Energy Efficiency and Conservation Requirements for Utilities

In October 2008 Pennsylvania adopted Act 129 requiring PA Public Utility Commission (PUC) to establish energy efficiency and conservation program for the state’s investor owned utilities. The standard applies to utilities with at least 100,000 customers, which includes the following seven Electric Distribution Companies* (EDCs): PECO Energy, PPL Electric Utilities, West Penn Power, Pennsylvania Electric (Penelec), Metropolitan Edison (Met-Ed), and Duquesne Light. 

Electric Energy and Demand Reduction Standard

The Act 129 included an initial energy conservation and demand reduction targets until 2013. Beyond the initial 2013 targets, the act required the commission to evaluate cost effectiveness of the utility programs every five years and set additional electricity consumption and peak demand reduction goals if the benefits of such program exceeds its costs. 

The energy efficiency and demand reduction standards have functionally been divided into different Phases. Phase I lasted from June 1, 2010 to May 31, 2013, Phase II of the program lasted from June 1, 2013 to May 31, 2016. Phase III of the program applied from June 1, 2016 through May 31, 2021. Phase IV will operate from June 1, 2021 through May 31, 2026.

Via its June 18, 2020 Implementation Order, the PUC adopted additional incremental reductions in consumption and peak demand, established the standards each plan must meet and provided guidance on the procedures to be followed for submittal, review and approval of all aspects of the EE&C plans for Phase IV of the program.

Phase I Standards Summary (Electric Peak Demand and Sales Reduction)

Phase I of the standard required utilities to develop plans to provide expected electricity savings of 1% by May 31, 2011 and 3% by May 31, 2013, measured against projected electricity consumption for the period from June 2009 – May 2010. The utilities are also required to develop plans that provide for peak demand savings of 4.5% by May 31, 2013, measured against the actual peak demand from June 2007 – May 2008.

Utility plans to meet the standards also had to be designed to provide a minimum of 10% of the requirements from units of Federal, State and local government, including municipalities, school, districts, institutions of higher education and nonprofit entities.

Phase II Standards Summary (Electric Sales Reduction Only)

Phase II of the program lasted from June 1, 2013 to May 31, 2016, and required energy savings that vary by utility from 1.6% to 2.9% of June 2009 - May 2010 electricity consumption. These targets were expected to result in collective savings of 3.3 million megawatt-hours (MWh) over the three-year period. The applicable utilities were also required to include specific measures for households at or below 150% of the federal poverty income guidelines.

In the Phase II Order, the "carve-out" for governmental entities and non-profits was maintained, and the PUC also elected to adopt a goal that 4.5% of each utility's target be met with savings in the low-income sector.

The Phase II standards are summarized in the table below, as found in the Phase II order (by applicable utility). 

In the Phase II Order, the PUC chose to not establish additional peak demand reduction targets beyond those in Phase I, pending further study and evaluation, citing a lack of verified demand savings reduction information from Phase I at the time of the order. However, the PUC permitted the utilities to continue existing residential demand response programs and file petitions to develop new programs. Notably, energy efficiency measures may potentially include customer-sited solar and geothermal technologies.

Phase III Standards Summary (energy conservation and peak reduction)

On June 2015, the commission approved implementation of Phase III of the program for the period of 5 years beginning June 1, 2016 through May 31, 2021. The energy consumption reduction targets vary between the utilities, with a statewide average of goal of reduction of 5,710,487 MWh of energy use by 2020 based on 2010 standards. EDCs will submit their annual plans designed to achieve at least 15% of the target amount in each program year. 

Act 129 requires the Commission to set additional demand reduction goals for the EDCs if the benefits from the energy efficiency savings exceed its costs. Phase III of the program includes demand reduction targets for each utility based on methodology appropriating 10% of the energy efficiency budget for peak demand reduction and rest 90% allocated for energy efficiency. 

The Phase III order includes energy efficiency carve out for low-income, and government-nonprofit sectors. EDCs are required to obtain 5.5% of their reduction target from programs targeted specifically to low-income sector, and 3.5% of the reduction targets must come from federal, state, and local government, and nonprofit (G/E/NP) sector. If the EDCs fail to meet any of the carve-out targets then they could be subject to civil penalty up to $1,000 under 66 Pa. C.S. § 3301(a).  

The Phase III standards are summarized in the table below:

Phase IV Standards Summary (consumption reduction, peak demand reduction, and low income consumption reduction)

On June 18, 2020, the Public Utilities Commission issued an order adopting Phase IV of the program to be implemented from June 1, 2021 through May 31, 2026. Phase IV has three targets for utilities to meet: consumption reduction, peak demand reduction, and low income consumption reduction.

Pennsylvania’s electric distribution companies are responsible for administration of the programs required to meet the standards.

Cost-Effectiveness and Program Evaluation

To evaluate the cost effectiveness of its utilities' efficiency and demand reduction activities, Pennsylvania utilizes the Total Resource Cost test (TRC) (one of the five "California tests" from the California Standard Practice Manual) as its primary test for measuring the cost-effectiveness of energy efficiency programs.

Utility Cost Recovery Provisions

Utilities are permitted to recover all reasonable and prudent costs associated with their program offerings through a reconcilable adjustment clause. Related costs associated with decreased revenue and retail sales may not be included under this adjustment, but may be reflected in future utility rate-making proceedings.

Special Provisions (Program Spending Limitation and Penalties for Noncompliance)

The total cost associated with an electric utility’s energy efficiency and peak demand reduction plan may not exceed 2% of the utility’s total annual revenue as of December 31, 2006. The PUC has found that the cost should be determined as an average annual amount rather than as the full cost of the multi-year plan as a whole. Failure to achieve the requisite reductions in electricity consumption and peak demand is punishable by fines from $1 million to $20 million. (Failure to file a plan with the PUC is also punishable by a fine of $100,000 per day). Costs associated with any such fines are not recoverable from ratepayers.

For further information on how the standard is being implemented, including information on utility reporting and program offerings, please visit the PUC’s Act 129 web site listed at the top of this page.

*Electric Distribution Companies (EDC) are public utility companies that provide transmission and distribution of electricity to retail customers, who are regulated by the Public Utility Commission (PUC). Pennsylvania has a restructured electricity market which allows market competition for sale of electricity at retail level. EDCs generally do not function as supplier of electricity to retail customers unless the customers opt not to choose competitive suppliers, then in that case they are served by the EDCs in their role as the Default Service Provider (DSP).