Utilities need continued state support to reduce energy usage, and achieve energy savings and conservation. State policy and regulatory changes to traditional utility business models have helped several regions of the US, such as the Northeast, to achieve greater energy savings.

Eversource and National Grid's subsidiaries in Massachusetts, for example, had the greatest energy savings in the country, as a percentage of the utilities' sales in 2018, according to a new report by the American Council for an Energy-Efficient Economy (ACEEE).

The two tied for first place in ACEEE's ranking for a second time, bolstered by a strong policy framework in Massachusetts that incentivizes utility investments in energy efficiency. The leading utilities spent a much larger amount of their total revenue on energy efficiency than other utilities, enabled by the state's decoupling policy, leading to strong performance across their various energy efficiency programs.

ACEEE released its utility scorecard on Thursday, based on 2018 data for 52 utilities, measuring program performance, program offerings and enabling mechanisms, and highlighting the importance of favorable energy efficiency policy frameworks where utilities operate.

The report tracked 20 TWh of energy savings across more than 900 programs in 2018 — 20% more energy savings than recorded by the same group of utilities in the first iteration of the report, based on 2015 data.

"We are very pleased with a lot of the progress across the board ... but progress is definitely not universal, not all utilities increased their savings" between 2015 and 2018, Grace Relf, lead author of the ACEEE report and senior research analyst, told Utility Dive.

The two leaders, which scored 46 out of 50 points, scored high above the next utility, San Diego Gas & Electric (37.5 points), which ACEEE notes as an indicator for improvement opportunity "even among the top performers."

Key to success

National Grid and Eversource's subsidiaries reach a large customer base, targeting a variety of end uses, and they have been acting in step with state legislators and regulators. The collaboration has been key to advancing their energy efficiency goals, according to the utilities.

Massachusetts officials have been collaborating with stakeholders on energy efficiency, as supported by 2008 state legislation, and National Grid has been a key participant, Kevin O'Shea, utility spokesperson, told Utility Dive.

National Grid Massachusetts, Eversource Massachusetts and other state utilities are part of a three-year energy efficiency plan (2019-2021) to drive utility-specific energy efficiency reductions in the state. For instance, National Grid provides several electric vehicle offerengs to minimize grid impacts through granular load monitoring. The utility will provide rebates for some customer charging equipment, ACEEE wrote.

The scorecard emphasized the importance of full revenue decoupling, or disconnecting revenue recovery from sales volumes, as utilities otherwise have a disincentive to invest in energy efficiency and reduce customer load. Massachusetts utilities are prompted to invest more due to decoupling policies and state priorities on energy efficiency.

"While the energy efficiency budgets represent a significant investment, the programs return benefits of $3 to $4 for every dollar spent," Lauren Adams, Eversource spokesperson, told Utility Dive in an email. State policies are critical to encourage more utility investment in energy efficiency "such as decoupling/lost base revenue and performance incentives, have helped drive the investment into the energy efficiency programs," she added. 

However, utility business models are intricate and change comes very slowly, ACEEE found.

Since 2015, no utilities adopted revenue decoupling or reworked their performance incentives to change their business models to reward energy efficient programming, according to ACEEE. More proceedings on cost recovery and incentive models have opened up.

Tracking energy efficiency performance

ACEEE tracks program performance, offerings and enabling mechanisms, but the first category bears more than double the weight of the other categories in determining the overall rankings.

"You have to be investing heavily in energy efficiency" to see significant energy savings, Relf said.

Individual utilities spent as much as $352 million on energy efficiency in 2018, as in the case of Exelon subsidiary Commonwealth Edison, but ACEEE relies on percentage of spending based on total revenue as a "critical indicator of a utility's commitment to energy efficiency." How much a utility spends on energy efficiency based on its total revenue "correlates pretty well" with how utilities are performing in energy efficiency, Relf said.

"A strong ratio of savings to dollars spent [by a utility] can be a very good signal that dollars are delivering significant value, and where the spending level is lower than other utilities, it certainly suggests that there are opportunities to go deeper, that there are more savings to be captured with increased investments," Forest Bradley-Wright, energy efficiency director of the Southern Alliance for Clean Energy (SACE)​, told Utility Dive.

Unlike top performers in the scorecard, utilities that fall behind don't receive incentives to invest in energy efficiency. As ACEEE pointed out, some states cap the amount of energy efficiency spending utilities are allowed to recuperate. The lowest performing region, the Southeast, misses a number of policies that empower utilities in other regions of the country, like decoupling.

Lagging in the Southeast

The Southeast region scored lowest overall in the ACEEE scorecard, which is consistent with its prior report.

Seven of the bottom 10 utilities in the scorecard are in the Southeast, although it has the second highest average carbon emissions rate in the country, behind the Midwest, ACEEE said, based on U.S. Environmental Protection Agency data in 2019. "Each megawatt-hour saved from energy efficiency in the Southeast and Midwest is on average displacing relatively greater emissions than in other regions," according to the report.

Southern Company's Alabama Power was the lowest-ranking utility on the scorecard, as the only utility to receive zero points for project performances. Southern Company did not respond to a request for comment on the report.

Duke Energy, another utility giant with subsidiaries throughout the Southeast, also had several of its utilities ranking in the bottom half of the scorecard. Only its Ohio subsidiary ranked within ACEEE's top 20 utilities.

Other energy efficiency reports have noted that Duke Energy Carolinas leads the Southeast region and performs above national standards, according to utility spokesperson Randy Wheeless.

In January, SACE also published a report based on 2018 utility data, comparing Southeast utilities to the overall regional average and the nation.

Duke Energy Carolinas and Duke Energy Progress were both above the U.S. average of energy saved by utilities as a percentage of 2017 retail sales, per the SACE report.

SACE specifically tracks energy efficiency in the region, ranking utilities on a metric of how many kilowatt hours customers save, as opposed to a scorecard like ACEEE, but the report similarly emphasized a gap in energy efficiency with other parts of the country.

"The Southeast really does lag other regions in the country," Bradley-Wright said.

Duke in North Carolina and Entergy Arkansas, which lead the Southeast region based on savings percentages in the ACEEE report and in SACE's recent report, "really should be a signal to utilities and states across the Southeast that absolutely very much more can be done" in energy efficiency, Bradley-Wright said.

States in the Southeast are lagging on progressive policy to drive emissions reductions and to decouple utility rates, ACEEE's Relf said.

However, decoupling "is not the only way to address utility earnings related to efficiency," Bradley-Wright said, adding that he understands why ACEEE scores it in their report. In the Southeast, a common mechanism is for utilities to seek lost revenue recovery, charging customers for the savings captured by energy efficiency.

"There is really a spectrum associated with how utilities are compensated for energy efficiency," he said.

Downturn post-2018 for Ohio

Just as states can drive utility investments in energy efficiency, changes in policies can also hinder progress.

Relf said she foresees a downturn in utility rankings in Ohio because of such actions. In the latest ACEEE scorecard, Ohio utilities did well on average, with Duke Ohio ranked 18th on the national scorecard, "but we expect their performance may decrease going forward... after HB 6 gutted energy efficiency programs," she said.

In 2019, the state's lawmakers passed House Bill 6 to help support uneconomic coal plants, while directing state regulators to cut energy efficiency targets once Ohio's electric distribution utilities cumulatively reduce energy use by 17.5%.

This is forecast to occur by the end of 2020, per Duke Ohio.​

"Duke Energy Ohio will evaluate its portfolio of energy efficiency and demand-side management programs to determine what changes will be required once Ohio’s electric distribution utilities meet the reduction goal," Duke Ohio announced in August. The company is still evaluating, according to spokesperson Lee Freedman.​

ACEEE is tracking other policies enacted since 2018 expected to negatively impact utility performance: the Iowa legislature capped utility energy efficiency spending and made it easier for more customers to opt out of programs; and California's energy savings goals for investor-owned utilities will decrease in future years per new state regulations.