Center for the Study of Energy Markets

The restructuring of the U.S. electricity industry created a crisis for ratepayer-funded energy-efficiency programs. This paper briefly describes the reasons for the crisis and some of its consequences. Then the paper focuses on issues related to program administration and discusses the relative merits of entities—utilities, state agencies, and non-profit corporations—that might be administrators. Four criteria are developed for choosing among program administration options: compatibility with public policy goals, effectiveness of the incentive structure, ability to realize economies of scale and scope, and contribution to the development of an energy-efficiency infrastructure. We examine one region, the Pacific Northwest, and three states, New York, Vermont, and Connecticut, which have made successful transitions to new governance and/or administration structures. Attention is also given to California where large-scale energy-efficiency programs have continued to operate, despite the fact that many of the key governance/administration issues remain unresolved. We observe that no single administrative structure for energy-efficiency programs has yet emerged in the US that is clearly superior to all of the other alternatives. We conclude that this is not likely to happen soon for three reasons. First, policy environments differ significantly among the states. Second, the structure and regulation of the electric utility industry differs among the regions of the US. Third, market transformation and resource acquisition, two program strategies that were once seen as alternatives, are increasingly coming to be seen as complements. Energy-efficiency programs going forward are likely to include elements of both strategies. But, the administrative arrangements that are best suited to support market transformation may be different from the arrangements that are best for resource acquisition.