When it comes to promoting energy efficiency, it's all about incentives. 

The least energy efficient states in the nation have no efficiency resource standards in place, a new nationwide survey finds, and typically do not have policies in place that treat energy efficiency as a resource. 

Conversely, state law in Massachusetts requires utilities to prioritize cost-effective energy efficiency over other resources when making procurement decisions, and the American Council for an Energy-Efficient Economy (ACEEE) has named Massachusetts as the most efficiency state for the fourth consecutive year.

Essentially, development of specific energy savings targets for utilities or independent statewide program administrators is one of the most direct and effective efforts a state can take to become more efficient, according to the ACEEE's annual State Energy Efficiency Scorecard.

"States are truly at the forefront of energy efficiency policy in the United States," said Maggie Molina, Director of ACEEE’s Utilities, State, and Local Policy program."What we've found is when the right state policy tools are in place, consumers are then in power to make smarter efficiency choices."

This eighth version of the scorecard greater emphasis on utility and public policy, and for the first time includes a metric worth negative points. ACEEE notes, for instance, that the past year has seen a rise in efforts from large customers to completely opt out of energy efficiency programs. The report subtracted one point from states that allow such opt outs without requiring customers to demonstrate equivalent investments in energy efficiency. 

For the most part, the rankings bear out as might be expected—states in the southeast and states with significant oil and gas production find themselves ranked lower in efficiency. The more efficient states have a reputation for valuing efficiency and green power. The scorecard uses a 50-point scale, with 20 of those possible points coming from the utility sector.

Massachusetts, for example, has a perfect 20/20 utility score in ACEEE's rankings.

"The state created an aggressive funding mechanism and required electric utilities to provide energy efficiency programs during its restructuring of the industry in 1997," the scorecard notes. "The natural gas utilities in the state have offered energy efficiency programs to customers since the late 1980s."

ACEE's scorecard finds California the second most-efficient state, though the state puts up only a 12.5 out of 20 possible utility points. Many factors go into developing the score. Massachusetts, for instance, has about a 2.9% binding annual electric savings target compared to California's 0.9% target. 

California was followed by a three-way tie between Oregon (15/20 utility score), Rhode Island (20/20) and Vermont (18.5/20). On the lower side of the list, North Dakota (0/20) was named the least-efficient state, followed by Wyoming (2/20), South Dakota (3.5/20), Mississippi (1/20) and Alaska (0/20).

But a closer look at ACEE's findings reveals policy similarities impacting utilities, ratepayers, and the ancillary industries built around the power industry.

The leaders – what's working

According to ACEEE's analysis, states that enforce and adequately fund an energy efficiency resource standard (EERS) drive investments in utility-sector energy efficiency programs. The states with the most aggressive savings targets include Arizona, Massachusetts, and Rhode Island.

Overall, states are ramping up their commitments to energy efficiency. Savings from electricity efficiency programs in 2013 totaled approximately 24.4 million MWh, a 7% increase over 2011 savings reported last year by ACEEE. 

In Massachusetts, the Green Communities Act requires that electric and gas utilities procure all cost-effective energy efficiency before more expense supply resources, requiring a three year planning cycle. In January 2013, the state's Department of Public Utilities approved the second three-year (2013-2015) electric and gas energy efficiency plans under the Green Communities Act, continuing the state’s progress toward the most ambitious energy savings targets in the country.

According to Massachusetts Governor Deval Patrick, the state has “treated efficiency as our first fuel.” 

The first electric efficiency procurement plan called for savings 1.0% in 2009, 1.4% in 2010, 2.0% in 2011, and 2.4% in 2012.  The state’s second three-year plan calls for savings to increase to 2.6% in 2015. The energy efficiency investments in 2013-2015 are expected to save 3,703 GWh of electricity in 2015. 

"Energy efficiency is the cheapest and cleanest fuel," Patrick said during a telephone discussion on the scorecard. "With the economy and population growing in Massachusetts we've been able to nonetheless flatten our demand."

There are also 65,000 workers in Massachusetts energy efficiency sector, which Patrick said it one of the fastest growing sectors in the state.

Similarly, ACEEE notes that California  established energy efficiency as its highest priority energy resource for procurement of new resources, and has established a “loading order” that calls for first pursing all cost-effective efficiency resources. Then the order calls for using cost-effective renewable resources, and only after that using conventional energy sources to meet new load.

Efficiency 'no longer this unknown thing'

Vermont's legislature has directed gas and electric utilities to prepare and implement least cost integrated plans that consider energy efficiency as part of their supply strategy. 

"In addition, Vermont has a well-established regulatory process to factor the Energy Efficiency Utility's energy savings into utility companies' load forecasts," ACEEE's report notes. State law requires EEU budgets to be set at a level that would realize "all reasonably available, cost-effective energy efficiency."

Arkansas was among the most-improved states in the survey. According to ACEEE, Arkansas pushed forward with strong utility programs. The state’s budgets for electric efficiency programs increased 30% between 2012 and 2013, while electricity savings more than tripled.

The District of Columbia and Wisconsin also saw smaller increases in energy savings, and ACEEE saud Kentucky took steps to adopt a more efficient commercial building energy code.

JD Lowery, director of the Arkansas Energy Office, a division of the Arkansas Economic Development Commission, said much of the state's efficiency improvements "must be attributed to the ongoing leadership of our Arkansas Public Service Commissioners, our utility partners, and our citizens."

"Through innovative programs, both businesses and households in Arkansas have discovered the economic benefits of investing in energy efficiency," he said, "Energy efficiency is no longer this unknown thing.”

According to ACEEE State Policy Research Analyst Annie Gilleo, who was lead author of the scorecard, states in the southeast are making strides in developing frameworks that encourage utilities to consider energy efficiency a priority resource.

"We expect that over the next two years we will see energy savings increase notably in the region as Arkansas continues to ramp up programs ... and as Louisiana and Kentucky begin rolling out their complete set of efficiency programs," Gilleo said.

Room for improvement

A total of 23 states fell in the energy efficiency rankings in 2014. Indiana dropped the furthest, by 13 spots, due in part to state legislators’ decision to eliminate the state’s long-term energy savings goals. Legislators in Ohio made a similar decision to freeze and substantially weaken the state’s energy efficiency resource standard, contributing to the state falling seven spots in the rankings.

Despite these policy setbacks, the report noted that utilities in both states have indicated they will continue running efficiency programs, albeit at levels below what would have been required by the standards.

But in examining the states with the lowest levels of efficiency, ACEEE's report shows strong similarity in utility policy. North Dakota, Wyoming and South Dakota—the bottom three states in energy efficiency—do not have Energy Efficiency Resource Standards in place, though in South Dakota utilities can voluntarily participate in a state conservation program.

And for the most part, none of the bottom three states in efficiency has policies in place treating energy efficiency as a resource. South Dakota has an integrated resource planning rule and filing requirement, but currently no policy in place that treats energy efficiency as a resource, ACEEE said.

While state regulators do not require North Dakota utilities to implement energy efficiency programs, the report notes regulated utilities are required to meet their power needs through least-cost planning, which includes the consideration of demand side management programs.

"North Dakota’s utilities run a limited set of programs in order to meet resource needs, however efficiency program budgets and the associated energy savings have been below the national average," the report said.

"A wide gap remains between states near the top and those at the bottom of the State Scorecard rankings," the report found. "Market barriers and the regulation of the energy sector remain major challenges to energy efficiency investments. A regulatory environment that levels the playing field for energy efficiency—the fastest, cheapest, cleanest energy resource—is critical to capturing the full range of its benefits for states and for consumers."