A PLAN DEVELOPED BY MORE THAN 50 LEADING

ORGANIZATIONS IN PURSUIT OF ENERGY SAVINGS

A N D E N V I R O N M E N TA L B E N E F I T S T H R O U G H

ELECTRIC AND NATURAL GAS ENERGY EFFICIENCY

JULY 2006

The goal is to create a sustainable, aggressive national commitment to energy efficiency through gas and electric utilities, utility regulators, and partner organizations.

Improving energy efficiency in our homes, businesses, schools, governments, and

industrieswhich consume more than 70 percent of the natural gas and electricity used

in the countryis one of the most constructive, cost-effective ways to address the

challenges of high energy prices, energy security and independence, air pollution, and

global climate change.

The U.S. Department of Energy and U.S. Environmental Protection Agency facilitate the

work of the Leadership Group and the National Action Plan for Energy Efficiency.

Acknowledgements

The National Action Plan for Energy Efficiency Report discusses policy, planning, and program issues based on a formal work plan developed during the December 2005 and March 2006 Leadership Group meetings. The Leadership Group is led by co-chairs Diane Munns (Member of the Iowa Utilities Board and President of the National Association of Regulatory Utility Commissioners) and Jim Rogers (President and Chief Executive Officer of Duke Energy). A full list of Leadership Group members is provided in both the Executive Summary (Table ES-1) and Chapter 1 (Table 1-2) of this report. Rich Scheer of Energetics Inc. facilitated the Leadership Group discussions during both Leadership Group meetings.

Expert consultants, funded by the U.S. Department of Energy (DOE) and the U.S. Environmental Protection Agency (EPA), drafted many chapters of the Action Plan Report. These consultants included:

Regulatory Assistance Project: Chapter 2 and Appendix A

Energy and Environmental Economics, Inc.: Chapters 3 through 5, Energy Efficiency Benefits Calculator, and Appendix B

KEMA: Chapter 6

In addition, Rich Sedano of the Regulatory Assistance Project and Alison Silverstein of Alison Silverstein Consulting provided their expertise during review and editing of the overall report.

DOE and EPA facilitated the work of the Leadership Group and this report, including Larry Mansueti with DOEs Office of Electricity Delivery and Energy Reliability, Mark Ginsberg with DOEs Office of Energy Efficiency and Renewable Energy, and Kathleen Hogan, Stacy Angel, Maureen McNamara, Katrina Pielli, and Tom Kerr with EPAs Climate Protection Partnership Division.

Eastern Research Group, Inc. provided technical review, copyediting, graphics, and production services.

To create a sustainable, aggressive national commitment to energy efficiency i

List of Figures

Figure ES-1. National Action Plan for Energy Efficiency Recommendations.......................................ES-2

Figure ES-2. National Action Plan for Energy Efficiency Recommendations & Options.......................ES-8

Figure 1-1. Energy Efficiency Spending Has Declined ......................................................................1-5

Figure 1-2. Energy Efficiency Has Been a Resource in the Pacific Northwest for the Past Two Decades ....1-7

Figure 1-3. National Action Plan for Energy Efficiency Report Addresses Actions to Encourage

Greater Energy Efficiency ...........................................................................................1-11

Figure 3-1. Energy-Efficiency Supply Curve Potential in 2011 .......................................................3-2

Figure 3-2. California Efficiency Structure Overview......................................................................3-10

Figure 3-3. California Investor-Owned Utility Process ....................................................................3-11

Figure 3-4. BPA Transmission Planning Process .............................................................................3-12

Figure 3-5. New York Efficiency Structure Overview.........................................................................3-13

Figure 4-1. Comparison of Deferral Length with Low- and High-Growth .......................................4-10

Figure 6-1. Impacts of the Northeast Lighting and Appliance Initiative ..........................................6-33

Figure 7-1. National Action Plan for Energy Efficiency Recommendations ........................................7-1

Figure 7-2. National Action Plan for Energy Efficiency Report Addresses Actions to Encourage

Greater Energy Efficiency .............................................................................................7-2

National Action Plan for Energy Efficiency ii

List of Tables

Table ES-1. Members of the National Action Plan for Energy Efficiency ..........................................ES-10

Table 1-1. Summary of Benefits for National Energy Efficiency Efforts .............................................1-8

Table 1-2. Members of the National Action Plan for Energy Efficiency ...........................................1-16

Table 2-1. Options to Mitigate the Throughput Incentive: Pros and Cons .............................................2-6

Table 2-2. Examples of Decoupling...............................................................................................2-12

Table 2-3. Examples of Incentives for Energy Efficiency Investments ..............................................2-15

Table 3-1. Levelized Costs and Benefits From Four Regions .............................................................3-9

Table 3-2. Incorporation of Energy Efficiency in Californias Investor-Owned Utilities

Planning Processes.......................................................................................................3-11

Table 3-3. Incorporation of Energy Efficiency in BPAs Planning Processes.......................................3-13

Table 3-4. Incorporation of Energy Efficiency in NYSERDAs Planning Processes ...................................3-14

Table 3-5. Incorporation of Energy Efficiency in Minnesotas Planning Processes ............................3-15

Table 3-6. Incorporation of Energy Efficiency in Texas Planning Processes .....................................3-16

Table 3-7. Incorporation of Energy Efficiency in PacifiCorps Planning Processes .............................3-17

Table 4-1. Summary of Main Assumptions and Results for Each Business Case Analyzed..................4-3

Table 4-2. High- and Low-Growth Results: Electric Utility ................................................................4-6

Table 4-3. High- and Low-Growth Results: Natural Gas Utility .........................................................4-8

Table 4-4. Power Plant Deferral Results ........................................................................................4-11

Table 4-5. Vertically Integrated and Delivery Company Results ..........................................................4-13

Table 4-6. Publicly- and Cooperatively-Owned Utility Results .........................................................4-15

Table 5-1. Partial List of Utilities With Inclining Tier Residential Rates ..............................................5-6

Table 5-2. Pros and Cons of Rate Design Forms ..............................................................................5-9

Table 5-3. Conditions That Assist Success .....................................................................................5-11

Table 6-1. Overview of Energy Efficiency Programs .........................................................................6-4

Table 6-2. Efficiency Measures of Natural Gas Savings Programs .........................................................6-6

Table 6-3. Efficiency Measures of Electric and Combination Programs .............................................6-8

Table 6-4. Achievable Energy Efficiency Potential From Recent Studies ..........................................6-16

Table 6-5. NYSERDA 2004 Portfolio .............................................................................................6-20

To create a sustainable, aggressive national commitment to energy efficiency iii

List of Tables (continued)

Table 6-6. Nevada Resource Planning Programs ............................................................................6-21

Table 6-7. Overview of Cost-Effectiveness Tests ............................................................................6-23

Table 6-8. Research & Development (R&D) Activities of Select Organizations .................................6-25

Table 6-9. Emerging Technologies for Programs ............................................................................6-27

Table 6-10. Key Stakeholders, Barriers, and Program Strategies by Customer Segment.....................6-31

Table 6-11. Types of Financial Incentives .........................................................................................6-40

Table 6-12. Sample Progression of Program Designs........................................................................6-42

Table 6-13. Program Examples for Key Customer Segments ............................................................6-44

Table 6-14. Evaluation Approaches.................................................................................................6-46

Table 7-1. Leadership Group Recommendations and