State Energy Efficiency Cost Recovery Mechanisms

Abstract

Improving energy efficiency is one of the most cost-effective ways to lower energy prices, reduce emissions, and improve grid reliability. However, improving energy efficiency through energy efficiency programs often require utilities to make significant upfront investments. Cost recovery mechanisms are thus an essential component of energy efficiency policies, providing the financial incentives necessary for utilities to make such investments. These relatively unknown policies determine how utilities recover energy efficiency investments through customer rates. To better understand their impact, we built a financial model and comparison dashboard that allows users to compare how the cost recovery mechanisms of three states – North Carolina, Vermont, and Illinois – differently compensate utilities and charge customers for energy efficiency investments. We aim to shed light on the influence and impact of this policy on utilities, customers, and our environment.