Required Energy Efficiency Goals

Origin

Texas is credited with being the first state to establish an Energy Efficiency Resource Standard in the United States.* Originally, the goal called for investor owned utilities (IOUs) to meet 10% of its annual growth in electricity demand through energy efficiency. The legislature updated those standards in 2008 (HB3693) and the Public Utility Commission of Texas (PUCT) finalized the goals and provided additional guidance on how to achieve them. SB1125 (2011) amended the goals again. Minor adjustments were made in Docket No. 48692 in 2019 related to cost recovery.

Electric Demand Reduction Standard

As a result of Senate Bill 1125, Texas’ EERS has now been set to be “triggered” based on the achievement of utility-specific goals. investor-owned utilities required must reduce energy usage and demand to the point that such savings represent 30% of the annual growth in peak demand on each utility’s system or (if this standard was already met) up to 0.4 percent (%) of each utility’s peak demand thereafter. The purpose of the bill was to unify the standard as being 0.4 percent of peak demand for all affected investor-owned utilities.

As a matter of practical implementation, for many of Texas’ investor-owned utilities, 0.4% of peak demand represents a significant amount less than 30% of the growth in demand each utility experiences annually. However, under the current energy efficiency rule, as of 2013, utilities cannot propose goals that are less than the previous year’s goals (unless given an exception by the Commission), even if the minimum required 0.4% of peak demand does not exceed 30% of peak load growth.

Options available to the IOUs to meet the energy efficiency goals include standard offer programs or market transformation programs. Standard offer programs include programs such as commercial and industrial energy efficiency incentives or incentives for "hard-to-reach" customers (among others). Market transformation programs include programs such as incentives for retro-commissioning, incentives for ENERGY STAR New Homes, or incentives for small distributed renewable generation (among others). 

Each utility must develop Energy Efficiency Plans & Reports outlining specifically how the utility is implementing its programs, in accordance with the law to meet its goal. The Texas Efficiency web site (under “Regulatory Filings”) includes Energy Efficiency Plans and Reports for each investor owned utility since 2007. The utilities also complete an annual report highlighting accomplishments and provide detailed information about energy efficiency goals and implementation.

Program Administrator Type

Texas’ investor-owned utilities administer the programs designed to meet the standard. 

Cost-Effectiveness and Program Evaluation

To evaluate the cost effectiveness of its utilities' efficiency and demand reduction activities, Texas utilizes the Utility Cost Test (UCT), 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 affected by these requirements are allowed to recover an Energy Efficiency Cost Recovery Factor (EECRF) charge that includes a performance bonus that represents 1% of the net benefit associated with each 2% by which each utility exceeds its performance goals (representing 50% of the net benefit associated with the programs).

Cost recovery through the EECRF is also limited via a cost cap that increases with the Consumer Price Index (CPI).

Special Provisions

The standard also places caps on several categories of program spending that utilities can engage in. For example, the amount any covered utility can spend on administrative overhead and research and development cannot exceed 15% and 10% of a utility’s total program costs, respectively, for the previous program year. Utilities are also limited from having their cumulative research and development costs exceed 20% over the life of their programs, unless a "good cause exception" is granted by the Public Utilities Commission.

Industrial customers are not permitted to participate in utility energy efficiency programs, and they are excluded from the calculation of required peak demand savings. The only eligible customers are residential and commercial customers.

*Statistic provided by the American Council for an Energy-Efficient Economy (ACEEE). See ACEEE's State Energy Efficiency Resource Standard Fact Sheet for a quick reference guide comparing states with energy savings goals.