency improvements can cost less than generating, transmitting, 

and distributing energy from power plants and provides multiple economic and environmental benefits. 

States have adopted a number of policies that support cost-effective energy efficiency programs by 

removing key market, regulatory, and institutional 

barriers that hinder investment in cost-effective 

energy efficiency by consumers, businesses, utilities, 

and public agencies. This chapter presents in-depth 

descriptions of four policies that states have used 

to support greater investment in and adoption of 

energy efficiency. 

The policies summarized in Table 4.1 on page 4-2 

were selected from among a larger universe of energy efficiency strategies because of their proven 

effectiveness and their successful implementation by 

a number of states. The information presented in 

each policy description is based on the experiences 

and best practices of states that are implementing 

the programs, as well as on other sources, including 

local, regional, and federal agencies and organizations, research foundations and nonprofit organizations, universities, and utilities. 

Table 4.1 also lists examples of some of the states 

that have implemented programs for each policy. 

States can refer to this table for an overview of the 

policies described in this chapter and to identify 

other states that they may want to contact for additional information about their energy efficiency programs. The For More Information column shows the 

Guide to Action section where each in-depth policy 

description is located. 

In addition to these four policies, there are a number 

of other policies that states are adopting to (1) 

ensure energy efficiency programs are adequately 

funded, (2) allow energy efficiency to compete in the 

energy marketplace, (3) integrate energy efficiency 

Clean Energy Policies
 

Type of Policy 

For More 

Information 

State Planning and Incentive Structures 

Lead by Example Section 3.1 

State and Regional Energy Planning Section 3.2 

Determining the Air Quality Benefits of Clean 

Energy Section 3.3 

Funding and Incentives Section 3.4 

Energy Efficiency Actions 

Energy Efficiency Portfolio Standards Section 4.1 

Public Benefits Funds for Energy Efficiency Section 4.2 

Building Codes for Energy Efficiency Section 4.3 

State Appliance Efficiency Standards Section 4.4 

Energy Supply Actions 

Renewable Portfolio Standards Section 5.1 

PBFs for State Clean Energy Supply Programs Section 5.2 

Output-Based Environmental Regulations to 

Support Clean Energy Supply Section 5.3 

Interconnection Standards Section 5.4 

Fostering Green Power Markets Section 5.5 

Utility Planning and Incentive Structures 

Portfolio Management Strategies Section 6.1 

Utility Incentives for Demand-Side Resources Section 6.2 

Emerging Approaches: Removing Unintended 

Utility Rate Barriers to Distributed Generation Section 6.3 

measures into energy and air quality planning, and 

(4) lead by example by improving energy efficiency 

and lowering energy costs within state government 

operations. These policies are addressed in other sections of the Guide to Action as follows. 

� Chapter 4. Energy Efficiency Actions
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EPA Clean Energy-Environment Guide to Action
 

•	 Lead by Example programs provide opportunities 

to improve energy efficiency within state buildings, fleets, and equipment purchases (see Section 

3.1). 

•	 State and Regional Energy Planning activities help 

states identify opportunities to incorporate energy 

efficiency measures as a way to meet future load 

growth and address other energy related concerns 

(see Section 3.2). 

•	 Determining the Air Quality Benefits of Clean 

Energy describes how to incorporate the emission 

reductions from energy efficiency into air quality 

planning and related activities (see Section 3.3). 

•	 Funding and Incentives describes additional ways 

states provide funding for energy efficiency 

through loans, tax incentives, and other funding 

mechanisms (see Section 3.4). 

Table 4.1: Energy Efficiency Policies and Programs
 

•	 Portfolio Management Strategies include proven 

approaches, such as Integrated Resource Planning 

(IRP), that place a broad array of supply and 

demand options on a level playing field when 

comparing and evaluating them in terms of their 

ability to meet projected energy demand. These 

strategies highlight and quantify the value of 

energy efficiency and clean distributed generation 

as a resource to meet projected load growth (see 

Section 6.1). 

•	 Utility Incentives for Demand-Side Resources presents a number of approaches (including decoupling 

and performance incentives) that remove disincentives for utilities to consider energy efficiency, 

renewable energy, and clean distributed generation (DG) equally with traditional electricity generation investments when making electricity market 

resource planning decisions (see Section 6.2). 

Policy Description State Examples 

For More 

Information 

Energy Efficiency 

Portfolio Standards 

(EEPS) 

Similar to Renewable Portfolio Standards (see Section 

5.1), EEPS direct energy providers to meet a specific portion of their electricity demand through energy efficiency. 

Seven states have direct or indirect EEPS requirements. 

CA, IL, NJ, NV, PA, TX Section 4.1 

Public Benefits Funds 

(PBFs) for Energy 

Efficiency 

PBFs for energy efficiency are pools of resources used by 

states to invest in energy efficiency programs and projects and are typically created by levying a small charge 

on customers’ electricity bills. Seventeen states and 

Washington, D.C. have established PBFs for energy efficiency. 

CA, NY, OR, WI Section 4.2 

Building Codes for Energy 

Efficiency 

Building energy codes establish energy standards for residential and commercial buildings, thereby setting a minimum level of energy efficiency and locking in future energy savings at the time of new construction or renovation. 

More than 40 states have implemented some level of 

building codes for residential buildings and/or commercial buildings. 

AZ, CA, OR, TX, WA Section 4.3 

State Appliance 

Efficiency Standards 

State appliance efficiency standards set minimum energy 

efficiency standards for equipment and appliances that 

are not covered by federal efficiency standards. Ten 

states have adopted appliance standards. 

CA, CT, NJ, NY Section 4.4 

4-2 � Chapter 4. Energy Efficiency Actions
 
 

EPA Clean Energy-Environment Guide to Action
 

4.1 Energy Efficiency Portfolio 

Standards 

Policy Description and Objective 

Summary 

A growing number of states are adopting EEPS,8 or 

similar provisions, to ensure that cost-effective energy efficiency measures are used to help offset growing electricity demand. Similar to renewable portfolio 

standards (RPS) already in place in 21 states and 

Washington, D.C. (see Section 5.1, Renewable 

Portfolio Standards), EEPS require that energy 

providers meet a specific portion of their electricity 

demand through energy efficiency. EEPS are intended 

to help overcome the various barriers that keep utilities and other players from investing in costeffective energy efficiency that several studies predict could meet up to 20% of the nation’s energy 

demand, or about half of the expected demand 

growth (Nadel et al. 2004). States have found that 

establishing explicit targets, based on sound analysis 

of technical and economic potential, can help reduce 

energy demand as well as lower electricity prices, cut 

emissions, help address concerns with system reliability, and provide other energy-related benefits (see 

Chapter 1, Introduction and Background, for more on 

the benefits of energy efficiency). 

EEPS designs vary by state and include targets that 

range from the equivalent of a 10% to a 50% reduction in energy demand growth. EEPS were first set in 

Texas as energy efficiency goals under their 1999 

restructuring rules. Texas required utilities to use 

energy efficiency to meet 10% of their demand 

growth in by 2004. California adopted annual energy 

savings goals for 2004 to 2013 for their four largest 

utilities covering both electricity and natural gas 

providers (the only state to include both). California’s 

targets, set in terms of kilowatt-hours (kWh) and 

therms saved based on percentages of total sales, are 

Effectively designed Energy Efficiency 

Portfolio Standards (EEPS) can help ensure 

that cost-effective energy efficiency opportunities are pursued to help manage electricity demand growth, lower overall and peak 

electricity prices, cut emissions, and address 

reliability concerns. 

expected to reduce demand growth by more than 

50% for electricity and more than 40% for natural 

gas. Connecticut recently required its energy 

providers to meet a portion of their supply (i.e., 1% 

in 2007 growing to 4% by 2010) from distributed 

resources, including energy efficiency from commercial and industrial facilities, load management, and 

combined heat and power (CHP). Illinois recently 

adopted voluntary EEPS that call for energy efficiency to meet 25% of electricity demand growth by 

2015. New Jersey is examining EEPS based on kWh 

saved as a component of its public benefits fund 

(PBF) program (see Section 4.2, Public Benefits Funds 

for Energy Efficiency). Pennsylvania includes energy 

efficiency as one option for meeting its Alternative 

Energy Portfolio Standard. In at least two states, 

Hawaii and Nevada, utilities can use energy efficiency to meet some or all of their requirements under 

an RPS (see Section 5.1, Renewable Portfolio 

Standards). 

While the benefits of energy efficiency measures are 

well documented, Texas is the one state in which 

standards have been in place long enough to measure results from an EEPS approach. The 10% reduction in load growth goal was exceeded in 2004 and, 

in that year, Texas saved more than 400 million kWh 

at a cost of $82 million, for a net benefit of $76 million to date (Gross 2005b). The cumulative effect of 

California’s 10-year EEPS is estimated, by 2013, to 

result in annual savings of over 23,000 gigawatthours (GWh) electricity and 400 million therms natural gas. Peak electricity demand savings are expected 

to top 4,800 megawatts (MW) (CPUC 2004). 

8	 In this Guide to Action, the term "Energy Efficiency Portfolio Standards" covers a variety of terms including portfolio standards and resource acquisition requirements and goals. 

� Section 4.1. Energy Efficiency Portfolio Standards 4-3 
 

EPA Clean Energy-Environment Guide to Action
 

The Illinois EEPS is estimated to save more than 

5,600 GWh by 2017. The energy savings will reduce 

energy costs for consumers, including significant 

reductions in prices for natural gas. 

Objective 

EEPS are intended to overcome barriers to investing 

in cost-effective energy efficiency. A number of 

recent studies have indicated that technically feasible, economically viable, but as yet untapped, energy 

efficiency measures could meet up to 20% of the 

nation’s energy demand, or about half of the expected demand growth (Nadel et al. 2004). However, in 

many states, market barriers, regulatory disincentives, or insufficient information about the benefits 

of energy efficiency keep utilities and other players 

from investing in cost-effective energy efficiency to 

its full potential. States have found that establishing 

an explicit, mandatory target, based on sound analysis of technical and economic potential, can help 

overcome these barriers. In some cases, states have 

combined EEPS with additional policy measures such 

as PBFs and rate adjustments that decouple utility 

sales and profits to help further address these barriers. (See Section 6.2, Utility Incentives for DemandSide Resources.) 

Benefits 

By increasing investments in cost-effective energy 

efficiency, EEPS can achieve modest to significant 

reductions in both electricity and natural gas 

(depending upon the level of the target). Associated 

with the reduction in power demand are additional 

benefits including: lower energy bills, reduced air 

pollutant and greenhouse gas emissions, reduced 

strain on power grids, and lower wholesale energy 

prices (see Chapter 1, Introduction and Background, 

for more on the benefits of energy efficiency). 

Beyond the benefits tied to reduced energy use, 

states have found EEPS have a number of particular 

advantages as a policy approach including: simplicity, 

cost-effectiveness, specificity, economies of scale, 

and economies of scope. 

•	 Electricity Savings. The amount of electricity savings from EEPS depend on the level and timing of 

the EEPS targets, how the target is expressed, the 

actual level of demand growth, and other market 

forces. In the electricity sector, EEPS goals currently range from 10% of forecast electricity sales 

growth (e.g., in Texas) to almost 1% of total electricity sales annually (e.g., in California where this 

amounts to more than 50% of projected growth). 

See Table 4.1.1 on page 4-6 for a summary of current targets. 

•	 Natural Gas Savings. EEPS for natural gas 

providers, such as the one adopted by California, 

will help reduce direct natural gas use. In addition, 

EEPS for electricity can help reduce natural gas 

used in electricity generation. In general, one unit 

of electricity saved through energy efficiency saves 

about three units of natural gas used for electricity generation due to generation and transmission 

losses. This makes saving natural gas through electric energy efficiency very cost-effective. A recent 

study shows that the majority of cost-effective 

natural gas savings would come through electricity end-use efficiency investments (Elliot et al. 

2003). 

•	 Simplicity. EEPS create a straightforward resource 

acquisition target for energy providers. 

•	 Cost-Effectiveness. Setting an energy efficiency 

requirement without explicitly setting aside a pool 

of funds challenges electricity providers to meet 

the goal in the most cost-efficient manner. This 

can be reinforced through appropriate funding and 

cost recovery mechanisms, as noted on page 4-8. 

•	 Specificity. By articulating a specific, numeric target, EEPS can be effective in illuminating how 

much energy efficiency will contribute to reaching 

goals of energy demand reduction as well as emission reductions and other public policy goals. 

•	 Economies of Scale. The macro-level targets inherent in EEPS allow energy providers to aggregate 

savings across enough end-uses and sectors to 

meet the overall savings goals cost-effectively. 

This helps address a fundamental barrier to energy 

efficiency resource development: the distributed 

nature of energy efficiency resources. Securing 

substantial energy efficiency gains in every enduse and use sector involves millions of homes, 

offices, factories, and other facilities and thus can 

4-4 � Chapter 4. Energy Efficiency Actions
 
 

 

 

 

 

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be difficult when approached at a micro-level. 

States sometimes designate an aggregator, such as 

a distribution utility, with the responsibility for 

reaping these savings as a means of overcoming 

this obstacle. On the administration side, EEPS 

allow a state to bundle energy efficiency opportunities, and set overall goals for procuring energy 

efficiency within the state, coordinating the 

process and simplifying compliance evaluation. 

States with Energy Efficiency Portfolio 

Standards 

As noted in the previous section, EEPS designs vary by 

state and include targets that range from the equivalent of a 10% to a 50% reduction in energy demand 

growth. Seven states have adopted EEPS, either directly or indirectly (see Figure 4.1.1). Texas and California 

have EEPS in place; Connecticut recently enacted a 

distributed RPS that includes energy efficiency, load 

management, and CHP; Illinois recently adopted a voluntary EEPS; New Jersey is examining EEPS as a component of its PBF program; Pennsylvania includes 

energy efficiency as one option for meeting its 

Alternative Energy Portfolio Standard (AEPS); and in 

Hawaii and Nevada, utilities can use energy efficiency 

to meet some or all of their requirements under an 

RPS. In addition, several states with PBFs have conducted energy efficiency analyses, potential studies, 

and goal-setting exercises, but energy efficiency goals 

have not been prominently featured. See Table 4.1.1 

on page 4-6 for more details. 

EEPS policies have been developed primarily in states 

with restructured utility markets, generally as a partial replacement for the Integrated Resource 

Planning (IRP) requirements that were removed as 

part of restructuring. California, which suspended its 

restructuring policy after its 2001 electricity experience, is an exception, as are Hawaii and Nevada. In 

restructured markets, the EEPS approach is being 

integrated into broader energy resource planning 

activities such as portfolio management, described in 

Section 6.1, Portfolio Management Strategies. Under 

the IRP framework in place in most traditionally regulated states, efficiency investment levels are typically based on the total level of savings that can be 

Figure 4.1.1: States That Have Adopted or Are 

Developing EEPS 

Energy Efficiency 

Portfolio Standards 

Adopted 

Energy Efficiency 

Portfolio Standards 

Under Development 

Indirect 

Standards 

DC 

Source: EPA 2005. 

acquired within the bounds of economic criteria. 

States use similar kinds of economic analysis to 

develop estimates of efficiency potential in the 

process of setting EEPS goals. The difference is that 

the EEPS process tends to set goals in an aggregate, 

top-down fashion, whereas regulated utility 

programs are typically developed on an individual, 

bottom-up basis. 

Designing an Effective EEPS 

A number of key design issues have emerged from 

EEPS efforts to date or are central to the design of 

any efficiency program, including: who participates 

in different aspects of the process; how to set a target, including its coverage, timing, and duration as 

well as what analysis to consult; potential funding 

sources; and how the policy interacts with federal 

and other state policies. Although there are only a 

few EEPS in place, they share a number of characteristics that other states have considered when designing a program. States have also drawn upon their 

own past experience with designing and administering energy efficiency programs. 

Participants 

•	 State Legislatures. In many states, legislation is 

required to enable the setting of EEPS targets. 

� Section 4.1. Energy Efficiency Portfolio Standards
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Table 4.1.1: Current and Pending State EEPS Policies
 

State EEPS Description Applies to Savings Target Time Frame 

California Sets specific energy and 

demand savings goals 

Investor-owned utilities (IOUs) Savings goals set for each program year from 2004 to 2013 

The savings target for program 

year 2013 is: 

• 23,183 GWh 4,885 MW peak 

• 444 million therms 

2004-2013 Annual 

megawatt-hours 

(MWh), MW, and therm 

savings adopted for 

each of these years 

Connecticut Includes energy efficiency at 

commercial and financial faciliIOUs Savings goals set for the beginning of each program year: 

ties as one eligible source under 

its Distributed RPS (also 1% 2007 

includes combined heat and 2% 2008 

power and load management 

programs) 

3% 2009 

4% 2010 and thereafter 

Hawaii Allows efficiency to qualify as a 

resource under RPS 

requirements 

IOUs 20% of kWh sales (overall RPS 

target, energy efficiency portion 

not specified) 

2020 

Illinois Will set goals as percentage of IOUs 10% 2006–2008 

forecast load growth 15% 2009–2011 

20% 2012–2014 

25% 2015–2017 

New Jersey Will set energy and demand 

goals for overall PBF program 

PBF program administrators (based on 

competitive solicitation; originally it was 

IOUs) 

1814 GWh (four-year total) 2005–2008 

Nevada Redefines portfolio standard to 

include energy efficiency as well 

as renewable energy 

IOUs Energy efficiency can meet up to 

25% of the energy provider's 

portfolio standard: 

6% 2005–2006 

9% 2007–2008 

12% 2009–2010 

15% 2011–2012 

18% 2013–2014 

20% 2015 and thereafter 

Pennsylvania Includes energy efficiency as IOUs 4.2% Years 1–4 

part of a two-tier AEPS 6.2% Years 5–9 

8.2% Years 10–14 

10.0% Years 15 and thereafter 

Texas Sets goals as percentage of 

forecast load growth 

IOUs 10% 2004 and thereafter 

Note: See Examples of Legislation/Regulation for each state on page 4-16. 

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Legislatures have either set EEPS targets in legislative language or directed an executive agency to 

do so. In either case, states have clearly designated an executive agency to work out details and 

administer implementation of the targets. 

•	 Public Utility Commissions (PUCs). PUCs in many 

other states have the authority to set EEPS directly. PUCs are a likely agency to administer EEPS, 

given their oversight role of utility markets. 

•	 Utilities. Given the direct impact on the utility sector, legislatures and PUCs have sought input on the 

impacts on utility profitability and ongoing operations when designing an EEPS, as well as developing accompanying ratemaking and other regulatory 

policies. Utilities may directly implement the ensuing energy efficiency programs or states may 

require them to utilize energy service companies. 

Efforts typically include standard offer or market 

transformation programs (see description of Texas 

program on page 4-13 for more detail). 

•	 Customers/General Public. States have created 

public comment processes to help inform topics 

such as potential costs/economic impacts and 

benefits, including health benefits and other 

effects of reduced emissions. 

•	 Public Interest Organizations. Groups representing 

consumers, environmental interests, and other 

public interests have been involved to offer technical expertise as well as public perspectives. 

Setting a Target 

Under EEPS, a state utility commission or other regulatory body specifies numerical energy savings targets that electricity service providers must meet, on 

an annual and sometimes cumulative basis. EEPS can 

be set as a percentage of load growth or base year 

sales, or as a fixed number of units of energy savings 

(e.g., kWh), the latter having the advantage of the 

actual energy savings being known in advance. 

Targets can also cover peak electricity demand (e.g., 

MW capacity). The appropriate EEPS target depends 

upon a number of factors including the economically 

achievable energy efficiency potential, funding availability, emission reduction goals, and other issues 

including how to treat any existing energy efficiency 

requirements (e.g., if a robust PBF program or utility 

program is in place). Key issues to consider include 

determining how and what analysis to conduct, 

establishing coverage, deciding the timing and duration of the targets, and addressing funding and related cost recovery issues. 

Analysis of Efficiency Potential and 

Benefits 

States have set EEPS based on solid analysis and program experience within the state or in states 

believed to be comparable. The analysis typically has 

included a robust study of energy efficiency potential 

(technically, economically, and practically 

achievable)9, combined with a review of past program experience with energy efficiency measures. 

California’s electricity EEPS are designed to capture 

70% of the economic potential for electric energy 

savings over their 10-year period. California’s natural 

gas EEPS are designed to capture approximately 40% 

of the maximum achievable potential, in recognition 

that the need to ramp up efforts may take longer 

than on the electric side. 

In addition to estimating efficiency resource potential, states have estimated other benefits such as 

expected emission reductions, reduced power prices 

and total power costs, and net economic benefits 

such as increased gross state product and increased 

jobs and wages, using power-sector models and economic impact models (see Chapter 2, Developing a 

Clean Energy-Environment Action Plan, and Section 

3.3, Determining the Air Quality Benefits of Clean 

Energy). California’s goals were established by considering both per capita energy reduction goals and 

cost-effectiveness at various reduction levels. 

These are tiers that represent what is first, technically achievable, and of that subset, what is second, economically achievable, and of that subset, 

finally, what is practically achievable. For more information, see Appendix B, Energy Efficiency Program Resources. 

� Section 4.1. Energy Efficiency Portfolio Standards 4-7 

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Coverage 

The coverage of an EEPS depends on the entities 

under the state’s jurisdiction. In the majority of 

states, state utility commissions typically do not 

have authority to set requirements for municipal, 

federally owned, or rural cooperative utilities 

(although many states do have authority). For this 

reason, EEPS requirements tend to be assigned to 

investor-owned utilities. Most EEPS have covered 

electric utilities alone, although California has set 

savings goals for both electric and gas utilities. 

States have sometimes included provisions to ensure 

that the energy efficiency measures used (and hence 

the energy bill savings) are distributed among customer classes (e.g., residential, industrial, commercial) and income levels. 

Timing and Duration 

Determining the timing and duration of EEPS 

includes considering the time it can take to achieve 

energy savings. Generally only a portion of the total 

energy savings potential can be realized in a given 

year because of the length of market cycles, limits on 

funding, and other real-world considerations. 

Reviewing regulatory compliance deadlines and the 

achievable efficiency potentials for specific years can 

help inform these considerations. 

Funding 

Establishing regulatory mechanisms and/or funding 

sources for utility or public programs to help achieve 

the efficiency resource goals is another key issue 

states have encountered. Different approaches have 

included one or more of the following: utilizing 

resources under a state PBF, allowing for cost recovery as part of utility rates, providing direct funding, 

and establishing regulatory provisions that decouple 

utility profits from sales volumes (see Section 4.2, 

Public Benefits Funds for Energy Efficiency, and 

Section 6.2, Utility Incentives for Demand-Side 

Resources). 

Program design may or may not involve defining how 

funds will be raised, spent, and accounted for in 

Best Practices: Designing an EEPS 

While states have had limited experiences with EEPS 

as a top-level policy mechanism to date, they have 

accumulated numerous experiences related to the 

technologies, programs, and implementation issues 

related to EEPS goals. In this context, best practices 

include: 

•	 Obtain top-level commitment to EEPS as a state policy goal, through the legislature, utility commission, 

or other cognizant bodies. 

•	 Involve key stakeholders early in the development 

process and provide for continuing stakeholder 

involvement. 

•	 Use sound analysis, including emissions modeling, 

economic analysis, and efficiency potential studies, 

to provide a strong quantitative basis for the EEPS 

goal. 

•	 Set energy savings goals linked to available, costeffective potential, based on both quantitative 

analysis and stakeholder input. 

•	 Use a clear basis for stating goals. Most states 

specify EEPS goals as a percentage of base-year 

energy sales or of forecast energy sales growth. 

Convert EEPS goals to annual energy savings goals 

and establish methods for converting energy savings to emission reductions. 

•	 Establish an appropriately long time frame to overcome longer market cycles, funding limits and practical considerations, and set annual and cumulative 

savings goals (e.g., California uses a 10-year time 

frame with a three-year update cycle). 

•	 Ensure that workable funding methods are available 

to meet the EEPS goal. The state PUC (or other oversight body) typically performs this task. 

•	 Specify the entities that are responsible for meeting 

the target and the procurement rules they must 

follow. 

meeting EEPS goals. In California, for example, the 

PUC requires the utilities to invest in cost-effective 

energy efficiency as a procurement resource using 

procurement funds that would otherwise go to purchase power; the utilities also use PBFs and efficiency resource acquisition funds to meet the overall 

goals. 

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Interaction with Federal Policies 

A variety of federal programs, partnerships, and 

technical assistance are available to help states 

achieve their energy efficiency goals. The ENERGY 

STAR program, for example, offers technical specifications, certification processes, and market development assistance to states and other partners for a 

range of products and whole-building solutions. (See 

Section 4.2, Public Benefits Funds for Energy 

Efficiency, for a broader discussion of ENERGY STAR 

activities.) 

As with other energy efficiency measures, to the 

extent that EEPS produce verifiable capacity savings, 

they can have favorable reliability and resource adequacy implications reflected in federally jurisdictional 

wholesale markets overseen by Federal Energy 

Regulatory Commission (FERC), North American 

Electric Reliability Council (NERC) and the regional 

reliability organizations, regional transmission organizations (RTOs), and transmission owning companies. 

Interaction with State Policies 

EEPS can complement other energy efficiency policies and serve as a framework for a suite of policies 

and programs. EEPS can be goals for PBF-supported 

programs or can be additional resource goals beyond 

savings realized through PBF programs. In addition, 

some states with EEPS have allowed utilities to 

recover costs through ratemaking procedures (see 

Texas example on page 4-13). In some cases, states 

have pursued decoupling policies to address adverse 

revenue and profit impacts on investor-owned utilities from EEPS implementation (see Section 6.2, 

Utility Incentives for Demand-Side Resources). 

Program Implementation and 

Evaluation 

The implementation of an EEPS occurs primarily 

through designated utilities and other energy services providers. However, continued state involvement is 

important in overseeing the development of implementation rules and may be important in ensuring 

the necessary funding is available. In Texas, for 

example, where the electric distribution utilities must 

meet the EEPS goals, the utility commission is 

actively involved in determining how resources can 

be acquired, including defining the means by which 

covered entities are allowed to comply with goals; 

defining and implementing reporting requirements; 

and defining measurement, verification, and other 

evaluation methods by which compliance will be 

determined. 

Measurement and verification (M&V) is a key aspect 

in evaluating EEPS. In particular, where EEPS are tied 

to tradable (energy efficiency) credits, robust measurement and verification is critical to maintaining 

credibility for the market and commodity. (See the 

Approaches to Measurement and Verification [M&V] 

box on page 4-10 for more detailed information on 

the approaches states are using for M&V.) 

Oversight 

It is also likely that some form of oversight will be 

needed in the implementation of EEPS. States have 

decided to establish official oversight or advisory 

bodies, typically composed of stakeholders who periodically review the EEPS program to determine 

whether its goals are being met, whether its goals 

should be renewed or adjusted, and whether other 

aspects of implementation need modification. 

Best Practices: Implementing an EEPS 

•	 Use a clear basis for assessing compliance. 

•	 Update goals on a regular basis (e.g., California 

uses a three-year cycle) to adjust for changes in 

economic growth, actual savings, and results of 

measurement and evaluation studies. 

•	 Ensure additionality (e.g., net new energy savings) 

by stipulating that savings allowed to qualify for 

EEPS goals must be over and above any existing 

program commitments. 

•	 Coordinate EEPS with market transformation programs, PBFs, and other programs to facilitate the 

market changes that are needed to reach EEPS 

goals. 

•	 Ensure that electricity and natural gas demand forecasts used in supply-side resource filings reflect the 

energy savings goals. 

� Section 4.1. Energy Efficiency Portfolio Standards
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Approaches to Measurement and Verification 

(M&V) 

The two principal approaches for measuring and verifying energy efficiency measures are the "deemed savings" approach and the project-specific approach. The 

deemed savings approach involves estimating energy 

savings by combining verification that the energy efficiency measure has been installed and can be attributed to the program with the pre-calculated or 

"deemed" savings from using that measure. This 

approach can provide an accurate estimate of avoided 

consumption while minimizing the complexity and cost 

of M&V by drawing on the extensive field experience 

from other states. However, it is most appropriate for 

use with simpler measures whose performance characteristics are consistent in varying applications: a 

residential lighting retrofit is a typical example. 

Deemed savings are calculated by subtracting the energy use of the energy-efficient fixture from the energy use 

of the baseline fixture. Baseline energy usage and 

reduced energy usage can be easily calculated based on 

the deemed savings per fixture, hours of use, and number 

of installed fixtures. It is also possible to build factors into 

deemed savings methods to account for persistence of 

savings, failure rates, free riders, spillover effects, and 

other issues that can modify total energy impacts. Field 

evaluation data on many types of efficiency measures 

are available and can be used to estimate discount factors for a given sample of efficiency measures. 

A project-specific M&V method is most widely used for 

larger and more complex energy efficiency investments. 

The most well known and referenced M&V document is 

the International Performance Measurement and 

Verification Protocol (IPMVP). The IPMVP provides an 

overview of current best practice techniques available 

for verifying results of energy efficiency, water efficiency, and renewable energy projects in commercial and 

industrial facilities. The IPMVP was developed with 

sponsorship of the U.S. Department of Energy (DOE) and 

is currently managed by a nonprofit organization that is 

continually developing new sections for publication as 

publicly available documents (IPMVP 2005). 

Some states use their own project-based M&V system. 

For example, Texas provides detailed guidance on how 

to prepare and execute an M&V plan (Texas PUC 

2005). California also maintains project-specific M&V 

resources on its California Measurement Advisory 

Council (CALMAC) Web site (CALMAC 2005). 

Best Practices: Evaluating EEPS Policies 

•	 Design programs under the EEPS policy with evaluation in mind, by building in key tracking and reporting practices that establish baselines for affected 

markets and technologies and provide the data 

needed to assess program impacts. 

•	 Draw on other states’ experiences to establish rigorous and workable measurement, verification and 

reporting protocols (e.g., proof of installation, 

deemed savings, IPMVP). California uses statewide 

evaluation guidelines for this purpose (see 

California Public Utilities Commission [CPUC] Web 

site). 

•	 In addition to quantitative impact evaluation, provide 

for a qualitative evaluation process that enables 

program administrators to obtain useful feedback 

and improve program effectiveness over time. 

•	 Evaluate programs operated under an EEPS policy 

at appropriate intervals, so that agency overseers 

can gauge compliance with energy savings goals. 

•	 Utilize an independent, third-party verifier to help 

build confidence in results. (See text box, 

Approaches to Measurement and Verification 

[M&V].) 

•	 Provide for adequate program funding. 

•	 Based on evaluation results, provide feedback to 

oversight agencies, program administrators, and 

other participants. Adjust future energy savings 

goals, as needed. 

State Examples 

California 

California’s EEPS emerged from the state’s “postrestructuring” resource planning process. Following 

the state’s 2001 electricity problems, the Legislature 

and the CPUC reviewed the state’s overall utility 

resource planning process and decided to re-engage 

investor-owned utilities in managing a portfolio of 

resources to meet customers’ needs, including procurement of energy efficiency resources. The CPUC 

also adopted “decoupling” ratemaking mechanisms 

that break the link between the utilities’ revenues 

and sales, removing disincentives for utility investments in energy efficiency. (See Section 6.2, Utility 

Incentives for Demand-Side Resources.) 

4-10 � Chapter 4. Energy Efficiency Actions
 

EPA Clean Energy-Environment Guide to Action
 

The California EEPS sets ambitious energy savings 

goals for both electric and gas utilities. Taking direction from the California Energy Action Plan (EAP) and 

extensive analysis of the economic and achievable 

potential for energy efficiency, as well as considerations of extensive stakeholder input, the CPUC 

adopted annual energy savings goals for the state’s 

four largest IOUs. Utility procurement funds are allocated, in addition to California’s existing PBF, to 

achieve these goals and goals for cost-effective efficiency resources. Each IOU acts both as a portfolio 

manager and program administrator. In doing so, the 

IOUs assemble their respective portfolios and seek 

approval for them from the CPUC. The energy efficiency portfolio of programs must meet California’s 

cost-effectiveness tests, and funding source (procurement vs. public benefits) is not a determining 

factor in approval by the CPUC. The rules that govern 

all aspects of portfolio management and program 

administration are found in the CPUC policy manual. 

The energy savings goals were adopted by the CPUC 

and established through a collaborative effort with 

the California Energy Commission (CEC) and with 

input from key stakeholders (e.g., utilities, environmental groups, and businesses) (CPUC 2004). 

Energy efficiency goals are targeted for each year 

from 2004 to 2013. The cumulative effect of the programs funded from 2004 to 2013 is estimated to 

result in annual savings in program year 2013 of 

23,183 GWh; 4,885 MW of peak demand; and 444 

million therms natural gas. These 10-year goals are 

projected to meet 54% to 59% of the IOUs’ electricity sales growth by 2013 and 44% of natural gas 

sales growth. Program administrators from each IOU 

are required to submit energy efficiency program 

plans and funding levels to the PUC. 

Also included in the EAP adopted by the CPUC and 

the CEC, a “loading order” for energy resources was 

established in which cost-effective energy efficiency 

and conservation resources are to be selected first, 

followed by renewable generation. Fossil-fired generation is acquired to meet any remaining resource 

needs. The EEPS policy and PBF programs were 

merged, and are largely administered by utilities and 

implemented by a wide range of both utilities and 

non-utilities. Utilities supplement PBFs through utility procurement funding to ensure that the EEPS 

goals are met. The utilities are required to reduce 

their demand forecasts to reflect the adopted energy 

efficiency savings goals and so are further motivated 

to ensure the reductions are achieved. The utilities’ 

achievements will be subject to rigorous evaluation, 

measurement, and verification overseen by the CPUC. 

Web sites: 

http://www.cpuc.ca.gov/static/industry/electric/ 

energy+efficiency/rulemaking/eegoals.htm 

http://www.cpuc.ca.gov/PUBLISHED/ 

FINAL_DECISION/40212.htm 

http://www.cpuc.ca.gov/PUBLISHED/REPORT/ 

28715.htm 

Illinois 

The Illinois Sustainable Energy Plan recommends an 

energy efficiency portfolio standard that will meet 

25% of projected annual load growth by 2015–2017. 

The Illinois Commerce Commission (equivalent to a 

state PUC) recently adopted a resolution adopting 

the proposed plan with some modifications, including moving the start date from 2006 to 2007, to 

allow for more time to develop market-ready 

resources and to better align the effort with the timing of related regulatory provisions (the plan itself is 

voluntary). It has been estimated that the Illinois 

Sustainable Energy Plan, including the EEPS, will 

save more than 5,600 GWh, generate more than $2 

billion in investments in Illinois, and create about 

2,000 construction jobs and hundreds of permanent 

jobs (ASE 2005, ICC 2005). 

The Illinois EEPS is part of a broader effort that 

includes an RPS requirement and is intended to gain 

the combined benefits of reduced demand growth 

and increased clean generation. This twin approach 

has broad support from utilities, environmental and 

consumer groups, and other stakeholders. 

Web site: 

http://www.icc.illinois.gov/en/ecenergy.aspx 

� Section 4.1. Energy Efficiency Portfolio Standards
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Nevada 

The Nevada RPS was established as part of the 

state’s 1997 restructuring legislation. In an effort to 

provide greater flexibility under the RPS, the Nevada 

legislature adopted Assembly Bill 3 (A.B.3) during a 

special session in June 2005 to allow electricity 

providers to meet a portion of their RPS requirements through energy efficiency measures and 

renewable resources. The bill increases the percentage of energy to come from energy efficiency and 

renewable sources from 5% (under the original RPS) 

to 6% from 2005 to 2006 and expands this percentage to 15% from 2011 to 2012 and 20% for 2015 

and thereafter. Eligible energy efficiency measures 

can meet up to 25% of the requirement. Eligible 

measures include those that are installed on or after 

January 1, 2005; are located at a retail customer’s 

location; reduce the consumption of energy by the 

retail customer; and are directly subsidized, in whole 

or in part, by the electric utility. 

In response to this adjustment, two utilities, Nevada 

Power Company and Sierra Pacific Power Company, 

have requested approval from the Nevada PUC for 

additional funding for their 2005 and 2006 demandside management (DSM) programs. This is the second 

increase proposed by the utilities since passage of 

A.B.3. The utilities now plan to spend $16.2 million 

on 2005 DSM programs and $30.5 million in 2006. 

The 2006 budget will include more than $2 million 

for ENERGY STAR appliances and lighting rebates; 

$1.9 million for recycling of old, inefficient refrigerators; and $185,000 for ENERGY STAR New 

Construction programs. 

Web site: 

http://www.newrules.org/electricity/rpsnv.html 

New Jersey 

New Jersey’s PBF program was initially established by 

restructuring legislation in 1999. Based on a recent 

reevaluation of the program’s design and administration, New Jersey is adding specific resource goals to 

its PBF program (NJBPU 2004). This is a hybrid 

approach, in that the overall program is limited by 

the public benefits charge levels set in the authorizing legislation and is funded like other public benefits programs. In the past, program administrators 

were not required to meet specific resource goals— 

their programs were driven primarily by available 

funding. Under the new Clean Energy Program 

model, the New Jersey Office of Clean Energy will 

use energy efficiency to meet overall energy and 

demand savings goals within the available funding 

limits. 

In another revision to the New Jersey PBF program, 

administration and delivery of programs will be 

solicited competitively (originally, electric utilities 

provided program administration and ran the programs directly), with the winning bidders agreeing to 

meet the specific energy savings goals. In this sense, 

the New Jersey program has added an EEPS component (i.e., the energy savings goals) to a PBF program. However, the EEPS requirement is not imposed 

directly on utilities, but on whatever entity wins the 

bid to administer PBF funds. 

Web site: 

http://www.bpu.state.nj.us/home/BOCleanEn.shtml 

Click on BPU order EX04040276 (12/23/04). 

Pennsylvania 

Pennsylvania is pioneering another variation of EEPS. 

The legislature passed the Alternative Energy 

Portfolio Standards Act (AEPS) in late 2004. It creates a two-tier set of resource goals for electric utilities. Tier 1 requires 8% of utility energy to come 

from renewable energy sources (e.g., wind power and 

solar energy). Tier II calls for a 10% “advanced energy resource” target that can be met by a mix of 

other types of energy resources, including energy 

efficiency as well as waste coal generation and 

hydropower. AEPS represents a new “hybrid” form of 

EEPS, in that energy efficiency is one of several 

resources listed in Tier II. In this setting, energy efficiency must compete against the other resource 

types in Tier II. There is no minimum level of energy 

efficiency resources that must be acquired (Black &

Veatch 2004). 

4-12 � Chapter 4. Energy Efficiency Actions
 
 

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The Pennsylvania AEPS design, in which energy efficiency is included as one of a list of resource 

options, does not ensure that energy efficiency 

resources will be acquired. Energy efficiency’s contribution to the resource portfolio depends on the 

availability and relative cost of the resources included in the portfolio. Thus, in theory, if energy efficiency is less expensive than other resource options, it 

would be acquired in whatever volume is available at 

the competitive price. However, limited energy efficiency networks, including providers, and other factors may prevent energy efficiency from competing 

effectively in such a framework. In addition, a lack of 

mechanisms to decouple utility profits from sales of 

electricity presents a regulatory disincentive. (See 

Section 6.2, Utility Incentives for Demand-Side 

Resources.) 

While a specific assessment of the energy efficiency 

aspect of the AEPS has not been conducted, one 

estimate indicates it could provide cumulative economic benefits of $2.7 billion in electric savings; 

70,000 jobs over 20 years (an average of 3,500 new 

jobs annually); and $2.5 billion in additional earnings 

(Pletka 2004). Another study identifies 16,000 GWh 

of potential savings from efficiency measures including energy conservation and energy efficiency measures. The AEPS requires that energy conservation 

measures save energy; thus, direct load control is not 

included in the potential total for energy conservation (Black & Veatch 2004). 

Web site: 

http://www.puc.state.pa.us/electric/ 

electric_alt_energy_port_stnds.aspx 

Texas 

Texas was the first state to adopt energy efficiency 

goals for utilities as part of its 1999 restructuring 

law, Senate Bill 7 (S.B.7). This law called for electric 

distribution utilities to offset 10% of their forecasted 

load growth through energy efficiency by January 

2004. Following enactment, the PUC worked with 

stakeholders to determine the specific programs 

through which this target would be reached. 

Program templates included the following “standard 

offer”10 and “market transformation”11 measures: 

•	 Standard Offer. Commercial and industrial customers, residential and small commercial customers, load management projects, and 

hard-to-reach customer (customers with an 

annual household income at or below 200% of 

the federal poverty guidelines). 

•	 Market Transformation. ENERGY STAR homes, residential ENERGY STAR windows, air conditioner 

distributor, and air conditioner installation information and training. 

These programs were funded through a bill charge 

included in each utility’s transmission and distribution rates, collecting about $80 million for annual 

efficiency program expenditures. Utilities were thus 

able to recover costs associated with the program, 

including incentive payments and program administration (capped at 10% of total). 

Evaluations indicate that the goal of offsetting 10% 

of load growth is being exceeded. Load growth has 

averaged about 2% per year; 10% of this level of 

growth amounts to about 0.2% of total annual sales 

(Gross 2005a). Leading state efficiency programs are 

showing impacts as high as 1% of total annual sales. 

Projected results include 7,300 tons in nitrogen oxide 

(NO ) reductions over 10 years, which Texas esti­ x

mates is equivalent to removing 140,000 motor vehicles from the roadway, and energy savings valued at 

$25 million per year. 

In addition to the statewide EEPS directed specifically at utilities, Texas broadened its efforts to encompass local governments, in part because Texas 

contains two severe nonattainment areas for 

ground-level ozone and sees energy efficiency as an 

important, cost-effective element of its air quality 

strategy. In 2001, Texas set energy efficiency goals 

for local government through Senate Bill 5 (S.B.5)— 

known as the Texas Emissions Reduction Plan. 

10	 Refers to programs where a utility administers a contract with an energy service provider that specifies a standard payment based on the amount of 

energy saved through the installation of energy efficiency measures. 

11 Refers to strategic efforts, including incentives and education, to reduce market barriers for energy efficiency. 

� Section 4.1. Energy Efficiency Portfolio Standards 4-13 
 

 

EPA Clean Energy-Environment Guide to Action
 

S.B.5 requires 38 local governments to reduce electricity consumption by 5% a year for five years and 

report annually to the State Energy Conservation 

Office (SECO). The Texas PUC and SECO are working 

with local governments and utilities to implement 

efficiency improvement programs and projects, 

measure and verify energy savings, and incorporate 

emission reductions into local air quality plans. The 

Dallas-Fort Worth nonattainment area is including 

efforts under S.B.5 in its State Implementation Plan 

(SIP) for ozone attainment. (See Section 3.3, 

Determining the Air Quality Benefits of Clean Energy.) 

Web sites: 

1999 Texas Electricity Restructuring Act: 

http://www.capitol.state.tx.us/cgi-bin/db2www/ 

tlo/billhist/billhist.d2w/report?LEG=76&SESS 

=R&CHAMBER=S&BILLTYPE=B&BILLSUFFIX=00007 

S.B.7: 

http://www.centerpointefficiency.com/about/ 

http://www.mccombs.utexas.edu/research/bbr/ 

bbrpub/tbr/pdf/Aug.99.zar.pdf 

S.B.5: 

http://www.seco.cpa.state.tx.us/sb5report2004.pdf 

http://www.texasenergypartnership.org/ 

What States Can Do 

States with either restructured or traditional utility 

markets have set EEPS goals for utilities. These goals 

can be administered in association with PBFs or regulated utility efficiency programs. Because the EEPS 

approach can support multiple purposes, including 

Clean Air Act compliance plans, utility-sector 

resource plans, and climate action plans, states can 

set EEPS goals within the context of broad energy 

and environmental policy goals. 

Action Steps for States 

The key steps to establishing EEPS are: 

• Conduct background analysis, including assessing 

historical experience and results from past energy 

efficiency programs and conducting a robust 

analysis of energy efficiency potential, an economic assessment of potential benefits and costs, and 

a determination of the range of savings targets 

that would be realistic for an EEPS. 

• Design and develop the EEPS program by determining the appropriate goals, the sectors covered 

by the goals, the kinds of resources that can be 

acquired, and the time frame. 

• Define an implementation process that sets rules 

and procedures for how resources can be acquired 

in the program, M&V requirements, evaluation 

procedures, and general oversight. 

• Provide for periodic evaluation and program 

review at specified intervals. 

4-14 � Chapter 4. Energy Efficiency Actions
 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EPA Clean Energy-Environment Guide to Action 

Information Resources 

Information About States 

Title/Description URL Address 

California Action Plan. This Web site contains the text of the California EAP. CEC and 

CPUC. 2003. California EAP, May 8, 2003. CEC and CPUC. 

http://www.energy.ca.gov/ 

energy_action_plan 

California Integrated Energy Policy Report. This CEC report lays out policy recommendations for electricity, natural gas, transportation, and the environment. CEC. 

2003. California Integrated Energy Policy Report, December. CEC. 

http://www.energy.ca.gov/reports/ 

100-03-019F.pdf 

CPUC Energy Efficiency Goals Web site. This Web site contains information on energy efficiency potential, including KEMA-Xenergy efficiency potential studies and the 

Hewlett Foundation "Secret Energy Surplus" report. CPUC. 2005. Evaluation, M&V. 

CPUC. 

http://www.cpuc.ca.gov/static/industry/ 

electric/energy+efficiency/rulemaking/ 

eegoals.htm 

Illinois Sustainable Energy Plan. This Web site contains the Illinois Sustainable 

Energy Plan, as submitted to the Illinois Commerce Commission on February 11, 2005. 

http://www.icc.illinois.gov/en/ecenergy.aspx 

Midwest Energy Efficiency Alliance (MEAA) Comments to Illinois Commerce 

Commission on the Illinois Sustainable Energy Plan. MEAA is a collaborative network whose purpose is to advance energy efficiency in the Midwest in order to support sustainable economic development and environmental preservation. It is a 

leader in raising and sustaining the level of energy efficiency in the Midwest region. 

http://www.icc.state.il.us/ec/docs/ 

050309ecCommentsMidwest1.pdf 

The Pennsylvania PUC AEPS Web site, 2005. This Web site contains information on 

legislation, technical conferences, work groups, and general information about alternative energy sources. 

http://www.puc.state.pa.us/electric/ 

electric_alt_energy_port_stnds.aspx 

Promoting Energy Efficiency in California. State EE/RE Technical Forum, May 18, 

2005. Presentation by Brian C. Prusnek, Advisor to Commissioner Susan P. Kennedy, 

CPUC. 

http://www.epa.gov/cleanenergy/pdf/ 

keystone/PrusnekPresentation.pdf 

Information About Measurement and Verification
 

Title/Description URL Address 

Applications Team: Energy-Efficient Design Applications. This Web site provides 

numerous resources, ranging from implementation guidelines to checklists and other 

resources, to help organizations implement an M&V program. 

http://ateam.lbl.gov/mv/ 

ASHRAE Guideline 14-2002. Measurement of Energy and Demand Savings. ASHRAE, 

June 2002. This document provides guidelines for reliably measuring energy and 

demand savings of commercial equipment. 

http://resourcecenter.ashrae.org/store/ 

ashrae/newstore.cgi?categoryid=310& 

categoryparent=156&loginid=6294016 

Click on the link to Guideline 14-2002— 

Measurement of Energy and Demand 

Savings. 

Section III Measurement and Verification Guidelines. This document provides general guidelines for preparing an M&V plan, choosing an M&V option and method, 

defining and adjusting baselines, and collecting and submitting M&V data. 

http://search.pge.com/cs.html?url=http%3A/ 

/www.pge.com/docs/pdfs/biz/rebates/ 

spc_contracts/2000_on_peak_incentive/ 

III-m%26v.pdf&qt=M%26V&col=pge&n=1 

CALMAC Web site. California's statewide CALMAC evaluation clearinghouse contains resources for deemed savings and project-specific M&V techniques. 

http://www.calmac.org 

� Section 4.1. Energy Efficiency Portfolio Standards
 4-15 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EPA Clean Energy-Environment Guide to Action
 

Title/Description URL Address 

Efficiency Vermont Technical Reference User Manual. Vermont provides a set of 

deemed-savings methods in this manual. 

TRM 4-19, published by Efficiency Vermont 

255 S. Champlain Street, Burlington, VT 

05401-4717, phone 888-921-5990. 

Electric and Gas Conservation Improvement Program Biennial Plan for 2005 and 

2006. This plan was submitted to the Minnesota Department of Commerce by Xcel 

Energy, June 1, 2004. Docket No. E, G002/CIP-04. 

URL not available. 

EPA report: Creating an Energy Efficiency and Renewable Energy Set-Aside in the 

NOx Budget Trading Program: Measuring and Verifying Electricity Savings. This 

forthcoming EPA report describes key M&V resources. 

Contact EPA. 

Evaluation, Measurement and Verification Workshop. The CPUC held several workshops on evaluation, measurement, and verification. The primary purpose of these 

workshops was to discuss the performance basis, metrics, and protocols for evaluating and measuring energy efficiency programs, including incentive, training, education, marketing, and outreach programs. 

http://www.fypower.org/feature/ 

workshops/workshop_5.html 

The final Decision can be found at: 

http://www.cpuc.ca.gov/PUBLISHED/ 

FINAL_DECISION/45783.htm 

IPMVP Web Site. IPMVP Inc. is a nonprofit organization that develops products and 

services to aid in the M&V of energy and water savings resulting from energy/water 

efficiency projects—both retrofits and new construction. The site contains the 

IPMVP, a series of documents for use in developing an M&V strategy, monitoring 

indoor environmental quality, and quantifying emission reductions. 

http://www.ipmvp.org 

New York State Energy Research and Development Authority (NYSERDA) Standard 

Performance Contracting Program Measurement and Verification Guideline. 

M&V guidelines are included in NYSERDA’s request for applications for performance 

contracting. 

http://www.nyserda.org/funding/ 

855PON.html 

http://www.nyserda.org/wms/docs_funding/ 

909PON.pdf 

Northwest Power Planning Council: 5th Power Plan. 2005–2009 Targeted 

Conservation Measures and Economics. 

http://www.nwppc.org/energy/powerplan/ 

draftplan/Default.htm 

Oncor Commercial & Industrial Standard Offer Program 2003. Measurement and 

Verification Guidelines. (Includes retrofit and new construction and default savings 

values for lighting, motors, and air-conditioning equipment.) 

http://www.oncorgroup.com/electricity/ 

teem/candi/default.asp 

PA Knowledge Limited 2003: Standardized Methods for Free-Ridership and Spillover 

Evaluation—Task 5 Final Report. June 16, 2003 (sponsored by National Grid, NSTAR 

Electric, Northeast Utilities, Unitil and Cape Light Compact). This report is used by 

Massachusetts utilities to estimate free ridership and spillover effects. 

Contact PA Consulting at: 

http://www.paconsulting.com 

Southern California Edison (SCE), December 04 Program Summary Reports. http://www.sce.com/AboutSCE/Regulatory/ 

eefilings/MonthlyReports.htm 

Examples of Legislation/Regulation
 

State Title/Description URL Address 

California California Interim Opinion: Administrative Structure for Energy 

Efficiency (Decision 05-01-055). This CPUC rule sets the administrative structure and process for energy efficiency programs. 

http://www.cpuc.ca.gov/PUBLISHED/ 

FINAL_DECISION/43628.htm 

California Interim Opinion: Energy Savings Goals for Program 

Year 2006 and Beyond (Decision 04-09-060). This CPUC rule sets 

energy efficiency goals for the state. 

http://www.cpuc.ca.gov/PUBLISHED/ 

FINAL_DECISION/40212.htm 

4-16 � Chapter 4. Energy Efficiency Actions
 
 

 

 

 

 

 

 

 

 

 

 

 

 

EPA Clean Energy-Environment Guide to Action
 

State Title/Description URL Address 

California (cont.) California Ruling: Instructions for Filing Proposals on Energy 

Efficiency Administrative Structure. This CPUC ruling sets the 

requirements and process for proposals recommending an 

energy efficiency administration structure. The ruling includes 

helpful background documents, including an overview of energy 

efficiency administration structures in place in other states and 

a framework for administrative roles and responsibilities. 

http://www.cpuc.ca.gov/PUBLISHED/ 

RULINGS/35120.htm 

Connecticut Energy Independence Act. This act establishes a Distributed 

RPS that includes energy efficiency from commercial and 

industrial facilities, and combined heat and power and commercial and industrial load management programs. 

http://www.cga.ct.gov/2005/TOB/h/pdf/ 

2005HB-07501-R00-HB.pdf 

Hawaii Hawaii's Renewable Portfolio Standard Act. This act requires 

electric utilities to meet an RPS of 15% in 2015 and 20% in 2020. 

http://www.hawaii.gov/dbedt/ert/rps.html 

Illinois Illinois Sustainable Energy Plan. This Web site contains the 

Illinois Sustainable Energy Plan, as submitted to the Illinois 

Commerce Commission on February 11, 2004. 

http://www.renewableenergyaccess.com/ 

assets/download/IllinoisGov_RPS.pdf 

Nevada Nevada A.B.3. This bill redefines the portfolio standard to 

include energy efficiency and renewable energy. 

http://www.leg.state.nv.us/22ndSpecial/ 

Reports/history.cfm?ID=2546 

http://leg.state.nv.us/22ndSpecial/bills/AB/ 

AB3_EN.pdf 

New Jersey Clean Energy Board Order—In The Matter of the New Jersey 

Clean Energy Program Policies and Procedures(12/09/04). 

http://www.bpu.state.nj.us/wwwroot/ 

cleanEnergy/EO02120955_20041209.pdf 

The State of New Jersey Board of Public Utilities (NJBPU) rule. 

This rule establishes PBF goals, December 22, 2004. Docket No. 

EX0404276. 

http://www.bpu.state.nj.us/home/ 

BOCleanEn.shtml 

Click on BPU order EX04040276 (12/23/04). 

Pennsylvania Pennsylvania Alternative Energy Legislation. This Web site contains the text of Pennsylvania's Alternative Energy Portfolio 

Standards Act of 2004 (Senate Bill 1030). 

http://www.legis.state.pa.us/WU01/LI/BI/BT/ 

2003/0/SB1030P1973.HTM 

Texas The Center for Energy Efficiency and Renewable Technologies. 

Texas Cleans Up Its Act, article reprinted from the Clean Power 

Journal. This article details the passage and key provisions of 

Texas S.B.7, which encourages the development of renewable 

energy. 

http://www.ceert.org/pubs/cpjournal/99/ 

summer/texas.html 

Emission Reduction Incentive Grants Reports. Prepared for the 

Texas Natural Resource Conservation Commission for a Joint 

Report to the 78th Legislature. In this report the Texas PUC has 

quantified the results of legislated energy efficiency programs 

designed to reduce electric power production and air emissions. 

http://www.tnrcc.state.tx.us/oprd/sips/ 

PUC_report.pdf 

PUCOT Rules for Texas Electric Restructuring Act § 25.181. The 

Texas PUC rules set out implementation strategies for utilities 

and local governments energy efficiency programs. 

http://www.puc.state.tx.us/rules/subrules/ 

electric/25.181/25.181.doc 

Texas S.B.5 and S.B.7. These laws establish energy savings 

goals for utilities and local government. S.B.7 is the Texas 

Electric Restructuring Act of 1999, Legislative Session 76. 

http://www.puc.state.tx.us/electric/ 

projects/20970/20970arc/sb7rules.doc 

See also: 

http://www.capitol.state.tx.us/cgi-bin/ 

db2www/tlo/billhist/billhist.d2w/ 

report?LEG=76&SESS=R&CHAMBER= 

S&BILLTYPE=B&BILLSUFFIX=00007 

� Chapter 4. Energy Efficiency Portfolio Standards
 4-17 
 

EPA Clean Energy-Environment Guide to Action
 

References
 

Title/Description URL Address 

ASE. 2005. State Energy Efficiency Policy Bulletin, an Alliance to Save Energy (ASE) 

online newsletter. ASE. March. 

http://www.ase.org/content/article/detail/ 

2075. 

Alliance to Save Energy Web site: 

http://www.ase.org 

Black & Veatch. 2004. Economic Impact of Renewable Energy in Pennsylvania. Final 

Report. Prepared for Community Foundation for the Alleghenies with funding from 

the Heinz Foundation by Black & Veatch, Overland Park, KS. March. 

http://www.bv.com/energy/eec/studies/ 

PA_RPS_Final_Report.pdf 

CALMAC. 2005. CALMAC Web site. http://www.calmac.org. 

CPUC. 2004. Order Instituting Rulemaking to Examine the Commission's Future 

Energy Efficiency Projects, Administration and Programs, September 23, 2004, 

Decision 04-09-060, Rulemaking 01-08-028 Interim Opinion: Energy Savings Goals for 

Program Year 2006 and Beyond. CPUC. 

http://www.cpuc.ca.gov/PUBLISHED/ 

FINAL_DECISION/40212.htm 

Elliot, R.N., A.M. Shipley, S. Nadel, and E. Brown 2003. Natural Gas Price Effects of 

Energy Efficiency and Renewable Energy Practices and Policies. Report Number 

E032. American Council for an Energy-Efficient Economy (ACEEE), Washington, D.C. 

December. 

http://www.aceee.org/pubs/e032full.pdf 

EPA. 2005. State Clean Energy Policies Matrix. Appendix. Internal Draft. URL not available. 

Gross, T. 2005a. Presentation to EPA State EE/RE Technical Forum. Texas PUC. April 14. http://www.epa.gov/cleanenergy/pdf/ 

keystone/TX_legislative_authority.pdf 

Gross, T. 2005b. Texas PUC personal communication with Theresa Gross, June. N.A. 

ICC. 2005. The Illinois Sustainable Energy Plan. Illinois Commerce Commission. 

February 17. 

http://www.icc.state.il.us/ec/ecEnergy.aspx 

IPMVP. 2005. Efficiency Valuation Organization. IPMVP Web site. http://www.ipmvp.org 

Nadel, S., A. Shipley, and R.N. Elliott. 2004. The Technical, Economic and Achievable 

Potential for Energy-Efficiency in the U.S.—A Meta-Analysis of Recent Studies. 

ACEEE, Washington, D.C. From the proceedings of the 2004 ACEEE Summer Study on 

Energy Efficiency in Buildings. 

http://www.aceee.org/conf/04ss/ 

rnemeta.pdf 

NJBPU. 2004. Clean Energy Board Order—In The Matter of the New Jersey Clean 

Energy Program (NJCEP) Policies and Procedures. December 1. 

http://www.bpu.state.nj.us/wwwroot/ 

cleanEnergy/EO02120955_20041209.pdf 

Pletka, R. 2004. Potential Impacts of An Advanced Energy Portfolio Standard in 

Pennsylvania. Presentation for the National Renewable Energy Laboratory (NREL) 

Energy Analysis Forum, Black & Veatch. November 9. 

http://205.168.79.26/analysis/forum/ 

presentations_04.html 

Public Utility Commission of Texas. 2005. M&V Guidelines. Energy Efficiency 

Implementation. Austin, TX. 

http://www.puc.state.tx.us/electric/ 

projects/30331/052505/ 

m%26v%5Fguide%5F052505.pdf 

4-18 � Chapter 4. Energy Efficiency Actions
 
 

EPA Clean Energy-Environment Guide to Action
 

4.2 Public Benefits Funds for 

Energy Efficiency 

Policy Description and Objective 

Summary 

Many states are finding PBFs to be an effective mechanism for securing investment in cost-effective energy 

efficiency, resulting in lower cost and cleaner energy. 

PBFs in 17 states and Washington, D.C. provide nearly 

$1 billion annually for energy efficiency and related 

programs. States with restructured as well as traditional electricity markets are using PBFs as a component of their clean energy policy portfolios. 

PBFs, also known as system benefits charges (SBCs) 

or clean energy funds, are typically created by levying a small charge on every customer’s electricity 

bill. These funds provide an annual revenue stream to 

fund energy efficiency programs. The charges range 

from 0.03 to 3 mills12 per kilowatt-hour (kWh) and 

are equivalent to about $0.27 to $2.50 on a residential customer’s monthly energy bill (ACEEE 2004b). 

Where there are comprehensive, statewide programs 

in place, funding levels range from about 1 to 3% of 

total utility revenues. 

PBFs were originally developed during the 1990s to 

help fund public benefit programs for energy efficiency, clean energy supply, and low-income electricity bill assistance. Utilities had become hesitant to 

invest in clean energy activities, anticipating restructuring of electricity markets that would shift incentives and alter requirements. In many cases, states 

that restructured their electricity markets instituted 

PBFs to address the critical needs exposed by this 

decline in utility investments. Despite the creation of 

PBFs, funding for energy efficiency and diversified 

energy supply in many states is still below the funding levels of the early 1990s, but has increased overall in recent years (ACEEE 2004b, ACEEE 2004c, 

ACEEE 2005a). 

A well-designed and administered public 

benefits fund (PBF) increases public and private sector investments in cost-effective 

energy efficiency, resulting in reduced energy 

costs for electricity customers, emission 

reductions, and enhanced reliability. 

Total ratepayer-funded electric energy efficiency program spending (including PBF programs and other 

programs funded via customer bills) reached $1.35 

billion in 2003. In nominal dollars, this was the highest level spent on electric energy efficiency programs 

since 1996 (ACEEE 2005a). However, in real dollars, 

the level of funding in nearly every state is still 

below the levels of the early 1990s. 

States are finding that PBFs provide significant 

reductions in electricity demand and related emissions at a relatively low cost. For just 12 of the 

states with energy efficiency PBFs, total annual 

investments of about $870 million in 2002/2003 

yielded nearly 2.8 million MWh of electricity savings. 

Emission reductions from nine of these states included a total of 1.8 million tons of carbon dioxide (CO2). 

The median program cost was $0.03 per kWh saved, 

which is one-half to three-quarters of the typical 

cost of new power sources and less than one-half of 

the average retail price of electricity (ACEEE 2004a, 

ACEEE 2004b, EIA 2005). 

Seventeen states and Washington, D.C. have adopted 

PBFs that provide nearly $1 billion in support annually 

for energy efficiency and have yielded over 2.8 million 

MWh in annual electricity savings (ACEEE 2004b). 

Objective 

The objectives of PBF programs for energy efficiency 

include: 

• Saving energy and avoiding new generation 

through long-lasting improvements in energy 

efficiency. 

1 mill = one-tenth of a cent. 

� Section 4.2. Public Benefits Funds for Energy Efficiency 4-19 

12 
 

 

 

 

 

 

 

 

EPA Clean Energy-Environment Guide to Action
 

• Lowering energy demand and reducing air pollutant and greenhouse gas emissions. 

• Reducing customers’ energy costs. 

Most states also use their PBFs to support development of clean energy supplies, such as renewable 

energy and combined heat and power (CHP), provide 

assistance to low-income consumers, support consumer education, and support research and development of new clean energy technologies (see Chapter 

5, Energy Supply Actions). 

Benefits 

Well-designed and administered PBFs have been 

shown to reduce energy demand at a lower cost (see 

Figure 4.2.1) than new supply and deliver a variety of 

benefits. They reduce energy costs for utility customers by reducing average bills and by limiting 

future energy price increases. They also improve the 

reliability of the electricity grid and reduce emissions. Some states use PBF dollars to support 

research and development related to clean energy 

technologies and processes. 

Figure 4.2.1: Cost of Energy Saved (cents/kWh) for 

Six State Public Benefits Funds Cost of Energy Saved (cents/kWh) 

5.0 

4.0 

3.0 

2.0 

1.0 

0.0 

NY MA CA NJ VT CT 

State 

Source: ACEEE 2004b. 

Funding levels for comprehensive programs generally 

range from 1 to 3% of total utility revenues. On 

average, each percent of revenues invested yields 

about 5% in cumulative energy savings over five 

years and 10% over 10 years (ACEEE 2004b). While 

the percent of revenues spent is not the only factor 

affecting the impact of efficiency programs, it provides an indication of the magnitude of savings that 

states can expect. 

PBFs have also been shown to help create jobs by 

lowering energy costs and stimulating new public 

and private sector investments. Recent analyses of 

the New York Energy $mart Program show that the 

program creates and sustains 4,700 jobs, increases 

labor income by $182 million per year, and increases 

economic output by $224 million per year (NYSERDA 

2004a). 

States with Energy Efficiency PBFs 

Seventeen states and Washington, D.C. (shown in 

Figure 4.2.2) have established PBFs to support energy 

efficiency at various levels of funding. Eleven of the 

states have programs that are actively promoting 

energy efficiency, making investments at or above 

the median level of about 1 mill/kWh. 

Figure 4.2.2: States with PBFs for Energy Efficiency
 

DC 

Sources: ACEEE 2004b, ACEEE 2004c. 

Notes: Nevada's program, originally introduced under a now-repealed 

electricity restructuring process, is not technically a PBF. As of 2003, 

energy efficiency funding is approved as part of utility IRP (ACEEE 

2004b). 

Texas's program is tied to the state's utility energy efficiency savings 

targets and costs are covered through a non-bypassable charge in 

transmission and distribution rates. (See Section 4.1, Energy Efficiency 

Portfolio Standards.) The utilities submit rate filings to the utility commission to cover estimated costs (ACEEE 2004b). 

4-20 � Chapter 4. Energy Efficiency Actions
 
 

 

 

 

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Figure 4.2.3: Ratepayer-Funded Energy Efficiency 

Programs 

PBFs are the most prevalent mechanism for supporting 

ratepayer-funded energy efficiency programs. States 

also support energy efficiency through utility demandside management,a including the approval of tariff riders or the inclusion of energy efficiency program costs 

in the rates supervised by the public utility commission 

(PUC) or equivalent regulatory body. Some states, 

such as California and Montana, undertake a combination of these approaches. Most of the PBFs for energy 

efficiency were created as part of a state's electricity 

market restructuring process. Some states (e.g., 

California and Nevada) have repealed the restructuring 

process, at least in part, leading to a hybrid or modified 

approach to funding energy efficiency. Public benefit 

funds were also created in states that did not restructure, including Wisconsin and Vermont. (See also 

Interaction with State Policies, Utility Policies, on page 

4-27.) 

The following map illustrates the different funding 

arrangements that states are using to support energy 

efficiency.b, c 

a Utility DSM programs included in the map are for states where 

energy efficiency spending as a percentage of revenues is 

greater than 0.25% (ACEEE 2005a). 

b Nevada’s program, originally introduced under a now-repealed 

electricity restructuring process, is not technically a PBF; as of 

2003, the energy efficiency funding is approved as part of utility 

Integrated Resource Planning (IRP) (ACEEE 2004b). 

c Texas's program, created as part of a restructuring process, is 

tied to the state's utility energy efficiency savings targets and 

costs are covered through a non-bypassable charge in transmission and distribution rates. (See Section 4.1, Energy Efficiency 

Portfolio Standards.) The utilities submit rate filings to the PUC to 

cover estimated costs (ACEEE 2004b). 

States that have PBFs that support energy efficiency 

States that have utility DSM under regulated structure 

States that have both a PBF and utility DSM program 

DC 

Sources: ACEEE 2004b, ACEEE 2004c, ACEEE 2005a, ACEEE 2005b. 

Most of the states have implemented electricity 

restructuring. However, restructuring is not a prerequisite for establishing a PBF. Some states, including 

Wisconsin, Vermont, and Oregon, have kept retail 

markets largely regulated and have also created PBFs 

to provide the public benefits described above. 

California has rescinded its restructuring process but 

continues to use PBFs. In some states, moving to a 

PBF model from traditional regulated efficiency programs reflects the changing roles of utilities in retail 

markets, while delivering the benefits of efficiency 

through other channels. This mixture of approaches 

to ratepayer-funded energy efficiency programs is 

described in Figure 4.2.3. 

Designing an Effective PBF 

Program 

This section identifies several key issues that states 

consider when designing an effective PBF. These 

issues include identifying key participants and their 

roles; determining appropriate funding levels; and 

determining the appropriate duration of a PBF, what 

portfolio of activities to choose, and interaction with 

other state and federal policies. 

Participants 

•	 State Legislatures. In most states, the state legislature authorizes and periodically reviews PBFs 

program implementation status, funding levels, 

and results. They enact legislation to set up the 

PBF, identify goals and objectives, determine the 

charge, specify implementing and oversight organizations, and review program authorization at 

specified intervals. 

•	 Ratepayers. PBFs are funded by ratepayers, typically through a “non-bypassable” charge on distribution services, so that all customers pay irrespective 

of the supplier. A handful of states (i.e., Montana, 

Oregon, Vermont) have included limited provisions 

for large industrial customers to obtain a credit or 

refund based on documented spending on efficiency (ACEEE 2004b). 

•	 Utilities. Utilities play a role in processing the 

charges, potentially administering the fund, and 

in many cases implementing energy efficiency 

� Section 4.2. Public Benefits Funds for Energy Efficiency
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measures. They also are important sources of data 

for reporting results. 

•	 PUCs and Third-Parties. Depending on the state, 

PUCs or nonprofit organizations may also play a 

role by administering and/or evaluating the PBFs. 

•	 Public and Private Sector Organizations. State PBF 

investments also leverage additional public and 

private sector energy and efficiency investment. 

Studies indicate that each $1 spent from the fund 

leverages roughly $3 in related business and consumer investment (ACEEE 2004c). 

Funding 

•	 Mechanism. Most states apply a system-wide 

charge (usually in mills/kWh) that applies to all 

electricity customers. Some states have developed alternative funding structures, including 

flat monthly fees, utility-financed programs, and 

performance goals. The mills/kWh mechanism is 

the most common, the simplest, and the most 

transparent. 

•	 Funding Level. The funding level for energy 

efficiency-related programs ranges between 0.033 

and 3 mills/kWh in the most active states (ACEEE 

2004b). Table 4.2.1 shows the funding level by 

state, and total annual funding for energy efficiency for the 11 most active states (those whose 

spending is at or above the median of about 

1 mill/kWh). 

•	 Allocation of PBF Resources. The degree to which 

the program administrator will be able to reallocate program dollars within the portfolio once it 

has been approved by the PUC or other oversight 

authority has been an important issue for states. 

This flexibility has proven important because field 

experience often indicates needs to adjust the 

program portfolio in terms of design, funds allocation, or both. If an administrator has to obtain 

approval for any change in use of funds, program 

operations could be delayed, or could result in 

reduced impacts or eroded cost-effectiveness. For 

instance, California has provided utilities with 

more flexibility in recent administrative rulings. 

Table 4.2.1: Comparison of 11 State PBFs for Energy Efficiency 

(sorted by charge level at 1 mill/kWh and greater) 

CT VT MA RI NH ME CA NJ OR WI NY 

Administrative mechanism 

State • • • • • • 

Utility • • • • • 

Third-party • • 

Funding level (mills/kWh) 3.00 2.90 2.50 2.30 1.80 1.50 1.30 1.30 1.26 1.15 1.02 

Annual funding for energy efficiency 

($ millions) $87 $17 $117 $15 $15 $15 $280 $89 $40 $62 $87 

% of revenue to energy efficiency 

programs 3.0 3.4 2.5 2.3 1.52 1.3 2.3 1.35 2.0 2.3 0.75 

Total funding—all programs 

($ millions) $118 $17 $141 $15 $25 $21 

$580 

(includes 

procurement) 

$129 $70 $115 $150 

Key: • = primary fund administrator. 

Sources: ACEEE 2004c, CEC 2005. 

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•	 Administration and Cost Recovery. A PBF essentially serves as a means for cost recovery in place 

of the traditional rate case that utilities undergo 

for a demand-side management (DSM) program. 

There are two basic approaches for administering 

the funding collected under a PBF, both of which 

can affect how costs are recovered. Under the 

first and most common approach, money is collected and spent during the current year, in an 

expenses-based mode. If there is an under- or 

over-collection, it floats in an account, and is 

adjusted in the following year. This account may 

be controlled by a utility or a third-party administrator, depending upon the type of administering body. (See also Administering Body on page 

4-28.) The second approach is to use the money 

collected in the PBF to capitalize a revolving fund 

for grants and loans, which is replenished or 

expanded with new PBF collections. 

Timing and Duration 

Some states leave the duration of the fund openended, while others stipulate operational periods 

ranging from three to 10 years. None of the states 

have discontinued their PBFs, even when the initial 

implementation period ended. 

In the past, it was not uncommon to have short, 

even annual, program approval cycles. This short 

cycle took substantial time and resources away from 

program delivery, and created uncertainty in customer markets. More recently, the trend is toward 

multi-year approval cycles. Many states have found 

that longer cycles reduce administrative costs and 

allow programs to operate more effectively in the 

market. 

PBFs are sometimes redirected to meet other state 

needs during the budget process in lean years. While 

there is no foolproof method to avoid funding being 

shifted to other purposes, some states have used legislative language to avoid it. For example: 

•	 Vermont. “Funds collected through an energy efficiency charge shall not be funds of the state, shall 

not be available to meet the general obligations of 

the government, and shall not be included in the 

financial reports of the state” (State of Vermont 

1999a). 

•	 Washington, D.C. “All proceeds collected by the 

electric company...shall not at any time be transferred to, lapse into, or be commingled with the 

General Fund of D.C. or any account of D.C.” 

(Washington, D.C. 2004). 

One way states are keeping PBFs targeted to energy 

efficiency is to use statistical information to educate 

stakeholders about the energy, economic, and environmental benefits of the PBF. Ensuring adequate, 

consistent, and stable funding is critical for the success of the program and to ensure the continuing 

participation of the private sector. 

Developing a Portfolio of Activities 

Targeting Efficiency Investments 

States use PBFs to support a variety of program 

approaches to increasing the use of energy-efficient 

products and technologies and reducing energy consumption. Approaches include rebate (or “buydown”) programs for energy-efficient appliances and 

equipment, programs that offer technical assistance 

and financial incentives to encourage investment in 

energy-efficient technologies and assist with installation, and efforts at market transformation including disseminating information to increase consumer 

energy awareness and permanently change energyrelated decisionmaking. (See Section 3.4, Funding 

and Incentives, for more detail on some of these 

options.) 

States may also use PBFs to support load management programs that encourage reductions in energy 

use and shifts from on-peak to off-peak periods, to 

address concerns with prices and system reliability, 

but such shifts may not be accompanied by net 

reductions in energy use (NYSERDA 2005). 

States use several criteria for choosing which energy 

efficiency measures are supported by their PBF program. They include the following: 

• Customer classes served by the measure. 

• Distribution of benefits across customer classes 

and service territories. 

� Section 4.2. Public Benefits Funds for Energy Efficiency
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• Cost-effectiveness of individual measures and the 

overall program portfolio. 

• Other social and environmental benefits (e.g., serving low-income customers, reducing criteria pollutants, and managing load and improving reliability 

of the electricity grid). 

Factors such as whether an efficiency measure also 

delivers energy reductions at peak times, reduces 

water consumption, or offers other nonenergy benefits are also taken into consideration. Many efficiency PBFs also invest a portion of their funding in 

research and development programs to identify and 

verify the performance of emerging technologies, 

practices, or innovative program models. 

PBF programs seek to benefit all customers and customer classes. However, resource limitations typically 

result in programs targeting the most cost-effective 

opportunities for energy savings. States served by 

multiple utilities may also need to ensure that customers in each utility’s service territory receive direct 

benefits, proportional to the amount their customers 

have paid into the system. 

In addition to benefit-cost analysis, PBF administrators also use other criteria to guide program design 

and investments, such as customer equity and serving hard-to-reach customer markets. The least 

expensive energy savings are often found in large 

commercial and industrial customers. However, for 

customer equity reasons, most PBF program portfolios seek to reach a range of customer groups, 

including low-income, small business, and other submarkets where lowering energy costs is especially 

important. 

In addition to needing to serve multiple customer 

classes, some of which are harder or more expensive to reach, program administrators typically balance their efficiency programs based on the same 

principles that one would use in evaluating a stock 

portfolio. 

• How reliable is the investment? 

• When will it achieve savings? 

• How long will those savings last? 

• What other investments/strategies need to be considered to offset risk? 

• Is it wise to include some long-term investments? 

Some states target a portion of their efficiency 

investments to heavily populated areas or business 

districts to help alleviate transmission congestion 

and offset or postpone transmission infrastructure 

investments. For example, Connecticut’s Conservation 

and Load Management Fund targets funding to 

address transmission congestion problems in southwest Connecticut. By linking actions to load management programs, states can use PBFs to help prevent brownouts and ensure reliable energy supply, 

which benefits all electricity customers. 

Determining Cost-Effectiveness 

Many states incorporate cost-effectiveness analysis 

into the design and evaluation of their programs. This 

helps ensure the effective use of public funds and can 

be used to compare program and technology performance with the aim of developing effective future programs. Cost-effectiveness tests commonly used by 

states are shown in Table 4.2.2. Many states use a 

Total Resource Cost (TRC) Test as the basic economic 

assessment tool. The TRC Test assesses the net lifetime 

benefits and costs of a measure or program, accounting for both the utility and program participant perspectives. As with other cost-effectiveness tests, if the 

benefit-cost ratio is greater than one, it is deemed to 

be cost-effective. If applied at a portfolio level, individual measures and programs can then be further 

screened based on the extent to which benefits 

exceed costs and on other portfolio considerations 

mentioned previously. 

Sometimes states use a combination of tests to 

examine the program impacts from different perspectives. States wishing to consider the non-electric 

implications for energy use and energy savings may 

use the Societal Test, which incorporates a broader 

set of factors than the TRC Test. The Program 

Administrator and Participant Tests are sometimes 

used to help design programs and incentive levels, 

rather than as a primary screen for overall costeffectiveness. 

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Table 4.2.2: Common Cost-Effectiveness Tests
 

Type of Test Description 

Total Resource Cost 

Test 

Compares the total costs and benefits of 

a program, including costs and benefits 

to the utility and the participant and the 

avoided costs of energy supply. 

Societal Test Similar to the TRC Test, but includes the 

effects of other societal benefits and 

costs such as environmental impacts, 

water savings, and national security. 

Program 

Administrator Test 

Assesses benefits and costs from the 

program administrator’s perspective 

(e.g., benefits of avoided fuel and operating and capacity costs compared to 

rebates and administrative costs). 

Participant Test Assesses benefits and costs from a participant’s perspective (e.g., reductions in 

customers’ bills, incentives paid by the 

utility, and tax credits received as compared to out-of-pocket expenses such 

as costs of equipment purchase, operation, and maintenance). 

Rate Impact 

Measure 

Assesses the effect of changes in revenues and operating costs caused by a 

program on customers’ bills or rates. 

Source: UNEP 1997. 

If using only one test, states are moving away from 

the Rate Impact Measure (RIM) test because it does 

not account for the interactive effect of reduced 

energy demand from efficiency investments on 

longer-term rates and customer bills. Under the RIM 

test, any program that increases rates would not 

pass, even if total bills to customers are reduced. In 

fact, there are instances where measures that 

increase energy use pass the RIM test. 

While many utilities and PUCs express program performance in terms of benefit-cost ratios, expressing 

program costs and benefits in terms of $/kWh is also 

useful because it is easy to relate to the cost of energy. Consumers and legislators can easily relate this 

metric to the cost of energy in their own area, while 

utilities and regulators can compare this value to the 

cost of other resources, such as new generation. 

When expressed this way, the annual levelized TRC in 

$/kWh captures the net program and customer costs 

divided by the projected lifetime savings of the measure or program. Resource costs can also be calculated in $/kW to illustrate the value during periods of 

peak demand. (See also Section 6.1, Portfolio 

Management Strategies.) 

Interaction with Federal Policies 

Several federal programs can help support the programs administered through PBFs. 

The ENERGY STAR Program 

ENERGY STAR is a voluntary, public-private partnership designed to reduce energy use and related 

greenhouse gas emissions. The program, administered 

jointly by the U.S. Environmental Protection Agency 

(EPA) and the U.S. Department of Energy (DOE), has 

an extensive network of partners including equipment manufacturers, retailers, builders, energy service companies, private businesses, and public sector 

organizations. 

Since the late 1990s, EPA and DOE have worked with 

utilities, state energy offices, and regional nonprofit 

organizations to help them leverage ENERGY STAR 

messaging, tools, and strategies and enhance their 

local energy efficiency programs. Today more than 

350 utilities and other efficiency program sponsors, 

servicing 60% of U.S. households, participate in the 

ENERGY STAR program. 

EPA and DOE invest in a portfolio of energy efficiency efforts that state and utility run energy efficiency 

programs can leverage to further their PBF programs, 

including: 

•	 Education and Awareness Building. ENERGY STAR 

sponsors broad-based public campaigns to educate 

consumers on the link between energy use and air 

emissions and to raise awareness about how products and services carrying the ENERGY STAR label 

can protect the environment while saving money. 

•	 Establishing Performance Specifications and 

Performing Outreach on Efficient Products. More 

than 40 product categories include ENERGY STARqualifying models, which ENERGY STAR promotes 

through education campaigns, information 

� Section 4.2. Public Benefits Funds for Energy Efficiency
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exchanges on utility-retailer program models, and 

extensive online resources. Online resources 

include qualifying product lists, a store locator, 

and information on product features. 

•	 Establishing Energy Efficiency Delivery Models to 

Existing Homes. ENERGY STAR assistance includes 

an emphasis on home diagnostics and evaluation, 

improvements by trained technicians/building professionals, and sales training. It features online 

consumer tools including the Home Energy 

Yardstick and Home Energy Advisor. 

•	 Establishing Performance Specifications and 

Performing Outreach for New Homes. ENERGY 

STAR offers builder recruitment materials, sales 

toolkits and consumer education, and outreach 

that helps support builder training, consumer education, and verification of home performance. 

•	 Improving the Performance of New and Existing 

Commercial Buildings. EPA has designed an Energy 

Performance Rating System to measure the energy 

performance at the whole-building level, to help 

go beyond a component-by-component approach 

that misses impacts of design, sizing, installation, 

controls, operation, and maintenance. EPA uses 

this tool and other guidance to help building owners and utility programs maximize energy savings. 

The State Energy Program 

DOE offers a range of financial and technical assistance programs that support state efficiency programs. The State Energy Program administered by 

DOE offers grants to states to implement energy programs. State energy offices can leverage PBFs by 

coordinating activities with state energy programs. 

DOE’s Weatherization Assistance Program (WAP) 

enables low-income families to permanently reduce 

their energy bills by making their homes more energy 

efficient. 

Interaction with State Policies 

PBFs can be used to leverage existing stateadministered programs, such as traditional utilitybased energy efficiency programs, and support other 

state policies, such as building codes. 

Best Practices: Developing and Adopting a 

PBF Policy 

The best practices identified below will help states 

develop effective PBF programs. These best practices 

are based on the experiences of states that have highly effective PBFs for energy efficiency. 

•	 Determine the cost-effective, achievable potential 

for energy efficiency in the state. 

•	 Start with low-cost, well-established programs and 

efficiency investments, and build the program over 

time. 

•	 Assess the level and diversity of support for a PBF. 

Engage key stakeholders (i.e., utilities; residential, 

commercial and industrial customers; municipalities; and environmental groups) and experts collaboratively to help design the program—including its 

administering organization, funding, duration, and 

evaluation methods. 

•	 Design PBF legislation that sets a universal, nonbypassable SBC on utility bills. Set the charge at a 

rate that captures the available energy efficiency 

potential in the state. Consider specific language to 

prevent PBF funds from being commingled with general state budget funds, and to clarify that the SBC 

establishes a minimum level of investment in energy 

efficiency, not a cap on investments. 

•	 Ensure that the PBF program serves the needs of 

diverse customer classes and stakeholder groups. 

•	 Take care to select the most appropriate administering organization. The options include utilities, state 

agencies, or independent organizations. Each can 

be effective under the right conditions. Having a single entity administer the program statewide can 

maximize resource efficiency. 

•	 Set the duration of the PBF for an extended period 

(five to 10 years is becoming common). This provides the continuity and certainty needed to attract 

private sector investment. 

•	 Establish effective evaluation methods that build on 

proven approaches. Evaluation methods should be 

rigorous enough to estimate program impacts and 

other benefits, and simple enough to minimize 

administrative costs. 

States that are concerned that their PBFs do not 

capture all of the cost-effective energy efficiency 

that is available are exploring how procurement 

requirements, portfolio management, or establishing 

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energy efficiency portfolio standards (EEPS) (see 

Section 4.1, Energy Efficiency Portfolio Standards) 

can help maximize the savings for their businesses 

and residents. 

Utility Policies 

PBFs can complement other state energy efficiency 

investments. In many states, PBFs supplanted energy 

efficiency programs that had been required by state 

utility commissions under IRP requirements. Some 

states, mostly those that have not restructured their 

electricity markets, still practice IRP and require regulated DSM programs for energy efficiency as utility 

resource investments. Washington still practices IRP 

and DSM, and Wisconsin and Oregon—while not 

restructuring retail markets—have shifted to a PBF 

efficiency program model. These non-restructured 

states are using PBFs to enhance funding for energy 

efficiency programs and ensure that programs are 

equitably distributed across customer classes. 

In some states, a hybrid regulatory approach called 

portfolio management (PM) is evolving from traditional integrated resource plans. PM recognizes that 

utilities, under commission oversight, act as resource 

portfolio managers on behalf of its many customers. 

Under PM, a commission might elect to use a PBF to 

provide customers additional choices for energy efficiency investment and to balance the state’s overall 

resource “portfolio” (see Section 6.1, Portfolio 

Management Strategies). 

PBFs can also be combined with other resource 

acquisition strategies to ensure that cost-effective 

energy efficiency is pursued as part of the resource 

mix. California, for example, despite no longer operating as a restructured market, sustained its PBF and 

also developed new efficiency procurement requirements for utilities. The California Public Utilities 

Commission (CPUC), through the energy action plan 

(EAP), has established a “loading order” of energy 

resources for meeting future load growth. The loading order (1) minimizes increases in electricity and 

natural gas demand through energy efficiency and 

conservation measures, and (2) prioritizes renewable 

energy and clean distributed generation for meeting 

future load growth, followed by clean fossil-fired 

generation. The four investor-owned utilities (IOUs) 

are required to procure future energy supply for the 

state using a combination of utility resource procurement funds and revenues from the PBF. 

In addition, states are examining how PBFs may 

serve as the “ceiling” level for energy efficiency, 

rather than the “floor.” In at least one state, the legislature capped energy efficiency funding at the level 

of the PBF. The concern is that this places artificial 

limits on the level of energy efficiency investments 

and may reduce opportunities for additional measures that are cost-effective and serve other public 

purposes (e.g., reliability support, job development). 

The Vermont legislature recently removed its “ceiling” 

provision (State of Vermont 2005). 

Building Codes 

PBF programs can be coordinated with energy codes 

for new and renovated buildings. For example, some 

states are using PBFs to support code implementation and enforcement. The New York State Energy 

Research and Development Authority (NYSERDA) 

offers financial incentives to building owners and 

leaseholders to improve the energy efficiency of new 

and existing construction. Other states, such as 

Illinois and Wisconsin, are using PBF resources to 

enhance voluntary new and existing buildings programs used to document code compliance. (See 

Section 4.3, Building Codes for Energy Efficiency, for 

more information.) 

Program Implementation and 

Evaluation 

State policymakers are responsible for determining 

who will implement the PBF and evaluate the program. The responsibilities of the administering 

organization include the following: 

• Establish program goals, in terms of both process 

and outcomes. 

• Set detailed funding levels for each program area 

(e.g., energy efficiency, renewable energy, CHP, 

low-income). 

• Deliver energy efficiency field programs, and any 

related activities, such as research and development activities. 

� Section 4.2. Public Benefits Funds for Energy Efficiency
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• Practice fiscal and project management that keep 

programs accountable and support attainment of 

objectives. 

Program evaluation is either overseen by the program administrator, the PUC or other oversight 

authority, or a combination of the two. In most 

cases, these organizations outsource evaluation 

activities to independent third-party experts to minimize potential conflict of interest. 

Administering Body 

PBFs are placed under the control of an administrator, 

often with advisory oversight by an internal or external 

board. The organizational structures used to administer 

the PBF vary by state (see Table 4.2.1 on page 4-22). 

The administrative approaches used include: 

• Utility (e.g., Arizona, Massachusetts, Rhode Island). 

• State government agency (e.g., Illinois, Maine, 

Michigan, New Jersey, New York, Ohio, and 

Wisconsin). 

• Nonprofit (third-party) organization (e.g., Oregon, 

Vermont). Oregon established a nonprofit organization based on action by the Oregon PUC; 

Vermont selected a nonprofit organization as part 

of a competitive process that included for-profit 

bidders. 

• Hybrid category involving more than one of the 

preceding organizations. For example, a utility may 

administer the program with guidance and oversight by a state agency (e.g., California, 

Connecticut, and Montana). 

States have developed effective programs using each 

administrative model; institutional history typically 

determines the entities best suited to administer 

programs. In many states, utilities have the capital, 

personnel, and customer relations channels that 

enable them to reach broad customer markets effectively. Thus, they are the most common administering entity. 

However, in some states utilities might have little or 

no institutional history with energy efficiency. In 

others, state legislatures or utility commissions might 

Best Practices: Implementing PBF Programs 

•	 Learn from other states’ experiences to identify 

most cost-effective ways to achieve energy efficiency through PBF programs. 

•	 Consider a range of potential organization(s) for program delivery and select the most appropriate. 

•	 Approve long-term funding cycles (five to 10 years) 

to let programs build market experience. 

•	 Involve key stakeholders and experts in a collaborative design effort. 

•	 Base program designs on market characteristics 

and customer needs. 

•	 Keep program designs simple and clear. 

express strong views toward other types of program 

delivery. In such situations, state agencies or nonprofit organizations may be an appropriate administrator. 

Some states have looked to independent organizations to administer PBFs. This decision may reflect a 

sense that this will help obtain maximum performance from program funds and avoid potential conflicts of interest (i.e., utilities whose revenues remain 

tied to sales may be reluctant to promote energy 

efficiency programs that may reduce their revenues). 

In some states, commissions are breaking the link 

between utilities’ revenues and sales, thereby removing utilities’ disincentive for investments in energy 

efficiency (see Section 6.2, Utility Incentives for 

Demand-Side Resources). Some states are also finding that it is appropriate to have different organizations administer specific energy efficiency programs 

funded by the PBF based on the market being served. 

Evaluation 

Evaluation is important for sustaining success and 

support for the PBF program and for helping determine future investment strategies. Unless program 

overseers show concrete and robust results in line 

with stated objectives, decisionmakers may not reauthorize the program, or it may become vulnerable to 

funding shifts or other forms of erosion. State policymakers have incorporated evaluation requirements as 

they develop their PBF program and after the program 

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has been implemented. When evaluating PBFs, several 

states have examined the TRC of the aggregated programs supported by the PBF (see section on 

Determining Cost-Effectiveness on page 4-24). 

New York conducts an extensive evaluation of its 

PBF program. NYSERDA recently conducted a rigorous evaluation of its PBF program, including the following activities (NYSERDA 2004a): 

• Identifies program goals and key output and outcome measures that provide indicators of program 

success. 

• Reviews measurement and verification (M&V) protocols used to evaluate programs and verifies 

energy savings estimates to determine if they are 

reasonably accurate. 

• Evaluates the process to determine how and why 

programs deliver or fail to deliver expected results. 

• Characterizes target markets, determines changes 

observed in the market, and identifies to what 

extent these changes can be attributed to PBFfunded programs. 

• Regularly communicates the benefits of the overall 

program and results of individual programs to 

decisionmakers and stakeholders. 

• Refines program delivery models based on evaluation findings. 

Other states that have conducted comprehensive 

evaluations of their PBF programs include California, 

Connecticut, Oregon, and Wisconsin. Key elements of 

these and other state evaluation programs are shown 

in the box on Best Practices: Evaluating PBF 

Programs. 

Having access to detailed databases has also been a 

useful tool for evaluating current investments and 

determining future investments. For example, 

Efficiency Vermont maintains a database that records 

information on customer participation over time and 

allows for reporting on geographic and customer 

class results. Developing an arrangement to allow 

administrators to have access to this utility information can help improve the overall program. 

Best Practices: Evaluating PBF Programs 

•	 Evaluate programs regularly, rigorously, and costeffectively. 

•	 Use methods proven over time in other states, 

adapted to state-specific needs. 

•	 Provide both "hard numbers" on quantitative 

impacts, and process feedback on the effectiveness 

of program operations and methods for improving 

delivery. 

•	 Use independent third parties, preferably with 

strong reputations for quality and unbiased analysis. 

•	 Measure program success against stated objectives, providing information that is detailed enough 

to be useful and simple enough to be understandable to nonexperts. 

•	 Provide for consistent and transparent evaluations 

across all programs and administrative entities. 

•	 Communicate results to decisionmakers and stakeholders in ways that demonstrate the benefits of the 

overall program, as well as individual market initiatives. 

•	 Maintain a functional database that records customer participation over time and allows for reporting on geographical and customer class results. 

State Examples 

California 

California has been a leader in energy efficiency policy and programs since the 1970s. It established the 

first major utility efficiency programs in the 1980s, 

and the first PBF in 1996. CPUC provides policy oversight of the state PBF. CPUC approves plans for efficiency programs in each of the utility service areas 

and also coordinates statewide activities. Further, 

CPUC requires utilities to use procurement funding 

to supplement the PBF in order to maximize costeffective savings achieved through energy efficiency 

programs. The PBF is one part of a broader energy 

efficiency program entailing several policy initiatives, 

noted as follows. 

As of 2004, California was the first state to establish 

cost-effective energy efficiency as the first option for 

acquiring new resources to meet future energy 

� Section 4.2. Public Benefits Funds for Energy Efficiency
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demand, under its “loading order” rule. In January 

2005, the CPUC adopted a new administrative structure in which the state’s four IOUs are responsible 

for program selection and portfolio management, 

with input from stakeholders through Program 

Advisory Groups (CPUC 2005). This is a return to a 

pre-electric industry restructuring model, in which 

each IOU was responsible for procuring energy efficiency resources on behalf of their customers, subject to Commission oversight. 

The CPUC has established energy efficiency goals to 

achieve a cumulative savings of 23,183 gigawatthours (GWh) per year; 4,885 MW of peak demand; 

and 444 million therms per year for the IOUs combined, by 2013 (see Section 4.1, Energy Efficiency 

Portfolio Standards). 

In September 2005, the CPUC authorized $2 billion 

in funding for its 2006 to 2008 energy efficiency and 

conservation initiative. This represents the single 

largest funding authorization for energy efficiency in 

U.S. history. CPUC authorized funding levels and 

energy efficiency portfolio plans for Pacific Gas and 

Electric, Southern California Edison, San Diego Gas &

Electric, and Southern California Gas. These portfolios include a mix of proven and new, innovative program designs and implementation strategies to be 

supported through ratepayer investments. 

The measures associated with the approved funding 

are expected to avoid the equivalent of three large 

power plants (totaling 1,500 MW) over the next 

three years and over the life of the measures, yield 

an estimated $2.7 billion in net savings to consumers, and reduce greenhouse gas emissions by 3.4 

million tons of CO2 in 2008, or the equivalent of taking about 650,000 cars off the road. 

The state’s efficiency program design and administration approaches have been among the most 

detailed and innovative although initially they struggled with the complexity and coordination of multiple implementers. While utilities have remained 

administrators and portfolio managers of the programs with input from stakeholder working groups, 

program implementation is done by both utility and 

non-utility implementers, and statewide approaches 

to program design and evaluation have improved 

program performance. 

Web site: 

http://www.cpuc.ca.gov/static/industry/electric/ 

energy+efficiency/ee_funding.htm 

New York 

The New Yorks SBC program—administered by 

NYSERDA—is a leading example of a well designed 

and effectively administered state PBF program. The 

PBF was established in 1996 with four specific policy 

goals: 

• Improve system-wide reliability and increase peak 

electricity reductions through end-user efficiency 

actions. 

• Improve energy efficiency and access to energy 

options for underserved customers. 

• Reduce the environmental impacts of energy production and use. 

• Facilitate competition in the electricity markets to 

benefit end users. 

NYSERDA has invested more than $350 million in 

energy-efficiency programs and brought about an 

estimated additional investment of $850 million, for 

a total of $1.2 billion in public and private sector 

energy and efficiency related investments in the 

state. Over the eight-year implementation period 

(1998 to 2006), the program is expected to result in 

a total of $2.8 billion in new public and private 

investment in New York. 

NYSERDA measures and tracks its PBF investments 

and conducts quarterly and annual evaluations of 

the Energy $mart program. It uses the findings to 

communicate the benefits of the program to its customers and stakeholders. NYSERDA analyzes the 

cost-effectiveness of the program, permanent and 

peak-load energy and cost savings to customers, 

economic impacts (including leveraged public and 

private sector investment and jobs created), and 

reductions of greenhouse gases and criteria pollutants. As of September 2004, the program had: 

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• Reduced electricity use by about 1,340 GWh per year; 

annual savings are expected to reach 2,700 GWh 

annually when the program is fully implemented. 

• Generated $185 million in annual energy bill savings for participating customers, including electricity, oil, and natural gas savings from energy 

efficiency and peak load management services. 

• Created 3,970 jobs annually, and is expected to 

result in an average net gain of 5,500 jobs per 

year during the eight years of program implementation from 1998 to 2006. 

• Reduced nitrogen oxide (NO ) emissions by 1,265 x

tons, sulfur-dioxide (SO2) emissions by 2,175 tons, 

and CO2 emissions by 1 million tons (the equivalent amount of energy required to power about 

850,000 homes) (NYSERDA 2004b). 

Web site: 

http://www.nyserda.org 

Oregon 

Oregon is an example of a state that has not restructured its electricity markets, but has created a public 

benefits program designed to serve public needs for 

energy efficiency services. Rather than using utilities as 

the primary administrator for programs, Oregon uses 

the nonprofit Energy Trust of Oregon as a dedicated 

organization to coordinate program design, evaluation, 

and delivery across the state. The Trust administers the 

state PBF in coordination with the PUC, providing cash 

incentives and financial assistance to promote energy 

efficiency and renewable energy. 

While the PBF program is relatively new in Oregon, it 

builds on the success of other programs, such as 

Vermont’s nonprofit delivery model, and the 

Northwest Energy Efficiency Alliance’s market transformation programs. While utility administration is 

the most common model used in state PBFs, Oregon 

and Vermont have shown that a nonprofit structure 

can be equally effective. 

The Energy Trust’s programs, which started later than 

many states’ efforts, saved 280 million kWh and 

208,000 therms of gas by 2003, enough energy to 

power 23,000 homes. Its 2012 goal is to save 26 billion kWh and 19 million therms, enough to power 

over 200,000 typical homes. 

Oregon is also one of the few states that supports 

both electricity and natural gas efficiency programs, 

and that complements its PBF program with 

ratemaking policies that maintain utility revenues 

while promoting energy use reductions. 

Web site: 

http://www.energytrust.org/ 

Wisconsin 

Focus on Energy is a public-private partnership funded by the state PBF. The program’s goals are to 

encourage energy efficiency and use of renewable 

energy, enhance the environment, and ensure the 

future supply of energy for Wisconsin. 

A recent independent evaluation of the Wisconsin’s 

Focus on Energy program showed the program is 

delivering the following energy, environmental, and 

economic benefits: 

• The Focus on Energy program realized a total lifetime energy savings of $214.5 million during fiscal 

year 2004 for a program benefit:cost ratio of 5.4 to 

1. These benefits were achieved through an annual 

electric energy savings of 235.6 million kWh 

($113.1 million in lifetime savings), a reduction in 

electricity demand of 35.5 megawatts ($36.4 million in lifetime savings), and savings of 14.4 million 

therms from natural gas efficiency measures ($65 

million in lifetime savings). See the Evaluation section on page 4-28 for more information. 

• Wisconsin environmental benefits include estimates of the following avoided emissions: 1.5 million pounds of NO , 2.9 million pounds of sulfur x

oxides (SOx), 687.3 million pounds of CO2, and 12 

pounds of mercury (Hg) (WI DOA 2004). 

Economic benefits from the Wisconsin program 

include the creation of 1,050 full-time jobs. 

Wisconsin businesses saved almost $14.6 million and 

increased sales by $76.7 million. Wisconsin residents 

saved almost $20 million and increased their personal income by $18.3 million. 

Web site: 

http://www.focusonenergy.com/ 

� Section 4.2. Public Benefits Funds for Energy Efficiency
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EPA Clean Energy-Environment Guide to Action
 

What States Can Do 

Experience from the states with PBFs for energy efficiency demonstrates that PBFs can be an effective 

mechanism for securing investment in cost-effective 

energy efficiency programs and thereby meeting 

important state energy objectives. Other states can 

improve their energy efficiency investments by 

examining the role PBFs can play in helping capture 

a significant portion of the cost-effective clean energy in their state. States can use the best practices 

and information resources in this guide to establish a 

new PBF or strengthen existing programs to deliver 

even greater benefits. 

Action Steps for States 

The following four steps can be used both by states 

interested in developing a new PBF program or those 

interested in strengthening an existing program. 

•	 Assess Energy Efficiency Potential. States can begin 

the process by assessing current levels of energy 

efficiency spending within their state, analyzing all 

of their options for achieving greater levels of efficiency, and analyzing the energy and cost savings 

that a PBF would offer. 

Information Resources 

Information About States 

•	 Determine Program Funding Needed to Capture 

Cost-Effective Energy Efficiency. Consider appropriate PBF funding levels, and avoid diversion of 

funds for other purposes. Studies show energy 

efficiency spending could be increased significantly and still be used cost-effectively. Conduct an 

efficiency potential analysis and economic screening process to identify the most cost-effective mix 

of new program targets. Include consideration of 

energy efficiency’s role as a potential reliability 

tool and how its costs in that context compare to 

other options. 

•	 Leverage Federal and State Programs. Explore 

opportunities to work with federal programs such 

as ENERGY STAR and to coordinate PBF implementation with other state programs, such as resource 

planning and portfolio management. 

•	 Measure and Communicate Results. Measure 

results, evaluate the effectiveness of the PBF, and 

report progress annually. Communicate the benefits of PBF-funded energy efficiency programs to 

state legislatures, PUCs, and other stakeholders. 

Document lessons learned and opportunities to 

enhance the program’s effectiveness. 

Title/Description URL Address 

California Measurement Advisory Council (CALMAC). This Web site provides access 

to independent evaluation reports on energy efficiency programs in California and 

elsewhere. 

http://www.calmac.org/ 

California Order Instituting Rulemaking to Examine the Commission's Future Energy 

Efficiency Policies, Administration and Programs: Interim Opinion on the 

Administrative Structure for Energy Efficiency: Threshold Issues (Rulemaking 01-08-­

028). This order addresses threshold issues on administrative structure including 

planning, oversight, and management of energy efficiency programs, including decisions on what programs to fund with ratepayer dollars. 

http://www.cpuc.ca.gov/word_pdf/ 

FINAL_DECISION/43628.doc 

California PUC Energy Efficiency Program Funding. This site provides information on 

the state's public goods charge with links to legislative language and the Web sites 

of California's four utilities. 

http://www.cpuc.ca.gov/static/industry/ 

electric/energy+efficiency/ 

ee_funding.htm 

4-32 � Chapter 4. Energy Efficiency Actions
 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

EPA Clean Energy-Environment Guide to Action
 

Title/Description URL Address 

California Standard Practice Manual: Economic Analysis of Demand Side Programs 

and Projects. This document provides standardized procedures for evaluating costeffectiveness of demand-side programs and projects in California. 

http://www.cpuc.ca.gov/static/industry/ 

electric/energy+efficiency/rulemaking/ 

resource5.doc 

Cost-Effectiveness Policy and General Methodology for the Energy Trust of Oregon. 

In this paper, the Energy Trust of Oregon, Inc. describes its methodology for comparing the cost of energy efficiency to conventional sources of electric energy from 

three perspectives (i.e., consumer, utility system, and societal). 

http://www.energytrust.org/Pages/about/ 

library/policies/ 

costeffectiveness_030414.pdf 

Energy Programs Consortium: Options for Developing a Public Benefits Program for 

the State of Kansas. The purpose of this report was to explore options for establishing a PBF to support the delivery of energy efficiency and renewable energy programs to help reduce the state’s need to import energy resources and thereby 

strengthen the state’s economy. 

http://www.kansasenergy.org/KEC/ 

KsPubBenFundStudy2004.pdf 

Energy Trust Annual Report, 2004. This document reports on state PBF savings and 

generation, revenues and expenditures, performance measures, and specific projects around the state. 

http://www.energytrust.org/Pages/about/ 

library/reports/2004_Annual_Report.pdf 

Nevada Energy Efficiency Strategy. Nevada has taken a number of steps to increase 

energy efficiency. This report provides 14 policy options for further increasing the 

efficiency of electricity and natural gas, and reducing peak power demand. 

http://www.swenergy.org/pubs/ 

Nevada_Energy_Efficiency_Strategy.pdf 

NYSERDA Energy $martSM Evaluation Reports. This Web site contains program evaluation reports developed by NYSERDA and its contractors. 

http://www.nyserda.org/ 

Energy_Information/evaluation.asp 

A Proposal for a New Millennium. This proposal includes a summary of the 

California Energy Commission's (CEC's) key recommendations for energy efficiency 

program priorities, funding levels, and administrative structure. 

http://www.energy.ca.gov/reports/ 

1999-12_400-99-020.PDF 

Regulatory—Energy Efficiency Filings. This Web site contains monthly program 

reports on energy efficiency filed by SCE, Rosemead, CA. 

http://www.sce.com/AboutSCE/Regulatory/ 

eefilings/MonthlyReports.htm 

State of Wisconsin Department of Administration—Focus On Energy Evaluation 

Reports. This site provides a number of recent evaluation reports that enumerate 

energy, environmental, and economic benefits from the Focus on Energy program. 

http://www.doa.state.wi.us/ 

section_detail.asp?linkcatid=288&linkid=8 

System Benefits Charge. Proposed Operating Plan for New York Energy $mart 

Programs (2001–2006). This report outlines NYSERDA's operating plan for administering the PBF program in New York. 

http://www.cleanenergystates.org/library/ 

ny/NYSERDA_SBC_2001-2006.pdf 

Wisconsin Public Benefits Programs Annual Report July 1, 2003 to June 30, 2004. 

This report includes an evaluation of Focus on Energy, the Wisconsin PBF for energy 

efficiency. 

http://www.cleanenergystates.org/library/ 

wi/2004FocusAnnualReport.pdf 

� Section 4.2. Public Benefits Funds for Energy Efficiency
 4-33 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

EPA Clean Energy-Environment Guide to Action 

General Articles About PBFs 

Title/Description URL Address 

Clean Energy Initiative. This report explores the potential for joint investment in 

clean energy by foundations, state funds, and private investors. 

http://www.cleanenergystates.org/library/ 

Reports/CEI_Final_July03.pdf 

Clean Energy States Alliance—CESA Member States and Funds. This Clean Energy 

States Alliance (CESA) Web site provides links to the state PBF sites. 

http://www.cleanenergystates.org/Funds/ 

An Examination of the Role of Private Market Actors in an Era of Electric Utility 

Restructuring. The report by the American Society for an Energy-Efficient Economy 

(ACEEE) examines the role of the private sector in promoting energy efficiency and 

briefly discusses the influence of PBFs. 

http://www.aceee.org/pubs/u011full.pdf 

Five Years In: An Examination of the First Half-Decade of Public Benefits Energy 

Efficiency Policies. This ACEEE report provides an in-depth discussion and evaluation of PBF policy and implementation at the state level. 

http://www.aceee.org/pubs/u041.pdf 

A Framework for Planning and Assessing Publicly Funded Energy Efficiency. The primary objective of this report is to discuss the assessment of the cost-effectiveness 

of market transformation interventions. 

http://www.pge.com/docs/pdfs/rebates/ 

program_evaluation/evaluation/ 

EE_Report_Final.pdf 

Options for Developing a Public Benefits Program for the State of Kansas. This white 

paper describes current models of PBFs with recommendations for the state of 

Kansas on developing a PBF. 

http://www.kansasenergy.org/KEC/ 

KsPubBenFundStudy2004.pdf 

Ratepayer-Funded Energy-Efficiency Programs in a Restructured Electricity Industry: 

Issues and Options for Regulators and Legislators. This report by Ernest Orlando, 

Lawrence Berkeley National Laboratory (LBNL) and ACEEE, discusses features of 

PBFs and provides recommendations for designing a PBF and choosing an administering body. 

http://eetd.lbl.gov/ea/EMS/reports/41479.pdf 

Summary Table of Public Benefit Programs and Electric Utility Restructuring. This 

site provides information, compiled by ACEEE, in tables on energy efficiency and 

renewable energy PBFs by state. It includes information on funding levels, the 

charge per kWh, the percentage of revenue, and the administering organization. 

http://aceee.org/briefs/mktabl.htm 

System Benefits Funds for Energy Efficiency. This report by the National Conference 

of State Legislatures (NCSL) describes how states can use system benefits funds to 

support energy efficiency investments. It provides sample legislative language for 

SBC legislation. 

http://www.ncsl.org/print/energy/ 

SystemBenefit.pdf 

Trends in Utility-Related Energy Efficiency Spending in the United States. This presentation, at an AESP Brown Bag Lunch Series, shows general trends as well as specific state examples of energy efficiency spending. 

http://www.raponline.org/Slides/ 

AESP04kushler.pdf 

4-34 � Chapter 4. Energy Efficiency Actions
 
 

 

 

 

 

 

 

 

 

 

 

 

EPA Clean Energy-Environment Guide to Action
 

Examples of Legislation
 

State Title/Description URL Address 

California Assembly Bill 1890 on restructuring. This bill, enacted in 

September 1996, established California's PBF. 

http://www.leginfo.ca.gov/pub/95-96/bill/ 

asm/ab_1851-1900/ab_1890_bill_960924_ 

chaptered.html 

Massachusetts Massachusetts Electricity Restructuring Act of 1997. This act 

established the PBF program in Massachusetts. 

http://www.mass.gov/legis/laws/seslaw97/ 

sl970164.htm 

New York A New York Public Service Commission Order and Opinion (PSC 

Case No. 94-E-0952: Opinion No. 96-12, May 1996). This order 

established the PBF program in New York. 

http://www3.dps.state.ny.us/pscweb/ 

WebFileRoom.nsf/ArticlesByCategory/ 

E05EBC3E5C3E79B385256DF10075624C/ 

$File/doc886.pdf?OpenElement 

A New York Public Service Commission Order and Opinion (PSC 

Case No. 94-E-0952: Opinion No. 98-3, January 1998). This order 

discusses PBF implementation issues and identifies NYSERDA 

as the administering organization. 

http://www3.dps.state.ny.us/pscweb/ 

WebFileRoom.nsf/ArticlesByCategory/ 

86EBE0283819224285256DF100755FE5/ 

$File/doc3640.pdf?OpenElement 

Oregon Oregon Senate Bill 1149. This bill contains legislative language 

outlining restructuring and establishing a PBF. 

http://www.leg.state.or.us/99reg/measures/ 

sb1100.dir/sb1149.en.html 

Wisconsin New Law on Electric Utility Regulation—The "Reliability 2000" 

Legislation (Part of 1999 Wisconsin Act 9). This informational 

memorandum describes the provisions in 1999 Wisconsin Act 9 

(the 1999–2001 Biennial Budget Act), relating to public utility 

holding companies, electric power transmission, public benefits, and other aspects of electric utility regulation. 

http://www.legis.state.wi.us/lc/ 

3_COMMITTEES/JLC/Prior%20Years/ 

jlc99/pubs/im99_6.pdf 

References
 

Title/Description URL Address 

ACEEE. 2004a. A Federal System Benefits Fund: Assisting States to Establish Energy 

Efficiency and Other System Benefits Programs. ACEEE, Washington, D.C. 

http://www.aceee.org/energy/pbf.htm 

ACEEE. 2004b. Five Years In: An Examination of the First Half-Decade of Public 

Benefits Energy Efficiency Policies. Martin Kushler, Dan York and Patti Witte. 

http://www.aceee.org/pubs/u041.htm 

ACEEE. 2004c. Summary Table of Public Benefits Programs and Electric Utility 

Restructuring. ACEEE, Washington, D.C. 

http://www.aceee.org/briefs/mktabl.htm 

ACEEE. 2005a. Third National Scorecard on Utility and Public Benefits Energy 

Efficiency Programs: A National Review and Update of State-Level Activity. Dan York 

and Marty Kushler, October 2005. Report # U054. ACEEE. 

http://www.aceee.org/pubs/U054.htm 

ACEEE. 2005b. Issues and Emerging Policy and Program Trends in Energy Efficiency. 

Dan York, PhD. Presented at Efficiency Maine Forum, October 20, 2005. 

http://www.efficiencymaine.org/pdf/ 

EMForum10-20-05/ 

NationalPerspective-DYork.pdf 

CEC. 2005. Funding and Savings for Energy Efficiency Programs for Program Years 

2000–2004. Cynthia Rogers, Mike Messenger and Sylvia Bender, Energy Efficiency, 

Demand Analysis and Renewable Energy Division, California Energy Commission. 

July 11, 2005. 

http://www.energy.ca.gov/ 

2005_energypolicy/documents/ 

2005-07-11_workshop/presentations/ 

2005-07-11_FUNDING+SAVINGS.pdf 

� Section 4.2. Public Benefits Funds for Energy Efficiency
 4-35 
 

EPA Clean Energy-Environment Guide to Action 

References (continued) 

Title/Description URL Address 

CPUC. 2005. Interim Opinion on the Administrative Structure for Energy Efficiency: 

Threshold Issues. CPUC, San Francisco. 

http://www.cpuc.ca.gov/PUBLISHED/ 

FINAL_DECISION/43628.htm 

EIA. 2005. Electric Power Monthly, December 2005. Table 5.6.A. Average Retail Price 

of Electricity to Ultimate Customers by End-Use Sector, by State, September 2005 

and 2004. U.S. Energy Information Administration, Washington, D.C. 

http://tonto.eia.doe.gov/ftproot/electricity/ 

epm/02260512.pdf 

NYSERDA. 2004a. New York Energy $mart Program Evaluation and Status Report. 

Report to the System Benefits Charge Advisory Group. Final Report. NYSERDA, 

Albany. May. 

http://www.nyserda.org/Energy_Information/ 

04sbcreport.asp 

NYSERDA. 2004b. New York Energy $mart Program Evaluation Reports. NYSERDA, 

Albany. September. 

http://www.nyserda.org/Energy_Information/ 

evaluation.asp 

NYSERDA. 2005. New York Energy $mart Program Evaluation and Status Report. 

NYSERDA, Albany. May. 

http://www.nyserda.org/Energy_Information/ 

05sbcreport.asp 

State of Vermont. 1999a. An Act Relating to the Ability of the Public Service Board to 

Require that Energy Conservation Services Be Developed and Provided by an Entity 

Appointed by the Board (S. 137). General Assembly of Vermont, June 1, 1999. 

http://www.leg.state.vt.us/docs/2000/acts/ 

act060.htm 

State of Vermont. 1999b. Investigation into the Department of Public Service’s 

Proposed Energy Efficiency Plan Re: Phase II. State of Vermont Public Service 

Board. Docket No. 5980. November 5. 

http://www.state.vt.us/psb/orders/1999/files/ 

5980ratedesign.PDF 

State of Vermont. 2005. An Act Relating to Renewable Energy, Efficiency, Transmission and Vermont’s Energy Future. General Assembly of Vermont. June 14, 2005. 

http://www.leg.state.vt.us/docs/ 

legdoc.cfm?URL=/docs/2006/acts/ACT061. 

htm 

UNEP. 1997. Tools and Methods for Integrated Resource Planning: Improving Energy 

Efficiency and Protecting the Environment. United Nations Environment Programme 

(UNEP) Collaborating Centre on Energy and Environment. Joel N. Swisher, Gilberto 

de Martino Jannuzzi, and Robert Y. Redlinger. UNEP. November 1997. 

http://uneprisoe.org/IRPManual/ 

IRPmanual.pdf 

Washington, D.C. 2004. District of Columbia Code Title 34, Public Utilities Subtitle III, 

Electricity. Chapter 15. Retail Electric Competition and Consumer Protection. D.C. 

Code § 34-1514. 

http://www.dsireusa.org/documents/ 

Incentives/DC05R.htm 

WI DOA. 2004. Wisconsin Public Benefits Programs Annual Report July 1, 2003 to 

June 30, 2004. Department of Administration (DOA), Division of Energy, Madison, WI. 

http://www.cleanenergystates.org/library/ 

wi/2004FocusAnnualReport.pdf 

4-36 � Chapter 4. Energy Efficiency Actions
 
 

EPA Clean Energy-Environment Guide to Action
 

4.3 Building Codes for Energy 

Efficiency 

Policy Description and Objective 

Summary 

Building energy codes require new and existing 

buildings undergoing major renovations to meet 

minimum energy efficiency requirements. Welldesigned, implemented, and enforced codes can help 

eliminate inefficient construction practices and technologies with little or no increase in total project 

costs. Codes typically specify requirements for “thermal resistance” in the building shell and windows, 

minimum air leakage, and minimum heating and 

cooling equipment efficiencies. These simple measures can reduce energy use by 30% or more, resulting in cost savings for businesses and consumers. 

Building energy codes also reduce peak energy 

demand, air pollution, and greenhouse gas emissions. 

Recognizing these benefits, a majority of states have 

adopted building energy codes in some form for residential and commercial construction (DOE 2005). 

Broadly speaking, building codes include an array of 

specifications and standards that address safety and 

functionality. In 1978, California became the first 

state to include energy requirements in its code. 

Today, 43 states (including Washington, D.C.) use a 

version of the Model Energy Code (MEC), the 

International Energy Conservation Code (IECC), or 

their own equal-or-better energy codes for residential buildings. Forty-one states (including 

Washington, D.C.) use the ASHRAE or IECC standard 

for commercial buildings (Prindle et al. 2003, BCAP 

2005a). 

While state and local governments have made 

progress in improving building efficiency through 

codes, there continue to be cost-effective opportunities for further efficiency savings. States with existing codes are conducting periodic updates and finding ways to improve compliance by monitoring, evaluating, and enforcing their codes. States without 

building energy codes are initiating stakeholder discussions and formal studies to evaluate whether 

Building energy codes for residential and 

commercial buildings lock in the benefits of 

cost-effective energy efficiency in new construction and major renovation of existing 

buildings. 

codes make sense in their area. In some cases, local 

governments are adopting or modifying codes specific to their jurisdictional boundaries. 

The potential energy savings from further state 

action can be significant. If all states adopted the 

most recent commercial and residential model energy codes, improved compliance levels, and applied 

model energy codes to manufactured housing, the 

United States would reduce energy use by about 0.85 

quads annually, with cumulative savings through 

2020 of about five quads. (One quad is about equal 

to the amount of energy contained in 167 million 

barrels of crude oil.) In 2020, annual consumer energy bill savings would be almost $7 billion, and the 

construction of 32 new 400 megawatt (MW) power 

plants could be avoided. Of course, each state’s savings depends on many factors: the efficiency of its 

current building practices; the stringency of the code 

it adopts; its population, climate, and building construction activity; and the effectiveness of code 

training and enforcement (Prindle et al. 2003). 

Objective 

Building energy codes establish a minimum level of 

energy efficiency for residential and commercial 

buildings. This can reduce the need for energy generation capacity and new infrastructure while reducing 

energy bills. States are also finding that energy codes 

lock in future energy savings during the building 

design and construction process. In contrast, achieving post-construction energy savings can be comparatively expensive and technically challenging. Codes 

become even more cost-effective during periods of 

high heating and cooling fuel prices. 

States and municipalities are updating existing 

codes, adopting new codes, and expanding code 

programs to improve compliance and achieve real 

� Section 4.3. Building Codes for Energy Efficiency
 4-37 
 

 

 

 

EPA Clean Energy-Environment Guide to Action
 

energy and financial savings. With energy consumption expected to rise 20% in the residential sector 

and 19% in the commercial sector by 2020, enacting building codes is a key strategy for dampening 

growth in energy consumption across the buildings 

sector. Some states are promoting “beyond code” 

building programs to achieve additional costeffective energy efficiency. 

Benefits 

State and local governments are seeing a range of 

benefits from building codes, including lower energy 

use, an improved environment, and economic growth. 

Each is discussed as follows. 

Energy codes provide minimum levels of energy efficiency in commercial and residential buildings. This 

lowers overall energy consumption, provides energy 

bill savings, and can reduce peak energy demand and 

resulting pressure on the electric system. For example, California’s building standards have helped save 

businesses and residents more than $15.8 billion in 

Why Building Energy Codes Help 

Economic theory suggests that today's high energy 

prices should drive the new building market towards 

high levels of energy efficiency. However, states and 

municipalities are finding that market barriers sharply 

limit these effects, including: 

•	 Split Incentives. Whereas builders typically bear the 

capital cost of energy efficiency improvements, 

homeowners and tenants see the benefits of lower 

energy bills. Since most builders do not occupy the 

building and pay energy bills, they lack an incentive 

to incorporate efficiency features that result in cost 

savings. 

•	 Customer Preferences. Most home purchase decisions and feature selection is driven by nonenergy 

factors. In selecting optional features for the home, 

buyers often focus on amenities like kitchen 

upgrades, extra bathrooms, and new flooring. 

Efficiency competes with these priorities. 

In the presence of multiple barriers, energy codes can 

ensure that new buildings achieve a basic level of 

energy efficiency performance that is cost-effective 

and delivers related benefits. 

Residential and Commercial Building Energy 

Codes 

The energy code that applies to most residential buildings is the IECC, which supersedes the MEC. The 2000 

IECC is the most recent version for which DOE has 

issued a positive determination. However, different 

versions of the MEC/IECC have been adopted by 

states, creating a patchwork of residential codes 

across the country. The federal Energy Conservation 

and Production Act (ECPA) was amended in 1992 to 

require states to review and adopt the MEC (and its 

successor, the IECC), or submit to the Secretary of 

Energy its reasons for not doing so. 

Most commercial building energy codes are based on 

ASHRAE/IESNA Standard 90.1, jointly developed by 

ASHRAE and the Illuminating Engineering Society 

(IES). ECPA requires states to adopt the most recent 

version of ASHRAE Standard 90.1 for which DOE has 

made a positive determination for energy savings, currently 90.1-1999. The IECC also contains prescriptive 

and performance commercial building provisions. By 

referencing Standard 90.1 for commercial buildings, 

IECC offers designers alternate compliance paths. 

electricity and natural gas costs since 1975, and 

these savings are expected to climb to $59 billion by 

2011 (CEC 2003). In addition, California’s new 2005 

building efficiency standards are expected to yield 

peak energy use reductions of 180 MW annually— 

enough electricity to power 180,000 average-sized 

California homes (Motamedi et al. 2004). 

The American Council for an Energy-Efficient 

Economy (ACEEE) estimates that upgrading residential building codes could save an “average” state 

about $650 million in homeowner energy bills over a 

30-year period (Prindle et al. 2003). 

States and municipalities are also finding that energy 

codes improve the environment by reducing air pollution and greenhouse gases. For example: 

• The New York Energy Conservation Construction 

Code (ECCC) reduces carbon dioxide (CO2) emissions by more than 500,000 tons annually and 

reduces sulfur dioxide (SO2) by nearly 500 tons per 

year (DOE 2002). 

4-38 � Chapter 4. Energy Efficiency Actions
 
 

 

 

 

 

 

x

EPA Clean Energy-Environment Guide to Action
 

• The 2001 Texas Building Energy Performance 

Standards are projected to reduce nitrogen oxide 

(NO ) emissions statewide by more than two tons 

each peak day and over one ton each average day, 

which helps the state meet Clean Air Act requirements for nonattainment areas (Haberl et al. 

2003). 

Building energy codes can also help grow the economy. States and municipalities benefit from greater 

investment in energy-efficient capital equipment and 

new jobs installing equipment and monitoring building compliance. While spending on energy services 

typically sends money out of state, dollars saved 

from efficiency tend to be re-spent locally (Kushler 

et al. 2005, Weitz 2005a). 

States with Building Energy Codes 

As of November 2005, 43 states (including 

Washington, D.C.) use a version of the MEC, the 

IECC, or their own equal-or-better energy codes for 

residential buildings. Thirty-three of these 43 states 

are using the latest IECC version that the U.S. 

Department of Energy (DOE) has determined would 

improve the energy efficiency of residential buildings, 

or better. Only 10 states have not adopted a 

statewide code, although many jurisdictions in four 

of these states have adopted the 2003 IECC (Prindle 

et al. 2003, BCAP 2005a, Weitz 2005b). 

A total of 41 states (including Washington, D.C.) use 

a version of the ASHRAE or IECC standard for commercial buildings. Thirty-six states are using the latest ASHRAE 90.1 standard for which DOE has made 

an energy efficiency determination, or better. Ten 

states have not adopted a commercial building code, 

although many jurisdictions within three of these 

states have adopted the 2003 IECC. While substantial progress has been made, many states and municipalities are regularly finding new opportunities to 

incorporate new technologies and features into their 

codes (Prindle et al. 2003, BCAP 2005a, Weitz 

2005b). 

State and local government experience demonstrates 

that policy adoption is only the first step—proper 

Figure 4.3.1: States with Residential and Commercial 

Building Energy Codes 

Residential State Energy Code Status 

2003–2004 IECC or equivalent 

1998–2001 IECC (meets EPCA) 

As of November 2005 

CA 

NV 

OR 

ID 

WA 

UT 

MT ND 

MN 

IA 

VA 

MD 

WI 

MI 

IN OH 

PA 

NY 

VT 

ME 

NH 

MA 

CT 

NJ 

RI 

WV 

AR 

LA 

MS AL 

SC 

NC 

SD 

NE 

KS 

OK 

TX 

NM 

AK 

AZ 

CO 

MO 

WY 

DC 

DE 

TN 

GA 

No statewide code 

Significant adoptions in jurisdictions 

IL 

HI FL 

KY 

< 1998 IECC (does not meet EPCA) 

Commercial State Energy Code Status 

2003–2004 IECC / ASHRAE 90.1-2001/2004, or equivalent 

1998–2001 IECC / ASHRAE 90.1-1999 (meets EPCA) 

As of November 2005 

CA 

NV 

OR 

WA 

ID 

UT 

MT ND 

MN 

IA 

VA 

MD 

WI 

MI 

IN IL OH 

PA 

NY 

VT 

ME 

NH 

MA 

CT 

NJ 

RI 

WV 

KY 

AR 

LA 

MS AL 

SC 

NC 

SD 

NE 

KS 

OK 

TX 

NM 

AK 

AZ 

CO 

MO 

WY 

DC 

DE 

TN 

GA 

No statewide code 

Significant adoptions in jurisdictions 

FL 

HI 

< ASHRAE 90.1-1999 (does not meet EPCA) 

Source: BCAP 2005a. 

implementation, evaluation, and enforcement are 

also necessary. In states where these components are 

missing, full compliance rates can fall short. For 

example, a 2001 study showed that compliance of 

less than 50% in the new homes market can occur 

even in states with strong code training programs 

(XENERGY 2001). 

Leading states are not only monitoring and evaluating their energy codes, but also using the findings 

from these analyses to take corrective action. In 

California, a field evaluation of air conditioning units 

found that incorrect levels of “refrigerant charge” 

� Section 4.3. Building Codes for Energy Efficiency
 4-39 
 

EPA Clean Energy-Environment Guide to Action
 

were compromising energy performance. The 2005 

Title 24 Standards correct this problem by requiring 

verification of proper charge quantities by a home 

energy rater or documentation that a thermal expansion valve was installed (CEC 2005b). This illustrates 

the importance of maintaining active support for a 

range of evaluation and enforcement programs after 

codes are adopted into law. 

Most states and municipalities periodically update 

their building energy codes, some more frequently 

than others. This process ensures that codes reflect 

changes in technology and design that offer 

increased energy efficiency and cost-effectiveness. 

Across states, it is common for code reviews to be 

triggered by the release of a new national model 

code or DOE’s determination of improved energy efficiency. Some jurisdictions even introduce state- or 

local-specific requirements into the model code 

development process, sharing their experiences 

nationally. 

Designing an Effective Building 

Code 

Actions that states take when adopting new or 

updating existing codes include identifying key participants, analyzing cost considerations, determining 

a time frame for action, and evaluating interactions 

with other state and federal policies. 

Participants 

•	 Government Officials. Model building energy codes 

for the residential and commercial sectors are 

developed at the national level by model code 

organizations, such as the International Code 

Council (ICC) and ASHRAE. States and large local 

jurisdictions have been the predominant backers 

and participants in maintaining these model codes. 

DOE is required by the ECPA to participate in the 

review and modification of the codes. Code implementation is conducted at the state and local levels and enforced by local governments (DOE 2005). 

States often modify the national model codes to 

account for needs and opportunities specific to 

their climate, geography, and economy. 

ECPA requires DOE to make determinations regarding national model codes. This means that DOE 

periodically evaluates new editions of the model 

codes (the IECC and Standard 90.1) and determines 

whether the new edition will improve the efficiency 

of residential or commercial buildings. If DOE makes 

a positive determination on a new residential model 

code, states must consider adopting it within two 

years. If they elect not to adopt the code, state officials are required to submit their reasoning to the 

U.S. Secretary of Energy. In contrast, if DOE makes a 

positive determination on a new commercial sector 

code, states are required to adopt it within two 

years. In practice, however, states demonstrate 

compliance through a self-certification process and 

there are no major repercussions for failing to 

adopt new commercial codes. 

Under ECPA, DOE also provides technical and 

grant assistance to states to facilitate building 

code adoption and implementation. DOE operates 

through centers of expertise such as the Pacific 

Northwest National Laboratory (PNNL) to help 

states chart a course of action. Examples of PNNL 

technical assistance include conducting studies of 

current building practices (to develop baselines), 

quantitative analysis of potential benefits, legislative and regulatory assessments, training and 

technical assistance for builders and code officials, and other services available at: 

http://www.energycodes.gov. 

More recently, the Energy Policy Act of 2005 

(EPAct 2005) amended ECPA to authorize DOE to 

provide funding for states that implement a plan to 

achieve 90% compliance with residential (IECC 

2004) and commercial (ASHRAE 90.1-2004) building codes. In states without a building code, DOE is 

authorized to provide similar funding to local governments that are taking action on building codes. 

While most states have the authority to adopt 

energy codes statewide, some states have “home 

rule” laws that limit their ability to impose building requirements on municipalities. In these states, 

local governments can adopt their own codes. For 

example, two Arizona cities, Phoenix and Tucson, 

4-40 � Chapter 4. Energy Efficiency Actions
 
 

EPA Clean Energy-Environment Guide to Action
 

are taking this approach (and thereby affecting a 

large portion of the state’s overall building stock). 

Alternatively, home rule states can revise existing 

law to allow for statewide building energy codes. 

Texas followed this approach, primarily in an effort 

to improve the state’s air quality. 

•	 Builders, Developers, and Building Owners. Builders, 

developers, and building owners are responsible 

for implementing provisions in the code language. 

States and municipalities are finding that active 

collaboration with these groups improves understanding, creates buy-in, and can lead to greater 

levels of compliance. States such as California, 

Minnesota, and Florida have a history of working 

closely with the building community (Prindle et al. 

2003). 

•	 Code Developers. In the United States the ICC, 

ASHRAE, and the National Fire Protection 

Association (NFPA) develop model energy codes 

and standards. The ICC develops the IECC for residential buildings, while ASHRAE maintains the 

90.1 standards for commercial buildings and 90.2 

for residential buildings. Both ICC and NFPA provide a reference to ASHRAE Standard 90.1 as an 

alternate compliance path for commercial buildings. To facilitate ease-of-adoption by states, 

these documents are written as model codes that 

can be adopted as is, or modified to suit state or 

local needs. Another role for code developers is to 

provide training and technical support to code 

officials. The ICC serves in this capacity to assist 

with interpretation and implementation of residential codes. 

•	 Nongovernment Organizations. Nongovernment 

organizations support building energy code adoption and implementation by fostering peer 

exchange, serving as information sources, and providing expert assistance. For example, the Building 

Codes Assistance Project (BCAP) offers tailored 

technical assistance to states and municipalities. 

In states seeking to adopt the IECC or ASHRAE 

90.1, BCAP provides services such as educational 

support for code officials and legislators, as well 

as implementation assistance. The organization is 

a joint initiative of the Alliance to Save Energy 

(ASE), ACEEE, and the Natural Resources Defense 

Council (NRDC). 

The Residential Energy Services Network (RESNET) 

promotes codes by fostering national markets for 

home energy rating systems and energy-efficient 

mortgages that go beyond codes. RESNET develops 

home energy rating systems, accredits home energy 

rating trainers and providers, promotes residential 

energy efficiency financing products, and conducts 

educational programs. To encourage consistency 

across rating systems, the organization works to 

align its standards to the IECC. 

Cost Considerations 

Upgrading the energy efficiency of new homes and 

commercial buildings is very cost effective. A recent 

study estimated that upgrading the energy efficiency 

of a typical new home to comply with the model 

energy code in Nevada would cost about $1,500 on 

average but would result in about $400 in annual 

energy bill savings, meaning a simple payback of less 

than four years. Likewise, this study estimated that 

upgrading the energy efficiency of commercial buildings to comply with the code would cost about 

$1.60 per square foot but would result in about 

$0.68 per square foot of energy bill savings per year, 

meaning a simple payback of about 2.4 years (Geller 

et al. 2005). 

The efforts of national code development organizations ensure that each state does not incur the full 

cost of developing its own codes. The ICC, ASHRAE, 

and NFPA offer model energy codes that are developed with stakeholder input and written to promote 

transferability. However, some states (e.g., California 

and Florida) and municipalities choose to initiate 

their own code development process. Although most 

find that using model codes saves the expense and 

time of developing a new code, it is common for 

states to initiate a review-and-modification process 

that amends the model codes to reflect state-specific 

considerations. Another way that state and local 

governments lower costs is by using technical and 

grant assistance from DOE and nongovernment 

organizations to fund their code development, adoption, or enforcement process. 

� Section 4.3. Building Codes for Energy Efficiency
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When adopting a model code, states typically provide 

resources to municipalities to support implementation and enforcement. Local funds are used to help 

code officials and builders understand and comply 

with the code’s requirements. Municipalities also 

lower costs by using home energy rating systems 

(HERS) to demonstrate compliance with the energy 

code. These systems indicate the energy efficiency of 

a home and are typically funded by the local government or the builder. 

However, even where state and federal resources are 

available to municipal code officials, cities are finding that staff coverage for code enforcement is often 

stretched thin. To overcome this barrier, some local 

governments collaborate with state officials to help 

meet resource and assistance needs. For example, the 

Texas Energy Partnership is a consortium of state, 

federal, and local agencies—as well as universities 

and other non-government partners—created to help 

municipalities throughout Texas establish procedures 

for administration and enforcement of code requirements adopted under Senate Bill 5 (S.B.5). The partnership offers technical assistance and access to 

state and federal experts that help municipalities 

comply with code provisions and save money on 

energy bills (AACOG 2005). 

Timing and Duration 

State and local experience with building energy 

codes shows that the time of building design and 

construction represents a low-cost opportunity to 

integrate energy efficiency into a structure. Decisions 

made at this time often cannot be remedied later or 

can only be revised at significant cost. 

States are also finding they can increase code effectiveness by regularly updating code specifications. A 

periodic review of energy code requirements is a 

strategic way to ensure that opportunities associated 

with new building sector technology are captured. 

States often time their reviews to coincide with 

updates of national-level model codes by the code 

development organizations or the issuance of a DOE 

determination. This approach offers regular opportunities for states and municipalities to simultaneously 

provide input to the model code development 

process and to update their own codes. Other states 

call for updates on a regular basis. For example, 

Massachusetts reviews its code every five years while 

some other states do so every three years (e.g., 

California, Idaho, Maryland, Montana, New Mexico, 

and Pennsylvania). As a rule of thumb, states take 

action if the code is more than five years old, if there 

is no evidence of consistent enforcement, or if there 

is no state energy code. 

When code development organizations release a new 

version of a model code (and DOE makes a positive 

determination about its effectiveness), states are 

required by the Energy Conservation and Production 

Act (EPCA) to respond accordingly. On the residential 

side, new versions of the IECC are released every 

three years with an interim supplement released in 

between. While adoption is not required for residential codes, it is mandatory for new versions of the 

commercial sector ASHRAE 90.1 code. ASHRAE 90.1 

has historically been revised and republished less frequently than the IECC (there was a decade gap 

between the 1989 and 1999 versions). It is now 

scheduled for release on a three-year cycle. The most 

recent version is 90.1-2004. 

State experience with the review and update process 

demonstrates that it is important to anticipate and 

plan for the education and training needs of code 

officials, builders, contractors, and other affected 

parties. Each participant requires a period of time to 

identify and understand new requirements and 

changes to existing regulation. Code changes also 

affect product manufacturers and suppliers, who 

need lead-time to clear current inventories and 

ensure that newly compliant products are available 

when the revised code takes effect. 

Interaction with Federal Programs 

State and local governments are finding that voluntary programs such as ENERGY STAR can help the 

building community move beyond code-mandated 

efficiency levels in the new housing stock. An ENERGY STAR-qualified new home is at least 30% more 

efficient than a home built to the model energy code 

4-42 � Chapter 4. Energy Efficiency Actions
 
 

 

 

Best Practices for Developing and Adopting 

Building Codes 

States and municipalities have identified the following 

best practices to help states update existing building 

energy codes and adopt new codes: 

•	 Do Your Homework. Evaluate current building energy code laws, as well as options for implementation 

and enforcement. If there is no state energy code, if 

it is more than five years old, or if there is no evidence of consistent enforcement, it may be time to 

act: 

- Conduct an analysis of the benefits and costs of 

code adoption and implementation. 

- Talk with key stakeholders—including local officials and builders—to hear their concerns, assess 

their experience with energy codes, and gauge 

their perspectives. 

- Assess resources for training and other forms of 

technical support for code officials, builder associations, and building supply organizations. 

- Contact materials suppliers to learn about availability of compliant products. 

•	 Obtain Outside Help. Implementing and enforcing 

codes requires a high level of engineering expertise 

that many code officials do not have. Several organizations provide resources to help. For example, 

DOE's Pacific Northwest National Laboratory, the 

Building Codes Assistance Project, and the New 

Buildings Institute can assist in charting a course of 

action. This action might include quantitative 

assessments of potential benefits, baseline building 

practice studies, legislative and regulatory assessments, training and technical assistance for builders 

and code officials, and other services. 

•	 Create a Stakeholder Process. Involve key stakeholders early and regularly. Include them in reviews 

of studies, proposal regulations, and other aspects 

of the process. Involving stakeholders helps ensure 

the codes are appropriately designed. This process 

increases the chances of code adoption and minimizes enforcement problems. 

and 15% more efficient than one built to local code. 

To certify an ENERGY STAR home, the builder may 

guide construction to this performance 

specification—as verified by a HERS—or build to a 

prescribed set of requirements outlined in a Builder 

Option Package (BOP). BOPs contain requirements for 

EPA Clean Energy-Environment Guide to Action 

insulation levels, air infiltration, windows, and heating and cooling equipment. The relevant set of BOP 

requirements depends on climate conditions and is 

third-party verified. 

To encourage the construction of ENERGY STARqualified new homes, state and local governments 

are using marketing and outreach campaigns, training builders, and assisting builders in rating their 

homes. New York’s Energy $mart initiative has an 

active ENERGY STAR new homes program that 

emphasizes education and training for builders, local 

officials, and other stakeholders. Since its inception 

in 2001, more than 4,000 homes have been constructed and qualified in the state. New York is finding that voluntary above-code programs complement 

and go beyond traditional regulatory approaches to 

ensure a continuous stream of building energy savings (New York Energy $mart 2005). 

Interaction with State Policies 

State and local policymakers are leveraging other 

state clean energy policies to support building energy 

codes. For example, some states are using public 

benefits funds (PBFs) to support code implementation and enforcement. The New York State Energy 

Research and Development Authority (NYSERDA) 

offers financial incentives to building owners and 

leaseholders to improve the energy efficiency of new 

and existing construction (NYSERDA 2004). Other 

states, such as Illinois and Wisconsin, are using PBF 

resources to enhance voluntary new and existing 

buildings programs used to document code compliance (MEEA 2002). 

Several state and local governments are investigating 

the extent to which building codes improve air quality, and whether this benefit can be incorporated into 

their air quality planning process. Codes improve air 

quality by reducing energy consumption in buildings, 

thereby lowering electricity generation and resulting 

pollution from power plants. In some states and 

cities, code officials are beginning to collaborate 

with air quality planners on how these benefits can 

be captured in State Implementation Plans (SIPs) for 

regulated air pollutants. S.B.5 in Texas is an example 

of legislation mandating building energy efficiency 

� Section 4.3. Building Codes for Energy Efficiency
 4-43 
 

EPA Clean Energy-Environment Guide to Action
 

for the explicit purpose of improving the state’s 

ozone air quality (see State Examples section on 

page 4-46). 

Program Implementation and 

Evaluation 

Implementation 

States and municipalities are finding innovative ways 

to implement building codes and achieve significant 

savings. By addressing the following commonly 

encountered barriers, they can increase their likelihood of success: 

•	 The Size and Fragmentation of the Building 

Industry Slows Technology Advancement. While 

there are fewer than a dozen U.S. manufacturers 

of automobiles, home appliances, and light bulbs, 

there are approximately 150,000 home building 

companies in the United States. And in contrast to 

highly automated sectors of the U.S. economy, the 

building sector remains largely a craft industry 

dependent on the integration of hundreds of components from various manufacturers by onsite 

crews and subcontractors. To overcome this barrier, many states provide training and education 

services to these groups. For example, the Texas 

State Energy Conservation Office (SECO) works in 

partnership with the Texas Association of Builders 

to provide classroom and online training for 

homebuilders and subcontractors. Their program 

focuses on the importance of well-designed and 

properly installed energy and moisture management systems. Outreach materials are available in 

both Spanish and English. 

•	 Energy Efficiency Is Typically Not a Top Customer 

Preference. This can serve as a barrier to code 

implementation and enforcement (though not 

necessarily code adoption). Most home purchase 

decisions and feature selection are driven by nonenergy factors. For example, buyers are often more 

focused on amenities like kitchen upgrades, extra 

bathrooms, or new flooring. Efficiency features 

compete with these highly visible priorities. 

In states where energy efficiency is not a top customer preference, it is often because awareness is 

low. Evidence from a Massachusetts energy code 

evaluation indicates that homebuyers rarely ask 

builders about the beneficial energy efficiency 

characteristics of their prospective homes 

(XENERGY 2001). By inquiring about measures 

such as proper heating, ventilation, and air conditioning (HVAC) equipment sizing and duct insulation, consumers can avoid problems such as high 

utility bills, poor ventilation, differential heating 

and cooling of rooms in the house, and reduced 

comfort. Since consumers drive the market, some 

states are turning to education as an important 

component of code implementation efforts. 

•	 Surveys Indicate That Mandatory Energy Codes Are 

Often Not Complied With Because They Are Too 

Complex and Difficult to Understand. As a result, 

states are finding that having an energy code in 

place is no guarantee that energy savings will be 

achieved. Code-development organizations are 

responding to this barrier by simplifying new versions of the ASHRAE 90.1 standards and IECC. For 

example, the 2004 version of ASHRAE Standard 

90.1 included updated HVAC equipment efficiency 

levels that reflect new federal manufacturing 

standards. In the residential sector, the 2006 IECC 

is about one-half the size of the 2003 edition. In 

addition, there is no longer a “window-to-wall 

ratio” requirement, a provision that many found 

overly complex. Instead, the envelope criteria (i.e., 

amount of insulation and window characteristics) 

are independent of the amount of glazing. Another 

change to both codes is that they now contain a 

simplified approach to characterizing climate 

zones, reducing the overall number from 19 to 8. 

Each zone is now a distinct geographic block 

aligned by political boundaries to facilitate code 

implementation and enforcement (ICC 2005). 

•	 States Are Also Taking Steps to Reduce the 

Complexity of Their Codes. They are finding that 

effective prescriptive codes—such as the model 

adopted by Oregon and Washington—are written 

in straightforward language that emphasizes simple measures with high energy savings potential. 

Code officials are also pursuing a range of best 

practices (see text box, Best Practices for Energy 

4-44 � Chapter 4. Energy Efficiency Actions
 
 

 

 

EPA Clean Energy-Environment Guide to Action
 

Code Implementation) that minimize the additional learning and time requirements imposed on 

code officials. 

•	 According to the National Science Foundation and 

the Lawrence Berkeley National Laboratory (LBNL), 

Many States Do Not Possess the Necessary Resources 

to Monitor, Evaluate, and Enforce Their Energy Code. 

Some states have less than one full-time-equivalent 

staff person dedicated to enforcement, and many 

states simply do not pursue monitoring and evaluation (DOE 2005). As a result, self-enforcement of 

building energy code provisions is the norm in many 

states. New York accomplishes this by requiring a 

licensed design professional to complete an official 

form attesting to code compliance. 

Other states are using PBF funds to address the 

challenge of moving from the process of code 

adoption to widespread compliance. For example, 

California’s Public Interest Energy Research 

(PIER)—funded by ratepayer dollars to conduct 

energy research and development for the 

state—works to identify candidate technologies and 

practices for improving the energy efficiency of new 

buildings in California. Currently, PIER is funding 

projects to support the development of California’s 

2008 Residential Building Energy Efficiency 

Standards (Eash 2005, CEC 2005a). In the face of 

resource shortages, other states rely on selfenforcement mechanisms such as home energy rating systems and the ENERGY STAR program. 

Evaluation 

State and municipal experience demonstrates that 

evaluating energy savings, conducting compliance 

surveys, and assessing the process by which program 

information is distributed are key elements of a successful building energy code. Evaluation of energy 

and peak demand savings data helps ensure requirements are followed and that stated goals are 

achieved. Information about the “co-benefits” of 

energy savings (e.g., financial savings and reductions 

in air pollution), implementation levels, and code 

awareness is used by code officials to evaluate 

progress, suggest strategies for improvement, and 

enhance overall program effectiveness. 

Best Practices for Energy Code 

Implementation 

States and municipalities have identified the following 

best practices for energy code implementation: 

•	 Educate and train key audiences: 

- Build strong working relationships with local 

building officials, homebuilders, designers, building supply companies, and contractors for insulation, heating, and cooling equipment. 

- Hold regular education and training sessions 

before and after the effective date of the new 

energy code requirements. Maintain an ongoing 

relationship with homebuilders and building officials associations, even between code change 

cycles. This encourages both familiarity and trust 

and is an opportunity to share concerns. 

•	 Provide the right resources, including: 

- An overview of energy code requirements, opportunities, and related costs and benefits. 

- Basic building science concepts. Practical compliance aids can range from laminated information 

cards for simple prescriptive methods to software 

packages for performance-based codes. 

- Information on how to inspect plans and site features for compliance. 

- Who to contact and resources for more information and technical assistance. 

•	 Provide budget and staff for the program. Assign 

staff personnel with appropriate training and experience to support the code adoption and implementation processes. Provide this person with sufficient 

budgets to do the necessary homework, involve 

stakeholders, and support implementation. 

Similarly, states are conducting studies of prospective energy savings from codes prior to adoption and 

implementation. Measuring the range of potential 

benefits—energy, economic, and environmental—can 

build the case for energy codes by assessing both 

positive and negative costs. If results show promise, 

studies of prospective benefits can also broaden 

stakeholder support for energy codes. 

� Section 4.3. Building Codes for Energy Efficiency
 4-45 
 

EPA Clean Energy-Environment Guide to Action
 

State and local officials are finding value from the 

following kinds of evaluation tools: 

•	 Energy Savings Evaluation. Even though theoretical 

energy savings from building codes can be estimated with computer software, it is important to 

evaluate whether codes are actually saving energy 

and meeting goals. Information from energy savings evaluations can be used to determine if certain portions of the code perform better than others or if overall savings are meeting expectations. 

With this insight, states can focus their implementation and enforcement efforts on addressing priority concerns. For example, a 2002 study in Fort 

Collins, Colorado found that measured energy savings from a code change in 1996 were approximately half of pre-implementation estimates. By 

conducting a code evaluation, the city was able to 

identify problem areas and focus its resources 

accordingly (City of Fort Collins 2002). 

•	 Compliance Surveys. These are used to determine 

whether buildings are being built in compliance 

with code. If they are not, additional enforcement 

and training initiatives may be needed. Another 

purpose of surveys is to assess the overall state of 

building technology and practice. Survey results 

might show, for example, that certain beyondcode energy features are gaining wide acceptance 

in the market due to improved cost-effectiveness. 

•	 Process Evaluation. State programs that offer 

technical assistance and related services benefit 

from a process evaluation to assess and suggest 

improvements to these offerings. These evaluations look less at what is being built than at the 

ways information is delivered to key stakeholders 

such as builders and code officials. Improving 

service delivery can help improve code compliance 

and overall stakeholder acceptance of the code. 

Process evaluation is also used to determine the 

effectiveness of a state’s enforcement efforts. 

State Examples 

The following states have implemented successful 

building codes programs using varying approaches. 

California 

California’s Title 24 standards for residential and 

commercial buildings are among the most stringent 

and best-enforced energy codes in the United States. 

The building code provisions of Title 24 are notable 

for: 

•	 Stringency. The Title 24 standards typically exceed 

IECC and ASHRAE efficiency levels. 

•	 Performance-Based Provisions. California’s building 

efficiency standards are organized into three basic 

components: mandatory features, prescriptive 

package requirements, and performance guidelines. 

•	 High Compliance Rates. Field verification studies 

for Title 24-compliant buildings show that 70% of 

homes meet all code requirements. 

•	 Flexibility. California is one of a few states that 

includes a performance-based approach that permits a wide variety of combinations of energy efficiency measures to meet code requirements. 

•	 Receiving Active Support. The California Energy 

Commission (CEC) maintains an expert staff that 

manages the code development process and provides technical assistance in code interpretation 

and enforcement. 

•	 A Forward-Looking Orientation. California periodically expands the scope and stringency of its energy codes to ensure that they capture available 

“potential savings” and works with its utilities on 

research and development to incorporate proven 

technologies. 

California’s new 2005 building efficiency standards 

are expected to yield $43 billion in electricity and 

natural gas savings by 2011. Forecasts estimate that 

the standards will reduce annual energy demand by 

180 MW, equivalent to the electricity requirements 

of 180,000 average-sized California homes (CEC 

2003). The CO2 savings in the residential sector alone 

is 49,000 tons per year, a figure equivalent to 9,600 

passenger cars not driven for one year (USCTCG 

2005). 

Web site: 

http://www.energy.ca.gov/title24/ 

4-46 � Chapter 4. Energy Efficiency Actions
 
 

 

 

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Oregon and Washington 

Compared to California, the states of Oregon and 

Washington take a simpler and more prescriptive 

approach to building energy efficiency. Their strategy 

is closely aligned to the Model Conservation 

Standards (MCS) developed in the Northwest region 

during the 1980s. The MCS were originally disseminated as voluntary standards under utility programs 

that offered incentives, education, and other support 

to builders. As builders came to accept the MCS, 

states in the region moved to incorporate them into 

building codes. 

The simplicity and consistency across local jurisdictions of Oregon and Washington’s prescriptive 

approach has achieved a high level of code compliance. A recent construction practice survey found 

that 94% of homes surveyed in Washington and 

100% in Oregon met or exceeded code requirements 

for the building envelope (Ecotope 2001). 

Residential energy codes in Oregon saved 857 million 

kilowatt-hours (kWh) and 40 million therms of natural gas in 2000 (Oregon Office of Energy 2001). 

Web sites: 

http://egov.oregon.gov/ENERGY/CONS/Codes/ 

codehm.shtml 

http://www.energy.wsu.edu/code/default.cfm 

Texas 

Texas is a “home rule” state that passed legislation in 

2001 requiring local governments to follow a single 

statewide building energy code. It is also the first 

state to adopt an energy code primarily for Clean Air 

Act compliance reasons. After extensive stakeholder 

consultation, the state elected to adopt the IECC, 

including a solar heat gain standard for windows 

that results in significant cooling and peak load 

energy savings. The following are key features of the 

Texas code: 

• The IECC’s cooling energy savings are substantial. 

Electricity reductions from the solar heat gain 

standard alone will total 1.8 billion kWh over 20 

years and avoid 1,220 MW of peak demand at the 

end of the 20-year period (Tribble et al. 2002). 

• The Texas energy code is approved for 0.5 tons per 

day of NO emissions credits from EPA in the SIP x 

for ozone pollution. This is the first time that an 

energy code has been adopted by a state specifically to improve air quality. 

• Because Texas is a home rule state, it has limited 

ability to impose regulatory requirements on local 

jurisdictions. Successful implementation of a single statewide energy code is a political milestone. 

Web site: 

http://www.trcc.state.tx.us 

Arizona 

Arizona is another home rule state where energy 

codes are adopted and enforced at the local level. As 

such, several communities—including Pima County 

and the city of Tucson—have emerged as local leaders in building code adoption. Both jurisdictions now 

have codes based on the 2000 IECC. Another Arizona 

municipality, the city of Phoenix, recently conducted 

a comprehensive review and technical comparison of 

the national model building codes. After initiating a 

process to solicit stakeholder input, Phoenix pursued 

and adopted residential and commercial codes, making it the first city in the United States to adopt the 

IECC 2004 supplement for residential construction 

and the ASHRAE 90.1 2004 standard for commercial 

construction. 

The successful experience of these municipalities has 

encouraged other local governments in Arizona to 

consider adopting an energy code. The Maricopa 

Association of Governments, a Council of 

Governments that serves as the regional agency for 

the Phoenix metropolitan area, is currently assessing 

the possibility of adopting building energy requirements for the more than 30 localities included within its jurisdiction (Panetti 2005). 

� Section 4.3. Building Codes for Energy Efficiency
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EPA Clean Energy-Environment Guide to Action
 

Projected results from building codes programs 

include: 

• By adopting the 2004 IECC, Phoenix is expected to 

reap an 18% reduction in residential energy consumption, a 21% reduction in electricity use, and a 

10% in natural gas use. 

• It is estimated that while a new home built to the 

IECC will cost an average of $1,517 more than a 

home built without the code, the difference will 

be repaid to homebuyers in 3.9 years (based on 

simple payback). The life cycle cost savings associated with improved energy efficiency from adopting the IECC is $11,228 per home (BCAP 2005b). 

Web site: 

http://www.commerce.state.az.us/energy/ 

state%20energy%20code.asp 

What States Can Do 

States with energy codes can consider updates and 

improvements to the implementation process. States 

with no energy code in place can examine the costs 

and benefits of implementing a code and consider 

initiating a code adoption process. 

Action Steps 

States that already have an energy code can: 

• Implement a rigorous enforcement program that 

ensures local building code departments have 

proper training and resources, including adequate 

staff coverage. 

• Review the version of the document currently in 

force. If it is more than five years old, consider an 

updated version. The latest available IECC code 

version is the 2006 version, which was released in 

October 2005. The most recent ASHRAE Standard 

90.1 is the 2004 version. 

• Conduct analysis on the effect of potential code 

updates on energy and cost savings for building 

owners, on the effect on energy generation and 

distribution, and on air pollutant and greenhouse 

gas emissions levels. Balance these benefits 

against any added construction costs. 

• Initiate a stakeholder process to review the data, 

obtain participant input, and decide whether to 

adopt a new code. 

• If a new version of the energy code is adopted, 

initiate administrative and educational processes. 

Implementation tools and other resources are 

available at no charge from DOE. 

• If a state-specific energy code training program 

exists, review it and consider an update that 

describes new codes not currently covered. 

States that are considering adopting an energy code 

can: 

• Review all available model codes and standards 

and learn about other states’ experiences. Conduct 

research and analysis to determine which codes 

best match the needs of the area under 

consideration. 

• Establish a baseline building prototype against 

which to assess the benefits of an energy code. 

This may require a field survey of homebuilders, 

suppliers, and contractors, including onsite inspections and interviews. 

• Conduct an analysis of the effect of the new code 

on energy and cost savings for building owners, 

power system reliability, and reduced air pollutant 

and greenhouse gas emissions. Balance these benefits against any added construction codes. 

• Initiate a stakeholder process to review the data, 

obtain stakeholder input, and decide whether to 

adopt the energy code under consideration. 

• After a decision to adopt an energy code, initiate 

administrative and educational processes, as 

appropriate. 

• Develop a code implementation process that 

includes training and technical assistance. Reach 

out to affected industries and audiences across 

the state. 

4-48 � Chapter 4. Energy Efficiency Actions
 
 

 

 

 

 

 

 

 

 

 

 

EPA Clean Energy-Environment Guide to Action 

Information Resources 

Information About Individual State Codes 

Title/Description/Contact Information URL Address 

BCAP. A nonprofit organization, BCAP is dedicated to helping states adopt and 

implement up-to-date building energy codes. The BCAP Web site includes maps, 

data on code status for all states, and information on training opportunities. 

http://www.bcap-energy.org 

Building Energy Codes Program Web Site: Case Study: Massachusetts Commercial 

Energy Code. This Web site includes highlights of the Massachusetts Commercial 

Energy Code and details of the collaborative code adoption process along with projected energy and cost savings and pollution reduction. 

http://www.energycodes.gov/implement/ 

case_studies/massachusetts.stm 

Building Energy Codes Program Web Site: Case Study: New York Energy 

Conservation Construction Code. This Web site includes an overview of the New 

York Energy Conservation Construction Code and the code adoption process, and 

also details some of the reasons for the code’s success. 

http://www.energycodes.gov/implement/ 

case_studies/new_york.stm 

California: CEC. Phone: 916-654-5106 or 800-772-3300 (toll free in California). 

E-mail: title24@energy.state.ca.us. 

http://www.energy.ca.gov/title24 

DOE Status of State Energy Codes. This Web site provides data for each state on 

state contacts, current code status, code history, and construction data. 

http://www.energycodes.gov/implement/ 

state_codes/index.stm 

Florida: Department of Community Affairs. Codes & Standards Office 

2555 Shumard Oaks Blvd. 

Tallahassee, FL 32399-2100 

Phone: 850-487-1824. 

http://www.floridabuilding.org 

Minnesota: Building Codes and Standards Division 

408 Metro Square Building 

121 7th Place East 

St. Paul, MN 55101 

Phone: 651-296-4639. 

http://www.state.mn.us/cgi-bin/portal/ 

mn/jsp/home.do?agency=BCSD 

or 

http://www.state.mn.us/cgi-bin/portal/mn/ 

jsp/content.do?subchannel=­

536886620&id=-536886617&agency=BCSD 

Oregon Office of Energy 

625 Marion St. NE 

Salem, OR 97301-3737 

Phone: 503-378-4040 or 800-221-8035 / Fax: 503-373-7806 

E-mail: energyweb.incoming@state.or.us. 

http://egov.oregon.gov/ENERGY/CONS/ 

Codes/codehm.shtml 

Texas A&M Energy Systems Laboratory (ESL) 

ESL Senate Bill 5 Program 

Room # 053 Wisenbaker Engineering Research Center Bizzell Street 

Texas A&M University 

College Station, TX 77843-3581 

Phone: 979-862-2804 / Fax: 979-862-2457. 

http://165.91.209.42/sb5/workshops/ 

training.htm 

Washington State Energy Extension Service 

925 Plum Street SE Bldg No 4 

Box 43165 

Olympia, WA 98504-3165 

Phone: 360-956-2000 / Fax: 360-956-2217. 

http://www.energy.wsu.edu/code/ 

default.cfm 

� Section 4.3. Building Codes for Energy Efficiency
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EPA Clean Energy-Environment Guide to Action
 

Other Resources for Building Code Information
 

Title/Description URL Address 

ASHRAE. ASHRAE provides technical standards and other technical information. http://www.ashrae.org/ 

BCAP. A nonprofit organization, BCAP is dedicated to helping states adopt and 

implement up-to-date building energy codes. 

http://www.bcap-energy.org/ 

Codes and Standards: MEC. The MEC is published and maintained by the ICC. The 

1998 IECC is the successor to the 1995 MEC. 

http://www.energycodes.gov/implement/ 

pdfs/modelcode.pdf 

DOE BECP. Operated by PNNL, BECP provides compliance tools, technical assistance, and other code information and support. 

http://www.energycodes.gov 

ICC. The ICC provides code documents, technical assistance, training, and other 

services. 

http://www.iccsafe.org 

New Buildings Institute (NBI). A nonprofit organization, NBI develops leading-edge 

commercial building standards and related research and technical information. 

http://www.newbuildings.org/ 

RESNET. RESNET accredits home energy rating organizations, and provides a variety of technical information on home energy ratings and home energy performance. 

http://www.natresnet.org/ 

Compliance and Analytical Tools
 

Title/Description URL Address 

DOE Building Energy Tools Directory. This is the DOE directory of building energy 

analysis tools. 

http://www.eere.energy.gov/buildings/ 

tools_directory/ 

DOE COMcheck-EZ and REScheck Software. Provided through the DOE codes program, these simple programs offer an easy way to check whether a wide variety of 

building designs meet energy code requirements. 

http://www.energycodes.gov/ 

compliance_tools.stm 

DOE EnergyPlus. This public-domain software provides accurate building energy 

simulation capabilities. 

http://www.eere.energy.gov/buildings/ 

energyplus/ 

ENERGY STAR Portfolio Manager. This tool allows users to track energy use of a 

portfolio of buildings online. It includes functions for benchmarking, managing a single building or group of buildings, assessing investment priorities, and verifying 

building performance. 

http://www.energystar.gov/index.cfm? 

c=evaluate_performance.bus_ 

portfoliomanager 

ENERGY STAR Target Finder. This tool rates the energy performance of a building 

design using information about energy use per-square-foot derived from building 

design simulation tools. EPA's energy performance rating system uses a 1 to 100 

scale, where an ENERGY STAR target rating is 75 or higher. 

http://www.energystar.gov/index.cfm? 

c=target_finder.bus_target_finder 

4-50 � Chapter 4. Energy Efficiency Actions
 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EPA Clean Energy-Environment Guide to Action
 

Examples of Code Language
 

State Title/Description URL Address 

Arizona Arizona State Energy Code; Advisory Commission (voluntary). http://www.azleg.state.az.us/ars/41/ 

01511.htm 

Proposed Amendments to IECC. http://phoenix.gov/DEVSERV/ieccamd.pdf 

Sustainable Energy Standard for the IECC, 2000 edition, region-­

ally specific for the Tucson Metropolitan Area. 

http://www.ci.tucson.az.us/dsd/ 

Codes___Ordinances/Building_Codes/ 

2000IECCSES_sustainable_energy.pdf 

California California State Legislature, AB 970, Section 25553. http://www.leginfo.ca.gov/pub/99-00/bill/ 

asm/ab_0951-1000/ab_970_bill_20000907_ 

chaptered.html 

2001 Energy Efficiency Standards for Residential and 

Nonresidential Buildings. 

http://www.energy.ca.gov/title24/ 

2001standards/2001-10-04_ 

400-01-024.PDF 

Oregon Oregon Revised Statutes, 455.525. http://www.leg.state.or.us/ors/455.html 

Oregon Department of Energy, Energy Code Publications and 

Software. 

http://egov.oregon.gov/ENERGY/CONS/ 

Codes/cdpub.shtml 

Texas Texas Residential Building Guide to Energy Code Compliance. http://165.91.209.42/sb5/documents/ 

ResGuideRev104.pdf 

Texas State Legislature, SB 5–Legislative Session 77(R), 

Chapter 388. 

http://www.capitol.state.tx.us/statutes/docs/ 

HS/content/htm/hs.005.00.000388.00.htm 

Washington Washington State Legislature, WSR 05-01-013. Enter “05-01­

013 “ in Search Bills, RCW, WAC, and State Register box and 

check “State Register 2005.” 

http://search.leg.wa.gov/pub/textsearch/ 

default.asp 

Washington State Building Code Council, State Building 

Codes. 

http://www.sbcc.wa.gov 

References
 

Title/Description URL Address 

AACOG. 2005. SB 5 Performance Standards. The Requirements. Alamo Area Council 

of Governments (AACOG) Web site. Accessed July 2005. 

http://www.aacog.com/terp/ 

EnergyEfficiency/BEPS/BEPS.html 

BCAP. 2005a. BCAP Web site. Providence, RI. http://www.bcap-energy.org/ 

BCAP. 2005b. Personal correspondence with BCAP on June 13, 2005, which was 

based on data from a Southwest Energy Efficiency Project (SWEEP) report titled 

Increasing Energy Efficiency in New Buildings in the Southwest, Energy Codes and 

Best Practices. August 2003. 

http://www.swenergy.org/ieenb/ 

codes_report.pdf 

� Section 4.3. Building Codes for Energy Efficiency
 4-51 
 

EPA Clean Energy-Environment Guide to Action 

References (continued) 

Title/Description URL Address 

CEC. 2003. Initial Study/Proposed Negative Declaration for the 2005 Building Energy 

Efficiency Standards for Residential and Nonresidential Buildings. P400-03-018. 

September. CEC. 

http://www.energy.ca.gov/reports/ 

2003-09-12_400-03-018.PDF 

CEC. 2005a. 2004 Annual Review of the PIER Program, Volume 2: Residential and 

Commercial Buildings End-Use Efficiency Project Summaries. CEC-500-2005-055-V2. 

March. CEC. 

http://www.energy.ca.gov/2005publications/ 

CEC-500-2005-055/CEC-500-2005­

055-V2.PDF 

CEC. 2005b. 2005 Building Energy Efficiency Standards for Residential and NonResidential Buildings. P400-03-001F-M. October 1. CEC. 

http://www.energy.ca.gov/title24/ 

2005standards/2004-12-13_ 

400-03-001FM.PDF 

City of Fort Collins. 2002. Evaluation of New Home Energy Efficiency: An Assessment 

of the 1996 Fort Collins Residential Energy Code and Benchmark Study of Design, 

Construction and Performance for Homes Built Between 1994 and 1999. Summary 

Report. Fort Collins, CO. June. 

http://www.fcgov.com/utilities/pdf/ 

newhome-eval.pdf 

DOE. 2002. Building Energy Codes Program Web Site: Case Study: New York Energy 

Conservation Construction Code. DOE, Office of Energy Efficiency and Renewable 

Energy, Washington, D.C. June. 

http://www.energycodes.gov/implement/ 

case_studies/new_york.stm 

DOE. 2005. State Energy Alternatives: Energy Codes and Standards. 

Energy Efficiency and Renewable Energy Web site. U.S. Department of Energy, 

Washington, D.C. 

http://www.eere.energy.gov/states/ 

alternatives/codes_standards.cfm 

Eash, J. 2005. Personal communication with John Eash of CEC’s Buildings & 

Appliances Office. July 12. 

N.A. 

Ecotope. 2001. Baseline Characteristics of the Residential Sector: Idaho, Montana, 

Oregon, and Washington. Northwest Energy Efficiency Alliance, Portland, OR. 

December. 

http://www.nwalliance.com/resources/ 

reports/95.pdf 

Geller, H.C. Mitchell, and J. Schlegel. 2005. Nevada Energy Efficiency Strategy. 

SWEEP. January. 

http://www.swenergy.org/pubs/Nevada_ 

Energy_Efficiency_Strategy.pdf 

Haberl, J., C. Culp, B. Yazdani, T. Fitzpatrick, J. Bryant, M. Verdict, D. Turner, and P. 

Im. 2003. Calculation of NOx Emissions Reduction from Implementation of the 2000 

IECC/IRC Conservation Code in Texas. ESL, Texas A&M University, College Station. 

September. 

http://165.91.209.42/sb5/forms/ 

icbosb5prepring092000.pdf 

ICC. 2005. International Code Council Web Site: News. http://www.iccsafe.org 

Kushler, M., D. York, and P. White. 2005. Examining the Potential for Energy 

Efficiency to Help Address the Natural Gas Crisis in the Midwest. ACEEE. Report No. 

U051. ACEEE, Washington, D.C. January. 

http://aceee.org/pubs/u051full.pdf 

MEEA. 2002. MEEA Minute. Public Benefits Fund Primer. Midwest Energy Efficiency 

Alliance (MEEA). Fall. 

http://www.mwalliance.org/sep02/pbf.htm 

Motamedi, L., V. Hall, and B. Kaneshiro. 2004. California Energy Action Plan: Goal 1, 

Optimize Energy Conservation and Resource Efficiency, Status Report. CPUC 

Division of Strategic Planning, CEC Energy Efficiency and Demand Analysis Division, 

CPUC Energy Division. September 8. 

http://www.energy.ca.gov/energy_action_ 

plan/meetings/2004-09-08_meeting/ 

2004-09-08_EAP_GOAL_1.PDF 

New York Energy $mart. 2005. NYSERDA New York Energy $mart Web site. http://www.getenergysmart.org/ 

GES.portal?_nfpb=true&_ 

pageLabel=home 

4-52 � Chapter 4. Energy Efficiency Actions
 
 

EPA Clean Energy-Environment Guide to Action 

References (continued) 

Title/Description URL Address 

NYSERDA. 2004. Funding Opportunities. NYSERDA Web site. Accessed July 2005. http://www.nyserda.org/Funding/default.asp 

Oregon Office of Energy. 2001. Conservation Program Savings. Oregon Office of 

Energy, Salem. 

http://egov.oregon.gov/ENERGY/CONS/docs/ 

Consavings.pdf 

Panetti, C. 2005. Telephone conversation with Cosimina Panetti, BCAP, June 2, 2005. N.A. 

Prindle, W., N. Dietsch, R.N. Elliott, M. Kushler, T. Langer, and S. Nadel. 2003. Energy 

Efficiency’s Next Generation: Innovation at the State Level. Report Number E031. 

ACEEE, Washington, D.C. November. 

http://www.aceee.org/pubs/e031full.pdf 

Tribble, A., K. Offringa, B. Prindle, D. Aratesh, J. Zarnikau, A. Stewart and K. Nittler. 

2002. Energy-efficient windows in the southern residential windows market. In 

Proceedings of the 2002 ACEEE Summer Study on Energy Efficiency in Buildings. 

ACEEE, Washington, D.C. 

Contact ACEEE. 

Also see: 

http://www.aceee.org/conf/02ss/ 

02call.htm 

USCTCG. 2005. U.S. Climate Technology Cooperation Gateway. Greenhouse Gas 

Equivalencies Calculator. Accessed July 2005. 

http://www.usctcgateway.net/tool/ 

Weitz, D. 2005a. Personal conversation with David Weitz, BCAP, June 22, 2005. N.A. 

Weitz, D. 2005b. Personal e-mail from David Weitz, BCAP, May 31 2005. N.A. 

XENERGY. 2001. Impact Analysis of the Massachusetts 1998 Residential Energy Code 

Revisions. XENERGY Inc., Portland, OR. May 14. 

http://www.energycodes.gov/implement/ 

pdfs/massachusetts_rpt.pdf 

� Section 4.3. Building Codes for Energy Efficiency
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EPA Clean Energy-Environment Guide to Action
 

4.4 State Appliance Efficiency 

Standards 

Policy Description and Objective 

Summary 

State appliance efficiency standards establish minimum energy efficiency levels for appliances and 

other energy-consuming products. These standards 

typically prohibit the sale of less efficient models 

within a state. Many states are implementing appliance and equipment efficiency standards, where 

cost-effective, for products that are not already covered by the federal government.13 States are finding 

that appliance standards offer a cost-effective strategy for improving energy efficiency and lowering 

energy costs for businesses and consumers. 

As of November 2005, 10 states (Arizona, California, 

Connecticut, Maryland, Massachusetts, New Jersey, 

New York, Oregon, Rhode Island, and Washington) 

have adopted standards for 36 types of appliances. 

Four states (Maine, New Hampshire, Pennsylvania, 

and Vermont) are considering adopting standards. 

Appliance efficiency standards have been an effective tool for improving energy efficiency. At the federal level, the U.S. Department of Energy (DOE) has 

been responsible for setting minimum appliance 

standards and test procedures for an array of residential and commercial appliances and equipment 

since 1987. As of 2000, federal appliance efficiency 

standards had reduced U.S. electricity use by 2.5% 

and carbon emissions by nearly 2%. By 2020, the 

benefits from existing standards are expected to 

more than triple as the stock of appliances and 

equipment is replaced by more efficient models 

(Geller et al. 2001). The appliance standards for 16 

products established by the Energy Policy Act of 

Appliance standards save energy and generate net benefits for homes, businesses, and 

industry by reducing the energy cost needed 

to operate equipment and appliances. 

2005 (EPAct 2005) are expected to yield an additional 2% savings in total electricity use (ACEEE 2005a). 

Efficiency standards can play a significant role in 

helping states meet energy savings goals. In New 

England, for example, a package of state standards is 

expected to reduce load growth by 14% from 2008 

to 2013 and cut summer peak demand growth by 

33% (Optimal Energy 2004). 

States are also finding that appliance standards have 

low implementation costs because the existing standards of states like California can be leveraged. 

Objective 

The key objectives of appliance efficiency standards 

are to: 

• Raise the efficiency of a range of residential, commercial, and industrial energy-consuming products, where cost-effective. 

• Overcome market barriers, such as split incentives 

between homebuilders and homebuyers and 

between landlords and tenants, and panicpurchase situations where appliances break and 

must be replaced on an emergency basis. In a 

panic purchase, customers usually don’t have the 

time to consider a range of models, features, and 

efficiency levels. 

• Ensure energy use reductions to prevent pollution 

and greenhouse emissions, improve electric system 

reliability, and reduce consumer energy bills. 

13	 Under certain conditions, states can exceed a federal standard for a federally covered product; overall, however, federal law is preemptive. For 

example, in the case of building codes, a state can create a building code compliance package in which a furnace is at a higher efficiency than the 

federal standard. However, the state must also provide a compliance path under which the higher-efficiency furnace is not required. Thus, the 

option to exceed federal standards is indirect and is typically only possible in the case of building codes. In addition, states cannot ban lower efficiency products. 

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Benefits 

In addition to saving energy, appliance and equipment standards help reduce pollutant emissions, 

improve electric system reliability, and save consumers and business owners significant amounts of 

money over the life of the equipment. As of 2000, 

federal standards had reduced U.S. electricity use by 

2.5% and U.S. carbon emissions from fossil fuel use 

by nearly 2%. Total electricity savings from already 

adopted federal standards are projected to reach 341 

billion kilowatt-hours (kWh) per year or 7.8% of the 

projected total U.S. electricity use in 2020 (Geller et 

al. 2001). The appliance standards in the EPAct of 

2005 are expected to result in additional savings of 

90 billion kWh or 2% of projected total U.S. electricity use in 2020 (ACEEE 2005a). The potential savings 

from five products that are not currently covered by 

federal law or designated under the EPAct for standard setting by DOE are estimated to be 24.4 terawatt-hours (TWh)14 of electricity and about 

4 quads15 of primary energy16 in 2030 if implemented nationally, generating $14.6 billion in net savings 

for consumers and business owners for equipment 

purchased through 2030. These standards are also 

very cost-effective, with a high benefit-cost ratio, as 

illustrated in Table 4.4.1 (Nadel et al. 2005). 

The direct economic and environmental benefits of 

state standards are also substantial. One study of 19 

California product standards projects savings to 

California consumers and businesses of more than 

$3 billion by 2020 and estimates that these standards will reduce the need for three new power 

plants (ASAP 2004). 

Table 4.4.1: Estimated Energy Savings and Economics of Appliance Standards Not Covered by Federal Law
 

Products 

Effective 

Date 

(year) 

National Energy 

Savings in 2020 

National Energy 

National Energy 

Savings in 2030 

National Energy 

Cumulative Savings 

for Products 

Purchased thru 

2030 (quads) 

Net Present 

Valuea for 

Purchase 

thru 2030 

($ billion) 

Benefit 

Cost 

(TWh) Ratio

Saving

(tril. Btu) 

s in 2020 

(TWh) 

Saving

(tril. Btu) 

s in 2030 

Digital cable and satellite 

boxes 2007 1.4 14 1.4 14 0.4 1.2 4.1 

Digital television adapters 2007 0.3 3 0.0 0 0.2 1.1 7.4 

Medium-voltage dry-type 

transformers 2007 2.7 28 4.7 47 0.6 2.4 5.5 

Metal halide lamp fixtures 2008 9.0 93 14.4 144 1.9 7.3 10.8 

Reflector lamps 2007 3.9 40 3.9 39 0.9 2.6 4.1 

Total 17.3 178.0 24.4 244.0 4.0 14.6 

a	 Net Present Value is the value of energy savings due to standards minus the additional cost of more efficient products, expressed in current dollars. 

A 5% real discount rate was used for these calculations. 

Source: Nadel et al. 2005. 

14 One TWh is a billion kWh. 

15 A quad is a quadrillion Btus. By way of comparison, the entire United States currently uses a total of about 100 quads annually in all sectors of the 

economy. 

16 Primary energy includes the energy content of the fuel burned at the power plant and not just the energy content of electricity as it enters a home 

or factory. Typically, about three units of energy are consumed at the power plant in order to deliver one unit of energy to a home. The remaining 

energy is lost as waste heat from the power plant and along the transmission and distribution system. 

� Section 4.4. State Appliance Efficiency Standards 4-55 
 

 

 

 

 

 

 

 

EPA Clean Energy-Environment Guide to Action
 

States with Appliance Efficiency 

Standards 

A number of states have either implemented appliance standards or are considering implementing 

them, as shown in Figure 4.4.1. California’s appliance 

standards program dates to the 1970s, when the 

state began to pursue standards before the enactment of federal legislation. When the federal government opted not to issue standards under its legislative mandate in 1982, other states joined California 

and developed state standards. These state initiatives 

helped create the consensus for new federal legislation in 1987 (the National Appliance Energy 

Conservation Act or NAECA) and the Energy Policy 

Acts of 1992 and 2005. While the NAECA preempted 

state action on federally covered consumer products 

(with limited exceptions as discussed later), 

California has continued to develop efficiency standards for other products and technologies. 

California’s appliance efficiency standards are estimated to have saved about 2,000 megawatts (MW) 

(about 5%) of peak electricity load in 2001. As 

shown in Figure 4.4.2, this represents 20% of 

California’s total peak load savings from all energy 

efficiency programs. The standards cover 30 products 

(plus three additional products for which standards 

or revised standards are pending) and have saved 

consumers and businesses millions of dollars (Delaski 

2005). 

Additional states have recently enacted efficiency 

standards. These include Arizona, Connecticut, 

Maryland, Massachusetts, New Jersey, New York, 

Oregon, Rhode Island, and Washington. Table 4.4.2 

lists adopted and pending efficiency standards by 

state. In setting equivalent or stronger standards at 

the national level for the shaded products in Table 

4.4.2, the EPAct of 2005 preempts additional states 

from setting standards for these particular products. 

States that enacted standards prior to EPAct 2005 

will enforce their state standard up until the equivalent or stronger federal requirements go into effect. 

Figure 4.4.1: States with or Considering Appliance 

Standards 

Adopted appliance standards 

States considering adopting 

appliance standards 

Legislation vetoed by state 

governor in April 2005 

Source: Compiled by Stratus Consulting Inc. 

Figure 4.4.2: Load Savings from Appliance Efficiency 

Standards As Compared to Other Energy Efficiency 

Programs in California 

12,000
 

10,000
 

8,000
 

6,000
 

4,000
 

2,000
 

0 

MW 

Public Agency Programs 

Load Management 

Fuel Substitution 

Conservation & Efficiency 

Building Standards 

Appliance Standards 

Source: Motamedi 2005 (based on CEC data). 

1975 1980 1985 1990 1995 2000 

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Table 4.4.2: States with Adopted or Pending Appliance Efficiency Standards
 

Products AZ CA CT MA MD NJ NY OR RI WA 

Boilers and central furnaces not covered by federal standards x x 

Ceiling fans and ceiling fan lightsa x x 

Commercial clothes washers x x x x x x x x 

Commercial hot food holding cabinets x 

Commercial ice-makersb x x x x x x 

Commercial reach-in refrigerators and freezersb x x x x x x x x x 

Commercial unit heaters x x x x x x x x x 

Computer room air conditioners x 

Consumer audio and video equipment x x 

Digital television adaptors x x x 

Duct furnaces x 

Evaporative coolers x 

Exit signs x x x x x x x x x 

External power suppliesb x x x x x x x 

Freezers (residential, 30 to 39 cubic feet) x 

General service incandescent lamps not federally regulated xo 

High-intensity discharge lamp ballasts x 

Hot tubs (portable electric spas) x 

Incandescent reflector lamps not federally regulated o x x x x 

Large commercial packaged air-conditioners x x x x x x x 

Low-voltage dry-type distribution transformers x x x x x x x x 

Medium-voltage dry-type distribution transformers x 

Metal halide lamp fixtures x xo x x x x x 

Pool heaters not covered by federal standards x 

Pool pumps x 

Pre-rinse spray valves x x x x x x 

Refrigerated beverage vending machinesb x 

Small water heaters not covered by federal standards x 

Torchieres x x x x x x x x x 

Traffic signal modules-pedestrian x x x x x 

Traffic signal modules-vehicular x x x x x x x x x 

Under-cabinet light fixture ballasts x 

Walk-in refrigerators and freezers x 

Water dispensers x 

Water and ground water-source heat pumps x 

Wine chillers x 

Key: X=Adopted, XO=Standard adopted and a revised standard is pending, O=Pending. 


Note: Products where rows are shaded are state standards preempted by the standards established by EPAct 2005. EPAct 2005 also establishes federal efficiency standards for compact fluorescent lamps, residential dehumidifiers, traffic lights, and fluorescent lamp ballasts.
 

a EPAct 2005 sets standards for residential ceiling fan light kits.
 

b The specific standards for these products were not established by the legislation; the legislation requires DOE to investigate whether standards are technically 

feasible and economically justified and to set standards where these criteria are met. 

Sources: Compiled from Delaski 2005, Nadel et al. 2005, State of Washington 2005, and other sources listed under Examples of Legislation on page 4-66. 

� Section 4.4. State Appliance Efficiency Standards
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Washington’s appliance efficiency standards are 

expected to result in significant electricity, natural 

gas, and water savings. An analysis by the state’s 

Department of Community, Trade and Economic 

Development’s Energy Policy Division estimates that 

the standards on these 13 products will save 136 

million kWh of electricity, 2 million therms of natural 

gas, and 406 million gallons of water in the first year 

the standards are enacted. Savings grow significantly 

over time as old products are retired and new products subject to these standards are installed. This 

report also estimates that by 2020, assuming the 

standards are in place through that period, natural 

gas savings would amount to 3% of the commercial 

sector’s consumption and total electricity savings 

could power 90,000 homes. By 2014, annual water 

savings from these standards could total up to 2 billion gallons. Standards on pre-rinse spray valves 

could save 51,205 megawatt-hours (MWh) of electricity, 6,745 therms of natural gas, and 1,785 million 

gallons of water per year by 2020 (State of 

Washington 2005). 

Designing an Effective Appliance 

Standards Policy 

States have substantial experience with appliance 

efficiency standards. Key issues they have addressed 

include: identifying participants, design issues, and 

linkages with federal and state policies. 

Participants 

• State Legislatures. Establishing efficiency standards in a state typically requires enabling legislation. However, once legislation is enacted, it 

may allow an executive agency to set further 

standards administratively. Because legislation has 

been developed for many standards, state legislatures typically do not need to conduct original 

research on definitions. Similarly, because several 

states have established standards for administration procedures, these implementation processes 

can also be largely replicated from other states’ 

experiences. 

• State Energy Offices. State energy offices, which 

typically administer the federal state energy program funds, have generally acted as the administrative lead for standards implementation. 

• Product Manufacturers. Companies that make 

affected products clearly have a stake in standards 

development. Proactive consultations with manufacturers can increase the speed and effectiveness 

of the development and implementation process. 

Their expertise can help refine efficiency levels and 

labeling and certification procedures. 

• Product Distributors, Installers, and Retailers. 

Wholesale distributors, installation contractors, 

and retail vendors are key players in that they 

must know the technical requirements and labeling and certification rules to be able to participate 

effectively in standards implementation and 

enforcement. 

• Customers. It is important to consider the people 

who use the affected products during the standard 

development and implementation processes. 

Consideration includes assessing benefits and 

costs to consumers and impacts on product features or market choices. 

• Utilities. Utilities may provide technical assistance 

for developing standards and support for implementation. Their relationships with customers and 

trade allies can also be helpful in educating markets about the effects of new standards. Utilities 

that operate voluntary efficiency programs may 

want to coordinate their incentive and education 

programs, gearing voluntary incentive targets to 

the standards. 

•	 Public Interest Organizations. Groups representing 

consumers, environmental interests, and other 

public interests can offer technical expertise and 

important public perspectives in developing and 

implementing standards as baselines. 

Key Design Issues 

• Defining the Covered Products and Their Energy 

Efficiency, Applicability, and Cost-Effectiveness. 

States have adopted appliance standards that 

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cover from five to more than 30 products. Some 

products may not be appropriate candidates for 

standards if, for example, they have recently been 

covered by federal law, or they are not appropriate for the state’s climate or markets. States target certain products for standards based on their 

total energy savings potential, technical feasibility, 

and economic attractiveness. Because technologies 

suitable for appliance standards are typically 

already being used in well-known, consistent 

applications, estimating their energy savings has 

been relatively straightforward. 

• Assessing Overall Benefits and Costs. In addition to 

the economic assessment of individual technologies, states have conducted overall assessments of 

benefits and costs. Benefits can include energy 

savings, energy bill reductions, electric reliability 

benefits, reduction in future energy market prices, 

and air pollutant and greenhouse gas emission 

prevention. Costs can include product buyer costs, 

product manufacturer costs, and program administration costs. 

• Availability of Test Methods. Test methods are necessary to set efficiency levels for the state appliance standards. Test methods may have been 

established by federal agencies such as DOE or the 

U.S. Environmental Protection Agency (EPA), by 

other states that have already set standards, or by 

industry associations representing companies that 

make the products of interest. 

• Defining Certification and Labeling Requirements. 

Like test methods, product certification and labeling procedures may have already been established 

by federal or state agencies or by industry associations. In some cases, it may be necessary for appliance standards regulations to define a labeling or 

certification method beyond those already established. On the other hand, and in rare instances, 

technical or market issues may warrant certification or labeling exemptions for certain products. 

For example, if a standard calls for a simple, prescriptive design change, that feature may be so 

visible on the product that certification and labeling may not be needed. 

•	 Establishing Inspection and Enforcement Procedures. 

Inspection and enforcement of appliance standards 

regulations has typically involved self-policing. 

Industry competition is usually such that competitive manufacturers report violations. While states 

may want to reserve the legal right to inspect individual products or installations, it is rare that federal or state agencies have had to institute regular 

inspection or sustained enforcement actions. 

Interaction with Federal Policies 

Federal laws, such as NAECA, EPAct 1992, and EPAct 

2005, have established appliance efficiency standards 

for more than 40 products (see Table 4.4.3 on page 4­

60). DOE is currently conducting rulemakings for 

three of the products listed in Table 4.4.3: commercial 

packaged air conditioners, residential furnaces and 

boilers, and dry-type distribution transformers. EPAct 

2005 directs DOE to set standards for several additional products, including: vending machines, dehumidifiers, external power supplies, commercial refrigeration, and icemakers. States can actively promote 

efficient models of these products by increasing consumer awareness and developing other programs. 

States are preempted from setting their own standards for the products covered by federal standards. 

State efficiency standards that were established 

before a product was covered under NAECA are preempted as of the effective date of the federal standard (i.e., the date that manufacturers must comply 

with that standard). Nevertheless, some states are 

enacting standards for products that are not yet covered by federal law, for which DOE rulemakings will 

take place (as directed by EPAct), and/or that are 

being considered for coverage under NAECA, expecting to gain several years of savings in the interim. 

States can apply for waivers of preemption for products that are covered by federal law. If, for example, 

they face special conditions, states can cite such circumstances as the basis for a waiver. In September 

2005, California petitioned DOE for a preemption 

waiver to implement a state water efficiency standard for clothes washers. Legislation pending in 

Massachusetts would require state officials there to 

seek a waiver from federal preemption allowing the 

state to implement tougher home furnace and boiler 

standards. 

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Table 4.4.3: Products Subject to Existing Federal 

Appliance Efficiency Standards 

Products Included in NAECA 1987 

· Central air conditioners and 

heat pumps · Furnaces and boilers 

· Clothes washers · Pool heaters 

· Clothes dryers · Ranges and ovens 

· Direct-fired space heaters · Refrigerator-freezers 

· Dishwashers · Room air conditioners 

· Fluorescent lamp ballasts · Televisionsa 

· Freezers · Water heaters 

Products Added by EPAct 1992 

· Commercial furnaces and 

boilers · Fluorescent lamps 

· Commercial packaged air 

conditioners and heat 

· High-intensity discharge 

lampsa 

pumps · Incandescent reflector 

· Commercial water heaters lamps 

· Distribution transformersa · Small electric motors 

(< 1 horsepower)a 

· Electric motors (1 to 200 

horsepower) · Showerheads 

· Faucets and aerators · Toilets 

Products Added by EPAct 2005 

· 

· 

· 

· 

· 

· 

· 

· 

· 

Automatic commercial ice 

makersa 

Ceiling fans and ceiling light 

kits 

Commercial clothes washers 

Commercial refrigerators 

and freezersa 

Commercial pre-rinse spray 

valves 

Compact fluorescent lamps 

Dehumidifiers 

External power suppliesa 

Fluorescent lamp ballasts 

· High-intensity discharge 

lamp ballasts 

· Illuminated exit signs 

· Large packaged air-conditioners (> 20 tons) 

· Low-voltage dry-type transformers 

· Torchieres 

· Traffic signals (vehicular) 

· Traffic lights 

· Unit heaters 

· Vending machinesa 

a The specific standards for these products were not established by 

the legislation; the legislation requires DOE to investigate whether 

standards are technically feasible and economically justified and to 

set standards where these criteria are met. 

Sources: Nadel and Pye 1996, ACEEE 2005b. 

Interaction with State Policies 

It is important for states to recognize that state 

appliance efficiency standards are different from 

ENERGY STAR efficiency specifications. Appliance 

efficiency standards set minimum energy efficiency 

performance levels that all appliances must meet, 

while ENERGY STAR specifications set higher energy 

efficiency levels to help the consumer choose a more 

energy-efficient product. Typically, the ENERGY STAR 

label is made available for only a fraction of the 

products on the market. As the market share of these 

products grows over time, a new ENERGY STAR 

specification is developed to again recognize the 

most energy-efficient products. Because of these 

differences between appliance efficiency standards 

and ENERGY STAR, ENERGY STAR specifications may 

not be an appropriate basis for appliance efficiency 

standards. 

Program Implementation and 

Evaluation 

Many states have learned that they do not need to 

start from scratch when developing and implementing appliance efficiency standards; in many cases, 

they can refer to the work already conducted by 

states with established appliance efficiency standards. For example, states have made minor adaptations to existing legislation based on the product 

lists and analyses conducted by other states. States 

have also consulted national and regional organizations with expertise and technical support capability. 

(For additional information about states’ activities, 

see the State Examples section on page 4-62.) 

While a state agency can initiate an inquiry into efficiency standards, legislation is typically needed to 

enable executive agencies to regulate in this area. 

Once legislatively authorized, states have followed 

these steps toward successful implementation of 

appliance efficiency standards: 

• Establish a Stakeholder Process. Notify affected 

manufacturers, consumers, utilities, state agencies, and public interest organizations about the 

initiative. Develop information materials and hold 

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workshops to inform stakeholders and solicit
 

feedback. 


• Define Covered Products. Develop a specific list of 

product and equipment types to be covered by the 

program. States have obtained lists of eligible 

products from other states that have recently 

enacted standards and from national organizations. 

• Conduct Benefit-Cost Analysis and Related Studies. 

(See design issues described on page 4-58.) 

• Conduct Rulemaking. The rule typically defines 

covered products, effective dates, efficiency standards, test methods, certification and labeling procedures, inspection and enforcement procedures, 

penalties for noncompliance, procedures for 

appeals, waivers and other exceptions, and contact 

information for the agencies involved. A rulemaking also provides formal notice, review, and comment procedures. When enabling legislation 

authorizes the executive branch to add new products or update standards on covered products, the 

regulatory process may be reopened after a few 

years. 

•	 Monitor, Review, and Modify the Program as 

Needed. Based on stakeholder response and market trends, some states have made specific program modifications, including revisions to covered 

products, efficiency levels, and effective dates, as 

well as process improvements such as more frequent stakeholder input cycles and more transparent public information processes. 

Typical implementation issues include: 

• Effective Dates. A single date is typically established after which noncomplying products cannot 

be sold or installed in the state. In some cases, 

where warranted by product-specific considerations, extra time is allowed for manufacturers or 

retailers to prepare for the new standards. 

• Test Methods. A specific method must be defined 

for testing the efficiency of a given product type. 

DOE, industry associations, and/or technical societies such as the American Society for Testing 

Materials (ASTM), American Society of Mechanical 

Engineers (ASME), Illuminating Society of North 

America (IESNA), or American Society of Heating, 

Refrigerating and Air Conditioning Engineers
 

(ASHRAE) are typical sources of test methods.
 

• Product Certification. The federal standards program is essentially self-certifying; that is, manufacturers use approved test procedures to attest 

that affected products comply with standards. 

Some states, notably California, maintain databases of covered products to identify which models 

are in compliance with their state standards. 

• Labeling Requirements. To date, state standards 

programs have relied primarily on national labeling 

and other information programs to address the 

need to label covered products. For example, federal law requires the Federal Trade Commission to 

operate an appliance labeling program for defined 

product types, and the DOE/EPA ENERGY STAR 

programs include certain labeling guidelines. In 

some cases, industry associations set labeling 

guidelines for certain products. Labeling issues 

vary by product type and are resolved on a caseby-case basis. 

•	 Enforcement. The federal standards program and 

the California program are largely self-policing. 

Manufacturers are expected to provide complying 

products and competitive forces are expected to 

prevent violations. Enforcement actions typically 

depend on market participants to bring violation 

claims. In the two long-running programs—the 

Best Practices for Standards Design and 

Implementation 

•	 Learn from others. There are many lessons to be 

learned from states that have adopted appliance 

standards. 

•	 Consult with stakeholders. Identify key groups early, 

including product manufacturers, affected retailers 

and customer groups, advocates, and utilities. Keep 

stakeholders informed and seek their input regularly. 

•	 Conduct a benefit-cost analysis of the proposed 

standards. 

•	 Address key issues such as: covered products, efficiency levels, effective dates, test methods, product 

certification, labeling requirements, and enforcement. 

•	 Review and adjust covered product lists to be sure 

they are technically and legally up to date. 

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federal and California programs—enforcement 

actions have been rare. 

Evaluation 

Appliance efficiency standards programs have 

achieved defined results with minimal expenditure of 

public funds. Evaluating the benefits and costs of the 

standards is important during the standards-setting 

process. Once enacted, little field evaluation is performed. 

Depending on the state enabling law, the implementing agency may be empowered to increase standards 

for affected products and/or to set standards for 

other product types. These actions are likely to 

involve detailed technical and economic evaluation. 

Improvements in the standards-setting process itself 

can also be considered at such times. 

Once a state has operated a standards program for 

several years, it is helpful to conduct a program 

review to improve procedures and implement other 

enhancements. 

A key issue for assessment is degradation of savings. 

Standards are established for a typical assumed 

application; over time the use of the product or 

device may change so that the original intent of the 

standard is not being served, or technology may 

change to the point that the device is used differently. Consequently, it can be valuable to review the 

markets and applications in which standards-covered 

devices are used, to ensure that the standards are 

having the intended effect. If the market or application context changes sufficiently for a product, the 

applicable standard may need to be reevaluated. 

Other opportunities for evaluation include assessments of energy, demand, emissions, and other 

impacts over time, both for evaluating effectiveness 

and for quantifying emissions impacts for air quality 

or climate policy purposes. A periodic process evaluation of the standards program can also be helpful to 

ensure that stakeholder participation is appropriate, 

technical methods are up-to-date and effective, and 

rulemaking procedures are as transparent and nonbureaucratic as possible. 

Best Practices for Standards Evaluation 

•	 Conduct technical and economic evaluation of 

opportunities to increase appliance standards 

and/or set standards for new products. 

•	 Review markets and product applications periodically (e.g., every three to five years) to determine 

whether new or adjusted regulations are needed to 

avoid degradation of savings. 

State Examples 

California 

California was the first state to initiate an appliance 

efficiency standards program (in 1977) and maintains the most active and well-funded standards program of any state. California law now covers 30 

products; new or upgraded standards are under consideration for three products. Most state standards 

programs in recent years have used California’s covered products, or a subset of these products, and its 

technical procedures as the basis for their efforts. 

The California Energy Commission (CEC) operates the 

standards programs for the state. It develops technical and economic assessments of products recommended for rulemakings, develops draft regulations, 

holds public participation processes, issues final 

rules, monitors compliance, and maintains a database of covered products. 

California’s standards program has contributed to 

substantial improvements in energy efficiency. The 

standards in place in the state are currently reducing 

peak electric demand by about 2,000 MW or about 

5% of peak load. These savings account for about 

20% of California’s total peak demand reductions 

from all efficiency programs over the past 20 years. 

By 2010, the 2002 California appliance standards 

could reduce natural gas consumption by 20.9 billion 

cubic feet and electricity use by 2,485 million kWh. 

This translates into a cumulative net savings of $1.9 

billion. The savings could increase significantly by 

2020: natural gas consumption would be reduced by 

41 billion cubic feet and electricity consumption 

would be reduced by 7.1 billion kWh, resulting in a 

cumulative net savings of $4.3 billion (ACEEE 2000). 

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California must receive a federal waiver to enact its 

proposed state standards for residential water 

heaters and clothes washers, since they would 

exceed the existing federal standards. California has 

published standards for NAECA-covered and nonNAECA covered products. However, the CEC appears 

unlikely to request the waiver for water heaters so 

the proposed standards are not likely to save energy 

beyond NAECA levels. On clothes washers, California 

established a water factor in their standard. This 

requires a waiver, which the CEC filed on September 

13, 2005. If the waiver is granted to CEC, the clothes 

washers standards could save 17 billion cubic feet of 

natural gas, 1.1 billion kWh of electricity, and more 

than $1.9 billion in cumulative net savings by 2020. 

Water heater standards could save 19 billion cubic 

feet of natural gas, 469 million kWh in electricity, 

and $761 million in cumulative net savings. 

Web sites: 

http://www.energy.ca.gov/efficiency/appliances/ 

index.html 

http://www.energy.ca.gov/appliances/documents/ 

index.html (contains documents detailing California’s 

technical and economic analysis process) 

http://www.energy.ca.gov/appliances/appliance/ 

index.html 

http://www.energy.ca.gov/appliances/appliance/ 

excel_based_files/ (contains California appliance 

data) 

Connecticut 

Connecticut enacted efficiency standards legislation 

in 2004 through Senate Bill 145 (S.B.145). This bill 

covers the following products: torchiere lighting fixtures, building transformers, commercial refrigerators 

and freezers, traffic signals, exit signs, large packaged air conditioning equipment, unit heaters, and 

commercial clothes washers. The Connecticut standards are expected to save residents and businesses 

more than $380 million in energy costs by 2020, 

conserve over 430 gigawatt-hours (GWh) of electricity, reduce summer peak electricity demand by over 

125 MW, and avoid the emissions of about 65,000 

metric tons of carbon (NEEP 2004). 

Web site: 

http://search.cga.state.ct.us/dtsearch_Ipa.html 

New Jersey 

In 2005, New Jersey enacted energy efficiency standards for nine products. Very similar to the 

Connecticut bill, the new law sets standards for 

commercial clothes washers, commercial freezers, 

illuminated exit signs, very large air-cooled commercial air conditioning equipment, low-voltage dry-type 

distribution transformers, torchiere lighting fixtures, 

traffic signal modules, and unit heaters. 

Analysis of the bill indicates that New Jersey customers will save hundreds of millions of dollars in 

energy costs over the next 20 years, while significantly reducing emissions of sulfur dioxide (SO2) and 

smog-forming nitrogen oxide (NO ). The new stan­ x

dards are estimated to reduce New Jersey’s annual 

carbon dioxide (CO2) emissions by almost 175,000 

metric tons, equivalent to removing almost 145,000 

cars from the road. 

Web site: 

http://www.bpu.state.nj.us/home/home.shtml 

New York 

Signed on July 29, 2005, the Appliance and 

Equipment Energy Efficiency Standards Act of 2005 

establishes state energy efficiency standards for 14 

household appliances and electronic equipment not 

currently covered by federal standards. The products 

covered under the new law include ceiling fans, ceiling fan light kits, furnace air handlers, commercial 

pre-rinse spray valves, commercial washing 

machines, refrigerators and freezers, icemakers, 

torchiere lighting, unit heaters, reflector lamps, metal 

halide lamp fixtures, pedestrian and vehicular traffic 

signal modules, exit signs, and very large commercial 

air conditioning units. In addition, the law requires 

the Secretary of State and the New York State 

Energy Research and Development Authority (NYSERDA) to set efficiency standards for electronic products that use standby power when they are turned 

off but remain plugged in (e.g., DVD players and 

recorders, VCRs, and battery chargers) in an effort to 

reduce “phantom” energy consumption. 

The appliance and equipment efficiency standards 

are expected to save 2,096 GWh of electricity annually, enough to power 350,000 homes. This equates 

� Section 4.4. State Appliance Efficiency Standards
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to annual savings of $284 million per year. CO2 emissions are expected to decrease by 870,000 metric 

tons annually, NO by 1,429 metric tons annually, x 

and SO2 by 2,858 metric tons annually as a result of 

the new standards (Pew 2005). 

Web site: 

http://assembly.state.ny.us/leg/?bn=AO8103 

What States Can Do 

Depending on whether authority for efficiency standards already exists, states interested in exploring 

appliance efficiency standards can begin a new standards initiative, upgrade standards for products currently covered by state law, or expand coverage to 

new products. 

Action Steps for States 

States that have adopted appliance efficiency standards can conduct the following action steps: 

• Assess whether authority exists to upgrade current 

standards or set standards for other products. If 

authority exists, determine appropriate increases 

in efficiency levels for current standards or appropriate new products and efficiency levels. If 

authority does not exist, work with policymakers 

to assess the benefits of allowing the implementing agency to upgrade standards and set standards 

for other products. 

• Develop a list of potential products for which 

standards could be established and conduct an 

initial assessment of efficiency levels. Conduct a 

rulemaking process to determine the final products 

to cover and the associated efficiency levels. 

Encourage active stakeholder participation and use 

transparent analysis and decision-making procedures. 

• Periodically report on program impacts and 

operations. 

• Assess stakeholder communication and participation and revise these processes, if needed. 

• Actively promote consumer awareness of appliances for which EPAct 2005 directs DOE to set 

standards. 

States that are considering adopting appliance efficiency standards can: 

• Review sample legislation, product lists, and 

analyses available from other states. 

• Consult with stakeholders, national and regional 

associations, and other key parties to conduct preliminary cost/benefit and feasibility analyses. 

• Work cooperatively with policymakers to determine whether appliance efficiency standards are 

an appropriate option. 

• Actively promote consumer awareness about the 

energy cost savings and environmental benefits of 

appliance standards. 

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Information Resources 

Information About States 

Title/Description URL Address 

The California Appliance Efficiency Program. This Web site provides information and 

resources on California’s appliance efficiency programs, including current regulations, rulemakings, a database of energy efficiency appliances, and background 

information. 

http://www.energy.ca.gov/efficiency/ 

appliances/index.html 

California Appliance Efficiency Regulations. This Web site provides information on 

California’s appliance standard regulations. 

http://www.energy.ca.gov/appliances/ 

2006regulations/index.html 

California’s Appliance Standards: A Historical Review, Analysis and 

Recommendations, Staff Report. CEC, Sacramento, 1983. 

URL not available. 

Energy Efficiency Standards: A Low-Cost, High Leverage Policy for Northeast States. 

The analysis conducted for this project showed that efficiency standards have very 

large and highly cost-effective economic, energy, and environmental benefits for 

states in the Northeast. 

http://www.neep.org/Standards/ 

Efficiency Standards Report.pdf 

Energy Efficient Florida: Smart Energy Policy That Benefits Florida’s Economy and 

Environment. This document provides information on Florida’s clean energy potential. 

http://floridapirg.org/FL.asp?id2=10282&id3= 

FL& 

Report on Appliance Efficiency: Incentives and Standards. January 20, 2005. 

Presented by the Maine Public Utilities Commission (PUC) to the Utilities and Energy 

Committee, this report reviews alternative methods of using voluntary incentive programs and/or establishing minimum energy efficiency standards. It recommends that 

the Maine Legislature implement minimum efficiency standards for nine different 

products. 

http://mainegov-images.informe.org/mpuc/ 

staying_informed/legislative/ 

2005legislation/appliance_ 

standards_rpt.pdf 

General Information About Appliance Efficiency Standards
 

Title/Description URL Address 

The American Council for an Energy-Efficient Economy (ACEEE). The ACEEE Web 

site contains many publications and resources on all aspects of energy efficiency, 

economic development, and environmental concerns. 

http://www.aceee.org 

The Appliance Standards Awareness Project (ASAP). This group provides information and resources on federal and states appliance standards. 

http://www.standardsasap.org 

Codes and Standards White Paper on Methods for Estimating Savings. Mahone, D., 

N. Hall, L. Megdal, K. Keating, and R. Ridge. 2005. April 7. Prepared by HMG for 

Marian Brown, SCE in Support of Statewide NRNC MA&E. This paper addresses 

California building and appliance energy efficiency standards, and the role of codes 

and standards programs as part of utility portfolios of energy efficiency programs. 

http://www.calmac.org/publications/ 

CSWhite_Paper_Final.pdf 

The Collaborative Labeling and Appliance Standards Program (CLASP). This program’s Web site provides information and resources on developing countries that 

are pursuing energy efficiency and labeling programs. 

http://www.clasponline.org/ 

disdoc.php3?no=289 

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Title/Description URL Address 

DOE Appliance and Commercial Equipment Standards. This DOE Web site provides 

information on state and federal appliance standards. 

http://www.eere.energy.gov/buildings/ 

appliance_standards/ 

Leading the Way: Continued Opportunities for New State Appliance and Equipment 

Efficiency Standards.Nadel, S., A. deLaski, J. Kleisch, and T. Kubo. 2005. January. 

This report describes opportunities for state governments to set minimum-efficiency 

standards for 18 appliances and other types of equipment currently not covered by 

federal standards. 

http://www.standardsasap.org/a051.pdf 

Northeast Energy Efficiency Partnerships (NEEP). NEEP’s Web site provides information on promoting energy efficiency in the Northeastern United States. 

http://www.neep.org 

NEEP. Energy Efficiency Standards: A Low-Cost, High Leverage Policy for Northeast 

States. This Web site provides access to updated information about energy efficiency standards in the Northeastern states. 

http://www.neep.org/Standards/index.html 

Realized and Prospective Impacts of U.S. Energy Efficiency Standards for 

Residential Appliances. Meyers, S., J. McMahon, M. McNeil, and X. Liu. 2002. 

Lawrence Berkeley National Laboratory (LBNL). June. Final Report. This project 

involved development of an analytical framework to estimate energy, environmental, 

and consumer economic impacts of federal residential energy efficiency standards. 

http://eappc76.lbl.gov/tmacal/ 

esdocs.cfm?iddoc=1072 

Smart Energy Policies: Saving Money and Reducing Pollutant Emissions through 

Greater Energy Efficiency. The report details nine specific policy recommendations 

that could have a substantial impact on the demand for energy in the United States 

while also providing positive economic returns to American consumers and businesses. 

http://www.aceee.org/pubs/e012full.pdf 

What Are Appliance Efficiency and Standards in the States? This DOE Web site provides information and resources on state appliance standards. 

http://www.eere.energy.gov/ 

state_energy_program/topic_ 

definition_detail.cfm/topic=101 

Examples of Legislation
 

State Title/Description URL Address 

Arizona Appliances and Equipment Energy Efficiency Standards. This 

bill sets minimum efficiency standards for 15 products. 

http://www.swenergy.org/legislative/ 

arizona/HB%202390%20Engrossed% 

20Bill%20Language.pdf 

California Appliance Efficiency Regulations, 2006. This document provides 

California’s appliance efficiency regulations, and related public 

comments, hearing transcripts, and other information. 

http://www.energy.ca.gov/appliances/ 

2006regulations/index.html 

Colorado A Bill for an Act Concerning Energy Efficiency Standards for 

Specified Devices (HB 04-1183). This bill sets minimum energy 

efficiency standards for 14 products. 

http://www.swenergy.org/legislation/ 

colorado/HB-1183.pdf 

http://www.swenergy.org/legislation/ 

colorado/HB-1183_FactSheet.pdf 

Connecticut An Act Concerning Energy Efficiency Standards, S.B.145. This 

act requires the Secretary of the Office of Policy and 

Management to establish, by regulation, minimum energy efficiency standards for certain heating, cooling, lighting, and other 

types of products. 

http://www.cga.ct.gov/asp/cgabillstatus/ 

cgabillstatus.asp?selBillType=Bill&bill_ 

num=145&which_year=2004&SUBMIT.x= 

7&SUBMIT.y=7 

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State Title/Description URL Address 

Maryland Maryland House Bill 1030. This bill, which was enacted in 

January 2004, provides legislative language for Energy 

Efficiency Standards for 10 products. 

http://mlis.state.md.us/2005rs/billfile/ 

HB1030.htm 

Massachusetts Massachusetts Appliance Efficiency Standards Act. 

Commonwealth of Massachusetts. 2005. Chapter 139 of the 

Acts of 2005. This act requires establishment of minimum efficiency standards for five products. 

http://www.mass.gov/legis/laws/seslaw05/ 

sl050139.htm 

New Hampshire Minimum Efficiency Standards for Certain Products. Senate Bill 

105 (S.B.105). State of New Hampshire. 2003. S.B.105-FN. 

Minimum Energy Efficiency Standards for Certain Products. 

New Hampshire appliance standards information. This bill, 

introduced in 2003, establishes state appliance and equipment 

energy efficiency standards for 10 products. 

http://www.gencourt.state.nh.us/ 

legislation/2004/sb0105.html 

New Jersey Establishes Minimum Energy Efficiency Standards for Certain 

Products. This act establishes minimum energy efficiency standards for eight products. 

http://www.njleg.state.nj.us/ 

(To locate information about the Act, go to 

Select “Bills 2004–2005” from the left sidebar; select “Search by Bill Number;” and 

type “A516” into the search box.) 

New York Appliance and Equipment Energy Efficiency Standards Act of 

2005. State of New York. 2005. Governor Pataki Introduces the 

Appliance and Equipment Energy Efficiency Standards Act of 

2005. New York appliance standards information. This act 

establishes state energy efficiency standards for 14 household 

appliances and electronic equipment. 

http://www.state.ny.us/governor/press/ 

year05/april20_2_05.htm 

Oregon House Bill 3363. This act establishes minimum energy efficiency standards for 12 products. 

http://www.leg.state.or.us/05reg/measures/ 

hb3300.dir/hb3363.b.html 

Pennsylvania House Bill 2035. General Assembly of Pennsylvania. 2003. 

House Bill No. 2035. Providing for Minimum Efficiency 

Standards. Providing for Minimum Energy Efficiency Standards 

for Certain Appliances and Equipment; and Providing for the 

Powers and Duties of the Pennsylvania PUC and of the 

Attorney General. This provides the text for the Pennsylvania 

bill introduced in 2003. 

http://www.legis.state.pa.us/wu01/li/bi/bt/ 

2003/0/hb2035p4640.htm 

Rhode Island S 0540–Energy and Consumer Savings Act of 2005. This provides the text of the Rhode Island appliance standards legislations signed July 1, 2005. 

http://www.rilin.state.ri.us/Billtext/BillText05/ 

SenateText05/S0540A.pdf 

Vermont Senate Bill 52. An Act Relating to Renewable Energy Portfolio 

Standards, Appliance Efficiency Standards, and Distributed 

Electricity. State of Vermont. 2005–2006. Renewable Energy 

Goals. Vermont General Assembly, Montpelier. Vermont appliance standards information. This provides the text for the 

Vermont bill introduced in 2005. 

http://www.leg.state.vt.us/docs/ 

legdoc.cfm?url=/docs/2006/bills/senate/ 

S-052.htm 

Washington Senate Bill 5098. An Act Relating to Energy Efficiency. Text of 

the Washington bill establishing minimum standards and testing procedures for 13 electrical products that are not covered 

by federal law. 

http://www.leg.wa.gov/pub/billinfo/ 

2005-06/Htm/Bill%20Reports/Senate/ 

5098-S.SBR.htm 

United States Energy Policy Act of 2005. This is the text of EPAct 2005. http://frwebgate.access.gpo.gov/ 

cgi-bin/getdoc.cgi?dbname=109_cong_ 

bills&docid=f:h6enr.txt.pdf 

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References 


Title/Description URL Address 

ACEEE. 2000. State Savings from Updated Appliance Energy Efficiency Standards in 

2010 and 2020. California. Opportunity Knocks. ACEEE. Accessed May 31, 2005. 

http://www.standardsasap.org/calif.pdf 

ACEEE. 2005a. Conference Report 2005 (ACEEE Staff Analysis August 2005). ACEEE. 

Accessed October 19. 

http://www.aceee.org/energy/ 

0508confsvg.pdf 

and 

http://www.aceee.org/press/0507confbill.htm 

ACEEE. 2005b. The Federal Energy Policy Act of 2005 and Its Implications for Energy 

Efficiency Program Efforts. Steven Nadel, September 2005. Report #E053 ACEEE. 

http://www.aceee.org/pubs/E053.pdf 

ASAP. 2004. ASAP Web site. Boston, MA. http://www.standardsasap.org 

Delaski, A. 2005. Personal memo from Andrew Delaski, ASAP. August 1. N.A. 

Geller, H, T. Kubo, and S. Nadel. 2001. Overall Savings from Federal Appliance and 

Equipment Efficiency Standards. ACEEE. February. Accessed June 21, 2005. 

http://www.standardsasap.org/stndsvgs.pdf 

Motamedi, L. 2005. Regulatory Analyst, Division of Strategic Planning, California 

Public Utilities Commission. Presentation to the EPA State Energy 

Efficiency/Renewable Technical Forum, April 11. 

http://www.epa.gov/cleanenergy/pdf/ 

keystone/CA_EE_Overview__ 

Motamedi.pdf 

Nadel, S. and M. Pye. 1996. Appliance and Equipment Efficiency Standards: Impacts 

by State. ACEEE, Washington, D.C. 

http://www.aceee.org/store/ 

proddetail.cfm?&ItemID= 

146&CategoryID=7 

Nadel, S., A. deLaski, J. Kleisch, and T. Kubo. 2005. Leading the Way: Continued 

Opportunities for New State Appliance and Equipment Efficiency Standards. Report 

Number ASAP-5/ACEEE-A051. ACEEE, Washington, D.C., and ASAP, Boston, MA. 

January. 

http://www.standardsasap.org/a051.pdf 

NEEP. 2004. Connecticut Adopts New Energy Efficiency Product Standards. NEEP 

Press Release, May 17. 

http://www.neep.org/files/ 

enews_elements/CT.pdf 

NEEP. 2005. Energy Efficiency Standards: A Boon for Maryland. Fact Sheet. 

Accessed November 9, 2005. 

http://www.neep.org/Standards/FactSheets/ 

MDfactsheet.pdf 

Optimal Energy. 2004. Economically Achievable Energy Efficiency Potential in New 

England. Prepared by Optimal Energy, Inc. for NEEP. November 17. 

http://www.neep.org/files/ 

Executive_Summary.pdf 

Pew. 2005. Pew Center on Global Climate Change Web Site. State and Local News. 

New York Adopts New Energy Efficiency Standards. Accessed November 9, 2005. 

http://www.pewclimate.org/ 

what_s_being_done/ 

in_the_states/news.cfm 

State of Washington. 2005. 2005 Biennial Energy Report. State of Washington 

Department of Community, Trade and Economic Development’s Energy Policy 

Division, Olympia. Accessed May 31, 2005. 

http://www.cted.wa.gov/_CTED/documents/ 

ID_1872_Publications.pdf 

4-68 � Chapter 4. Energy Efficiency Actions
 
 

 

 

 

 

 

 

 

 

 

 

 

Chapter 5. 


Energy Supply Actions 


States can achieve a number of environmental and 

economic benefits by encouraging the development 

of clean energy supply as part of a balanced energy 

portfolio. This chapter provides an in-depth discussion of five policies that states have successfully 

used to support and encourage continued growth of 

clean energy supply in their state. The term clean 

energy supply is used in this chapter to describe 

clean, distributed generation (DG), including renewable energy and combined heat and power (CHP). 

While states identify renewable technologies differently, most tend to include, at a minimum, solar, 

wind, biomass, and landfill gas/biogas. CHP is an 

efficient approach to generating electric and thermal 

energy from a single fuel source. 

The policies shown in Table 5.1 were selected from a 

larger set of clean energy supply strategies because 

of their proven effectiveness and the significant 

effect they can have in increasing the amount of 

clean energy supply in those states that adopt them. 

The information presented in each policy description 

is based on the experiences and best practices of 

states that are implementing the programs, as well 

as on other sources, including local, regional, and 

federal agencies and organizations, research foundations and nonprofit organizations, universities, and 

utilities. 

Table 5.1 also lists examples of states that have 

implemented each type of policy or program. States 

can refer to this table for an overview of the policies 

described in this chapter and to identify other states 

they may want to contact for additional information 

about their clean energy supply policies or programs. 

The For More Information column lists the Guide to 

Action section where each in-depth policy description is located. 

In addition to these five policies, states are adopting 

a number of related policies to maximize the benefits 

Clean Energy Policies
 

Type of Policy 

For More 

Information 

State Planning and Incentive Structures 

Lead by Example Section 3.1 

State and Regional Energy Planning Section 3.2 

Determining the Air Quality Benefits of Clean 

Energy 

Section 3.3 

Funding and Incentives Section 3.4 

Energy Efficiency Actions 

Energy Efficiency Portfolio Standards Section 4.1 

Public Benefits Funds for Energy Efficiency Section 4.2 

Building Codes for Energy Efficiency Section 4.3 

State Appliance Efficiency Standards Section 4.4 

Energy Supply Actions 

Renewable Portfolio Standards Section 5.1 

PBFs for State Clean Energy Supply Programs Section 5.2 

Output-Based Environmental Regulations to 

Support Clean Energy Supply 

Section 5.3 

Interconnection Standards Section 5.4 

Fostering Green Power Markets Section 5.5 

Utility Planning and Incentive Structures 

Portfolio Management Strategies Section 6.1 

Utility Incentives for Demand-Side Resources Section 6.2 

Emerging Approaches: Removing Unintended 

Utility Rate Barriers to Distributed Generation 

Section 6.3 

of clean energy supply. These policies are addressed 

in other sections of the Guide to Action as follows. 

•	 Lead by Example programs provide opportunities to 

install clean energy supply within state buildings 

or purchase clean energy attributes for state 

buildings (see Section 3.1). 

� Chapter 5. Energy Supply Actions
 5-1 
 

 

 

 

 

 

 

 

 

EPA Clean Energy-Environment Guide to Action
 

•	 State and Regional Planning activities help states 

identify opportunities to incorporate clean energy 

supply as a way to meet future load growth (see 

Section 3.2). 

•	 Determining the Air Quality Benefits of Clean 

Energy describes how to incorporate the emission 

reductions from clean energy supply into air quality planning and related activities (see Section 3.3). 

•	 Funding and Incentives describes additional ways 

states provide funding for clean energy supply 

through grants, loans, tax incentives, and other 

funding mechanisms (see Section 3.4). 

•	 Portfolio Management Strategies include proven 

approaches, such as Integrated Resource Planning 

(IRP), that place a broad array of supply and 

demand options on a level playing field when 

comparing and evaluating them in terms of their 

ability to meet projected energy demand. These 

strategies highlight and quantify the value of 

Table 5.1: Energy Supply Policies and Programs
 

energy efficiency and clean DG as a resource to 

meet projected load growth (see Section 6.1). 

•	 Utility Incentives for Demand-Side Resources presents a number of approaches, including decoupling 

and performance incentives, that remove disincentives for utilities to consider energy efficiency, 

renewable energy, and clean DG equally with traditional electricity generation investments when 

making electricity market resource planning decisions (see Section 6.2). 

•	 Emerging Approaches: Removing Unintended Utility 

Rate Barriers to Distributed Generation. This section describes how electric and natural gas rates 

set by public utility commissions (PUCs), can be 

designed to support clean DG projects and avoid 

unintended barriers, while also providing appropriate cost recovery for utility services on which consumers depend (see Section 6.3). 

Policy Description State Examples 

For More 

Information 

Renewable Portfolio 

Standards (RPS) 

RPS establish requirements for electric utilities and other retail electric providers to serve a specified percentage or amount of customer 

load with eligible resources. Twenty-one states and Washington, D.C. 

have adopted RPS. 

AZ, CA, MA, 

TX, WI 

Section 5.1 

Public Benefits Funds 

(PBFs) for State Clean 

Energy Supply Programs 

PBFs are pools of resources used by states to invest in clean energy 

supply projects and are typically created by levying a small charge on 

customers’ electricity bills. Sixteen states have established PBFs for 

clean energy supply. 

CA, CT, MA, 

NJ, NY, OH 

Section 5.2 

Output-Based 

Environmental 

Regulations to Support 

Clean Energy Supply 

Output-based environmental regulations establish emissions limits 

per unit of productive energy output of a process (i.e., electricity, 

thermal energy, or shaft power), with the goal of encouraging fuel 

conversion efficiency and renewable energy as air pollution control 

measures. Twelve states have established output-based environmental regulations. 

CT, IN, MA, TX Section 5.3 

Interconnection 

Standards 

Standard interconnection rules establish processes and technical 

requirements that apply to utilities within the state and reduce uncertainty and delays that clean DG systems can encounter when obtaining electric grid connection. Fourteen states have standard interconnection rules, and 39 states offer net metering. 

MA, NJ, NY, TX Section 5.4 

Fostering Green Power 

Markets 

States play a key role in fostering the development of voluntary green 

power markets that deliver cost-competitive, environmentally beneficial renewable energy resources by giving customers the opportunity 

to purchase clean energy. Green power is available in more than 

40 states. 

CT, MA, NJ, 

NM, WA 

Section 5.5 

5-2 � Chapter 5. Energy Supply Actions
 
 

 

 

 

 

 

 

2005 2006 2007 

2008 2009 

2010 2011 

2012 

2013 

2014 

2015 

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 

2015 

EPA Clean Energy-Environment Guide to Action
 

5.1 Renewable Portfolio 

Standards 

Policy Description and Objective 

Summary 

A renewable portfolio standard (RPS) requires electric 

utilities and other retail electric providers to supply a 

specified minimum percentage (or absolute amount) 

of customer load with eligible sources of renewable 

electricity. As of September 2005, RPS requirements 

Renewable Portfolio Standards (RPS) provide 

states with an opportunity to increase the 

amount of renewable energy in a costeffective, market-based approach that is 

administratively efficient. 

Figure 5.1.1a: Projected New Renewable Capacity by 

2015 Attributable to Existing RPS Requirements 

(California compared to all other states) 

28,000 

have been established in 21 states plus Washington, 

D.C., and are a key driver for new renewable electric 

generation facility development in the United States 

(Figures 5.1.1a and 5.5.1b). Over 2,300 megawatts 

(MW) of new renewable energy capacity through 

2003 is attributable to RPS programs (Petersik 2004). 

RPS is cited as the driving force behind the installation of approximately 47% of new wind capacity 

additions in the United States between 2001 and 

Cumulative New Renewable Energy Capacity (MW) 

26,000 

24,000 

22,000 

20,000 

18,000 

16,000 

14,000 

12,000 

10,000 

8,000 

6,000 

4,000 

2,000 

California Other RPS States 

2004 (Wiser 2005). 0 

Many states have adopted RPS requirements because 

they are an administratively efficient, cost-effective, 

and market-based approach to achieving renewable 

electricity policy objectives. RPS requirements can be Figure 5.1.1b: Projected New Renewable Capacity by 

2015 Attributable to Existing RPS Requirements used in both regulated and restructured electricity 

markets. (comparison of all other states)

States have tailored their RPS requirements to satisfy 

particular state policy objectives, electricity market 

characteristics, and renewable resource potential. 

Consequently, there is wide variation in RPS rules 

from state to state with regard to the minimum 

requirement of renewable energy, implementation 

timing, eligible technologies and resources, and other 

policy design details. 

0 

2,000 

4,000 

6,000 

8,000 

10,000 

12,000 

14,000 

16,000 

18,000 

20,000 

22,000 

24,000 

26,000 

28,000 Texas 

New Mexico 

Nevada 

Colorado 

Arizona 

Pennsylvania 

New Jersey 

Maryland 

D.C. 

Delaware 

New York 

Vermont 

Rhode Island 

Massachusetts 

Maine 

Connecticut 

Wisconsin 

Montana 

Minnesota 

Iowa 

Hawaii 

California 

Cumulative New Renewable Energy Capacity (MW) 

Source: Navigant 2005. 

� Section 5.1. Renewable Portfolio Standards
 5-3 
 

EPA Clean Energy-Environment Guide to Action
 

Electricity suppliers must demonstrate compliance 

with RPS requirements by any of these three mechanisms: 

• Purchase electricity from a renewable facility 

inclusive of all renewable attributes (sometimes 

called “bundled renewable electricity”). 

• Purchase renewable energy certificates (RECs). A 

REC is a tradable right (separate from the electrical energy itself) to claim the environmental and 

other attributes associated with 1 megawatt-hour 

(MWh) of renewable electricity from a specific 

generation facility. 

• Own a renewable energy facility and its output 

generation. 

As of September 2005, 16 states allow the use of 

RECs to satisfy RPS requirements. Unlike bundled 

renewable energy, which is dependent on physical 

delivery via the power grid, RECs can be traded 

between any two parties, regardless of their 

location.17 However, state RPS rules typically condition the use of RECs based on either location of 

the associated generation facility or whether it sells 

power into the state or to the regional grid. (A more 

detailed explanation is provided in Figure 5.1.6 on 

page 5-10.) 

Objective 

States create RPS programs because of the energy, 

environmental, and economic benefits of renewable 

energy. Many states have also adopted RPS programs 

to stimulate market and technology development 

and, ultimately, to help make renewable energy competitive with conventional forms of electric power. 

Examples of broader goals and objectives that the 

state may want to prioritize in the RPS design 

process include: 

• Local, regional, or global environmental benefits. 

• Local economic development goals. 

• Hedging fossil fuel price risks. 

• Advancement of specific technologies. 

Benefits 

The benefits of an RPS are the same as those from 

renewable energy and combined heat and power 

(CHP)18 in general: 

• Environmental improvement (e.g., avoided air pollution, climate change mitigation, waste reduction, 

habitat preservation, conservation of water and 

other valuable natural resources). 

• Increased diversity and security of energy supply, 

with greater reliance on domestic, regional, and 

in-state resources. 

• Reduced volatility of power prices given the stable 

(or nonexistent) fuel costs of renewables. 

• Possible reduction of wholesale market prices due 

to low bid prices of intermittent renewables in 

competitive wholesale markets. 

• Mitigation of natural gas prices due to some displacement of gas-fired generation. 

• Local economic development resulting from new 

jobs, taxes, and revenue associated with new 

renewable capacity. 

Because it is a market-based program, an RPS has 

several operational benefits: 

• Achieves renewable policy objectives efficiently 

and with relatively modest impacts to customer 

bills. State analyses performed prior to implementation of RPS requirements have shown that 

annual ratepayer impacts result in increases of 

less than 1% and savings of up to 0.5%, with the 

impact on residential bills of a few dollars a year 

(DSIRE 2005, Navigant 2005; see Figure 5.1.2). 

States have found the importance of performing 

analyses in conjunction with the design of an RPS 

to ensure the level is not set too high, which 

would result in higher costs. 

17 

18 

RECs represent the attributes of electricity generated from renewable energy sources. When they are sold or traded with the physical electricity, 

they are considered bundled. They can be unbundled and sold or traded separately as two commodities. 

CHP is an efficient, clean, and reliable approach to generating power and thermal energy from a single fuel source by recovering the waste heat for 

use in another beneficial purpose. 

5-4 � Chapter 5. Energy Supply Actions 
 

 

 

 

 

 

 

 

 

EPA Clean Energy-Environment Guide to Action
 

Figure 5.1.2: A Sampling of the Impacts of RPS Requirements on Ratepayers
 

State Incremental Target Overall Rate Impacts Average Impact on Resdential Bill 

CA 41,000 GWh (2010) Savings: 0.5% in 2010 Savings: $3.5/yr in 2010 

CO 4,500 GWh (2020) Savings: 0.5% expected value Savings: $2.4/yr expected values 

IA 4,400 GWh (2015) Savings: 0.3% on average Savings: $3.4/yr on average 

MN 6,300 GWh (2010) Savings: 0.7% on average Savings: $4.6/yr on average 

NY 12,000 GWh (2013) Cost: 0.32% in 2009 Cost: $3/yr in 2009 

PA 17,000 GWh (2015) Cost: 0.46% on average Cost: $3.5/yr on average 

WA 14,300 GWh (2023) No impact No impact 

WI 7,500 GWh (2013) Cost: 0.6% on average after 2010 Cost: $3.3/yr on average after 2010 

Source: Wiser 2005. 

• Spreads costs associated with RPS requirements 

among all customers. 

• Minimizes the need for ongoing government intervention. 

• Functions in both regulated and unregulated state 

electricity markets. 

States are often finding that RPS requirements provide a cost-effective approach to achieving energy 

and environmental goals. RPS requirements typically 

lead to market development of the most costcompetitive forms of renewable energy (currently 

wind power in most cases), unless designed to 

encourage higher-cost renewable technologies. 

States with RPS Requirements 

As of September 2005, 21 states and Washington, 

D.C. have established RPS requirements (see Figure 

5.1.3). Eight states enacted RPS rules in 2004 alone. 

In addition, Illinois has adopted legislation with a 

renewable energy goal of at least 5% by 2010, and 

at least 15% by 2020 (DSIRE 2005, Navigant 2005). 

The legislation does not include a verification process 

or any noncompliance penalties. Tremendous diversity exists among these states with respect to the 

minimum requirements of renewable energy, implementation timing, and eligible technologies and 

resources (see Figures 5.1.4 on page 5-6 and 5.1.5 on 

page 5-7). After initial enactment, several states 

have fine-tuned the RPS rules to reflect new technology, resource, or policy considerations that may 

have changed over time. 

Initially, RPS requirements emerged as a part of 

deregulation of the electricity sector. Recently, however, states that are not deregulated have begun to 

adopt RPS requirements with an eye towards other 

policy concerns, such as rising natural gas and coal 

Figure 5.1.3: States with RPS Requirements
 

DC 

Note: In Minnesota, an RPS is applicable only to the state’s largest utility, Xcel Energy, which is required by special legislation to build or contract for 125 MW of biomass electricity and 1,125 MW of wind by 2011. 

The other Minnesota utilities must make a good faith effort to meet a 

Renewable Energy Objective, which is not mandatory. 

Sources: DSIRE 2005, Navigant 2005. 

� Section 5.1. Renewable Portfolio Standards
 5-5 
 

 

 

 

EPA Clean Energy-Environment Guide to Action
 

Figure 5.1.4: State RPS Requirements
 

Target Solar 

AZ 1.1% by 20.1% by 2007 0.66% by 2007 

CA 20% by 2020% by 2017 

CO 10% by 200% by 2015 0.4% by 2015 

CT 10% by 200% by 2010 

DC 11% by 2022 1% by 2022 0.386% by 2022 

DE 10% by 2019 

HI 105 MW (2% by 1999) 

IA 105 MW (2% by 1999) 

MA 4% by 2009 ( +1%/year after) 

MD 7.5% by 2019 

ME 30% by 2000 incl. some non-RE 

MNa 10% by 2015 (1% biomass) 

MT 5% in 2008, 10% in 2010, 15% in 

2015 

NJ 6.5% by 2008 0.16% (95 MW) by 2008 

NM 5% by 2006, 10% by 2011 

NV 6% by 2005, 20% by 2015 5% of portfolio 

NY 25% by 2013 0.154% customer-sited 

by 2013 

PA 18% by 2020 (8% is RE) 0.5% by 2015 

RI 16% by 2019 

TX 2.7% or 2000 MW new by 2009, 

880 MW existing preserved 

VT Total incremental energy growth 

between 2005 and 2012 to be 

met with new renewables (cap 

10% of 2005 sales) 

WI 2.2% by 2011 

a	 See note concerning Minnesota’s RPS in Figure 5.1.3. 

Sources: DSIRE 2005, Navigant 2005. 

prices or climate change. To date, eight states have 

enacted RPS requirements as part of restructuring 

legislation, and 14 states have enacted RPS requirements outside of restructuring. 

Designing an Effective RPS 

This section describes key elements to consider in 

designing effective RPS requirements. These elements 

include participants, goals and objectives, applicability of the program, eligible technologies, program 

structure, and administration. The discussion that 

follows reflects lessons learned from states’ experiences in developing and implementing RPS requirements. In addition, this section provides insights on 

interactions of the RPS requirements with other 

state and federal policies. 

Participants 

A number of organizations are involved in the design 

of RPS requirements: 

•	 State Legislatures. Typically, the state legislature 

enacts legislation to mandate RPS requirements. 

However, legislation is not always necessary to 

introduce RPS requirements. For example, in 

Colorado, RPS requirements were mandated by a 

state ballot initiative. In New York, the state Public 

Utility Commission (PUC) established RPS requirements under its existing regulatory authority at 

the request of the governor. Governors have 

become increasingly involved in shaping RPSrelated policies. 

•	 State PUCs. State PUCs and other state agencies 

are generally tasked with establishing the detailed 

rules governing RPS requirements. In crafting 

detailed RPS rules, state agencies follow the intent 

and requirements of the enabling legislation but 

sometimes must resolve technical and policy 

issues that can influence the effectiveness of the 

program. In Arizona and New Mexico, RPS requirements were adopted via a regulatory process 

before being codified by the legislature. As of 

September 2005, a similar process is ongoing in 

Illinois. 

•	 Renewable Electricity Generators. The efforts and 

ability of renewable electricity generators to build 

new facilities are critical to the success of RPS 

requirements. Therefore, the legitimate commercial 

needs of these generators are an important component of the design phase and can be addressed 

by facilitating long-term contracts. 

•	 Utilities. Whether deregulated or vertically integrated, utilities are crucial entities in the successful implementation of RPS requirements. Ensuring 

that utility needs are addressed (e.g., recovery of 

compliance costs associated with RPS requirements) is vital to make RPS requirements effective. 

•	 Competitive Electric Service Providers (ESPs). In 

states that have restructured, competitive ESPs 

that provide generation service to customers may 

be subject to RPS requirements. Administrative 

feasibility, flexibility, and compliance provisions 

are key concerns of many ESPs. 

5-6 � Chapter 5. Energy Supply Actions
 
 

 

 

 

 

 

EPA Clean Energy-Environment Guide to Action
 

•	 Other Stakeholders. Developing RPS rules has 

involved numerous other stakeholders, including 

state and local government officials, environmental organizations, ratepayer advocates, labor 

unions, trade associations, project developers, and 

others. 

Goals and Objectives 

States have found that RPS have multiple goals, and 

some states aim for a broader set of objectives 

(Rader and Hempling 2001). As described in the 

Objective section (page 5-4), examples of the broader goals and objectives include: 

• Local, regional, or global environmental benefits 

• Local economic development goals 

• Hedging fossil fuel price risks 

• Advancement of specific technologies 

These broader goals and objectives can serve as a 

guide to design choices for RPS requirements. It is 

important, therefore, to clearly articulate these goals 

and objectives in order to avoid protracted rule 

implementation debates and, ultimately, to produce 

the best RPS design for the state. 

Applicability and Eligibility 

A common element of RPS requirements is the applicability to investor-owned utilities and electric service providers. It is highly unusual for RPS requirements to extend to municipal utilities and cooperatives as these entities are predominately selfregulated. 

Successful states have ensured that eligibility of a 

resource or technology reflects whether or not it 

supports the goals and objectives established for the 

RPS requirements. States are finding that defining 

which renewable energy resources and technologies 

qualify as eligible under RPS requirements can be a 

complicated process with multiple issues to consider. 

Issues that states have considered include: 

•	 Technologies and Fuel. Which fuel sources and 

energy production technologies will be eligible? 

Figure 5.1.5: Eligible Technologies Under State RPS Requirements
 

AZ CA CO CT DC DE HI IA MA MD ME MN MT NJ NM NV NY PA RI TX VT WI 

Biomass 

Cogeneration 

Energy Efficiency 

Fuel Cellsa 

Geothermal 

Hydro 

Landfill Gas 

Municipal Waste 

Ocean Thermal 

Photovoltaics 

Solar Thermal 

Electric 

Tidal 

Transportation 

Fuels 

Waste Tire 

Wave 

Wind 

a	 All states shown in this figure allow fuel cells using fuel from eligible renewable sources to count towards the state’s RPS. States shown in the fuel 

cell row also allow fuel cells to meet the RPS regardless of whether the input fuel is derived from a renewable resource. 

Sources: DSIRE 2005, Navigant 2005. 

� Section 5.1. Renewable Portfolio Standards 5-7 
 

EPA Clean Energy-Environment Guide to Action
 

Some fuel sources are universally accepted (such 

as wind and photovoltaics [PV]) with almost no 

technology or project limitations. Other fuels have 

been excluded (e.g., municipal solid waste [MSW] 

or nuclear power) or conditioned on qualifying 

project technologies (e.g., run-of-river hydro), 

project scale (e.g., “small” hydro), or project performance characteristics (e.g., “low emission” biomass combustion). For example, nine states do not 

consider MSW as eligible in their RPS (see Figure 

5.1.5 on page 5-7). 

•	 Existing Versus New. How are existing renewable 

resources to be treated? Do they count toward 

RPS compliance or not? States have typically set a 

date to establish what is considered an existing 

renewable resource versus what is new. Some 

state rules are designed to prevent existing renewables from capturing additional revenues relating 

to the RPS, which could increase ratepayer costs 

but not the amount of renewable generation. 

•	 Geographic Zone. In what geographic area must 

the resources be located to be eligible in the RPS 

requirements (e.g., energy generation just within 

the state boundary or energy generation within a 

regional power market)? RPS requirements and 

other policies in neighboring states may affect this 

decision. To address this, states have performed 

cost-benefit analyses of the geographic zone and 

available resources. Strict in-state eligibility 

requirements may raise legal concerns under the 

Interstate Commerce Clause. 

•	 Central Versus Customer-Sited. How are grid-tied 

and off-grid customer-sited systems considered? 

Are there reasons why they are treated differently? 

RPS requirements have varied tremendously with 

respect to eligibility. Some states, such as Maine, 

employ fairly expansive definitions of eligible renewable electricity including both existing and new 

facilities, large hydro (up to 100 MW), MSW, and 

efficient CHP facilities (regardless of fuel source). 

Other states, such as Massachusetts, use a much 

narrower definition that excludes renewable generators in operation before the RPS requirements (unless 

refurbished or repowered), excludes hydro and MSW, 

and limits biomass facilities based on their emission 

performance. Still other states, such as Pennsylvania, 

allow energy efficiency, waste heat recovery, and 

certain fossil fuel generation to qualify under a more 

expansive “alternative energy” portfolio standard. 

States with more permissive eligibility provisions in 

RPS rules typically require a higher percentage of 

renewable energy than states with more restrictive 

definitions of eligible resources. 

Structure 

While RPS requirements are varied and are a relatively new policy tool, experience with some program 

elements to date have identified best practices for 

structuring RPS requirements. These elements of 

structure include: 

•	 Energy Versus Capacity. Most states have chosen 

to base RPS requirements targets on energy production (MWh) rather than installed capacity 

(MW). An energy production metric provides more 

incentive to use the renewable resources and, 

therefore, to achieve the benefits that an RPS is 

designed to create. 

•	 Time Horizon. Adequate time is required to establish, implement, and create new renewable electricity facilities and markets. Therefore, RPS 

requirements with sufficiently long timelines will 

enable markets to develop and provide project 

developers and investors time to recover capital 

investments. Many RPS rules have been established for an extended period of time, often with 

an end date no earlier than 10 years after RPS 

requirements are fully operational. RPS requirements that are built to last will go a long way 

toward inspiring confidence among developers and 

financiers. 

•	 Mandatory or Voluntary. Longevity of RPS requirements is crucial in getting projects financed. 

Instilling investor confidence in the REC market 

and other trading mechanisms related to RPS 

requirements is vital to developing new renewable 

energy projects. 

Most states use a mandatory structure with financial consequences for noncompliance. An RPS that 

is not enforced may do little to provide investors 

with sufficient assurance that financial returns 

5-8 � Chapter 5. Energy Supply Actions
 
 

EPA Clean Energy-Environment Guide to Action
 

will be adequate to invest in new renewable facilities, especially when renewable energy options are 

more expensive than conventional power supplies. 

In addition, compliance obligations that apply to 

the broadest possible group of retail sellers, 

including default service providers, will increase 

demand for renewable resources. State laws that 

enable inclusion of municipal utilities in RPS 

requirements also reduce the potential for bias in 

retail energy markets and broaden the base of 

intended benefits from RPS requirements. For 

example, the Colorado RPS includes municipal 

utilities and cooperative utilities, but they can 

opt-out or self-certify. If they self-certify, compliance reports are for informational purposes only. 

Enforcement options are numerous, but a number 

of states use an Alternative Compliance Payment 

(ACP). Under such a policy, in the event that a 

retail supplier cannot meet its RPS, it may instead 

pay a per-kilowatt-hour (kWh) charge for the 

amount by which it is out of compliance. The ACP 

rates vary, generally ranging from 1 to 5 cents per 

kWh, with even higher amounts for solar-specific 

RPS requirements. Some states “recycle” payments 

to support renewable energy development. (See 

the State Examples section on page 5-14 for 

examples of ACPs.) 

•	 Renewable Energy Mix. States may have policy 

interests in promoting particular renewable energy 

technologies and deployment locations to advance 

market competitiveness or other social, economic, 

or environmental objectives. “Technology tiers” 

and “credit multipliers” are the primary approaches 

used to meet these objectives. A technology tier 

carves out a portion of the overall RPS obligation 

for a subset of eligible technologies. These technologies may be viewed as crucial for renewable 

policy objectives but less competitive due to higher cost, greater technical difficulty, or other market barriers. For example, New Jersey has a PV tier 

that requires, by 2008, that 0.17% of retail sales 

be supported by in-state solar RECs issued for PV 

projects. 

The most common resource tier approaches taken 

to date include a: (1) single tier for new 

resources, (2) single tier for existing and new 

resources, and (3) multiple-tier RPS differentiated 

by the vintage, fuel, or technology of the renewable resource. 

Credit multipliers, such as those used in Arizona 

for solar PV, provide more than 1 MWh of credit 

for each MWh of generation. New Mexico and 

Nevada use a similar approach. Credit multipliers 

increase the economic incentive for developers to 

install the specific technology that is granted the 

additional credit. 

•	 Start Dates and Amount of Renewable Energy. A 

target percentage of renewable energy is a key 

element of an RPS. As shown in Figure 5.1.4 on 

page 5-6, these targets vary from 1% to 30% and 

are influenced by many factors, including a state’s 

goals, renewable energy potential, and definition 

of eligible technologies and resources. States 

establishing provisions for ramping up to the specified target of renewable energy is important. 

Every state will have unique economic, environmental, and policy factors that lead to creation of 

a best fit approach. States have found that since 

there are no absolutes, careful analysis and modeling of the expected impacts before establishing 

the targets are the keys to success. 

Administration 

When considering how the RPS requirements will be 

administered, some key issues include: 

•	 Accounting. It is important to regularly account 

for the renewable energy generated and to determine compliance with RPS requirements. Many 

states use RECs to determine compliance. These 

states include New Mexico, Massachusetts, 

Connecticut, Maine, New Jersey, Texas, and 

Wisconsin, among others. REC trading is permissible in all but four states where RPS requirements 

apply. These four states require bundled renewable 

energy (i.e., energy with attributes intact) to 

demonstrate compliance. (See Figure 5.1.6 for 

more detail on RECs and their interaction in power 

markets.) 

•	 Flexibility Mechanisms. Because retailers may 

face difficulties in complying with a renewable 

energy purchase obligation, states are developing 

mechanisms that allow retailers flexibility. These 

� Section 5.1. Renewable Portfolio Standards
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Figure 5.1.6: Illustration of Renewable Energy Credits 

(RECs) and Power Markets 

$ 

$ 

$ 

$ $ 

$ 

$ $

Conventional 

Power 

Electricity 

Consumer 

Electricity 

Supplier 

REC 

Supplier 

Green 

Power 

POWER 

POWER 

POWER 

REC 

REC 

REC 

POWER 

POWER GRID 

Description of Diagram 

•	 Green power generator produces electric power, which is delivered 

to the power grid and sold in the wholesale spot market. 

•	 Green power generator is awarded RECs and sells them to an REC 

supplier. RECs convey the right to claim the environmental and other 

attributes of the green power for regulatory or marketing purposes. 

•	 REC supplier retails some RECs directly to the consumer as a RECbased green product; no energy is sold. 

•	 REC supplier wholesales some RECs to a retail electricity supplier, 

who needs them to meet RPS requirements; no energy is sold. 

•	 Electricity supplier sells retail electricity to consumer. RPS-eligible 

RECs obtained by the supplier define the percentage of the electricity 

that is deemed renewable for RPS purposes. 

Note: Conventional power is sold predominately using bilateral contracts 

and passes through the power grid transmission; it is easier to sell 

green power into the wholesale spot market. (Both are represented in 

this diagram within “Power Grid.”) 

Source: Adapted from EPA 2004. 

mechanisms can allow a retail supplier to receive 

credit for renewable energy generated before the 

compliance date (e.g., credit for early compliance, 

forward compliance banking, REC banking) and 

some flexibility when compliance is not met by 

the specified date (e.g., deficit banking, true-up 

period). 

•	 Cost Recovery. Renewables can command a premium cost in the marketplace. However, recent 

increases in natural gas and coal prices and 

improvements in renewable technology have 

negated some of the premium to the point that 

renewable energy is now cost-effective in some 

regions. Retail suppliers will buy RECs, develop 

renewable generation, or enter into power purchase agreements (potentially at above-market 

rates) to be compliant with RPS requirements. 

Therefore, RPS requirements generally have a 

mechanism to enable the utility to pass eligible 

costs on to retail customers via existing rate 

structures or by a new surcharge to utility bills. In 

some states, system benefits charge (SBC) funds 

may also be used to support utility cost recovery. 

Competitive retail supplier rates are not regulated 

by PUCs, and therefore, suppliers will need to 

recover their costs through the rates that they 

charge to their customers who are subject to competitive market conditions. 

Some, but not all, RPS rules prohibit the sale of 

voluntary, premium-priced green power by the 

retail supplier as a means of compliance with RPS 

requirements. This policy reflects the perspective 

that voluntary green power sales are intended to 

have an impact by being incremental to RPS 

requirements, and not simply offset sales that otherwise would have occurred and been paid for by 

all customers under the RPS. For example, the New 

Jersey statewide green power program contains 

language that specifically prohibits the sale of 

RECs used for RPS compliance in green power programs, and vice versa. For more information on the 

interaction between RPS and green power markets, 

see Section 5.5, Fostering Green Power Markets. 

•	 Cost Caps. Because of the uncertainty about how 

the renewable energy market will function in the 

future, cost caps may be used to impose an upper 

bound on ratepayer impacts. They also limit potential market abuses and create a fair and efficient 

alternative compliance mechanism for suppliers if 

the renewable energy market is underdeveloped. 

Depending on how it is designed, a cost cap may 

put a ceiling on the price of renewable energy or 

RECs. Generally, effective caps are low enough to 

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limit ratepayer impacts, but high enough to 

encourage renewable energy development. 

As an example, Massachusetts established an ACP 

so that any retailer under RPS compliance could 

choose, if necessary, to make some of its renewable energy obligation through a payment to the 

state rather than by obtaining renewable energy. 

The ACP thus functions as a cap on retailers’ exposure to potentially high renewable energy prices. 

The ACP is set for each calendar year by the 

Massachusetts Division of Energy Resources 

(DOER). In 2005, the ACP was set at $53.19 per 

MWh. The ACP is paid to the Massachusetts 

Technology Collaborative (MTC), which can use the 

payments to encourage renewable energy project 

development in the state. 

When used, ACPs typically reflect an inadequate 

supply of eligible renewables vis-à-vis RPS 

requirements and are generally recoverable by regulated utilities from the customers. On the other 

hand, noncompliance penalties, which may reflect 

willful disregard for the RPS requirements (e.g., 

failure to file compliance documentation), are 

typically not recoverable for utility providers. 

Interaction with State and Federal 

Programs 

States coordinate and leverage their RPS requirements with an array of federal and state programs 

and policies. States have found that analysis of 

regional renewable resources and RPS requirements 

are helpful in designing their RPS. Exploring in 

advance how RPS requirements interact with both 

state and federal policy will avoid implementation 

pitfalls. 

Interaction with Federal Policies/Programs 

•	 Production Tax Credit (PTC). Originally enacted in 

the 1992 Energy Policy Act (EPAct 1992), the PTC 

provides a tax credit for qualifying forms of 

renewable energy production, such as wind, biomass, geothermal, solar, and other technologies. 

The PTC is currently authorized through the end of 

2007 and provides 1.9 cents per kWh for wind for 

the first 10 years of the wind farm’s commercial 

operation. The PTC has lapsed three times19 since 

first enacted, and these lapses resulted in significant decreases in project completions during those 

periods. State RPS requirements can be designed 

to provide the flexibility to accelerate or delay 

renewable procurement to take advantage of 

short-term PTC expiration or extension. 

•	 Transmission Facility Extension Costs. Many large 

wind farms developed in recent years have 

required significant and costly transmissions system extensions or upgrades to facilitate grid connection. The Federal Energy Regulatory 

Commission (FERC) has ratemaking jurisdiction 

over interstate transmission facilities. Transmission 

line extensions can be rather costly for remotely 

sighted wind turbines. Whether transmission interconnection facilities are “rolled in” and paid by all 

system users or are assigned specifically to the 

new generators could significantly influence RPS 

compliance. 

•	 Proposed Federal RPS. In the 2005 congressional 

session, there were bills and amendments to create a national RPS. In June 2005, the U.S. Senate, 

in a 52-48 vote, adopted a proposal aimed at 

increasing the amount of electricity that utilities 

generate using renewable sources. The proposal 

would require 10% of the power that utilities sell 

to the retail market to come from renewable 

sources. 

Interaction with State Policies/Programs 

•	 Existing State Incentives. A review of existing state 

incentives for renewable energy can identify 

opportunities where existing policies and programs 

could further support RPS requirements. For example, SBC funds targeted for renewable energy in 

New York, New Jersey, and Massachusetts are used 

to subsidize design studies or actual installation 

costs of projects which help meet RPS targets. In 

contrast, funds in Minnesota and Wisconsin are 

allocated to renewable energy projects that are 

incremental to RPS requirements. For more information on SBCs, see Section 5.2, Public Benefits 

Funds for State Clean Energy Supply Programs. 

19	 (1) Expired on 6/30/99, extended in 12/99, (2) expired on 12/31/01, extended in 2/02, and (3) expired on 12/31/03, extended in 10/04. 

� Section 5.1. Renewable Portfolio Standards 5-11 
 

 

 

 

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•	 Utility Regulation. In states with a restructured 

electricity sector, the rules surrounding how 

default service is provided can affect the market 

for RECs. In many cases, default service providers 

cannot enter into long-term contracts for power 

supplies or purchases of RECs. This limits the ability of renewable energy developers to secure project financing, which typically requires a sufficient 

long-term revenue stream to ensure adequate debt 

coverage ratios used by project financiers. 

•	 Interconnection Requirements. Renewable electricity generators usually are interconnected with the 

utility grid to access wholesale markets and find 

customers of the highest value. Some states have 

taken great strides in recent years to prepare for 

implementing RPS requirements by ensuring that 

interconnection rules are designed to ensure safety while avoiding excessive costs or technical 

requirements that can be an obstacle to RPS compliance. For more information, see Section 5.4, 

Interconnection Standards. 

•	 State Emissions Regulations. State environmental 

regulators can review the interaction between 

emission rules and RPS requirements. At least six 

states grant nitrogen oxide (NO ) emission x

allowances or other emission credits, which may 

have notable market value, to renewable energy 

projects. Some states have expressly prohibited eligible RPS resources from selling emission 

allowances or credits they obtain through state 

environmental incentive programs. Other state RPS 

rules are silent on this issue. If emission credits can 

be sold separately (and not invalidate the use of 

the resource for purposes of meeting RPS requirements), the cost of compliance with the RPS 

requirements may be reduced due to the additional 

revenue stream available to renewable energy project owners. Alternately, RPS requirements are 

intended to produce environmental benefits, and 

emission allowances and credits therefore remain 

“bundled” with renewable electricity eligible under 

RPS requirements and may not be sold separately. 

RPS Design Choices and Approaches 

Many innovations and best practices can be found 

in state RPS. A sampling of noteworthy elements in 

these rules is shown below. Additional state cases 

are shown in the State Examples section on page 

5-14. 

•	 REC Trading. Texas was the first state to adopt the 

use of RECs for compliance verification and development of an efficient renewables market. Texas 

regulators also saw RECs as complementary to 

their efforts at restructuring the broader electricity 

market. The use of RECs for RPS requirements and 

other voluntary markets is now becoming typical 

in state RPS rules. 

•	 Centralized Procurement. New York is the first and 

only state thus far where a state agency, rather 

than the utility or retail supplier, is responsible for 

procuring the renewable energy attributes. In New 

York, the distribution utility collects a surcharge on 

electricity delivered to each customer. The funds are 

turned over to the state. The New York State Energy 

Research and Development Authority (NYSERDA) 

then uses the funds to purchase the renewable 

attributes by soliciting bids from developers. 

•	 Stakeholder Review. After Massachusetts adopted 

legislation mandating RPS requirements, the 

Best Practices: Designing an RPS 

The best practices identified below will help states 

design an RPS. These best practices are based on the 

experiences of states that have RPS requirements. 

•	 Develop broad support for an RPS, including toplevel support of the governor and/or legislature. 

•	 Clearly articulate all RPS goals and objectives, 

since these will drive RPS rules and structure. 

•	 Specify which renewable energy technologies and 

resources will be eligible, driven by the stated goals 

and objectives. Also consider state and regional 

resource availability if a goal/objective is to encourage resource diversity through a technology tier. 

Then, determine the mix and amount of renewable 

energy desired. 

•	 Finally, consider using energy generation (not 

installed capacity) as a target, establish a long 

timeline to encourage private investment, make 

compliance mandatory for all retail sellers, make 

enforcement credible, allow utility cost recovery, 

establish cost caps, and consider flexible compliance mechanisms. 

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Massachusetts DOER (the implementing agency) 

conducted an extensive stakeholder consultation 

process and commissioned a wide-ranging analytical review of design issues related to RPS requirements. This review process led to the creation of 12 

white papers on key RPS requirement topics with 

key insights and analytical support for eventual 

design choices (MA DOER 2002). 

•	 Technology Tiers. The Arizona RPS requirements 

(called an Environmental Portfolio Standard), created in 2001, was one of the first RPS to establish 

a technology tier approach. Arizona mandated that 

at least 50% of renewable energy requirements 

come from solar electric sources as of 2001 and 

60% by the 2004–2012 time frame. A number of 

states have followed suit and have used technology tiers in subsequent development of RPS 

requirements. 

Program Implementation and 

Evaluation 

This section provides an overview of implementation 

and evaluation of RPS requirements. 

Roles and Responsibilities of 

Implementing Organization 

The state entity enacting RPS requirements (e.g., the 

state legislature) will want to name one agency as 

the primary implementation authority. A number of 

agencies and organizations will likely be involved in 

the implementation regardless of which agency is 

named as lead. These include: 

•	 State PUCs will be involved in enforcing RPS requirements and overseeing cost and ratepayer issues. 

•	 State Energy Offices or similar State Public Benefit 

Corporations (e.g., NYSERDA) and quasi-public 

agencies (e.g., MTC or Connecticut Innovations 

Incorporated [CII]) may be involved in siting and 

permitting of new facilities or identifying existing 

facilities that could help meet RPS requirements. 

These agencies may also be involved in “making 

the market” by providing support to emerging REC 

markets and administering system benefits funds 

that are targeted toward enhancing compliance 

with RPS requirements. 

•	 Independent System Operators (e.g., Texas/Energy 

Reliability Council of Texas [TX/ERCOT]) or Regional 

Transmission Operators may be involved in administering RECs or contracts related to compliance. 

Best Practices: Implementing an RPS 

The best practices identified below will help states 

implement an RPS. These best practices are based on 

the experiences of states that have implemented an 

RPS. 

•	 Identify the most appropriate “lead” agency or 

organization for implementation authority of the 

RPS. 

•	 Establish a transparent and easy-to-use accounting 

system for compliance. 

•	 Provide retail suppliers with some flexibility in their 

compliance. 

•	 Make sure a credible noncompliance mechanism is 

in place in the form of penalties. 

•	 Conduct a mid-course performance review and 

enact modifications if warranted and if consistent 

with the original intent of the RPS. 

Evaluation 

Ongoing evaluation of RPS requirements is key to 

their success. The enabling legislation for RPS 

requirements sometimes includes provisions for 

annual or periodic evaluation and reporting of 

progress. Massachusetts, for example, requires an 

annual report. In some states, evaluations have identified serious implementation problems that have 

necessitated mid-course corrections. Examples of 

modifications that states have made to existing RPS 

rules are presented as follows. 

•	 Arizona developed an Environmental Portfolio 

Standard (EPS) in 2001 that required 1.1% renewable energy by 2007, 60% of which was to come 

from solar. Based on the findings of the Cost 

Analysis Working Group and a series of workshops, 

the Arizona Corporation Commission staff determined that the Arizona EPS requirements were 

inadequate and could be increased significantly. 

� Section 5.1. Renewable Portfolio Standards
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Challenges: Potential Market Constraints on 

Meeting RPS Supply 

Private sector development of renewable energy projects, which may be necessary to meet a state’s RPS 

requirements, could be constrained without access to 

private finance and long-term REC contracts. There are 

two factors that may hinder finance for renewable 

energy projects in deregulated markets. 

1. Short-term power supply contracts 

Problem: Default service providers are often limited by 

restructuring rules to short-term contractual arrangements for purposes of securing default service power 

supply and RECs. However, a developer might be 

required to have a long-term power contract in order to 

obtain private finance. 

Potential Solution: In order to facilitate private investment in renewable energy projects, state regulators 

may want to change the way default service providers 

contract for power, allowing default service providers 

to enter into long-term service contracts from renewable generators. In order to limit the service provider’s 

price risk, regulators could limit this policy to a relatively small percentage of total default service load. One 

approach is emerging in New Jersey, where regulators 

have included a defined percentage of renewable energy for RPS compliance in their three-year Basic 

Generation Service Auctions. 

2. Uncertainty of REC market 

Problem: Market players, such as utilities and competitive ESPs, are reluctant to enter into long-term contracts for RPS compliance RECs. This may be explained 

by limitations imposed on utilities in their purchase of 

long-term energy supplies or RECs, or uncertainties 

about the permanence of existing RPS provisions. 

Solution: Since instilling investor confidence in the REC 

market is critical for developing new renewable energy 

projects, states could find ways to offer renewable 

energy project developers long-term REC contracts. 

One approach implemented by the Massachusetts 

Renewable Energy Trust (MRET) in 2003 is to use SBC 

funds for establishing REC contracts of up to 10 years 

for RPS-eligible projects. In this manner, the state is 

offering project developers bankable, long-term revenue from an investment grade entity (a state agency 

with money in escrow). (See RET 2006.) 

Source: Navigant 2005. 

In 2004, the staff proposed amendments that 

would raise the EPS requirements to 5% by 2015 

and 15% by 2025, 20% of which would come 

from solar and 25% of which would come from 

distributed generation (DG). 

•	 Connecticut initially exempted utility default service from the RPS requirements. Because most customers remained on default service, revisions to 

the RPS requirements, which were enacted in June 

2003, changed the rules to require all retail suppliers to comply with the RPS requirements. 

While scheduled policy evaluations are important, 

experience has shown that altering RPS policy midstream without sufficient justification or consistency 

with the original legislative intent of the RPS can 

hinder the program. The danger is that, if long-term 

certainty and stability in the policy is lacking, then 

facility developers and regulated retail providers may 

delay plans and projects and fail to deliver the 

results intended by the RPS. 

State Examples 

The following state examples illustrate the diverse 

types of RPS requirement design approaches, policy 

objectives, and implementation strategies that states 

have deployed. Each example highlights a particular 

design issue or policy objective. For projected new 

renewable capacity attributable to existing RPS 

requirements, see Figures 5.1.1a and 5.1.1b on 

page 5-3. 

Arizona 

The Arizona Corporation Commission (ACC) developed 

an EPS, which took effect in March 2001. The EPS 

requires regulated utilities to generate a certain percentage of their electricity using renewable energy. 

The eligible technologies include solar PV, solar 

water heating, solar air conditioning, landfill gas, and 

biomass. Unlike many other RPS requirements around 

the country, the nonsolar portion of Arizona’s EPS is 

limited strictly to in-state resources. The Arizona EPS 

illustrates RPS requirements built on very aggressive 

technology tiers (e.g., the solar set-aside component) 

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that recognize the important system-wide benefits 

that solar technologies can provide. Initially, it was 

proposed that solar would make up 60% of the total 

renewables requirement from 2004 to 2012. Due to 

heavy reliance on solar PV, which can be a more 

costly renewable resource than others in the EPS, the 

overall renewables requirement is lower as a percentage of total generation when compared to RPS 

requirements of other states. Initially, the EPS target 

between 2007 and 2012 for renewable electricity 

generation was 1.1%. However, ACC staff proposed 

amendments in 2005 to increase the EPS to 5% by 

2015 and 15% by 2025, with 20% of that requirement to be met using solar. The continuing emphasis 

on solar technologies for a substantial part of the 

overall RPS target is raising some concerns about the 

ability of utilities to meet the RPS requirements 

within prescribed ratepayer funding mechanisms. 

Web site: 

http://www.cc.state.az.us/utility/electric/ 

environmental.htm 

California 

The legislation for California’s RPS requirements was 

enacted in September 2002. California’s RPS requirements are among the most aggressive in the country, 

since they require retail sellers of electricity to purchase 20% renewable electricity by 2017. At a minimum, retailers must increase their use of renewable 

electricity by 1% each year. California is considering 

increasing its RPS requirements to 33% in 2020. 

Although there are some restrictions, the following 

technologies are eligible under the RPS: biomass, 

solar thermal, solar PV, wind, geothermal, fuel cells 

using renewable fuels, small hydropower (< 30 MW), 

digester gas, landfill gas, ocean wave, ocean thermal, 

and tidal current. In some cases, municipal solid 

waste is also eligible. 

The legislation for the RPS requirements directs the 

California Energy Commission (CEC) and the 

California Public Utilities Commission (CPUC) to work 

together to implement the RPS requirements and 

assigns specific roles to each agency. Currently, 

investor-owned utilities are required to participate (as 

are ESPs, once the rules are established); municipal 

utilities are mandated to implement and manage 

their own initiatives related to increasing renewable 

energy in their energy portfolios. 

Given the financial position of the distribution utilities in the state following the energy crisis in 2000, 

subsequent legislation offered production incentives 

(referred to as supplemental energy payments) for 

the above-market costs of eligible procurement by 

investor-owned utilities to fulfill their obligation 

related to RPS requirements. 

Web site: 

http://www.energy.ca.gov/portfolio/index.html 

Massachusetts 

The drafting of Massachusetts’ RPS requirements 

began as a result of electric utility restructuring in 

1997. In April 2002, the Massachusetts DOER finalized 

the regulation. In 2003, the DOER required retail electric suppliers to use 1% renewable energy in their 

overall supply. By 2009, retail electric suppliers must 

reach 4%, after which the RPS requirements will 

increase 1% each year until the DOER determines that 

additional requirements are no longer necessary. The 

percentage requirements do not translate into hard 

MW as they are based on the suppliers’ overall supply. 

Eligible technologies include: solar, wind, ocean thermal, wave, tidal, fuel cells using renewable sources, 

landfill gas, and low emissions and advanced technology biomass. Existing renewable facilities are allowed, 

as long as they were installed after 1997. However, if 

they comply with all technical criteria, facilities 

installed before 1997 can obtain a waiver that qualifies the quantity of their electricity output each year 

that exceeds their historical generation rate. 

To reduce the risk to retail suppliers associated with 

acquiring affordable renewable energy, the DOER 

allows retailers to submit an ACP as an alternative to 

purchasing or generating renewable energy. The price 

of the ACP is set annually (e.g., $53.19 per MWh in 

2005). 

Web site: 

http://www.mass.gov/doer/rps/index.htm 

� Section 5.1. Renewable Portfolio Standards
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Texas 

Texas was among the first states to establish RPS 

requirements and is considered by many policymakers and advocates to be among the most successful. 

Since Texas passed an RPS in 1999, 1,187 MW of 

renewable energy capacity has been installed in 

Texas as of February 2005. 

The Texas Renewable Generation Requirement (RGR), 

issued by the Texas Public Utility Commission in 

1999, requires that 2,000 MW of new capacity be 

installed by 2009. Texas initially used a total capacity 

requirement (MW), which the Texas PUC later converted into a generation requirement (MWh). Texas 

allocates a share of the mandated new renewable 

generation to all retail suppliers based on a prorated share of statewide retail energy sales. 

The Texas RPS requirements have been successful in 

part because of good renewable energy resources in 

the state. However, success also resulted from key 

provisions in the legislation, including: (1) high 

renewable energy requirements that triggered market 

growth in the state, (2) use of RECs for meeting targets, (3) credible penalties for noncompliance, and 

(4) inclusion of all electricity providers. 

The qualifying resources include: solar, wind, geothermal, hydroelectric, wave or tidal, biomass, and 

biomass-based waste products (e.g., landfill gas). 

The PUC in Texas established a REC trading program. 

A penalty system also exists. Fines are set at the 

lesser of $50/MWh or 200% times the average cost 

of REC for the year. 

The RPS requirements include all retail energy 

providers if they have opted into retail competition 

(i.e., investor-owned utilities, competitive energy service providers, municipal utilities, and cooperative utilities). Otherwise, they are exempt. This requirement 

differs from those of many other states that often 

make participation by public power entities optional. 

Texas has changed transmission rules to accommodate the amount of wind power developed as a result 

of the RPS requirements. It should be noted that 

there are ongoing transmission line questions, focusing on the cost to upgrade and add lines, surrounding the RPS (ERCOT 2005). 

The RPS requirements have had clear positive economic impacts on the state. The tax base in the rural 

west has grown as a result of more than $1 billion of 

new wind development. This new source of local 

income provides much-needed resources for local 

services, including schools, hospitals, and emergency 

services. The RPS requirements have also supported 

hundreds of manufacturing jobs and other opportunities related to the wind industry statewide. 

Web site: 

http://www.puc.state.tx.us/rules/subrules/ 

electric/25.173/25.173ei.cfm 

Wisconsin 

In 1999, the Wisconsin legislature established an RPS 

requiring investor-owned electric utilities, municipal 

electric utilities, and rural electric cooperatives (electricity providers) to meet a gradually increasing percentage of their retail sales with qualified renewable 

resources. Wisconsin’s RPS requirements went into 

effect in October 1999 and require 2.2% renewable 

supply by the end of 2011. As of early 2005, 

Wisconsin had already secured enough renewable 

energy to meet their requirements through 2011. 

The enabling legislation expressly allows Wisconsin 

electricity providers the option of using Renewable 

Resource Credits (RRCs) in lieu of providing renewable electricity to their customers. An RRC trading 

system is in operation and there is a penalty system 

for violations. 

Eligible technologies include fuel cells that use 

renewable fuel, tidal or wave power, solar thermal 

electric, solar PV, wind power, geothermal electric, 

biomass, and hydropower (< 60 MW). 

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Wisconsin is considering increasing its RPS requirements, and studies show that the state has adequate 

renewable sources to make this a reasonable objective. 

Web site: 

http://psc.wi.gov/ 

What States Can Do 

Action Steps for States 

RPS accelerates the development of renewable and 

clean energy supplies. Benefits include a clear and 

long-term target for renewable energy generation 

that can increase investors’ and developers’ confidence in the prospects for renewable energy. States 

have chosen from a wide variety of approaches and 

goals in developing their RPS requirements. The “best 

practices” common among these states have been 

explored above. Action steps are outlined below. 

States with existing RPS requirements have made it 

a priority to identify and mitigate issues that might 

adversely impact the success of the program. The 

longevity and credibility of the RPS requirements is 

crucial for investment in new renewable projects. 

More specifically, states with existing RPS requirements can: 

• Monitor the pace of installing new renewable 

projects to ensure that the renewable resources 

needed to meet RPS goals will be in place. If adequate resource development is lagging, identify 

the reasons for any delay and explore possible 

mitigation options. For example, adequate transmission planning and policies often present obstacles to successful RPS implementation. 

• Monitor utility and retail supplier compliance and 

the impact on ratepayers. Any significant, unanticipated adverse impacts on ratepayers can be 

addressed through implementing or adjusting cost 

caps or other appropriate means. 

• Evaluate the scope of eligible technologies and, as 

needed, consider adding eligible technologies or 

altering the percentage requirements. At the same 

time, it is important to recognize that long-term 

stability and certainty of policy are important and 

frequent changes may undermine the success of 

RPS requirements. 

Broad political and public support for establishing 

renewable energy goals have been an important part 

of establishing RPS requirements. Many states have 

found that after establishing general support for 

goals, it is helpful to hold facilitated discussions 

among key stakeholders regarding appropriate RPS 

design. More specifically, states that do not have 

existing RPS requirements can: 

• Establish a working group of interested stakeholders to consider design issues and develop recommendations for RPS requirements. 

• Analyze costs and benefits as in New York and 

Texas. 

• Publicize RPS goals as they are reached to ensure 

that state officials, pubic office holders, and the 

public know that the RPS requirements are working and achieving the desired results. 

Related actions that states can take include: 

• Consider the need for additional policies or regulations that will help make RPS requirements successful. Transmission-related policies have proven 

to be critical to the success of large wind farms 

that are some distance from load centers and 

require transmission line extensions or upgrades. 

Ratemaking provisions that allow such upgrades to 

be treated as general system investments, which 

are funded by all users of the transmission system, 

help alleviate significant cost hurdles that can 

impede otherwise excellent wind projects. 

• Consider adopting (or improving) net metering and 

interconnection standards to facilitate customersited clean DG projects that may be eligible technologies under an RPS. 

� Section 5.1. Renewable Portfolio Standards
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Information Resources 

General Information 

Title/Description URL Address 

Evaluating Experience with Renewables Portfolio Standards in the United States. 

Wiser, R., K. Porter, and R. Grace. Prepared for the Conference Proceedings of 

Global Windpower. Chicago, IL: March 28-31, 2004. Ernest Orlando Lawrence 

Berkeley National Laboratory (LBNL), Berkeley, CA. LBNL-54439. This document provides a comprehensive analysis of U.S. experience with RPS, including lessons 

learned. 

http://eetd.lbl.gov/EA/EMP/reports/54439.pdf 

Interwest Energy Alliance Benefits of Renewable Energy. Interwest Energy Alliance 

is a trade association that brings the nation’s wind energy industry together with the 

West’s advocacy community. This document provides the answers to some questions about renewable energy, including economic and environmental benefits. 

http://www.interwestenergy.org/ 

benefits.htm 

Projecting the Impact of RPS on Renewable Energy and Solar Installations. Wiser, R. 

and K. Bollinger. January 20, 2005. This PowerPoint presentation estimates and summarizes the potential impacts of existing state RPS on renewable energy capacity 

and supply, and of state RPS solar set-asides on solar PV capacity and supply. 

http://www.newrules.org/de/ 

solarestimates0105.ppt 

Union of Concerned Scientists. Plugging in Renewable Energy: Grading the States. http://www.ucsusa.org/clean_energy/ 

This report assigns grades to each of the 50 states based on their commitment to clean_energy_policies/plugging-insupporting wind, solar, and other renewable energy sources. It measures commit­ renewable-energy-grading-thement by the projected results of renewable energy. states.html 

Union of Concerned Scientists. Real Energy Solutions: The Renewable Electricity http://www.ucsusa.org/clean_energy/ 

Standards, Fact Sheets. A national renewable energy standard (RES) can diversify clean_energy_policies/real-energyour energy supply with clean, domestic resources. It will help stabilize electricity solutions-the-renewable-energyprices, reduce natural gas prices, reduce emissions of carbon dioxide and other standard.html 

harmful air pollutants, and create jobs—especially in rural areas—and new income 

for farmers and ranchers. This fact sheet provides an overview of RES. 

Union of Concerned Scientists. Renewable Electricity Standards at Work in the http:www.ucsusa.org/clean_energy/clean_ 

States. In a growing number of states, RES—also called RPS—have emerged as an energy_policies/res-at-work-in-theeffective and popular tool for promoting a cleaner, renewable power supply. This states.html 

fact sheet gives an overview of some state RES. 

Information About Federal Resources
 

Title/Description URL Address 

EPA CHP Partnership. This is a voluntary program that seeks to reduce the environmental impact of energy generation by promoting the use of CHP. The Partnership 

helps states identify opportunities for policy developments (energy, environmental, 

economic) to encourage energy efficiency through CHP. The Partnership can provide 

information and assistance to states considering including CHP or waste heat recovery in their RPS requirements. 

http://www.epa.gov/chp/ 

EPA Green Power Partnership. This program provides assistance to renewable generators in marketing RECs and helps educate potential REC buyers about resources. 

The Partnership may be of assistance to states that employ RECs as a compliance 

measure for their RPS requirements but also allow for purchase and retirement of 

RECs for organizational “green power” designation. 

http://www.epa.gov/greenpower 

5-18 � Chapter 5. Energy Supply Actions
 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EPA Clean Energy-Environment Guide to Action
 

Information on Selected State Programs
 

State Title/Description URL Address 

Arizona Arizona Corporation Commission (ACC) Environmental Portfolio 

Standard Developments. This site is the ACC archive on RPS 

rules, suggested amendments, workshops, and public comment. 

http://www.cc.state.az.us/utility/electric/ 

environmental.htm 

California California Energy Commission (CEC) Renewables Portfolio 

Standard. This site provides an overview of the California RPS 

and a link to Senate Bill 1078. 

http://www.energy.ca.gov/portfolio/ 

index.html 

Massachusetts Massachusetts Division of Energy Resources (DOER): 

Renewable Portfolio Standard Web Site. This Web site provides an archive on the state’s RPS requirements, rulings, and 

subsequent actions. 

http://www.mass.gov/doer/rps/index.htm 

Massachusetts DOER: RPS Papers and Reports. This DOER 

Web site provides links to white papers that served as a basis 

for discussion of RPS design and implementation issues. 

http://www.mass.gov/doer/programs/renew 

/rps.htm#papers 

Massachusetts DOER: Renewable Portfolio Standard, RPS 

Annual Reports. The RPS regulations (at 225 CMR 14.10(2)) 

require DOER to issue an Annual Energy Resource Report summarizing certain information from the Annual Compliance 

Filings. 

http://www.mass.gov/doer/rps/annual.htm 

Massachusetts Technology Collaborative. Renewable Portfolio 

Standard. This Web site describes the components of the 

state’s RPS and provides a link to information about renewable 

energy certificates that are a tool for implementing the RPS. 

http://www.masstech.org/cleanenergy/ 

policy/rps.htm 

New York New York State Public Service Commission: Retail Renewable 

Portfolio Standard. This site provides an archive of documents 

on New York RPS requirements. 

http://www.dps.state.ny.us/03e0188.htm 

Texas Public Utility Commission of Texas: Goal for Renewable Energy. 

This site provides the Texas PUC’s archive of documents on 

RPS requirements. 

http://www.puc.state.tx.us/rules/subrules/ 

electric/25.173/25.173ei.cfm 

Transmission Issues Associated with Renewable Energy in 

Texas. Informal White Paper for the Texas Legislature, 2005. 

This document provides data for consideration by legislators in 

evaluating bills to expand the Texas RPS. 

http://www.ercot.com/news/ 

presentations/2006/Renewables 

Transmissi.pdf 

Wisconsin Evaluating the Impacts of Increasing Wisconsin's Renewable 

Portfolio Standard. University of Wisconsin-Madison for the 

Wisconsin Department of Administration, Division of Energy 

Renewable Energy Assistance Program. This study considered 

the economic impact to Wisconsin of four scenarios for future 

RPS standards. 

http://www.ucsusa.org/assets/documents/ 

clean_energy/UW_RPS_Final_Report_10­

31-03.pdf 

� Section 5.1. Renewable Portfolio Standards
 5-19 
 

EPA Clean Energy-Environment Guide to Action
 

References
 

Title/Description URL Address 

DSIRE. 2005. Database of State Incentives for Renewable Energy (DSIRE) Web site. 

A comprehensive source of information on state, local, utility, and selected federal 

incentives that promote renewable energy, including a state-by-state description of 

RPS requirements. Accessed 2005. 

http://www.dsireusa.org/ 

EPA. 2004. Guide to Purchasing Green Power. Produced in a joint effort between 

EPA, DOE, the World Resources Institute, and the Center for Resource Solutions. 

September 2004, p. 10. 

http://www.epa.gov/greenpower/pdf/ 

purchasing_guide_for_web.pdf 

ERCOT. 2005. Transmission Issues Associated with Renewable Energy in Texas. 

Informal White Paper for the Texas Legislature, 2005. Produced in a joint effort 

between the industry and the ERCOT Independent System Operator (ISO). 

http://www.ercot.com/AboutERCOT/ 

TexasRenewableWhitePaper2005/ 

RenewablesTransmissionWhitePaper 

FINAL.pdf 

MA DOER. 2002. Massachusetts DOER RPS Policy Analysis has a series of white 

papers that cover many topics related to RPS requirements in great detail. The 

papers were developed during the creation of the Massachusetts RPS requirements. December 16. 

http://www.mass.gov/doer/programs/renew/ 

rps.htm 

Navigant. 2005. Company intelligence. Navigant Consulting Inc. Also see: Katofsky, 

R. and L. Frantzis. 2005. Financing renewables in competitive electricity markets. 

Power Engineering. March 1. 

http://www.navigantconsulting.com/A559B1/ 

navigantnew.nsf/vGNCNTByDocKey/ 

PPA91045514813/$FILE/Financing%20 

Renewables%20in%20Competitve% 

20Electricity%20Markets_Power% 

20Engineering_March%202005.pdf 

Petersik, T. 2004. State Renewable Energy Requirements and Goals, Status through 

2003. U.S. EIA. July. 

http://www.mass.gov/doer/programs/renew/ 

rps.htm 

Rader, N. and S. Hempling. 2001. The Renewables Portfolio Standard: A Practical 

Guide. Prepared for the National Association of Regulatory Utility Commissioners. 

February. 

http://www.naruc.org/display 

industryarticle.cfm?articlenbr=15688& 

searchcriteria=Renewable%20Portfolio%2 

0Standard&securetype=All&startrec=1 

RET 2006. Renewable Energy Trust Web site. Massachusetts Green Power 

Partnership. 

http://www.masstech.org/RenewableEnergy/ 

mgpp.htm 

Wiser, R. 2005. An Overview of Policies Driving Wind Power Development in the 

West. Ernest Orlando LBNL, Berkeley, CA. February. 

http://www.nationalwind.org/events/ 

transmission/western/2005/ 

presentations/Wiser.pdf 

5-20 � Chapter 5. Energy Supply Actions
 
 

EPA Clean Energy-Environment Guide to Action
 

5.2 Public Benefits Funds for 

State Clean Energy Supply 

Programs 

Policy Description and Objective 

Summary 

Public benefits funds (PBFs), also known as system 

benefits charges (SBCs) and clean energy funds, are 

typically created by levying a small fee or surcharge on 

electricity rates paid by customers (i.e., for renewable 

energy, this fee is approximately 0.01 to 0.1 mills20 per 

kilowatt-hour [kWh]) (DSIRE 2005). To date, PBFs have 

primarily been used to fund energy efficiency and lowincome programs (see Section 4.2, Public Benefits 

Funds for Energy Efficiency). More recently, however, 

they have also been used to support clean energy supply (i.e., renewable energy and combined heat and 

power [CHP]). 

PBFs were initially established during the 1990s in 

states undergoing electricity market restructuring. 

The goal was to assure continued support for renewable energy and energy efficiency programs in competitive markets and ensure that low-income populations had access to quality electrical service.21 With 

respect to renewable energy, the concern was that in 

a competitive market, lower-cost generation would 

be favored over renewable energy. In response to this 

concern, PBFs were seen as a mechanism for continuing support for renewable energy and the benefits 

it provides in a competitive market situation. 

CHP projects have been included in PBF-funded programs more recently due to their very high efficiency 

and environmental benefits. Although typically not 

considered a renewable energy technology, CHP can 

be characterized as a clean energy technology, a 

super-efficient generating technology, or an energy 

efficiency technology. As such, it has been addressed 

through both renewable and energy efficiency PBFfunded programs. States that have included CHP as 

an energy efficiency measure include New York and 

Public benefit funds (PBFs) can increase 

clean energy supply and enhance state economic development and environmental 

improvement. A clean energy fund can be 

designed to address key market barriers 

including the upfront cost of equipment and 

to provide consumer and education outreach. 

New Jersey (see State Examples section on page 5-26 

for results of these CHP programs). This flexibility 

allows states to include CHP in PBF-funded programs 

where it makes most sense for that state, as a clean 

energy technology, an energy efficiency technology, 

or a super-efficient generating technology. 

In 2005, 16 state renewable energy programs were 

expected to provide more than $300 million in support of clean energy supply. PBFs (i.e., clean energy 

funds) provided much of this funding (see Figure 

5.2.1), and according to one estimate, PBFs will generate more than $4 billion for clean energy by 2017 

(UCS 2004). In comparison, PBFs were expected to 

provide over $1 billion in funding for energy efficiency programs in 2005. (For more information on PBFs 

for energy efficiency, see Section 4.2, Public Benefits 

Funds for Energy Efficiency.) 

Because state clean energy funds for energy supply 

are a relatively recent policy innovation, it is too 

early to measure their success. While some states 

track clean energy fund metrics (e.g., the number of 

dollars invested, number of kilowatts [kW] installed, 

and number of installers trained), larger issues such 

as the impact of clean energy funds on the renewable energy market have not yet been systematically 

evaluated. 

Objective 

The key objective of creating state clean energy 

funds with PBFs is to accelerate the development of 

renewable energy and CHP within a state. The objectives underlying a push for more renewable energy 

include state economic development, environmental 

20 1 mill = one-tenth of a cent.
 

21 In California, these were initially called “stranded benefits” charges.
 

� Section 5.2. Public Benefits Funds for State Clean Energy Supply Programs 5-21 
 

 

 

 

 

 

EPA Clean Energy-Environment Guide to Action
 

Figure 5.2.1: Estimated 2005 Funding Levels for State 

Renewable Energy Programs 

Est. 2005 Funding 

($ millions) Additional Information 

AZ $8.5a To be determined in 2005 

CA $140 Through 2011 

CT $20 Through 2012 

DE $1.5b Undefined end date 

IL $5 $50 million over 10 years 

MA $24 Undefined end date 

ME Voluntary 

MN $16 Undefined end date; tied to Xcel 

Nuclear Prairie Island plant operation 

MT $2 2005 

NJ $68 2005–2008, 37% of SBC funding 

NY $9 $67 million over 5 years from 2002 to 2006 

OH $1.25 Through 2011 

OR $11 Through 2009 

PA $5.5 Through 2006 

RI $3.0 Through 2012 

WI $1.3 4.5% of SBC funding 

Note: Values shown are annual amounts for renewable energy only and 

do not represent total SBCs. 

a In 2005 Arizona was estimated to generate $8.5 million from PBFs and 

an additional $11–11.5 million from a utility bill surcharge for renewable energy. Funds are given to utilities to comply with the 

Environmental Portfolio Standard (EPS) through green power purchases, development of renewable generation assets, and customer 

photovoltaic (PV) rebates. Arizona is currently modifying EPS rules, 

which could result in the elimination of PBFs for renewable energy, 

and instead create a utility bill surcharge to generate ~$50 million per 

year. 

b Amount represents both renewable energy and energy efficiency 

programs. 

Sources: DSIRE 2005, Navigant 2005. 

improvement, and response to public demand. These 

objectives can be advanced, in part, by creating a 

clean energy fund that incorporates a variety of 

strategies, including lowering equipment costs, 

addressing market barriers, and providing consumer 

education and outreach. 

Benefits 

PBF-based clean energy funds offer the following 

benefits: 

•	 Provide a Cohesive Strategy “Under One Roof.” 

Combining a range of clean energy programs and 

funding within one organization allows for a 

cohesive strategy for addressing the range of clean 

energy market issues. 

•	 Tailored to a State’s Needs. State clean energy 

funds provide flexibility in the types of incentives 

and programs that states can offer and can be 

customized to the state’s goals, natural resources, 

and industry presence (e.g., industries that are well 

established in a state, such as wind or biomass). 

•	 Support Long-Term Goals. While policies such as 

renewable portfolio standards (RPS) are generally 

aimed at jump-starting markets for commercially 

ready technologies, clean energy funds have been 

designed to fund options with benefits that accrue 

over the long term. These longer-term programs, 

such as technology research, development, and 

demonstration programs, require a longer time 

frame (10 or more years) than is typically allowed 

by other approaches. In addition, these funds can 

be designed to improve the state economy by 

accelerating the development and deployment of 

technologies focused by in-state businesses. (See, 

for example, Section 5.1, Renewable Portfolio 

Standards.) 

•	 Complement Other Policies. Because of their flexibility, state clean energy funds complement other 

state and federal policies, making those policies 

more effective. For example, PBFs are used by 

state energy programs to lower clean energy 

equipment costs by helping to ramp up volume, 

address key market barriers, and provide consumer 

education and outreach to increase the effectiveness and use of federal tax incentives, state RPS, 

and improved interconnection and net metering 

standards. In addition, PBFs can be used to support the successful implementation of other clean 

energy policies. For example, in California PBFs are 

used to pay the incremental cost for utility RPS 

compliance. 

States That Use PBFs for Clean Energy 

Supply 

As of early 2005, 16 states had established clean 

energy funds to promote renewable energy: Arizona, 

California, Connecticut, Delaware, Illinois, 

Massachusetts, Maine (voluntary), Minnesota, 

5-22 � Chapter 5. Energy Supply Actions
 
 

 

 

 

EPA Clean Energy-Environment Guide to Action
 

Figure 5.2.2: Map of State Renewable Energy Funds
 

DC

PBF for renewable energy 

Voluntary PBF for newable energy 

Sources: DSIRE 2005, Navigant 2005. 

Montana, New Jersey, New York, Ohio, Oregon, 

Pennsylvania, Rhode Island, and Wisconsin (UCS 

2004, DSIRE 2005). (See Figures 5.2.1 and 5.2.2.) 

Designing and Implementing an 

Effective Clean Energy Fund 

States consider a variety of key issues when designing 

PBFs directed at expanding the clean energy supply 

market. These issues include selecting an organizational structure to administer PBFs, protecting funding from being diverted for other uses, considering 

the importance of technology stages when designing 

PBF programs, and assessing the interaction of clean 

energy funds with state and federal policies. 

Participants 

Many states encourage the participation of a variety 

of stakeholders, including trade associations, equipment manufacturers, utilities, project developers, and 

leading environmental groups. For example, the consensus between stakeholders in Massachusetts over a 

clean energy fund resulting from electric utility 

restructuring is described in the Massachusetts 

Renewable Energy Collaborative (1997). 

Administration 

PBFs are typically established by state legislatures, 

and the bill(s) may provide varying levels of specificity 

for selecting an administrator for the PBF. Selecting 

the appropriate administrative organization for a 

clean energy fund is an important step. The role of 

the fund administrator is essential for the review of 

fund dispersal to ensure that each investment is valuable and represents the public interest. States have 

employed several organizational models for administering clean energy funds, including state energy 

offices, quasi-public agencies, public regulatory agencies, nonprofit organizations, and utilities. Many 

experts feel that no one model has proven more successful or effective than another. 

States have chosen different models based on their 

goals and situations. Although utilities often manage 

PBFs used to support energy efficiency programs, 

utilities typically do not administer PBFs for renewable energy (a notable exception occurs in Arizona, 

where state renewable energy funds are managed by 

utilities). States have found that ensuring that a fund 

administrator has access to adequate staffing with 

appropriate expertise is more important than the 

administrative structure. 

Examples of different administrative approaches 

include: 

•	 Massachusetts chose the Massachusetts 

Technology Collaborative (MTC) to administer its 

clean energy funds. One of the main goals of the 

fund is to create a clean energy industry, and 

these goals are consistent with the MTC’s charter, 

which is to foster high-tech industry “clusters” in 

Massachusetts (Commonwealth of Massachusetts 

1997). 

•	 Connecticut chose to administer its Clean Energy 

Fund through Connecticut Innovations 

Incorporated (CII), a quasi-public state agency 

charged with expanding Connecticut’s entrepreneurial and technology economy. CII’s experience 

in building a vibrant technology community in 

Connecticut fit well with the challenges of developing a clean energy industry and market. 

� Section 5.2. Public Benefits Funds for State Clean Energy Supply Programs
 5-23 
 

EPA Clean Energy-Environment Guide to Action
 

Approach 

States use a variety of approaches, based on their 

specific objectives, for using clean energy funds to 

support renewable energy market development. Some 

of these approaches are described below. 

•	 Investment Model. Under this approach, loans and 

equity investments are used to support clean energy companies and projects. In many cases, renewable energy businesses find it difficult to obtain 

financing since traditional financial markets may 

be hesitant to invest in clean energy. The rationale 

behind having the state provide initial investment 

is to bring the renewable energy businesses and 

the traditional financial markets to a point where 

investment in renewable energy businesses is sustainable under its own power. (An example is the 

Connecticut Clean Energy Fund [CEF 2005].) 

•	 Project Development Model. This approach uses 

financial incentives, such as production incentives 

and grants and/or rebates, to directly subsidize 

clean energy project installation. These funds typically are put in place to help renewable energy be 

more competitive in the short-term by offsetting or 

lowering the initial capital cost or by offsetting the 

higher ongoing cost of generation. The rationale 

behind these incentives is that increased market 

adoption of renewable energy technologies will 

ultimately drive down the cost of these technologies to a point where, without incentives, they can 

compete with traditional generation. (Examples 

include California’s Renewable Resource Trust Fund 

[CEC 2005] and New Jersey’s Clean Energy Program 

[NJCEP 2005].) 

•	 Industry Development Model. With this approach, 

states use business development grants, marketing 

support programs, research and development 

grants, resource assessments, technical assistance, 

consumer education, and demonstration projects 

to support clean energy projects. The rationale 

behind these programs is that they will facilitate 

market transformation by building consumer 

awareness and demand, supporting the development of a qualified service infrastructure, and 

investing in technological advancement. (Examples 

include Wisconsin’s Public Benefit Fund [State of 

Wisconsin 2005] and New Jersey’s Clean Energy 

Program [NJCEP 2005].) 

Funding 

Leading states have designed their clean energy 

funds to be generated from a set rate in the electricity tariff, thereby providing consistency in funding 

levels from year to year. The ability to carry forward 

excess annual contributions to a clean energy fund 

can be important, especially during the fund’s initial 

years. This approach helps states obtain consistent 

funding levels and protect against the diversion of 

funding to other state needs (e.g., to meet general 

budget shortfalls). If funding is diverted from the PBF 

to another use, such as to the state general fund, it 

significantly harms the ability of the PBF program to 

be successful, particularly during the initial years of 

the program. 

Technology Stages 

State clean energy funds include a portfolio of program 

options to support both emerging and commercially 

competitive technologies. Determining both the stage 

of technology development and the kind of incentives 

needed to support each technology are important steps 

in designing a clean energy fund program. 

• For emerging technologies, clean energy funds can 

be used to address a variety of technical, regulatory, and market challenges. For example, MTC, 

administrator of the Massachusetts Renewable 

Energy Trust (MRET), is exploring offshore wind 

power, which to date has yet to be established in 

the United States. In anticipation of stakeholder 

concerns for potential wildlife, safety, and aesthetic impacts, MTC has used clean energy funds to 

bring stakeholders together in a collaborative 

process to discuss these issues. This approach 

ensures that stakeholder concerns and issues are 

addressed early in the process to help obtain support for later implementation. 

• For renewable energy technologies that are technologically proven but relatively expensive compared 

5-24 � Chapter 5. Energy Supply Actions
 
 

 

 

EPA Clean Energy-Environment Guide to Action
 

to fossil fuel energy generation, PBF funds can provide economic incentives to help bridge the gap 

between what the market is willing to bear and 

current costs. Examples of widely used incentives 

are buy-downs (rebates) for photovoltaic (PV), small 

wind systems, and fuel cells. For example, CII, 

administrator of the Connecticut Clean Energy Fund 

(CCEF), uses commercial buy-down programs for 

fuel cells and solar PV to support residential, commercial, and industrial uses of these technologies. 

• Clean energy funds can also be used to develop 

programs that provide noneconomic incentives, 

which can be critical to clean energy market 

development. For example, while tax incentives 

and buy-down money may be available to support 

PV and fuel cells, additional funding might be 

needed to stimulate the development of a qualified installer network and other key industry infrastructure crucial to the success of the technology. 

For example, through its Renewable Energy 

Economic Development (REED) Program, New 

Jersey provides incentives to renewable energy 

companies to expand their businesses (e.g., helping 

to support infrastructure development) (NJCEP 

2004). 

• For mature technologies that are already costcompetitive (e.g., wind power, CHP, and biomass 

power), states can use clean energy funds to 

address other market barriers. For example, in 

2003, the MTC formed the Massachusetts Green 

Power Partnership to use PBF funds to add economic certainty to Renewable Energy Certificate 

(REC) markets. MTC is currently entering into contracts of up to 10 years for RECs from RPS-eligible 

projects, providing them with bankable, long-term 

revenue from an investment-grade entity. 

•	 Increased use of CHP can also be fostered with 

funding from state clean energy funds. In 2004, 

the New Jersey Board of Public Utilities’ Office of 

Clean Energy created a CHP incentive program and 

provided $5 million for CHP projects. The 

California Public Utilities Commission (CPUC) 

issued a decision in 2001 requiring the investorowned utilities to provide self-generation incentives, which include CHP.

22 In New York, the New 

York State Energy Research and Development 

Authority (NYSERDA) manages the Distributed 

Generation (DG)/CHP Program, which offers incentives for CHP projects funded by PBFs. From 2000 

to 2004, NYSERDA awarded $64 million under the 

program, with the goal of awarding $15 million/ 

year. (Note that some of this funding is provided 

from PBFs focused on energy efficiency.) 

Interaction with State and Federal 

Policies 

The incentives and programs implemented by clean 

energy funds interact with state and federal policies 

in ways that may be important to the designers of a 

clean energy fund. For example: 

• States have found that programs designed to support the overall energy and environmental goals of 

the state and work in concert with other state 

renewable energy initiatives, such as RPS and tax 

credits, are most effective. 

• Programs are most successful when leveraging 

other funding sources without activating “doubledipping” clauses. Incentives for wind projects that 

also allow developers to continue to take advantage of federal incentives include the production 

tax credit (PTC) and five-year accelerated depreciation (Wiser et al. 2002a). 

• States have found that the success of clean energy 

fund incentives can also depend on the existence 

of other state clean energy policies. For example, 

in some states, net metering eligibility and interconnection standards may need to be established 

or modified by the state Public Utility Commission 

(PUC) to encourage small-scale distributed generation. (For more information on net metering and 

interconnection, see Section 5.4, Interconnection 

Standards.) 

22	 CPUC incentive funding is $125 million a year, most of which goes to PV installations. For microturbines or internal combustion (IC) engines, the 

incentive funding does not require CHP. 

� Section 5.2. Public Benefits Funds for State Clean Energy Supply Programs 5-25 
 

EPA Clean Energy-Environment Guide to Action
 

State Examples 

California 

The California Energy Commission (CEC), in coordination with the CPUC, manages clean energy funding 

in California. The California PBF, established in 1998, 

generates more than $135 million per year for clean 

energy. The program has four primary components: 

•	 Existing Renewable Resources, which supports market competition among in-state existing renewable 

electricity facilities through varying incentives. 

Eligible existing renewable energy facilities are primarily supported through a cents/kWh payment. 

•	 New Renewable Resources, which encourages new 

renewable electricity generation projects through 

fixed production incentives. Incentives are provided on a cents/kWh payment. 

•	 Emerging Renewable Resources, which stimulates 

renewable energy and CHP23 market growth by 

providing rebates to purchasers of onsite clean 

energy generation while encouraging market 

expansion (primarily incentives for capacity 

installed, on a dollar-per-watt basis). 

•	 Consumer Education, which informs the public 

about the benefits and availability of renewable 

energy technologies through dissemination of general information and project descriptions. 

Web sites: 

http://www.energy.ca.gov/renewables/ 

http://www.cpuc.ca.gov/static/industry/electric/ 

distributed+generation/ 

Connecticut 

The CCEF is managed by a quasi-government investment organization called CII. CCEF receives about 

$20 million annually from PBFs. Since its inception 

in 1998 through September 2004, CCEF has invested 

a total of $52.8 million in renewable energy development. The program has three components: 

•	 Installed Capacity Program, which supports longterm contracts for clean energy projects and 

incentive programs for host supply or onsite 

installations of clean DG projects. 

•	 Technology Demonstration Program, which supports the demonstration of new clean energy 

technologies and innovative applications, while 

also providing infrastructure support to the 

emerging clean energy industry. 

•	 Public Awareness and Education Programs, which 

support local clean energy campaigns to influence 

the buying behavior of electricity customers so 

that they voluntarily support clean energy. 

Web site: 

http://www.ctcleanenergy.com/ 

Massachusetts 

MRET is managed by MTC, an independent economic 

development agency focused on expanding the renewable energy sector and Massachusetts’ innovation 

economy. The State Division of Energy Resources provides oversight and planning assistance. A total of 

$150 million over a five-year period is earmarked for 

renewable energy. MTC’s approach is to first identify 

barriers to renewable energy growth in Massachusetts, 

then leverage additional funds from other sources, 

including private companies and nonprofits. MTC’s 

goals include maximizing public benefit by creating 

new high-tech jobs and producing clean energy. The 

MRET includes four program areas: 

• Clean Energy Program 

• Green Buildings and Infrastructure Program 

• Industry Support Program 

• Policy Unit 

Web site: 

http://www.mtpc.org/renewableenergy/index.htm 

New Jersey 

New Jersey’s clean energy initiative, administered by 

the New Jersey Board of Public Utilities (NJBPU), provides information and financial incentives and creates 

enabling regulations designed to help New Jersey residents, businesses, and communities reduce their 

energy use, lower costs, and protect the environment. 

23 Limited to fuel cell CHP systems fueled with biogas. 

5-26 � Chapter 5. Energy Supply Actions 
 

 

 

EPA Clean Energy-Environment Guide to Action
 

New Jersey’s Clean Energy Program has three components: residential programs, commercial and industrial programs, and renewable energy programs. CHP is 

funded as an efficiency measure through the commercial and industrial programs. 

On July 27, 2004, the NJBPU approved a funding level 

of $5 million for the Office of Clean Energy’s CHP 

Program. The program’s goals are to increase energy 

efficiency, reduce overall system peak demand, and 

encourage the use of emerging technologies. The 

2004 CHP Program funded a total of 23 projects that 

will generate in excess of 8 megawatts (MW) of 

power with system efficiencies of 60% or greater. 

Furthermore, on December 22, 2004, the NJBPU 

established the Clean Energy Program (CEP) funding 

level at $745 million for the years 2005–2008. Of 

that total, renewable energy programs will receive a 

total of $273 million, making New Jersey home of 

one of the most aggressive renewable energy programs in the country. In 2004, the Customer Onsite 

Renewable Energy Program provided $12 million in 

rebates for 280 PV projects, adding more than 2 MW 

of new capacity. 

In addition, New Jersey takes a comprehensive 

approach to ensure that all the different programs 

and policies intended to support clean energy are in 

place and work together (e.g., RPS with solar setaside, net metering, interconnection standards). 

Web sites: 

http://www.bpu.state.nj.us 

http://www.njcleanenergy.com/html/Combined/ 

combined.html 

http://www.njcep.com/srec 

New York 

NYSERDA, a public benefit corporation created in 

1975 by the New York State Legislature, administers 

the New York Energy $mart program. This program is 

designed to support certain public benefit programs 

during the transition to a more competitive electricity market. Some 2,700 projects in 40 programs are 

funded by a charge on the electricity transmitted 

and distributed by the state’s investor-owned utilities. The New York Energy $mart program provides 

energy efficiency services, research and development, 

and environmental protection activities. 

Among other things, the Energy $mart program 

administers the New York Energy $mart Loan Fund 

program, which provides an interest rate reduction of 

up to 4% (400 basis points) off a participating 

lender’s normal loan interest rate for a term up to 10 

years on loans for certain energy efficiency improvements and/or renewable technologies. 

In addition, since 2001, NYSERDA has administered 

other programs for energy efficiency and renewable 

energy. These include the DG/CHP Program, which 

has approved 83 DG/CHP systems for funding, representing 90 MW of peak demand reduction. 

Web site: 

http://www.nyserda.org 

Ohio 

Ohio’s 1999 electric restructuring law created the 

Energy Loan Fund (ELF) and Universal Service Board. 

The ELF will collect $100 million over 10 years to 

provide low-interest loans or loan guarantees for 

energy efficiency improvements undertaken at residential, government, educational, small commercial, 

small industrial, and agricultural facilities. Renewable 

energy projects and public education efforts are also 

eligible for loans through ELF. The Ohio Department 

of Development’s Office of Energy Efficiency (OEE) 

operates this fund. CHP systems up to 25 MW for 

commercial, institutional, and industrial applications 

are eligible for grants and loans under this program. 

Web site: 

http://www.odod.state.oh.us/cdd/oee/energy_loan_ 

fund.htm 

What States Can Do 

Action Steps for States 

States have chosen from a variety of approaches and 

eligible technologies in developing their clean energy 

funds. The best practices common among these 

states have been explored above. This section 

describes suggested action steps states can take to 

help ensure these best practices are implemented. 

� Section 5.2. Public Benefits Funds for State Clean Energy Supply Programs
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EPA Clean Energy-Environment Guide to Action
 

It is important for states that want to include CHP in 

their clean energy portfolios to comprehensively promote its benefits. For example, identifying CHP as 

both a clean source of energy and a source of significant energy savings and efficiency provides additional flexibility in including CHP in PBF programs 

and communicating the program to the public. 

States That Have an Existing Clean Energy 

Fund 

A top priority after establishing a clean energy fund 

is to identify and mitigate issues that might adversely affect the program’s success. Demonstrating that 

the desired benefits are being achieved is essential 

for continued funding and support for the program. 

States can: 

• Develop and monitor progress against clear targets 

for renewable energy and CHP development and 

related goals, such as green power participation 

rates, infrastructure development (e.g., MW of new 

capacity), and consumer awareness. Often, these 

targets are related to state goals. 

• If necessary, shift fund priorities and develop new 

or modified programs in response to changes in 

markets or technologies (Wiser et al. 2002b). 

States That Do Not Have an Existing Clean 

Energy Fund 

Broad political and public support is a prerequisite to 

establishing a clean energy fund. After establishing 

general support for goals, a key step is to facilitate 

discussion and negotiation among key stakeholders 

toward developing an appropriate clean energy fund 

design. 

• Ascertain the level of general interest and support 

for renewable energy and CHP in the state. If 

awareness is low, consider performing an analysis 

followed by an educational campaign to raise 

awareness of the environmental and economic 

benefits of accelerating the development of clean 

energy supply. For example, SmartPower has been 

working in numerous states to raise awareness of 

clean energy through public education campaigns 

(SmartPower 2005). 

• Establish a working group of interested stakeholders to consider design issues and develop recommendations toward a clean energy fund. Work 

with the state legislature and PUC, as necessary, 

to develop model language and address ratemaking issues for raising, distributing, and administering the fund. Develop draft legislation for consideration by the state legislature, if legislation is 

required to implement a clean energy fund. In 

addition, if necessary, work with the PUC to establish the ratemaking process for creating the SBC. 

Related Actions 

• Consider additional policies or regulations that will 

help make a clean energy fund successful. For 

example, consider net metering and interconnection standards that are favorable to renewable 

energy and CHP development. For more information on these policies, see Section 5.4, 

Interconnection Standards. 

• Publicize success stories and goals that have been 

reached. Make sure that state officials, office 

holders, and the public are aware that the clean 

energy fund is working and achieving the desired 

results. 

• Develop a stakeholder communication process. A 

majority of clean energy funds were established 

through legislation after a robust stakeholder 

process that included input from utilities, PUCs, 

energy users, equipment manufacturers, project 

developers, state energy offices, and clean energy 

advocates. A stakeholder process is crucial to 

ensuring that market and project realities are considered in the design process. 

On The Horizon 

The Guide to Action focuses on established PBF policies that have proven to be successful in various 

states. Table 5.2.1 provides a brief description of 

emerging policies and innovative approaches, along 

with sources of additional information about these 

policies. To learn about additional policies on the 

horizon related to the other energy supply policies, 

see Appendix C, Clean Energy Supply: Technologies, 

Markets, and Programs. 

5-28 � Chapter 5. Energy Supply Actions
 
 

 

 

 

 

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Table 5.2.1: Emerging Policies and Innovative Approaches
 

Policy Description For More Information 

Contractor and Some states require equipment and contractor cer- The North American Board of Certified Energy 

Equipment Certification tification for renewable energy installations that 

receive buy-down or state financial incentives. 

These standards ensure that high-quality products 

and services are provided to customers. 

Practitioners (NABCEP) works with renewable energy 

and energy efficiency industries, professionals, and 

stakeholders to develop and implement quality credentialing and certification programs for practitioners. 

http://www.nabcep.org 

In New York, NYSERDA’s PV or Solar Electric Incentive 

Program provides cash incentives for the installation 

of small PV or solar-electric systems. The cash incentives are only available for PV systems purchased 

through an eligible installer. 

http://www.powernaturally.org/Programs/Solar/ 

incentives.asp?i=1 

Standard REC A few state renewable energy programs currently New Jersey established a separate REC trading sysTrading/Tracking have Web-based tracking systems for DG and/or tem for solar PV. 

Systems assigning RECs based on this generation. These 

systems enable DG systems to participate in REC 

markets. 

http://www.njcep.com/srec/ 

Mandated Long-Term This policy allows utilities in deregulated markets to The Colorado referendum that created the RPS 

Contracts for sign long-term contracts with renewable energy requires a 20-year purchase for projects eligible to 

Renewables generators. This would provide generators with the 

long-term certainty they need to get their projects 

financed. 

satisfy the RPS. 

http://www.dora.state.co.us/puc/rulemaking/ 

Amendment37.htm 

A legislative act in Connecticut requires distribution 

companies to sign long-term Power Purchase 

Agreements for no less than 10 years for clean energy 

at a wholesale market price plus up to $0.055 per kWh 

for the REC. 

http://www.ctcleanenergy.com/investment/ 

MarketSupplyInitiative.html 

Integrating PUC goals This policy encourages the use of PBFs not only to New England Demand Response Initiative. 

into PBF Program support energy efficiency and renewable energy but http://nedri.raabassociates.org/index.asp 

Design (i.e., “CrossWalking”) also to help PUCs and utilities reach their goals, 

such as increased reliability, congestion relief, and 

permanent peak reduction. 

In Massachusetts, annual peak demand reductions 

from energy efficiency and PBF-funded load management ranged from 98 to 135 MW in 1998, 1999, and 

2000. Cumulative reductions from these programs 

reached 700 MW (7.2% of peak) as of 2000. 

http://eetd.lbl.gov/EA/EMP/reports/PUB5482.pdf 

Source: Compiled by EPA based on multiple sources. 

� Section 5.2. Public Benefits Funds for State Clean Energy Supply Programs
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Information Resources 

Federal Resources 

Title/Description URL Address 

The U.S. Environmental Protection Agency’s (EPA’s) CHP Partnership is a voluntary 

program that seeks to reduce the environmental impact of energy generation by promoting the use of CHP. The Partnership helps states identify opportunities to encourage energy efficiency through CHP, and can provide additional assistance, including 

information on CHP incentives and program design. 

http://www.epa.gov/chp/ 

The EPA Green Power Partnership is a voluntary Partnership between EPA and 

organizations that are interested in buying green power. Through this program, the 

EPA supports organizations that are buying or planning to buy green power. 

http://www.epa.gov/greenpower/ 

General Articles and Resources About Clean Energy Funds
 

Title/Description URL Address 

Case Studies of State Support for Renewable Energy. This site contains a set of articles pertaining to different aspects of clean energy funds authored by staff at 

Lawrence Berkeley National Laboratories (LBNL). 

http://eetd.lbl.gov/ea/EMS/cases/ 

Clean Energy States Alliance (CESA). Twelve states have established funds to promote renewable energy and clean energy technologies. CESA is a nonprofit organization that provides information and technical services to these funds and works 

with them to build and expand clean energy markets in the United States. The CESA 

Web site includes links to all state clean energy funds and related state agencies. 

http://www.cleanenergystates.org/ 

The Database of State Incentives for Renewable Energy (DSIRE). This database is a 

comprehensive source of information on state, local, utility, and selected federal 

incentives that promote renewable energy. 

http://www.dsireusa.org/ 

SmartPower Web Site: Marketing Resources. SmartPower has been working in 

numerous states to raise the awareness of clean energy through public education 

campaigns. 

http://www.smartpower.org/ 

clean_energy_marketing.htm 

Union of Concerned Scientists. This Web site contains articles and fact sheets by 

staff at the Union of Concerned Scientists on clean energy funds and PBFs for 

renewable energy. New articles and other information are added to the Web site 

continually. 

http://www.ucsusa.org/clean_energy/ 

5-30 � Chapter 5. Energy Supply Actions
 
 

EPA Clean Energy-Environment Guide to Action
 

References
 

Title/Description URL Address 

CCEF. 2005. Quick Facts about CCEF. CCEF Web site. Accessed July 2005. http://www.ctcleanenergy.com/about/ 

quick_facts.html 

CEC. 2005. Renewable Energy Program. CEC Web site. Accessed July 2005. http://www.energy.ca.gov/renewables/ 

overview.html 

Commonwealth of Massachusetts. 1997. Chapter 164 of the Acts of 1997. An act 

regarding restructuring the electric utility industry in the Commonwealth, regulating 

the provision of electricity and other services, and promoting enhanced consumer 

protections therein. Approved November 25. 

http://www.mass.gov/legis/laws/ 

seslaw97/sl970164.htm 

DSIRE. 2005. DSIRE Web site. Contains information on state PBFs. http://www.dsireusa.org/index.cfm? 

&CurrentPageID=2 

Massachusetts Renewable Energy Collaborative. 1997. Consensus Report to the 

Legislature on the Proposed Renewable Energy Fund. July 1. 

http://www.raabassociates.org/Articles/ 

Renewable_Fund_Final.doc 

Navigant. 2005. Company intelligence. Navigant Consulting Inc. Also see Katofsky, 

R. and L. Frantzis. 2005. Financing renewables in competitive electricity markets. 

Power Engineering. March 1. 

http://www.navigantconsulting.com/A559B1/ 

navigantnew.nsf/vGNCNTByDocKey/ 

PPA91045514813/$FILE/Financing%20 

Renewables%20in%20Competitve%20 

Electricity%20Markets_Power%20 

Engineering_March%202005.pdf 

NJCEP. 2004. New Jersey Clean Energy Program: Incentives, Regulation, and 

Services Designed to Transform Energy Markets in New Jersey. October 4. 9th 

National Green Power Marketing Conference, Scott Hunter, NJBPU, Office of Clean 

Energy. 

http://www.eere.energy.gov/greenpower/ 

conference/9gpmc04/hunter.pdf 

NJCEP. 2005. Financial Incentives to “Get with the Program.” NJCEP Web site. 

Accessed July 2005. 

http://www.njcep.com/html/2_incent.html 

SmartPower. 2005. SmartPower Web Site: Marketing Resources. SmartPower has 

been working in numerous states to raise the awareness of clean energy through 

public education campaigns. 

http://www.smartpower.org/ 

clean_energy_marketing.htm 

State of Wisconsin. 2005. Focus on Energy. Renewable Energy. Wisconsin’s Focus 

on Energy Web site. Accessed July 2005. 

http://www.focusonenergy.com/ 

UCS. 2004. Table of State Renewable Energy Funds. Union of Concerned Scientists. http://www.ucsusa.org/clean_energy/ 

clean_energy_policies/clean-energypolicies-and-proposals.html 

(PDF Link: State Renewable Energy Funds) 

Wiser, R, M. Bolinger, and T. Gagliano. 2002a. Analyzing the Interaction between 

State Tax Incentives and the Federal Production Tax Credit for Wind Power. LBNL51465. Environmental Energy Technologies Division, LBNL, Department of Energy, 

Berkeley, CA. September. 

http://eetd.lbl.gov/ea/EMS/reports/51465.pdf 

Wiser, R., M. Bolinger, L. Milford, K. Porter, and R. Clark. 2002b. Innovation, 

Renewable Energy, and State Investment: Case Studies of Leading Clean Energy 

Funds. LBNL-51493. Environmental Energy Technologies Division, LBNL and The 

Clean Energy Group. September. 

http://eetd.lbl.gov/ea/EMS/reports/51493.pdf 

� Section 5.2. Public Benefits Funds for State Clean Energy Supply Programs
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5.3 Output-Based Environmental 

Regulations to Support Clean 

Energy Supply 

Policy Description and Objective 

Description 

Output-based environmental regulations relate emissions to the productive output of a process. The goal 

of output-based environmental regulations is to 

encourage the use of fuel conversion efficiency and 

renewable energy as air pollution control measures. 

While output-based emission limits have been used 

for years in regulating some industrial processes, 

their use is only recently evolving for electricity and 

steam generation. Output-based regulations can be 

an important tool for promoting an array of innovative energy technologies that will help achieve 

national environmental and energy goals by reducing 

fuel use. 

Most environmental regulations for power generators 

and boilers have historically established emission 

limits based on heat input or exhaust concentration: 

that is, they measure emissions in pounds per million 

British thermal units (lb/MMBtu) of heat input or in 

parts per million (ppm) of pollutant in the exhaust 

stream. These traditional input-based limits do not 

account for the pollution prevention benefits of 

process efficiency in ways that encourage the application of more efficient generation approaches. For 

example, a facility that installs an energy efficient 

technology emits less, because less fuel is burned. 

But with an input-based emission limit, the reduced 

emissions from improved energy efficiency are not 

counted toward compliance. By not accounting for 

these emission reductions, input-based emission limits can be a barrier to adopting energy efficiency 

improvements. 

Output-based emission limits are particularly important for promoting the significant energy and environmental benefits of combined heat and power 

(CHP). CHP units produce both electrical and thermal 

States utilize output-based environmental 

regulations to encourage efficient energy 

generation by leveling the playing field for 

fuel conversion efficiency and renewable 

energy as air pollution control measures. 

Historically, environmental regulations have 

been input-based, which does not account 

for the pollution prevention benefits of 

process efficiency, which encourages the use 

of more efficient generation approaches. 

output. Output-based limits can be designed to 

explicitly account for both types of output in the 

compliance computation. Traditional input-based 

limits, on the other hand, can present a barrier to 

selecting CHP technologies, because they do not 

account for the emission reductions achieved 

through increased generation efficiency. 

To encourage more efficient energy generation, 

states have begun to design and implement outputbased environmental regulations. An output-based 

emission limit is expressed as emissions per unit of 

useful energy output (i.e., electricity, thermal energy, 

or shaft power). The units of measure can vary 

depending on the type of energy output and the 

combustion source. For electricity generation, the 

unit of measure is mass of emissions per megawatthour (lb/MWh). 

Output-based emission limits do not favor any particular technology and do not increase emissions. 

Output-based regulations simply level the playing 

field by establishing performance criteria and allowing energy efficiency and renewable energy to compete on an equal footing with any other method of 

reducing emissions (e.g., combustion controls and 

add-on controls). 

Objective 

The key objective is to encourage more efficient 

energy generation by designing environmental regulations that allow energy efficiency to compete as an 

air pollution control measure. Emission standards 

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EPA Clean Energy-Environment Guide to Action
 

that account for the emission reduction benefits of 

energy efficiency, and specifically the efficiency benefits of CHP, will make it more attractive for facilities 

to permit and install clean energy technologies. 

Output-based approaches also can be designed into 

cap and trade programs to encourage non-emitting 

end-use energy efficiency and renewable energy 

projects. 

An output-based emission regulation can reduce 

compliance costs because it gives the plant operator 

greater flexibility in reducing emissions. A facility 

operator can comply by installing emission control 

equipment, using a more energy efficient process, or 

using a combination of the two. Regulating the 

emissions produced per unit of output has value for 

equipment designers and operators because it gives 

them additional opportunities to reduce emissions 

through more efficient fuel combustion, more efficient cooling towers, more efficient generators, and 

other process improvements that can increase plant 

efficiency. 

Example of Cost Flexibility Allowed by an 

Output-Based Emission Standard 

Consider a planned new or repowered coal-fired utility 

plant with an estimated uncontrolled nitrogen oxide 

(NOx) emissions rate of 0.35 lb/MMBtu heat input. To 

comply with an input-based emission standard of 0.13 

lb/MMBtu heat input, the plant operator would have 

to install emission control technology to reduce NOx 

emissions by more than 60%. On the other hand, if 

the plant were subject to an equivalent output-based 

Table 5.3.1: Design Flexibility Offered by OutputBased Standards 

Plant 

Efficiency 

(%) 

Emission 

Standard 

(lb/MWh) 

Required Control 

Device Efficiency 

(%) 

34 1.3 60 

40 1.3 55 

44 1.3 48 

emission standard of 1.3 lb/MWh, then the plant operator would have the option of considering alternative 

control strategies by varying both the operating efficiency of the plant and the efficiency of the emission 

control system (Table 5.3.1). This output-based format 

allows the plant operator to determine the most costeffective way to reduce NO emissions and provides an x 

incentive to reduce fuel combustion. The total annual 

emissions are the same in either case. 

Benefits 

Output-based environmental regulations level the 

playing field and encourage pollution prevention and 

energy efficiency. The primary benefits of using more 

efficient combustion technologies and renewable 

energy include: 

•	 Multi-Pollutant Emission Reductions. The use of 

efficiency as a pollution control measure results in 

multi-pollutant emission reductions. For example, 

to comply with a rule for NO , a source that x

increases fuel conversion efficiency will reduce 

emissions of all other pollutants, including sulfur 

dioxide (SO2), particulate matter, hazardous air 

pollutants, as well as unregulated emissions such 

as carbon dioxide (CO2). 

•	 Multimedia Environmental Reductions. By encouraging reduced fuel use, output-based environmental regulations reduce air, water, and solid waste 

impacts from the production, processing, transportation, and combustion of fossil fuels. 

•	 Reduced Fossil Fuel Use. Encouraging energy efficiency and renewable energy sources will reduce 

stress on today’s energy systems and reduce the 

demand for imported fossil fuels. 

•	 Technology Innovation. Encouraging more efficient 

energy generation can advance the use of innovative technologies, such as CHP. Figure 5.3.1 illustrates how CHP can save energy compared to the 

conventional practice of separate generation of 

heat and power. CHP offers a combined fuel conversion efficiency of 75% compared to 45% for 

the conventional system while providing the same 

thermal and electric service. As a result, the CHP 

system emits only 17 tons of NO per year while x 

the conventional system emits 45 tons per year. 

Source: EPA 2004. 

� Section 5.3. Output-Based Environmental Regulations to Support Clean Energy Supply
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Figure 5.3.1: CHP System Efficiency
 

Conventional 

Generation: 

Losses 

( 68 ) Power 

Station 

Fuel 

( 98 ) 

Power 

Plant 

154 

EFFICIENCY: 31% 

EFFICIENCY: 80% 

( 56 ) 

Boiler 

Fuel Losses 

( 11 ) 

Heat 

Boiler 

100 

49% ...TOTAL EFFICIENCY... 75%

Source: EPA 2004. 

•	 Compliance Flexibility. Allowing the use of energy 

efficiency as part of an emission control strategy 

provides regulated sources with an additional 

compliance option. Under an output-based environmental regulation, sources would have the 

option of varying both the efficiency of the 

process and the efficiency of the emission control 

system. This flexibility allows the plant operator to 

determine the most cost-effective way to reduce 

emissions, while providing an incentive to burn 

less fuel. Input- or concentration-based regulations do not provide this option. 

States That Have Developed OutputBased Regulations 

Several states have been at the forefront of adopting 

output-based environmental regulations in general 

and, in particular, developing rules that account for 

the efficiency benefits of CHP. Programs adopted by 

these states include: 

• Conventional emission limits using an output 

format. 

• Special regulations for small distributed generators 

(DG) that are output-based. 

30 

45 

Combined Heat and Power: 

5 MW Natural Gas 

Combustion Turbine 

Heat 

Combined
 

Heat and
 

Power
 CHP 

CHP Fuel 

Losses 

( 25 ) 

• Output-based allowance allocation methods in a 

cap and trade program. 

• Output-based allowance allocation set-asides for 

energy efficiency and renewable energy. 

• Multi-pollutant emission regulations using an output-based format. 

A summary of state output-based environmental regulations programs is presented in Table 5.3.2. 

Designing an Effective OutputBased Environmental Regulations 

Program 

Key elements that are involved in designing an effective output-based environmental regulations program include participants, applicable programs, 

interaction with other state and federal policies, and 

barriers to developing output-based environmental 

regulations. 

The most common use of output-based regulations is 

for emission limits. To design an output-based limit, 

states make several decisions about the format of 

the rule. Making these decisions involves tradeoffs 

between the degree to which the rule accounts for 

the benefits of energy efficiency, the complexity of 

the rule, and the ease of measuring compliance. 

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Table 5.3.2: State Output-Based Regulations
 

State Rule Type 

California Small DG Rulea 

Connecticut Allowance Allocation/trading 

Small DG Rulea 

Delaware Allowance Allocation/trading 

Small DG Rulea 

Indiana Allowance Allocation/set-asides 

Maine Small DG Rule 

Maryland Allowance Allocation/set-asides 

Massachusetts Allowance Allocation/tradinga 

Small DG Rule 

Multi-Pollutant Regulation 

Allowance Allocation/set-asides 

New Hampshire Multi-Pollutant Regulation 

New Jersey Allowance Allocation/trading 

Allowance Allocation/set-asides 

New York Small DG Rule 

Allowance Allocation/set-asides 

Ohio Allowance Allocation/set-asides 

Texas Conventional NOx Limits 

Small DG Rule1 

a Includes recognition of CHP through inclusion of a thermal credit. 

Source: Compiled by EPA based on multiple sources. 

The general steps for designing an output-based 

emission standard are: 

•	 Develop the Output-Based Emission Limit. The 

method used to develop this limit depends on 

whether emissions and energy output data that 

were measured simultaneously are available. If 

not, states can develop output-based emission 

limits by converting input-based emissions data or 

existing emission limits to an output-based equivalent using unit conversions and a benchmark 

energy efficiency. 

•	 Specify a Gross or Net Energy Output Format. Net 

energy output will more comprehensively account 

for energy efficiency, but can increase the complexity of compliance monitoring requirements. 

•	 Specify Compliance Measurement Methods. 

Output-based rules require methods for monitoring 

electrical, thermal, and mechanical outputs. These 

outputs are already monitored at most facilities for 

commercial purposes, and the methods are readily 

available. 

•	 Specify How to Calculate Emission Rates for CHP 

Units. To account for the pollution prevention benefits of CHP, output-based regulations must specify a method to account for both the thermal and 

electric output of the CHP process (in this document, we refer to this as “recognizing” CHP). 

States have used several approaches to recognize 

CHP. These approaches are described in more 

detail in The U.S. Environmental Protection 

Agency’s (EPA’s) Output-Based Regulations: A 

Handbook for Air Regulators (EPA 2004). Each 

approach has policy and implementation tradeoffs, but they all provide a more appropriate 

framework for regulating CHP emissions than do 

conventional emission limit formats. 

Participants 

•	 State Environmental Agencies. The state environmental agency is responsible for formulating and 

administering state air regulations. 

•	 State Energy Offices and Public Utility Commissions 

(PUCs). These organizations can play an active role 

in encouraging the use of output-based environmental regulations. Both types of organizations 

typically have an interest in promoting efficient 

and clean energy generation and are looking for 

policies that can promote such technologies. They 

often have a good understanding of the value of 

efficiency in the generating sector and can assist 

the process by analyzing potential energy and economic benefits that the state could achieve by 

using output-based environmental regulations. 

•	 State Economic Development Agencies. These 

agencies may also have an interest in outputbased environmental regulations due to their 

potential to encourage lower cost and more reliable sources of energy for new industry. Outputbased environmental regulations might also simplify environmental permitting for clean, efficient 

facilities, providing an advantage for economic 

development in the state. 

� Section 5.3. Output-Based Environmental Regulations to Support Clean Energy Supply
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•	 Regulated and Nonregulated Stakeholders. 

Stakeholders often play a role in developing and 

promoting output-based environmental regulations. Energy users, CHP and DG equipment manufacturers, project developers, and trade associations 

representing these interests may provide relevant 

information and comments throughout the regulatory development and implementation process. 

•	 State Legislators. In some cases, state legislators 

may play a role in promoting output-based environmental regulations. Legislators can be proponents of efficiency and clean technology and can 

provide support for development of output-based 

environmental regulations as a means of meeting 

state efficiency and clean air goals. 

Applicable Programs 

Output-based concepts can be applied to a variety of 

air regulatory programs, including: 

•	 Conventional Emission Limits, Such as Reasonably 

Available Control Technology (RACT), National 

Emission Standards for Hazardous Air Pollutants 

(NESHAP), and New Source Performance Standards 

(NSPS). The Ozone Transport Commission (OTC) has 

used an output-based format for “beyond-RACT” 

NO limits. EPA has used an output-based x 

approach with recognition of CHP for the NSPS for 

NO from utility boilers, the NSPS for mercury x 

from coal-fired utility boilers, and the NESHAP for 

combustion turbines. 

•	 Emission Limits for Small DG and CHP. Most states 

that have recently promulgated emission limits for 

DG are using output-based environmental regulations. These states include California, Texas, 

Connecticut, Massachusetts, and Maine. Delaware, 

Rhode Island, and New York are currently developing output-based environmental regulations. All of 

these states, except Massachusetts and New York, 

recognize CHP by including a thermal credit in 

their regulations. Massachusetts and New York 

currently are considering how to recognize CHP. 

These are standalone efforts in response to developing markets for DG. 

•	 Allowance Allocation in Emission Trading Programs. 

Allowance allocation is an important component 

in emission cap and trade programs for electric 

utilities. Allowance allocations are most commonly 

based on either heat input or energy output. 

Allocation based on heat input gives more 

allowances to less efficient units, and allocation 

based on energy output gives more allowances to 

more efficient units. An updating allocation system (where allowances are reallocated in the 

future) using an output basis provides an ongoing 

incentive for improving energy efficiency. 

Connecticut and New Jersey use output-based 

allocation in their NO trading rules. x 

Massachusetts uses an output-based allocation 

that includes the thermal energy from CHP. 

•	 Allowance Allocation Set-Asides for Energy 

Efficiency and Renewable Energy. In addition to 

allocating allowances to regulated sources, a cap 

and trade program can “set aside” a portion of its 

NO allowances for allocation to energy efficiency, x 

renewable energy, and CHP projects that are not 

regulated under the cap and trade program. These 

unregulated units can sell the allowances to regulated units to generate additional revenue. States 

with set-aside programs include Indiana, 

Maryland, Massachusetts, New York, New Jersey, 

and Ohio. Connecticut is currently developing a 

set-aside rule. 

•	 Multi-Pollutant Programs. Several states have 

adopted multi-pollutant emission limits for power 

generators. Some include emission trading, while 

others are similar to conventional emission rate 

limits. Massachusetts and New Hampshire have 

established such programs using output-based 

environmental regulations, although neither currently includes CHP. 

Interaction with Federal Policies 

Several federal programs have adopted output-based 

regulations with recognition of CHP (see Examples of 

Legislation and Program Proposals, in Information 

Resources on page 5-41). These programs include: 

• NSPS for NO from electric utility boilers and the x 

proposed combustion turbines both apply outputbased limits with recognition of CHP through the 

treatment of a thermal credit. The boiler NSPS 

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was one of the first such rules and helped set an 

example for other regulations. The most recently 

proposed NSPS revisions expand the use of output-based environmental regulations to other pollutants and improve the treatment of thermal output from CHP. 

• Emission limits in state implementation plans 

(SIPs) can be in expressed in any format as long as 

the plan demonstrates compliance with federal air 

quality standards. 

• The new EPA cap and trade programs (Clean Air 

Interstate Rule for ozone and fine particulate matter and the Clean Air Mercury Rule) allow states 

to determine the method for allocating 

allowances. The EPA model rules include examples 

of output-based allocation, including methods to 

include CHP units. These model rules can be 

adopted by states “as is,” which would be a benefit to CHP. 

Interaction with State Policies 

The use of output-based environmental regulations 

to encourage CHP can be coordinated with other 

state programs, including: 

• State emission disclosure programs for electricity 

that typically use an output-based format 

(lb/MWh). This is an indication of the usefulness of 

the output-based approach to accurately relate 

emissions to useful output. 

• Other state policies that are important in encouraging efficiency and CHP development include grid 

interconnection standards, electricity and gas 

ratemaking, and financial incentives for CHP 

developments. 

Barriers to Developing Output-Based 

Environmental Regulations 

For power and steam applications, an output-based 

regulation is a change from historical regulatory 

practice and can create uncertainties for implementation. At this time, however, the use of outputbased environmental regulations is growing, and 

there has been sufficient experience with state and 

Best Practices: Developing and Adopting an 

Output-Based Regulation 

The best practices identified below will help states 

design effective output-based environmental regulations programs. These recommendations are based on 

the experiences of states that have implemented output-based environmental regulations to encourage 

CHP. 

•	 Determine what types of DG and CHP technologies 

and applications might be affected and whether 

there are any specific technology issues that the 

regulation needs to address. Consult with the PUC, 

the independent system operator (ISO), and owners 

on operations of DG and CHP units to inform regulatory determinations. 

•	 Gather/review available output-based emission data 

for regulated sources. Alternatively, convert available data to output-based format. Obtain information from equipment providers on technologies and 

emissions profiles, and capitalize on experience and 

work already conducted by other states. 

•	 Evaluate alternative approaches to account for multiple outputs of CHP units. (See EPA’s 2004 OutputBased Regulations: A Handbook for Air Regulators 

and other references in the Information Resources 

section on page 5-40). 

EPA rulemakings to provide successful examples for 

rule development and implementation. 

One issue that has been raised in past rulemakings is 

the lack of simultaneously measured energy output 

and emission data upon which to base the emission 

limit. Where these data were not available, EPA and 

states developed output-based environmental regulations by converting input-based data or emission 

limits to an output-based format using units of 

measure conversions and a benchmark energy efficiency. The selection of a benchmark energy efficiency is an important policy decision, because processes 

with efficiency below the benchmark would have to 

control emissions to a greater degree than those that 

exceed the benchmark. This is especially true for regulation of existing sources, which have far fewer 

options to take advantage of efficiency. Application 

of output-based regulation to existing sources 

� Section 5.3. Output-Based Environmental Regulations to Support Clean Energy Supply
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requires special attention to the feasibility and cost 

of compliance options. 

Other common issues include the feasibility of emission monitoring, compliance methods, and technology to measure process output (electricity and thermal output). However, all of these questions have 

been successfully addressed by states in their output-based rulemakings (see State Examples on page 

5-39). 

Program Implementation and 

Evaluation 

The best practices states can use when implementing 

and evaluating output-based regulations are 

described below. 

Administering Body 

The state, local, or tribal environmental agency is 

almost always responsible for developing outputbased environmental regulations. 

Roles and Responsibilities of 

Implementing Organization 

The state, local, or tribal environmental agency’s 

responsibilities include: 

• Identify and evaluate opportunities for the application of output-based environmental regulations. 

• Gather information, develop goals for outputbased environmental regulations, develop outputbased environmental regulations, and establish 

appropriate output-based emission limits. 

• Publicize and implement output-based environmental regulations. Train permit writers on new 

rules. 

• Evaluate the value of output-based environmental 

regulations in encouraging efficiency, CHP, and 

emission reductions. 

Evaluation 

States can evaluate their overall air pollution regulatory program periodically to determine whether their 

regulations are structured to encourage energy efficiency, pollution prevention, and renewable 

resources. This evaluation helps identify new opportunities for using output-based environmental regulations to encourage energy efficiency through effective regulatory design. 

Regulatory programs are routinely reviewed and 

revised, and occasionally new programs are mandated 

by state or federal legislation. For example, states are 

developing revised SIPs to achieve greater emission 

reductions to address problems of ozone, fine particulates, and regional haze. States can use this opportunity to evaluate the benefits of energy efficiency in 

attaining and maintaining air quality goals. States 

can identify the overall benefits of output-based 

Best Practices: Implementing Output-Based 

Regulations 

The best practices identified below will help states 

effectively implement their output-based environmental regulations programs. These recommendations are 

based on the experiences of states that have implemented output-based environmental regulations to 

encourage CHP. 

•	 Start with internal education to ensure that state 

environmental regulators understand the benefits, 

principles, and mechanisms of output-based environmental regulations and CHP. Ensure that regulators understand why this change is good for the 

environment. 

•	 Coordinate with other state agencies that can lend 

support. State energy offices, energy research and 

development offices, and economic development 

offices can provide valuable information on the 

energy benefits of output-based environmental regulations, efficiency, and CHP. Their perspective on 

the importance of energy efficiency and pollution 

prevention can help formulate policy. 

•	 Apply output-based environmental regulations principles to new regulations, as appropriate. 

•	 Publicize the new rules. Consider training permit
 

writers on implementation of the new rules.
 

5-38 � Chapter 5. Energy Supply Actions
 
 

EPA Clean Energy-Environment Guide to Action
 

environmental regulations by assessing the affect of 

higher efficiency on energy savings, other emissions 

reduced, jobs created, and costs savings to utilities 

and consumers. It may be advantageous to engage 

state energy officials in this process to get additional 

perspective and insights into the energy implications 

of output-based environmental regulations. 

State Examples 

Connecticut 

Connecticut has promulgated output-based environmental regulations for NO , particulate matter, car- x

bon monoxide (CO), and CO2 from small distributed 

generators (< 15 MW capacity), including CHP. The 

regulation is expressed in lb/MWh based on the 

Model Rule for DG developed by the Regulatory 

Assistance Project (RAP 2002). The regulation values 

the efficiency of CHP based on the emissions that 

are avoided by not having separate electric and 

thermal generation. Connecticut also allocates 

allowances based on energy output in their NOx 

trading program. 

Web site: 

http://dep.state.ct.us/air2/regs/mainregs/sec42.pdf 

Indiana 

Indiana has created a set-aside of allowance allocations for energy efficiency and renewable energy in 

their NO trading program. Indiana allocates 1,103 x 

tons of NO allowances each year for projects that x 

reduce the consumption of electricity, reduce the 

consumption of energy other than electricity, or generate electricity using renewable energy. Highly efficient electricity generation projects for the predominant use of a single end user or highly efficient 

generation projects that replace or displace existing 

generation equipment are eligible to apply for NOx 

allowances. Projects can involve combined cycle systems, CHP, microturbines, or fuel cells. 

Web site: 

http://www.in.gov/idem/air/standard/Sip/guide.pdf 

Massachusetts 

Massachusetts has used output-based environmental 

regulations in several important regulations. The 

Massachusetts NO cap and trade program employs x 

useful output, including the thermal output of CHP, 

to allocate emission allowances to affected sources 

(generators > 25 MW). This approach provides a significant economic incentive for CHP within the emissions cap. Massachusetts also has a multi-pollutant 

emission regulation (NO , SO2, mercury [Hg], CO2) for x

existing power plants, which uses an output-based 

format for conventional emission limits. 

Web site: 

http://www.mass.gov/dep/bwp/daqc/files/728reg.pdf 

Texas 

In 2001, Texas promulgated a standard permit with 

output-based emission limits for small electric generators. The permit sets different NO limits x 

(lb/MWh) based on facility size, location, and level of 

utilization. The compliance calculation accounts for 

the thermal output of CHP units by converting the 

measured steam output (British thermal unit, or Btu) 

to an equivalent electrical output (MWh). To qualify 

as a CHP unit, the heat recovered must represent a 

minimum of 20% of total energy output by the unit. 

Web site: 

http://www.tnrcc.state.tx.us/permitting/airperm/ 

nsrpermits/files/segu_permitonly.pdf 

What States Can Do 

Output-based regulations with provisions to recognize the pollution prevention benefits of CHP are 

becoming more common in the development and 

implementation of environmental regulations. Where 

appropriate, states can investigate incorporating output-based environmental regulations into new regulations or amendments. The most important step is 

to integrate an evaluation of output-based environmental regulations into the routine review and 

implementation of environmental regulations. In this 

way, a state can promote energy efficiency through 

the structure of its air pollution regulatory program. 

� Section 5.3. Output-Based Environmental Regulations to Support Clean Energy Supply
 5-39 
 

 

 

 

 

 

 

 

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Information Resources 

Federal Resources 

Title/Description URL Address 

Developing and Updating Output-based NOx Allowance Allocations. This EPA guidance document was the result of a 1999 stakeholder process to develop approaches 

to output-based allocation of emission trading allowances, including allocation to 

CHP facilities. 

http://www.epa.gov/airmarkets/fednox/ 

april00/finaloutputguidanc.pdf 

The EPA CHP Partnership. This voluntary program seeks to reduce the environmental impact of energy generation by promoting the use of CHP. The Partnership helps 

states identify opportunities for policy developments (i.e., energy, environmental, 

and economic) to encourage energy efficiency through CHP. In 2006, the 

Partnership, in conjunction with the Northeast States for Coordinated Air Use 

Management (NESCAUM), is developing output-based environmental regulations 

training for state air regulators. 

http://www.epa.gov/chp 

Output-Based Regulations: A Handbook for Air Regulators. The EPA CHP Partnership 

has developed a handbook that explains the benefits of output-based emission limits, how to develop output-based environmental regulations, and the experience of 

several states in implementing output-based environmental regulations. This handbook is intended as a resource for air regulators in evaluating opportunities to adopt 

output-based environmental regulations and in writing regulations. 

http://www.epa.gov/chp/pdf/output_rpt.pdf 

Other Resources
 

Title/Description URL Address 

The Impact of Air Quality Regulations on Distributed Generation. National Renewable 

Energy Laboratory (NREL), Golden, CO. October. This report finds that current air 

quality regulatory practices are inhibiting the development of DG, either through a 

failure to recognize the environmental benefits offered by DG or by imposing requirements designed for larger systems that are not appropriate for DG systems. 

http://www.nrel.gov/docs/fy03osti/31772.pdf 

NESCAUM. This is an interstate association of air quality control divisions in the 

Northeast. The eight member states are comprised of the six New England States 

and New York and New Jersey. NESCAUM’s purpose is to exchange technical information and promote cooperation and coordination of technical and policy issues 

regarding air quality control among the member states. 

http://www.nescaum.org/ 

Regulatory Requirements Database for Small Electric Generators. This online database provides information on state environmental regulations for small generators 

and other types of regulations for small generators. 

http://www.eea-inc.com/rrdb/DGRegProject/ 

index.html 

5-40 � Chapter 5. Energy Supply Actions
 
 

 

 

 

 

EPA Clean Energy-Environment Guide to Action
 

General Articles on Output-Based Regulation
 

Title/Description URL Address 

Analysis of Output-Based Allocation of Emission Trading Allowances. This report for 

the U.S. Combined Heat and Power Association (USCHPA) provides background on 

emission trading programs and the benefits of output-based allocation, with a particular focus on CHP. 

http://uschpa.admgt.com/AllocationFinal.pdf 

Examples of Legislation and Program Proposals 

Following are examples of output-based approaches to different types of environmental regulation: 

Example Title/Description URL Address 

Allowance 

Allocation 

Massachusetts uses useful output, including thermal energy 

from CHP, to allocate emission allowances in its NOx trading 

program. 

http://www.mass.gov/dep/bwp/daqc/files/ 

728reg.pdf 

EPA has also included elements of output-based emission 

allocation approaches in its model trading rules for the Clean 

Air Interstate Rule (CAIR) and Clean Air Mercury Rule. 

http://www.epa.gov/cair/pdfs/ 

cair_final_reg.pdf 

http://www.epa.gov/mercuryrule/pdfs/ 

camrfinal_regtext.pdf 

EPA has suggested model language for energy efficiency/ 

renewable energy set-asides in NOx emission trading programs. 

http://www.epa.gov/ttn/oarpg/t1/ 

memoranda/ereseerem_gd.pdf 

Conventional Rate 

Limits 

The OTC has developed output-based “beyond RACT” regulatory language for a variety of sources. http://www.otcair.org/ 

interest.asp?Fview=stationary# 

The federal NSPS for NOx from electric utility boilers and the 

proposed NSPS for combustion turbines are structured as 

output-based environmental regulations. Each rule also contains compliance provisions for CHP. These regulations provide excellent examples of rule language and technical background documentation. 

http://www.epa.gov/ttn/oarpg/t3pfpr.html 

DG Regulations Texas has an output-based standard permit for small electric 

generators with recognition of CHP. 

http://www.tnrcc.state.tx.us/permitting/ 

airperm/nsr_permits/files/ 

segu_permitonly.pdf 

The RAP, with support from the U.S. Department of Energy 

(DOE), developed model rule language for regulation of small 

electric generators, including CHP. 

http://www.raponline.org/ProjDocs/ 

DREmsRul/Collfile/ 

ModelEmissionsRule.pdf 

Connecticut has promulgated a rule using the RAP model rule 

approach. 

http://dep.state.ct.us/air2/regs/mainregs/ 

sec42.pdf 

� Section 5.3. Output-Based Environmental Regulations to Support Clean Energy Supply
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EPA Clean Energy-Environment Guide to Action
 

References
 

Title/Description URL Address 

EPA. 2004. Output-Based Regulations: A Handbook for Air Regulators. Produced in a 

joint effort between Energy Supply and Industry Branch, Green Power Partnership 

and CHP Partnership. August 2004. 

http://www.epa.gov/chp/pdf/output_rpt.pdf 

RAP. 2002. Model Regulations for the Output of Specified Air Emissions from 

Smaller-scale Electric Generation Resources Model Rule and Supporting 

Documentation. RAP. October 15. 

http://www.raponline.org/ProjDocs/ 

DREmsRul/Collfile/ 

ModelEmissionsRule.pdf 

5-42 � Chapter 5. Energy Supply Actions
 
 

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5.4 Interconnection Standards 

Policy Description and Objective 

Summary 

Standard interconnection rules for distributed generation (DG) systems (renewable energy and combined 

heat and power [CHP]) are a relatively recent policy 

innovation used by states to accelerate the development of clean energy supply. CHP is an efficient, 

clean, and reliable approach to generating power and 

thermal energy from a single fuel source by recovering the waste heat for use in another beneficial purpose. Customer-owned DG systems are typically connected in parallel to the electric utility grid and are 

designed to provide some or all of the onsite electricity needs. In some cases, excess power is sold to 

the utility company. 

Standard interconnection rules establish uniform 

processes and technical requirements that apply to 

utilities within the state. In some states, municipally 

owned systems or electric cooperatives may be 

exempt from rules approved by the state regulators. 

Standard interconnection rules typically address the 

application process and the technical interconnect 

requirements for small DG projects of a specified 

type and size. 

Customers seeking to interconnect DG systems to 

the utility grid must meet the procedural and technical requirements of the local utility company. 

These requirements address such important issues 

as grid stability and worker and public safety. With 

the approval of regulators, utilities establish the 

conditions that customers seeking to connect DG 

systems to the grid must meet. These conditions 

include safeguards, grid upgrades, operating restrictions, and application procedures that may create 

barriers for some DG projects, particularly smaller 

systems. Smaller-scale DG systems are often subject 

to the same, frequently lengthy, interconnection 

procedures as larger systems even though their system impact is likely to be significantly less. If interconnection procedures are overly expensive in proportion to the size of the project, they can overThe state public utility commission (PUC), 

in determining utility interconnection rules, 

can establish uniform application processes 

and technical requirements that reduce 

uncertainty and prevent excessive time 

delays and costs that distributed generation 

(DG) can encounter when obtaining approval 

for electric grid connection. 

whelm project costs to the point of making clean 

DG uneconomical. 

It is for these and other reasons that states are 

increasingly developing and promoting standardized 

interconnection requirements and rules for DG. In 

addition, some states use net metering rules to govern interconnection of smaller DG systems. Net 

metering is a method of crediting customers for 

electricity that they generate on site in excess of 

their own electricity consumption. It allows smaller 

DG owners to offset power that they obtain from the 

grid with excess power that they can supply through 

their grid connection. 

Standard interconnection is a critical component of 

promoting clean DG and has been most successful 

when coupled with other policies and programs. 

Consequently, states are promoting clean DG through 

a suite of related policies, including standard interconnection; addressing utility rates for standby, 

backup, and exit fees; creating renewable portfolio 

standards (RPS); and other initiatives. The Energy 

Policy Act of 2005 (EPAct 2005) directs states to 

consider their interconnection standards for DG 

within one year of enactment (by September 2006) 

and their net metering standards within two years of 

enactment (September 2007). 

Objective 

The key objective of standard interconnection rules is 

to encourage the connection of clean DG systems 

(renewable and CHP) to the electric grid in order to 

obtain the benefits that they can provide without 

compromising safety or system reliability. 

� Section 5.4. Interconnection Standards
 5-43 
 

 

 

 

 

 

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Benefits 

Standardized interconnection standards can support 

the development of clean DG by providing clear and 

reasonable rules for connecting clean energy systems 

to the electric utility grid. By developing standard 

interconnection requirements, states make progress 

toward leveling the playing field for clean DG relative to traditional central power generation. Standard 

interconnection rules can help reduce uncertainty 

and prevent excessive time delays and costs that 

small DG systems sometimes encounter when 

obtaining approval for grid connection. 

The benefits of increasing the number of clean DG 

projects include: enhancing economic development in 

the state,24 reducing peak electrical demand, reducing 

electric grid constraints, reducing the environmental 

impact of power generation, and helping states achieve 

success with other clean energy initiatives. The application of DG in targeted load pockets can reduce grid 

congestion, potentially deferring or displacing more 

expensive transmission and distribution infrastructure 

investments. A 2005 study for the California Energy 

Commission (CEC) found that strategically sited DG 

yields improvements to grid system efficiency and provides additional reserve power, deferred costs, and 

other grid benefits (Evans 2005). Widespread deployment of DG can slow the growth-driven demand for 

more power lines and power stations. 

States with Interconnection Standards 

DG interconnections that do not involve power sales 

to third parties typically are regulated by states. The 

Federal Energy Regulatory Commission (FERC) regulates DG interconnections used to export power or for 

interstate commerce.25 Since most DG is used to serve 

electric load at the customer’s site, states approve the 

interconnection standards used for the majority of 

interconnections for smaller, clean DG systems. 

As of November 2005, 14 states had adopted standard interconnection requirements for distributed 

generators (i.e., California, Connecticut, Delaware, 

Hawaii, Indiana, Massachusetts, Michigan, Minnesota, 

New Mexico, New Jersey, New York, Ohio, Texas, and 

Wisconsin), and seven additional states were in the 

process of developing similar standards (i.e., Arizona, 

Illinois, Iowa, North Carolina, Pennsylvania, Vermont, 

and Washington) (see Figure 5.4.1). While these standards often cover a range of generating technologies, 

Figure 5.4.1: States with DG Interconnection 

Standards 

DC

States with interconnection rules 

States with proposed interconnection rules 

Notes: 

•	 New Jersey also has interconnection standards for net metered 

renewable DG < 2 MW. 

•	 New Hampshire has interconnection standards for net metered 

renewable DG < 25 kW. 

Maximum System Size for a State Interconnection Standard 

CA None NH 25 kW 

CT 25 MW NJ 2 MW 

DE 1 MW NM 10 kW 

HI None OH None 

MA None NY 2 MW 

MI None TX 10 MW 

MN 10 MW WI 15 MW 

NCa 100 kW 

a	 System size is limited to 20 kW for residential customers. 

Source: Navigant 2005. 

24	 Economic development occurs through the increased number of DG facilities needed to meet electricity demand in the state and inducing companies to invest more in their facilities. 

25 Particularly those installations that are not interconnected to transmission systems or involved in third-party wholesale transactions. 

5-44 � Chapter 5. Energy Supply Actions 
 

 

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EPA Clean Energy-Environment Guide to Action
 

Figure 5.4.2: States with Net Metering Rules
 

DC 

State-wide net metering for all utility types 

State-wide net metering for certain utility types (e.g., IOUs only) 

Net metering offered by one or more individual utilities 

Net Metering System Size Limit (kW) 

(in some cases limits are different for residential 

and commercial as shown) 

AR 25/100 MN 40 

AZ 10 MT 50 

CA 1,000 ND 100 

CO Under development NH 25 

CT 100 NJ 2,000 

DC 100/25 NM 10 

DE Varies NV 30 

FL Varies NY 10/400 

GA 10/100 OH No limit 

HI 50 OK 100 

IA Varies OR 25 

ID 25/100 PA Varies 

IL 40 RI 25 

IN 10 TX 50 

KY 15 UT 25 

LA 25/100 VA 10/500 

MA 60 VT 15/150 

MD 80 WA 25 

ME 100 WI 20 

MI Varies WY 25 

Source: IREC 2005. 

most include interconnection of renewable and CHP 

systems. 

In addition to interconnection requirements, many 

states have adopted net metering provisions. Most 

states find that smaller DG systems are more likely to 

produce power primarily for their own use, with 

exports to the grid tending to be incidental. These 

DG customers are at an economic disadvantage if 

the interconnect requirements are excessive. Also, 

small systems are more likely to have de minimus 

effects on the physical electric grid and on equity 

issues among customers, so the requirements needed 

for large generators are unnecessary in these 

instances. For these reasons, a simplified process has 

been adopted. 

Net metering provisions can be considered a subset 

of interconnect standards for small scale projects. As 

of July 2005, 39 states and Washington, D.C. had 

rules or provisions for net metering (see Figure 5.4.2). 

When DG output exceeds the site’s electrical needs, 

the utility may pay the customer for excess power 

supplied to the grid or have the net surplus carry 

over to the next month’s bill. Some states allow the 

surplus account to be reset periodically, meaning 

that customers might provide some generation to the 

utility for free. Net metering provisions streamline 

interconnection standards but often are limited to 

specified sizes and types of technologies. 

Some state net metering provisions are limited in 

scope. For example, net metering rules often apply 

only to relatively small systems,26 specified technologies, or fuel types of special interest to policymakers. 

Some rules lack detailed specifications and procedures for utilities and customers to follow and vary 

across utilities within the state.27 Several states, 

however, have net metering provisions and interconnection rules that provide a complete range of interconnection processes and requirements.28 

26	 Thirty-four of 39 states that have net metering rules limit system sizes to 100 kW or less. 

27	 States that have variable net metering policies among utilities include Arizona, Florida, Idaho, and Illinois. 

28	 Some states (e.g., New Hampshire and New Jersey) have developed standard interconnection processes and requirements as part of their net 

metering provision. 

� Section 5.4. Interconnection Standards 5-45 
 

 

 

EPA Clean Energy-Environment Guide to Action
 

Designing Effective 

Interconnection Standards 

States consider a number of key factors when 

designing effective interconnection standards that 

balance the needs of DG owners, the utility company, 

and the public. These factors include promoting 

broad participation during standards development, 

addressing a range of technology types and sizes, 

and taking into consideration current barriers to 

interconnection. In addition, it is important to consider state and federal policies that might influence 

the development and operation of interconnection 

standards. 

Participants 

Key stakeholders who can contribute to the process 

of developing effective interconnection standards 

include: 

•	 Electric Utilities. Utilities are responsible for maintaining the reliability and integrity of the grid and 

ensuring the safety of the public and their 

employees. 

•	 State PUCs. PUCs have jurisdiction over investorowned utilities (IOUs) and, in some cases, publicpower utilities. They are often instrumental in setting policy to encourage onsite generation. 

•	 Developers of CHP and Renewable Energy Systems 

and Their Respective Trade Organizations. Developers 

and their customers that will rely on these systems 

can provide valuable technical information and 

real-world scenarios. 

•	 Third-Party Technical Organizations. Organizations 

such as the Institute of Electric and Electronic 

Engineers (IEEE) and certifying organizations like 

the Underwriters Laboratories (UL) have been 

active in establishing interconnection protocols 

and equipment certification standards nationwide. 

Complicated Landscape of Interconnection for Distributed Generation 

Renewable energy and CHP systems used by commercial or industrial facilities are typically smaller than 10 MW in 

capacity. When designing and implementing standards for systems of this size, it is important to realize that the size 

dictates how and by whom interconnection is regulated. 

•	 10 MW and larger systems: generally regulated by FERC. Standards are being developed, or have already been 

developed, for larger systems that are often connected directly to the transmission grid and can be outside of a 

state’s jurisdiction. Historically, most grid-connected generation systems were owned by electric utilities. As a 

result of restructuring and other legislation (e.g., the Public Utilities Regulatory Policy Act, PURPA), utilities were 

required to interconnect non-utility generators to the electric grid. States and regulatory agencies such as FERC 

have begun to develop or have already implemented standard interconnection rules for non-utility generators. 

However, most of these rules apply to larger generating facilities (> 10 MW). 

•	 100 kW systems and under: often covered to some degree by state net metering provisions. Some states have 

developed provisions for net metering of relatively small systems (i.e., < 100 kW). While these provisions typically 

are not as comprehensive as interconnection standards, they can provide a solid starting point for industry, customers, and utilities with respect to connection of relatively small DG systems to the electric grid. 

•	 0.1–10 MW systems: require attention. This “intermediate” group represents systems that are interconnected to 

the distribution system but are larger than the systems typically covered by net metering rules and smaller than the 

large generating assets that interconnect directly to the transmission system and are regulated by FERC. In 

response to the mounting demands by customers and DG/CHP developers to interconnect generation systems to 

the grid, utilities increasingly have established some form of interconnection process and requirements. In addition, to increase utility confidence around DG systems, industry organizations such as the IEEE and UL have begun 

to develop standards that enable the safe and reliable interconnection of generators to the grid. However, there is 

a need for states to establish standard interconnection rules for generation systems of all sizes. 

5-46 � Chapter 5. Energy Supply Actions
 
 

EPA Clean Energy-Environment Guide to Action
 

•	 Regional Transmission Organizations (RTOs). These 

organizations may have already implemented 

interconnection standards using FERC requirements for large non-utility generators generally 

above 10 MW. 

•	 Other Government Agencies. Federal agencies (e.g., 

FERC) and state environmental and public policy 

agencies can play an important role in establishing 

and developing interconnection standards. 

Some states are bringing key stakeholders together 

to develop state-based standards via a collaborative 

process. For example, in Massachusetts, the 

Distributed Generation Collaborative (DG 

Collaborative) successfully brought together many 

diverse stakeholders to develop the interconnection 

rules now used by DG developers and customers in 

Massachusetts. 

Typical Specifications 

Interconnection standards typically specify: 

• The type of technology that may be interconnected (e.g., inverter-based systems, induction generators, synchronous generators). 

• The required attributes of the electric grid where 

the system will be interconnected (i.e., radial or 

network distribution, distribution or transmission 

level, maximum aggregate DG capacity on a circuit). 

• The maximum system size that will be considered 

in the standard interconnection process. 

Standard interconnection rules typically address the 

application process and the technical interconnection requirements for DG projects: 

• The application process includes some or all parts 

of the interconnection process from the time a 

potential customer considers submitting an application to the time the interconnection agreement 

is finalized. For example, rules may specify application forms, timelines, fees, dispute resolution 

processes, insurance requirements, and interconnection agreements. 

• Technical protocols and standards specify how a 

generator must interconnect with the electric grid. 

For example, requirements may specify that DG 

must conform to industry or national standards 

and include protection systems designed to minimize degradation of grid reliability and performance and maintain worker and public safety. 

In addition, some states are developing different 

application processes and technical requirements for 

differently sized or certified systems. Since the size of 

a DG system can range from a renewable system of 

only a few kW to a CHP system of tens of MW, standards can be designed to accommodate this full 

range. Several states have developed a multi-tiered 

process for systems that range in size from less than 

10 kW to more than 2 MW. Three states (Connecticut, 

Michigan, and Minnesota) have classified DG systems 

into five categories based on generator size. Other 

states use fewer categories, but also define fees, 

insurance requirements, and processing times based 

on the category into which the DG falls. The level of 

technical review and interconnection requirements 

usually increases with generation capacity. 

In states with a multi-tiered or screen interconnection process, smaller systems that meet IEEE and UL 

standards or certification generally pass through 

the interconnection process faster, pay less in fees, 

and require less protection equipment because 

there are fewer technical concerns. States that 

require faster processing of applications for smaller 

systems (< 10 to < 30 kW) include California, 

Connecticut, Massachusetts, Michigan, Minnesota, 

New York, and Wisconsin. For relatively large DG 

systems, processes and requirements may be similar 

or identical to those used for large central power 

generators. For mid-size systems, states have found 

they may need to develop several levels of procedural and technical protocols to meet the range of 

needs for onsite generators, utilities, and regulators. 

� Section 5.4. Interconnection Standards
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EPA Clean Energy-Environment Guide to Action 

Constraints 

Designing new DG interconnection rules provides an 

opportunity to resolve recurring barriers encountered 

by applicants for interconnection of DG systems. 

These barriers have been well-documented (NREL 

2000, Schwartz 2005); three areas in which a DG 

developer typically confronts problems include: 

•	 Technical Barriers resulting from utility requirements (including requirements for safety measures) regarding the compatibility of DG systems 

with the grid and its operation. For example, customers may be faced with costly electric grid 

upgrades as a condition of interconnection. 

Another frequently cited technical requirement 

that is particularly costly for smaller DG is the visible shut-off switch located outside the premises 

that can be accessed by the utility to ensure that 

no power is flowing from the DG unit. These shutoff switches range from $1,000 to $6,000 for 

small systems (e.g., 30 kW to 200 kW), depending 

on their location and whether they are installed as 

part of the original facility design or after the system began operations. 

•	 Utility Business Practices, including issues that 

result from contractual and procedural interconnection requirements between the utility and the 

project developer/owner. For example, customers 

may face a long application review period or 

lengthy technical study requirements, with high 

associated costs. 

•	 Regulatory Constraints arising primarily from tariff 

and rate conditions, including the prohibition of 

interconnection of generators that operate in parallel with the electric grid.29 In some instances, 

environmental permitting or emission limits also 

can create barriers. For more information on the 

barriers posed to DG systems by tariff and rate 

issues, see Section 6.3, Emerging Approaches: 

Removing Unintended Utility Rate Barriers to 

Distributed Generation. 

Some states are beginning to address these areas of 

concern through a combination of policy actions and 

regulatory changes to remove or alter requirements 

that they believe are not appropriate for the scale of 

small DG units. 

Interaction with Federal Policies 

States have found that several federal initiatives can 

be utilized when designing their own interconnection 

standards: 

• In May 2005, FERC adopted interconnection standards for small DG systems of up to 20 MW. The 

rulemaking addresses both the application processes 

and technical requirements. Concurrently, through a 

separate rulemaking, FERC has addressed an application process and technical requirements for systems under 2 MW. States can use the new FERC 

standard interconnection rules as a starting point or 

template for preparing their own standards.30 

• Under the Public Utilities Regulatory Policy Act 

(PURPA), utilities are required to allow interconnection by Qualifying Facilities (QFs).31 Utilities 

may have standard procedures for such interconnection and some states may regulate such interconnection. New interconnect rules for DG may be 

more or less favorable than the existing regulations 

for QFs and also may not be consistent with existing rules for QFs. For example, in Massachusetts 

the application timelines and fees in the QF regulations are different than the DG interconnection 

tariff, which could create confusion and delay in 

establishing an interconnection. 

• EPAct 2005 requires electric utilities to interconnect customers with DG upon request. The Act 

29	 When a CHP system is interconnected to the grid and operates in parallel with the grid the utility only has to provide power above and beyond what 

the onsite CHP system can supply. 

30	 FERC’s interconnection rules, however, apply only to the third party and wholesale power transactions they regulate. Most DG systems fall under state, 

rather than FERC, jurisdiction, since most are connected at the distribution-system level and do not involve third-party exports via the utility grid. 

31	 A QF is a generation facility that produces electricity and thermal energy and meets certain ownership, operating, and efficiency criteria established by FERC under PURPA. 

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specifies that the interconnection must conform to 

IEEE Standard 1547, as it may be amended from 

time to time. In addition, the state regulatory 

authority must begin to consider these standards 

within one year of enactment (September 2006) 

and must complete its consideration within two 

years (September 2007). However, states that have 

previously enacted interconnection standards, have 

conducted a proceeding to consider the standards, 

or in which the state legislature has voted on the 

implementation of such standards do not have to 

meet these time frames. 

• EPAct 2005 requires electric utilities to make 

available upon request net metering services to 

any electric customer. The state regulatory authority is required to consider net metering within two 

years of enactment (September 2007) and after 

three years of enactment must adopt net metering 

provisions (September 2008). However, states that 

have previously enacted net metering provisions, 

have conducted a proceeding to consider the standards, or in which the state legislature has voted 

on the implementation of such standards do not 

have to meet these time frames. 

Interaction with State Policies 

Interconnection standards are a critical complementary policy to other clean energy policies and programs such as state RPS (see Section 5.1, Renewable 

Portfolio Standards), clean energy fund investments 

(see Section 5.2, Public Benefits Funds for State Clean 

Energy Supply Programs), and utility planning practices (see Section 6.1, Portfolio Management 

Strategies). 

Best Practices: Designing an Interconnection Standard 

Best practices for creating an interconnection standard are identified below. These best practices are based on the 

experiences of states that have designed interconnection standards. 

•	 Work collaboratively with interested parties to develop interconnection rules that are clear, concise, and applicable to all potential DG technologies. This will streamline the process and avoid untimely and costly re-working. 

•	 Develop standards that cover the scope of the desired DG technologies, generator types, sizes, and distribution 

system types. 

•	 Address all components of the interconnection process, including issues related to both the application process 

and technical requirements. 

•	 Develop an application process that is streamlined with reasonable requirements and fees. Consider making the 

process and related fees commensurate with generator size. For example, develop a straightforward process for 

smaller or inverter-based systems and more detailed procedures for larger systems or those utilizing rotating 

devices (such as synchronous or induction motors) to fully assess their potential impact on the electrical system. 

•	 Create a streamlined process for generators that are certified compliant to certain IEEE and UL standards. UL 

Standard 1741, “Inverters, Converters and Charge Controllers for Use in Independent Power Systems,” provides 

design standards for inverter-based systems under 10 kW. IEEE Standard 1547, “IEEE Standard for Interconnecting 

Distributed Resources with Electric Power Systems,” establishes design specifications and provides technical and 

test specifications for systems rated up to 10 MW. These standards can be used to certify electrical protection 

capability. 

•	 Consider adopting portions of national models (such as those developed by the National Association of Regulatory 

Utility Commissioners [NARUC], the Interstate Renewable Energy Council [IREC], and FERC) and successful programs in other states, or consider using these models as a template in developing a state-based standard. Also, 

consistency within a region increases the effectiveness of these standards. 

•	 Try to maximize consistency between the RTO and the state standards for large generators. 

•	 Developing consistency among states is important in reducing compliance costs for the industry based on common 

practices. 

� Section 5.4. Interconnection Standards
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Implementation and Evaluation 

This section describes the implementation and evaluation of new interconnection standards, including 

best practices that states have found successful. 

Administering Body 

While individual states may develop interconnection 

standards that are then approved by the PUC, utilities 

are ultimately responsible for their implementation. 

Roles and Responsibilities of 

Implementing Organization 

By establishing clearly defined categories of technologies and generation systems, utilities are able to 

streamline the process for customers and lessen the 

administrative time related to reviewing interconnection applications. For example, some states create 

multiple categories and tiers for reviewing applications with established maximum time frames. Across 

these technology categories, the maximum processing time allowed can vary by more than a factor of 

five depending on the technical complexity and size 

of the interconnection. Several states (including 

California, Connecticut, Massachusetts, Michigan, 

Minnesota, New York, and Wisconsin) have created 

tiered application processes based on system size and 

other factors. They have found that this tiered 

approach allows smaller systems a streamlined 

process while maintaining a standard process for 

larger systems. 

• A streamlined process that applies to smaller32 or 

simpler systems (e.g., inverter-based) could have 

lower fees, shorter timelines, and fewer requirements for system impact studies. In some cases, 

states have pre-certified certain devices (i.e., 

California and New York) or require compliance 

with UL 1741 or IEEE 1547 and other applicable 

standards (i.e., Connecticut, Massachusetts, 

Minnesota, New Jersey, and Texas) to expedite 

approval. 

• Systems in a standard process are subject to a 

comprehensive evaluation. Applicants for these 

systems are typically required to pay additional 

fees for impact studies to determine how the DG 

may affect the performance and reliability of the 

electrical grid. Because of the higher degree of 

technical complexity, fees are higher and processing times are longer. 

State Examples 

There is no single way that states are approaching 

the interconnection of DG. In fact, there is tremendous diversity among the key elements of interconnection standards recently established at the state 

level. In the examples presented below, each state 

has different interconnection application processes, 

including fees, timelines, and eligibility criteria. 

Greater similarities are emerging among states’ technical requirements, and this consistency is making it 

increasingly easier to increase the amount of clean 

DG in the states. 

Massachusetts 

In June 2002, the Massachusetts Department of 

Telecommunications and Energy (DTE) initiated a 

rulemaking to develop interconnection standards for 

DG. The policymakers within the DTE established a 

DG Collaborative to engage stakeholders (including 

utilities, DG developers, customers, and public interest organizations) to jointly develop a model interconnection tariff. 

By adopting this model interconnection tariff, 

Massachusetts established a clear, transparent, and 

standard process for DG interconnection applications. 

The process uses pre-specified criteria to screen 

applications and establish application fees and timelines for DG systems of all types and sizes. The model 

interconnection tariff clearly specifies each step 

within the interconnection process and the maximum permissible time frames for each step. In addition, the model interconnection tariff provides for a 

32	 States that require faster processing of applications for smaller systems (< 10 kW to < 30 kW) include California, Connecticut, Massachusetts, 

Michigan, Minnesota, New York, and Wisconsin. 

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Best Practices: Implementing an 

Interconnection Standard 

The best practices identified below will help guide 

states in implementing an interconnection standard. 

These best practices are based on the experiences 

of states that have implemented interconnection 

standards. 

•	 Consider working as a collaborative to establish 

monitoring activities to evaluate the effectiveness 

of interconnection standards and application 

processes. 

•	 Periodically review and update standards based on 

monitoring activities, including feedback from utilities and applicants. 

•	 Keep abreast of changes in DG/CHP and electric 

utility technology and design enhancements, since 

these may affect existing standards, including 

streamlining the application process and interconnection requirements. 

•	 Consider working with groups such as IEEE to 

monitor industry activities and to stay up-to-date 

on standards developed and enacted by these 

organizations. 

“simplified process” that allows most inverter-based 

systems that are 10 kW or less and are UL 1741 certified to be processed in less than 15 days without 

an application fee. Under the “standard process,” 

used for larger DG systems that may have significant 

utility system impact, the process can take as long as 

150 days and involve a $2,500 application fee in 

addition to other technical study and interconnection 

costs. The DG Collaborative also agreed to a five-step 

dispute resolution process in the event the interconnecting applicant is unable to reach agreement with 

the utility regarding the utility’s decisions on the 

interconnection application. 

After the adoption of the model interconnection tariff, the DG Collaborative reconvened to evaluate the 

reasonableness of the interconnection process by 

reviewing how the standard was functioning. The DG 

Collaborative examines application fees and time 

frames through a database structured to track interconnection applications. Although many applicants 

have successfully used the existing standard, the DG 

Collaborative has determined that it should review 

the application process and screening criteria in the 

model interconnection tariffs to further improve the 

process. This level of review is unique among states 

that have developed interconnection standards. 

Web sites: 

http://www.mass.gov/dte/restruct/competition/ 

distributed_generation.htm (DTE DG interconnection 

proceedings) 

http://www.masstech.org/policy/dgcollab/ 

New Jersey 

The New Jersey Board of Public Utilities (NJBPU) has 

developed net metering and interconnection standards for Class I renewable energy systems. These 

rules became effective on October 4, 2004, and are 

separated into three levels. Each level has specific 

interconnection review procedures and timelines for 

each step in the review process. 

•	 Level 1 applies to inverter-based customer-generator facilities, which have a power rating of 10 kW 

or less and are certified as complying with IEEE 

1547 and UL 1741. 

•	 Level 2 applies to customer-generator facilities 

with a power rating of 2 MW or less and certified 

as complying with IEEE 1547 and UL 1741. 

•	 Level 3 applies to customer-generator facilities 

with a power rating of 2 MW or less that do not 

qualify for Level 1 or Level 2 review. 

Web site: 

http://www.bpu.state.nj.us/cleanEnergy/ 

cleanEnergyProg.shtml 

New York 

New York was one of the first states to issue standard 

interconnection requirements for DG systems. Enacted 

in December 1999, the initial requirements were limited to DG systems rated up to 300 kW connected to 

radial distribution systems.33 New York recently modified these interconnection requirements to include 

33 A radial distribution system is the most common electric power system. In this electric power system, power flows in one direction from the utility 

source to the customer load. 

� Section 5.4. Interconnection Standards
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interconnection to radial and secondary network distribution systems for DG with capacities up to 2 MW. 

New York’s Standard Interconnection Requirements 

(SIR) include a detailed 11-step process from the 

“Initial Communication from the Potential 

Applicant” to the “Final Acceptance and Utility Cost 

Reconciliation.” Similar to other states with interconnection standards, the New York SIR includes 

separate requirements for synchronous generators, 

induction generators, and inverters. Notably, there is 

no application fee for DG systems rated up to 15 

kW. For DG systems larger than 15 kW, the application fee is $350. 

Web site: 

http://www.dps.state.ny.us/distgen.htm 

Texas 

In November 1999, the Texas PUC adopted substantive rules that apply to interconnecting generation 

facilities of 10 MW or less to distribution-level voltages at the point of common coupling. This ruling 

applies to both radial and secondary network systems. 

The rules require that Texas utilities evaluate applications based on pre-specified screening criteria, 

including equipment size and the relative size of the 

DG system to feeder load. These rules are intended to 

streamline the interconnection process for applicants, particularly those with smaller devices and for 

those that are likely to have minimal impact on the 

electric utility grid. For example, under certain conditions, if the DG interconnection application passes 

pre-specified screens, the utility does not charge the 

applicant a fee for a technical study. If the DG system is pre-certified,34 the utility has up to four 

weeks to return an approved interconnection agreement to the applicant. Otherwise, the utility has up 

to six weeks. 

Web site: 

http://www.puc.state.tx.us/electric/business/dg/ 

dgmanual.pdf 

What States Can Do 

States have adopted successful interconnect standards that expedite the implementation of clean 

energy technologies while accounting for the reliability and safety needs of the utility companies. 

Action steps for both initiating a program to establish interconnect rules and for ensuring the ongoing 

success of the rules after adoption are described 

below. 

Action Steps for States 

States That Have Existing Interconnection 

Standards 

A priority after establishing standard interconnection 

rules is to identify and mitigate issues that might 

adversely impact the success of the rules. Being able 

to demonstrate the desired benefits is critical to 

their acceptance and use by key stakeholders. 

Strategies to demonstrate these benefits include: 

• Monitor interconnection applications to determine 

if the standards ease the process for applicants 

and cover all types of interconnected systems. 

States can also monitor utility compliance with 

the new standards or create a complaint/dispute 

resolution point of contact. 

• If resources permit, identify an appropriate organization to maintain a database on interconnection 

applications and new DG systems, evaluate the 

data, and convene key interconnection stakeholders when necessary. 

• Modify and change interconnection rules as necessary to respond to the results of monitoring and 

evaluation activities. 

34	 A pre-certified system is a known collection of components that has been tested and certified by a qualified third party (e.g., nationally recognized 

testing laboratory) to meet certain industry or state standards. 

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States That Do Not Have Existing 

Interconnection Standards 

Political and public support is a prerequisite to 

establishing standard interconnection rules. 

• Ascertain the level of demand and support for 

standard interconnection rules in the state by both 

public office holders and key industry members 

(e.g., utilities, equipment manufacturers, project 

developers, and potential system owners). If 

awareness is low, consider implementing an educational effort targeted at key stakeholders to 

raise awareness of the environmental and, especially, economic benefits resulting from uniform 

interconnection rules. For example, demonstrate 

that DG can result in enhanced reliability and 

reduced grid congestion. A 2005 study for the CEC 

found that strategically sited DG yields improvements to grid system efficiency, provides additional reserve power, deferred costs, and other grid 

benefits (Evans 2005). If resources are available, 

perform an analysis of these benefits and implement a pilot project (e.g., similar to Bonneville 

Power Authority’s [BPA’s] “non-wires” pilot program [BPA 2005] or the Massachusetts Technology 

Collaborative’s [MTC’s] Utility Congestion Relief 

Pilot Projects [RET 2005]) that promotes DG along 

with energy efficiency and voluntary transmission 

reduction. While this type of analysis is not essential, states have found it to be helpful. 

• Establish a collaborative working group of key 

stakeholders to develop recommendations for a 

standard interconnection process and technical 

requirements. Open a docket at the PUC with the 

goal of receiving stakeholder comments and developing a draft regulation for consideration by the 

state PUC. 

• If necessary, work with members of the legislature 

and the PUC to develop support for passage of the 

interconnection rules. 

• Remember that implementing interconnection 

standards may take some years. States have found 

that success is driven by the inherent value of DG, 

which eventually becomes evident to stakeholders. 

• Consider existing federal and state standards in 

the development process of new interconnection 

procedures and rely on accepted IEEE and UL standards to develop technical requirements for interconnection. 

Related Actions 

• For interconnection standards to be effective, tariffs and regulations that encourage DG need to be 

in place. If current tariffs and regulations discourage DG, then interconnection standards may not 

result in DG growth. Tariffs that encourage DG 

growth may allow customers to sell excess electricity back to the utility at or near retail rates. 

Key regulations that might discourage successful 

implementation of DG include high standby 

charges or back-up rates. Utility financial incentives that promote sales growth can discourage 

customers from making their own electricity and 

also discourage DG deployment. For more information on utility financial incentives, see Section 6.2, 

Utility Incentives for Demand-Side Resources. 

• Communicate the positive results to state officials, 

public office holders, and the public. 

• Include key stakeholders (e.g., utilities, equipment 

manufacturers, project developers, potential customers, advocacy groups, and regulators) in the 

development of the standard interconnection 

rules. Stakeholders can also contribute to rule 

modification based on the results of ongoing monitoring and evaluation. 

� Section 5.4. Interconnection Standards
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Information Resources 

State-by-State Assessment 

Title/Description URL Address 

Database of State Incentives for Renewable Energy (DSIRE) is a resource for information on state interconnection policies. The Web site also provides comparative 

information on policies for each state. 

http://www.dsireusa.org 

Distribution and Interconnection Research and Development Program. This U.S. 

Department of Energy (DOE) program provides information and links to interconnection information in each state. 

http://www.eere.energy.gov/ 

distributedpower/ 

interconnection_state.html 

Federal Resources
 

Title/Description URL Address 

DOE’s National Renewable Energy Laboratory (NREL) actively participates in many 

of the programs that create national standards for interconnection. 

http://www.nrel.gov/programs/deer.html 

http://www.nrel.gov/eis/ 

http://www.nrel.gov/eis/standards_codes.html 

The U.S. Environmental Protection Agency’s (EPA’s) CHP Partnership is a voluntary 

program that seeks to reduce the environmental impact of energy generation by 

promoting the use of CHP. The Partnership helps states identify opportunities for 

policy development (energy, environmental, economic) to encourage energy efficiency through CHP and can provide additional assistance to help states implement 

standard interconnection. 

http://www.epa.gov/chp/ 

National Standards Organizations
 

Title/Description URL Address 

IEEE has developed standards relevant to many of the technical aspects of the interconnection. In particular, Standard 1547, Interconnecting Distributed Resources with 

Electric Power Systems, provides requirements relevant to the performance, operation, testing, safety considerations, and maintenance of the interconnection. 

http://grouper.ieee.org/groups/scc21/1547/ 

1547_index.html 

UL also develops standards for interconnecting DG. In particular, UL 1741 will combine product safety requirements with the utility interconnection requirements 

developed in the IEEE 1547 standard to provide a testing standard to evaluate and 

certify DG products. 

http://www.ul.com/dge/ 

http://www.eere.energy.gov/ 

distributedpower/research/ul_1741.html 

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Examples of Standard Interconnection Rules
 

Title/Description URL Address 

IREC has prepared a model interconnection rule and a guide to connecting DG to 

the grid: 

Model Distributed Generation Interconnection Procedures and Net Metering 

Provisions 

http://www.irecusa.org/connect/ 

model_interconnection_rule.pdf 

Connecting to the Grid: A Guide to Distributed Generation Interconnection Issues http://www.irecusa.org/pdf/guide.pdf 

Model Interconnection Tariff. Massachusetts adopted this model interconnection 

tariff to establish a clear, transparent, and standard process for DG interconnection 

applications. 

http://www.mass.gov/dte/electric/ 

02-38/515tariffr.pdf 

Mid-Atlantic Distributed Resources Initiative (MADRI). In a collaborative process, 

MADRI has developed a sample interconnection standard. 

http://www.energetics.com/MADRI/ 

NARUC has developed Model Interconnection Procedures and Agreement for Small 

Distributed Generation Resources. 

http://www.naruc.org/associations/1773/ 

files/dgiaip_oct03.pdf 

Other Resources
 

Title/Description URL Address 

Distributed Generation in Oregon: Overview, Regulatory Barriers and 

Recommendations. L. Schwartz, PUC Staff, February 2005. This report by the Oregon 

PUC addresses barriers for DG. 

http://www.puc.state.or.us/elecnat/ 

dg_report.pdf 

Making Connections: Case Studies of Interconnection Barriers and their Impact on 

Distributed Power Projects. This NREL report studies the barriers projects have 

faced interconnecting to the grid. 

http://www.nrel.gov/docs/fy00osti/28053.pdf 

Optimal Portfolio Methodology for Assessing Distributed Energy Resources Benefits 

for the Energynet. CEC, PIER Energy-Related Environmental Research. CEC-500­

2005-061-D. This project addresses whether distributed generation (DG), demand 

response (DR), and localized reactive power (VAR) sources, or distributed energy 

resources (DER), can be shown to enhance the performance of an electric power 

transmission and distribution system. 

http://www.energy.ca.gov/ 

2005publications/CEC-500-2005-061/ 

CEC-500-2005-061-D.PDF 

The Regulatory Assistance Project (RAP) prepared a Distributed Resource Policy 

Series to support state policy efforts, and facilitated the creation of a Model 

Distributed Generation Emissions Rule for use in air permitting of DG. 

http://www.raponline.org/ 

Feature.asp?select=13&Submit1=Submit 

http://www.raponline.org/ 

Feature.asp?select=8&Submit1=Submit 

The U.S. Combined Heat and Power Association (USCHPA) brings together diverse 

market interests to promote the growth of clean, efficient CHP in the United States. 

As a result, they have been stakeholders in states that have developed standard 

interconnection rules. 

http://uschpa.admgt.com/statechp.html 

� Section 5.4. Interconnection Standards
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EPA Clean Energy-Environment Guide to Action 

State Resources 

State Title/Description URL Address 

California California Public Utilities Commission (CPUC), Distributed 

Energy Resource Guide: Interconnection. 

http://www.energy.ca.gov/distgen/ 

interconnection/ 

california_requirements.html 

CPUC Decision 00-12-037—Decision Adopting Interconnection 

Standards (Issued December 21, 2000). 

http://www.cpuc.ca.gov/word_pdf/ 

FINAL_DECISION//4117.pdf 

Connecticut Connecticut Department of Public Utility Control (DPUC) (DOCKET NO. 03-01-15). 

http://www.dpuc.state.ct.us/DOCKHIST.htm 

Connecticut DPUC Decision—Investigation into the Need for 

Interconnection Standards for Distributed Generation (Issued 

April 21, 2004). 

http://www.dpuc.state.ct.us/FINALDEC.NSF/ 

2b40c6ef76b67c438525644800692943/ 

d7a46f117bea965485256e7d0064e9a1/ 

$FILE/030115-042104.doc 

Delaware Customer-Owned Generation Web site supported by the 

Delaware Division of the Public Advocate. 

http://www2.state.de.us/publicadvocate/ 

dpa/html/self_gen.asp 

Hawaii Customer Generation Interconnection Standards (Rule 14) 

maintained by the Department of Business, Economic 

Development, and Tourism. 

http://www.hawaii.gov/dbedt/ert/ 

interconnection/interconnection.html 

Docket No. 02-0051—Decision No. #19773 issued November 15, 

2002, and Decision No. 20056 issued March 3, 2003. 

http://www.hawaii.gov/dcca/areas/dca/dno/ 

Massachusetts Massachusetts DTE Distributed Generation Web page. http://www.mass.gov/dte/restruct/ 

competition/distributed_generation.htm 

Massachusetts DTE 02-38-B—Investigation by the DTE on its 

own motion into Distributed Generation (Issued February 24, 

2004). 

http://www.mass.gov/dte/electric/ 

02-38/224order.pdf 

Michigan Michigan Public Service Commission (PSC) Case No. U-13745. http://www.cis.state.mi.us/mpsc/orders/ 

electric/ 

Michigan PSC Decision in Case No. U-13745, In the matter, on 

the Commission’s own motion, to promulgate rules governing 

the interconnection of independent power projects with electric utilities. Issued July 8, 2003. 

http://www.cis.state.mi.us/mpsc/orders/ 

electric/2003/u-13745.pdf 

Minnesota Case File Control Sheet for Minnesota PUC Docket No. E999/CI-01-1023. 

http://www.puc.state.mn.us/docs/log_files/ 

01-1023.htm 

Minnesota PUC, In the Matter of Establishing Generic 

Standards for Utility Tariffs for Interconnection and Operation 

of Distributed Generation Facilities under Minnesota Laws 

2001, Chapter 212. Issued September 28, 2004. 

http://www.puc.state.mn.us/docs/orders/ 

04-0131.pdf 

New Hampshire New Hampshire Code of Administrative Rules, Chapter PUC 

900, Net Metering for Customer-Owned Renewable Energy 

Generation Resources of 25 Kilowatt or Less. Effective January 

12, 2001. 

http://www.puc.state.nh.us/Regulatory/ 

Rules/PUC900.pdf 

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State Title/Description URL Address 

New Jersey N.J.A.C 14:4-9, Net Metering and Interconnection Standards for 

Class I Renewable Energy Systems. Effective October 4, 2004. 

http://www.state.nj.us/bpu/wwwroot/ 

secretary/NetMeteringInterconnection 

Rules.pdf 

New York New York PSC DG Information. http://www.dps.state.ny.us/distgen.htm 

New York PSC Case 02-E1282, Order Modifying Standardized 

Interconnection Requirements. Effective November 17, 2004. 

http://www3.dps.state.ny.us/pscweb/ 

webfileroom.nsf/0/ 

C70957A0FD0B89FD85256F4E007449ED/ 

$File/02e1282.ord.pdf?OpenElement 

Ohio The Public Utilities Commission of Ohio’s Web page, Electric 

Distributed Generation Equipment: How to Connect to the Utility 

Company’s System. 

http://www.puco.ohio.gov/PUCO/Consumer/ 

information.cfm?doc_id=115 

Ohio Administrative Code 4901:1-22 Interconnection Services. http://onlinedocs.andersonpublishing.com/ 

oh/lpExt.dll?f=templates&fn= 

main-h.htm&cp=OAC 

Texas Public Utility Commission of Texas Interconnection of 

Distributed Generation Project #21220. 

http://www.puc.state.tx.us/rules/ 

rulemake/21220/21220.cfm 

Public Utility Commission of Texas, Distributed Generation 

Interconnection Manual. 

http://www.puc.state.tx.us/electric/ 

business/dg/dgmanual.pdf 

Substantive Rules § 25.211 and § 25.212. Effective December 21, 

1999. 

http://www.puc.state.tx.us/rules/subrules/ 

electric/index.cfm 

Wisconsin Wisconsin Administrative Code Chapter PSC 119, Rules for 

Interconnecting Distributed Generation Facilities. Effective 

February 1, 2004. 

http://www.legis.state.wi.us/rsb/code/psc/ 

psc119.pdf 

� Section 5.4. Interconnection Standards
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References
 

Title/Description URL Address 

BPA. 2005. BPA Web Site. Non-Wires Solutions Roundtable Information. August 19. http://www.transmission.bpa.gov/PlanProj/ 

Non-Wires_Round_Table/ 

Evans, P.B. 2005. Optimal Portfolio Methodology for Assessing Distributed Energy 

Resources Benefits for the Energynet. CEC, PIER Energy-Related Environmental 

Research. CEC-500-2005-061-D. 

http://www.energy.ca.gov/ 

2005publications/CEC-500-2005-061/ 

CEC-500-2005-061-D.pdf 

IREC. 2005. IREC and North Carolina Solar Center. January. http://irecusa.org/ 

Navigant. 2005. Company intelligence. Navigant Consulting Inc. Also see: Katofsky, 

R. and L. Frantzis. 2005. Financing renewables in competitive electricity markets. 

Power Engineering. March 1. 

http://www.navigantconsulting.com/A559B1/ 

navigantnew.nsf/vGNCNTByDocKey/ 

PPA91045514813/$FILE/Financing% 

20Renewables%20in%20Competitve% 

20Electricity%20Markets_Power% 

20Engineering_March%202005.pdf 

NREL. 2000. Making Connections: Case Studies of Interconnection Barriers and their 

Impact on Distributed Power Projects. NREL of DOE. 

http://www.nrel.gov/docs/fy00osti/28053.pdf 

RET. 2005. Renewable Energy Trust Web Site. Massachusetts Technology 

Collaborative (MTC): Congestion Relief Pilot Projects. Accessed November 2005. 

http://www.masstech.org/ 

renewableenergy/public_policy/DG/ 

resources/CongestionReliefPilots.htm 

Schwartz, L. 2005. Distributed Generation in Oregon: Overview, Regulatory Barriers 

and Recommendations. PUC Staff. February. 

http://www.puc.state.or.us/elecnat/ 

dg_report.pdf 

5-58 � Chapter 5. Energy Supply Actions
 
 

EPA Clean Energy-Environment Guide to Action
 

5.5 Fostering Green Power 

Markets 

Policy Description and Objective 

Summary 

Green power is a relatively small but growing market 

that provides electricity customers the opportunity to 

make environmental choices about their electricity 

consumption. Programs in more than 40 states currently serve approximately 540,000 customers, representing nearly 4 billion kilowatt-hours (kWh) annually. 

Green power is offered in both vertically integrated 

and competitive retail markets. Green power programs 

have existed for approximately 10 years and have contributed to the development of over 2,200 megawatts 

(MW) of new renewable capacity over that time. A 

recent study estimates that this could reach 8,000 

MW by 2015 (Wiser et al. 2001). 

Because participation in green power programs is 

voluntary, the role for states may be more limited 

than with other clean energy policy options, but it is 

still important. States can play a key role in helping 

to accelerate green power market development and 

increase overall participation levels. States can also 

ensure that green power markets complement other 

policies already in place, such as system benefits 

charge (SBC) funds and renewable portfolio standards (RPS). Overall, state support of green power 

markets can require less effort on the part of states 

than for other policies (e.g., RPS) and they can provide significant benefits when properly designed. 

The approach taken depends on whether or not a 

state has vertically integrated or competitive retail 

electricity markets. For example, in vertically integrated markets, several states now require utilities to 

offer a green pricing tariff. Although signing up for 

green power service remains voluntary, this policy 

ensures that all customers have the option available 

to them. 

In restructured markets, green power products are 

available from a range of competitive suppliers. 

Voluntary green power markets promote the 

development of renewable energy resources 

and the renewable energy industry by giving 

customers the opportunity to purchase clean 

energy. States can play a key role in fostering the development of green power markets 

that deliver low-cost, environmentally beneficial renewable energy resources. 

Customers may also increasingly be able to choose 

renewable energy as their default service by socalled “green check-off” programs. 

In both vertically integrated and competitive markets, creating an environment favorable to green 

power can require the development of several policies and programs. For states interested in taking a 

more active role, this section outlines the suite of 

policies and programs to be considered. 

Objective 

The main objective of supporting development of 

green power markets is to increase the generation 

and use of renewable energy by giving customers the 

choice to support cleaner electricity generation 

options. Green power programs allow customers to 

support renewable energy development above and 

beyond the levels determined through the utility 

resource planning process or through state policies, 

such as RPS. Most green power products are 

designed to promote the development of new renewable energy capacity rather than providing support 

for existing capacity. Some of the underlying objectives of developing a green power market are to: 

• Decrease the environmental impact of electricity 

generation. 

• Help reduce the cost of renewable energy generation over time. 

• Provide customers with choice, even in vertically 

integrated markets. 

• Increase competition in restructured markets by 

increasing the number and type of green power 

options available to electric customers. 

� Section 5.5. Fostering Green Power Markets
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EPA Clean Energy-Environment Guide to Action
 

• Support development of local resources and associated economic development opportunities. 

• Decrease energy price volatility, increase fuel 

diversity, and provide a hedge against future electricity price volatility. 

• Reduce demand for fossil fuels, easing supply 

concerns. 

State support for green power markets is also a complement to other renewable energy policies and programs such as RPS (see Section 5.1, Renewable 

Portfolio Standards). In this way, green power markets provide additional resources beyond the base 

provided by RPS and other policies. 

Benefits 

Green power markets support the development of 

renewable energy without imposing any additional 

costs on ratepayers (as a class). Generally, only those 

customers who choose to participate in the programs 

pay the premiums needed to cover the above-market 

costs of renewable energy. However, the economic 

and environmental benefits of green power accrue to 

all ratepayers. 

Properly designed green power programs can be 

structured to facilitate the execution of long-term 

contracts for renewable energy, which is critical for 

project developers seeking to obtain financing for 

their projects. 

To date, green power markets in the United States: 

• Have resulted in the construction of more than 

2,200 MW of new renewable capacity (see Figure 

5.5.1). 

• Are supporting the development of an additional 

455 MW of renewable capacity in the near term. 

• Have permitted more than 540,000 customers to 

choose green power. 

Figure 5.5.1: Renewable Energy Capacity Added to 

Meet Voluntary Green Power Demand Through 2004 

Newa Renewable Capacity Supplying Green Power Markets 

Renewable Energy 

Resource 

In Place Plannedb 

MW % MW % 

Wind 2,045.6 91.6 364.5 80.1 

Biomass 135.6 6.1 58.8 12.9 

Solar 8.1 0.4 0.4 0.1 

Geothermal 35.5 1.6 0.0 0.0 

Small Hydro 8.5 0.4 31.3 6.9 

Total 2,233.3 100.0 455.0 100.0 

a New capacity refers to projects built specifically to serve green 

power customers or recently constructed to meet Green-e standards 

and used to supply green power customers. Includes utility green 

pricing and competitive green power products. Capacity installed to 

meet state RPS requirements is not included. 

b Planned refers to projects that are under construction or formally 

announced. 

Source: Bird and Swezey 2005. 

• Have avoided the release of approximately 2.7 

million tons of carbon dioxide (CO2) in 2003 

alone.35 

Status of Green Power 

There are two basic types of green power products: 

bundled renewable energy and renewable energy certificates (REC) (see box on page 5-61). Depending on 

whether a state has vertically integrated or restructured markets, bundled renewable energy is either 

available from utility green pricing programs or from 

competitive green power marketers, respectively. REC 

products are available to anyone in the United 

States. 

As of 2003, utility green pricing programs were 

available in 34 states at over 500 utilities36 and 

competitive green power products were available in 

restructured markets in nine states and Washington, 

D.C. through more than 30 green power marketers 

35	 Based on an average CO2 emission rate of 1,368 pounds per kilowatt-hour (lb/kWh) and 3.9 billion kWh of green power sales (emission rate was 

estimated from the Electric Power Annual 2003; DOE EIA 2004). 

36 Many are municipal utilities or cooperatives. 

5-60 � Chapter 5. Energy Supply Actions 
 

 

 

 

EPA Clean Energy-Environment Guide to Action
 

Types of Green Power Products 

To fully understand the different types of green power products available to consumers, one must first understand 

the concept of renewable energy certificates (RECs), also referred to as green tags, green certificates, renewable 

energy credits, and tradable renewable certificates (T-RECS). RECs are used to value the attributes of renewable 

energy (i.e., the desirable properties of the renewable energy, such as low or zero emissions, and the fact that 

they are generated locally). The emergence of RECs as the “currency” for these attributes allows them to be separated from the power produced. Thus, a renewable energy generator now has two products to sell—electricity 

and RECs. From an economic perspective, the value of a REC can be used to cover the above-market cost of generating power from renewable energy. The value of a REC can also be used to differentiate different types of 

renewable energy (e.g., some customers may be willing to pay more for RECs generated from solar energy than 

from landfill gas). RECs are used for demonstrating compliance with renewable energy mandates (like RPS) or can 

be sold into voluntary markets, like green power. 

There are two types of green power products (see figure below): bundled renewable energy and RECs. When a 

consumer purchases bundled renewable energy, he or she is purchasing both energy and attributes together. 

Thus, the value of the REC is included in the price of the green power. Alternatively, a consumer can purchase the 

attributes only (i.e., RECs only), while making no changes to his or her electricity purchases. The electricity associated with those RECs, now stripped of its attributes, is sold by the project owner into the market as ordinary 

electricity (“null energy”). 

Bundled renewable energy is sold in one of two ways. The term utility green pricing generally refers to an optional service or tariff offered by utilities to their own customers in vertically integrated electricity markets. Green 

power marketing refers to the selling of green power by competitive suppliers in competitive retail (restructured) 

markets. 

Some REC-based electricity products are available to consumers located anywhere in the country. These RECs or 

T-RECs can be bought and sold at the wholesale level like other commodities, and also sold at the retail level to 

individual consumers. In addition to T-REC marketers and retailers, there are a number of brokers that serve this 

emerging REC market. The fact that there are T-REC marketers, retailers, and brokers demonstrates the importance 

of the concept of renewable energy attributes in helping realize the value of renewables in the marketplace. 

Electricty 

Generation 

Renewable 

Energy 

Bundled 

Renewable 

Energya 

Renewable 

Energy 

Certificates 

“Null” 

Energyb 

Traditional 

Electricity 

Markets 

Bundled 

Retailer/ 

Aggregatord 

Renewable 

Energy 

Customer 

T-RECc 

Product 

Customer 

T-RECc 

Aggregator/ 

Retailer 

Retailers/ 

Aggregator Customers 

Customer 

buys electrons 

and attributes 

Customer 

buys attributes 

only 

a Energy + attributes. 

b Energy without attributes. 

c Tradeable Renewable Energy Certificate, also called a tradable renewable certificate. 

d Includes regulated utilities. 

Renewable 

Energy 

Generation 

Source: Katofsky 2005. 

� Section 5.5. Fostering Green Power Markets
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EPA Clean Energy-Environment Guide to Action
 

(Bird and Swezey 2004)37 (see Figures 5.5.2 and 

5.5.3). Combined, in 2003 these programs had annual 

sales of approximately 3.2 billion kWh. 

In addition, 22 companies offered REC products in 

2003. Sales in these programs represented an additional 700 million kWh in 2003. 

While utility consumer participation rates are below 

10%, green power markets continue to show significant annual growth. 

Creating a Favorable State 

Framework for Green Power 

Markets 

States have found that green power markets are 

more effective when a number of complementary 

programs and policies are put in place. States have 

also learned that it is not sufficient to simply require 

that utilities provide a green pricing tariff or to open 

retail markets to competition in the hopes that this 

will attract green power marketers. This section outlines the suite of programs and options that states 

can use to create a favorable environment in which 

green power markets can grow. 

Establishing the Program 

While purchasing green power is voluntary, some 

state legislatures (or if they have authority, state 

utility commissions) have taken an active role in 

making green power products available to consumers. The approach depends primarily on whether 

retail competition exists. In vertically integrated markets, some states have taken a first step by requiring 

that each utility develop and offer one or more green 

pricing tariffs. Participation in these programs 

remains voluntary. Some states have also required 

utilities to conduct education and outreach to help 

with market uptake as part of the utility’s green 

power program. 

Figure 5.5.2: States with Utility Green Pricing 

Activities 

States with green pricing programs 

Number of utilities offering programs 

18 

12 

9 

4 

3 

4 

3 

4 

26 

5 

3 

26 

4 

29 

18 86 

57 

4 

11 

121 

2 

2 14 

16 

48 25 

15 

6 

18 3 13

2 

1 

1 

DC

# 

Source: DOE 2005b. 

Figure 5.5.3: States with Green Power Marketing 

Activity in Competitive Electricity Marketsa 

3 

4 

12 

2 2 

Green power products are available to 

customers who switched electricity 

providers prior to termination of direct 

access 

Number of green power markets offering 

products 

1 

3 

1 

4 

Restructuring Active 

Retail Green Power Products Available 

Restructuring Delivered/Repealed 

Restucturing Not Active 

Green pricing products are available to 

MD 

DC 

# 

residential customers 

a	 Represents bundled renewable electricity products available to residential and small commercial customers. 

Source: DOE 2005a. 

37 For an up-to-date list and statistics on green power markets, see the DOE Green Power Network Web site (DOE 2005). 

5-62 � Chapter 5. Energy Supply Actions 
 

 

 

EPA Clean Energy-Environment Guide to Action
 

In restructured markets, a green power mandate can 

require that all distribution companies act as a platform for green power marketers to more easily 

access customers receiving default service. These 

“green check-off” programs provide green power 

marketers access to electricity customers via utility 

bills, which eliminates the need for customers to 

switch electricity providers to purchase green power. 

For example, customers with low monthly electricity 

consumption lack options for obtaining green power 

in some locations. In addition, when competing with 

the default service, green power marketing companies can face high customer acquisition costs that 

can make the transaction uneconomical. 

In some states, such as Pennsylvania and Texas, the 

retail market has been reasonably competitive and 

thus green power suppliers have entered the market 

to compete for customers with suppliers of traditional electricity. It is primarily in locations where retail 

competition has not developed that some states are 

requiring the default utilities to offer green power or 

provide a check-off program. 

The green power product in check-off programs is 

typically provided by a third-party green power marketer. However, by involving the default service 

provider in green power marketing, it is possible for 

customers and renewable energy providers to have 

easier access to each other. Customers choosing to 

remain with their default service provider can now 

choose to purchase green power without having to 

take the additional step of choosing a new electricity 

supplier. Examples of states with green check-off 

programs include statewide coverage in New Jersey 

(beginning in October 2005) and select utilities in 

Massachusetts (see State Examples on page 5-67). 

States can also consider setting quantitative goals 

and objectives for green power markets. For example, 

New Jersey set a target of doubling the number of 

green power customers by 2008, and Connecticut 

established a 0.5% voluntary green power target by 

2008. States have also specified other aspects of the 

program, such as eligible technologies and resources, 

whether or not RECs can be used, and if and how 

cost recovery will be permitted on the part of utilities or retail electricity providers. As part of the 

process, a state can also outline roles and responsibilities of other parties, such as the state energy 

office and utility commission, set qualification and 

certification requirements for providers, and set 

standards for the green power products. 

Roles for Stakeholders 

Depending on the approach, a number of stakeholders have roles in fostering green power markets: 

•	 State Legislatures. State legislatures have taken a 

role in enacting enabling legislation that would 

mandate and/or permit the development of green 

power offerings through utilities or distribution 

companies. 

•	 Public Utility Commissions (PUCs). If they possess 

the authority, PUCs can mandate that utilities offer 

green power options. They are also responsible for 

approving utility green power tariff requests, and 

in competitive markets, ensuring that green power 

options are consistent with state rules regarding 

competition and supplier certification. 

•	 State Agencies and Independent Administrators of 

State SBC Funds. These agencies and administrators may have a role in administering certain 

aspects of statewide green power initiatives and 

related programs (see Key Supporting Policies and 

Programs on page 5-64), ensuring consumer protection, and substantiating green power marketing 

claims. 

•	 Nonprofit Organizations. Certain nonprofit organizations may also play important roles in information dissemination, consumer protection, and certification of green power products. For example, 

one source for independent certification of green 

power products is the Green-e program developed 

by the Center for Resource Solutions (Center for 

Resource Solutions 2005). In the Northeast, 

� Section 5.5. Fostering Green Power Markets
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EPA Clean Energy-Environment Guide to Action
 

SmartPower, working in collaboration with the 

Clean Energy States Alliance (CESA), has launched 

a major “Got Milk” style media campaign called 

“Clean Energy–Let’s Make More!” 

Key Supporting Policies and Programs 

While requirements for utilities can be an important 

policy for advancing green power markets, a state 

can put in place additional, complementary policies. 

Some of the most important ones include: 

•	 Branding, Education, and Outreach. These activities 

increase the level of awareness of green power 

and lead to higher participation rates. States have 

found that action-oriented messages that are 

linked directly to the available green power choices are the most effective. 

•	 Labeling and Disclosure. These rules require that 

electricity providers include information about the 

fuel sources and emissions associated with the 

electricity they sell. This gives consumers information they can use to compare the impact of different electricity choices. 

•	 Green Power Customer Aggregation. Aggregation is 

the formation of large customer buying groups 

that can collectively shop for green power supply. 

It provides a scale that can lead to lower prices 

and can also create the demand needed to support 

the entry of green power marketers. Examples 

include municipalities joining forces to meet their 

own power needs or municipalities acting as 

aggregators for their residents and businesses. 

Some religious organizations are also acting as 

aggregators (Bird and Holt 2002). 

•	 Consumer Protection. It is important that green 

power product claims be verified (e.g., with respect 

to the resource mix). This can include the use of 

third-party certification or other accepted standards. For example, in Massachusetts, the Clean 

Energy Choice program uses the same eligibility 

requirements and attribute tracking system as the 

state RPS. 

Other Supporting Policies and 

Programs 

In addition to the major policies listed above, other 

policies can also aid in creating robust green power 

markets, including: 

•	 State Green Power Purchases. States can lead by 

example by committing to a certain amount of 

green power to meet their own needs. This 

demand can also help establish the market. The 

federal government is currently working to meet 

green power purchase targets that were set by 

executive order, and a growing number of state 

and municipal governments have set similar 

requirements. (For more information, see Section 

3.1, Lead by Example.) 

•	 Small Customer Incentives. States can provide 

incentives to green power marketers to offset customer acquisition costs or to provide rebates to 

customers to encourage them to sign up for green 

power. Several states have tied incentives to market transforming activities as opposed to straight 

subsidies. For example, the Massachusetts 

Renewable Energy Trust (MRET), working with the 

nonprofit group, the Massachusetts Energy 

Consumers Alliance (Mass Energy), has created a 

REC-based green power product for which the 

premiums are tax deductible on federal income tax 

returns (RET 2005). The Connecticut Clean Energy 

Fund (CCEF) and SmartPower, through its Clean 

Energy Communities Program, is offering municipalities free solar photovoltaic (PV) systems if (1) 

they commit to 20% of their electricity coming 

from clean energy resources by 2010, and (2) 

enough local businesses and residents sign up for 

the CTCleanEnergyOptions program (CCEF 2005). 

•	 Large Customer Benefits. Additional benefits and 

incentives could also be offered to larger customers to encourage them to make substantial, 

long-term commitments to green power purchases. A proven option is to design a green power 

offering that can include long-term “hedge” value 

for green power customers, such as an exemption 

from utility fuel adjustment charges and potential 

future environmental control costs. Incentives can 

5-64 � Chapter 5. Energy Supply Actions
 
 

 

 

 

EPA Clean Energy-Environment Guide to Action
 

also include providing commercial customers with 

recognition that provides them with visibility and 

brand value tied to their green power purchases.38 

Having large customers agree to long-term green 

power purchases also has the advantage of allowing green power providers to enter into long-term 

contracts with renewable energy project developers, which in turn helps them secure financing for 

their projects. One of the most successful programs in the United States—the GreenChoice program offered by Austin Energy—provides customers with the fixed-price attribute of the utility’s renewable power purchase contracts. 

•	 Net Metering.

39 This policy supports the development of customer-sited green power. These highvisibility projects can raise overall awareness of 

renewable energy and can also generate RECs or 

green power for sale through green power programs. For example, utilities and other green 

power providers can buy up (i.e., aggregate) the 

RECs from such projects and resell them under 

their green power offerings. For more information 

on net metering, see Section 5.4, Interconnection 

Standards. 

Interaction with Federal Policies and 

Programs 

While few significant interactions occur between 

green power programs and federal policies, some 

issues are described as follows. 

Federal renewable energy incentives, such as the 

production tax credit (PTC), help reduce the cost of 

renewable generation and thus the price premium 

that green power customers must pay. Typically, 

these incentives are complementary to green power 

markets; the sale of renewable energy through a 

green power program does not make the project 

ineligible for federal incentives, such as the PTC and 

accelerated depreciation (Title 26 of the U.S. Code, 

Sections 45 and 168). 

The U.S. Environmental Protection Agency’s (EPA’s) 

Green Power Partnership is a voluntary partnership 

between EPA and organizations that are interested in 

buying green power (http://www.epa.gov/ 

greenpower). Through this program, EPA supports 

organizations that are buying or planning to buy 

green power. As a Green Power Partner, an organization pledges to replace a portion of its electricity 

consumption with green power within one year of 

joining the partnership. 

EPA offers credible benchmarks for green power purchases, market information, and opportunities for 

recognition and promotion of leading purchasers. The 

goal of the Green Power Partnership is to facilitate 

the growth of the green power market by lowering 

the cost and increasing the value of green power. 

A federal renewable energy goal was established by 

Executive Order 13123 (GSA 1999), which requires 

federal agencies to increase their use of renewable 

energy, either through purchases or onsite renewable 

energy generation. Thus, federal agencies can serve 

as key green power customers in states across the 

country. 

The EPA Green Power Partnership started in 2001 with 

the commitment of 21 founding partners. Today there 

are more than 560 partners with annual green power 

commitments exceeding 2.5 billion kWh. Green Power 

Partners encompass a wide range of public and private sector entities, including the U.S. Air Force, 

Whole Foods Market, Johnson & Johnson, the city of 

San Diego, the World Bank, Staples, BMW, and the 

states of Illinois, Maryland, and Pennsylvania. For a 

complete list of partners, go to: http://www.epa.gov/ 

greenpower/partners/gpp_partners.htm. 

38	 Austin Energy’s GreenChoice program is an example of a program that offers both benefits to business customers: replacement of the fuel adjustment charge with a fixed green power charge, and recognition through online acknowledgement at http://www.austinenergy.com/, print advertisements, EnergyPlus (printed customer newsletter), and billboard advertising. 

39	 Net metering enables customers to use their own generation to offset their electricity consumption over a billing period by allowing their electric 

meters to turn backwards when they generate electricity in excess of their demand. This offset means that customers receive retail prices for the 

excess electricity they generate. 

� Section 5.5. Fostering Green Power Markets
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EPA Clean Energy-Environment Guide to Action
 

Interaction with State Policies and 

Programs 

There are important interactions between green 

power markets and existing or planned state policies 

and programs, as described below. 

RPS have emerged as a widely used state-level policy 

in support of renewable energy (see Section 5.1, 

Renewable Portfolio Standards). Two key issues arise 

when considering support for green power markets in 

states with RPS. The first issue is whether renewable 

energy used to meet voluntary green power demand 

can also be used to meet RPS requirements. Specifically, if a utility sells renewable energy under a green 

power program to consumers, should it also be able 

to count that energy toward its RPS obligations? In 

most cases, the rules are written so that this is not 

permitted. Many voluntary green power purchasers 

have expressed concern that their personal investment in renewable energy is not used to help satisfy 

a mandate, but instead is contributing over and above 

any state requirements for renewable energy. For 

example, the New Jersey statewide green power program described in the State Examples section on page 

5-67 contains language that specifically prohibits the 

sale of RECs used for RPS compliance in green power 

programs and vice versa. 

Second, an RPS may create competition for limited 

renewable energy resources, making it harder for 

companies offering green power to find or develop 

renewable energy projects or to be able to source 

renewable energy at a reasonable price. The emergence of RECs as the currency for these RPS-related 

premiums, while beneficial overall to the renewable 

energy industry, is also leading to more liquidity, 

allowing renewable energy generators to sell their 

RECs to the highest bidder. 

SBC funds (also called public benefits funds) are 

another widely used state level renewable energy 

policy. States can use some of these funds to support 

the development of robust green power markets 

through such activities as education and outreach, 

supporting the development of power projects that 

supply green power, and novel programs that 

encourage the use of green power (in State Examples 

section on page 5-67, see cases on Massachusetts, 

New Jersey, and Connecticut). For more information 

see Section 5.2, Public Benefits Funds for State Clean 

Energy Supply Programs. 

The Role of Third Parties 

Third parties can play a key role in the success of 

green power markets, including developing standards 

for green power products, providing independent certification of the products, and verifying marketer 

claims. There may also be a similar role for consumer 

advocacy groups. Having an independent organization provide program evaluation and monitoring can 

also be useful (see Connecticut in the State Examples 

section on page 5-68). 

Program Implementation and 

Evaluation 

States that have taken an active role in promoting 

green power have generally followed a number of 

steps in developing and evaluating green power programs: 

•	 Establish the Baseline. Are consumers currently 

purchasing green power products? For example, 

even if there are no utility programs or competitive green power marketers, customers may be 

buying RECs from one of several national REC 

retailers. 

•	 Convene Potentially Interested Stakeholders in a 

Collaborative Process to establish goals and other 

attributes of the program. This process can also be 

used to clearly outline the roles and responsibilities of all stakeholders. For example, Connecticut 

and New Jersey recently completed such processes 

(see State Examples section on page 5-67). 

•	 Regularly Evaluate the Success of Green Power 

Markets. Possible metrics include the number of 

customers by customer class, kWh sold, MW of new 

generation developed, the cost of the green power 

premium, customer acquisition costs (a measure of 

program efficiency), the participation rate by customer class, and the number of marketers and 

5-66 � Chapter 5. Energy Supply Actions
 
 

 

 

 

products available (a measure of market development and robustness). 

Design issues to be considered include: 

• What will be the cost premium charged for different product types (e.g., for different amounts of 

renewable energy content or different technology 

types)? 

• Will green power be offered in fixed block sizes or 

as a percent of consumption? 

• Does the program make use of bundled renewable 

energy or RECs (or both)? 

• What length of time will customers be required to 

commit to when making a purchase? 

• What are the appropriate geographic boundaries 

for eligible RECs and/or green power? 

• How will cost recovery be dealt with? 

• What type of product certification, if any, will be 

required? 

• What types of projects, technologies, and 

resources will be eligible? 

State Examples 

The examples that follow were selected to show the 

diversity of policies and programs that states are 

using to create environments favorable to green 

power. Ultimately, each state will develop a set of 

policies and programs that best meets their specific 

needs. 

New Jersey 

New Jersey is an example of a restructured state 

using multiple policies to increase the development 

and use of renewable energy in the East. It already 

has an RPS and SBC fund in place, and has also set 

additional renewable energy goals with respect to 

in-state installation of renewable energy, technology 

cost reduction, job creation, and new manufacturing 

capability. In addition, the New Jersey Clean Energy 

Council set a goal to double the number of electric 

customers purchasing green electricity and increase 

the load served by qualified renewable resources by 

50% over and above the Class I RPS. 

EPA Clean Energy-Environment Guide to Action
 

Best Practices: Designing and Implementing 

Green Power Programs 

Although green power programs are often implemented through utilities or green power marketers, states 

can play a major role in program design and in setting 

up the green power market structure. Some key considerations when designing and implementing a program include: 

•	 Learn from other states’ experiences to identify the 

most appropriate approach for your state. 

•	 Encourage new resources to ensure that renewable 

benefits are realized. 

•	 Create real value for green power customers, such 

as exempting them from utility fuel adjustment 

charges. 

•	 For commercial customers, consider recognition 

programs to add value to their purchases. 

•	 Create programs with sufficiently long time horizons 

to encourage and facilitate long-term contracting 

for power—a critical requirement for project developers to obtain financing for new power projects. 

•	 Determine the appropriate relationship between 

green power purchases and compliance with RPS. 

•	 Involve key stakeholders and experts in a collaborative design effort. 

•	 Base program designs on your state’s market characteristics and customer needs. 

•	 Keep the program design simple and clear, while 

ensuring that the program leads to real benefits 

(e.g., development of new renewable energy capacity, emission reductions). 

To support this goal, the state implemented a 

statewide green check-off program, the Green Power 

Choice Program (GPCP), which began October 1, 

2005. The program requires utilities to offer retail 

electricity customers the option of selecting an energy product with a higher level of renewable energy 

than required by the state RPS. Through this program, green power is made available to all customers 

in the state using a sign-up option on electric 

bills–an example of a check-off program. This green 

power product must use renewable energy not otherwise allocated to meeting RPS requirements and 

must have full disclosure of the power’s content. 

� Section 5.5. Fostering Green Power Markets
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EPA Clean Energy-Environment Guide to Action
 

New Jersey is the first state with restructured electricity markets to institute such a statewide voluntary green power program. As such, it is expected to 

result in lower marketing costs on a per-customer 

and per-kWh basis. However, it is also the first program to involve multiple utilities and multiple green 

power providers, which may result in additional costs 

associated with coordination and planning. If necessary, utilities can apply to recover the costs related 

to setting up and managing the GPCP. In addition, 

New Jersey is playing an important role with regard 

to setting up the mechanisms to certify and verify 

the attributes of the green power sold to customers. 

Web site: 

http://www.bpu.state.nj.us/cleanEnergy/ 

GreenPowerChoice.shtml 

Connecticut 

Connecticut, like New Jersey, is a restructured state. 

However, Connecticut has both competitive and 

standard offer providers selling green power products. Connecticut has a Clean Energy Collaboration 

made up of key stakeholders including marketers, 

nonprofit organizations, utility companies, state 

agencies, and others supporting green power market 

development. Connecticut is also an example of a 

state that is using its SBC fund to promote voluntary 

green power market development. 

Connecticut has established two voluntary green 

power market targets: (1) 0.5% (~150 gigawatthours [GWh]) by the end of 2007 through the CCEF, 

and (2) 3% to 4% (~900 GWh) by the end of 2010 

through the Connecticut Climate Change Action Plan 

2005. To assess green power market development, 

the CCEF has hired an independent third party to 

monitor and evaluate public awareness and voluntary 

green power market development in the state. 

To support Connecticut’s voluntary green power market, several marketing and incentive programs have 

been initiated, including: 

•	 SmartPower’s Clean Energy–Let’s Make More television and radio ads and the 20% by 2010 clean 

Energy Campaign. Connecticut and New Haven are 

key campaign participants. 

•	 CCEF’s Clean Energy Communities program 

provides free solar PV systems to SmartPowerqualifying municipalities who (1) commit to 

SmartPower’s 20% by 2010 Clean Energy 

Campaign, and (2) sign up a specific number of 

customers to the CTCleanEnergyOptions program. 

Several towns have already qualified. 

•	 Sterling Planet’s Investment for the Greater Good 

program offers rewards to nonprofit organizations, 

municipalities, and colleges and universities supporting green power by providing a 10% cash 

rebate for eligible purchases. In addition, eligible 

organizations may also receive 10% cash back on 

any residential enrollment they secure. 

Connecticut’s collaborative model has shown early 

signs of positive results, with approximately 3,000 

sign-ups in two months with the new 

CTCleanEnergyOptions program. 

Web site: 

http://www.ctcleanenergyoptions.com/ 

Massachusetts 

Massachusetts, like New Jersey, is a restructured 

state. However, unlike New Jersey, the retail 

providers in Massachusetts are not required to 

offer customers a green power option. Rather, to 

increase consumer demand for green power, the 

Massachusetts Technology Collaborative (MTC) is 

developing creative ways to use SBC funding to 

promote green power. 

The MTC, a nonprofit group, manages the SBC funds 

for renewable energy in Massachusetts and has a 

general mandate to increase renewable energy supply and use in the state. To create consumer demand 

for green power, the MTC developed the Clean 

Energy Choice program. 

5-68 � Chapter 5. Energy Supply Actions
 
 

EPA Clean Energy-Environment Guide to Action
 

The Clean Energy Choice program bundles together a 

number of features to increase consumer confidence 

in both green power and the value of green power to 

them. First, the Clean Energy Choice program identifies credible sources of green power for customers, 

thereby reducing their risk and simultaneously 

increasing their confidence in the authenticity of the 

green power marketer claims. Specifically, the Clean 

Energy Choice program requires that green power 

providers use the same definition of renewable energy used in the state’s RPS. Second, participants that 

purchase green power from one of the providers (e.g., 

Mass Energy) are able to deduct the incremental cost 

of their green power purchase (i.e., the premium) 

from their federal income tax.40 By providing customers with a tax deduction, the Clean Energy 

Choice program effectively reduces the customer’s 

cost premium for green power by about one-third. 

Third, the Clean Energy Choice program matches, 

dollar for dollar, customers’ green power premiums 

with grant payments to their local municipal governments for use in developing additional renewable 

energy projects. The payment received by a municipality is equal to the amount paid for green power 

by its residents, up to a total annual grant program 

cap of $1.25 million. Finally, the Clean Energy Choice 

program offers matching grants for clean energy 

projects serving low-income residents throughout 

the state, subject to a $1.25 million annual program 

cap. Thus, up to $2.5 million in SBC funds, roughly 

10% of the annual SBC funds collected, is being used 

to promote voluntary green power in Massachusetts. 

In the Clean Energy Choice program, consumers have 

two basic choices. First, there are already three utilities that provide a green power option directly to 

their customers, with several different products 

available to them. These utilities include Mass 

Electric, Cape Light Compact, and Nantucket Electric. 

The incremental monthly cost of green power is 

approximately $6 to $12. Second, customers 

throughout the state (including customers of the 

above utilities) can purchase RECs from Mass Energy. 

Under the Mass Energy program, a 500 kWh block of 

RECs costs $25. 

Web site: 

http://cleanenergychoice.org/ 

Washington 

Washington has a vertically integrated market for 

electricity. It provides an example of state-mandated 

utility green pricing programs created via legislation. 

In 2001, the governor signed a bill that required all 

electric utilities to offer customers renewable energy 

options. The bill stipulates that utilities must regularly promote the option of either fixed or variable 

rates for voluntary green power in monthly billing 

statements. 

As a result of this 2001 legislation, today there are 

17 utilities in Washington that offer voluntary green 

power to their customers. As shown in Table 5.5.1, 

green pricing programs vary according to each utility’s unique circumstances. 

To provide one example, Puget Sound Energy’s (PSE’s) 

Green Power Program currently has over 14,000 

commercial and residential customers. In 2004, these 

customers bought more than 46 million kWh of 

green power, enough renewable energy to serve 

approximately 4,000 homes for a year. Given this 

program’s success, it was rated one of the top 10 

voluntary green power programs nationwide in 2004 

(DOE 2005c). PSE offers green power that is produced in the Pacific Northwest from wind and solar 

facilities. PSE’s program allows customers to select 

the amount of green power they want. Options are 

available as low as $4 per month for 200 kWh of 

green power. Each additional block of 100 kWh is 

sold at a price of $2. For under $10 a month, a 

household can “green” approximately 30% to 50% of 

their electricity (based on 1,000 kWh per month 

usage). 

40	 Mass Energy is a nonprofit organization and the MTC is a state agency. By a private letter ruling from the Internal Revenue Service (IRS), the MTC 

was able to classify the premiums paid for renewable energy purchased as a charitable contribution. 

� Section 5.5. Fostering Green Power Markets 5-69 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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Web sites: 

http://www.dsireusa.org/library/includes/ 

map2.cfm?CurrentPageID=1&State=WA 

http://www.eere.energy.gov/greenpower/markets/ 

state_policies.shtml 

New Mexico 

New Mexico, like Washington, has a vertically integrated electricity market. It provides an example of a 

state-mandated utility green pricing program created 

via regulatory authority. By unanimous approval in 

2002, the New Mexico Public Regulation Commission 

(PRC) created regulations that require all investorowned utilities and electric cooperatives in the state 

to offer their customers a voluntary renewable energy tariff. (Cooperatives only have to provide renewable energy to the extent that renewable energy is 

available to them from their suppliers.) To raise 

Table 5.5.1: Green Pricing Programs Offered in Washington (as of May 2005)
 

Utility Name Program Name Type Start Date Premium 

Avista Utilities Buck-A-Block Wind 2002 0.33¢/kWh 

Benton County Public Utility District (PUD) Green Power Program Landfill gas, 

wind 

1999 Contribution 

Chelan County PUD Sustainable Natural Alternative Power PV, wind, 

micro hydro 

2001 Contribution 

Clallam County PUD Green Power Rate Landfill gas 2001 0.7¢/kWh 

Clark Public Utilities Green Lights PV, wind 2002 1.5¢/kWh 

Cowlitz PUD Renewable Resource Energy Wind, PV 2002 2.0¢/kWh 

Grant County PUD Alternative Energy Resources Program Wind 2002 2.0¢/kWh 

Grays Harbor PUD Green Power Wind 2002 3.0¢/kWh 

Lewis County PUD Green Power Energy Rate Wind 2003 2.0¢/kWh 

Mason County PUD No. 3 Mason Evergreen Power Wind 2003 2.0¢/kWh 

Orcas Power & Light Go Green Wind, small 

hydro, PV 

1997 3.5¢/kWh 

Pacific County PUD Green Power Wind, hydro 2002 1.05¢/kWh 

Pacificorp: Pacific Power Blue Sky Wind 2000 1.95¢/kWh 

Peninsula Light Green by Choice Wind, hydro 2002 2.8¢/kWh 

Puget Sound Energy Green Power Plan Wind, solar 2002 2.0¢/kWh 

Seattle City Light Seattle Green Power Solar, wind, 

biogas 

2002 Contribution 

Snohomish County PUD Planet Power Wind 2002 2.0¢/kWh 

Tacoma Power EverGreen Options Small hydro, 

wind 

2000 Contribution 

Source: DOE 2005. 

5-70 � Chapter 5. Energy Supply Actions 
 

 

 

EPA Clean Energy-Environment Guide to Action
 

awareness and demand for voluntary green power, 

utilities are also required to develop educational programs for customers on the benefits and availability 

of their voluntary renewable energy programs. 

The renewable energy tariffs allow consumers the 

option of purchasing more renewable energy than 

what is required by the RPS. Tariffs offered by utilities 

and cooperatives in New Mexico range from 1.8 to 

3.2 cents/kWh and combine varying mixes of wind, 

solar, and biomass, depending on the utility. In addition, some utilities offer green power produced only 

within the state, while others offer green power produced in New Mexico and in surrounding states. In 

2004, the state legislature passed SB43, which provides additional guidance to the PRC and explicitly 

states that voluntary green power sales would need 

to be in addition to the state’s RPS requirements. 

Web sites: 

http://www.nmprc.state.nm.us/utility/pdf/ 

3619finalrule.pdf 

http://legis.state.nm.us/Sessions/04%20Regular/ 

bills/senate/SB0043.html 

What States Can Do 

The suite of policies and programs that can be used 

to create robust green power markets and help clean 

energy contribute to state goals is well understood. 

States can use the best practices and information 

resources in this Guide to Action to actively promote 

green power market development and to strengthen 

existing programs to deliver even more benefits to 

electricity customers. 

Action Steps for States 

States with a Competitive Retail Market 

• Assess how well competitive markets are working 

with regard to green power product availability, 

quality, and uptake. 

• If markets are not working to support green power, 

consider ways to support their development, as 

outlined in this document. 

• Ensure that other state programs and policies 

are aligned with the needs of the green power 

marketplace. 

States with a Vertically Integrated Retail 

Market 

• Consider a process to evaluate whether to require 

utilities to offer a green pricing option to all customers, and if so, how to design this option (customer participation would still be voluntary). 

• Develop a green pricing program that meets your 

state’s particular situation. 

• Ensure that other state programs and policies 

are aligned with the needs of the green power 

marketplace. 

� Section 5.5. Fostering Green Power Markets
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EPA Clean Energy-Environment Guide to Action
 

Information Resources 

General Information 

Title/Description URL Address 

Green Pricing Resource Guide, Second Edition. This guide focuses on utility green 

pricing programs, although most of the insights apply or can be adapted to green 

power marketing in restructured markets, and to a much lesser extent to renewable 

energy certificates. 

http://www.awea.org/greenpower/ 

greenPricingResourceGuide040726.pdf 

National Council Series on Information Disclosure. The National Council's research 

program addresses disclosure of information to consumers who will choose retail 

electricity providers in restructured states. The Council has published several 

reports on this topic in draft format. Final published National Council reports will 

soon be posted on their Web site. 

http://www.Ncouncil.org/pubs.html 

Power to the People: How Local Governments Can Build Green Electricity Markets. 

This assesses the benefits and potential obstacles to green aggregation by local 

governments, while noting the potential of municipal aggregation in general to protect and benefit small power consumers. 

http://www.repp.org/repp_pubs/articles/ 

issuebr9/index_ib9.html 

Trends in Utility Green Pricing Programs (2003). This report presents year-end data 

on utility green pricing programs, and examines trends in consumer response and 

program implementation over time. 

http://www.eere.energy.gov/greenpower/ 

pdfs/36833.pdf 

Utility Green Pricing Programs: Design, Implementation, and Consumer Response. 

The purpose of this report is to provide aggregate industry data on consumer 

response to utility programs, which indicate the collective impact of green pricing 

on renewable energy development nationally, and market data that can be used by 

utilities as a benchmark for gauging the relative success of their green pricing programs. 

http://www.eere.energy.gov/greenpower/ 

resources/pdfs/nrel_35618.pdf 

Federal Resources
 

Title/Description URL Address 

EPA Green Power Partnership. This is EPA’s voluntary program to promote the use 

of green power by companies, government agencies, and other institutions. 

http://www.epa.gov/greenpower 

U.S. Department of Energy (DOE) Green Power Network. This is the link to the main 

Web site of the Green Power Network. 

http://www.eere.doe.gov/greenpower 

Information About States
 

Title/Description URL Address 

CESA. Twelve states across the United States have established funds to promote 

renewable energy and clean energy technologies. CESA is a nonprofit organization 

that provides information and technical services to these funds and works with 

them to build and expand clean energy markets in the United States. 

http://www.cleanenergystates.org/ 

5-72 � Chapter 5. Energy Supply Actions
 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EPA Clean Energy-Environment Guide to Action
 

Title/Description URL Address 

Database of State Incentives for Renewable Energy (DSIRE). This Web site contains 

extensive information on federal, state, and local programs, policies, and incentives 

for renewable energy. The database can be searched by program type, including 

green power programs. 

http://www.dsireusa.org 

DOE Green Power Network. This reference links to information about state green 

power programs (i.e., states that have taken an active role in fostering green 

power) and power disclosure policies. 

http://www.eere.energy.gov/greenpower/ 

markets/states.shtml 

Massachusetts Clean Energy Choice Program. This Web site describes the voluntary green power program being promoted by the MTC, the administrator of the 

state’s system benefits fund. It includes descriptions of the green power offerings, 

and incentive programs offered by the MTC. 

http://cleanenergychoice.org 

Washington State Utilities and Transportation Commission (UTC) Green Power 

Programs. This reference links to the main page of the Washington green power 

programs, providing links to the enabling legislation, annual reports on the green 

power programs, and utility green pricing tariffs. 

http://www.wutc.wa.gov/webimage.nsf/ 

071d50fefd435186882567ad00778646/ 

2a75cd42e959364288256ab000749d8b! 

OpenDocument 

Examples of State Legislation and Regulations
 

State Title/Description URL Address 

New Jersey State of New Jersey Board of Public Utilities, Order of Approval 

in the Matter of a Voluntary Green Power Choice Program. 

Docket No. E005010001. This document contains the final New 

Jersey Board of Public Utilities (NJBPU) approval for the 

statewide green power program and also includes the document containing the final program description, framework, 

rules, and technical standards. 

http://www.bpu.state.nj.us/wwwroot/ 

cleanEnergy/EO05010001_20050413.pdf 

New Mexico New Mexico legislation (S.B.43) supporting the RPS and volun-­

tary green power programs. This reference links to state legislation (Senate Bill 43, called the “Renewable Energy Act”). It 

further clarifies elements of the state RPS and also specifies 

that sales through the voluntary green pricing programs are in 

addition to the RPS requirements (see Section 7). 

http://legis.state.nm.us/Sessions/ 

04%20Regular/bills/senate/SB0043.html 

New Mexico utility commission final rule requiring the develop-­

ment of voluntary green power offerings (see Section 10.D). 

This reference links to the New Mexico PRC final rule that 

established the New Mexico RPS. In Section 10.D, it also 

requires utilities to offer a voluntary green pricing tariff to its 

customers. 

http://www.nmprc.state.nm.us/utility/pdf/ 

3619finalrule.pdf 

Washington Revised Code of Washington (RCW) 19.29A.090: Voluntary 

Option to Purchase Qualified Alternative Energy Resources. 

This is the enabling legislation for the Washington State UTC 

green power program. 

http://www.leg.wa.gov/RCW/ 

index.cfm?section=19.29A.090& 

fuseaction=section 

� Section 5.5. Fostering Green Power Markets
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EPA Clean Energy-Environment Guide to Action
 

References
 

Title/Description URL Address 

Bird, L.A. and E.A. Holt. 2002. Aggregated Purchasing—A Clean Energy Strategy. 

Solar Today November/December, pp. 34-37. 

http://www.eere.energy.gov/greenpower/ 

resources/pdfs/aggregated_ 

purchasing.pdf 

Bird, L. and B. Swezey. 2004. Green Power Marketing in the United States: A Status 

Report. Seventh Edition. NREL/TP-620-36823. National Renewable Energy 

Laboratory (NREL), Golden, CO. September. 

http://www.eere.energy.gov/greenpower/ 

pdfs/36823.pdf 

Bird, L. and B. Swezey. 2005. Estimates of New Renewable Energy Capacity Serving 

U.S. Green Power Markets (2004). NREL. September. 

http://www.eere.energy.gov/greenpower/ 

resources/tables/new_gp_cap.shtml 

CCEF. 2005. Clean Energy Communities Web site. Accessed 2005. http://ctcleanenergy.com/investment/ 

CleanEnergyCommunities.html 

Center for Resource Solutions. 2005. Green-e renewable electricity certification 

program Web site (includes links to documents covering green power standards, 

verification, as well as certified products). 

http://www.green-e.org/ 

DOE. 2005. The Green Power Network Web site (includes links to information on 

existing utility green pricing programs, green power marketer programs, and summaries of state policies on green power and disclosure). Accessed July 2005. 

http://www.eere.energy.gov/greenpower/ 

DOE. 2005a. The Green Power Network Web Site. Information Resources: Green 

Power Marketing Activity in Competitive Electricity Markets. July 2005. 

http://www.eere.energy.gov/greenpower/ 

resources/maps/marketing_map.shtml 

DOE. 2005b. The Green Power Network Web Site. Information Resources: Utility 

Green Pricing Activities. July 2005. 

http://www.eere.energy.gov/greenpower/ 

resources/maps/pricing_map.shtml 

DOE. 2005c. Green Power Markets Web site. Green Pricing: Top Ten Utility Green 

Power Programs. December 2005. 

http://www.eere.energy.gov/greenpower/ 

markets/pricing.shtml?page=3 

DOE EIA. 2004. Electric Power Annual 2003. U.S. DOE Energy Information 

Administration. December. 

http://www.eia.doe.gov/cneaf/electricity/ 

epa/epa_sum.html 

GSA. 1999. Executive Order 13123. U.S. General Services Administration (GSA). Last 

reviewed June 1, 2005. 

http://www.gsa.gov/Portal/gsa/ep/ 

contentView.do?P=PLAE&contentId= 

16915&contentType=GSA_BASIC 

Katofsky, R. 2005. Personal communication with Ryan Katofsky, Navigant Consulting, 

July 2005. 

N.A. 

RET. 2005. Renewable Energy Trust Web site. Tax Deductible Option Why Are Some 

Choices Tax Deductible? Accessed July 2005. 

http://www.cleanenergychoice.com/ 

tax_deduct1.htm 

Wiser, R., M. Bolinger, E. Holt, and B. Swezey. 2001. Forecasting the Growth of 

Green Power Markets in the United States. NREL/TP-620-30101, Golden, CO. 

National Renewable Energy Laboratory, October. 

http://www.eere.energy.gov/greenpower/ 

resources/pdfs/30101.pdf 

5-74 � Chapter 5. Energy Supply Actions
 
 

 

 

 

 

 

 

 

 

 

Chapter 6. 


Utility Planning and Incentive
 

Structures 

Public utility commission (PUC) long-term planning 

policies and utility incentive and rate structures play 

an important role in determining the attractiveness 

of investments in energy efficiency and clean distributed generation (DG). In most states, utility profits 

are reduced if they experience reduced energy sales 

as a result of aggressive investments in energy efficiency or customer-sited distributed generation. 

Most utilities can also lose an opportunity for additional revenue when investing in demand-side 

resources instead of new supply, transmission, and 

distribution. Rate structures, including exit fees, 

standby rates, and buyback rates, can create unintended barriers to distributed generation. State PUCs 

can achieve goals for low-cost, reliable energy markets while also supporting larger state clean energy 

efforts by removing existing utility disincentives. 

This chapter provides an in-depth discussion of three 

policies that states have successfully used to address 

disincentives to create effective energy markets. The 

information presented about each policy is based on 

the experiences and best practices of states that are 

implementing the programs, as well as on other 

sources, including local, regional, and federal agencies and organizations; research foundations and 

nonprofit organizations; universities; and utilities. 

Table 6.1 lists examples of states that have implemented these policies. States can refer to this table 

for an overview of the policies described in this 

chapter and to identify other states they may want 

to contact for additional information about their 

clean energy policies or programs. The For More 

Information column lists the Guide to Action section 

where each in-depth policy description is located. 

Clean Energy Policies
 

Type of Policy 

For More 

Information 

State Planning and Incentive Structures 

Lead by Example Section 3.1 

State and Regional Energy Planning Section 3.2 

Determining the Air Quality Benefits of Clean 

Energy 

Section 3.3 

Funding and Incentives Section 3.4 

Energy Efficiency Actions 

Energy Efficiency Portfolio Standards Section 4.1 

Public Benefits Funds for Energy Efficiency Section 4.2 

Building Codes for Energy Efficiency Section 4.3 

State Appliance Efficiency Standards Section 4.4 

Energy Supply Actions 

Renewable Portfolio Standards Section 5.1 

PBFs for State Clean Energy Supply Programs Section 5.2 

Output-Based Environmental Regulations to 

Support Clean Energy Supply 

Section 5.3 

Interconnection Standards Section 5.4 

Fostering Green Power Markets Section 5.5 

Utility Planning and Incentive Structures 

Portfolio Management Strategies Section 6.1 

Utility Incentives for Demand-Side Resources Section 6.2 

Emerging Approaches: Removing Unintended 

Utility Rate Barriers to Distributed Generation 

Section 6.3 

In addition to these three policies, states are adopting a number of other policies that maximize the 

benefits of energy efficiency and clean energy 

� Chapter 6. Utility Planning and Incentive Structures
 6-1 
 

 

 

 

EPA Clean Energy-Environment Guide to Action
 

Policy Description State Examples 

For More 

Information 

Portfolio Management 

Strategies 

Portfolio management strategies include energy resource 

planning approaches that place a broad array of supply 

and demand options on a level playing field when comparing and evaluating them in terms of their ability to 

meet projected energy demand and manage uncertainty. 

CA, CT, IA, MT, NV, OR, PA, 

VT, Idaho Power, 

Northwest Power and 

Conservation Council, 

PacifiCorp, Puget Sound 

Energy 

Section 6.1 

Utility Incentives for 

Demand-Side Resources 

A number of approaches—including decoupling and performance incentives—remove disincentives for utilities 

to consider energy efficiency and clean distributed generation equally with traditional electricity generation 

investments when making electricity market resource 

planning decisions. 

AZ, CA, CT, ID, MA, MD, 

ME, MN, NY, NM, NV, OR, 

WA, 

Section 6.2 

Emerging Approaches: 

Removing Unintended 

Utility Rate Barriers to 

Distributed Generation 

Electric and natural gas rates, set by Public Utility 

Commissions, can be designed to support clean DG projects and avoid unintended barriers, while also providing 

appropriate cost recovery for utility services on which 

consumers depend. 

Exit Fees: IL, MA, CA 

Standby Rates: CA, NY 

Gas Rates: NY 

Section 6.3 

Table 6.1: Utility Planning and Incentive Structures
 

through planning and incentives approaches. These 

additional policies are addressed in other sections of 

the Guide to Action, as described as follows. 

•	 State and Regional Planning activities identify 

opportunities to incorporate clean energy as a way 

to meet future load growth (see Section 3.2). 

•	 Funding and Incentives describes additional ways 

states provide funding for clean energy supply 

through grants, loans, tax incentives, and other 

funding mechanisms (see Section 3.4). 

•	 Public Benefits Funds are pools of resources used 

by states to invest in energy efficiency and clean 

energy supply projects and are typically created by 

levying a fee on customers’ electricity bills (see 

Section 4.2, PBFs for Energy Efficiency; and Section 

5.2, PBFs for State Clean Energy Supply Programs). 

6-2 � Chapter 6. Utility Planning and Incentive Structures
 
 

EPA Clean Energy-Environment Guide to Action
 

6.1 Portfolio Management 

Strategies 

Policy Description and Objective 

Summary 

Some state public utility commissions (PUCs) require 

utilities to conduct portfolio management as a way 

to provide least-cost and stable electric service to 

customers over the long term. Portfolio management 

addresses other electric generation and transmission 

concerns, including reliability, safety, risk management, and environmental issues. 

Portfolio management refers to the utility’s energy 

resource planning and procurement strategies. These 

strategies, required by the state, cover both the generation of electricity and its transmission to customers. A successful portfolio management approach 

typically includes forecasting customer demand for 

electricity and resource supply, identifying and 

assessing a range of resource “portfolio” scenarios, 

and developing a plan for acquiring the preferred mix 

of resources. 

An ideal portfolio is diversified; it provides many 

options to allow the utility to adapt to shifting market conditions, including: 

• A variety of fuel sources such as coal, natural gas, 

nuclear power, and clean energy sources. Some 

states actively promote and sometimes require the 

use of clean energy sources for some of the electricity supplied to their customers. 

• A variety of technologies for the generation and 

delivery of electricity. 

• Programs that encourage customers to adopt 

energy efficiency measures. 

• Financial incentive programs to encourage customers to reduce their consumption during peak 

demand periods. 

Portfolio management refers to energy 

resource planning that incorporates a variety 

of energy resources, including supply-side 

(e.g., traditional and renewable energy 

sources) and demand-side (e.g., energy efficiency) options. The term "portfolio management" has emerged in recent years to 

describe resource planning and procurement 

in states that have restructured their electric 

industry. However, the approach can also 

include the more traditional integrated 

resource planning (IRP) approaches applied 

to regulated, vertically integrated utilities. 

Portfolio management involves deliberately choosing 

among a variety of electricity products and contracts. The approach emphasizes diversity—diversity 

of fuels, diversity of technologies, and diversity of 

power supply contract durations. In its fullest form, 

energy efficiency and renewable generation are key 

strategy components. 

Objective 

States are requiring utilities to use portfolio management strategies to achieve a mix of resources that 

efficiently and reliably meet consumers’ near- and 

long-term service needs in a manner that is consistent with environmental policy objectives. The most 

comprehensive portfolio management strategies consider demand- and supply-side resources and include 

clean energy as an important component of a diversified resource portfolio. Several states also consider 

rate structure issues and performance-based regulation to place energy efficiency and clean distributed 

generation (DG) on a level playing field with supply 

options (see Section 6.2, Utility Incentives for 

Demand-Side Resources). 

Portfolio management strategies are used both in 

states where a regulated utility has an obligation to 

provide full service to customers and in “retail choice” 

states where the regulated entity’s service might be 

restricted to distribution and default service. 

� Section 6.1. Portfolio Management Strategies
 6-3 
 

 

EPA Clean Energy-Environment Guide to Action
 

Benefits 

Portfolio management offers benefits through risk 

management and improved efficiency. Diversification 

is a key risk management strategy and can take the 

form of supply contract terms and conditions as well 

as supply from varied fuels, technologies, and a mix 

of generation resources. Additionally, diversification 

can result in a mix of transmission, demand-side 

resources, energy efficiency, and demand response. 

With diversification, each resource represents a relatively smaller proportion of the total electricity 

required to serve customers. This reduces price risks 

associated with a specific resource type, decreasing 

the possibility that customers will be exposed to a 

sudden increase in their electric rates. 

Even though many portfolio management strategies 

are rooted in managing price risks for customers, 

environmental benefits flow naturally from portfolio 

management, particularly those strategies that 

ensure equal consideration of renewable generation 

and energy efficiency. For example, portfolio management delivers clean air benefits by shifting the 

focus of procurement from short-term, marketdriven, fossil fuel-based prices to long-term, customer costs and customer bills by ensuring the consideration of energy efficiency and renewable generation resources. Portfolio management can also 

address additional benefits, including increased system reliability and reduced security risks. 

Background 

In the late 1980s and early 1990s, integrated 

resource planning (IRP) was common in the electric 

industry. With vertically integrated electric utilities 

responsible for generation, transmission, and distribution services for their customers, IRP was a useful 

tool for developing the most efficient resource portfolio. In 1992, 36 states had IRP requirements in 

place. After restructuring, the prevalence of ratepayer-funded energy efficiency programs declined significantly as the focus of resource planning shifted 

to short-term commitments. States either rescinded 

their IRP regulations or ceased requiring utilities to 

comply with them, in anticipation that customer 

choice would result in an optimal resource mix. 

When customer choice did not deliver these benefits, 

some states and utilities began returning to IRP and 

portfolio management as a tool to ensure a variety 

of public policy goals, including clean, low-cost, reliable power. Having learned from previous experience, 

IRP policies today are more effective and vary greatly 

by state. 

Some states are continuing to apply IRP regulations. 

Other states are requiring that a distribution company or other entity be responsible for acquiring a 

long-term, diverse resource portfolio to serve customers. In states served by regulated, vertically integrated utilities, portfolio management strategies are 

implemented through individual utilities’ IRPs. 

Some retail choice states, served by regulated distribution companies and competitive suppliers, are 

using portfolio management to stabilize and lower 

prices for default service consumers. To date, the primary focus of portfolio management in states with 

retail choice has been the management of costs and 

risks of supply contracts. Interested states that want 

to take a more expansive view of portfolio management are beginning to explore ways to incorporate 

clean energy into portfolio management. 

States That Have Adopted Portfolio 

Management Strategies 

Integrated Resource Planning 

Several states currently have instituted IRP requirements, including California, Colorado, Hawaii, Idaho, 

Indiana, Minnesota, Oregon, and Washington. Many 

electric companies have developed detailed IRPs to 

guide their resource management and procurement 

practices in response to various state regulations. 

They include Avista Corporation, Idaho Power 

Corporation, PacifiCorp, Portland General Electric 

(PGE), Georgia Power Company, Duke Power, Xcel 

Energy, and Puget Sound Energy (PSE). 

As vertically integrated facilities, these utilities own 

their generating assets. They use their IRPs to weigh 

the benefits of building their own generation plants 

against procuring energy from other entities. The 

plans also evaluate how best to balance peak versus 

6-4 � Chapter 6. Utility Planning and Incentive Structures
 
 

 

 

 

EPA Clean Energy-Environment Guide to Action
 

off-peak electric load requirements. In addition, they 

compare various supply- and demand-side options 

and contract and financial hedging options. 

Companies achieve these goals simultaneously by 

analyzing different scenarios. The IRPs detail fuel and 

electricity price information, customer demand forecasts, existing plant performance, other plant additions in the region, and legislative decisions. 

Retail Choice Portfolio Management 

As states have restructured the electric industry, they 

have struggled with the appropriate pace of transition from regulated full-service supply from integrated utilities to full retail choice in a competitive market. Originally, many states hoped that the majority 

of customers would select a competitive supplier. 

Many states also included provisions for default 

service, which would be procured through the regulated distribution company to supply customers who 

could not, or would not, find a supplier in the competitive market. These services were expected to provide a declining proportion of retail service. 

Because the transition to competitive retail markets 

has been slower than anticipated, default services 

have taken on greater prominence as the main supply option for most customers with few competitive 

options. In fact, in restructured states, the majority 

of residential and small commercial customers continue to take electricity through their default service 

provider, despite the option to choose their supplier. 

This trend is expected to continue into the future, 

making the provision of default service an important 

element in meeting customers’ service needs. 

Consequently, to ensure least-cost and reliable supply for customers, several states have mandated 

portfolio management approaches for the provision 

of these noncompetitive services, as described in 

Table 6.1.1. 

Some restructured states have adopted a particular 

aspect of portfolio management: laddering (or “dollar 

cost averaging”) of generation contracts for default 

service procurement. This approach can offer greater 

price stability, supplier diversity, and flexibility to 

adapt to changing loads than a one-time procurement for the entire default service load. 

Table 6.1.1: States That Use Diverse Contract Terms
 

State Procurement Rules for Default Service 

Connecticut Contracts are procured in overlapping 

pattern of fixed periods. The contracts 

must be for terms of not less than 6 

months, unless shorter terms are justified. 

Delaware Delaware has proposed an approach similar to that used in New Jersey: a 3-year 

ladder of contracts. 

Illinois Illinois has proposed a mix of 1-, 3-, and 5­

year contracts for its default service electric procurement. 

Maryland Utilities must attempt to obtain 1-, 2-, and 

3-year contracts with 50% of load served 

through 1-year contracts. 

New Jersey There is a single annual auction date. 

Each year, 1/3 of the load is procured 

under fix-priced, 3- year contracts. 

Washington, D.C. Recommends that utilities’ contract mix 

include contracts of at least 3 years for no 

less than 40% of the total load. 

Source: Synapse 2005. 

The objective of using such a laddered contract 

approach is that in each year only a fraction of the 

electric load is exposed to market price uncertainty. 

Figure 6.1.1 illustrates a basic five-year ladder. 

Utilities can also manage exposure to market price 

risk by executing a mix of contracts over short-, midand long-term contracts. 

Additional tools beyond basic laddering might yield 

greater price and stability benefits for customers. For 

example, one enhancement that would promote 

clean energy would be a dedicated, renewable energy 

tranche. In other words, a portion of the load can be 

dedicated specifically to long-term renewable contracts. This would provide not only technology diversification, but also contract length diversification 

and more stable prices over the long run. 

� Section 6.1. Portfolio Management Strategies
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Figure 6.1.1: A Laddered Approach to Default 

Service Contracts Offers Flexibility and Price 

Stability 

Year 

1 

Year 

2 

Year 

3 

Year 

4 

Year 

5 

Year 

6 

Year 

7 

Year 

8 

Year 

9 

Year 

10 

Year 

11 

20% 

20% 

20% 

20% 

20% 

Original Contracts 

Rollover Contracts 

Subsequent Contracts 

New 5-Year Contract Starts 

Source: Roschelle and Steinhurst 2004. 

Non-State Jurisdictional Entities 

While this section focuses on state policies pertaining to portfolio management, portfolio management 

strategies are a useful planning tool regardless of 

whether they are required by a state regulatory body 

or undertaken at the initiative of an individual company, municipal utility, or cooperative. They can be 

used in both private utilities and public power utilities. The strategies and approaches described in this 

section are applicable in a wide range of corporate 

structures and can be adapted to the circumstances 

of individual companies. 

One of the most comprehensive portfolio management efforts takes place in the Pacific Northwest 

through the Northwest Power and Conservation 

Council. The Northwest Power and Conservation 

Council was created by Congress in 1980 as an interstate compact agency for the states of Idaho, 

Montana, Oregon, and Washington. The region is 

served by a federal power project (through the 

Bonneville Power Administration [BPA]), investor 

owned utilities (IOUs), municipal utilities, and power 

cooperatives. 

The Northwest Power and Conservation Council periodically develops 20-year power plans to ensure an 

adequate, efficient, economical, and reliable power 

system and to address the impacts of the region’s 

hydropower system on fish and wildlife. These power 

plans establish a regional context for the power planning of individual public and investor-owned utilities 

and provide information on the region’s power system. Additionally, the plans offer broadly applicable 

resource strategies and methods to evaluate uncertainty and risk that can be used in individual companies’ planning processes. The Northwest Power and 

Conservation Council’s Fifth Plan is described in State 

and Regional Examples, on page 6-13. 

The American Public Power Association (APPA) provides information for public power utilities regarding 

the inclusion of clean energy in energy portfolios. A 

2004 APPA guidebook describes strategies other utilities have used to increase their percentage of 

renewable energy and provides a step-by-step 

process for considering renewable resources, especially wind and geothermal, in smaller public power 

system resource portfolios. Many publicly owned 

utilities develop IRPs. Examples of these include 

Seattle City Light, Tacoma Power, the Los Angeles 

Water and Power District, and the Sacramento 

Municipal Utility District. 

Designing an Effective Portfolio 

Management Policy 

State portfolio management policies, whether for 

vertically integrated utilities or distribution service 

providers, create a comprehensive planning and procurement process that levels the playing field for 

energy efficiency and clean energy supply. The regulated entity must then develop a plan for implementing the policy. This section describes the portfolio 

management process, including the planning process, 

participants, funding, timing and duration, and interaction with state practices. 

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Planning Process 

Portfolio management typically involves a multi-step 

process of forecasting, resource identification, scenario analysis, and resource procurement, as 

described below. 

Forecasting 

A utility’s first step in portfolio management is to 

forecast customer demand and resource supply over 

the planning horizon. Utilities include expected energy efficiency improvements outside of the utility’s 

energy efficiency resources in their load forecasts. By 

forecasting demand and supply, a utility identifies 

the timing and magnitude of future resource needs. 

Identifying Potential Resources 

Next, the utility assesses the wide variety of supply 

and demand resources available to meet their identified needs. Supply-side resources include traditional 

sources such as power plants, purchasing from the 

wholesale spot market, purchasing short-term and 

long-term forward contracts, and purchasing derivatives to hedge against risk. Supply resources also 

include clean energy, such as renewable power. 

Demand-side resources can include energy efficiency 

programs and demand response. Utilities also assess 

expanding transmission and distribution facilities, 

and sometimes consider DG options. 

Many states that require IRP establish criteria for 

evaluating resource options and a process for selecting resources. The criteria can include environmental, 

economic, reliability, security, and social factors and 

direct project costs. These factors create an evaluation framework that values the attributes of clean 

energy as part of the least-cost resource solution. 

Recognizing Environmental Costs 

Some states, such as California, require consideration of environmental factors as part of their planning process. California requires utilities to consider 

the cost of future carbon reduction regulations in 

their long-term planning by requiring a “cost adder” 

for supplies from fossil fuel plants. This means that 

for resource comparison purposes, utilities increase 

the cost of fossil fuel-based supplies to reflect the 

financial risk associated with the potential for 

future environmental regulation. This makes fossil 

fuel plants less attractive as compared to clean 

energy. Vermont law requires that utilities prepare a 

plan for providing energy services at the lowest 

present value life cycle costs, including environmental and economic costs. 

Similarly, several utilities, including PacifiCorp, Idaho 

Power, PGE, Avista, and Xcel, incorporate an estimate 

of potential carbon emissions fees into their planning 

processes. For example, Montana requires utilities to 

consider environmental factors in portfolio management, but it does not require consideration of “environmental externalities.” These “externalities,” added 

to the cost of resources, can be used to incorporate 

estimates of sensitivity to risk associated with the 

environmental effects of plant emissions (e.g., acid 

rain, climate change, and other issues). 

Creating the Preferred Resource Mix 

After establishing evaluation criteria, states and utilities determine the mix of resources that will best 

meet the regulators’ and companies’ objectives. In 

this step, the state PUC directs regulated utilities to 

identify a mix of possible resources that meets forecasted requirements and addresses as many planning 

criteria as possible. For example, regulators and utilities might seek the lowest cost, most reliable options 

that minimize risk and reflect social, cultural, and 

environmental goals. During this step, utilities analyze the various scenarios and risks associated with 

different resource “portfolios.” 

California requires utilities to prioritize their resource 

acquisitions by incorporating a prioritized resources 

list established in the state’s Energy Action Plan 

(EAP). Under this plan, also called the “Loading 

Order,” top priority is given to energy efficiency and 

demand response, followed by renewable energy, 

then clean fossil-fueled DG, and finally, clean fossilfueled central generation. Other states include 

explicit requirements for clean energy in their portfolio management policies. For example, Iowa and 

Minnesota require utilities to develop conservation or 

energy efficiency plans for their customers. 

� Section 6.1. Portfolio Management Strategies
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Montana mandates that utilities providing default 

service must consider demand- and supply-side 

resources when developing their portfolios. 

Many states require utilities to conduct a competitive solicitation or other process to ensure that they 

evaluate options for meeting resource needs using 

predefined criteria in a fair manner. Oregon, 

California, and Montana are examples of states 

that have these types of competitive solicitation 

requirements. 

Participants 

States include a broad range of stakeholders as they 

develop policies and consider alternative scenarios. 

These stakeholders include state agencies, utilities, 

supply-side and demand-side resource providers, and 

customer representatives. For example, California, 

Connecticut, Oregon, Pennsylvania, Vermont, and 

Washington work with all interested parties to develop regulations on IRP or portfolio management for 

default service providers. Montana requires utilities 

that use portfolio management for default service to 

conduct a broad-based advisory committee review; 

make recommendations on technical, economic, and 

policy issues; and provide opportunities for public 

input. 

After a plan has been implemented, parties reconvene regularly (sometimes annually or more frequently) to see if their strategy should be adjusted 

for greater effectiveness in achieving policy and 

stakeholder objectives. For example, PacifiCorp, a 

utility that operates in five Western states, invites 

stakeholders to regularly take part in evaluating and 

implementing its IRP. The cornerstone of the public 

input is full-day public meetings, held approximately 

every six weeks throughout the year-long plan 

development period. Because of PacifiCorp’s large 

service territory, these meetings are held in two 

locations and employ telephone and video conferencing technology. PacifiCorp has found that this 

approach encourages wide participation while minimizing participants’ travel burdens and scheduling 

conflicts. Other companies, such as Idaho Power and 

PSE, similarly involve stakeholders and the public in 

the development of resource plans. 

Funding 

Vertically integrated utilities or distribution service 

providers bear the costs of resource planning and 

procurement, then pass the costs on to retail 

customers. 

Best Practices: Participants 

A wide variety of stakeholders can be included in the 

development of a portfolio management strategy, as 

shown in this example: 

Utilities 

Investment 

Community 

Portfolio 

Management 

Regulators 

Consumer 

Advocates 

Renewable 

Developers 

Energy 

Efficiency 

Advocates 

As discussed in Section 6.2, Utility Incentives for 

Demand-Side Resources, different regulatory policies 

create positive or negative incentives for regulated 

entities to pursue clean energy. Regulators can 

establish policies that provide utilities with the 

appropriate financial incentives to prepare and 

implement proper resource portfolios. These include 

incentives to: 

• Design and implement cost-effective efficiency 

programs. 

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• Develop cost-effective DG options. 

• Identify and implement the optimal mix of power 

plants and purchase contracts. 

• Implement risk management techniques. 

• Implement, update, and modify the resource plan 

over time to respond to changing market and 

industry conditions. 

In some instances, cost recovery is not guaranteed, 

thereby creating an incentive for efficient and effective portfolio design and implementation. For example, in Iowa, the Iowa Utilities Board (IUB) can deny 

cost recovery when it is not satisfied with a utility’s 

programs and budget. 

Timing and Duration 

Portfolio management approaches, both IRP and portfolio management for default service, usually incorporate regular planning and solicitation cycles—often 

ranging from one to five years. Many portfolio 

approaches include a long-range component (10–20 

years) and a more short-term action plan (one to five 

years). Utilities can improve their portfolio management strategies by scheduling regular reviews and 

updates (perhaps annually) to accommodate new 

opportunities and energy use scenarios. 

Interaction with State Policies 

A variety of state programs and policies can be further leveraged by portfolio management strategies 

and can provide support to a state’s portfolio management planning. 

Renewable Portfolio Standard Policies 

In the course of electric industry restructuring, many 

states adopted RPS, which require a given percentage of power from renewable power plants (see 

Section 5.1, Renewable Portfolio Standards). Some 

states, such as Connecticut and Massachusetts, have 

determined that default service supply must comply 

with RPS requirements just as competitive suppliers 

must comply. Recent legislation in Nevada allows a 

company to meet a portion of its RPS with energy 

efficiency programs. 

RPS compliance can be a parallel process, not a constraint, to portfolio management, especially if RPS 

allows for renewable energy credits (RECs) to be used 

for procurement of electricity. 

Energy Efficiency Programs 

State agencies and legislatures can consider how 

energy efficiency programs will enhance the diversity 

and resilience of an energy resource portfolio. For 

vertically integrated utilities, energy efficiency has 

been a cornerstone of IRP for some time. However, 

default service suppliers are just now beginning to 

incorporate energy efficiency into their offerings. 

With restructuring, energy efficiency programs offer 

opportunities for lowering system-wide electricity 

costs and reducing customers’ electricity bills. Energy 

efficiency also offers utilities the opportunity to 

reduce risk, improve reliability, mitigate peak 

demands, minimize environmental impacts, and promote economic development. 

Even though utilities scaled back their energy efficiency programs during the 1990s, the primary 

rationale for implementing these programs—to reduce 

electricity costs and lower customer bills—is just as 

relevant in today’s electricity industry. Consequently, 

energy efficiency can be a useful component in portfolio management, because it can (1) lower electricity 

costs and customers’ bills, and (2) reduce the amount 

of generation needed from the market. 

Some states have established a public benefits fund 

(PBF) to ensure that utilities acquire energy efficiency (see Section 4.2, Public Benefits Funds for Energy 

Efficiency). In this case, all distribution companies 

collect a fixed charge from their customers to provide funding for energy efficiency activities. While 

PBFs help address some of the concerns that restructuring would reduce energy efficiency funding, they 

do not capture the full potential of cost-effective 

energy efficiency. 

� Section 6.1. Portfolio Management Strategies
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Consequently, some states ask utilities to use portfolio management to identify and implement additional 

energy efficiency. PSE in Washington includes energy 

efficiency based on a comprehensive assessment of 

technical potential. In its 2003 Integrated Resource 

Plan, the company identified resource needs that 

could be met with energy efficiency and followed up 

with an energy efficiency solicitation. During 2004, 

the company’s electricity efficiency programs avoided 

about 20 megawatts (MW) of capacity need. For its 

2005 Integrated Resource Plan, the company has 

taken a more targeted approach to energy efficiency, 

where competitive solicitation will focus on obtaining services for specific customer segments, end 

uses, or technologies rather than an open-ended 

solicitation. 

In Minnesota, legislative mandates in 1982 and 1991 

require utilities to develop conservation improvement 

programs (CIPs). Utilities include the CIP’s energy 

saving goals in the IRPs, which are filed every two 

years with the PUC. Often, the utilities are required 

to complete an energy efficiency market potential 

study. In reviewing a company’s IRP, the PUC sets 

15-year demand-side management (DSM) goals for 

energy and capacity. 

Energy Planning 

Many states have undertaken comprehensive energy 

planning processes for the entire state (see Section 

3.2, State and Regional Energy Planning). Portfolio 

management strategies are included in some states’ 

energy planning processes and sometimes serve as a 

mechanism for implementing policy goals identified 

in the states’ energy planning processes. For example, the forecasts developed by utilities in the course 

of the IRP process have been used to develop an 

electricity supply-and-demand forecast for the state 

as a whole. Once a state has established energy policy goals, such as the development of clean energy 

options, that policy goal can shape the implementation of portfolio management strategies. For example, states such as California that place a priority on 

certain clean resources require utilities to submit 

IRPs that are consistent with the overall state policy 

objectives. 

Program Implementation 

and Evaluation 

Portfolio management strategies have been effective 

when utilities, regulators, and other stakeholders are 

involved in the implementation process. 

Regulators sometimes require utilities to submit portfolio management plans and progress reports at regular intervals. These plans and reports describe in detail 

Best Practices: Developing and Adopting 

a Portfolio Management Policy 

The best practices identified below will help states 

develop effective portfolio management policies. 

These best practices are based on the experiences of 

states that use portfolio management: 

•	 Identify state policy goals for portfolio management, 

including reasonable power cost, stable supply, 

minimal environmental impacts, resource diversity, 

customer supply in immature markets, and risk minimization for customers and the utility. 

•	 Identify the entity that will procure electricity 

resources—options include vertically integrated 

utilities, distribution utilities, and default service 

providers. 

•	 Include a diverse representation of stakeholders in 

the development of the policy and process. 

•	 Establish requirements for forecasting and determining resource needs. 

•	 Determine the appropriate process for acquiring 

resources and comparing alternative resource 

options. Ensure that the goals of the process are 

clear, the process is transparent, the selection criteria are enunciated (including non-price factors), the 

supply and demand resources are considered, and 

there are mechanisms for fair procurement. 

•	 Establish clear roles for utility and regulatory 

authorities (i.e., PUCs) in selecting evaluation criteria, reviewing proposals, and choosing final 

resources. Some states require an independent 

monitor to ensure a fair and trusted process. 

•	 Consider finding a balance between the need for 

transparency and participation and the need for a 

manageable process. 

•	 Require that all demand and supply resources be 

considered in meeting identified needs. 

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the assumptions used, the opportunities assessed, and 

the decisions made when developing resource portfolios. Regulators then carefully review these plans and 

either approve them or reject them and recommend 

changes needed for approval. California requires utilities to submit biennial IRPs and quarterly reports on 

their plans. Similarly, the IUB requires companies to 

submit annual reports on their energy efficiency and 

load management programs. 

The Northwest Power and Conservation Council 2005 

plan calls for monitoring key indicators that could 

affect the plan, such as loads and resources, conservation development, cost and availability of wind 

generation, and climate change science. The results 

of this monitoring would inform IRPs developed by 

the utilities in the Northwest Power and 

Conservation Council region. 

Roles and Responsibilities of 

Implementing Organizations 

The regulated entity (e.g., the utility or the default 

service provider) is responsible for implementing the 

portfolio management policy. This facility conducts 

the planning process and the resource solicitation 

process. It is also responsible for presenting the 

results of the portfolio management process in a policy forum as required by the state, usually a public 

proceeding before the state regulatory agency. The 

regulated entity is also responsible for contractual 

arrangements associated with any resources procured from a third party. While the regulated entity 

implements the policy, the state regulatory agency 

usually plays an oversight role, reviewing planning 

results and any procurement process. 

Administering Body 

State utility commissioners oversee utilities’ and 

default service providers’ procurement practices in 

their states. Typically, the commissions solicit comments and input as they develop portfolio management practices from a wide variety of stakeholders, 

including generation owners, default service 

providers, competitive suppliers, consumer advocates, 

renewable developers, environmental advocates, and 

energy efficiency advocates. The utility regulator may 

also play a role in reviewing and approving utilities’ 

planning procedures, selection criteria, and/or their 

competition solicitation processes. PUCs in different 

states take different roles in the IRP process. For 

example, the California Public Utilities Commission 

(CPUC) has initiated a series of proceedings to design 

the IRP policy and to review and approve specific 

utility plans. 

Best Practices: Implementing Policy/Programs 

The best practices identified below will help utilities 

implement portfolio management requirements. These 

best practices are based on the experiences of states 

that use portfolio management. 

•	 Establish a process that allows all interested parties 

to provide input and information. 

•	 Prepare a clear, well-documented report that identifies available electricity or gas resources and 

resources that will be needed in the future. 

•	 Identify all the resources available, both demand 

and supply, to help the utility meet its resource 

needs. 

•	 Incorporate risk analyses into the plan to evaluate 

how different resource options address risks such 

as future environmental costs and other issues. 

•	 Consider a wide variety of costs in long-term planning, including the societal costs of the environmental effects of power plants and the costs of complying with anticipated regulatory changes. 

•	 Perform computer simulations of what happens 

when utilities integrate new resource alternatives 

with existing generation and transmission assets. 

Include existing demand-side resources. 

•	 Determine an action plan for near-term needs. 

Identify when the utility may need to procure 

resources to meet its needs. 

•	 For any competitive solicitation, establish clear 

requirements and a format for submitting proposals. 

These may differ for supply and demand resources. 

Evaluate potential resources according to predetermined criteria. 

•	 Be prepared to consider technology-specific needs 

in the evaluation criteria; one size fits all may not 

necessarily be the appropriate approach. 

•	 Identify difficulties with the process that require 

adjustments in the next forecast and solicitation 

process. 

� Section 6.1. Portfolio Management Strategies
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Evaluation 

Portfolio management strategies can be evaluated at 

a number of levels. Policymakers, utilities, and 

stakeholders can evaluate the state policy on portfolio management or the utility-specific implementation of, and results from, the portfolio management strategy. 

The state’s policy on portfolio management can be 

reviewed in a regulatory proceeding to determine 

whether the overall policy is achieving stated public 

policy goals. This is usually spurred by the legislature 

or PUC. 

Once a company has developed a resource plan, 

some states require a formal evaluation and 

approval. In other states, an integrated resource plan 

is filed and accepted without evidentiary review, and 

is only reviewed for form and completeness. In either 

case, the expectation is that subsequent utility 

resource acquisition and investment will conform 

with the plan unless there is sufficient justification 

for modification. 

Some companies review the success of the plan and 

make adjustments according to evolving circumstances. For example, PacifiCorp uses an iterative 

process for updating its plan and ensuring that the 

plan is consistent with the company’s business goals. 

In this case, the company’s energy portfolios are 

analyzed based on how well they address PacifiCorp’s 

energy supply and demand needs. In addition, the 

company looks at whether and how much the 

resources incur risk to utilities, default service 

providers, generators, and customers. 

Utilities use a variety of techniques to quantify the 

uncertainties associated with a given portfolio and 

to evaluate the resilience and performance of a particular portfolio under different scenarios and future 

circumstances. 

Evaluating Energy Efficiency Programs 

While companies and regulators use a variety of 

tests to evaluate the cost-effectiveness of energy 

efficiency programs, many use the Total Resource 

Cost (TRC) Test as their main method for assessing 

their energy efficiency program offerings. The TRC 

Test incorporates the following benefits and costs: 

•	 Benefits include avoided supply costs; a reduction 

in transmission, distribution, generation, and 

capacity costs; and a reduction in utility bills. 

•	 Costs include program administration costs, the 

incremental costs to acquire and install an efficiency measure regardless of who pays for it, and 

the increase in supply costs for the periods in 

which load is increased. 

The results of the TRC Test and other costeffectiveness tests are typically expressed as a ratio 

of benefits to cost with more favorable programs 

achieving a benefit-cost ratio greater than or equal 

to one.41 Individual measures can then be further 

screened based on the extent to which benefits 

exceed costs and other portfolio considerations such 

as those mentioned above. 

Program administrators and their PUCs may require 

one or more tests to be used for screening the costeffectiveness of individual measures and programs 

and whole portfolios. For example, California recently 

proposed adding the Program Administrator Test as a 

secondary screening measure to ensure that utilities 

do not provide excessive financial incentives to program participants (i.e., incentives in excess of incremental measure costs). Some of the most common 

tests include: 

• The Participant Test, which takes into account 

benefits and costs from a participant’s perspective. 

• The Rate Impact Measure (RIM) Test, which takes 

into account what happens to a customer’s bills or 

41	 While utilities and PUCs most often express program performance in terms of benefit-cost ratios, it is also helpful to express program costs and 

benefits in terms of $/kilowatt-hour (kWh). Consumers and legislators can easily relate this metric to the cost of energy in their own area, while utilities and regulators can compare this value to the cost of other resources such as new generation. When expressed this way, the annual levelized 

TRC ($/kWh) captures the net program and customer costs divided by the projected lifetime savings of the measure or program. Demand-side 

resource costs can also be calculated in $/kilowatt (kW) to illustrate the value during periods of peak demand. 

6-12 � Chapter 6. Utility Planning and Incentive Structures 
 

 

 

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rates because of changes in revenues and operating costs caused by a program. 

• The Program Administrator Test, which takes into 

account the benefits and costs from the program 

administrator’s perspective. 

• The TRC Test, which takes into account the combined benefits and costs from both the utility’s 

and program participants’ perspectives. 

• The Societal Test, which is similar to the TRC Test, 

but includes the effects of other societal benefits 

and costs such as environmental impacts, water 

savings, and national security. 

More information on the typical costs and benefits 

included in these tests can be found in the Information Resources section on page 6-20. States that 

choose to apply only one test are moving away from 

the RIM Test because it does not account for the 

interactive effect of reduced energy demand from 

efficiency investments on longer-term rates and 

customer bills. Iowa calls for using several tests in 

evaluating the cost-effectiveness of utilities’ energy 

efficiency plans. In addition, the IUB conducts periodic regulatory proceedings to review utilities’ 

proposed energy efficiency plans and how they are 

implemented. 

In addition, one important consideration when evaluating energy efficiency and other demand-side 

resources in comparison with supply-side resources is 

recognizing the effect of a particular program or 

investment on the utility’s demand curve. An energy 

efficiency program or other demand-side measure that 

reduces demand during peak pricing times will provide 

greater financial benefits than one that reduces 

demand in low-cost periods. Thus, a simple average of 

costs and savings across many hours may underestimate the value of a demand-side investment. 

Best Practices: Evaluating Policy/Programs 

The best practices identified below will help utilities 

evaluate portfolio management strategies. These best 

practices are based on the experiences of states that 

use portfolio management. 

•	 Provide a state procedure for feedback about the 

policy and how it was implemented. This could 

include a periodic policy review, a review of written 

comments, or a review of comments provided within 

the context of the periodic portfolio management 

submissions. 

•	 Establish a utility-based procedure for evaluating
 

and obtaining feedback on how the policy was
 

implemented. This could be a regular stakeholder
 

process or other mechanism. 


•	 Evaluate the outcome of each procurement cycle.
 

Consider the appropriateness of the evaluation criteria, how easy it was to participate in the procurement process, perceptions of fairness, and whether
 

the utility was successful in meeting its goals.
 

•	 Evaluate the cost-effectiveness of the energy efficiency resources procured as part of the portfolio 

management strategy. Use a variety of tests, including Societal Cost Tests and TRC Tests. 

State and Regional Examples 

Oregon 

Investor-owned gas and electric utilities file individual least-cost plans or IRPs with the PUC every two 

years. The plans, required since 1989, cover a 20­

year period. The primary goal is to acquire resources 

at the least cost to the utility and ratepayers in a 

manner consistent with the public interest. These 

plans are expected to provide a reasonable balance 

between least cost and risk. By filing these plans, the 

utilities hope that in future proceedings the PUC will 

not reject, and prevent utilities from recouping, some 

of the costs associated with resource acquisition. 

One of the factors that Oregon utilities must consider 

is the uncertainty associated with certain choices. 

They consider risk factors such as price volatility, 

weather, and the costs of current and potential federal 

� Section 6.1. Portfolio Management Strategies
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regulations, including regulations that address carbon 

dioxide (CO2) emission standards. Recently, the utilities 

have considered nonquantifiable issues that affect 

planning. These issues include potential changes in 

market structure, the establishment of RPS, changes in 

transmission operation and control, and the effect of 

PacifiCorp’s multi-state process on regulation and 

cost-recovery. Environmental externalities (i.e., the 

environmental costs associated with different choices) 

are considered if they are quantifiable as actual or 

potential costs. 

The state imposes different energy efficiency requirements for different utilities. Idaho Power is required 

to include energy efficiency. PacifiCorp and PGE are 

no longer required to evaluate energy efficiency as a 

resource in Oregon, but must include its impact on 

load forecasts. 

In its 2004 integrated resource plan, PGE states that 

its recommended resource strategies include strong 

commitments to upgrading existing PGE power 

plants, encouraging energy efficiency measures, and 

acquiring newly developed renewable energy. As a 

result, approximately 50% of PGE’s forecasted load 

growth between 2004 and 2007 is expected to come 

from sustainable measures instead of new resources 

that depend on additional fossil fuels (PGE 2004). 

Web site: 

http://www.portlandgeneral.com/about_pge/news/ 

irp_opucAcknowledgement.asp?bhcp=1 

California 

In the beginning of 2003, CPUC ordered the three 

California utilities—San Diego Gas & Electric (SDG&E), 

Pacific Gas & Electric (PG&E), and Southern California 

Edison (SCE)—to resume the role of planning for and 

buying electricity to meet customer needs. This order 

followed a two-year period of testing customer 

choice in retail markets. In Decision 04-01-050, CPUC 

adopted the long-term regulatory framework under 

which utilities would plan for and procure energy 

resources and demand-side investments. 

CPUC directed the utilities to prioritize their resource 

procurements and to follow the priorities, or “loading 

order,” established in the state’s EAP. The EAP identifies certain demand-side resources as preferred 

because California believes that they work toward 

optimizing energy conservation and resource efficiency while reducing per capita demand. The EAP 

also identifies certain preferred supply-side 

resources. The EAP established the following priority 

list: 

1. Energy efficiency and demand response. 

2. Renewable energy (including renewable DG). 

3. Clean fossil-fueled DG and clean fossil-fueled central-station generation. 

CPUC requires each utility to submit a 10-year procurement plan biennially, detailing its demand forecasts and showing how it plans to meet that 

demand. The plans must demonstrate that the utility 

has adequate, reliable supplies and complies with 

CPUC goals for efficiency and renewable energy. 

Utilities must file plans that include three 

scenarios—low load, medium load, and high load. To 

date, CPUC has approved long-term procurement 

plans for PG&E, SCE, and SDG&E. 

The long-term procurement plan guides each utility’s 

procurement activities. When the utility anticipates 

needing fossil fuel sources, it must initiate a competitive process designed to ensure that it compares 

renewable and fossil fuel energy sources. CPUC has 

directed the utilities to include the costs of CO2 

emissions in their long-term procurement plans and 

resource evaluation. Utilities must file monthly risk 

assessments and quarterly reports on the implementation of their plans. 

Based on its first comprehensive review of the implementation of the loading order, California Energy 

Commission (CEC) staff found different success rates 

for different resources. For example, the state and its 

utilities are currently ahead of their goals for energy 

efficiency, but are having a harder time meeting their 

goals for demand response and renewables. The state 

continues to work on reducing barriers to DG and to 

take steps to meet the goals of the loading order 

policy (CEC 2005). 

6-14 � Chapter 6. Utility Planning and Incentive Structures
 
 

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SCE’s request to meet an anticipated energy shortfall 

during Summer 2005 with an additional $38 million 

in efficiency programs demonstrates that the utility 

is following the EAP’s priorities. 

Web site: 

http://www.cpuc.ca.gov/WORD_PDF/ 

FINAL_DECISION/43224.doc 

Iowa 

Since 1990, the IUB has required Iowa’s four 

investor-owned gas and electric utilities to develop 

and implement energy efficiency plans that provide 

opportunities for all customers to reduce electricity 

and natural gas demand, thereby reducing their bills. 

Although not part of a traditional IRP process, Iowa’s 

program illustrates how well-designed portfolio 

management strategies support energy efficiency. 

The IUB developed administrative rules for investorowned utilities based on legislation enacted in 1990 

and 1996. The state legislature played a key role in 

enacting this legislation. It initially requested direction from the IUB to help shape legislation and then 

through the legislation directed the IUB to establish 

energy efficiency and load management 

requirements. 

The IUB and the Iowa Department of Natural 

Resources (DNR) develop capacity and energy savings 

performance standards for each utility, and each utility must propose a plan and budget for achieving 

those standards. In developing their plans, the utilities must perform studies that look at the potential 

of energy efficiency. The legislature directed the 

board to use several cost-effectiveness tests (i.e., a 

Societal Test, utility cost test, ratepayer impact test, 

and Participant Test) in evaluating the overall costeffectiveness of plans. Each test evaluates the costs 

and benefits of the program from the perspective of 

a particular entity. The Societal Test takes into 

account the environmental effects of resource choices, requiring utilities to compare options by adding 

10% to the cost of fossil fuel generation to account 

for its environmental effects. 

In 2001, the IUB requested that each utility provide 

new energy efficiency plans. As a result, utility energy efficiency spending has increased to above the 

peak spending levels reached in the early 1990s, an 

amount that is equivalent to 2% of electric utility 

revenues and 1.5% of gas utility revenues. Iowa’s 

electric and gas utilities are investing $80 million 

annually in energy efficiency and load management 

programs. These programs are saving 1,000 MW of 

electrical capacity per year (15% of summer peak 

demand) and more than 1 million megawatt-hours 

(MWh) per year. The plans, approved in 2003, are 

estimated to result in a net savings of $650 billion 

over five years (Iowa Department of Natural 

Resources 2004). 

The IUB’s energy efficiency planning rules include the 

following requirements: 

• Utilities assess the potential for energy efficiency 

in each sector and submit an energy efficiency 

plan that identifies economically achievable programs and describes how the savings will be 

achieved. 

• The IUB conducts case proceedings to review the 

plans. The proceedings involve a range of stakeholders, including the Office of Consumer 

Advocate, large industrial customers and environmental groups, and the Iowa DNR, which serves as 

the state energy office. 

• The IUB establishes annual performance goals and 

budgets for each utility’s DSM programs and 

reviews each utility’s energy efficiency plan and 

budget. 

In conjunction with utilities and stakeholders, the IUB 

developed an automatic cost recovery adjustment 

mechanism that allows utilities to recover the costs 

of DSM and load management programs. The IUB 

conducts a regulatory proceeding to evaluate the reasonableness of plan implementation and the budget. 

The IUB can deny cost recovery if not satisfied with 

the utility’s implementation and expenditures. 

� Section 6.1. Portfolio Management Strategies
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EPA Clean Energy-Environment Guide to Action
 

The energy efficiency plans are incorporated into 

utility load forecasts, and utilities are required to 

estimate how energy efficiency helps them avoid 

acquiring new capacity or new resources. 

Web site: 

http://www.state.ia.us/dnr/energy/MAIN/PUBS/CEP/ 

index.html 

Vermont 

Vermont’s State Energy Policy places a strong 

emphasis on efficient resource use and environmentally sound practices in the provision of adequate, 

reliable, secure, and sustainable energy service. 

Legislation requires that each regulated electric and 

gas company prepare and implement a least-cost 

integrated resource plan for providing service to its 

Vermont customers. Under the law pertaining to IRP 

(30 V.S.A. § 218c. Least Cost Integrated Planning), 

utilities are required to prepare a plan for providing 

energy service at the lowest present value life cycle 

cost, including environmental and economic costs. 

The state also prepares a statewide energy plan. The 

2005 Vermont Electric Plan, the first update since 

1994, contains detailed requirements for electric 

utilities’ integrated resource plans. It also provides a 

decision framework for addressing uncertainties and 

multiple contingencies in energy resource selection. 

These requirements are intended to guide the utilities’ planning processes to provide electric service at 

the lowest present value life cycle cost, including 

environmental and economic costs. The integrated 

resource plans should include a combination of supply and demand resources as well as transmission 

and distribution investments. The process outlined in 

the Electric Plan is also intended to facilitate information exchange among utilities, regulatory agencies, and the public. 

Web site: 

http://publicservice.vermont.gov/divisions/ 

planning.html 

Northwest Power and Conservation 

Council 

The Northwest Power and Conservation Council was 

created by Congress in 1980 through the Pacific 

Northwest Electric Power Planning and Conservation 

Act. The Act requires The Northwest Power and 

Conservation Council to develop a 20-year power 

plan to assure the region of an adequate, efficient, 

economical, and reliable power system. The plan is 

updated every five years. 

The Fifth Northwest Electric Power and Conservation 

Plan, issued in May 2005, is the most recent plan. 

The purpose of the plan is to develop plans and policies that enable the region to manage uncertainties 

that affect the power system and to mitigate risks 

associated with those uncertainties. The Fifth Plan 

contains recommended action items for the next five 

years as well as recommendations beyond five years 

to prepare the region for possible future scenarios. 

The plan includes clean energy options as the primary options to reduce costs and mitigate risks. 

Clean energy options include energy conservation 

and efficiency (targeted at 700 MW between 2005 

and 2009), demand response (targeted at 500 MW 

between 2005 and 2009), and wind (targeted at 

1,100 MW between 2005 and 2014) from system 

benefits charges (SBCs) and utility integrated 

resource plans. To prepare for potential new 

resources in the future, the plan includes steps to 

secure sites and permits for expansion of wind 

resources and develop possible coal gasification 

facilities, conventional coal resources, and natural 

gas facilities. The plan also calls for monitoring key 

indicators that could affect the plan (such as loads 

and resources, conservation development, cost and 

availability of wind generation, and climate change 

science). 

Web site: 

http://www.nwcouncil.org/energy/powerplan/plan/ 

Default.htm 

6-16 � Chapter 6. Utility Planning and Incentive Structures
 
 

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PacifiCorp 

PacifiCorp prepares an integrated resource plan for 

providing electricity to 1.6 million Pacific Power and 

Utah Power customers throughout Oregon, 

Washington, Idaho, Wyoming, California, and Utah. 

The company states that the integrated resource plan 

is not only a regulatory requirement but is also the 

primary driver in the company’s business planning 

and resource procurement process. 

The 2004 integrated resource plan determined that 

the most robust resource strategy relies on a diverse 

portfolio of resources that includes renewable energy, DSM, and natural gas and coal-fired generating 

resources. The plan identified a need for 2,700 MW 

of capacity by 2014, and emphasized the company’s 

continuing intention of procuring 1,400 MW of wind 

capacity and demand-side resources (including energy efficiency). PacifiCorp is currently planning for the 

2006 IRP cycle. 

The integrated resource plan was developed with 

public involvement from customer interest groups, 

regulatory staff, regulators, and other stakeholders. It 

simulates the integration of new resource alternatives with the company’s existing assets and compares their economic and operational performance. 

The method also accounts for future uncertainties by 

testing resource alternatives against measurable 

future risks. The integrated resource plan also looks 

at possible paradigm shifts in the industry; for example, it accounts for the uncertainty associated with 

future carbon regulations by increasing the cost of 

fossil fuel suppliers (for the purpose of comparing 

resources) by $8 per ton of CO2 emitted by fossil fuel 

plants. The result is a flexible resource strategy centered on the least-cost, risk-weighted mix of 

resource options. 

Web site: 

http://www.pacificorp.com/Navigation/ 

Navigation23807.html 

Idaho Power 

The Idaho PUC requires electric utilities to file an 

integrated resource plan every two years. The plan 

details the utility’s 10-year plan for providing electricity to retail customers in Idaho and Oregon. In 

preparing its integrated resource plan for 2004, 

Idaho Power worked with an Integrated Resource 

Plan Advisory Council comprising PUC representatives, the Governor’s office, state legislators, members of the environmental community, major industrial customers, irrigation representatives, and others. 

The 2004 integrated resource plan has two primary 

goals: (1) to identify resources to provide a reliable 

power supply for the 10-year planning period, and 

(2) to ensure that the resource portfolio balances 

cost, risk, and environmental impact. Two secondary 

goals of the integrated resource plan are to consider 

supply and demand resources in a balanced fashion 

and to provide meaningful public input in development of the integrated resource plan. 

In developing its plan, Idaho Power analyzed 12 

potential resource portfolios, five of which were 

selected for additional risk analysis. Based on the risk 

analysis, the preferred portfolio was a diversified one 

that included nearly equal amounts of renewable 

generation and conventional thermal generation. The 

preferred portfolio presented resource acquisition 

targets for resources including demand response, 

energy efficiency, wind, geothermal, combined heat 

and power (CHP), natural gas, and conventional coal, 

increasing the capacity of the system almost 940 

MW over the planning period. 

As a result of the 2004 integrated resource plan, 

Idaho Power intends to issue several requests for proposals (RFPs) before the next integrated resource plan 

for resources including wind, geothermal, and peaking 

combustion turbines. The company will also undertake activities relative to demand-side measures and 

energy efficiency. 

Idaho Power has also designed a risk management 

policy that addresses the short-term resource decisions required in response to changes in load, 

resources, weather, and market conditions. The risk 

management policy typically covers an 18-month 

period and is intended to supplement the long-term 

IRP process. 

Web site: 

http://www.idahopower.com/pdfs/energycenter/irp/ 

2004_IRP_final.pdf 

� Section 6.1. Portfolio Management Strategies
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Puget Sound Energy 

PSE prepares a Least Cost Plan every two years in 

response to state regulatory requirements. The plan 

details how the company plans to provide electricity to 

retail customers in 11 counties in Washington. The 

company held numerous formal and informal meetings, 

providing opportunity for public input to the plan. 

PSE’s 2005 Least Cost Plan identifies plans for 

acquiring energy efficiency and renewable resources 

in the near- and long-term, as well as some conventional fossil generation in the long-term. In developing the plan, PSE used scenarios to evaluate risks and 

portfolio performance associated with certain potential futures. 

Web site: 

https://www.pse.com/about/supply/ 

resourceplanning.html 

Clean Energy Requirements in Retail 

Choice States 

Connecticut 

Connecticut is an example of a retail choice state 

with a clear, multifaceted clean energy approach. The 

state requires all generators that provide transitional 

offer service (Connecticut’s standard offer service) to 

customers to comply with the state’s RPS. In addition 

to the RPS, Connecticut requires its transitional offer 

service providers to sign contracts for renewable 

energy totaling 100 MW. Separate from the RPS 

requirements, Connecticut offers its transitional service customers the option of choosing from one of 

two clean energy programs. Under either program, 

customers can pay a premium and purchase either 

50% or 100% of their resources through clean energy. Finally, competitive generators that serve 

Connecticut customers outside of the transitional 

offer service must also comply with the state’s RPS. 

Web site: 

http://www.ctcleanenergy.com 

Pennsylvania 

Pennsylvania has taken a different approach to 

increasing use of clean energy. The state created four 

funds as a result of restructuring plans. These funds 

are designed to promote the development of sustainable and renewable energy programs and clean-air 

technologies on both a regional and statewide basis. 

The funds have provided more than $20 million in 

loans and $1.8 million in grants to more than 100 

projects. In addition, 20% of standard offer customers are assigned to suppliers that are required to 

use at least 5% renewable generation. 

Web site: 

http://www.puc.state.pa.us/utilitychoice/electricity/ 

green_clean.aspx 

Montana 

Montana established electric least-cost planning rules 

and policy guidelines that apply to default supply 

utilities for long-term electric supply resource planning and procurement. Under the “traditional” planning process, the affected utility is required to submit 

an integrated resource plan every two years. The 

state also has a “restructured” planning process for 

one distribution company, where the utility must file 

a portfolio action plan every year. In both the traditional and restructured processes, the utility must file 

a long-range plan that includes demand-side 

resources and supply-side resources. However, the 

traditional plan must reflect the “least societal cost” 

and include estimates of the environmental costs of 

certain options. The restructured plan does not 

include these factors. 

The guidelines for default service state that the 

objective of the planning process is to assemble and 

maintain a balanced, environmentally responsible 

portfolio of power supply and demand-management 

resources. Both planning processes require utilities to 

consider the costs of complying with existing and 

potential environmental regulations. 

Nevada 

Nevada’s 1997 restructuring legislation established an 

RPS requiring utilities to obtain a minimum percentage 

of the total electricity they sell from renewable energy 

resources. The RPS percentages were increased in 2001 

and again in 2005. The 2005 revision contained in 

Assembly Bill 03 (A.B.3) not only increased the required 

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EPA Clean Energy-Environment Guide to Action
 

percentage, but also allowed utilities to meet the standard through energy savings from efficiency measures 

and renewable energy generation (or credits). Energy 

efficiency can be used to meet up to one-quarter of 

the standard in a given year. The 2005 legislation sets 

new requirements for the total amount of electricity 

that utilities sell from renewable energy resources at 

6% in 2005, rising to 20% in 2015. The PUC must 

write regulations to implement the legislation. 

Web site: 

http://leg.state.nv.us/22ndSpecial/bills/AB/ 

AB3_EN.pdf 

On the Horizon 

Clean energy requirements for default service 

providers are a relatively new concept that states are 

exploring. For example, in Illinois, the governor 

organized a sustainable energy plan initiative with 

the goal of developing RPS, demand response, and 

energy efficiency programs. The initiative includes 

input from utilities, consumer groups, large industrial 

customers, government agencies, and other industry 

participants. The Illinois Commerce Commission gathered this input to develop an overall clean energy 

implementation plan for the state, including voluntary renewable and energy efficiency portfolio standards for public utilities and alternative electricity 

providers. States are likely to continue to expand 

these approaches as they seek to ensure that customers are served with portfolios that minimize risks, 

provide stable prices, and reduce long-term costs. 

States that are interested in expanding the use of 

portfolio management in resource procurement may 

wish to pursue policy approaches that incorporate 

renewables and energy efficiency into energy service 

supply in restructured states. 

What States Can Do 

Many states have found that portfolio management 

strategies offer a useful and effective tool for implementing their clean energy policy goals. These 

strategies emphasize the development of a portfolio 

of resources that are resilient under a wide variety of 

possible future scenarios and that achieve a wide 

variety of benefits. States can tailor their portfolio 

management strategies to meet their specific clean 

energy objectives. 

Action Steps for States 

States that already have a portfolio management 

policy or program can: 

• Link their portfolio management policy to other 

state policies, such as RPS, energy efficiency, and 

energy planning policies. 

• Review the portfolio management policy regularly 

and adjust the portfolio as appropriate. 

• Assess transmission policies and how they influence 

generation. Decisions regarding the maintenance or 

enhancement of transmission and distribution (T&D) 

facilities will have important consequences for the 

development of generation and efficiency resources 

and vice versa. Portfolio managers can consider not 

only the generation resources that are available 

with the existing transmission system, but also 

those that could be tapped via new or upgraded 

transmission. Conversely, portfolio managers can 

also consider whether costly T&D upgrades and 

enhancements can be deferred or avoided. This 

involves considering the strategic placement of 

power plants, energy efficiency investments, or DG 

technologies. 

States that do not have a portfolio management policy or program can: 

• Educate stakeholders about the benefits of portfolio management, including more stable prices, risk 

mitigation, lower long-term costs, and a cleaner 

environment. 

• Review other state practices and current utility 

portfolio management practices. 

• Develop a comprehensive policy with clear provisions for program review and modification. 

When modifying or adopting portfolio management 

requirements, states are moving towards policies and 

programs that strive to minimize total revenue requirements (i.e., total bills paid by customers) rather than 

electricity rates. 

� Section 6.1. Portfolio Management Strategies
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EPA Clean Energy-Environment Guide to Action
 

Information Resources 

Information About States 

State Title/Description URL Address 

California Decision 0412048—opinion adopting PG&E, SCE, and SDG&E’s 

long-term procurement plans. 

http://www.cpuc.ca.gov/WORD_PDF/ 

FINAL_DECISION/43224.doc 

Other decisions at: 

http://www.cpuc.ca.gov/PUBLISHED/ 

FINAL_DECISION/43479.htm 

CPUC interim decision on administrative structure for energy 

efficiency program delivery, designating IOUs for the lead role 

in program choice and portfolio management. 

http://www.cpuc.ca.gov/PUBLISHED/ 

FINAL_DECISION/43628.htm 

Connecticut An example of a state’s comprehensive approach to clean 

energy. 

http://www.ctcleanenergy.com 

Illinois Sustainable energy plan initiative to develop an RPS, demand 

response, and energy efficiency. 

http://www.icc.illinois.gov/en/ecenergy.aspx 

Iowa 2004 Energy Plan Update. http://www.state.ia.us/dnr/energy/MAIN/ 

PUBS/CEP/index.html 

2005 Iowa Code: energy efficiency program requirements at 

Chapter 476.6 (14), and Chapter 467.6(16)–(18). 

http://www.legis.state.ia.us/IowaLaw.html 

Maine Another example of how a restructured state thinks about 

clean energy. 

http://www.maine.gov/mpuc/consumer/ 

industry/electricity/index.html 

Nevada A.B.3, June 2005, increasing the RPS and allowing up to onequarter of the required percentage to be met through energy 

efficiency measures. 

http://leg.state.nv.us/22ndSpecial/bills/AB/ 

AB3_EN.pdf 

New Jersey A detailed description of New Jersey’s auction approach to 

default service. 

http://www.bgs-auction.com 

Oregon A brief description of Portland General Electric’s 2002 

Integrated Resource Plan. 

http://www.portlandgeneral.com/about_pge/ 

news/irp_opucAcknowledgement.asp? 

bhcp=1 

Pennsylvania Information about how the PUC is helping to promote and 

encourage renewable energy development in Pennsylvania, 

and a link to the Office of Consumer Advocate's Web site 

where consumers can find out more information about choosing a "green supplier." Consumers also can find information 

about air pollution from power plants, fuel sources, and RPS. 

http://www.puc.state.pa.us/utilitychoice/ 

electricity/green_clean.aspx 

Vermont Vermont Department of Public Service, 2005 Vermont Electric 

Plan. 

http://publicservice.vermont.gov/divisions/ 

planning.html 

6-20 � Chapter 6. Utility Planning and Incentive Structures
 
 

 

 

 

 

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State Title/Description URL Address 

Washington 2005 Biennial Energy Report discusses IRP in the Pacific 

Northwest. 

http://www.cted.wa.gov/_CTED/ 

documents/ID_1872_Publications.pdf 

Northwest Northwest Power and Conservation Council issued its Fifth 

Northwest Electric Power and Conservation Plan in May 2005. 

The purpose of the plan is to develop plans and policies that 

enable the region to manage uncertainties that affect the 

power system and to mitigate risks associated with those 

uncertainties. 

http://www.nwcouncil.org/energy/ 

powerplan/plan/Default.htm 

All States The Regulatory Assistance Project (RAP) has a survey of some 

states’ IRP practices and discussions of portfolio management 

that can be found in their subject menu. 

http://www.raponline.org 

Information About Companies
 

Title/Description URL Address 

Idaho Power Corporation’s IRP http://www.idahopower.com/ 

energycenter/2004irp.htm 

PacifiCorp’s IRP http://www.pacificorp.com/Navigation/ 

Navigation23807.html 

PSE’s IRP http://www.pse.com/about/supply/ 

resourceplanning.html 

Articles and Reports About Portfolio Management Policy and Specific Programs
 

Title/Description URL Address 

Alexander, B. 2003. Managing Default Service to Provide Consumer Benefits in 

Restructured States: Avoiding Short-Term Price Volatility. Prepared for the National 

Energy Affordability and Accessibility Project National Center for Appropriate 

Technology. June. 

http://neaap.ncat.org/experts/ 

defservintro.htm 

American Public Power Association (APPA) 2004. Guidebook to Expanding the Role 

of Renewables in a Power Supply Portfolio. Prepared by Altera Energy, Inc. 

September. 

http://www.appanet.org/store/ 

ProductDetail.cfm?ItemNumber=11356 

Biewald, B., T. Woolf, A. Roschelle, and W. Steinhurst. 2003. Portfolio Management: 

How to Procure Electricity Resources to Provide Reliable, Low-Cost, and Efficient 

Electricity Services to All Retail Customers. Prepared for RAP. October. 

http://raponline.org/Pubs/ 

PortfolioManagement/ 

SynapsePMpaper.pdf 

CEC Staff Report. 2005. Implementing California’s Loading Order for Electricity 

Resources. CEC-400-2005-043. July. 

http://www.energy.ca.gov/ 

2005publications/CEC-400-2005-043/ 

CEC-400-2005-043.PDF 

� Section 6.1. Portfolio Management Strategies
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Title/Description URL Address 

CPUC. Administrative Law Judge’s Ruling Soliciting Pre-Workshop Comments on 

Draft Policy Rules for Post 2005 Energy Efficiency Programs. Rulemaking 01-08-028. 

http://72.14.207.104/search?q=cache:W0vPdK 

butFgJ:www.cpuc.ca.gov/word_pdf/ 

RULINGS/42616.doc++Administrative+Law 

+Judge%E2%80%99s+Ruling+Soliciting+ 

Pre-Workshop+Comments+on+Draft+ 

Policy+Rules+for+Post+2005+Energy+ 

Efficiency+Programs&hl=en 

Cowart, R. 2003. Portfolio Management: Design Principles and Strategies 

Presentation. April 25. 

http://www.raponline.org/Slides/ 

PortfolioManagement/ 

PortfolioManagmentApril2003.pdf 

Harrington, C. 2003. Portfolio Management: The Post-Restructuring World. 

Regulatory Assistance Project. Presentation April 24. 

http://www.raponline.org/Slides/ 

PortfolioManagement/EFPMmeeting.pdf 

Harrington, Mostovitz, Shirley, Weston, Sedano, and Cowart. 2002. Portfolio 

Management: Looking After the Interests of Ordinary Customers in an Electric 

Market That Isn’t Working Very Well. RAP. July. 

http://www.raponline.org/Pubs/ 

PortfolioManagement/ 

PortfolioMgmtReport.pdf 

Illinois Commerce Commission Resolution on Governor’s Sustainable Energy Plan 

(05-0437). 2005. July 19. 

http://eweb.icc.state.il.us/e-docket/reports/ 

view_file.asp?intIdFile=148072&strC=bd 

Illinois Sustainable Energy Initiative ICC Staff Report. 2005. July 7. http://www.icc.illinois.gov/docs/en/ 

050713ecEnergyRpt.pdf 

Joint Statement of Natural Resources Defense Council (NRDC) and Edison Electric 

Institute on portfolio management. 

http://naruc.org/associations/1773/files/ 

eei_nrdc.pdf 

Northwest Energy Coalition Report. 2004. Utility Resource Planning Back In Style. 

22(5):4-5. June. 

http://www.nwenergy.org//publications/ 

report/03_jun/rp_0306_4.html 

PSE. 2005. Least Cost Plan. April. http://www.pse.com/about/supply/ 

resourceplanning.html 

RAP. 2005. Clean Energy Policies for Electric and Gas Utility Regulators. January. http://www.raponline.org/Pubs/IssueLtr/ 

RAPjan2005.pdf 

Roschelle, A., and W. Steinhurst. 2004. Best Practices in Procurement of Default 

Electric Service: A Portfolio Management Approach. Synapse Energy Economics. 

Electricity Journal. October. 

http://www.neep.org/policy_and_outreach/ 

Electric_Journal.pdf 

Roschelle, A., and T. Woolf. 2004. Portfolio Management and the Use of Generation 

Options and Financial Instruments. Synapse Energy Economics. NRRI Journal of 

Applied Regulation. November. 

Please contact Synapse Energy Economics 

at 617-661-3248. 

Roschelle, A., W. Steinhurst, P. Peterson, and B. Biewald. 2004. Long-Term Power 

Contracts: The Art of the Deal. Synapse Energy Economics. Public Utilities 

Fortnightly. August. 

http://www.findarticles.com/p/articles/ 

mi_go2089/is_200408/ai_n6293389 

Sedano, R., C. Murray, and W. Steinhurst. 2005. Electric Energy Efficiency and 

Renewable Energy in New England: An Assessment of Existing Policies and 

Prospects for the Future. RAP. May. 

http://www.raponline.org/ 

showpdf.asp?PDF_URL=%22Pubs/ 

RSWS-EEandREinNE.pdf%22 

6-22 � Chapter 6. Utility Planning and Incentive Structures
 
 

EPA Clean Energy-Environment Guide to Action
 

Title/Description URL Address 

Steinhurst, W., and A. Roschelle. 2004. Energy Efficiency: Still a Cost-Effective 

Resource Option. Synapse Energy Economics prepared for the U.S./International 

Association for Energy Economics (USAEE/IAEE) Conference, Washington, D.C. July. 

Please contact Synapse Energy Economics 

at 617-661-3248. 

Steinhurst, W., A. Roschelle, and P. Peterson. 2004. Strategies for Procuring 

Residential and Small Commercial Standard Offer Supply in Maine. Comments prepared for the Maine Office of the Public Advocate. April. 

http://www.synapse-energy.com/ 

Downloads/Synapse-report-meopa-standard-offer-apr-7-04.pdf 

References
 

Title/Description URL Address 

CEC. 2005. Implementing California’s Loading Order for Electricity Resources. Staff 

Report. CEC-400-2005-043. July. 

http://www.energy.ca.gov/ 

2005publications/CEC-400-2005-043/ 

CEC-400-2005-043.PDF 

Iowa DNR. 2004. Iowa Energy Plan Update: A Progress Report. http://www.iowadnr.com/energy/info/files/ 

04plan.pdf 

Portland General Electric. 2004. Newsroom. PGE’s power supply plans receive 

acknowledgement from regulators. 

http://www.portlandgeneral.com/about_pge/ 

news/irp_opucAcknowledgement.asp? 

bhcp=1 

Roschelle and Steinhurst 2004. Energy Efficiency: Still a Cost-Effective Resource 

Option. Synapse Energy Economics prepared for the USAEE/IAEE Conference, 

Washington, D.C. July. 

Please contact Synapse Energy Economics 

at 617-661-3248. 

Synapse 2005. Personal communications with a variety of state staff. N.A. 

Texas PUC. 2005. Report to the 79th Texas Legislature. Scope of Competition in 

Electric Markets in Texas. January. 

http://www.puc.state.tx.us/electric/reports/ 

scope/2005/2005scope_elec.pdf 

� Section 6.1. Portfolio Management Strategies
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6.2 Utility Incentives for 

Demand-Side Resources 

Policy Description and Objective 

Summary 

Regulators in leading states are reworking traditional 

ratemaking structures to better align utilities’ investment incentives and related decisions with state 

interest in providing affordable and reliable energy 

supplies with low environmental impacts. Financial 

incentive structures for utilities can help align company profit goals with the delivery of cost-effective 

demand-side resources such as energy efficiency and 

clean DG. Traditional regulatory approaches link a 

utility’s financial health to the volume of electricity 

or gas sold via the ratemaking structure, thus providing a disincentive to investment in cost-effective 

demand-side resources that reduce sales. The effect 

of this linkage is exacerbated in the case of distribution-only utilities, since the revenue impact of electricity sales reduction is disproportionately larger for 

utilities without generation resources. Aligning utility 

aims by decoupling profits from sales volumes, 

ensuring program cost recovery, and providing shareholder performance incentives can “level the playing 

field” to allow for a fair, economically based comparison between supply- and demand-side resource 

alternatives and can yield a lower cost, cleaner, and 

more reliable energy system. 

Objective 

Financial incentive structures for utilities can be 

designed to encourage utilities to actively promote 

implementation of energy efficiency and clean DG 

when it is cost-effective to do so. This includes first 

minimizing utilities’ financial disincentives to deliver 

energy efficiency and DG resources and then instituting complementary incentive structures to promote and establish high-performing energy efficiency and DG resources. These utility disincentives can 

be reduced through the elimination or minimization 

of “throughput disincentives” embedded in traditional ratemaking mechanisms. Complementary incentive 

While some utilities manage aggressive energy efficiency and clean distributed generation (DG) programs as a strategy to diversify 

their portfolio, lower costs, and meet customer demand, many still face important 

financial disincentives to implementing these 

programs. Regulators can establish or reinforce several policies to help address these 

disincentives, including decoupling of profits 

from sales volumes, ensuring program cost 

recovery, and defining shareholder performance incentives. 

structure objectives include ensuring recovery of 

costs for effective, economic energy efficiency and 

DG programs and rewarding utility management and 

shareholders for well-run and well-performing energy efficiency and DG installation and promotion. 

Benefits 

States have found that a well-designed framework 

for utility incentives helps utilities increase the use 

of energy efficiency and clean DG, which reduces the 

demand for central station electric generation, lowers consumption and demand for natural gas, 

reduces air pollution, and decreases the load on 

transmission and distribution systems. 

Such a utility incentive structure can also lead to an 

increase in the reliability of electric power and gas 

delivery systems resulting from the increased use of 

energy efficiency and DG resources. Delivering costeffective energy efficiency or DG resources reduces a 

utility’s need to build expensive new central station 

power plants or transmission lines—or expand existing ones—and thus maximizes the value of a utility’s 

existing gas or electric capacity. Energy efficiency 

and clean DG programs can also lower overall production costs and average prices. 

Background on Utility Incentive 

Structures 

A large majority of electric utility costs, including 

costs for non-jurisdictional energy service companies 

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such as municipalities and cooperatives, are fixed to 

pay for capital-intensive equipment such as wires, 

poles, transformers, and generators. Utilities recover 

most of these fixed costs through volumetric-based 

rates, which change with each major “rate case,” the 

traditional and dominant form of state-level utility 

ratemaking. Between rate cases, however, utilities 

have an implicit financial incentive to see increased 

regulated retail sales of electricity (relative to forecast levels, which set “base” rates) and to maximize 

the “throughput” of electricity across their wires. This 

ensures recovery of fixed costs and maximizes allowable earnings; however, it also creates a disincentive 

to investing in energy efficiency during the time 

between rate cases. Recovery of variable costs in 

some states is assured through regular (usually quarterly) adjustments (e.g., for fuel) and thus does not 

impose analogous disincentives. Utilities with regular 

adjustments for variable fuel expenses have an even 

greater disincentive for energy efficiency than utilities that do not. 

With traditional ratemaking, there are few or no 

mechanisms to prevent “over-recovery” of these 

fixed costs, which occurs if sales are higher than 

projected, and no way to prevent “under-recovery,” 

which can happen if forecast sales are too optimistic 

(such as when weather or regional economic conditions deviate from forecasted or “normal” conditions). This dynamic creates an automatic disincentive for utilities to promote energy efficiency or DG, 

because those actions—even if clearly established 

and agreed-upon as a less expensive means to meet 

customer needs—will reduce the amount of money 

the utility can recover toward payment for fixed 

costs. 

If ratemaking explicitly accounted for this effect, for 

example, by allowing more frequent true-ups to rates 

to reflect actual sales and actual fixed cost revenue 

requirements, then this disincentive would be 

removed or minimized and energy efficiency options 

would then be able to compete on a level playing 

field with alternative supply options. A simplified 

illustration of this decoupling rate effect is shown in 

Table 6.2.1. Separate, supplemental shareholder 

Table 6.2.1: Simplified Illustration of Decoupling Rate 

Effect 

Rates and fixed cost recovery during initial period: 

Sales At 

Forecast 

Sales Below 

Forecast 

Sales Above 

Forecast 

Sales Forecast 100 kWh 

Fixed Costa $6.00 

Variable Costb $0.04 per kWh 

Total Variable Cost $4.00 $3.80 $4.20 

Total Costs 

[Fixed + Variable] 

$10.00 $9.80 $10.20 

Authorized Rate 

[Costs Sales Forecast] 

$0.100 per kWh 

Actual Sales 100 kWh 95 kWh 105 kWh 

Actual Revenues $10.00 $9.50 $10.50 

Fixed Cost Recovery 

[Revenue - Cost] 

Even 

$0.00 

Under 

($0.30) 

Over 

$0.30 

Rates in next period after decoupling true up: 

Sales At 

Forecast 

Sales Below 

Forecast 

Sales Above 

Forecast 

Sales Forecastc 100 kWh 

Total Costsc $10.00 

Revenue Requirement 

[Total Costs - Fixed 

Cost Recovery] 

$10.00 $10.30 $9.70 

New Authorized Rate 

[Revenue Requirement 

Sales Forecast] 

$0.100 

per kWh 

$0.103 

per kWh 

$0.097 

per kWh 

a Fixed costs include return on rate base. 

b Variable costs include operating costs of power plants. 

c Assumes values from initial period for illustrative purposes. 

Sources: PG&E 2003, Bachrach et al. 2004. 

incentive mechanisms, such as performance-based 

return on equity (ROE) guarantees, could then operate more effectively in the absence of the disincentive that the standard ratemaking otherwise imposes 

on utilities. Frequent true-ups and shareholder 

incentives are more desirable relative to high fixed 

rates since fixed rates greatly diminish customers’ 

incentives for energy efficiency. 

� Section 6.2. Utility Incentives for Demand-Side Resources
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States with Utility Incentive Programs 

for Demand-Side Resources 

States have found three steps for leveling the playing 

field for demand-side resources through improved 

utility rate design: 

•	 Remove Disincentives. Some states have removed 

structures that discourage implementation of 

energy efficiency and clean DG through “decoupling” efforts that divorce profits from sales 

volumes. 

•	 Recover Costs. Some states have given utilities a 

reasonable opportunity to recover the costs of 

energy efficiency and clean DG programs (i.e., cost 

recovery of implementation costs). Cost recovery 

alone does not remove the financial disincentive 

needed to further expand a utility’s commitment 

to maximizing energy efficiency and clean DG. 

•	 Reward Performance. Some states have created 

shareholder incentives for implementing highperformance energy efficiency and clean DG programs. These incentives are usually in the form of 

a higher return on investment for energy efficiency if the programs demonstrate measured or verified success, i.e., an actual reduction of energy use 

from program implementation. States can also 

reward performance by using shared-savings 

mechanisms. 

The first mechanism is critically important to allowing the second and third mechanisms to be meaningful. Removing disincentives first gives utility 

management a consistent framework for providing 

reliable, economic electric or gas service because it 

allows utilities to profitably invest in energy efficiency and DG resources without being penalized for 

lower sales volumes. Utilities can then aim to 

achieve implementation of high-performing energy 

efficiency and DG resources through superior management practices that result in assured cost recovery and lead to financial rewards for shareholders. 

These three approaches, especially when used 

together, have helped provide a level playing field for 

demand-side resource consideration. A number of 

states, including Arizona, California, Connecticut, 

Colorado, Idaho, Maine, Massachusetts, Minnesota, 

New Hampshire, New Mexico, New York, Nevada, 

Oregon, Rhode Island, and Washington, have had or 

are reviewing one or more of these forms of decoupling and incentive regulation. 

Remove Disincentives Through Decoupling or 

Lost Revenue Adjustment Mechanisms 

Traditional electric and gas utility ratemaking mechanisms unintentionally include financial disincentives 

for utilities to support energy efficiency and DG. This 

misalignment can be remedied through “lost revenue” adjustment mechanisms or mechanisms that 

“decouple” utility revenues from sales. 

Lost Revenue Adjustment Mechanisms (LRAMs) allow 

a utility to directly recoup the “lost” revenue associated with not selling additional units of energy 

because of the success of energy efficiency or DG 

programs in reducing electricity consumption. The 

amount of lost revenue is typically estimated by multiplying the fixed portion of the utility’s prices by the 

energy savings from energy efficiency programs or 

the energy generated from DG. This amount of lost 

revenues is then directly returned to the utility. Some 

states have adopted these mechanisms, but experience has shown that LRAM can result in utilities 

being allowed more lost revenues than the energy 

efficiency program actually saved because the lost 

revenues are based on projected savings. Furthermore, 

because utilities still earn increased profits on additional sales, this approach leaves a disincentive for 

utilities to implement additional energy efficiency or 

support independent energy efficiency activities. The 

LRAM approach provides limited incentives and does 

not influence efficient utility operations companywide like other decoupling approaches. 

Decoupling is an alternative means of eliminating 

lost revenues that might otherwise occur with energy efficiency and DG resource implementation. 

Decoupling is a variation of more traditional performance-based ratemaking (PBR). Under traditional 

ratemaking, a utility’s rates are set at a fixed amount 

until the next rate case occurs at an undetermined 

point in time. Under traditional PBR, a utility’s rates 

are typically set for a predetermined number of years 

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(e.g., five years). This type of PBR is referred to as a 

“price cap” and is intended to provide utilities with a 

direct incentive to lower cost (and thereby increase 

profits) during the term of the price cap. 

Decoupling is a variation of traditional PBR, and it 

sometimes is referred to as a particular form of “revenue cap.” Under this approach, a utility’s revenues 

are fixed for a specific term, in order to match the 

amount of anticipated costs incurred plus an appropriate profit. Alternately, a utility’s revenues per customer could be fixed, thus providing an automatic 

adjustment to revenues to account for new or departing customers. If the utility can reduce its costs during the term through energy efficiency or DG, it will 

be able to increase its profits. Furthermore, if a utility’s sales are reduced by any means, including efficiency, DG, weather, or economic swings, its revenues 

and therefore its profits will not be affected. This 

approach completely eliminates the throughput disincentive and does not require an accurate forecast 

of the amount of lost revenues associated with energy efficiency or DG. It does, however, result in the 

potential for variation in rates or prices, reflecting an 

adjustment to the relationship between total revenue 

requirements and total electricity or gas consumed 

by customers over the defined term. Such rate 

adjustments, or “true-ups,” are a fundamental aspect 

of the rate design resulting from decoupling profits 

from sales volumes. 

Table 6.2.2 compares decoupling with a lost revenues 

approach and illustrates why decoupling is simpler 

and more effective than LRAM. As the table illustrates, decoupling appears to be a more comprehensive approach to aligning utility incentives. While it 

requires more effort to establish a complete decoupling mechanism, it avoids the downsides of lost revenue approaches. 

As an example, California’s original decoupling policy, 

an Electric Rate Adjustment Mechanism (ERAM), was 

in place between 1982 and 1996 and was successful 

in reducing rate risk to customers and revenue risk to 

the major utility companies (Eto et al. 1993). 

California dropped its decoupling policy in 1996 

when restructuring was initiated. When competition 

Table 6.2.2: Approaches for Removing Disincentives 

to Energy Efficiency Investment: Decoupling vs. Lost 

Revenue Adjustments 

Decoupling Lost Revenue Adjustments 

Removes sales incentive and 

all demand-side management 

(DSM) disincentives. 

Removes some DSM disincentives. 

Does not require sophisticated 

measurement and/or 

estimation. 

Requires sophisticated measurement and/or estimation. 

Utility does not profit from 

DSM, which does not actually 

produce savings. 

Utility may profit from DSM, 

which does not actually produce savings. 

Removes utility disincentive to 

support public policies that 

increase efficiency (e.g., rate 

design, appliance standards, 

customer initiated 

conservation). 

Continues utility disincentive 

to pursue activities or support 

public policies that increase 

efficiency. 

May reduce controversy in 

subsequent utility rate cases. 

No direct effect on subsequent rate cases. 

Reduces volatility of utility revenue resulting from many 

causes. 

Reduces volatility of utility 

earnings only from specified 

DSM projects. 

Source: Mosovitz et al. 1992. 

did not deliver on its promise, California recently 

brought back a decoupling approach as part of a 

larger effort to reinvigorate utility-sponsored energy 

efficiency programs. Conversely, Minnesota tried a 

lost revenues approach and met strong customer 

opposition because there was no cap on the total 

amount of revenues that could be recovered. 

While decoupling is a critical step in optimizing the 

benefits of energy efficiency, states are finding that 

decoupling alone is not sufficient. Two other related 

approaches states are taking include assurance for 

energy efficiency program cost recovery, and shareholder/company performance incentives to reward 

utilities for maximizing energy efficiency investment 

where cost effective. 

Program Cost Recovery 

One important element of utility energy efficiency 

and clean DG programs is the appropriate recovery of 

� Section 6.2. Utility Incentives for Demand-Side Resources
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EPA Clean Energy-Environment Guide to Action
 

costs. The extent to which this is a real risk for utilities depends upon the ratemaking practices in each 

state. Nonetheless, the perception of the risk can be 

a significant barrier to utilities, regardless of how 

real the risk. Under traditional ratemaking, utilities 

might be unable to collect any additional energy 

efficiency or DG expenses that are not already 

included in the rate base. Similarly, under a price cap 

form of PBR, utilities might be precluded from recovering “new” costs incurred between the periods when 

price caps are set. However, traditional ratemaking 

can nonetheless allow program cost recovery for 

well-performing energy efficiency or DG programs, if 

desired. If revenue caps are in place, well-performing 

program costs can be included as part of the overall 

revenue requirement, in the same way that supplyside fixed costs are usually included in revenue 

requirements. If energy efficiency/DG programs are 

not shown to meet minimum performance criteria, 

then these costs could be excluded from revenue 

requirements, i.e., these costs would not be passed 

on to ratepayers. 

To overcome program cost recovery concerns, regulatory mechanisms can be used to assure that utility investments in cost-effective energy efficiency 

and DG resources will be recovered in rates, independent of the form of ratemaking in place. Under 

traditional ratemaking, an energy efficiency or DG 

surcharge could be included in rates and could be 

adjusted periodically to reflect actual costs 

incurred. Under a price cap form of PBR, the costs 

of energy efficiency and DG could be excluded from 

the price cap and could be adjusted periodically to 

reflect actual costs incurred. Many states with 

restructured electric industries have introduced a 

public benefits fund (PBF) that provides utilities 

with a fixed amount of funding for energy efficiency and DG, thus eliminating this barrier to utilities. 

For example, the New York Public Service 

Commission (PSC) approved a proposal in a ConEd 

rate case that included, among other demand-side 

measures, DSM program cost recovery through a 

PBF. In Colorado, a new bill has been introduced to 

require a Public Utilities Commission (PUC) 

Rulemaking to address gas energy efficiency program cost recovery and regulatory disincentives to 

cost-effective energy efficiency programs (Colorado 

Legislature 2006). 

Shareholder/Company Performance Incentives 

Under traditional regulation, utilities may perceive 

that energy efficiency or clean DG investment conflicts with their profit motives. However, states are 

finding that once the throughput disincentive is 

addressed, utilities will look at cost-effective energy 

efficiency and clean DG as a potential profit center 

and an important resource alternative to meet future 

customer needs. Utilities earn a profit on approved 

capital investment for generators, wires, poles, transformers, etc. Incentive ratemaking can allow for 

greater levels of profit on energy efficiency or DG 

resources, recognizing that many benefits to these 

resources, such as improved reliability or reduced 

emissions, are not otherwise explicitly accounted for. 

Adjustment of approved rate-of-return for capital 

investment—supply- or demand-side resources—is an 

important policy tool for state regulators. 

States, including Massachusetts and New Hampshire, 

are using profit or shareholder incentives to make 

energy efficiency and clean DG investments seem 

comparable to, or preferable to, conventional supplyside investments. With throughput disincentives 

removed, utilities can be rewarded with incentives 

stemming from superior program performance. Such 

incentives include a higher rate of return on capital 

invested in energy efficiency and clean DG, or equivalent earnings bonus allowances. Rewards require 

performance: independent auditing of energy efficiency/DG program effectiveness can drive the level 

of incentive. Conversely, poorly performing programs 

or components can be denied full cost recovery, providing a logical “stick” to the “carrot” of increased 

earnings potential, and ensuring that energy efficiency and clean DG program choices exclude those that 

only look good on paper. The savings that result from 

choosing the most cost-effective resources over less 

economical resources can be “shared” between 

ratepayers and shareholders, giving ratepayers the 

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EPA Clean Energy-Environment Guide to Action
 

benefits of wise resource use while rewarding management for the practices that allow these benefits 

to be secured.42 

Implementation of a package of incentive regulation 

initiatives might include: (1) stakeholder discussion 

of the issues, (2) state commission rulemaking or 

related initiative proposing a change from traditional 

ratemaking, and (3) clear and comprehensive direction from the state commission establishing the 

explicit rate structure or pilot program structure to 

be put in place. 

Designing Effective Utility 

Incentives for Demand-Side 

Resources 

Participants 

A number of stakeholders are typically included in 

the design of decoupling and incentive regulations: 

•	 State Legislatures. Utility regulation broadly 

affects all state residents and businesses. State 

energy policy is affected by and affects utility regulation. Legislation may be required to direct the 

regulatory commission to initiate an incentive regulation investigation or to remove barriers to elements like periodic resetting of rates without a 

comprehensive rate case. Legislative mandates can 

also provide funding and/or political support for 

incentive regulation initiatives. 

•	 State PUCs. State PUCs have the greatest responsibility to investigate and consider incentive regulation mechanisms. Staff and commissioners oversee 

the stakeholder processes through which incentive 

regulation issues are discussed. PUCs are the ultimate issuers of directives implementing incentive 

regulation packages for regulated gas and electric 

utilities. 

•	 State Energy Offices/Executive Agencies. State 

policies on energy and environmental issues are 

often driven by executive agencies at the behest 

of governor’s offices. If executive agency staff are 

aware of the linkages between utility regulatory 

and ratemaking policies, it may be more likely that 

executive agency energy goals can be fostered by 

successful utility energy efficiency and clean DG 

programs. Attaining state energy and environmental policy goals hinges in part on the extent to 

which incentive regulation efforts succeed. 

•	 Energy Efficiency Providers. Energy efficiency 

providers have a stake in incentive regulation initiatives. In some states, they contract with utilities 

to provide energy efficiency program implementation. In other states, energy efficiency providers 

such as Vermont’s “Efficiency Vermont” serve as 

the managing entity for delivering energy efficiency programs. 

•	 DG Developers. DG developers, like energy efficiency providers, are affected by any incentive regulation that reduces throughput incentives, since they 

are likely to be able to work more closely with 

utilities to target the locations that maximize the 

benefits that DG can bring by reducing distribution costs. 

•	 Utilities. Vertically integrated utilities and distribution or distribution-transmission-only utilities are 

affected to the greatest degree by incentive regulation, as their approved revenue collection mechanisms are at the heart of incentive regulation 

issues. Incentive regulation approaches differ in 

their impacts on utilities depending in part on the 

degree of restructuring present in a state. 

•	 Environmental Advocates. Energy efficiency and 

clean DG resources can provide low-cost environmental benefits, especially when targeted to locations requiring significant transmission and distribution investment. Environmental organizations 

can offer perspectives on using energy efficiency 

and clean DG as alternatives to supply-side 

options. 

•	 Other Organizations. Other organizations, including consumer advocates and third-party energy 

42	 The utility industry uses the term “shared savings” in several ways. Alternative meanings include, for example, the sharing of savings between an 

end user and a contractor who installs energy efficiency measures. Throughout this Guide to Action, “shared savings” refers to shareholder/ 

ratepayer sharing of benefits arising from implementation of cost-effective energy efficiency/DG programs that result in a utility obtaining economical energy efficiency/DG resources. 

� Section 6.2. Utility Incentives for Demand-Side Resources 6-29 
 

 

 

 

 

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efficiency and clean DG providers, can provide 

cost-effectiveness information as well as perspectives on other complementary policies. 

Interaction with Federal and 

State/Regional Policies 

Incentive regulation is closely intertwined with 

almost all state-level energy policy involving electric 

and gas utility service delivery, since it addresses the 

fundamental issue of establishing a means for a regulated utility provider to recover its costs. The following state policies will be affected by changing to 

a form of incentive regulation: 

•	 Integrated Resource Planning (IRP) and Portfolio 

Management Policies. These are an important complement to utility incentives because they provide 

vertically integrated utilities (through use of IRP) 

and distribution-only utilities (through use of portfolio management) with the long-term planning 

framework for identifying how much and what 

type of energy efficiency and clean DG resources to 

pursue. Without removing throughput disincentives, utilities undertaking IRP and portfolio management that include cost-effective energy efficiency and clean DG resources can lose revenue. 

•	 PBFs. Also known as system benefits charges 

(SBCs), PBFs may eliminate the need for (or provide another way of addressing) cost recovery. 

•	 PBR Mechanisms. PBR includes a host of mechanisms that can help achieve regulatory objectives. 

Many are tied to specific elements of ratemaking, 

such as price caps (i.e., a ceiling on the per unit 

rate charged for energy), revenue caps (i.e., a ceiling on total revenue), or revenue per customer 

caps. Typically, all PBR mechanisms are established 

with the goal of rewarding utility performance 

that results in superior customer service, reliability, 

or other measured outcome of utility company 

effort. Reducing the throughput disincentive is one 

important form of PBR, and if it is not addressed, 

the effectiveness of other aspects of PBR can be 

undermined. 

•	 Low-Income Weatherization. Low-income weatherization and other energy efficiency improvement 

programs target the consumer sector with the 

least incentive to invest in energy efficiency. A 

fundamental market failure exists, for example, in 

the landlord-tenant relationship where landlords 

are responsible for building investment (e.g., new 

boilers) but tenants are responsible for paying utility bills. The result is that least-first-cost, rather 

than least-life-cycle-cost appliances are often 

installed. As with any other energy efficiency program, a utility company’s incentive to see such 

programs succeed is reduced if overall profits 

remain linked to sales volume; thus, successful 

decoupling approaches can help to ensure lowincome weatherization program success. 

Best Practices: Designing Effective Incentive 

Regulations for Gas and Electric Utilities 

The best practices identified below will help states
 

develop effective incentive regulations to support
 

implementation of cost-effective energy efficiency and
 

DG programs.
 

•	 Survey the current regulatory landscape in your
 

state and neighboring states.
 

•	 Determine if and how energy efficiency and clean
 

DG are addressed in rate structures. In particular,
 

determine if traditional ratemaking formulas exist.
 

Do they create obstacles to promoting energy efficiency and clean DG?
 

•	 Gather information about potential incentive rate
 

designs for your state.
 

•	 Assemble key stakeholders and provide a forum for
 

their input on utility incentive options.
 

•	 Devise an implementation plan with specific time-


lines and objectives.
 

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Evaluation 

States are evaluating their decoupling activities to 

ensure program success. For example, independent 

evaluation of the Oregon initiative for Northwest 

Natural Gas included a summary of the program’s 

intentions, recognition that deviations from forecast 

usage affects the amount of fixed costs recovered, 

and acknowledgement that partial, rather than full, 

decoupling was attained. States are evaluating 

decoupling activities to ensure program success. The 

report stated that the program had reduced the 

“variability of distribution revenues” and “alter[ed] 

NW Natural’s incentives to promote energy efficiency” (Hansen and Braithwait 2005). 

California’s earlier decoupling policies (from 1982 to 

1996), combined with intensive utility-sponsored 

DSM activity, resulted in comprehensive program 

evaluation. Existing reports illustrate the impact of 

California’s decoupling during that period (Eto et al. 

1993). 

The following information is usually collected as part 

of the evaluation process to document additional 

energy efficiency or clean DG savings, customer rate 

impacts, and changes to program spending that arise 

due to changes to regulatory structures: 

• Utility energy efficiency and clean DG program 

expenditure and savings information. 

• Additional data on weather and economic conditions, to control for factors influencing retail sales 

other than program actions. 

• Rate changes occurring during the program, if any, 

such as those arising from use of a balancing 

mechanism. 

State Examples 

Numerous states previously addressed or are currently exploring electric and gas incentive mechanisms. 

Experiments in incentive regulation occurred through 

the mid-1990s but generally were overtaken by 

events leading to various forms of restructuring. 

There is renewed interest in incentive regulation due 

to recognition that barriers to energy efficiency still 

exist, and utility efforts to secure energy efficiency 

and clean DG benefits remain promising. States are 

looking to incentive mechanisms to remove barriers 

in order to meet the cost-effective potential of clean 

energy resources. 

California, Washington, Oregon, Maine, Maryland, 

Minnesota, New York, Idaho, Nevada, Massachusetts, 

Connecticut, New Hampshire, Rhode Island, New 

Mexico, and Arizona have had or are reviewing various forms of decoupling or incentive regulation, 

including performance incentive structures. The following state examples are listed in the approximate 

order of the extent to which decoupling mechanisms 

have been considered in the state. 

California 

California has recently re-adopted a revenue balancing mechanism that applies between rate cases 

and removes the throughput disincentive by allowing for rate adjustment based on actual electricity 

sales, rather than test-year forecast sales. The 

California Public Utility Commission (CPUC) established this mechanism to conform to a 2001 law 

that dictated policy in this area, stating that forecasting errors should not lead to significant overor under-collection of revenue. As a result, 

California public utilities are returning to largerscale promotion of energy efficiency through their 

DSM programs. Simultaneously, the CPUC is revising 

its policies to establish a common performance 

basis for energy efficiency programs that defer 

more costly supply-side investments. 

California’s rate policies are not new. Between 1983 

and the mid-1990s, California’s rate design included 

an ERAM, a decoupling policy that was the forerunner of today’s policy and the model for other balancing mechanisms implemented by other states during 

the early 1990s. The impact of the original ERAM on 

California ratepayers was positive, with a negligible 

effect on rates, and led to reduced rate volatility. 

Overall utility energy efficiency program efforts in 

California, along with state building and appliance 

energy efficiency programs, have reduced peak 

capacity needs by more than 12,000 megawatts 

(MW) and continue to save about 40,000 gigawatt­

� Section 6.2. Utility Incentives for Demand-Side Resources
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hours (GWh) per year of electricity (CEC and CPUC 

2005). 

California also implemented a shared-savings incentive mechanism in the 1990s. The CPUC authorized a 

70%/30% ratepayer/shareholder split of the net benefits arising from implementation of energy efficiency measures in the 1994–1997 time frame. This 

mechanism first awarded shareholder earnings 

bonuses based on measured program performance. 

Between 1998 and 2002, the performance incentive 

was changed to reward “market transformation” 

efforts by the utilities. The incentives were phased 

out after 2002, because of the state’s overhaul of its 

energy efficiency policies, but recent ongoing activity 

pursuant to an energy efficiency rulemaking process 

promises to revisit shareholder incentive structures. 

The CPUC continues to promote utility-sponsored 

energy efficiency efforts. A recent decision approves 

expenditures of $2 billion over the 2006–2008 time 

period for the four major California investor-owned 

utilities. These expenditures will contribute toward 

overall spending goals of $2.7 billion, with savings 

targeted at almost 5,000 peak MW, 23 terawatthours, and 444 million therms per year (cumulative 

through 2013). Under an ongoing rulemaking on 

energy efficiency policies, the CPUC is currently analyzing the risk/reward incentive structure that will 

apply over this time for the utilities. 

Web sites: 

http://www.cpuc.ca.gov/Published/ 

Final_decision/40212.htm (energy efficiency goals) 

http://www.cpuc.ca.gov/word_pdf/ 

FINAL_DECISION/30826.pdf (shared savings) 

http://www.cpuc.ca.gov/word_pdf/ 

FINAL_DECISION/49859.pdf (current energy efficiency program spending plans with reference to new 

incentive plans) 

Washington 

In the early 1990s, Washington’s Utility and 

Transportation Commission (WUTC) implemented 

incentive regulations for Puget Sound Power and 

Light by establishing a revenue-per-customer cap, a 

deferral account for revenues, and a reconciliation 

process. The mechanism lasted for a few years, but 

was phased out—without prejudice—a few years later 

when a package of alternative rate proposals was 

accepted. 

Puget’s “Periodic Rate Adjustment Mechanism” 

(PRAM) was successful in achieving “dramatic 

improvements in energy efficiency performance,” and 

according to the WUTC, it “achieved its primary 

goal—the removal of disincentives to conservation 

investment” (WUTC 1993). 

Washington held a workshop in May 2005 as part of 

a rulemaking to investigate decoupling natural gas 

revenues from sales volumes to eliminate disincentives to gas conservation and energy efficiency. 

Based on stakeholder feedback, the Utilities and 

Transportation Commission withdrew the rulemaking 

in favor of addressing decoupling through specific 

proposals (WUTC 2005). 

Web site: 

http://www.wutc.wa.gov/webimage.nsf/ 

6c548b093c5f816c88256efc00506bb6/ 

0e699dd89acd5b1888256fdd00681656! 

Oregon 

In September 2002, Oregon adopted a partial decoupling mechanism for one of its gas utilities, Northwest 

Natural Gas. The mechanism was established through 

a settlement process that established a price elasticity 

adjustment and a revenue deferral account, even 

though it did not fully decouple sales from profits. An 

evaluation found that the mechanism reduced, but did 

not completely remove, the link between sales and 

profits and that it “is an effective means of reducing 

NW Natural’s disincentive to promote energy efficiency” (Hansen and Braithwait 2005). 

In the past, Oregon adopted and then abandoned lost 

revenue and shared savings mechanisms for two 

larger utility companies, PacifiCorp and Portland 

General Electric (PGE). Lack of support from customer groups, new corporate owners after acquisition, and shifting of DSM implementation to the 

non-utility sector ended these efforts. 

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The history and outcome of the NW Natural case in 

Oregon demonstrates that incentive regulation must 

be designed to address a number of stakeholders and 

many related issues that have financial impacts on 

ratepayers. In its approval of the regulation, the 

Oregon Commission acknowledged that it was only a 

“partial decoupling mechanism,” but did recognize 

that decoupling allows for energy efficiency without 

harming shareholders (Oregon PUC 2002). 

Web site: 

http://apps.puc.state.or.us/orders/2002ords/ 

02%2D388.pdf (Northwest Natural Gas Order) 

Maine 

In 1991, the Maine PUC adopted a revenue decoupling mechanism for Central Maine Power (CMP) on a 

three-year trial basis. “Allowed” revenue was determined in a rate case proceeding and adjusted annually based on changes in the number of utility customers. CMP’s ERAM was not, however, a multi-year 

plan, so CMP was free to file a rate case at any time 

to adjust its “allowed” revenues. The mechanism 

quickly lost the support of major stakeholders in 

Maine due to a serious economic recession that 

resulted in lower sales levels. The lower sales levels 

caused substantial revenue deferrals that CMP was 

ultimately entitled to recover. CMP filed a rate case in 

October 1991 that would have increased rates at the 

time, but likely would have caused lower amounts of 

revenue deferrals. However, the rate case was withdrawn by agreement of the parties to avoid immediate rate increases during unfavorable economic times. 

By the end of 1992, CMP’s ERAM deferral had 

reached $52 million. The consensus was that only a 

very small portion of this amount was due to CMP’s 

conservation efforts and that the vast majority of the 

deferral resulted from the economic recession. Thus, 

ERAM was increasingly viewed as a mechanism that 

was shielding CMP against the economic impact of 

the recession, rather than providing the intended 

energy efficiency and conservation incentive impact. 

The situation was exacerbated by a change in the 

financial accounting rules that limited the amount of 

time that utilities could carry deferrals on their books. 

Maine’s experiment with revenue cap regulation 

came to an end on November 30, 1993, when ERAM 

was terminated by stipulation of the parties. 

This experience illustrates the temporal dimension of 

decoupling approaches; immediate rate increases can 

be perceived negatively. However, under traditional 

forms of regulation, declining consumption trends 

such as those associated with economic downturns 

can also result in a need to increase rates to allow 

for fixed cost recovery. 

Web site: 

http://www.state.me.us/mpuc/industries/electricity/ 

index.html (electric division of Maine PUC) 

Maryland 

The gas distribution side of Baltimore Gas and 

Electric (BG&E) and Washington Gas are each subject 

to a monthly revenue adjustment by the Maryland 

Public Service Commission. BG&E’s “Rider 8” and 

Washington Gas’ “Monthly Revenue Adjustment” 

(MRA) decouple weather and energy efficiency 

impacts from the revenue ultimately recovered by 

the gas companies. This decoupling mechanism 

achieves the aim of greater revenue stability for the 

gas companies, while preventing “over-recovery” 

from ratepayers during colder-than-normal heating 

seasons. The base revenue amount is set based on 

weather-normalized patterns of consumption, but 

monthly revenue adjustments are accrued based on 

actual revenues, and rates are adjusted monthly 

based on the accrued adjustments. 

The rate structure has been in place for seven years 

for BG&E and is new for Washington Gas. 

Web sites: 

http://www.energetics.com/madri/pdfs/ 

timmerman_101105.pdf (description by Maryland PSC 

Director of Rates and Economics) 

http://www.psc.state.md.us/psc/gas/ 

gasCommodity.htm (Maryland PSC gas commodity 

fact sheet) 

Minnesota 

Northern States Power, now Xcel Energy, petitioned 

the Minnesota PUC in 2004 for a partial decoupling 

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of its natural gas revenue requirement from sales, 

offering an annual true-up to rates to address 

reduced sales volume trends. In an approved offer of 

settlement, this portion of the company’s petition 

was withdrawn, without prejudice, over concerns of 

the evidence of declining gas usage and whether the 

Commission had the legal authority to approve such 

a rate structure change. 

Minnesota experimented with a lost revenue recovery approach in the 1990s, but terminated it in 1999 

in favor of a “shared savings” approach because of 

the cumulative impact of the lost revenues. Its 

shared savings incentive mechanism is similar to the 

approach used by Massachusetts, Connecticut, New 

Hampshire, and Rhode Island (see page 6-35), where 

utility incentives increase if energy efficiency targets 

are exceeded. 

Web site: 

http://www.xcelenergy.com/XLWEB/CDA/ 

0,3080,1-1-1_1875_1802_3576-15057-5_406_ 

652-0,00.html (gas decoupling information) 

New York 

In the 1990s, the New York Public Service 

Commission experimented with several different 

types of performance-based ratemaking, including 

revenue-cap decoupling mechanisms for Rochester 

Gas and Electric, Niagara Mohawk Power, and 

Consolidated Edison Company (ConEd) (Biewald et 

al. 1997). More recently, the Commission approved a 

joint proposal from all the stakeholders in a ConEd 

rate case that included significant increases in 

spending on DSM, a lost revenue adjustment mechanism, DSM program cost recovery through a PBF, and 

shareholder performance incentives. The Commission 

did not establish a decoupling mechanism, but left 

open the possibility to do so in another proceeding 

that is assessing DSM incentives for all New York 

utilities (NY PSC 2005). 

Web site: 

http://www.dps.state.ny.us/fileroom.html (CASE 04-E0572–Proceeding on Motion of the Commission as to 

the Rates, Charges, Rules and Regulations of ConEd 

of New York, Inc. for Electric Service) 

Idaho 

In May 2004, the Idaho PUC initiated a series of 

workshops to investigate the disincentives to energy 

efficiency that exist with traditional ratemaking. The 

Commission noted that disincentives are inherent in 

company-sponsored conservation programs and 

directed Idaho Power Company to examine balancing 

mechanisms and consider how much rate adjustment 

might be needed to remove energy efficiency investment disincentives. 

The workshops resulted in a recommendation to 

establish a pilot project to allow Idaho Power 

Company to recover fixed-cost losses associated with 

new construction energy efficiency programs. This 

“lost revenue” approach is an initial foray by Idaho 

into incentive mechanisms that could eventually 

include a broader, fixed-cost true-up mechanism as 

part of the next general rate case. 

Web site: 

http://www.puc.idaho.gov/internet/cases/summary/ 

IPCE0415.html (Idaho Power Company application, 

Commission Order, staff investigation documents) 

Nevada 

Nevada resurrected DSM efforts in 2001 in the wake 

of the California energy crisis. The two Nevada electric utilities recently participated in a DSM collaborative to obtain stakeholder input regarding the 

number and type of DSM programs, and have moved 

away from the strict Rate Impact Measure (RIM) Test 

to more lenient cost-effectiveness tests, allowing for 

greater DSM implementation. The Nevada IRP regulations include a shareholder performance incentive, 

whereby the electric utilities can place their DSM 

expenditures in rate base and earn the base rate of 

return on equity plus 5%. Nevada has not considered 

decoupling, in part because the state law appears to 

prevent balancing accounts for fixed cost recovery. 

Web sites: 

http://energy.state.nv.us/efficiency/default.htm 

(statewide conservation/efficiency resources) 

http://gov.state.nv.us/pr/2005/ 

PR_01-12ENERGY.htm (energy efficiency strategy) 

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Massachusetts, Connecticut, New 

Hampshire, and Rhode Island 

While Maine is the only New England state with a 

history of a decoupling mechanism, other New 

England states have adopted shareholder incentive 

regulations that reward utility shareholders by allowing earnings on DSM program expenditures, analogous to allowing a rate of return on fixed, or “rate 

base” assets such as wires, poles, and generators. In 

these states, different levels of incentives are granted depending on the level of efficiency savings seen 

with DSM programs, also known as “shared savings.” 

There are typically three levels of program savings 

defined, which align with three levels of incentives 

granted. A “threshold level” defines the minimum 

savings that must be reached for any shareholder 

incentives to apply. A “target” level incentive is based 

on the goals of the most recent energy efficiency 

plan, and an “exemplary” level of incentives is seen if 

savings beyond the target level (above a certain 

amount) is achieved. 

Web site: 

http://www.mass.gov/dte/restruct/competition/ 

index.htm#PERFORMANCE (Massachusetts 

Department of Telecommunications and Energy (DTE), 

Performance Based Ratemaking/Service Quality 

Proceedings) 

New Mexico and Arizona 

New Mexico and Arizona have recently undertaken 

legislative or regulatory efforts to address incentive 

regulation, although neither has an explicit decoupling policy in place. New Mexico’s energy efficiency 

legislation adopted earlier this year promotes and 

permits convenient cost recovery of both gas and 

electric utility DSM. In Arizona, the Southwest Gas 

Company has proposed a set of gas DSM programs in 

conjunction with decoupling sales from revenue. 

Web site: 

http://www.cc.state.az.us/ (Arizona Corporation 

Commission) 

What States Can Do 

States are leveling the playing field for demand-side 

resources through improved utility rate design by 

removing disincentives through decoupling or lost 

revenue adjustment mechanisms. These actions make 

it possible for utilities to recover their energy efficiency and clean DG program costs, and/or provide 

shareholder and company performance incentives. 

Key state roles include: 

•	 Legislatures. Legislative mandate is often not 

required to allow state commissions to investigate 

and implement incentive regulation reforms. 

However, legislatures can help provide the 

resources required by state commissions to effectively conduct such processes. Legislative mandates can also provide political support or initiate 

incentive regulation investigations if the commission is not doing so on its own. 

•	 Executive Agencies. Executive agencies can support state energy policy goals by recognizing the 

important role of regulatory reform in providing 

incentives to electric and gas utilities to increase 

energy efficiency and clean DG efforts. Their support can be important to encourage utilities or 

regulators concerned about change. 

•	 State Commissions. State regulatory commissions 

usually have the legal authority to initiate investigations into incentive regulation ratemaking, 

including decoupling. Commissions have the regulatory framework, institutional history, and technical expertise to examine the potential for decoupling and consider incentive ratemaking elements 

within the context of state law and policy. State 

commissions are often able to directly adopt 

appropriate incentive regulation mechanisms after 

adequate review and exploration of alternative 

mechanisms. 

� Section 6.2. Utility Incentives for Demand-Side Resources
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Action Steps for States 

States can take the following steps to promote 

incentive regulation for clean energy, as well as 

overall customer quality and lower costs: 

• Survey the current utility incentive structure to 

determine how costs are currently recovered, 

whether any energy efficiency programs and 

shareholder incentives are in place, and how energy efficiency and DG costs are recovered. 

• Review available mechanisms. 

• Review historical experience in the relevant states. 

• Open a docket on these issues. 

• Determine which incentive regulation tools might 

be appropriate. 

• Engage commissioners and staff and find consensus solutions. 

6-36 � Chapter 6. Utility Planning and Incentive Structures
 
 

 

 

EPA Clean Energy-Environment Guide to Action 

Information Resources 

State and Regional Information on Incentive Regulation Efforts 

State Title/Description URL Address 

California Background and historical information on CPUC shared savings mechanism in the mid-1990s and general energy efficiency policies. 

http://www.cpuc.ca.gov/Published/ 

Final_decision/30826.htm 

California Energy Commission (CEC). http://www.energy.ca.gov/ 

California’s “Energy Action Plan II,” an implementation 

roadmap for California energy policies. 

http://www.cpuc.ca.gov/PUBLISHED/ 

REPORT/49078.htm 

CPUC. http://www.cpuc.ca.gov/static/index.htm 

CPUC current rulemaking on energy efficiency policies. http://www.cpuc.ca.gov/static/energy/ 

electric/energy+efficiency/rulemaking/ 

docs_inr0108028.htm 

CPUC Decision establishing energy savings goals for energy 

efficiency program years 2006 and beyond. September 23, 2004. 

http://www.cpuc.ca.gov/Published/ 

Final_decision/40212.htm 

CPUC Decision on energy efficiency spending—phase I. 

September 22, 2005. 

http://www.cpuc.ca.gov/PUBLISHED/ 

FINAL_DECISION/49859.htm 

Colorado House Bill 1147 addresses funding and cost recovery mechanism for natural gas energy efficiency. 

http://www.leg.state.co.us/clics2006a/ 

csl.nsf/fsbillcont3/CCC36D78DB009296872 

570CB006CBA70?open&file=1147_01.pdf 

Idaho Idaho PUC, Case No. IPC-E-04-15. Idaho Power—Investigation 

of Financial Disincentives. This Web site summarizes regulatory 

proceedings and workshop results regarding the Commission’s 

investigation of financial disincentives to energy efficiency programs for Idaho Power under Case No. IPC-E-04-15. 

http://www.puc.idaho.gov/internet/cases/ 

summary/IPCE0415.html 

Maryland Maryland PUC, Gas Commodity Rate Structure reference. http://www.psc.state.md.us/psc/gas/ 

gasCommodity.htm 

Mid-Atlantic 

Distributed 

Resources Initiative 

(MADRI) 

MADRI is developing a model rule, called the Electric Utility 

Revenue Stability Adjustment Factor, to reduce a utility's 

throughput incentive. 

http://www.energetics.com/madri/ 

Oregon Oregon PUC, Order on NW Natural Gas Decoupling. This 

order reauthorized deferred accounting for costs associated 

with NW Natural Gas Company’s conservation and energy 

efficiency programs. 

http://apps.puc.state.or.us/orders/2002ords/ 

02%2D388.pdf 

Washington WUTC, Natural Gas Decoupling Investigation. This Web site 

describes the Commission’s action to investigate decoupling 

mechanisms to eliminate disincentives to gas conservation 

and energy efficiency programs. 

http://www.wutc.wa.gov/webimage.nsf/ 

6c548b093c5f816c88256efc00506bb6/ 

0e699dd89acd5b1888256fdd00681656 

General The Regulatory Assistance Project (RAP) has published several reports on decoupling and financial incentives. 

http://www.raponline.org 

� Section 6.2. Utility Incentives for Demand-Side Resources
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EPA Clean Energy-Environment Guide to Action
 

General Articles and Web Sites About Utility Incentives for Demand-Side 

Resources 

Title/Description URL Address 

Barriers to Energy Efficiency. This presentation identifies barriers to energy efficiency programs, describes differences between lost base revenue adjustments and 

revenue decoupling as ways to remove such barriers, and presents other solutions 

for consumer advocates and regulators to further promote energy efficiency. 

http://www.raponline.org/Slides/ 

MACRUCEnergyEfficiencyBarriersWS% 

2Epdf 

Breaking the Consumption Habit: Ratemaking for Efficient Resource Decisions. This 

Natural Resources Defense Council (NRDC) article from The Electricity Journal 

(December 2001) describes the concept and history of decoupling mechanisms and 

calls for re-examination of the mechanisms in order to remove disincentives to 

deployment of distributed energy resources under the restructured electric industry. 

http://www.nrdc.org/air/energy/ 

abreaking.asp 

Clean Energy Policies for Electric and Gas Utility Regulators. This article examines 

policy options for distributed energy resources (e.g., EE/RE and DG) and rate design, 

and also discusses the importance of regulatory financial incentives to support dissemination of distributed energy resources. 

http://www.raponline.org/Pubs/IssueLtr/ 

RAPjan2005.pdf 

Decoupling and Public Utility Regulation (publication no. NRRI 94-14). Graniere, R. 

and A. Cooley. National Regulatory Research Institute. August 1994. This report 

explores the relationship between decoupling and public utilities regulation. One of 

the conclusions is that decoupling could preserve the financial integrity of the utility 

and protects the environment, but at the cost of a high probability of periodic 

increases of electricity prices. 

http://www.nrri.ohio-state.edu/phpss113/ 

search.php?focus=94-14&select= 

Publications 

Decoupling vs. Lost Revenue: Regulatory Considerations. Moskovitz D., 

C. Harrington, T. Austin. May 1992. This article identifies characteristics and distinctions between decoupling and lost revenue recovery mechanisms and concludes 

that decoupling is preferable because unlike the lost-base revenue approach, 

decoupling removes the utilities’ incentive to promote new sales and does not provide utilities with an incentive to adopt ineffective DSM programs. 

http://www.raponline.org/Pubs/General/ 

decoupling.pdf 

Financial Disincentives to Energy Efficiency Investment. Direct Testimony of Ralph 

Cavanagh, NRDC, Wisconsin, 2005. This testimony identifies financial disincentives 

to the Wisconsin Power and Light Company’s cost-effective energy efficiency programs and identifies solutions. 

http://psc.wi.gov/apps/erf_search/ 

default.aspx 

(PSC Ref.# 31965, filed April 4, 2005) 

Joint Statement of NRDC and American Gas Association on Utility Incentives for 

Energy Efficiency. This statement identifies ways to promote both economic and 

environmental progress by removing barriers to natural gas distribution companies’ 

investments in urgently needed and cost-effective resources and infrastructure. 

http://www.aga.org/Content/ContentGroups/ 

Rates/AGANRDCJointStatement.pdf 

Link to All State Utility Commission Web sites. This NARUC Web site provides links 

to all state utility commission sites. 

http://www.naruc.org/ 

displaycommon.cfm?an=15 

Southwest Energy Efficiency Project (SWEEP). SWEEP is a nonprofit organization 

promoting greater energy efficiency in Southwest states. 

http://www.swenergy.org/ 

6-38 � Chapter 6. Utility Planning and Incentive Structures
 
 

 

EPA Clean Energy-Environment Guide to Action
 

References
 

Title/Description URL Address 

Bachrach, D., S. Carter and S. Jaffe, “Do Portfolio Managers Have an Inherent 

Conflict of Interest with Energy Efficiency?” The Electricity Journal, Volume 17, 

Issue 8, October 2004, pp. 52-62. 

http://www.neep.org/policy_and_outreach/ 

ACEEEStudy.pdf 

Biewald, B., T. Woolf, P. Bradford, P. Chernick, S. Geller, and J. Oppenheim. 1997. 

Performance-Based Regulation in a Restructured Electric Industry. Prepared for 

the National Association of Regulatory Utility Commissioners (NARUC) by Synapse 

Energy Economics, Inc., Cambridge, MA. November 8. 

http://www.synapse-energy.com/ 

Downloads/pbr-naruc.doc 

CEC and CPUC. 2005. CEC and CPUC. Draft Energy Action Plan II, Implementation 

Roadmap For Energy Policies. July 27. 

http://www.energy.ca.gov/ 

energy_action_plan/ 

2005-07-27_EAP2_DRAFT.pdf 

Colorado Legislature. 2006. Colorado House Bill 06-1147. http://www.leg.state.co.us/clics2006a/csl.nsf/ 

fsbillcont3/CCC36D78DB009296872570CB00 

6CBA70?open&file=1147_01.pdf 

Eto, J., S. Stoft, and T. Beldon. 1993. The Theory and Practice of Decoupling. LBL34555. Lawrence Berkeley National Laboratory (LBNL). January. 

http://eetd.lbl.gov/EA/EMP/reports/ 

34555.html 

Hansen, D.G. and S.D. Braithwait. 2005. Christensen Associates. A Review of 

Distribution Margin Normalization as Approved by the Oregon PUC for Northwest 

Natural. March. 

Contact: 

Christensen Associates 

Energy Consulting, LLC 

4610 University Avenue, Suite 700 

Madison, Wisconsin 53705-2164 

Phone: 608-231-2266 

Fax: 608-231-2108 

Mosovitz, D., C. Harrington, and T. Austin. 1992. Decoupling vs. Lost Revenue: 

Regulatory Considerations. Other decoupling/financial incentives information. RAP, 

Gardiner, ME. May. 

http://www.raponline.org/Pubs/General/ 

decoupling%2Epdf 

NY PSC. 2005. Case 04-E-0572. Proceeding on Motion of the Commission as to the 

Rates, Charges, Rules, and Regulations of ConEd, Order Adopting a Three-Year 

Rate Plan. March 24. New York PSC. 

http://media.corporate-ir.net/media_files/nys/ 

ed/Three-YearRateplan-3-24-05.pdf 

Oregon PUC. 2002. Order No. 02-634, Application for Public Purposes Funding and 

Distribution Margin Normalization. Oregon PUC. September 12. 

http://apps.puc.state.or.us/ 

Click on Orders, View Orders 2000 to Current, 

List Orders for 2002, Order No. 02-634. 

PG&E et al. 2003. Motion of Pacific Gas and Electric Company, Office of Ratepayer 

Advocates, The Utility Reform Network, Aglet Consumer Alliance, Modesto 

Irrigation District, Natural Resources Defense Council and the Agricultural Energy 

Consumers Association for Approval of Settlement Agreement. A.02-11-017 et al. 

San Francisco, California. PG&E. September 15. Attachment A, p. 17. 

http://www.cpuc.ca.gov/proceedings/ 

A0211017.htm 

WUTC. 1993. WUTC, Docket Nos. UE-901183-T and UE-901184-P. Puget Sound Power & 

Light Company. Petition for order approving periodic rate adjustment mechanism and 

related accounting, Eleventh Supplemental Order. September 21. WUTC Web site. 

http://www.wutc.wa.gov/rms2.nsf?Open 

Click “docket number” on the left side and 

search the docket numbers. 

WUTC. 2005. Washington Utilities and Transportation Commission Web Site. UTC 

closes rulemaking for natural gas decoupling to increase conservation investment. 

October 17. 

http://www.wutc.wa.gov/webimage.nsf/6c548 

b093c5f816c88256efc00506bb6/0e699dd89a 

cd5b1888256fdd00681656 

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6.3 Emerging Approaches: 

Removing Unintended Utility 

Rate Barriers to Distributed 

Generation 

Policy Description and Objective 

Summary 

The unique operating profile of clean energy supply 

projects (i.e., renewable and combined heat and 

power [CHP])43 may require different types of rates 

and different rate structures. However, if not properly 

designed, these additional rates and charges can create unnecessary barriers to the use of renewables 

and CHP. Appropriate rate design is critical to allow 

for utility cost recovery while also providing appropriate price signals for clean energy supply. 

Customer-sited clean energy supply projects are usually interconnected to the power grid and may purchase electricity from or sell to the grid. Electric utilities typically charge these customers special rates 

for electricity and for services associated with this 

interconnection. These rates include exit fees, standby rates, and buyback rates. For more information on 

interconnection, see Section 5.4, Interconnection 

Standards. 

As with interconnection, states can play an important role in balancing the utility’s need to recover 

costs for services provided against the clean energy 

project’s benefits in the form of grid congestion 

relief, reliability enhancement, and emissions reductions. States are finding that strategically sited clean 

energy supply can be a lower-cost way to meet 

growing demand, particularly in grid-congested 

areas. 

The charges for services provided to interconnected 

clean energy projects, the price paid for electricity 

The state public utility commission (PUC), in 

setting appropriately designed electric and 

natural gas rates, can support clean distributed generation (DG) projects and avoid 

unnecessary barriers, while also providing 

appropriate cost recovery for utility services 

on which consumers depend. 

sold to the grid, and the basic design of electric utility rates can have a significant effect on a project’s 

economic viability. To illustrate, a 1.4 megawatt 

(MW) CHP project’s savings can range from $161,000 

to $125,000 per month ($432,000 annual savings 

differential), depending on the rate structures (see 

Figure 6.3.1). This can make or break a project’s 

profitability. 

Interconnection with the grid can serve a variety of 

different needs that have potential rate impacts. 

Depending on the specific renewable energy/CHP 

system design, operating conditions, and the load 

requirements of the end user, the onsite clean energy 

Figure 6.3.1: Effect of Rate Structure on Electric 

Savings Revenue for 1.4 MW CHP Project Electricity Savings ($000/mo)

$100 

$80 

$60 

$40 

$20

 $0 

$180 

$160 

$140 

$120 

$161 

$138 

$135 

$125 

Basic Energy Declining Block Basic Demand Demand w/Ratchet 

Type of Rate Structure 

Source: EEA 2005. 

43	 Unless otherwise stated, this document refers to smaller-scale, customer-sited DG, not large wind farms or large merchant electricity generators 

using CHP. These large renewable and CHP systems interact with the electric grid more like central station plants and have different rate and grid 

interaction issues than the technologies addressed here. 

6-40 � Chapter 6. Utility Planning and Incentive Structures 
 

EPA Clean Energy-Environment Guide to Action
 

system may provide anywhere from zero to greater 

than 100% of the end user’s electricity needs at any 

given moment. When the unit produces less than the 

customer’s full electricity requirements, power from 

the grid is used to supplement (or supply in full) the 

customer’s electricity need. If the system produces 

more than is required by the customer, it may be 

able to export power back to the grid and receive 

payment in return. 

In nearly all clean energy supply installations—even 

those sized to serve the customer’s full electric 

load—grid power may be needed at times due to a 

forced outage, planned maintenance outage, or a 

shut-down for economic reasons. Purchasing power 

from the grid for these purposes is usually more 

cost-effective than providing redundant onsite generation. Utilities typically charge special rates to provide this service, generically known as “standby 

rates.” Some utilities charge energy users an exit fee 

when they reduce or end their use of electricity from 

the grid. 

In addition to electric rates, if natural gas is used to 

fuel the CHP unit, gas rates will also affect the CHP 

system economics. All of these rates can have a critical effect on the viability of clean energy projects 

and can be addressed by states. 

Rates Background 

Under conventional electric utility ratemaking, electricity suppliers are paid largely according to the 

amount of electricity they sell. If customers purchase 

less electricity due to onsite generation projects (or 

energy efficiency projects), the utility has less 

income to cover its fixed costs. Utilities have applied 

a variety of rates to recover reduced income due to 

end-use efficiency, onsite generation, or other 

changes in customer operation or mix. States have 

begun exploring whether these alternative rates and 

charges are creating unanticipated barriers to the 

use of clean energy supply. 

These concerns and other results of electric restructuring have triggered new proposals for rate designs 

that “decouple” utility profits from sales volume. One 

category of such approaches is “performance-based” 

rates, which base the utility’s income on its efficiency, rather than simply sales volume. This is one of 

several strategies that states are applying to avoid 

undue barriers and to provide appropriate price signals for renewable and CHP projects that balance the 

rate impacts on utilities with the societal benefits 

(including electric grid benefits) of renewable and 

CHP generation. For more information on decoupling 

utility profits from electric sales, see Section 6.2, 

Utility Incentives for Demand-Side Resources. 

Some of the specific rate issues that states are 

addressing include: 

•	 Exit Fees. When facilities reduce or end their use 

of electricity from the grid, they reduce the utility’s revenues that cover fixed costs on the system. 

The remaining customers may eventually bear 

these costs. This can be a problem if a large customer leaves a small electric system. Exit (or 

stranded asset recovery) fees are typically used 

only in states that have restructured their electric 

utility. To avoid potential rate increases due to the 

load loss, utilities sometimes assess exit fees on 

departing load to keep the utility whole without 

shifting the revenue responsibility for those costs 

to the remaining customers. 

States may wish to explore whether other methods exist to make utilities whole. Because many 

factors affect utility rates and revenues (e.g., customer growth, climate, fuel prices, and overall 

economic conditions), it does not naturally follow 

that any reduction in load will necessarily result in 

cost increases. 

Some states that have restructured their electric 

industry have imposed exit fees as a means to 

assure recovery of a special category of historic 

costs called “stranded costs or stranded asset 

recovery.” In some states, such as Texas, these 

“competitive transition charges” have expired as 

the restructuring process is completed. States have 

exempted CHP and renewable projects from these 

exit fees to recognize the economic value of these 

projects, including their grid congestion relief and 

reliability enhancement benefits. For example, 

� Section 6.3. Emerging Approaches: Removing Unintended Utility Rate Barriers to Distributed Generation
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EPA Clean Energy-Environment Guide to Action 

Massachusetts and Illinois exempted some or all 

CHP projects from their stranded cost recovery 

fees. 

•	 Standby and Related Rates. Facilities that use 

renewables or CHP usually need to provide for 

standby power when the system is unavailable due 

to equipment failure, during periods of maintenance, or other planned outages. 

Electric utilities often assess standby charges on 

onsite generation to cover the additional costs 

they incur as they continue to provide adequate 

generating, transmission, or distribution capacity 

(depending on the structure of the utility) to supply onsite generators when requested (sometimes 

on short notice). The utility’s concern is that the 

facility will require power at a time when electricity is scarce or at a premium cost and that it must 

be prepared to serve load during such extreme 

conditions. 

The probability that any one generator will require 

standby service at the exact peak demand period 

is low and the probability that all interconnected 

small-scale DG will all need it at the same time is 

even lower. Consequently, states are exploring 

alternatives to standby rates that may more accurately reflect these conditions. 

States are looking for ways to account for the 

normal diversity within a load class44 and consider 

the probabilities that the demand for standby 

service will coincide with peak (high-cost) hours 

versus the benefits that CHP and renewables provide to the system. 

•	 Buyback Rates. Renewable and CHP projects may 

have electricity to sell back to the grid, either 

intermittently or continuously. The payment 

received for this power can be a critical component of project economics. The price at which the 

utility is willing to purchase this power can vary 

widely. It is also affected by federal and state 

requirements. 

The Public Utilities Regulatory Policy Act (PURPA) 

sets standards for buyback rates at the utility’s 

avoided cost (i.e., the cost of the next generating 

resource available to the utilities). When large 

renewable or CHP generators have open access to 

wholesale electricity markets, they usually have 

access to competitive markets for both appropriate 

sales and purchase of electricity, including standby 

services. These markets usually include the value 

of both the energy and transmission, whereas the 

latter is usually not included in regulated rates. In 

regulated markets, states are responsible for helping generators and utilities establish appropriate 

buyback rates. 

Net metering regulations allow small generators 

(typically renewable energy up to 100 kW)45 a 

guaranteed purchase for their excess generation at 

a distribution utility’s retail cost. While this price 

is higher than the utility’s wholesale cost of electricity, it also includes the cost of delivery and is 

typically seen as a reasonable rate for small generators. Net-metering programs typically also 

address interconnection in a simple way, which is 

appropriate for small renewable projects. (For 

more information on net metering, see Section 5.4, 

Interconnection Standards.) 

•	 Gas Rates for CHP Facilities. Some states, including 

New York and California, have established special 

favorable natural gas rates for CHP facilities. For 

example, New York has frozen gas rates for DG 

facilities until at least 2007 to provide economic 

certainty to developers. 

State Objectives 

A key state PUC objective is to ensure that consumers receive reliable power at the lowest cost. In 

approving rates, the PUC can support renewable and 

CHP projects and avoid unanticipated barriers, while 

also providing appropriate cost recovery for the utility services on which consumers depend. 

44	 For example, some industrial facilities run three shifts per day while others only run one shift per day. This would lead to a three-fold disparity 

between peak and minimum power demand in two otherwise identical facilities. 

45 Note that the definition of a renewable resource varies by state. 

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Benefits 

Appropriately designed rates can promote the development of CHP and renewables, leading to enhanced 

reliability and economic development while protecting utility ratepayers from excessive costs. 

The benefits of increasing the number of clean DG 

projects include expanding economic development, 

reducing peak electrical demand, reducing electric 

grid constraints, reducing the environmental impact 

of power generation, and helping states achieve success with other clean energy initiatives. The application of DG in targeted load pockets can reduce grid 

congestion, potentially deferring or displacing more 

expensive transmission and distribution infrastructure investments. A 2005 study for the California 

Energy Commission (CEC) found that strategically 

sited DG yields improvements to grid system efficiency and provides additional reserve power, deferred 

costs, and other grid benefits (Evans 2005). Increased 

use of clean DG can slow the growth-driven demand 

for more power lines and power stations. 

States with Existing Rates for 

Renewables or CHP 

As of early 2005, several states have evaluated or 

have begun to evaluate utility rate structures and 

have made changes to promote CHP and renewables 

as part of their larger efforts to support costeffective clean energy supply as an alternative to 

expansion of the electric grid. This type of work is 

typically conducted by the state PUC through a formal process (docket or rulemaking) that allows input 

from all stakeholders. 

California and New York have established revised 

standby rate structures that are more favorable to 

CHP and renewables. Another state has found that 

designing a standby rate structure that bases the 

charges on the onsite generator’s capacity rather 

than the amount of capacity supplied (thus creating 

a high charge even if there is no outage) has resulted 

in a dramatic decline in the number of CHP projects 

proposed where this rate exists. 

Some states have incorporated exit fee exemptions 

into their electric restructuring programs for existing 

loads that leave a utility’s distribution system. For 

example, Illinois, Massachusetts, and New York allow 

certain exit fee exemptions for loads that are 

replaced by clean onsite generation, specifically CHP 

and renewables. 

More than 30 states have net metering regulations 

that provide a guaranteed purchase of small generators’ excess generation at the distribution utility’s 

retail cost. 

Two states have established special gas rates for 

electric generators, including CHP projects. California 

has implemented special gas tariffs for all electric 

generators. In 2003, the New York Public Service 

Commission (PSC) ordered natural gas companies to 

create a rate class specifically for DG users and certify that they had removed rate-related barriers to DG. 

Designing Fair and Reasonable 

Utility Rates for Clean Energy 

Supply 

States consider a number of key elements as they 

develop new strategies that ensure utility rates allow 

renewables and CHP to complete on a level playing 

field and that recognize their benefits while providing a reliable electric system for consumers and adequate cost recovery for utilities. 

Participants 

•	 State PUC. Rates typically are approved by the 

state PUC during a utility rate filing or other related filing. The PUC staff are the focal point for 

evaluating costs and benefits to generators, utilities, consumers, and society as a whole. Many 

PUCs conduct active rate reviews in order to 

maintain consistency with changing policy priorities. 

•	 Utilities. Utilities play a critical role in rate-setting. 

Their cost recovery and overall economic focus 

have historically revolved around volumetric rates 

that reward the sale of increased amounts of electricity. Anything that reduces electricity sales 

� Section 6.3. Emerging Approaches: Removing Unintended Utility Rate Barriers to Distributed Generation
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(including clean DG, energy efficiency, and departing load) also reduces utility income and may 

make it more difficult to cover fixed costs if the 

fixed components of existing tariffs are not calculated to match utility fixed costs. This creates a 

disincentive for utilities to support such projects. 

New ways of setting rates (e.g., decoupling or performance-based rates) can make utility incentives 

consistent with those of clean energy developers 

and policymakers. (For more information on policies that can serve as utility incentives for clean 

energy, including decoupling utility profits from 

electric sales, see Section 6.2, Utility Incentives for 

Demand-Side Resources.) 

•	 Renewable Energy and CHP Project Developers. 

Project developers establish the benefits of clean 

technology and the policy reasons for developing 

rates that encourage their application. They participate in rulemakings and other proceedings, 

where appropriate. 

•	 Regional Transmission Organizations (RTOs) or 

Independent System Operators (ISOs). While not 

directly involved in utility rate-setting, these entities manage electricity infrastructure in some 

regions of the country. They interact with CHP and 

renewable generators and may also be involved in 

ratemaking discussions. 

•	 State Energy Offices, Energy Research and 

Development Agencies, and Economic Development 

Authorities. These state offices often have an 

interest in encouraging renewables and CHP as a 

strategy to deliver a diverse, stable supply of reasonably priced electricity. They may be able to provide objective data on actual costs and help balance many of the issues that must be addressed. 

•	 Current and Future Energy and CHP Users. Energy 

users have a considerable stake in the rates discussion. In some states, users are encouraged by 

the PUC to participate in utility hearings. They can 

also provide input on required rates and technical 

requirements and help recommend policies to 

accommodate utility needs. 

Interaction with Federal Policies 

PURPA Sec. 210 regulates interactions between electric utilities and renewable/CHP generators that are 

Qualifying Facilities (QFs).46 PURPA played a role in 

structuring these relationships, most notably in 

developing the concept of rates based on avoided 

cost. In noncompetitive markets, QF status may be 

the only option for non-utility generators to participate in the electricity market. 

Interaction with State Policies 

Designing utility rates to support clean energy can 

be coordinated with other state policies. 

• Ratemaking issues are often closely tied to a 

state’s electric restructuring status. For example, 

exit fees typically exist only in restructured states. 

When generators have open access to electric 

markets, they can often provide for their own 

standby services through the market. This is especially true for larger generators that can negotiate 

market rates. 

• States have explored decoupling utility returns 

from the volume of electricity sold. This issue 

addresses the basic divergence of interest between 

utilities and onsite generators and can be very 

important when examining rates for clean DG. (For 

more information on decoupling, see Section 6.2, 

Utility Incentives for Demand-Side Resources.) 

• If a renewable portfolio standard (RPS) and/or a 

public benefits fund (PBF)/clean energy fund are in 

place, unreasonable standby rates and exit fees 

may unintentionally hamper their success by rendering clean energy projects uneconomical. (See 

Section 5.1, Renewable Portfolio Standards, and 

Section 5.2, Public Benefits Funds for State Clean 

Energy Supply Programs). 

46	 A qualifying facility is a generation facility that produces electricity and thermal energy and meets certain ownership, operating, and efficiency criteria established by the Federal Energy Regulatory Commission (FERC) under PURPA. 

6-44 � Chapter 6. Utility Planning and Incentive Structures 
 

 

 

 

EPA Clean Energy-Environment Guide to Action
 

• States may consider working with utilities to offer 

credits to customer-sited clean energy supply in 

areas of high grid congestion. This can be the 

most cost-effective strategy to reduce chronically 

high congestion costs. 

Program Implementation and 

Evaluation 

Addressing rate issues requires different solutions 

depending on the status of electricity restructuring 

in each state and other characteristics of the local 

generating mix and regulatory situation. This section 

describes some of the issues that states have considered as they undertake the task of developing rates 

that support clean energy technologies. 

Administering Body 

Rate-appropriate decisions are almost always within 

the purview of a state’s PUC. However, many state 

PUCs do not regulate municipal and cooperative utilities standby rates. (Vermont is an example of a state 

where PUCs do regulate municipal utilities standby 

rates.) While PUCs are familiar with many of the traditional rate issues, some states are beginning to 

explore new approaches to balance rate reasonableness with utility cost recovery, particularly for clean 

energy supply. 

Key Issues in Ensuring Rate Reasonableness 

• States are attempting to ensure that rates are 

based on accurate measurement of costs and benefits of clean DG, and further that such costs and 

benefits are distinct from those already common to 

the otherwise applicable rate classification. For 

example, California has funded a study that investigates whether DG, demand response, and localized 

reactive power sources enhance the performance of 

an electric power transmission and distribution system. This report presents a methodology to determine the characteristics of distributed energy 

resource projects that enhance the performance of 

a power delivery network and quantify the potential 

benefits of these projects (Evans 2005). 

Best Practices: Implementing Rates to Support 

CHP and Renewable Energy 

The following best practices, based on state experiences, can help states implement rates that support 

CHP and renewable energy. 

•	 Ensure that state PUC commissioners and staff have 

current and accurate information regarding the rate 

issues for CHP and renewables and their potential 

benefits for the generation system. These new technologies may not have been considered for rates 

that were developed before the more widespread 

application of renewable energy and CHP. 

•	 Open a generic PUC docket to explore the actual 

costs and system benefits of onsite clean energy 

supply and rate reasonableness, if these issues 

cannot be addressed under an existing open docket. 

•	 Coordinate with other state agencies that can lend 

support. State energy offices, energy research and 

development offices, and economic development 

offices can be important sources of objective data 

on actual costs and benefits of onsite generation. 

• States may wish to explore ways to ensure that 

the benefits of clean DG that can accrue to the 

upstream electricity grid are reflected in rates. 

These benefits include increased system capacity, 

potential deferral of transmission and distribution 

(T&D) investment, reduced system losses, improved 

stability from reactive power, and voltage support. 

In restructured states, these benefits may be 

external to the regulated utility, but it is important 

that rates capture these elements to ensure optimum capital allocation by both regulated and 

unregulated parties. 

• States conduct annual program evaluation of the 

value of standby rates in encouraging CHP. Such 

rigorous program evaluation may impose costs and 

resource requirements on state PUCs. 

� Section 6.3. Emerging Approaches: Removing Unintended Utility Rate Barriers to Distributed Generation
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EPA Clean Energy-Environment Guide to Action
 

State Examples 

Exit Fees 

California 

There are several types of exit and transition fees in 

the California market, and they are handled differently depending on the specific utility. Fee exemptions exist for various classes of renewable and CHP 

systems, including: 

• Systems smaller than 1 MW that are net metered 

or are eligible for California Public Utilities 

Commission (CPUC) or CEC incentives for being 

clean and super-clean. 

• Ultra-clean and low-emission systems that are 1 

MW or greater and comply with California Air 

Resources Board (CARB) 2007 air emission standards. 

• Zero emitting, highly efficient (> 42.5%) systems 

built after May 1, 2001. 

Illinois 

In Illinois, a utility can assess exit fees for stranded 

costs until December 31, 2006. The rule is fairly 

stringent and specific about the instances that trigger this fee. The rule does, however, provide an 

exemption for DG and CHP. A departing customer’s 

DG source must be sized to meet its thermal and 

electrical needs with all production used on site. 

Web site: 

http://www.ilga.gov/legislation/ilcs/ilcs4.asp? 

DocName=022000050HArt%2E+XVI&ActID=1277& 

ChapAct=220%26nbsp%3BILCS%26nbsp%3B5%2F& 

ChapterID=23&ChapterName=UTILITIES&SectionID= 

21314&SeqStart=40500&SeqEnd=45100&ActName= 

Public+Utilities+Act%2E 

Massachusetts 

In Massachusetts, exit fees can be assessed for DG 

applications greater than 60 kilowatts (kW). Renewable 

energy technologies and fuel cells are exempt, regardless of their power rating. Massachusetts’ restructuring 

law, however, specifically provides that distribution 

companies cannot charge exit fees to renewable or DG 

facilities unless certain conditions are met. These specified conditions include a prerequisite that the utility 

must see a “significant” revenue loss from non-utility 

generation. “Significant” is not defined and has led to 

unnecessary tension between utilities and DG users on 

issues of meter ownership and generator performance 

reporting. 

Web site: 

http://www.magnet.state.ma.us/dpu/restruct/ 

96-100/cmr11-2.pdf 

Standby Rates 

California 

California Senate Bill 28 1X (passed in April 2001) 

requires utilities to provide DG customers with an 

exemption from standby reservation charges. The 

exemptions apply for the following time periods: 

• Through June 2011 for customers installing CHPrelated generation between May 2001 and June 

2004. 

• Through June 2006 for customers installing nonCHP applications between May 2001 and 

September 2002. 

• Through June 2011 for “ultra-clean” and lowemission DG customers 5 MW and less installed 

between January 2003 and December 2005. 

California utilities submitted DG rate design applications in September 2001. A docket was opened to 

allow parties to file comments on the utility’s proposals in October and November 2001. After a year, 

the CPUC decided to incorporate rate design proposals into utility rate design proceedings. Each utility’s 

rate case is different, but in general, the rate design 

includes a contracted demand with high fixed 

charges. 

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New York 

In July 2003, the New York PSC voted to approve 

new standby rates for utilities’ standby electric delivery service to DG customers and standby service to 

independent wholesale electric generating plants 

that import electricity as “station power” to support 

their operations (NYPSC Case 99-E-1470).47 A key 

consideration was for the rates to result in onsite 

generation running when it is less expensive than 

purchasing power from the grid. 

Under the guidelines previously adopted by the New 

York PSC, standby rates are expected to reflect a 

more cost-based rate design that avoids relying on 

the amount of energy consumed (per-kilowatt-hour, 

or kWh) to determine the charges for delivery service. Instead, the new rates recognize that the costs 

of providing delivery service to standby customers 

should more accurately reflect the size of the facilities needed to meet a customer’s maximum demand 

for delivery service at any given time. This varies not 

with the volume of electricity delivered, but primarily 

with the peak load (per-kilowatt) that must be delivered at any particular moment. 

For certain categories of standby customers, the New 

York PSC voted to approve a series of options for the 

transition to the new rate structure. Specifically, preexisting DG customers are offered two options. They 

can either shift immediately to the new standby rate 

or continue under the existing rate for four years and 

then phase into the standby rate over the next four 

years. Because the new rates align the customer cost 

with the potential benefit of onsite power to the 

grid, there are some cases in which it is more favorable for customers to opt in to the new rates, which 

also provide greater reliability to the grid. 

Recognizing the environmental benefits of certain 

energy sources, customers that begin DG operations 

between August 1, 2003, and May 31, 2006, and use 

certain environmentally beneficial technologies or 

small CHP applications of less than 1 MW, can 

choose among three options. They can elect to 

remain on the current standard rate indefinitely, shift 

immediately to the new standby rate, or opt for a 

five-year phase-in period beginning on the effective 

date of the new standby rates. 

Web site: 

http://www3.dps.state.ny.us/pscweb/ 

WebFileRoom.nsf/Web?SearchView&View= 

Web&Query=%5BCaseNumber%5D=99-E1470&SearchOrder=4&Count=All 

Gas Rates for DG Customers 

New York 

The New York PSC directed electric utilities to consider DG as an alternative to traditional electric distribution system improvement projects. The 

Commission also recognized that increased gas use 

for DG can create positive rate effects for gas consumers by providing increased coverage of fixed 

costs. They therefore ordered natural gas companies 

to create a rate class specifically for DG users. The 

ceilings for these rates are to be frozen until at least 

the end of 2007 to enable the emerging DG industry 

to predict gas rates for an initial period of time. 

Web site: 

http://www3.dps.state.ny.us/pscweb/ 

WebFileRoom.nsf/Web/047CACD1286149B285256DF 

10075636D/$File/doc11651.pdf?OpenElement 

What States Can Do 

Action Steps for States 

States have chosen a wide variety of approaches and 

goals in developing their rates. The “best practices” 

common among these states have been explored 

above. Suggested action steps are described as follows. 

47	 The new rates do not apply to Niagara Mohawk, which had previously submitted—and gained approval for—a standby rate external to this 

process. The Niagara Mohawk rate is less favorable to DG than the rate described herein, and presents an on-going barrier to DG deployment in 

their service territory. 

� Section 6.3. Emerging Approaches: Removing Unintended Utility Rate Barriers to Distributed Generation 6-47 
 

EPA Clean Energy-Environment Guide to Action
 

States That Have Addressed Rates for 

Renewables or CHP 

A top priority after establishing rates is to identify 

and mitigate issues that might adversely affect the 

success of the rates. States can: 

• Monitor utility compliance and impact on ratepayers. Significant, unanticipated, or adverse impacts 

on ratepayers can be addressed through implementing or adjusting cost caps or other appropriate means. 

• Monitor the pace of installation of new renewable 

resources and CHP to make sure that the rates are 

working. 

States That Have Not Addressed Rates for 

Renewables or CHP 

States have found that political support from PUC 

officials and staff is helpful in establishing appropriate rates. Once general support for goals has been 

established, a key step is to facilitate discussion and 

negotiation among key stakeholders toward appropriate rate design. More specifically, states can: 

• Ascertain the level of general interest and support 

for renewable energy and CHP in the state among 

public office holders and the public. If awareness 

is low, consider implementing an education program about the environmental and economic benefits of accelerating the development of renewable 

energy and CHP. 

• Identify existing renewable portfolio standards or 

other policies in place or pending that might be 

significant drivers to new onsite clean energy supply. The rate issue may arise in that context. 

• Establish a working group of interested stakeholders to consider design issues and develop recommendations for favorable rates. 

• Open a generic PUC docket to explore actual costs 

and system benefits of onsite clean energy supply 

and rate reasonableness. 

6-48 � Chapter 6. Utility Planning and Incentive Structures
 
 

 

 

 

 

 

 

 

 

EPA Clean Energy-Environment Guide to Action 

Information Resources 

Federal Resources 

Title/Description URL Address 

The U.S. Environmental Protection Agency’s (EPA’s) CHP Partnership is a voluntary 

program that seeks to reduce the environmental impact of energy generation by 

promoting the use of CHP. The Partnership helps states identify opportunities for 

policy development (energy, environmental, economic) to encourage energy efficiency through CHP and can provide additional assistance to states in assessing 

and implementing reasonable rates. 

http://www.epa.gov/chp/ 

General Articles About Ratemaking
 

Title/Description URL Address 

Accommodating Distributed Resources in the Wholesale Market. This Regulatory 

Assistance Project (RAP) publication examines the different functions that distributed resources can perform and the barriers to these functions. Policy and operational approaches to promoting distributed resources in wholesale markets are 

identified. 

http://www.raponline.org/ 

showpdf.asp?PDF_URL=%22Pubs/ 

DRSeries/DRWhllMkt.pdf%22 

Electricity Transmission: A Primer. This RAP publication was prepared for the 

National Council on Electric Policy in connection with the Transmission Siting 

Project. The primer is intended to help policymakers understand the physics, economics, and policies that influence and govern the electric transmission system. 

http://www.raponline.org/ 

showpdf.asp?PDF_URL=Pubs/ 

ELECTRICITYTRANSMISSION%2Epd 

Energy Efficiency’s Next Generation: Innovation at the State Level. American 

Council for an Energy-Efficient Economy (ACEEE), report number E031, November 

2003. 

http://www.aceee.org/pubs/e031.htm 

Other Resources
 

Title/Description URL Address 

Regulatory Requirements Database for Small Generators. Online database of regulatory information for small generators. Includes information on standby rates and 

exit fees, as well as environmental permitting and other regulatory information. 

http://www.eea-inc.com/rrdb/ 

DGRegProject/index.html 

The U.S. Combined Heat and Power Association (USCHPA) brings together diverse 

market interests to promote the growth of clean, efficient CHP in the United States. 

USCHPA can assist states in rate design. 

http://www.uschpa.org 

� Section 6.3. Emerging Approaches: Removing Unintended Utility Rate Barriers to Distributed Generation
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Examples of State Legislation and Program Proposals
 

State Title/Description URL Address 

Illinois 220 ILCS 5/ Public Utilities Act. Electric Service Customer 

Choice And Rate Relief Law of 1997. This legislation provides 

an example of exit fee provisions that encourage CHP. 

http://www.ilga.gov/legislation/ilcs/ 

ilcs4.asp?DocName=022000050HArt%2E+ 

XVI&ActID=1277&ChapAct=220%26nbsp 

%3BILCS%26nbsp%3B5%2F&ChapterID= 

23&ChapterName=UTILITIES&SectionID= 

21314&SeqStart=40500&SeqEnd=45100& 

ActName=Public+Utilities+Act%2E 

Massachusetts 220 CMR 11.00: Rules Governing the Restructuring of the 

Electric Industry. This legislation provides an example of exit 

fee provisions that encourage CHP. 

http://www.magnet.state.ma.us/dpu/ 

restruct/96-100/cmr11-2.pdf 

References
 

Title/Description URL Address 

EEA. 2005. Energy and Environmental Analysis Inc. (EEA) http://www.eea-inc.com/ 

Evans, P.B. 2005. Optimal Portfolio Methodology for Assessing Distributed Energy 

Resources Benefits for the Energynet. CEC, PIER Energy-Related Environmental 

Research. CEC-500-2005-061-D. 

http://www.energy.ca.gov/ 

2005publications/CEC-500-2005-061/ 

CEC-500-2005-061-D.pdf 

6-50 � Chapter 6. Utility Planning and Incentive Structures
 
 

 

 

 

 

 

Appendix A. 


Federal Clean Energy Programs 


As states pursue their clean energy policies and programs, they can obtain assistance from a variety of 

federal programs, as described below. 

Cross-Cutting Programs 

Cross-cutting federal programs support planning, 

program development, and initiatives for both energy 

efficiency and clean energy supply measures. The U.S. 

Environmental Protection Agency (EPA) and U.S. 

Department of Energy (DOE) offer a variety of crosscutting programs, described below. 

Clean Energy-Environment State 

Partnership Program 

This EPA voluntary partnership program is designed to 

help states review and adopt policies and programs 

that effectively integrate clean energy into a low-cost, 

clean, reliable energy system for the state. Clean energy includes energy efficiency, clean distributed generation, and renewable energy. As part of the partnership, EPA works with national organizations to support 

the state partners, highlight accomplishments, and 

disseminate lessons learned and best practices. 

National partners include the National Association of 

State Energy Officials (NASEO), the National 

Association of Regulatory Utility Commissioners 

(NARUC), the State and Territorial Air Pollution 

Program Administrators and the Association of Local 

Air Pollution Control Officials (STAPPA/ALAPCO), and 

the National Conference of State Legislatures (NCSL). 

States participating in the Clean Energy-Environment 

State Partnership Program can use the Guide to Action to 

develop a Clean Energy-Environment Action Plan to help 

identify and implement existing and new energy policies 

and programs to increase the use of clean energy. 

Web site: 

http://www.epa.gov/cleanenergy/stateandlocal/ 

partnership.htm 

Energy Efficiency and Renewable 

Energy Projects 

The EPA-State Energy Efficiency and Renewable Energy 

Projects are a joint initiative among EPA, NARUC, and 

individual state utility commissions. These projects are 

designed to explore utility regulatory and market-based 

approaches that deliver significant energy cost savings 

and other benefits through greater use of energy efficiency, renewable energy, and clean distributed generation. These approaches may include, for example, rate 

design, resource planning, transmission and distribution 

planning, and requirements for clean distributed generation (DG). 

Web site: 

http://epa.gov/cleanenergy/pdf/eere_factsheet.pdf 

Federal Energy Management Program 

(FEMP) 

Administered by DOE’s Office of Energy Efficiency and 

Renewable Energy, FEMP promotes energy efficiency 

and distributed and renewable energy by reducing the 

operating costs and environmental impacts associated 

with federal facilities. FEMP advances energy efficiency and water conservation, promotes the use of distributed and renewable energy, and improves utility 

management decisions at federal facilities. FEMP also 

offers online information resources, an annual training 

conference, and workshops to state and local government energy managers. The FEMP Web site provides a 

compendium of energy efficiency purchasing recommendations, interactive energy cost calculators, and 

other resources to help purchase energy-efficient 

products. 

Web site: 

http://www.eere.energy.gov/femp/ 

X Appendix A. Federal Clean Energy Programs
 A-1 
 

 

 

 

 

 

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The Industrial Technologies Program 

DOE’s Office of Energy Efficiency and Renewable 

Energy supports energy efficiency and renewable 

energy through the Industrial Technologies Program, 

which seeks to reduce the energy intensity of the 

U.S. industrial sector. Through the Best Practices subprogram, DOE works with industry to identify plantwide opportunities for energy savings and process 

efficiency. 

Web site: 

http://www.eere.energy.gov/industry/ 

State Activities and Partnerships 

DOE’s Office of Energy Efficiency and Renewable 

Energy provides technical assistance to state and 

local jurisdictions that enables them to adopt renewable energy and energy efficiency technologies. The 

program also offers training and information on 

funding opportunities and state activities. 

Web site: 

http://www.eere.energy.gov/states/ 

The State Energy Program 

DOE’s Office of Energy Efficiency and Renewable 

Energy provides grants to states to design and implement their own renewable energy and energy efficiency programs. Because the state energy offices 

administer their own projects, the technologies and 

applications that they develop vary widely depending 

on the state’s energy priorities and available renewable resources. This facilitates rapid and inventive 

deployment of supporting technologies that are environmentally friendly and innovative. These activities 

cover a wide range of possible projects across all 

energy-use sectors (i.e., the building, industrial, utility, and transportation sectors). Under the State 

Energy Program, states have modernized more than 

69,000 buildings and completed more than 8,000 

energy projects. 

Web site: 

http://www.eere.energy.gov/state_energy_program/ 

The Technical Assistance Program 

(TAP) 

The DOE TAP provides state and local officials with 

quick, short-term access to experts at DOE’s national 

laboratories for assistance with cross-cutting renewable energy and energy efficiency policies and programs that are not currently covered by an existing 

DOE program. Individualized assistance is available in 

five eligible areas: (1) system benefit charges or other 

ratepayer-funded utility efficiency and renewable programs, (2) renewable or efficiency portfolio standards, 

(3) use of clean energy technologies to help states and 

localities address air emissions, (4) use of renewable 

energy on state and local public lands, and (5) disaster 

relief, mitigation, and planning. Currently, technical 

assistance is available from three participating laboratories: the National Renewable Energy Laboratory 

(NREL), the Oak Ridge National Laboratory (ORNL), and 

the Lawrence Berkeley National Laboratory (LBNL). 

Web site: 

http://www.eere.energy.gov/wip/ 

informationresources/Tap.html 

Energy Efficiency Programs 

EPA, DOE, and the U.S. Department of Housing and 

Urban Development (HUD) administer a variety of 

programs that provide resources, technical assistance, 

and research findings on energy efficiency technology and applications. 

ENERGY STAR 

ENERGY STAR is a voluntary, public-private partnership designed to reduce energy use and related 

greenhouse gas emissions, where cost-effective. The 

program delivers significant energy savings, on the 

order of 135 billion kWh in 2004 or 4% of the 

nation’s total 2004 electricity needs. ENERGY STAR 

involves an extensive network of partners, including 

state energy offices, product manufacturers, retailers, 

home builders, energy service companies, private 

businesses, and public sector organizations. ENERGY 

STAR programs employ strategies designed to overcome market barriers and provide information and 

tools that alter decisionmaking for the long term. 

Many of the strategies help reduce transaction costs 

A-2 X Appendix A. Federal Clean Energy Programs
 
 

EPA Clean Energy-Environment Guide to Action
 

and lower investment risks, making efficiency projects more attractive. Through ENERGY STAR, EPA and 

DOE invest in energy efficiency efforts that states 

and utilities can leverage as part of their energy efficiency programs. Key program areas include: 

National ENERGY STAR Education Campaign 

Since 1997, EPA has operated broad-based public 

campaigns to educate consumers about the link 

between energy use and air emissions and to raise 

awareness about how products and services carrying 

the ENERGY STAR label can protect the environment 

while saving them money. Local energy efficiency 

programs can take advantage of national efforts by 

incorporating relevant messages or leveraging the 

campaign via marketing, customer education, and 

outreach. 

Qualifying Products 

A government-backed energy efficiency 

designation—the ENERGY STAR label—is on products 

in more than 40 categories for the home and business, 

including heating and cooling, lighting, office equipment, appliances, windows, home electronics, and 

commercial food service equipment. Each year, EPA 

and DOE spearhead product-specific national campaigns, enable information exchange on well-developed utility-retailer program models, hold national 

partner meetings that facilitate networking and collaboration, and provide an array of online resources. 

Because of ENERGY STAR’s well-developed program 

models and infrastructure, the promotion of ENERGY 

STAR qualifying products offers a good starting point 

for new energy efficiency programs. 

Existing Homes 

ENERGY STAR provides opportunities for obtaining 

substantial energy savings from improving the heating and cooling systems and envelopes in existing 

homes; this represents a savings potential that cannot be obtained solely through use of energyefficient products. The ENERGY STAR program offers 

specifications for home improvement services such 

as Home Performance with ENERGY STAR, which 

emphasizes home diagnostics and evaluation, 

improvements made by trained technicians and 

building professionals, sales training, and strong 

quality assurance. In addition, ENERGY STAR offers 

systems solutions for home sealing, heating and 

cooling system best practices, and duct sealing and 

provides valuable online consumer tools including 

the Home Energy Yardstick. 

New Homes 

ENERGY STAR qualifying homes are substantially more 

efficient than homes built to a model energy code. 

EPA provides a number of tools to engage home 

builders in constructing ENERGY STAR qualifying 

homes, including builder recruitment and sales materials and consumer education and outreach. Many energy efficiency programs promote ENERGY STAR qualifying homes by providing builder training, consumer 

education, and direct verification of home performance or incentives to offset the cost of verification. 

Other incentives might include co-op marketing 

incentives and rebates for qualifying homes. 

Commercial Building Performance 

The energy efficiency of commercial buildings can be 

dramatically affected by design, sizing, installation, 

controls, and operations and maintenance. To better 

ensure that measures such as lighting, controls, 

high-efficiency air conditioning, motors, and variable 

speed drives will deliver expected energy savings, 

EPA designed an Energy Performance Rating System 

to measure the energy performance at the wholebuilding level. Buildings that score low (on a scale of 

1 to 100) are typically good candidates for costeffective improvements, and buildings that score 

high are eligible for the ENERGY STAR label. ENERGY 

STAR-labeled buildings use 40% less energy and cost 

40% less to operate than average buildings. EPA also 

works with building owners to encourage them to 

adopt organization-wide energy management 

approaches. EPA is working with utility programs 

throughout the country to integrate these strategies 

into commercial programs to enhance program 

uptake and effectiveness. 

Industrial Energy Efficiency 

ENERGY STAR promotes and encourages superior 

corporate energy management through the provision 

of tools and resources specific to the needs of manufacturers. Unique resources offered by ENERGY 

STAR for manufacturers include opportunities to 

participate in sector-focused activities, networking 

X Appendix A. Federal Clean Energy Programs
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opportunities with other industrial energy managers 

in the broad partnership, the industrial Web site, 

energy program communication resources, and 

assistance in developing or improving a corporate 

energy performance program. Each year, the industrial partnership identifies certain manufacturing 

sectors to engage in focus activities. These activities 

include an in-depth study and assessment of energy 

efficiency opportunities within the sector; production of an energy performance indicator for plants in 

the sector; and sector-specific energy working 

groups, including focus meetings aimed at improving corporate energy performance. The partnership 

currently includes more than 450 participating 

industrial companies of varying sizes and coordinates focus initiatives with seven industrial sectors. 

Web site: 

http://www.energystar.gov 

Building America 

Building America is a DOE/industry partnership that 

develops energy solutions for new and existing 

homes. Building America combines the knowledge 

and resources of building industry leaders with DOE’s 

technical capabilities. The ultimate goal of the program is to achieve a 70% reduction in total home 

energy use, enabling the balance of energy requirements to be easily met by a solar electric system. As 

of October 2003, the Building America approach has 

been used in the design of more than 20,000 houses 

in 34 states. This accomplishment is a result of the 

efforts of more than 250 builders implementing projects in many cities across the United States. 

Web site: 

http://www.eere.energy.gov/buildings/building_america/ 

Building Technologies Program 

DOE's Building Technologies Program helps improve 

building energy efficiency through the use of innovative new technologies and better building practices. 

The program includes research and regulatory activities. Research activities advance the next generation of 

energy-efficient components, equipment, and materials, including a whole-building approach that optimizes building performance and savings. Regulatory 

activities include efforts to work with state and local 

regulatory groups and other interested parties to 

improve building codes, appliance and equipment standards, and guidelines for efficient energy use, and to 

assist states in updating, implementing, and enforcing 

their building energy codes. 

Web site: 

http://www.eere.energy.gov/buildings/ 

Weatherization Assistance Program 

(WAP) 

Under WAP, DOE works with states and local governments to help low-income families reduce their 

energy bills by making their homes more energy 

efficient. Through WAP, weatherization service 

providers install energy efficiency measures in the 

homes of qualifying homeowners free of charge. 

During the last 27 years, WAP has provided weatherization services to more than 5.3 million low-income 

families. Weatherized households have average energy savings of $224 per year, which amounted to a 

cost savings of more than $1 billion for all homes 

served during winter 2000. 

Web site: 

http://www.eere.energy.gov/weatherization/ 

The Partnership for Advancing 

Technology in Housing (PATH) 

PATH is a public-private initiative dedicated to accelerating the development and use of technologies 

that radically improve the quality, durability, energy 

efficiency, environmental performance, and affordability of America's housing. PATH is a collaborative 

partnership managed by HUD that spurs change in 

housing industry design and construction. 

Web site: 

http://www.hud.gov/offices/cpd/energyenviron/ 

energy/initiatives/index.cfm#path 

A-4 X Appendix A. Federal Clean Energy Programs
 
 

 

 

 

 

 

 

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Partnerships for Home Energy 

Efficiency (PHEE) 

PHEE is a multi-agency (i.e., DOE, EPA, and HUD) 

program to help households reduce their home energy bills by increasing awareness of ENERGY STAR 

products, developing new energy efficiency services 

for homeowners; delivering energy efficiency savings 

to subsidized and low-income housing; and investing 

in innovative research in building science technologies, practices, and policies. PHEE incorporates HUD’s 

PATH Roadmap for Energy Efficiency in Existing 

Homes, which outlines a series of strategies for 

boosting the energy-efficient remodeling of existing 

homes and the HUD Energy Action Plan, which promotes energy efficiency in 5 million housing units 

that have been assisted, insured, or financed by HUD. 

The goal of PHEE is to help households save 10% or 

more on home energy bills over the next 10 years. 

The initiative builds on existing policies and programs that involve partnerships with manufacturers, 

retailers, home contractors and remodelers, utilities, 

states, financial organizations, educational institutions, and others to leverage the power and creativity of the marketplace. Key efforts include: 

• Expanding efforts to promote ENERGY STAR 

products. 

• Promoting energy efficiency in affordable housing. 

• Continuing to invest in innovative research in building science technologies, practices, and policies. 

Web site: 

http://www.energysavers.gov/ 

Clean Energy Supply Programs 

EPA and DOE offer a variety of clean energy supply 

programs that provide information, technical assistance, and research findings related to renewable 

energy and clean distributed generation, including 

combined heat and power. 

The Combined Heat and Power (CHP) 

Partnership 

The objective of this program is to reduce the environmental impact of power generation by fostering 

the use of CHP. Through the CHP Partnership, EPA 

works closely with energy users, the CHP industry, 

state and local governments, and other stakeholders 

to support the development of new projects and 

promote their energy, environmental, and economic 

benefits. 

Web site: 

http://www.epa.gov/chp 

The Green Power Partnership 

The Green Power Partnership is a voluntary partnership 

between EPA and organizations interested in buying 

green power. EPA provides technical assistance and 

recognition to organizations that pledge to replace a 

portion of their electricity consumption with green 

power within a year of joining the partnership. 

Web site: 

http://www.epa.gov/greenpower/ 

Buildings Cooling Heating and Power 

(BCHP) Initiative 

The BCHP Initiative is part of the broader building 

technology efforts of DOE’s Office of Energy 

Efficiency and Renewable Energy. The initiative 

addresses onsite fuel technologies that make it possible to combine power generation and heating, ventilation, and air conditioning (HVAC) system optimization and integration with other innovative 

building technologies related to thermal utilization, 

cooling, and dehumidification. 

Web sites: 

http://www.eere.energy.gov/de/pdfs/bchp_roadmap.pdf 

(describes the BCHP Initiative) 

http://www.chpcentermw.org/ 

(information on the Midwest CHP Application Center 

[MAC], one of several centers established by DOE to 

facilitate deployment of CHP technologies through 

the provision of application assistance, technology 

information, and educational support.) 

Distributed Energy Program 

DOE’s Distributed Energy Program supports research 

and development with the goal of lowering costs for 

distributed energy technologies, reducing emissions, 

X Appendix A. Federal Clean Energy Programs
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and improving the reliability and performance of 

these technologies. Program activities focus on two 

technology areas: distributed energy technologies 

(including gas-fired reciprocating engines, industrial 

gas turbines, and microturbines) and integrated energy systems such as CHP. 

Web site: 

http://www.eere.doe.gov/de/ 

Geothermal Technologies Program 

DOE administers the Geothermal Technologies 

Program in partnership with industry to help promote geothermal energy as an economically competitive contributor to the U.S. energy supply. It seeks to 

develop hydrothermal, direct use, and shallow depth 

area technologies to achieve long-term viability. This 

program produces many benefits, such as economic 

competitiveness, environmental improvement, and 

sustainability of resources. 

Web sites: 

http://www.eere.energy.gov/geothermal/ 

http://www.eere.energy.gov/RE/geothermal.html 

Hydrogen, Fuel Cells, and Infrastructure 

Technologies Program 

DOE is working with its partners to accelerate the 

development and successful market introduction of 

hydrogen, fuel cell, and infrastructure technologies. 

DOE’s Web site provides information on the agency’s 

research, development, and applications in these 

areas. 

Web sites: 

http://www.eere.energy.gov/hydrogenandfuelcells/ 

http://www.eere.energy.gov/RE/hydrogen.html 

Million Solar Roofs 

DOE is supporting the Million Solar Roofs initiative 

through national, state, and local partnerships to 

install solar energy systems (photovoltaic and solar 

thermal systems) in one million U.S. buildings by 

2010. While this program does not direct state 

actions or provide funding for solar energy systems, 

it does facilitate collaboration between the federal 

government, key national businesses, and organizations. This cooperation allows partners and stakeholders to focus on building a strong market for solar 

energy applications in buildings. 

Web site: 

http://www.millionsolarroofs.org/ 

Solar Energy Technologies Program 

Through its Solar Energy Technologies Program, DOE 

works with other federal, state, and local agencies; 

national laboratories; universities; industry; and professional organizations to research, develop, and 

deploy cost-effective technologies to expand the use 

of solar energy throughout the United States and the 

world. DOE provides information on solar technologies and applications including concentrating solar 

power, photovoltaics, solar heating, and solar 

lighting. 

Web sites: 

http://www.eere.energy.gov/solar/ 

http://www.eere.energy.gov/RE/solar.html 

Wind and Hydropower Technologies 

Program 

DOE’s Office of Energy Efficiency and Renewable 

Energy is working to improve wind energy technology so it can generate competitive electricity in areas 

with lower wind resources and to develop new, costeffective, advanced hydropower technologies that 

will have enhanced environmental performance and 

greater energy efficiencies. DOE provides information 

on its Web site on both wind and hydropower energy 

resources, applications, and technologies. 

Web sites: 

http://eere.energy.gov/windandhydro 

http://www.eere.energy.gov/RE/wind.html 

http://www.eere.energy.gov/RE/hydropower.html 

A-6 X Appendix A. Federal Clean Energy Programs
 
 

 

Appendix B.
 

Energy Efficiency Program Resources
 

This appendix provides information on key steps to 

bring energy efficiency programs to market and provide oversight for investments once these programs 

have been established. It describes how states can 

build a portfolio of energy efficiency investments and 

then monitor and evaluate those investments. The 

intended audience for this material includes state 

public utility commissions (PUCs), other agencies that 

oversee energy efficiency programs, program administrators such as utility program managers and third 

parties, and other organizations involved in implementing and evaluating energy efficiency programs. 

Mechanisms for securing funding for energy efficiency investments are not included in this section. These 

issues are covered in detail elsewhere in the Guide to 

Action, including Section 3.1, Lead by Example, 

Section 3.4, Funding and Incentives, Section 4.1, 

Energy Efficiency Portfolio Standards, Section 4.2, 

Public Benefits Funds for Energy Efficiency, and 

Section 6.1, Portfolio Management Strategies. 

Building a Portfolio of Energy 

Efficiency Investments 

States are developing energy efficiency investment 

portfolios as part of their larger energy strategy. This 

allows states to position themselves for both shortand long-term energy needs in a way that is costeffective, serves diverse constituencies, minimizes 

energy supply and environmental risks, and can help 

reduce price volatility. Determining the appropriate 

mix of energy efficiency measures in an overall energy efficiency program portfolio typically involves a 

series of interrelated activities: 

• Assessing the potential for energy efficiency to 

meet resource needs and inform funding decisions. 

• Involving stakeholders in planning. 

• Assessing multiple system and customer needs. 

• Considering transmission and distribution (T&D) 

needs. 

• Allocating energy efficiency investments within a 

portfolio. 

• Screening for cost-effectiveness. 

• Developing program plans. 

State and regional approaches for undertaking these 

activities are addressed in this section. 

Assessing Energy Efficiency Potential 

As a fundamental step in determining an appropriate 

level of funding for energy efficiency measures, 

states or regions typically conduct studies of the 

potential for increased investments to reduce energy 

use within a specified time frame. The primary goal 

of these analyses is to determine the availability of 

energy efficiency as a resource option (irrespective of 

the policy or funding mechanism for achieving that 

potential). In addition to identifying an appropriate 

level of efficiency investment for a state, potential 

studies provide valuable data that can be used in the 

program planning and design stage. States can use 

this information to: 

• Make the initial case or justification for undertaking the establishment of energy efficiency policies 

and programs. 

• Characterize the current and future potential for 

energy efficiency to identify the most important 

market sectors and end uses for tapping the efficiency resource potential. 

• Obtain detailed information about specific measures and the broader efficiency market to aid in 

technology screening and program design. 

X Appendix B. Energy Efficiency Program Resources
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EPA Clean Energy-Environment Guide to Action
 

Potential studies typically calculate the following 

types of potential: 

•	 Technical potential assumes the complete penetration of all energy conservation measures that are 

considered technically feasible from an engineering perspective. 

•	 Economic potential refers to the subset of technical potential that is cost-effective when compared 

to supply-side alternatives. 

•	 Maximum achievable potential is the economic 

potential that could be achieved over time under 

the most aggressive program scenario. 

•	 Program potential refers to energy saved as a 

result of a specific program’s funding level and 

incentives. These savings are above and beyond 

what would occur naturally in the absence of any 

market interventions. 

•	 Naturally occurring potential refers to energy saved 

as a result of normal market forces, that is, in the 

absence of any utility or governmental intervention 

(Rufo and Coito 2002, Optimal Energy 2005). 

Efficiency potential studies are typically conducted at 

the state or regional level. In most cases, efficiency is 

assessed across residential, commercial, and industrial customer classes. These analyses usually employ 

quantitative analysis of potential combined with 

expert judgment on the feasibility and likely performance of the measures being assessed. Estimates of 

achievable potential are often based on experiences 

from similar programs around the country. 

The results of energy efficiency potential studies can 

identify untapped opportunities for savings and 

encourage policy development and program implementation. Recent studies identify economic potential in the ranges of 13% to 27% for electricity and 

21% to 35% for gas. Achievable potential—the realistic estimate of what can actually be achieved from 

programs—ranges between 10% to 33% for electricity and 8% to 10% for gas (Nadel et al. 2004). For 

example: 

• The Southwest Energy Efficiency Project (SWEEP) 

found that investing about $9 billion (in 2000 dollars) in efficiency measures from 2003 to 2020 

Three Levels of Efficiency Potential Studies 

Energy efficiency potential studies can be completed 

across multiple sectors (i.e., an aggregate study), can 

provide greater detail within sectors and sub-markets 

(i.e., a targeted study), or can develop a robust set of 

data for a full range of individual efficiency measures 

(i.e., a detailed study). 

The cost of an aggregate study can range from a low 

of about $20,000 to more than $50,000 depending on the 

size of the state or region and whether all sectors are 

studied. 

Targeted studies typically cost between $50,000 and 

$100,000 depending on scope and detail. These studies 

evaluate intra-sectoral trends and characterize enduses such as motors, residential HVAC, and commercial lighting. 

Detailed studies typically include benefit and cost data 

for individual measures and can range from $50,000 for 

a study that examines a limited number of sectors to 

well over $250,000 for a detailed multi-sector analysis 

that includes detail program design recommendations 

(Prindle and Elliot 2006). 

would reap total economic benefits for the 

Southwest region of approximately $37 billion. The 

resulting benefit-cost ratio is about 4.2, with energy efficiency measures costing, on average, $0.02 

per kilowatt-hour (kWh) saved (SWEEP 2002). 

• In Connecticut, a 2004 study uncovered significant 

energy efficiency potential, with opportunities in 

all sectors. This study found that capturing the 

achievable cost-effective potential for energy efficiency would reduce peak demand by 13% (908 

megawatt [MW]) and electric energy use by 13% 

(4,466 gigawatt-hours [GWh]) by 2012. This would 

result in zero electric load growth from 2003 

through 2012 and achieve net benefits of $1.8 billion (Connecticut ECMB 2004). 

• New York estimated the potential for a bundled 

increase in energy efficiency and renewable energy, 

and found that the combined effects could reduce 

the state’s annual electricity generation requirements by 19,939 GWh in 2012 and by 27,244 GWh 

in 2022. This represents 12.7% and 16.1% of 

expected statewide requirements for those years, 

and is achievable at costs below those of conventional generation (Optimal Energy et al. 2003). 

B-2 X Appendix B. Energy Efficiency Program Resources
 
 

 

 

EPA Clean Energy-Environment Guide to Action
 

• A study for California found that, despite a long 

track record of delivering energy efficiency programs, energy efficiency resources can play a significantly expanded role in the state's electricity 

resource mix over the next decade. With implementation of all cost-effective program potential, 

the study estimates that growth in peak demand 

could be cut in half. This "advanced efficiency" 

scenario would result in peak savings of 5,900 

MW, energy savings in excess of $20 billion, and 

net benefits of $11.9 billion (Rufo and Coito 2002). 

After identifying the achievable level of energy efficiency, this resource can be compared with the cost 

of supply-side options enabling states to select a 

combination of measures that result in the lowest 

overall costs and largest benefits to utilities and customers. In practice, states often accomplish this by 

comparing the “avoided cost” of generation, transmission, and distribution with the cost of implementing 

energy efficiency. States are finding that accurate 

data on T&D are particularly important when evaluating efficiency in the context of peak-oriented end 

uses such as air conditioning. In these cases, the 

avoided cost of physically moving electricity may 

equal or exceed the value of the energy savings 

themselves. Another increasingly important consideration for some states is the avoided environmental 

costs of energy efficiency, including air emission 

reductions and water savings (Biewald et al. 2003). 

Involving Stakeholders in Planning 

There is typically a lag time between the time a policy mandate is established and the program administrator develops and implements energy efficiency 

programs. Administrators can take advantage of this 

time period to form an Energy Efficiency Advisory 

Group (often referred to as a Demand-Side 

Management [DSM] Advisory Group). Meetings of 

the advisory group are usually open to all interested 

stakeholders and commonly engage commission 

staff, ratepayer advocates, contractors and suppliers, 

and representatives from all customer classes. The 

program administrator may use the advisory group 

to: 

• Solicit input on program ideas. 

• Solicit input on program design issues. 

• Review draft requests for proposals for program 

implementation assistance. 

• Provide input on evaluation plans. 

• Review draft market assessments and other evaluation reports. 

A key consideration for the stakeholder group is the 

level of experience of the program administrator and 

implementer. For example, a state that has been 

designing and overseeing efficiency programs for two 

decades may take a very different approach than a 

state with little experience in the field. 

Addressing Customer Needs 

All customer classes benefit from well-managed 

energy efficiency programs,48 regardless of whether 

they participate directly. However, those who participate receive both the direct benefit of participation 

and the indirect benefit derived from system-wide 

program savings and reliability enhancements. Since 

all customer classes are typically required to pay into 

energy efficiency programming, many states have 

developed programs that provide direct benefits for 

each of their major customer classes, including: 

• Residential homeowners. 

• Multifamily tenants. 

• Low-income customers. 

• Small business owners. 

• Commercial and industrial (C&I) customers.49 

States with multiple utilities may wish to ensure that 

each service territory receives direct benefits that are 

roughly proportional to the amount paid into the system by customers within that service territory. 

However, it is important to address this issue in a way 

48	 For example, an evaluation of the New York State Energy Research and Development Authority (NYSERDA) program concluded: “Total cost savings 

for all customers, including non-participating customers [in New York Energy $mart programs] is estimated to be $196 million for Program activities 

through year-end 2003, increasing to $420 million to $435 million at full implementation” (NYSERDA 2004a). 

49 Some states allow large C&I customers to opt out of paying program costs if they secure comparable efficiency through other means. This is sometimes referred to as “industrial self direction.” 

X Appendix B. Energy Efficiency Program Resources B-3 
 

 

 

 

EPA Clean Energy-Environment Guide to Action
 

that does not constrain program design and implementation. For example, in a state with multiple utilities, a best practice for a mass-market lighting and 

appliance program is to require a consistent statewide program that delivers energy efficient products 

through existing retailer sales channels. Depending on 

program design, it may not be practical or costeffective to prove the specific jurisdiction in which a 

particular product was installed. Consequently, utilities and their oversight authority sometimes reach 

advanced agreement that energy savings will accrue 

to each program administrator in proportion to the 

results of their program offering (usually a financial 

incentive to the retailer, manufacturer, or customer). 

Another important customer need is to avoid regulatory delay and disruption to energy efficiency services. To minimize risk, states can define in advance the 

conditions under which program funds can be reallocated, either within a customer class or between 

customer classes. For example, if a high-performing 

and well-subscribed residential program runs out of 

funding and a commercial program is not meeting 

program targets, states can determine whether funds 

should: (1) be redistributed between these two customer classes, (2) come from another residential program offering, or (3) be forward-funded from a 

future program year. Alternately, if the highly successful program is temporarily suspended, states can 

assess the customer service implications, implications 

for future program success, and whether the program administrators will be able to re-engage other 

program participants (e.g., suppliers such as retailers 

and contractors) in the future. 

Considering Transmission and 

Distribution Needs 

State officials and other stakeholders are increasingly 

considering whether funds should be set aside to use 

energy efficiency as a “nonwires” solution to eliminate 

T&D congestion. Such investments have the potential 

to improve the reliability of the electricity grid as a 

whole. Two examples of this approach include: 

• The Connecticut Energy Efficiency Fund directs a 

large share of its resources to the transmissionconstrained southwest region of the state. Onequarter of all efficiency funding goes to the highly 

constrained Norwalk-Stamford area, while another 

quarter is allocated to the remainder of southwest 

Connecticut. As a result, one-half of the Fund’s 

$60 million is being used to mitigate the state’s 

electricity transmission problem (ECMB 2005). 

• In California, the cost-effectiveness evaluation of 

each energy efficiency program and the overall 

energy efficiency portfolio uses avoided costs that 

include the avoided cost of T&D, which reflects 

locational differences. The California Public 

Utilities Commission (CPUC) takes these T&D constraints into account during the final integration 

of all programs into the portfolio plans for each 

utility (CPUC 2005). 

The issue of whether to allow efficiency funds to be 

used to fund “nonwires” solutions is complicated by 

rate design mechanisms in areas of the country 

where there is a regional transmission system and 

multi-state holding companies. While an in-depth 

discussion of this issue is beyond the scope of the 

Guide to Action, states are becoming increasingly 

interested in looking to energy efficiency to alleviate 

T&D congestion. This issue was explored in a 2003 

report sponsored by the New England Demand 

Response Initiative (NEDRI 2003). 

Allocating Efficiency Investments 

Once an overall funding level is established, program 

administrators conduct further screening of individual 

programs or measures. Program administrators typically balance their efficiency program investment based 

on the same principles that one would use in evaluating a stock portfolio. For instance, they may ask: 

• How reliable is the investment? 

• When will it achieve savings? 

• How long will those savings last? 

• What other investments and/or strategies need to 

be considered to offset risk? 

• Is it wise to include some long-term investments? 

At the aggregate portfolio level, many states are able 

to achieve energy savings at an annual levelized 

B-4 X Appendix B. Energy Efficiency Program Resources
 
 

 

 

 

 

 

EPA Clean Energy-Environment Guide to Action
 

Figure B.1: Energy Efficiency Program Costs
 Lev eliz ed TR C ($/kWh) 0.25 

0.20 

0.15 

0.1 0 

0.05 

0 

Residential Commer cial 

Home Improvement 

ENERGY STAR Residential Products 

Home Performance with Energy STAR 

Multifamily 

Low Income 

ENERGY STAR Homes 

ENERGY STAR Appliance Recycling 

Power Management 

ENERGY STAR Commercial Products

New Construction 

Building Performance 

Small Business 

Sources: EPA estimates based on Efficiency Vermont 2002, SCE 2004, Xcel Energy 2004, 

Kim 2005, Northwest Power Planning Council 2005. 

Total Resource Cost (TRC) of about 0.02 $/kWh to 

0.04 $/kWh,50 although the cost of individual measures or programs can be much higher (see Figure 

B.1). Nevertheless, including some higher-cost strategies as a part of a broader energy efficiency portfolio 

may be desirable for a number of reasons; for example, higher costs may be acceptable when savings are 

more reliable. Certain practices such as verifying 

proper installation of a home heating and cooling 

system may add costs to a program, but they 

increase confidence that the installed measures will 

actually deliver targeted energy savings and deliver 

other benefits, such as improving indoor air quality 

and comfort. 

Other factors that can be considered include whether 

an efficiency measure delivers energy reductions at 

peak times, reduces water consumption, or offers 

other nonenergy benefits. States may also invest a 

portion of their energy efficiency funding in research 

and development programs that identify and promote emerging technologies, practices, and program 

models. 

Screening for Cost-Effectiveness 

Once policies, funding levels and mechanisms, and 

relative portfolio allocations have been established, 

organizations charged with overseeing energy efficiency resources usually analyze more in-depth data 

on cost-effectiveness to further screen programs and 

measures before approving final program plans. 

Many states incorporate cost-effectiveness analysis 

into the design and evaluation of their programs. 

This helps ensure the effective use of public funds 

and can be used to compare program and technology 

performance with the aim of developing effective 

future programs. Cost-effectiveness tests commonly 

used by states are shown in Table B.1. 

One frequently used basic economic assessment tool 

is the TRC Test. This test assesses the net lifetime 

benefits and costs of a measure or program, 

accounting for both the utility and program participant perspectives. As with other cost-effectiveness 

tests, if the benefit-cost ratio is greater than one, it 

is deemed to be cost-effective. If applied at a portfolio level, individual measures and programs can then 

50 The TRC takes into account program administration costs and the full incremental costs of a technology or measure regardless of who pays those costs. 

X Appendix B. Energy Efficiency Program Resources B-5 
 

 

 

 

 

 

EPA Clean Energy-Environment Guide to Action
 

Table B.1: Common Cost-Effectiveness Tests
 

Type of Test Description 

Total Resource Cost 

(TRC) Test 

Compares the total costs and benefits of 

a program, including costs and benefits 

to the utility and the participant and the 

avoided costs of energy supply. 

Societal Test Similar to the TRC Test, but includes the 

effects of other societal benefits and 

costs such as environmental impacts, 

water savings, and national security. 

Program 

Administrator Test 

Assesses benefits and costs from the 

program administrator's perspective 

(e.g., benefits of avoided fuel and operating and capacity costs compared to 

rebates and administrative costs). 

Participant Test Assesses benefits and costs from a participant's perspective (e.g., reductions in 

customers' bills, incentives paid by the 

utility, and tax credits received as compared to out-of-pocket expenses such 

as costs of equipment purchase, operation, and maintenance). 

Rate Impact 

Measure 

Assesses the effect of changes in revenues and operating costs caused by a 

program on customers' bills or rates. 

Source: UNEP 1997. 

be further screened based on the extent to which 

benefits exceed costs and on other portfolio considerations mentioned previously in this section. 

Sometimes states use a combination of tests to examine the program impacts from different perspectives. In 

Iowa, for example, the state legislature directed the 

Iowa Utilities Board to use several cost-effectiveness 

tests (i.e., the Societal Test, Utility Cost Test, Rate 

Impact Measure, and Participant Test) in evaluating the 

overall cost-effectiveness of its energy efficiency plans. 

States wishing to consider the non-electric implications for energy use and energy savings may use the 

Societal Test, which incorporates a broader set of factors than the TRC Test. The Program Administrator 

and Participant Tests are sometimes used to help 

design programs and incentive levels, rather than as a 

primary screen for overall cost-effectiveness. For 

example, California recently proposed adding the 

Program Administrator Test as a secondary screening 

measure to ensure that utilities do not provide excessive financial incentives to program participants. 

If using only one test, states are moving away from 

the Rate Impact Measure (RIM) Test because it does 

not account for the interactive effect of reduced 

energy demand from efficiency investments on 

longer term rates and customer bills. Under the RIM 

test, any program that increases rates would not 

pass, even if total bills to customers are reduced. In 

fact, there are instances where measures that 

increase energy use pass the RIM Test. 

While many utilities and PUCs express program performance in terms of benefit-cost ratios, expressing 

program costs and benefits in terms of dollars per 

kilowatt-hour ($/kWh) is also useful because it is 

easy to relate to the cost of energy. Consumers and 

legislators can relate this metric to the cost of energy in their own area, while utilities and regulators 

can compare this value to the avoided costs of energy supply. 

The cost-effectiveness tests chosen by a regulatory 

organization during the initial screening phase are 

usually used to evaluate and recalculate savings 

throughout the life cycle of a program or portfolio to 

ensure that results are consistent with expectations 

and to assess program impacts. Additional resources 

on cost-benefit tests are provided in the Information 

Resources section on page B-14. 

Developing Program Plans 

The program oversight authority typically requires 

program administrators to submit detailed program 

plans for approval before beginning program implementation. At a minimum, good program plans 

include the following information for the overall program and for the individual programs that comprise 

the overall approach: 

• Program descriptions. 

• Program goals and objectives. 

• Budgets. 

• kW and kWh goals including anticipated annual 

energy savings and lifetime energy savings. 

B-6 X Appendix B. Energy Efficiency Program Resources
 
 

 

 

EPA Clean Energy-Environment Guide to Action
 

• Benefits and costs. 

• Marketing and implementation strategies. 

• Major milestones. 

• Evaluation plans (including identification of metrics for program success) (EPA 2006). 

States can require program administrators to use 

either a deemed savings or measured savings 

approach when assessing the potential energy savings 

of program measures. Deemed savings are the per 

unit energy savings that are claimed for specific 

measures; this approach is appropriate for estimating 

potential savings of common energy efficiency measures. The measured savings approach is more applicable for customized measures and large-scale projects 

(see box, Determining Whether to Use “Deemed” or 

“Measured Savings” Approaches to Quantify Energy 

Benefits). 

Determining Whether to Use “Deemed” or “Measured Savings” Approaches to Quantify Energy 

Benefits 

Two methods for assessing savings from energy efficiency programs are the deemed savings and measured savings 

approaches. Both methods can be used on a prospective basis during the energy efficiency planning phase. This 

gives states a sense of the savings potential associated with a given portfolio of investments. Some states, particularly those with aggressive timelines for implementing energy efficiency programs, are coming to advanced agreement 

on which measures in an efficiency portfolio can be estimated using “deemed” savings and which programs or projects will require “measured” savings approaches. 

Deemed savings usually apply to the most common energy efficiency measures. Deemed savings values are the per 

unit energy savings values that can be claimed from installing specific measures. Since they are agreed upon 

between the program oversight authority and the energy efficiency program administrator, deemed savings can help 

alleviate some of the guesswork in program planning and design. Deemed savings values are then used as inputs by 

the program administrator in screening for cost-effectiveness and developing program plans. If a utility receives 

financial incentives for implementing efficiency programs, deemed savings can also become the basis for incentive 

claims. Therefore, it is important to consider the suitability of deemed savings approaches for different types of programs and measures and to include requirements for periodic review of deemed savings values in program evaluation, monitoring, and verification activities in advance of policy setting. In general, deemed savings approaches are 

most reliable for the following types of measures: 

•	 Technologies that typically deliver energy savings independent of human factors such as contractor installation 

practices or consumer behavior (e.g., plug-in products). 

•	 Technologies that have a clear standard by which to compare efficient and less efficient products (e.g., the Federal 

National Appliance Energy Conservation Act [NAECA] Standard or ENERGY STAR designation). 

•	 Technologies that have been promoted by other efficiency programs; that have well-established usage patterns, 

measure life, and performance history; and where usage is not driven by weather. 

•	 Plug-load technologies that are weather sensitive (e.g., room air conditioners and dehumidifiers). Additional analyses can be performed to develop reasonable deemed savings values for technologies installed in each climate 

zone within a state or service territory. 

States that use deemed savings values include New Jersey, Texas, California, and Vermont. Relevant documents and 

materials from these states can be found in the Information Resources section on page B-14. 

Measured savings approaches require a high level of rigor and may involve the application of end-use metering, 

billing regression analysis, or computer simulation. Measured savings approaches are usually used for custom measures and large-scale projects. These approaches add to administrative costs but may provide more accurate savings 

information. In the planning stage, a utility or other program administrator typically develops savings estimates from 

the bottom up trying to anticipate the mix of measures that will be involved in a particular project or program. As programs mature over time, utilities usually improve their ability to forecast the measures that will be installed in custom 

programs. However, because it is difficult to anticipate the interactive effects of specific technologies in complex and 

variable building systems, it is important to verify measured savings for these types of programs. 

X Appendix B. Energy Efficiency Program Resources
 B-7 
 

 

 

 

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Program administrators usually have about three 

months to develop and submit their program plans. 

Similarly, oversight authorities typically need about 

three months to review and approve or suggest modifications to plans. In order to ensure programs are 

implemented as quickly as possible once approved, 

program administrators issue requests for proposals 

during this time period (if they did not do so earlier) 

and contracts decisions are made contingent upon 

approval by the oversight authority (Geller 2006). 

Evaluating Energy Efficiency 

Investments 

Evaluation is important for sustaining the success of 

and support for energy efficiency programs and for 

helping to determine future investment strategies. 

Unless program overseers can show concrete and 

robust program results in line with their stated objectives, decisionmakers may not re-authorize the program, the program may become vulnerable to funding 

shifts or other forms of erosion, and public funds may 

be poorly spent. State policymakers are promoting 

evaluation requirements both during program development and after program implementation. 

Key elements of state evaluation programs are 

shown in the box, Best Practices: Evaluating Energy 

Efficiency Programs. Four key aspects of an effective 

evaluation strategy are addressed below: 

• Addressing multiple objectives. 

• Managing evaluation activities. 

• Measuring energy savings. 

• Coordinating with other states and regions. 

Addressing Multiple Objectives 

Evaluation is used to inform ongoing decisionmaking, 

improve program delivery, verify energy savings 

claims, and justify future investment in energy efficiency as a reliable energy resource. Engaging in 

evaluation during the early stages of program development can save time and money by identifying program inefficiencies and suggesting how program 

funding can be optimized. It also helps ensure that 

critical data are not lost. 

Best Practices: Evaluating Energy Efficiency 

Programs 

•	 Evaluate programs regularly, rigorously, and costeffectively. 

•	 Use methods that have been proven over time in 

other states, adapting them to state-specific needs. 

•	 Provide both “hard numbers” on quantitative impacts 

and process feedback on the effectiveness of program operations and methods for improving delivery. 

•	 Use independent third parties, preferably with 

strong reputations for quality and unbiased analysis. 

•	 Measure program success against stated objectives, providing information that is detailed enough 

to be useful and simple enough to be understandable to nonexperts. 

•	 Provide for consistent and transparent evaluations 

across all programs and administrative entities. 

•	 Communicate results to decisionmakers and stakeholders in ways that demonstrate the benefits of the 

overall program and individual market initiatives. 

•	 Maintain a functional database that records customer participation over time and allows for reporting on geographical and customer class results. 

Some states incorporate specific reporting and evaluation requirements into their energy plans and 

include feedback loops to guide future iterations of 

the plan. For example, Oregon’s Biennial Energy Plan 

(2003–2005) includes a section that reviews the previous year’s achievements. The Iowa Department of 

Natural Resources prepares a comprehensive energy 

plan update every two years, reporting on energy 

consumption and progress in improving energy efficiency and expanding renewable energy use. Many 

states require evaluation activities to be incorporated 

into an ongoing program planning, design, implementation, and evaluation cycle to meet multiple 

objectives. For example, the New York State Energy 

Research and Development Agency (NYSERDA) conducts evaluations to: 

• Identify program goals and key output and outcome 

measures that provide indicators of program success. 

• Review measurement and verification (M&V) protocols used to evaluate programs and verify energy 

savings estimates to determine if estimates are 

reasonably accurate. 

B-8 X Appendix B. Energy Efficiency Program Resources
 
 

 

 

 

 

 

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• Evaluate program processes to determine how and 

why programs deliver or fail to deliver expected 

results. 

• Characterize target markets, determine changes 

observed in the market, and identify the extent to 

which these changes can be attributed to the 

state’s energy efficiency programs. 

• Communicate with decisionmakers and stakeholders about the benefits of the overall efficiency 

program and results of individual programs. 

• Refine program delivery models based on evaluation findings (NYSERDA 2004b). 

Evaluation addresses different objectives at various 

stages of program design and implementation. Thus, 

what is measured depends on the implementation 

phase and the specific program component being 

evaluated. Table B.2 presents a hypothetical example 

of when evaluation activities could be conducted 

throughout the life of a program, recognizing that 

program evaluation is a dynamic process. 

Managing Evaluation Activities 

Since evaluation is complex, and different types of 

evaluation are needed at various stages of program 

design and implementation, states may wish to tap 

into their energy efficiency advisory group, form a 

Table B.2: Examples of Evaluation Activities by Energy Efficiency Program Phase
 

Program Phase Common Evaluation Activities 

Pre-Program Research and 

Assessment 

• Perform needs assessment. 

• Establish baseline and research markets. 

• Perform scoping study (e.g., define program 

objectives). 

Program Design, Research, and 

Evaluation 

• Develop and document theory of how 

program will work (i.e., a “program logic 

model”). 

• Define program outcomes. 

• Assess cost-effectiveness. 

• Establish indicators of, and metrics for, 

program performance. 

• Identify data sources and specify data quality 

objectives. 

• Establish evaluation management plan. 

• Incorporate program refinements into formal 

program design. 

Pilot Program • Test concepts and program logic. 

• Measure participant satisfaction. 

• Assess measurement methods and program 

scope. 

• Incorporate program refinements into formal 

program design. 

• Analyze implementation processes. 

Full-Scale Implementation • Track and monitor established indicators. 

• Report on program performance according 

to planned schedule. 

• Introduce program refinements. 

• Incorporate program refinements into 

formal program design. 

• Adjust data collection and reporting needs as 

necessary. 

• Analyze implementation processes. 

Mature Program • Reassess adequacy of program logic; 

update as needed. 

• Estimate costs and benefits. 

• Assess progress against indicators. 

• Report on progress toward goals. 

• Introduce program refinements. 

• Incorporate program refinements into formal 

program design. 

• Assess measurement methods. 

• Assess program effectiveness in terms of 

end results. 

• Assess impacts attributable to the program. 

Source: Compiled by EPA based on multiple sources. 

X Appendix B. Energy Efficiency Program Resources B-9 
 

 

EPA Clean Energy-Environment Guide to Action
 

separate evaluation advisory group, or hire a professional advisor to guide evaluation investments. These 

entities can help assess available resources, identify 

and help prioritize evaluation activities, determine 

areas of uncertainty in a program or portfolio, and 

assess the maturity of a program. For example, advisors can be used to help identify and prioritize which 

assumptions used in the portfolio planning and costeffectiveness screening process may need to be 

reassessed based on the parameters that are most 

uncertain or sensitive (e.g., if estimated incorrectly, 

could greatly affect overall savings estimates) or the 

programs or measures that account for the majority of 

portfolio savings estimates. Parameters may include: 

• Hours of use. 

• Assumed life of the measure (e.g., number of years 

that the product, home, or building will perform 

efficiently). 

• Individual customer’s interaction with the product, 

home, or building. 

• Accuracy of engineering estimates (e.g., how a 

product performs in a lab or engineering simulation 

compared with how it performs after installation). 

Identifying and reassessing potential weaknesses 

early in the process can help improve subsequent 

year program plans and forecasts and help ensure 

that no major surprises are uncovered during the 

impact evaluation process (described below in 

Conducting Impact Evaluation). In addition, an advisory group can help determine which evaluation 

activities are best managed by the implementing 

organization and which should be managed by 

another, third-party organization. The California 

Measurement Advisory Council (CALMAC) is an 

example of a highly sophisticated advisory group. 

CALMAC provides the state with a forum for developing, implementing, and reviewing evaluation studies related to its public benefits fund [PBF]-based 

energy efficiency programs (CALMAC 2005). 

Measuring Energy Savings 

States are measuring their energy efficiency savings 

using strategies and protocols that are increasingly 

credible, transparent, and consistently applied. The 

main elements and issues to be considered when 

conducting an impact evaluation, evaluating a market-based efficiency program, or adopting projectlevel M&V protocols are described as follows. 

Conducting Impact Evaluation 

An evaluation of program impacts is designed to 

identify and measure energy savings and other program impacts. Impact evaluation assesses the net 

effect of a program by comparing program impacts 

with an estimate of what would have happened in 

the absence of a program. In the context of energy 

efficiency, this typically includes an estimate of the 

energy reduction and peak reduction impacts. Impact 

evaluations review each of the assumptions used in 

energy and peak savings claims, in addition to the 

current market penetration of the energy-efficient 

product or service compared to the baseline. 

Impact evaluation also typically addresses the impact 

of “free riders” (i.e., people who participate in the 

energy efficiency program, but who would have 

taken the energy efficiency action without the program) and sometimes addresses “free drivers” (i.e., 

people who are influenced into action by the program, but don’t participate in the program). Several 

states, including New York, California, Connecticut, 

Oregon, and Wisconsin, have conducted comprehensive impact evaluations of their PBF programs for 

energy efficiency. For example, NYSERDA measures 

and tracks its PBF investments and conducts quarterly and annual evaluations of the Energy $mart program. It analyzes the cost-effectiveness of the 

program, permanent and peak-load energy and 

cost-savings to customers, economic impacts, and 

reductions in greenhouse gases and criteria pollutants (NYSERDA 2004b). 

B-10 X Appendix B. Energy Efficiency Program Resources
 
 

 

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EPA Clean Energy-Environment Guide to Action
 

Considerations for Market-Based Energy 

Efficiency Programs 

Market-based energy efficiency programs are 

designed to create a lasting change in the availability and selection of energy-efficient alternatives. In 

addition, benefits of a market-based program design 

include greater adoption of efficiency offerings and 

spillover effects (i.e., the effect of a program to 

induce other customers to invest in energy efficiency 

even without a program incentive). These programs 

often rely on existing market channels (e.g., retailers 

and contractors) for delivery and operate on the 

principle that inherent barriers need to be overcome 

for a customer to choose an energy-efficient product, home, building, or service. Market-based efficiency programs deploy a series of interventions to 

overcome those barriers and foster lasting change. 

Market-based energy efficiency programs can be a 

highly cost-effective part of an energy efficiency program portfolio, but because they interact with established markets for products and services—and in many 

cases work closely with national programs such as 

ENERGY STAR (ENERGY STAR 2005)—it is important 

that new programs establish and document baselines 

and articulate program theory or logic from the 

onset. Establishing a baseline involves determining 

the current market share for the high-efficiency product or service and then projecting how the market 

would change over time in the absence of the program. Articulating the program theory or logic 

involves assessing the barriers to greater adoption, 

the program activities or interventions that will overcome these barriers, and the indicators that will be 

used to determine if the program is working as anticipated. Sample barriers, interventions, and indicators 

are summarized in Table B.3. Documenting the baseline 

and program theory lays the foundation for assessing 

and correcting problems with program design and sets 

the stage for eventual impact evaluation. 

Adopting Project-Level Measurement and 

Verification (M&V) Protocols 

Many states with active energy efficiency programs 

rely on accepted practices and methods approved by 

their respective regulatory commissions as the basis 

for measuring and verifying energy efficiency savings. Some states (e.g., Texas and California) have 

gone further and documented the key assumptions 

used to calculate energy and demand savings in a 

technical reference manual, providing a level of 

transparency. Other states reference specific verification protocols (i.e., specifying a required verification 

methodology or level of rigor). Without formal evaluation protocols, states will not have access to readily 

available and transparent energy savings data. 

To improve the consistency, accuracy, and comparability of their efficiency initiatives, a number of 

states have adopted the International Performance 

Measurement and Verification Protocol (IPMVP). The 

IPMVP is an accepted industry standard that provides 

an overview of best practice techniques for verifying 

energy savings from facility-level and other efficiency initiatives. It is used by California, Florida, Iowa, 

Texas, New York, and Illinois to support system planning needs, clean energy portfolio standards, and 

carbon reduction programs (IPMVP 2005). EPA also 

Table B.3: Issues to Consider When Documenting Energy Efficiency Program Logic
 

Barriers Interventions Mid Term Indicators Long Term Indicators 

• Lack of awareness. 

• Lack of supply. 

• Higher first cost. 

• Consumer education. 

• Supplier education and 

incentives. 

• Education on reduced 

operating costs. 

• Financial incentives (e.g., 

rebate, buy-down). 

• Increased awareness. 

• Increased supply of product 

or service. 

• Increased knowledge. 

• Use of financial incentive. 

• Behavior change. 

• Change in manufacturing 

practice. 

• Reduction in price premium. 

Source: Compiled by EPA based on multiple sources. 

X Appendix B. Energy Efficiency Program Resources B-11 
 

 

EPA Clean Energy-Environment Guide to Action
 

recommends the protocol to states participating in 

the NO SIP Call program.51 The objectives of the x 

IPMVP are to: 

• Increase certainty, reliability, and savings level 

(with a focus on the persistence of savings several 

years after installation). 

• Reduce transaction costs by providing an international, industry consensus approach and 

methodology. 

• Reduce financing costs by providing project M&V 

standardization, thereby allowing project bundling 

and pooled project financing. 

• Provide a basis for demonstrating emission reduction and delivering enhanced environmental quality. 

• Provide a basis for negotiating contractual terms 

to ensure that an energy efficiency project 

achieves or exceeds its goals of saving money and 

improving energy efficiency (Seattle 2006). 

The IPMVP provides a flexible set of M&V approaches (see Options A, B, C and D in Table B.4) for evaluating energy savings in buildings. These four options 

are designed to match project costs and savings 

requirements with particular efficiency measures 

and technologies (Fine and Weil 2000). Each option 

is applicable to different programs and projects 

based on factors such as the complexity of the efficiency measures under evaluation and the risk 

expectations. Accordingly, each option varies in 

accuracy and cost of implementation, as well as 

strengths and limitations. 

Coordinating with Other States and 

Regions 

State adoption of evaluation protocols is critical as 

policymakers and regulators turn to energy efficiency 

as a least-cost, short-term strategy to help meet 

regional transmission needs, offset increasing energy 

costs, and comply with multi-state commitments to 

reduce air emissions. States are increasingly complementing their existing energy efficiency policies (e.g., 

building energy codes, appliance standards, and public 

benefits charge-funded programs) with strategies that 

treat efficiency as a resource in the context of regional energy system and environmental frameworks. 

States can adopt credible and transparent evaluation 

protocols to advance a range of regional policies and 

initiatives, including the following: 

•	 Integrating Energy Efficiency into Resource 

Procurement Processes. Developing consistent protocols to measure, verify, and report efficiency savings in a region can help states and regions evaluate the energy efficiency resource on a comparable 

basis with electricity generation resources in the 

context of clean energy portfolio standards, portfolio management, and demand response programs. A 

common evaluation protocol allows efficiency savings to be readily compared, aggregated, and ultimately integrated into broader system plans. 

•	 Serving As the Basis for Documenting Emission 

Reductions Associated with Energy Efficiency 

Programs/Projects. As states and regions encourage energy efficiency as an emission reduction 

strategy under regulatory “cap and trade” programs, accurate and transparent evaluation protocols for energy savings are necessary to document 

reductions and secure credits associated with 

energy efficiency programs and projects. Texas and 

Wisconsin are among the states and regions that 

have analyzed the emission impacts associated 

with their state’s energy efficiency programs. In 

Wisconsin, the evaluation team developed emission factors for the marginal generating units for 

different time periods (e.g., peak and off-peak 

hours during the winter and summer) and used 

these factors to analyze the effects of different 

energy efficiency programs (Erickson et al. 2004). 

•	 Improving Regional Energy Efficiency Modeling and 

Forecasting. Various state and regional energy 

modeling efforts (e.g., efficiency potential studies 

and regional climate change modeling) require a 

consistent characterization of energy efficiency 

projects and programs. This includes estimates of 

savings and costs, as well as how efficiency savings 

assumptions are likely to change in the future. 

51	 These and other M&V resources are described in the EPA report, Creating an Energy Efficiency and Renewable Energy Set-Aside in the NO Budget 

Trading Program: Measuring and Verifying Energy Savings (EPA forthcoming). 

B-12 X Appendix B. Energy Efficiency Program Resources 

x 
 

 

 

 

 

 

 

 

 

EPA Clean Energy-Environment Guide to Action
 

Table B.4: IPMVP Measurement and Verification Options
 

M&V Option How Savings Are Calculated Cost Typical Applications 

Option A. Partially Measured 

Retrofit Isolation: Savings determined by partial field measurement of the energy use of the 

system to which a measure was 

applied, separate from the energy use of the rest of the facility. 

Focuses on physical assessment of equipment changes to 

ensure the installation is to 

specification. Key performance 

factors (e.g., lighting wattage or 

chiller efficiency) are determined with spot or short-term 

measurements. Operational factors (e.g. lighting operating 

hours or cooling ton-hours) are 

stipulated based on analysis of 

historical data or spot/shortterm measurements. 

Performance factors and proper 

operation are measured or 

checked annually. 

Engineering calculations using 

spot or short-term measurements, computer simulations, 

and/or historical data. 

Dependent on number of measurement points. Approximately 

1% to 5% of project construction cost of items subject to 

M&V. 

Lighting retrofit where power 

draw is measured periodically. 

Operating hours of the lights are 

assumed to be one-half hour 

per day longer than a store’s 

open hours. 

Option B. Retrofit Isolation: Engineering calculations using Dependent on number and type Application of controls to vary 

Savings determined after proj­ metered data. of systems measured and the the load on a constant speed 

ect completion by short-term or term of analysis/metering. pump using a variable speed 

continuous measurements Typically 3% to 10% of project drive. Electricity use is meastaken throughout the term of the construction cost of items sub­ ured by a kWh meter installed 

contract at the device or system ject to M&V. on the electrical supply to the 

level. Performance and opera- pump motor. In the base year, 

tions factors are monitored. this meter is in place for a week 

to verify constant loading. The 

meter is in place through the 

post-retrofit period to track variations in energy use. 

Option C. Whole Facility: After 

project completion, savings 

determined at the “whole-building” or facility level using current year and historical utility 

meter (gas or electricity) or submeter data. Short-term or continuous measurements are 

taken throughout the postretrofit period. 

Analysis of utility meter (or submeter) data using techniques 

from simple comparison to multivariate (hourly or monthly) 

regression analysis. 

Dependent on number and complexity of parameters in analysis. Typically 1% to 10% of project construction cost of items 

subject to M&V. 

Multi-faceted energy management program affecting many 

systems in a building. Energy 

use is measured by gas and 

electric utility meters for a 

twelve-month base year period 

and throughout the post-retrofit 

period. 

Option D. Calibrated Simulation: Calibrated energy simulation/ Dependent on number and com­ Multi-faceted energy manageSavings determined through modeling; calibrated with hourly plexity of systems evaluated. ment program affecting many 

simulation of facility compo- or monthly utility billing data Typically 3% to 10% of project systems in a building but where 

nents and/or the whole facility. and/or end-use metering. construction cost of items sub- no base year data are available. 

Simulation routines must be ject to M&V. Post-retrofit period energy use 

demonstrated to adequately is measured by gas and electric 

model actual energy perform- utility meters. Base year energy 

ance measured in the facility. use is determined by simulation 

using a model calibrated by the 

post-retrofit period utility data. 

Sources: IPMVP 2002 and Seattle 2006. 

X Appendix B. Energy Efficiency Program Resources B-13 
 

 

 

 

 

 

 

 

 

EPA Clean Energy-Environment Guide to Action
 

•	 Incorporating energy efficiency more effectively 

into regional electric power system planning. 

Consistent evaluation and reporting protocols are 

necessary to determine the total impact that energy efficiency can have within a regional electricity 

system. Similarly, a common reporting protocol 

allows two or more adjoining power pools to 

ensure consistency when analyzing interchange 

and trade activities. 

•	 Assessing the impact of energy efficiency on reducing natural gas demand for electric power generation. Energy efficiency can play a significant role 

in reducing forecasted natural gas demand. 

Common protocols for efficiency savings help policymakers, system planners, and other analysts 

increase the accuracy and reliably of estimates of 

the impact that efficiency initiatives can have on 

natural gas demand. 

Information Resources 

Developing Program Cost Estimates 

•	 Improving the comparability of energy efficiency 

program cost and value in a region. Greater consistency in the methods used to determine the cost 

(e.g., $/kWh) and value (e.g., avoided generation, 

and T&D costs) of energy efficiency projects and 

programs allows for better comparison of efficiency relative to other resources. It also allows policymakers, regulators, program administrators, and 

other parties to more reliably compare program 

performance across states (NEEP 2006). 

Title/Description URL Address 

California Regulatory–Energy Efficiency Filings. Monthly Program Reports. This 

Web site contains monthly program reports on energy efficiency filed by 

Southern California Edison. 

www.sce.com/AboutSCE/Regulatory/ 

eefilings/MonthlyReports.htm 

Minnesota Electric and Gas Conservation Improvement Program Biennial Plan for 

2005 and 2006. Docket No. E, G002/CIP-04. Submitted to the Minnesota 

Department of Commerce by Xcel Energy. June 1, 2004. 

URL not available. 

New York New York Energy $mart Program Cost-Effectiveness Assessment. This 

report is a benefit-cost analysis to assess the cost-effectiveness of 18 

individual New York Energy $mart public benefits programs. 

http://www.nyserda.org/Energy_ 

Information/ContractorReports/Cost 

-Effectiveness_Report_June05.pdf 

Northwest The Fifth Northwest Electric Power and Conservation Plan. Document 

2005-7. This plan is a blueprint for an adequate, low-cost, and low-risk 

energy future. Technical appendices include conservation costeffectiveness methodologies. 

http://www.nwcouncil.org/energy/ 

powerplan/plan/Default.htm 

Vermont Efficiency Vermont. 2002 Annual Report. The Power of Efficient Ideas. 

This summary highlights the 2002 accomplishments of Efficiency 

Vermont. 

http://www.efficiencyvermont.org/ 

index.cfm?L1=292&L2=535&L3=537 

&sub=bus 

or 

Contact Efficiency Vermont at 1-888­

921-5990. 

B-14 X Appendix B. Energy Efficiency Program Resources
 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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Cost-Effectiveness Tests 

Title/Description URL Address 

California The California Standard Practice Manual: Economic Analysis of Demand 

Side Programs and Projects. This manual describes cost-effectiveness 

procedures for conservation and load management programs from four 

major perspectives: Participant, Ratepayer Impact Measure (RIM), 

Program Administrator Cost (PAC), and Total Resource Cost (TRC). A fifth 

perspective, the Societal test, is treated as a variation on the TRC test. 

http://drrc.lbl.gov/pubs/CA-SPManual7-02.pdf 

Oregon Cost Effective Policy and General Methodology for the Energy Trust of 

Oregon. This report describes the Energy Trust of Oregon’s policy for 

analyzing the cost-effectiveness of its energy efficiency investments. 

This policy encompasses three generic perspectives—Consumer, Utility 

System, and Societal. 

http://www.energytrust.org/Pages/ 

about/library/policies/4.06_ 

CostEffect.pdf 

All States Tools and Methods for Integrated Resource Planning: Improving Energy 

Efficiency and Protecting the Environment. This report provides information on calculating and analyzing the cost effectiveness of energy conservation measures against supply-side options, as well as methods for 

integrated resource planning. 

http://uneprisoe.org/IRPManual/ 

IRPmanual.pdf 

Deemed Savings
 

Title/Description URL Address 

California 2005 Measure Cost Study. Final Report. CALMAC Study ID: PGE0235.01 

This report provides cost information on the non-weather-sensitive and 

weather-sensitive residential and nonresidential measures and refrigeration measures that are included in the Database for Energy Efficiency 

Resources (DEER) and used by energy efficiency program planners in 

California to estimate potential demand and energy savings and costs. 

http://calmac.org/publications/ 

MCS_Final_Report.pdf 

New Jersey New Jersey Clean Energy Program Protocols to Measure Resource 

Savings. These protocols were developed to measure energy capacity 

and other resource savings. Specific protocols are presented for each 

eligible measure and technology. 

http://www.njcleanenergy.com/media/ 

Protocols.pdf 

Texas Deemed Savings, Installation & Efficiency Standards. Residential and 

Small Commercial Standard Offer Program, and Hard-to-Reach Standard 

Offer Program. This document contains all of the approved energy and 

peak demand deemed savings values established for energy efficiency 

programs in Texas. 

http://www.puc.state.tx.us/rules/ 

subrules/electric/25.184/25.184fig(d) 

(1).pdf 

Vermont Technical Reference User Manual (TRM) No. 4-19. Measure Savings 

Algorithms and Cost Assumptions Through Portfolio 19. Efficiency 

Vermont provides a set of deemed-savings methods in this manual. 

http://www.efficiencyvermont.org/ 

or 

Contact Efficiency Vermont at 1-888­

921-5990. 

X Appendix B. Energy Efficiency Program Resources
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National Energy Efficiency Potential Analyses
 

Title/Description URL Address 

Emerging Energy-Saving Technologies and Practices for the Buildings Sector As of 2004. 

This study identifies new research and demonstration projects that could help advance 

high-priority emerging technologies, as well as new potential technologies and practices 

for market transformation activities. 

http://aceee.org/pubs/a042toc.pdf 

A Responsible Electricity Future: An Efficient, Cleaner and Balanced Scenario for the U.S. 

Electricity System. This report develops a scenario for the future evolution of the electric 

power system in the U.S., including increased investment in energy efficiency and in 

renewable and distributed generating technology, and compares it with the current situation. 

http://uspirg.org/reports/AResponsible 

ElectrictyFuture.pdf 

Scenarios for a Clean Energy Future, 2000. This document reflects efforts of the 

Interlaboratory Working Group, commissioned by the U.S. Department of Energy, to examine the potential for public policies and programs to foster efficient and clean energy technology solutions. 

http://www.ornl.gov/sci/eere/cef/ 

Screening Market Transformation Opportunities: Lessons from the Last Decade, Promising 

Targets for the Next Decade. This report examines past and recent trends in the market 

transformation field and presents an updated screening analysis and categorization of the 

most promising opportunities. 

http://www.aceee.org/pubs/ 

u022full.pdf 

The Technical, Economic and Achievable Potential for Energy Efficiency in the U.S.—A 

Meta-Analysis of Recent Studies. This study compares the findings from eleven studies on 

the technical, economic, and/or achievable potential for energy efficiency in the U.S. to 

recent-year actual savings from efficiency programs in leading states. 

http://www.aceee.org/conf/04ss/ 

rnemeta.pdf 

Regional Energy Efficiency Potential Analyses
 

Title/Description URL Address 

Midwest Examining the Potential for Energy Efficiency to Address the Natural Gas 

Crisis in the Midwest. The results of this study suggest that a modestly 

aggressive, but pragmatically achievable, energy efficiency campaign 

(achieving about a 5% reduction in both electricity and natural gas customer use over five years) could produce tens of billions of dollars in net 

cost savings for residential, commercial, and industrial customers in the 

Midwest. 

http://www.aceee.org/pubs/u051.htm 

Repowering the Midwest: The Clean Energy Development Plan for the 

Heartland. This Web site is supported by the Environmental Law and 

Policy Center as a source for clean energy information in the Midwest. 

It provides information on the Clean Energy Development Plan for the 

Heartland, which proposes policies to implement underutilized energy 

efficiency technologies and to aggressively develop renewable energy 

resources. 

http://www.repowermidwest.org/ 

B-16 X Appendix B. Energy Efficiency Program Resources
 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EPA Clean Energy-Environment Guide to Action
 

Title/Description URL Address 

Northeast Economically Achievable Energy Efficiency Potential in New England. 

This report provides an overview of areas where energy efficiency 

could potentially be increased in the six New England states. 

http://www.neep.org/files/ 

Updated_Achievable_Potential_ 

2005.pdf 

Electric Energy Efficiency and Renewable Energy in New England: An 

Assessment of Existing Policies and Prospects for the Future. This 

report applies analytical tools, such as economic and environmental 

modeling, to demonstrate the value of consumer-funded energy efficiency programs and renewable portfolio standards and addresses 

market and regulatory barriers. 

http://raponline.org/Pubs/ 

RSWS-EEandREinNE.pdf 

NEEP Initiative Review: Commercial/Industrial Sectors Qualitative 

Assessment and Initiative Ranking. The purpose of this study is to 

assist Northeast Energy Efficiency Partnerships, Inc. (NEEP) in reviewing the value and future role of existing and potential residential initiatives through a scoring and ranking system that was developed to provide a consistent means of comparing the initiatives. 

www.neep.org/html/ 

NEEP_C&IReview.pdf 

NEEP Strategic Initiative Review: Qualitative Assessment and Initiative 

Ranking for the Residential Sector. Synapse Energy Economics. 

Submitted to Northeast Energy Efficiency Partnerships, Inc., October 1, 

2004. 

http://www.neep.org/html/ 

NEEP_ResReview.pdf 

Northwest The Fifth Northwest Electric Power and Conservation Plan. Document 

2005–2007. This plan is a blueprint for an adequate, low-cost, and lowrisk energy future. Technical appendices include conservation costeffectiveness methodologies. 

http://www.nwcouncil.org/energy/ 

powerplan/plan/Default.htm 

Southeast Powering the South, A Clean & Affordable Energy Plan for the 

Southern United States. Powering the South shows that a clean generation mix can meet the region’s power demands and reduce pollution 

without raising the average regional cost of electricity and lists the 

policy initiatives that can make the changes. 

http://poweringthesouth.org/report/ 

Southwest The Potential for More Efficient Electricity Use in the Western U.S.: 

Energy Efficiency Task Force Draft Report to the Clean and Diversified 

Energy Advisory Committee of the Western Governor’s Association, 

Draft Report for Peer Review and Public Comment. This report demonstrates how the adoption of best practice energy efficiency policies 

and programs in all western states could reduce most of projected 

load growth during 2005–2020, reduce overall electricity consumption, 

and yield economic and environmental benefits. 

http://www.westgov.org/wga/ 

initiatives/cdeac/ 

Energyefficiencydraft9-15.pdf 

The New Mother Lode: The Potential for More Efficient Electricity Use 

in the Southwest. This report for the Southwest Energy Efficiency 

Project examines the potential for and benefits from increasing the 

efficiency of electricity use in the southwest states of Arizona, 

Colorado, Nevada, New Mexico, Utah, and Wyoming. 

http://www.swenergy.org/nml/ 

index.html 

Economic Assessment of Implementing the 10/20 Goals and Energy 

Efficiency Recommendations. This report examines the Grand Canyon 

Visibility Transport Commission air pollution prevention recommendations. It articulates the potential emission reductions, costs, and secondary economic impacts of meeting the 10/20 goals and implementing 

the energy efficiency recommendations given the assumptions and 

scenarios developed by the Air Pollution Prevention (AP2) forum. 

http://www.wrapair.org/forums/ap2/ 

docs.html 

X Appendix B. Energy Efficiency Program Resources
 B-17 
 

 

 

 

 

 

 

 

 

 

 

 

EPA Clean Energy-Environment Guide to Action
 

Title/Description URL Address 

Southwest A Balanced Energy Plan for the Interior West. This report shows how 

energy efficiency, renewable energy, and combined heat and power 

resources can be integrated into the region’s existing power system to 

meet growing electric demands in a way that is cost-effective, reduces 

risk, is reliable, and improves environmental quality for the Interior 

West region of Arizona, Colorado, Montana New Mexico, Nevada, 

Utah, and Wyoming. 

http://westernresources.org/energy/ 

bep.html 

State Energy Efficiency Potential Analyses/Energy Strategies
 

Title/Description URL Address 

California California’s Secret Energy Surplus: The Potential for Energy Efficiency. 

This study focuses on assessing electric energy efficiency potential in 

California through the assessment of technical, economic, and achievable potential savings over the next 10 years. 

http://www.ef.org/documents/ 

Secret_Surplus.pdf 

Connecticut Independent Assessment of Conservation and Energy Efficiency 

Potential for Connecticut and the Southwest Connecticut Region. This 

study estimates the maximum achievable cost-effective potential for 

electric energy and peak demand savings from energy efficiency 

measures in the geographic region of Connecticut served by United 

Illuminating Company and Connecticut Light and Power Company. 

http://www.env-ne.org/ 

Publications/CT_EE_MaxAchievable 

Potential%20Final%20ReportJune%202004.pdf 

Georgia Assessment of Energy Efficiency Potential in Georgia. This report presents a profile of energy use in Georgia, the potential for, and public 

benefits of, energy efficiency, and a public policy review. 

http://www.gefa.org/pdfs/ 

assessment.pdf 

Iowa The Potential for Energy Efficiency in Iowa. This report uses existing 

programs, surveys, savings calculators, and economic simulation to 

estimate the potential for energy savings in Iowa. 

http://www.ornl.gov/sci/btc/apps/ 

Restructuring/IowaEEPotential.pdf 

Massachusetts The Remaining Electric Energy Efficiency Opportunities in 

Massachusetts. This report addresses the remaining electric energy 

efficiency opportunities in the residential, commercial, and industrial 

sectors in Massachusetts. 

http://www.mass.gov/doer/pub_info/ 

e3o.pdf 

Nevada Nevada Energy Efficiency Strategy. Nevada has taken a number of 

steps to increase energy efficiency. This report provides 14 policy 

options for further increasing the efficiency of electricity and natural 

gas and reducing peak power demand. 

http://www.swenergy.org/pubs/Nevada 

_Energy_Efficiency_Strategy.pdf 

New Jersey New Jersey Energy Efficiency and Distributed Generation Market 

Assessment. This study estimates mid- and long-term potential for 

energy and peak-demand savings from energy efficiency measures 

and for distributed generation in New Jersey. 

http://www.bpu.state.nj.us/ 

cleanEnergy/KemaReport.pdf 

B-18 X Appendix B. Energy Efficiency Program Resources
 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EPA Clean Energy-Environment Guide to Action
 

Title/Description URL Address 

New York Energy Efficiency And Renewable Energy Resource Development 

Potential In New York State. Final Report Volume One: Summary 

Report. This study examines the long-range potential for energy efficiency and renewable energy technologies to displace fossil-fueled 

electricity generation in New York by looking at the potential available 

from existing and emerging efficiency technologies and practices and 

by estimating renewable electricity generation potential. 

http://www.nyserda.org/publications/ 

EE&ERpotentialVolume1.pdf 

Oregon Energy Efficiency and Conservation for the Residential, Commercial, 

Industrial, and Agricultural Sectors. This report is designed to inform 

the project development and selection process for a list of potential 

energy efficiency and renewable energy measures that could provide 

electricity savings for Oregon consumers. 

http://www.energytrust.org/Pages/ 

about/library/reports/Resource_ 

Assesment/ETOResourceAssess 

Final.pdf 

Natural Gas Efficiency and Conservation Measure Resource 

Assessment for the Residential and Commercial Sectors. This is a 

resource assessment to evaluate potential natural gas conservation 

measures that can be applied to the residential and commercial building stock serviced by Northwest Natural Gas. 

http://www.energytrust.org/Pages/ 

about/library/reports/ 

Resource_Assesment/GasRptFinal_ 

SS103103.pdf 

Pennsylvania Economic Impact of Renewable Energy in Pennsylvania. Final Report. 

This report presents an analysis of the potential economic impacts of 

renewable energy development in Pennsylvania spurred by a renewable portfolio standard. 

http://www.bv.com/energy/eec/ 

studies/PA_RPS_Final_Report.pdf 

Wisconsin Energy Efficiency and Customer-Sited Renewable Energy: Achievable 

Potential in Wisconsin. The Governor’s Task Force on Energy 

Efficiency and Renewables commissioned the Energy Center of 

Wisconsin to estimate the achievable potential for energy efficiency 

and customer-sited renewable energy. 

http://energytaskforce.wi.gov/ 

section.asp?linkid=34 

Evaluation and Measurement and Verification Resources
 

Title/Description URL Address 

Applications Team: Energy-Efficient Design Applications. This site provides numerous 

resources, ranging from implementation guidelines to checklists and other resources, to 

help organizations implement an M&V program. 

http://ateam.lbl.gov/mv/ 

ASHRAE Guideline 14-2002. Measurement of Energy and Demand Savings. American 

Society of Heating, Refrigerating and Air Conditioning Engineers. June 2002. This guidance 

describes how to reliably measure energy savings of commercial equipment, using measured pre- and post-retrofit data. 

http://www.ashrae.org/template/Asset 

Detail/assetid/15275 

California’s 2003 Non-Residential Standard Performance Contract Program M&V 

Procedures Manual. This manual provides general guidelines for preparing an M&V plan, 

choosing an M&V option and method, defining and adjusting baselines, and collecting and 

submitting M&V data. 

http://www.pge.com/docs/pdfs/biz/ 

rebates/spc_contracts/2000_on_ 

peak_incentive/III-m&v.pdf 

http://www.pge.com/spc 

X Appendix B. Energy Efficiency Program Resources
 B-19 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EPA Clean Energy-Environment Guide to Action
 

Title/Description URL Address 

The California Evaluation Framework, prepared for the California Public Utilities 

Commission and the Project Advisory Group, June 2004. The California Evaluation 

Framework provides a consistent, systemized, cyclic approach for planning and conducting evaluations of California’s energy efficiency and resource acquisition programs. It 

provides information on when evaluations should be conducted, the types of evaluation 

that can be conducted, and approaches for conducting these studies. 

http://www.fypower.org/feature/ 

workshop_docs/workshop_5/ 

ca_eval_framework_0604.pdf 

California Measurement Advisory Council Web Site. California’s statewide CALMAC evaluation clearinghouse contains resources for deemed savings and project-specific M&V 

techniques. 

http://www.calmac.org 

The CEE Market Assessment and Program Evaluation Clearinghouse (MAPE). This is a 

fully searchable Web-based database that contains more than 300 evaluation reports, 

market characterization studies, and market assessments. 

http://www.cee1.org/eval/ 

clearinghouse.php3 

Creating an Energy Efficiency and Renewable Energy Set-Aside in the NOx Budget 

Trading Program: Measuring and Verifying Electricity Savings. This forthcoming EPA 

report describes key M&V resources. 

Contact EPA. 

EE/RE Measurement and Verification and Emissions Quantification: General 

Considerations State Technical Forum on EE/RE Call #3, December 16, 2004. This is a 

PowerPoint presentation comparing M&V with emissions quantification procedures. 

http://www.keystone.org/ 

Overview_M_and_V_Dec_16.pdf 

Electric and Gas Conservation Improvement Program Biennial Plan for 2005 and 2006. 

Docket No. E, G002/CIP-04. This plan was submitted to the Minnesota Department of 

Commerce by Xcel Energy, June 1, 2004. 

URL not available. 

Evaluation, Measurement and Verification Workshop. The California Public Utilities 

Commission (CPUC) held several workshops on EM&V. The primary purpose of these 

workshops was to discuss the performance basis, metrics, and protocols for evaluating 

and measuring energy efficiency programs, including incentive, training, education, marketing, and outreach programs. 

http://www.fypower.org/feature/ 

workshops/workshop_5.html 

The final Decision can be found at: 

http://www.cpuc.ca.gov/PUBLISHED/ 

FINAL_DECISION/45783.htm 

The Fifth Northwest Electric Power and Conservation Plan. May 2005. Document 2005-7. 

This plan is a blueprint for an adequate, low-cost, and low-risk energy future. Technical 

appendices include conservation cost-effectiveness methodologies. 

http://www.nwcouncil.org/energy/ 

powerplan/Default.htm 

Highly Cost-Effective Savings—Appliance Efficiency Standards and Utility Programs. 

August 18, 2005. Douglas Mahone. Heschong Mahone Group, Inc. This is a presentation 

made at the 2005 IEPEC Program Evaluation conference. 

http://www.iepec.org/index_agenda.htm 

International Energy Program Evaluation Conference Abstracts. This Web site provides 

abstracts of peer-reviewed evaluation research from past conferences. 

http://www.iepec.org/ 

index_abstractsonline.htm 

International Performance Measurement and Verification Protocol Web Site. IPMVP Inc. 

is a nonprofit organization that develops products and services to aid in the M&V of 

energy and water savings resulting from energy/water efficiency projects—both retrofits 

and new construction. The site contains the IPMVP, a series of documents for use in 

developing an M&V strategy, monitoring indoor environmental quality, and quantifying 

emission reductions. 

www.ipmvp.org 

New York State Energy Research and Development Authority (NYSERDA) Standard 

Performance Contracting Program Measurement and Verification Guideline, 2003. This 

Web site presents NYSERDA’s New York Energy $mart program application and guidelines for contractors for performance-based incentives to implement cost-effective electrical efficiency improvements or summer demand reduction for eligible customers. 

http://www.nyserda.org/funding/ 

855PON.html 

B-20 X Appendix B. Energy Efficiency Program Resources
 
 

 

 

 

 

 

 

EPA Clean Energy-Environment Guide to Action
 

Title/Description URL Address 

Oncor Commercial & Industrial Standard Offer Program 2003. Measurement and 

Verification Guidelines. These M&V guidelines include retrofit and new construction and 

default savings values for lighting, motors, and air conditioning equipment. 

http://www.oncorgroup.com/ 

electricity/teem/candi/default.asp 

Standardized Methods for Free-Ridership and Spillover Evaluation—Task 5 Final Report. 

June 16, 2003. PA Knowledge Limited sponsored by National Grid, NSTAR Electric, 

Northeast Utilities, Unitil and Cape Light Compact. This report is used by Massachusetts 

utilities to estimate free ridership and spillover effects. 

Contact PA Consulting at: 

http:///www.paconsulting.com 

Technical Reference User Manual (TRM) No. 4-19. Measure Savings Algorithms and Cost 

Assumptions Through Portfolio 19. Efficiency Vermont provides a set of deemed-savings 

methods in this manual. 

http://www.efficiencyvermont.org/ 

or 

Contact Efficiency Vermont at 1-888­

921-5990. 

Texas Public Utilities Commission. Measurement and Validation Guidelines. May 25, 2005. 

This report, conducted as part of the Texas PUC Energy Efficiency Implementation project 

#30331, includes detailed information about the M&V requirements of the Commercial and 

Industrial Standard Offer Program, as well as guidance for project sponsors on how to 

prepare and execute an M&V plan. 

http://www.puc.state.tx.us/electric/ 

projects/30331/052505/m%26v%5Fgu 

ide%5F052505.pdf 

References
 

Title/Description URL Address 

Biewald, B., T. Woolf, A. Roschelle, and W. Steinhurst. 2003. Synapse Energy Economics, 

Portfolio Management: How to Procure Electricity Resources to Provide Reliable, LowCost, And Efficient Electricity Services to All Retail Customers. October 10. 

http://www.synapse-energy.com/ 

Downloads/SynapseReport.2003­

10.RAP.'Portfolio-Management'03­

24.pdf 

CALMAC. 2005. California Measurement Advisory Council Web Site. http://www.calmac.org 

Connecticut ECMB. 2004. Connecticut Energy Conservation Management Board. 

Independent Assessment of Conservation and Energy Efficiency Potential for Connecticut 

and the Southwest Connecticut Region. June. 

http://www.env-ne.org/ 

Publications/CT_EE_Max 

AchievablePotential%20Final%20 

Report-June%202004.pdf 

CPUC 2005. Interim Opinion: Energy Efficiency Portfolio Plans and Program Funding 

Levels for 2006–2008—Phase 1 Issues. Decision 05-09-043. (See pp. 122–123 and 

Attachment 6.) September 22. 

http://www.cpuc.ca.gov/PUBLISHED/ 

FINAL_DECISION/49859.htm 

ECMB 2005. Energy Conservation Management Board. Energy Efficiency: Investing in 

Connecticut’s Future. Prepared for the Connecticut Legislature Energy &Technology 

Committee, Environment Committee. March 1. 

http://www.env-ne.org/ 

Publications/ECMB%20Annual%20 

Legislative%20Report%202005.pdf 

Efficiency Vermont. 2002. Annual Report. The Power of Efficient Ideas. http://www.efficiencyvermont.org/ 

or 

Contact Efficiency Vermont at 1-888­

921-5990. 

X Appendix B. Energy Efficiency Program Resources
 B-21 
 

EPA Clean Energy-Environment Guide to Action
 

References (continued)
 

Title/Description URL Address 

ENERGY STAR 2005. ENERGY STAR Web Site. Partner Resources: Service & Product 

Providers. Accessed December 2005. 

http://www.energystar.gov/ 

index.cfm?c=spp_res.pt_spps 

EPA. Forthcoming Report. Creating an Energy Efficiency and Renewable Energy SetAside in the NOx Budget Trading Program Measuring and Verifying Electricity Savings. 

Contact EPA. 

EPA. 2006. Energy Efficiency Best Practices. Draft Report to the Energy Efficiency Action 

Plan Leadership Group. Final report will be available in the summer of 2006. 

http://www.epa.gov/cleanenergy/ 

eeactionplan.htm 

Erickson, J., C. Best, D. Sumi, B. Ward, B. Zent, and K. Hausker. 2004. Estimating 

Seasonal and Peak Environmental Emission Factors—Final Report. Prepared by PA 

Governmental Services for the Wisconsin DOA. May 21. 

http://www.doa.state.wi.us/ 

docs_view2.asp?docid=2404 

Fine, S. and C. Weil. 2000. Crediting Energy Efficiency Measures Under Air Emissions 

Programs. ICF Consulting and U.S. Environmental Protection Agency. ACEEE Summer 

Study on Energy Efficiency in Buildings. 2000. 

http://www.icfconsulting.com/ 

Publications/doc_files/ 

CreditingEEMeasures.pdf 

Geller. 2006. Personal communication with Howard Geller, Southwest Energy Efficiency 

Project (SWEEP). March 1. 

N.A. 

IPMVP. 2005. Efficiency Valuation Organization. International Performance Measurement 

and Verification Protocol Web Site. 

http://www.ipmvp.org/ 

IPMVP. 2002. International Performance Measurement & Verification Committee. 

International Performance Measurement & Verification Protocol: Concepts and Options 

for Determining Energy and Water Savings, Volume 1. DOE/GO-10202-1554. March. 

http://www.ipmvp.org/Documents/ 

ipmvp-vol1.pdf 

Kim, H., Project Manager. Energy Analysis, NYSERDA, May 5, 2005. Calculated based on 

data from New York Energy $mart Program Cost Effectiveness Assessment. December 

2004. 

N.A. 

Nadel, S., A. Shipley, and R. N. Elliot. 2004. The Technical, Economic, and Achievable 

Potential for Energy Efficiency in the US—A Meta Analysis of Recent Studies. American 

Council for an Energy-Efficient Economy, Proceedings from the 2004 ACEEE Summer 

Study on Energy Efficiency in Buildings. August. 

http://www.aceee.org/energy/ 

eeassess.htm 

(Energy Efficiency Potential 

Assessments Web Site) 

http://www.aceee.org/conf/04ss/ 

rnemeta.pdf 

(direct link) 

NEDRI. 2003. Dimensions of Demand Response: Capturing Customer Based Resources in 

New England’s Power Systems and Markets—Report and Recommendations of the New 

England Demand Response Initiative. Prepared for the New England Demand Response 

Initiative. July 23. 

http://www.raponline.org/Pubs/General/ 

FinalNEDRIREPORTJuly2003.pdf 

NEEP. 2006. Northeast Energy Efficiency Partnerships, Inc. The Need for and Approaches 

to Developing Common Protocols to Measure, Verify and Report Energy Efficiency 

Savings in the Northeast. Final Report. January. 

http://www.neep.org/files/ 

Protocols_report.pdf 

B-22 X Appendix B. Energy Efficiency Program Resources
 
 

 

EPA Clean Energy-Environment Guide to Action
 

References (continued)
 

Title/Description URL Address 

The Northwest Power Planning Council. 2005. The Fifth Northwest Electric Power and 

Conservation Plan. Document 2005-7. May. 

http://www.nwcouncil.org/energy/ 

powerplan/plan/Default.htm 

NYSERDA. 2004a. New York Energy $mart Program Evaluation and Status Report. Final 

Report. Volume I, Executive Summary, p. ES-30, New York State Energy Research and 

Development Authority. May. 

http://www.nyserda.org/Energy_ 

Information/04sbcreport.asp 

NYSERDA. 2004b. NYSERDA Web Site. New York Energy $mart Program Evaluation. New 

York State Energy Research and Development Authority, Albany. September. 

http://www.nyserda.org/Energy_ 

Information/evaluation.asp 

Optimal Energy. 2005. Economically Achievable Energy Efficiency Potential in New 

England. Prepared by Optimal Energy, Inc. for the Northeast Energy Efficiency 

Partnerships, Inc. May. 

http://www.neep.org/files/Updated_ 

Achievable_Potential_2005.pdf 

Optimal Energy, Inc., ACEEE, Vermont Energy Investment Corp., Christine T. Donovan 

Associates. 2003. Energy Efficiency and Renewable Energy Resource Development 

Potential In New York State. Volume One: Summary Report. Prepared for NYSERDA. 

August. 

http://www.nyserda.org/publications/ 

EE&ERpotentialVolume1.pdf 

Prindle, B. and N. Elliot. 2006. Personal communication with Bill Prindle and Neal Elliot, 

ACEEE, February 28. 

N.A. 

SCE. 2004. Southern California Edison. Regulatory—Energy Efficiency Filings. Program 

Summary Monthly Reports for SBC-funded programs. December. 

http://www.sce.com/AboutSCE/Regulatory/ 

eefilings/MonthlyReports.htm 

Rufo, M. and F. Coito. 2002. California’s Secret Energy Surplus: The Potential for Energy 

Efficiency. Prepared for the Energy Foundation and the Hewlett Foundation. Xenergy Inc. 

September 23. 

http://www.ef.org/documents/ 

Secret_Surplus.pdf 

Seattle. 2006. Seattle Sustainable Development Web Site. General Introduction to the 

IPMVP. Accessed February 2006. 

http://www.ci.seattle.wa.us/ 

sustainablebuilding/Leeds/docs/ 

IPMVP_summary.pdf 

SWEEP. 2002. Southwest Energy Efficiency Project. The New Mother Lode: The Potential 

for More Efficient Electricity Use in the Southwest. Report for the Hewlett Foundation 

Energy Series. November. 

http://www.swenergy.org/nml/ 

UNEP. 1997. Tools and Methods for Integrated Resource Planning: Improving Energy 

Efficiency and Protecting the Environment. United Nations Environment Programme 

(UNEP). Collaborating Centre on Energy and Environment. J. N. Swisher, G. de Martino 

Jannuzzi, and R. Y. Redlinger. November. 

http://uneprisoe.org/IRPManual/ 

IRPmanual.pdf 

Xcel Energy. 2004. Minnesota. Electric and Gas Conservation Improvement Program 

Biennial Plan for 2005 and 2006. 

Docket No. E, G002/CIP-04 

Submitted to the Minnesota Department 

of Commerce by Xcel Energy, June 1, 

2004. 

X Appendix B. Energy Efficiency Program Resources
 B-23 

 

Appendix C. 


Clean Energy Supply: Technologies,
 

Markets, and Programs
 

This appendix provides an overview of the benefits of 

clean energy supply technologies, including renewable energy (i.e., wind, solar photovoltaics [PV], solar 

thermal, wind, biomass, geothermal, waste-toenergy, and landfill gas/biomass) and combined heat 

and power (CHP). It describes the key market issues 

and challenges related to developing these technologies and concludes with an overview of some of the 

emerging and innovative approaches that states can 

pursue to foster clean energy supply in their states. 

Benefits of Clean Energy Supply 

States are developing initiatives and taking actions 

aimed at bringing reliable sources of energy to the 

marketplace. State and local governments are finding 

that clean energy supply technologies have significant economic and environmental benefits, and 

therefore enjoy widespread public support. These benefits include: 

•	 Increased State Economic Development. Clean 

energy technologies can promote economic development in a variety of ways. Clean energy projects 

create short-term construction and installation 

jobs and provide numerous long-term opportunities associated with new clean energy businesses. 

Alternative energy sources reduce fuel price 

volatility and increase fuel diversity, leading to a 

more stable energy supply portfolio that can be an 

important component of new economic growth. 

Renewable energy draws on local resources that 

can offset imports from out-of-state. Use of these 

in-state resources improves the state balance of 

trade and can create long-term economic value. 

•	 Reduced Energy-Related Environmental Pollution. 

CHP reduces the amount of fuel input per unit of 

energy output and reduces the corresponding 

emissions of pollutants and greenhouse gases. 

Electricity from renewable resources generally 

does not contribute to global climate change or 

local air pollution. In particular, air emissions associated with generating electricity from solar, geothermal, and wind technologies are negligible, 

because no fuels are combusted in these processes. Producing electricity from LFG and biogas 

avoids the need to use nonrenewable resources to 

produce electricity. 

•	 Increased Power Reliability. CHP and renewable 

energy, as distributed generation (DG), reduce 

electricity infrastructure vulnerability. DG facilities 

can help reduce congestion on the electric grid by 

removing or reducing load in areas of high 

demand. They can also be operated independently 

of the grid in the event of a disruption to central 

systems. 

•	 Increased Fuel Diversity. Increased fuel diversity 

avoids over-reliance on a single fuel, which can 

cause disruption or price volatility if the supply of 

that fuel is constrained. Renewable energy technologies broaden the energy mix. CHP can use a 

variety of fuels, including natural gas, coal, biomass, and biogas. 

•	 Efficient Use of Natural Resources. CHP requires 

less fuel for a given energy output, so it reduces 

the demand for finite natural resources, such as 

natural gas and coal. The average efficiency of 

fossil-fueled power plants in the United States is 

33% and has remained virtually unchanged for 40 

years. When purchased electricity is combined 

with onsite thermal generation (assuming 80% 

boiler efficiency), the typical combined efficiency 

is 49%. CHP systems typically achieve overall fuel 

efficiencies of 55% to 80% and reduce fuel use 

20% to 50% over separate heat and power. 

X Appendix C. Clean Energy Supply: Technologies, Markets, and Programs
 C-1 
 

 

 

- -

 

 

 

 

 

 

 

 

EPA Clean Energy-Environment Guide to Action
 

This improvement in efficiency is an excellent pollution prevention strategy that reduces emissions 

of air pollutants and carbon dioxide, the leading 

greenhouse gas associated with climate change. 

Furthermore, since CHP is located at the energy 

user’s site, it reduces electric transmission and 

distribution losses (averaging 7% to10%), resulting in further efficiency gains and providing an 

efficient use of natural resources (e.g., coal and 

natural gas) through a highly optimized system 

producing two or more useful outputs from one 

fuel input. The use of renewable energy sources 

reduces fossil fuel consumption even further; 

unlike fossil fuels, renewable energy sources are 

sustainable and will not run out. 

Clean Energy Technologies 

A wide range of clean energy technologies can be 

used to generate electricity. Table C.1 compares key 

clean energy technologies. The remainder of this section presents a brief description of each technology. 

Wind Power 

Wind power is currently one of the most economically viable renewable energy resources. Key advantages 

include its relatively low capital cost (compared to 

other renewable energy options), low operating costs, 

and technological maturity. Wind power can also be 

developed in relatively large-scale projects (resources 

permitting), further reducing costs through 

economies of scale. 

Table C.1: Comparison of Key Clean Energy Technology Options
 

Solar 

Thermal Solid Waste to Landfill 

Wind Power Solar PVa Electricb Geothermal Biomass Energy Gas/Biogas CHP 

Typical Size Project 5–200 MW 0.1–1 MW 25kW– 

50 MW 

5–100 MW 5–50 MW 5–50 MW 1–10 MW 25 kW– 

500 MW 

Approximate U.S. 9,149c 300d 350 2,400e 6,500f 2,500f 1,200f 81,000 

Market Size 

(installed capacity in 

MW) 

Typical Total Installed 1,200 6,000– 3,900 2,350 1,500– 4,000– 1,300– 800– 

Cost ($/kW)g 8,000 2,500 6,000 1,500 2,500h 

Typical Levelized 6–7 30–50 13 5 8.5–11 Variesj 4.5 5–9 

Cost of Electricity 

Without Incentives in 

2005 (¢/kWh)i 

Typical Levelized 2.5–3.5 12–17 9 4 7.5–10 Variesj 3.5 Varies j 

Cost of Electricity 

with Incentives in 

2005 (¢/kWh)k 

a Assumes PV is for distributed applications (e.g., residential and commer­ vate sector) financed. Projects that are developed by municipal utilities 

cial rooftop applications) that compete with retail electric rates. or similar public sector entities can have lower LCOEs due to lower 

b Assumes solar thermal is the parabolic trough technology; a centralized financing costs. However, there are also fewer financial incentives for 

solar concentrating system which produces electricity. public sector-funded projects. 

c Source: AWEA 2006 (data are for the end of 2005). j Cost of energy is highly dependent on tipping fees. 

d Source: Navigant 2005. k The LCOE, as calculated with incentives, includes the range of current 

e Source: Lund 2004. federal and state incentives applicable to the different technology 

f Sources: EIA 2004d, Kiser and Zannes 2004, EPA 2005. options (e.g. production tax credit [PTC], investment tax credit [ITC], 

g Source: Navigant 2005. accelerated depreciation, rebates, state property tax exemptions). It 

h Fuel cell CHP may be as high as 6,000. does not include revenue impacts from the sale of renewable energy 

i Source: Levelized Cost of Energy (LCOE) figures are from a proprietary certificates, emission set-side programs, or other similar programs. 

Navigant Consulting model. Assumes projects are developer- (i.e., priC-2 X Appendix C. Clean Energy Supply: Technologies, Markets, and Programs
 
 

 

 

EPA Clean Energy-Environment Guide to Action
 

Although cost-competitiveness can vary depending 

on wind speed (also called “wind class”), the United 

States has many excellent wind sites where new 

installations can be developed cost-effectively. 

However, good wind sites are often located in remote 

areas where the transmission system is weak, requiring system upgrades and line extensions to transport 

power to load centers. This additional cost can 

adversely affect project economics and is currently a 

key focus of policymakers. Other challenges include 

the intermittent nature of wind and output variability (i.e., electricity is generated only when the wind 

blows) and the periodic lapsing and reinstatement of 

a key federal incentive, the production tax credit 

(PTC). The PTC, currently set at 1.9¢/kilowatt-hour 

(kWh) for 10 years of output and available through 

December 31, 2007, has helped close the economic 

gap of cost-effectiveness for many installations. 

At the state level, incentives focus on property tax or 

sales tax credits and exemptions rather than on support for demonstration programs or for developing 

new technologies. Wind energy technology has also 

benefited from state renewable portfolio standards 

(RPS) that require a certain percentage of new generation to come from renewable resources. Because 

wind is one of the lowest-cost renewable options 

available to utilities and electricity suppliers, it has 

been used to meet a large portion of RPS renewable 

energy requirements and is expected to play a major 

role in the future. 

Solar Photovoltaics (PV) 

PV technology, which directly converts sunlight to 

electricity in a solid-state device, is also a fairly 

mature technology with more than 25 years of 

proven field performance. Compared to wind power, 

PV output is more predictable and is often coincident 

with utility load profiles (e.g., PV output is often 

highest on hot, sunny days, when demand for power 

is also highest). Thus, PV can provide peak electric 

load reduction, which may have a higher value than 

base load demand. Price reductions for PV systems 

have historically been 4% to 5% per year on average, 

and this trend is expected to continue (Navigant 

2004a). PV is also one of the few renewable energy 

technologies that can be customer-sited; therefore, 

the technology can compete with retail electric rates 

as opposed to the lower wholesale rates with which 

centralized systems compete. 

Nevertheless, electricity from PV is at least two to 

three times more expensive than U.S. retail electricity rates because the first cost of PV installation is 

relatively high. To address the first-cost issue, most 

state support for PV focuses on buy-down programs 

or rebates that help lower the high, up-front capital 

cost. In many states, buy-downs will be slowly 

phased out as PV systems become more economically 

viable and as the technology becomes self-sustaining 

in the marketplace. In addition to buy-downs, some 

states offer property and sales tax credits for PV, as 

well as grants to support industry infrastructure 

development (e.g., installer networks). 

Solar Thermal 

Solar thermal electric plants convert sunlight into 

electricity by concentrating sunlight onto working 

fluids, heating them to high temperatures. The fluids 

are then used to run conventional turbine-generators 

or heat engines. Plants potentially have high coincidence between peak output and peak demand, and 

large plants can take advantage of thermal storage 

to stabilize output and increase operating flexibility. 

Larger central station options include parabolic 

troughs and power towers. Parabolic troughs use a 

heat transfer fluid that is heated as it circulates 

through the receivers and returns to a series of heat 

exchangers at a central location where the fluid is 

used to generate high-pressure superheated steam. 

The steam is then fed to a conventional steam turbine/generator to produce electricity. Power towers 

use fields of “mirrors” (or heliostats) to concentrate 

sunlight onto a central receiver tower; the energy 

can be concentrated as much as 1,500 times that of 

the energy coming in from the sun. 

A smaller distributed power option is the dish Stirling 

engine/turbine, which involves a parabolic-shaped 

solar concentrator that reflects solar radiation onto a 

receiver. The collected heat is used directly by a heat 

engine to generate electricity. 

X Appendix C. Clean Energy Supply: Technologies, Markets, and Programs
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EPA Clean Energy-Environment Guide to Action
 

Of these three solar thermal options, states have had Geothermal Power 

the greatest field experience with parabolic troughs 

(e.g., 350 megawatts [MW] is currently operating in 

California). The key challenge today is the high capital cost. Solar thermal plant technology is currently 

not competitive with conventional power options 

and therefore state support is typically provided in 

the form of buy-downs or rebates. Some states also 

have solar set-asides within their RPS programs, 

which reserve a portion of the RPS target specifically 

for solar energy. 

Solid Biomass 

Broadly speaking, solid biomass is any form of organic matter, including wood, wood waste (e.g., sawdust, 

bark), agricultural residues (e.g., rice husks, wheat 

straw), construction and demolition debris, and animal waste (e.g., chicken litter). The single largest 

source of biomass today is the pulp and paper industry, which uses residues from papermaking to meet 

approximately 50% of its own energy needs. 

Solid biomass technologies produce electricity by 

direct combustion or by combustion of gas derived 

from these fuels (i.e., co-firing). With direct combustion, biomass is burned in a boiler to produce highpressure steam, which is then expanded through a 

steam turbine to generate electricity. Biomass cofiring with coal in existing coal plants is another 

potentially attractive option. To date, co-firing has 

been successfully demonstrated in a number of utility boilers, but only a few co-fired systems are in true 

commercial operation. Nevertheless, the technology 

is considered mature, and its deployment is likely to 

increase in those states that include it in their RPS. 

The main advantages of solid biomass power are that 

it is a baseload resource and that it often converts a 

waste product into useful electricity and thermal 

energy. The main disadvantages are fuel price and 

availability, two issues not faced by other renewable 

energy options. Emissions and permitting are also 

more challenging for biomass than for other renewables. Some states support biomass applications 

through tax incentives and rebates. Direct combustion of solid biomass is also eligible in most state 

RPS programs. 

Geothermal power converts heat from within the 

Earth’s crust into electricity using well-proven and 

mature turbine-generator technology. The United 

States is currently the world leader in terms of total 

installed capacity. Unlike wind and solar technologies, geothermal is a baseload resource and can 

achieve very high annual capacity factors that 

improve overall economics. Geothermal power plants 

also have a small physical footprint and minimal 

environmental impacts. The best geothermal 

resources, however, are limited to a handful of 

Western states. In addition, finding good resources 

with good access to the transmission system can be 

an issue. Because of its more limited overall potential and mature economics, many state programs do 

not support the technology with direct financial 

incentives. Nevertheless, geothermal power is an eligible resource in a number of RPS programs, and 

untapped resources can be potentially developed. In 

the long term, a new technology called hot-dry rock 

could broaden the application of geothermal power. 

Waste-to-Energy (WTE) 

WTE facilities operate based on the same basic principle as solid biomass combustion facilities but use 

urban refuse (i.e., municipal solid waste) as fuel. WTE 

facilities, however, require boiler systems designed to 

handle a more heterogeneous, low-quality fuel, and 

the emissions control systems are designed to remove 

contaminants contained in municipal solid waste. WTE 

plants are also designed to recover noncombustible 

materials (e.g., glass, metals) either before or after 

combustion, depending on the plant design. 

The key advantages of WTE technology are the 

steady supply of fuel and the benefits of waste 

reduction. The key challenges of WTE plants are high 

capital and operating costs, siting difficulties (mainly due to emissions issues), and the strong dependence on tipping fee revenue for favorable overall 

economics. States also have differing perspectives 

on whether WTE facilities qualify as “renewable” 

and if so, whether they can be used for RPS compliance. For both biomass and wastes, commercialization efforts are underway for next-generation 

C-4 X Appendix C. Clean Energy Supply: Technologies, Markets, and Programs
 
 

 

EPA Clean Energy-Environment Guide to Action
 

technologies, such as biomass gasification and 

pyrolysis.52 Successful commercial-scale demonstration programs are needed to provide market confidence in these technologies. 

Landfill Gas (LFG) and Biogas 

LFG and biogas are mixtures of approximately 50% 

to 60% methane and 40% to 50% carbon dioxide. 

They are the product of anaerobic digestion.53 LFG is 

created as waste decomposes in the anaerobic environment of the landfill. For biogas derived from animal waste management and sewage, anaerobic 

digestion occurs in manmade digesters54 as part of 

the overall process of treating these wastes. 

The main advantages of biogas and LFG technologies 

are that they provide a steady supply of renewable 

fuels, make use of a low- or zero-cost feedstock, and 

involve moderate capital costs. As such, the economics are often favorable, even without incentives. 

These technologies also make use of mature power 

generation technologies (e.g., internal combustion 

engines, gas turbines, and boilers/steam turbines). 

LFG and biogas have also been successfully demonstrated with microturbines and fuel cells. Using biogas and LFG to produce electricity provides many 

environmental and economic benefits. Anaerobic 

digester systems for animal waste reduce odors and 

pathogens, improve water quality, reduce methane 

emissions, and improve farm revenues through energy self-sufficiency and the ability to use or sell the 

dried solid residues as fertilizer or animal bedding. 

Combusting LFG will reduce landfill odor (EPA 2005), 

methane emissions (landfills are the largest anthropogenic source of methane), and toxic organic compounds. 

The main disadvantages of LFG and biogas applications are the relatively small scale of the applications 

and air permitting issues. Compared with other 

renewable energy options, the total market potential 

is relatively small. Some states directly support LFG 

and biogas with grants and incentives, and LFG and 

biogas are eligible resources within most state RPS 

programs. 

Combined Heat and Power (CHP) 

CHP, also known as cogeneration, is an efficient, 

clean, and reliable approach to generating simultaneous power and thermal energy from a single fuel 

source. CHP is not a specific technology but an efficient application of technologies to meet an energy 

user’s needs. CHP uses waste heat from electricity 

generation to produce useful thermal energy for 

process heat and space heating or cooling for commercial and industrial facilities. A CHP system is substantially more efficient than purchasing electricity 

from the grid and generating thermal energy with a 

boiler or process heater. 

A CHP system consists of a number of individual 

components—a prime mover (heat engine), a generator, heat recovery, and electrical interconnection— 

configured into an integrated system. The type of 

equipment that drives the overall system (i.e., the 

prime mover) typically identifies the CHP system. 

Prime movers for CHP systems include reciprocating 

engines, combustion or gas turbines, steam turbines, 

microturbines, and fuel cells. These prime movers are 

capable of burning a variety of fuels (e.g., natural 

gas, coal, oil, and alternative fuels) to produce shaft 

power or mechanical energy. Although mechanical 

energy from the prime mover is most often used to 

drive a generator to produce electricity, it can also be 

used to drive rotating equipment such as compressors, pumps, and fans. Thermal energy from the system can be used in direct process applications or 

indirectly to produce steam, hot water, process heat 

for drying, or chilled water for process cooling. 

Figure C.1 shows two common configurations for 

CHP systems: (1) steam boiler/steam turbine, and (2) 

gas turbine or engine/heat recovery. Historically, the 

steam boiler/turbine approach has been the most 

52	 Pyrolysis is the rapid heating and cooling of biomass in the absence of air. It results in a complex liquid hydrocarbon mixture (pyrolysis oils) somewhat similar to crude oil, gaseous compounds such as hydrogen, methane, and carbon (i.e., char). 

53 Anaerobic digestion is the conversion of organic material to biogas by microorganisms in the absence of oxygen. 

54	 With animal waste and wastewater, digesters (typically enclosed concrete structures) are required to contain the organic material and serve as a 

home for the microorganisms. In comparison, with LFG the biogas is produced naturally in the landfill over a period of years as the organic material 

slowly decomposes. 

X Appendix C. Clean Energy Supply: Technologies, Markets, and Programs C-5 
 

 

 

 

 

EPA Clean Energy-Environment Guide to Action
 

Figure C.1: Typical CHP Configurations
 

Steam Boiler/Steam Turbine Gas Turbine or Engine/Heat Recovery 

Boiler 

Fuel Water 

High-Pressure Steam 

Steam to Process 

Steam 

Turbine Gen. 

Water Heat Recovery 

Boiler 

Fuel Combustion 

Turbine Gen. 

Steam to Process 

Hot Exhaust Gases 

Source: EPA 2004. 

widely used CHP system. In this approach, a boiler 

makes high-pressure steam that is fed to a turbine to 

produce electricity. The turbine is designed so that 

steam is left over to feed an industrial or other thermal process. Thus, one fuel input to the boiler supplies both electric and thermal energy by recovering 

waste heat from the steam turbine electric generator. This type of system typically generates about five 

times as much thermal energy as electric energy. 

Steam boiler/turbine systems are widely used in the 

paper, chemical, and refining industries, especially 

when waste or byproduct fuel exists that can be 

used to fuel the boiler. 

Another common CHP configuration involves a combustion turbine or reciprocating engine to generate 

electricity. In these applications, thermal energy is 

recovered from the exhaust stream to make steam or 

to supply other thermal uses. These CHP systems can 

use very large (i.e., hundreds of MW) gas turbines, 

very small (i.e., tens of kilowatts [kW]) microturbines, 

engines, or fuel cell systems. In these systems, the 

thermal energy is typically one to two times the 

electric energy. 

Clean Energy Markets 

This section describes the current market for renewable energy technologies and CHP, including the 

growing competitiveness of renewable energy technologies and the proven track record of CHP applications in delivering cost-competitive energy. This 

clean energy market growth is leading to a range of 

local economic, environmental, and energy security 

benefits. 

Renewable Energy Technologies 

Renewable energy technologies are increasingly cost 

competitive and are becoming more established in 

the marketplace. As the opportunities and market 

have grown, especially over the last five years, large 

corporations have become major players in the 

renewable energy industry, bringing additional 

investment capital, expertise, and capabilities that 

have spurred further market growth. At the same 

time, both governments and consumers are placing 

value on the attributes associated with renewable 

energy. Many consumers have demonstrated a willingness to pay a premium for renewable energy, and 

many are able to enroll in voluntary green power 

programs. 

C-6 X Appendix C. Clean Energy Supply: Technologies, Markets, and Programs
 
 

 

 

 

 

 

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Governments are using incentives and other policy Figure C.2: Annual Worldwide Installations for 

tools, such as RPS, to increase the amount of renew- Wind Power and PV 

able energy produced. Renewable energy certificates 

(RECs), also called green tags, green certificates, and Annual Worldwide Wind Power Capacity Installations 

tradable renewable certificates, have emerged as the 9,000 Industry revenue of ~$8 billion 

“currency” to both monetize and transact (i.e., trade 8,000 

7,000 

6,000 

5,000 

4,000 

3,000 

2,000 

1,000 

and sell) the value of the attributes provided by electricity generated with renewable energy. The emergence of both “compliance” (e.g., RPS) and “voluntary” 

(e.g., green power) markets for renewable energy and 

renewable energy attributes, facilitated by the emergence of RECs, has changed the renewable energy 

Annual Wind Power

Annual PV Installations (MW) Capacity Additions (MW) 

marketplace and set the stage for future growth. 0 1999 2000 2001 2002 2003 2004 

Europe N. America Asia Pacific Latin America Africa/Middle East 

Both the wind and solar PV markets have experienced double-digit growth over the past decade, primarily as result of the increased demand for renewable energy. Globally, PV has had a 40% compounded Annual Worldwide PV Installations 

1,000 annual growth rate (CAGR) since 1999. In 2004, the Industry revenue of ~$7.6 billiona 

market was valued at approximately $7.6 billion per 

year from equipment sales and installation. The wind 

industry has undergone similar growth. Wind energy 

installations worldwide have experienced a 24% 

CAGR since 1999 (see Figure C.2) (Navigant 2005b). 

In the United States, annual installations of renew900 

800 

700 

600 

500 

400 

300 

200 

100 

able energy (excluding large-scale hydroelectric 0

plants) have been between 600 MW and 1,700 MW 

1989199019911992199319941995199619971998199920002001200220032004 

per year between 2001 and 2003 (EIA 2004b). 

(Fluctuations during this period are primarily the 

result of changing government incentives.) As shown 

in Figure C.3, renewable energy (excluding largescale hydroelectric plants) accounted for 2.2% of 

electricity consumption in 2003 (EIA 2004a, EIA 

2004c). Today, hydropower and biomass, including 

WTE and LFG, dominate the renewable energy market 

in the United States. Annual installations of renewable energy (excluding large-scale hydro) in the 

United States are expected to reach more than 4,500 

MW per year by 2015 in a business-as-usual scenario, resulting in an $8 billion market annually from 

equipment (Navigant 2005b). 

Europe North America Japan Rest of the World Total 

a Based on the total installed cost of systems. 

Source: Navigant 2005b. 

X Appendix C. Clean Energy Supply: Technologies, Markets, and Programs
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Figure C.3: U.S. Renewable Energy Snapshot (2003 Data)
 

Primary Energy Consumption 

MSW/ 

Landfill Gas 

Total = 6.1 Quads 

(6.2% of total consumption) 

Hydro 

Wood/ 

Wood Waste 

Other Biomass 

Geo-thermal 

Wind Solar 

Sources: EIA 2004a, EIA 2004c. 

Combined Heat and Power (CHP) 

Interest in CHP technologies has been growing 

among energy customers, regulators, legislators, and 

developers for a variety of reasons, including electric 

industry deregulation, environmental concerns, and 

unease over energy security. The growth of CHP has 

been fairly constant (with a slightly slower growth 

rate in the past few years) since the implementation 

of the Public Utilities Regulatory Policy Act (PURPA) 

in 1978, which created various incentives for CHP. 

PURPA has become somewhat less important in 

states with restructured electric markets but still 

provides some important support for CHP in regulated states. The U.S. CHP inventory in 2004 was 80.9 

gigawatts (GW) at 2,845 sites. As shown in Figure 

Non-Hydro Renewable 

Electricity Generation 

Solar
 

Wind
 

Geothermal
 

Other
 

Biomass
 MSW/ 

Landfill Gas 

Wood/ 

Wood Waste 

Total = 84 billion kWh 

(2.2% of total consumption, 23% of renewable energy) 

C.4, almost 90% of this capacity is in the industrial 

sector, with about one-third of the total capacity in 

the chemical industry alone. The refining and paper 

industries make up another 25% of the total. 

With recent increases in the price of natural gas and 

uncertainty in future prices, interest in CHP projects 

fueled by waste and opportunity fuels, such as landfill and digester gas, refinery gas, and wood waste, is 

growing. 

C-8 X Appendix C. Clean Energy Supply: Technologies, Markets, and Programs
 
 

 

 

 

 

 

 

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Market Challenges Affecting 

Clean Energy Technologies 

Because of their improving economics and performance, renewable energy technologies are becoming 

increasingly viable alternatives to conventional 

power generation technologies. Nevertheless, renewable technologies continue to face persistent market 

challenges that impede their growth and acceptance. 

Similarly, while CHP utilizes commercially proven 

technologies with higher efficiencies that can make 

it economically attractive, a variety of market, institutional, and regulatory barriers can slow its growth. 

Renewable Energy 

Key market challenges faced by renewable energy 

technologies include: 

• High first costs compared with competing 

technologies. 

• Grid integration issues related to the interconnection of distributed technologies and connecting 

resources in remote locations. 

• A lack of maturity of other needed “infrastructure,” such as sales, installation, and service. 

• A need for more consumer education about the 

benefits of renewable energy. 

• The lack of maturity and liquidity in emerging REC 

markets. 

• Public concerns over aesthetics, noise, and environmental impacts related to certain technologies. 

Recognizing the benefits of renewable energy to 

their constituents, many states are implementing a 

range of programs, including RPS, net metering, and 

public benefits funds, to address these challenges. 

For example, Pennsylvania is advancing renewable 

energy through its Energy Harvest Grant Program 

and Alternative Energy Portfolio Standard. 

Figure C.4: U.S. CHP Capacity (2004)
 

Other 

Industrial 

6% Commercial/Institutional 

12% 

Other Mfg
 

8%
 

Metals 

5% 

Chemicals 

Refining 34% 

Paper 

15% 

11% 

Food 

8% 

Source: EEA 2004. 

Figure C.5: Size Distribution of U.S. CHP Projects 

(2004) 

50-100 MW 

17% 

100-500 MW 

44% 

>500 MW 

20% 

<1 MW 

<1% 

1-5 MW 

2% 5-20 MW 

5% 20-50 MW 

12% 

Source: EEA 2004. 

X Appendix C. Clean Energy Supply: Technologies, Markets, and Programs
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Combined Heat and Power (CHP) 

Key market challenges faced by CHP include: 

• CHP systems entail larger up-front capital investment, more complicated operation and maintenance (O&M) procedures, and higher O&M costs 

than conventional generation systems. These 

issues can be especially difficult for small to medium CHP users (i.e., less than 5 MW), who are less 

able to bear the additional cost and risk of onsite 

generation, regardless of the efficiency and environmental benefits. 

• Rate-setting and regulation of interconnection 

are critical factors in the success of CHP. 

Uneconomical partial-load rates, such as standby 

or buy-back rates, exit fees, and interconnection 

requirements, can limit CHP’s economic viability. 

• Utilities can reduce the economic attractiveness of 

CHP projects by offering special low electric rates 

to the potential energy user that reduce the economic benefits of CHP. 

• Although CHP typically provides an overall environmental benefit, it can increase the onsite emissions at the CHP facility. While this increase is 

typically offset by a greater decrease at another 

location (e.g., the power generator), most environmental regulations are not designed to recognize 

this benefit. 

These potentially higher capital and operating costs 

and structural barriers are offset by the benefits of 

lower energy costs and increased power reliability 

where new CHP projects are being constructed. In 

addition, state policies (such as output-based regulations, interconnection standards, and public benefits 

funds) that reduce institutional, regulatory, and 

structural barriers to CHP and recognize its economic 

and environmental benefits are important components in addressing these challenges. For example, 

Connecticut has created an output-based regulation 

for small distributed generators for several pollutants, and has included CHP as an eligible resource 

for the state RPS. 

Emerging and Innovative Clean 

Energy Supply Policies 

State governments are crafting policies to reduce 

market and institutional barriers for clean energy 

technologies and accelerate their adoption in the 

marketplace. The Guide to Action focuses on established policies that have proven to be successful in 

various states. The following table describes emerging and innovative clean energy supply policies not 

covered in the Guide to Action and provides sources 

of additional information about these policies. 

C-10 X Appendix C. Clean Energy Supply: Technologies, Markets, and Programs
 
 

 

 

 

 

 

 

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Table C.2: Emerging and Innovative Clean Energy Supply Policies
 

Policy Description For More Information 

Contractor and Equipment Some states require equipment and contractor cer- The North American Board of Certified Energy 

Certification tification for renewable energy installations that 

receive buy-downs or state financial incentives. 

These standards ensure that high-quality products 

and services are provided to customers. 

Practitioners (NABCEP) works with the renewable energy and energy efficiency industries, 

professionals, and stakeholders to develop and 

implement quality credentialing and certification programs for practitioners. 

http://www.nabcep.org/ 

In New York, NYSERDA’s PV or Solar Electric 

Incentive Program provides cash incentives for 

the installation of small PV or solar-electric 

systems. The cash incentives are only available for PV systems purchased through an eligible installer. 

http://www.powernaturally.org/Programs/ 

Solar/incentives.asp?i=1 

Emissions Similar to the nutritional dietary information found More than 20 states have some form of elecDisclosure/Generation on most food packages, this policy would include a tricity label. Information on the Massachusetts 

Disclosure chart in every monthly bill that describes the 

sources of electricity generation and their emissions. 

program can be found at: 

http://www.mass.gov/dte/restruct/competition/ 

info_disclosure_2001.htm 

Content Requirements for When a state enters into new contracts for pur- NY Executive Order 111 requires state agenCertain Electricity Contracts chasing power or is in the position to approve long­ cies to purchase 10% of their electricity from 

(Wholesale) term contracts, the state can require that a certain 

percentage of the electricity generated is from 

renewable energy sources or meets thresholds for 

energy efficiency. 

renewable sources in 2005 and 20% by 2010. 

http://www.gorr.state.ny.us/gorr/ 

EO111_fulltext.htm 

Loading Order A Public Utility Commission (PUC) can specify a 

certain sequence of technologies and resources 

that would be considered for meeting new electricity demand. Any deviation from this loading order 

would require utilities to explain the reason for this 

deviation to the PUC. This policy may need to be 

combined with others (such as simplified air emissions credits for energy efficiency, renewable enerCalifornia’s Energy Action Plan requires utilities 

to prioritize their resource procurements by 

following an established “loading order.” 

http://irecusa.org/articles/ 

static/1/1102615783_1018302029.html 

http://www.energy.ca.gov/ 

energy_action_plan/index.html 

gy, and distributed generation) in order to make it 

profitable or economical to utilities. 

http://www.cpuc.ca.gov/static/energy/ 

electric/energy+action+plan/ 

Standard REC Trading/Tracking A few state renewable energy programs currently New Jersey established a separate REC tradSystems have Web-based tracking systems for DG and/or 

assigning RECs based on this generation. These 

systems enable DG systems to participate in REC 

markets. 

ing system for solar PV. 

http://www.njcep.com/srec/ 

(continued on next page)
 

X Appendix C. Clean Energy Supply: Technologies, Markets, and Programs
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Table C.2: Emerging and Innovative Clean Energy Supply Policies (continued)
 

Policy Description For More Information 

Mandated Long-Term Contracts This policy allows utilities in deregulated markets The Colorado referendum that created the 

for Renewables to sign long-term contracts with renewable energy 

generators. This would provide generators with the 

long-term certainty they need to obtain project 

financing. 

state’s RPS requires a 20-year purchase for 

projects eligible to satisfy the RPS. 

http://www.dora.state.co.us/puc/rulemaking/ 

Amendment37.htm 

A legislative act in Connecticut requires distribution companies to sign long-term Power 

Purchase Agreements for clean energy for no 

less than 10 years at a wholesale market price 

plus up to $0.055 per kWh for the REC. 

http://www.ctcleanenergy.com/investment/ 

MarketSupplyInitiative.html 

Builder/Building Incentives Utilities and states can provide incentives for the 

construction and operation of energy-efficient and 

renewable energy homes and buildings (e.g., quicker and less expensive permits for homes with solar 

power). 

Duke Energy lowered electric rates for ENERGY STAR-qualified homes. 

http://www.dukepower.com/ 

http://www.dukepower.com/news/releases/2005/feb/2005022201.asp 

New Jersey offers Solar PV rebates (ranging 

from $3.06/watt to $5.30/watt) to residential, 

commercial, and industrial applicants. 

http://www.njcep.com/html/2_incent.html 

Utility Procurement Programs The PUC can require utilities to purchase or pro- The California Public Utilities Commission 

for DG mote the installation of DG to meet increasing electricity demands. Renewable energy DG could be 

given preferential treatment in this program to promote reductions in carbon emissions. This would 

be similar to RPS. 

(CPUC) requires utilities to consider DG (customer- or utility-owned) as an alternative to 

distribution investments. 

http://www.cpuc.ca.gov/PUBLISHED/ 

FINAL_DECISION/24136.htm 

Integrating PUC goals into PBF This policy encourages the use of public benefits New England Demand Response Initiative 

Program Design (i.e., “Cross funds (PBFs) not only to support energy efficiency http://nedri.raabassociates.org/index.asp 

Walking”) and renewable energy, but to help PUCs and utilities reach their goals (e.g., increased reliability, 

congestion relief, and permanent peak reduction). 

In Massachusetts, annual peak demand reductions from energy efficiency and PBF-funded 

load management ranged from 98 MW to 135 

MW in 1998, 1999, and 2000. Cumulative reductions from these programs reached 700 MW 

(7.2% of peak) as of 2000. 

http://eetd.lbl.gov/EA/EMP/reports/PUB5482.pdf 

Transparent Distribution Currently, the electricity distribution company pri- The California Energy Commission (CEC) is 

Planning marily conducts distribution planning without outside feedback that could lead to lower-cost alternative solutions or taking into account other decisionmaking criteria. A transparent distribution planning process could allow customers and developers to align their investments with the greatest system need. In addition, the utility would benefit from 

customer response to the system need. 

working with CPUC to create a transparent distribution planning process. 

http://www.energy.ca.gov/energypolicy/index. 

html 

Source: Compiled by EPA based on multiple sources. 

C-12 X Appendix C. Clean Energy Supply: Technologies, Markets, and Programs 
 

 

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References
 

Title/Description URL Address 

AWEA. 2006. American Wind Energy Association (AWEA) news release: U.S. Wind 

Industry Ends Most Productive Year, Sustained Growth Expected for At Least Next 

Two Years. January 24. 

http://www.awea.org/news/ 

US_Wind_Industry_Ends_Most_ 

Productive_Year_012406.html 

EEA. 2004. Combined Heat and Power Installation Database. Energy and 

Environmental Analysis, Inc. 

http://www.eea-inc.com/chpdata/index.html 

EIA. 2004a. Electric Power Annual 2003. Energy Information Administration. 

December. 

http://tonto.eia.doe.gov/FTPROOT/ 

electricity/034803.pdf 

EIA. 2004b. Existing Generating Units in the United States by State, Company and 

Plant, 2003. January 1. 

http://www.eia.doe.gov/cneaf/electricity/ 

page/capacity/existingunits2003.xls 

EIA. 2004c. Renewable Energy Annual 2003. Energy Information Administration. 

2004. 

http://www.eia.doe.gov/cneaf/ 

solar.renewables/page/rea_data/ 

rea_sum.html 

EIA. 2004d. Renewable Energy Trends 2003. Energy Information Administration. 

July. 

http://www.eia.doe.gov/cneaf/ 

solar.renewables/page/rea_data/trends.pdf 

EPA. 2004. Output-based Regulations: A Handbook for Air Regulators. Office of 

Atmospheric Programs, Climate Protection Partnerships Division. April 22. 

http://www.epa.gov/chp/pdf/output_rpt.pdf 

EPA. 2005. U.S. Environmental Protection Agency Landfill Methane Outreach 

Program Web Site. Benefits of LFG Energy. 2005. 

http://www.epa.gov/lmop/benefits.htm 

Kiser, J. and M. Zannes. 2004. The 2004 IWSA Directory of Waste-to-Energy Plants. 

The Integrated Waste Services Association. 

http://www.wte.org/2004_Directory/ 

IWSA_2004_Directory.html 

Lund. 2004. John Lund, 100 Years of Renewable Electricity, Renewable Energy 

World, July–August 2004. 

http://www.earthscan.co.uk/defaultREW.asp? 

sp=&v=3 

Navigant. 2004a. Navigant Consulting, Inc. interviews with PV manufacturers in 

2004. 

N.A. 

Navigant. 2005b. Navigant Consulting, Inc. estimates based on industry interviews. 

August. 

N.A. 

X Appendix C. Clean Energy Supply: Technologies, Markets, and Programs
 C-13 


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