January 19, 2005		2005-R-0067
ENERGY EFFICIENCY INITIATIVES
By: Kevin E. McCarthy, Principal Analyst

You asked for a description of legislative initiatives to promote energy efficiency, particularly in the public sector. OLR Report 2000-R-0194 describes energy conservation initiatives in the period 1993-2000, including measures considered but not adopted.

SUMMARY

The legislature has adopted a broad range of initiatives to promote energy efficiency. In the 1970s and early 1980s in response to the 1973 and 1979 oil embargoes, the legislature sought to make state buildings and state-funded building projects more energy efficient. More recently, the legislature has adopted initiatives on state agency energy performance contracting and shared savings programs.

More generally, the legislature adopted a state energy policy with energy conservation provisions in 1978. It subsequently required electric and gas companies to implement energy conservation programs. As part of PA 98-28, which restructured the electric industry, the legislature established a surcharge on electric bills to finance conservation programs, although it subsequently reallocated part of this money to the General Fund. The legislature has required the Department of Public Utility Control (DPUC) to adopt ratemaking procedures to support

conservation programs. It has also adopted efficiency standards for a wide range of commercial products, and established mechanism for the Connecticut Energy Advisory Board and the Connecticut Siting Council to consider energy efficiency as an alternative to proposed new energy facilities.

ENERGY EFFICIENCY IN THE PUBLIC SECTOR

Early Initiatives

In response to the energy crisis of the 1970s the legislature took a variety of steps to promote energy efficiency in the public sector. These included:

1. requiring the Office of Policy and Management (OPM) to take various steps to maximize energy efficiency in state buildings (CGS Sec. 16a-37u);

2. requiring the Department of Public Works (DPW) to conduct energy audits of all state buildings and to recommend cost-effective retrofit measures to allow the buildings to meet energy performance standards established by OPM (CGS Sec. 16a-38a);

3. requiring state building construction and major renovation projects to undergo a lifecycle cost analysis, in which design alternatives are compared to determine which has the lowest combination of capital and operating costs. These requirements have been modified extensively over the years. (CGS Sec. 16a-38),

4. allowing the Department of Administrative Services and OPM to adopt energy performance standards for state-owned or leased equipment and applicances (CGS Sec. 16a-38); and

5. requiring DPW, in consultation with OPM, to establish lighting efficiency standards for all public buildings. Legislation adopted in 1994 (CGS Sec. 16a-37f) requires state agencies to buy only energy-efficient light bulbs.

Performance Contracting and Shared Savings Programs

CGS Sec. 16a-37v, adopted in 2003, requires OPM and DPW to establish a pilot program in which the state selects one or more state facilities to be covered by an energy performance contract with a private vendor. Under such contracts, the vendor agrees to improve energy performance by a specified amount, in return for a fixed fee or a share of the resulting energy savings.

OPM established a shared savings program for state agencies pursuant to CGS Sec. 16a-37c. Under this program, an agency can keep part of the money it saves from energy conservation programs to pay its future energy costs or costs of future energy conservation programs.

OTHER ENERGY CONSERVATION INITIATIVES

State Energy Policy

The state’s overall energy policy (CGS Sec. 16a-35k) was adopted in 1978 and has had relatively minor changes since then. Among other things, the policy states that the Connecticut must address its energy problems by conserving energy, increasing the efficiency of energy utilitzation, and developing renewble energy sources. The policy is incorporated in the principles that govern utility rate-making (CGS Sec. 16-19e).

Utility Conservation Programs

CGS Sec. 16a-49, adopted in 1988, requires each gas and electric company to implement cost effective conservation and load management programs consistent with integrated resource planning principles. Under these principles, the company must simultaneously consider supply and demand side option when doing its system planning. To provide an incentive for such programs, the DPUC must allow the company to earn (1) a rate of return on its conservation-related capital investments that is one to five percentage points above the rate it is normally allowed to earn on its investments or (2) a one to five percent return on its costs that are expensed (normally the company does not earn a return on such costs).

CGS Sec. 16-245m requires DPUC to assess a charge of 0. 3 cents per kilowatt-hour sold to fund energy conservation programs. This initiative was adopted under PA 98-28, which restructured the electric industry. A DPUC-established board, including state agency representatives, business groups, and other interested parties must advise and assist the electric companies in developing a plan to promote conservation programs and programs to develop more energy-efficient products. OLR Report 2001-R-0623 provides additional information about the energy conservation programs supported by the charge. Part of the funding goes to energy conservation projects in public sector buildings.

Ratemaking Measures to Support Conservation Programs

In CGS Sec. 16-9kk, adopted in 1991, the legislature found that electric and gas companies could be financially harmed by implementing energy conservation programs that reduced their earnings, and that this could discourage them from implementing such programs. As a result, it directed DPUC implement ratemaking and related procedures and practices to encourage the implementation of such programs. Among the options the DPUC was allowed to adopt was the modification or eliminatin of any direct relationship between the company’s volume of sales and its earnings.

A key component of ratemaking is the rate of return that DPUC allows a company to earn on its investments. CGS Sec. 16-19kk requires DPUC to consider the effectiveness of the company’s conservation, load management programs and several other factors in setting the company’s authorized rate of return. It also allows DPUC to establish other performance-based incentives to implement the state’s energy policy.

Appliance Efficiency Standards

The legislature adopted efficiency standards in 1983 for shower heads and fluorescent lamps sold in the state (CGS Sec. 16a-48). During the 2004 session, the legislature adopted efficiency standards for a wide range of products, including commercial refrigerators, air conditioners, and clothes washers. These standards will begin to go into effect in 2006.

Connecticut Energy Advisory Board Responsibilities

CGS Secs. 16a-7a to 16a-7c, adopted in 2003, require the Connecticut Energy Advisory Board (CEAB) to develop an annual comprehensive energy plan. The plan must identify the need for new conservation initiatives, as well as new energy resources and transmission facilities. Among other things, the plan must include (1) recommendations for decreasing dependence of fossil fuels by promoting energy conservation and renewable resources, (2) consideration of alternative energy planning mechanisms, and (3) policies and strategies to achieve a least-cost mix of energy supply sources and measures that reduce the demand for energy.

Under CGS Sec. 16a-7c, when the Connecticut Siting Council receives a proposal to build power plants, transmission lines, and substations, CEAB must issue a request for proposals for alternative solutions including, where relevant, energy efficiency measures. An entity submitting a proposal may choose to apply for a Siting Council certificate. If it does, the Siting Council must select the most appropriate alternative among the applications filed (CGS Sec. 16-50p). CEAB can also issue a request for proposals to respond to needs identified in its annual plan or by the Independent System Operator-New England, which operates the regional electric transmission grid.

Department of Economic and Community Development Programs

CGS Sec. 8-37kk requires the Department of Economic and Community Development to give preference to energy efficient projects in administering its grant and loan programs. CGS Sec. 8-37jj generally bars electric resistance heat in new housing projects subsidized by the department (while such heating has a lower initial cost than other technologies, its life cycle cost is generally higher).

KM: dw