OLR Research Report


September 29, 2008

 

2008-R-0514

UTILITY CONSERVATION FUNDS EXPENDITURES

By: Kevin E. McCarthy, Principal Analyst

You asked:

1. how much money from the Connecticut Energy Efficiency Fund have the electric companies spent on non-conservation work, i.e., payments for such items as administrative expenses, consultants, and attorney fees;

2. what is the policy of the Energy Conservation Management Board (ECMB), if there is one, on paying for non-related expenses for work on residential and commercial structures in the program; and

3. what efforts, if any, have the electric companies made to find Connecticut based contractors and workers to do the conservation work.

You also requested detailed information regarding disbursements for non-conservation work, which we will forward upon receipt.

SUMMARY

By law, the electric companies must develop an annual plan for spending money from the fund, which is subject to review by the ECMB and approval by the Department of Public Utility Control (DPUC). By law, the fund can be used for several purposes beyond conservation and load management (C&LM) programs and the plans must provide for the retention of consultants and cover the costs of administering the programs.

The bulk of the expenditures from the fund over the past five years has been for C&LM activities. (Load management refers to activities that do not necessarily reduce total consumption; such activities can reduce stress on the electric distribution system and reduce customers' electric bills.) The proportion spent on these activities has ranged from 72.9% to 85.9%. Other major expenditure categories include (1) a performance management fee paid to the electric companies based on the C&LM programs' cost-effectiveness, (2) conservation education programs, and (3) administrative expenses. Administrative expenses, which under the DPUC-approved budgets do not include such things as program planning and evaluation, have ranged from 1.1% to 5.8% of the budget.

The budgets do not specify expenditures on consultants and attorneys and data on these expenditures is not readily available. Consultants are used extensively in program planning and evaluation and marketing. Most of the consultants retained by ECMB for these purposes are based out of state, and the program's expenditures include travel and lodging costs for the out-of-state consultants. ECMB members estimate that the total costs of the ECMB's consultants have ranged from $58,000 to $286,000 per year. The fund coordinator is not aware of any expenditures from the fund for attorney fees in recent years.

As a rule, the C&LM programs do not pay for non-related expenses for work on residential and commercial structures in the program. The electric companies very occasionally do pay for limited home repairs in the part of the residential program that serves low-income households. For example, the companies may pay for the replacement of a broken window pane if this is a significant source of heat loss in a building. But they do not pay for such things as replacement windows or structural repairs.

The companies administer the program through contractors, many of whom are chosen through requests for proposals. These solicitations are open to in-state and out-of-state contractors. In practice, most of the selected contractors involved in implementing C&LM programs have been based in Connecticut. Contractors based in other states typically use employees or subcontractors based in the state. However, the companies do not give preference to in-state contractors and employees in implementing C&LM programs.

INTRODUCTION

By law (CGS 16-245m), the electric companies must develop plans for cost-effective energy conservation programs. The programs' cost-effectiveness must use information from real-time monitoring. Program cost-effectiveness must be reviewed annually and if a program fails the cost-effectiveness test, it must be terminated or modified.

The fund can be used for several purposes beyond actual conservation measures. These include, among others: (1) research, development, and demonstration (RD&D) of energy efficient products; (2) public education regarding conservation; and (3) program planning and evaluation. The plan must provide for the retention of expert consultants, who may not be employed by or under contract to the electric companies. The plan must also provide for reasonable administrative costs, which cannot exceed 5% of the revenue collected from the conservation charge. The law does not define administrative costs, but they appear to exclude costs for program planning and evaluation and for consultants.

The fund is supported by Connecticut Light & Power and United Illuminating customers through a conservation charge that is part of the public benefits charge that appears on electric bills.

EXPENDITURES

Table 1 presents expenditure information for the fund for the period 2003-2007. Please note that in 2004 the RD&D category includes a small amount of funding (less than $10,000) for incentives for renewable energy. In addition to the listed expenditures, in 2005 the fund incurred approximately $400,000 in audit expenses; in 2007 it incurred approximately $500,000 in “general awareness” expenses.

Table 1: Energy Efficiency Fund Expenditures ($ millions)

 

2003

2004

2005

2006

2007

Residential Programs

9.5

18.1

21.0

21.9

23.5

Commercial/Industrial Programs

26.5

36.3

42.2

35.2

60.2

Load Management

3.7

0.7

2.4

1.4

0.7

Education Programs

2.5

1.0

2.7

1.4

1.4

RD&D

1.8

1.1

0.9

0.05

0.1

Other Programs

         

Institute for Sustainable Development

1.1

0.8

0.5

0.3

0.3

C&LM Loan Defaults

 

0.1

0.1

0.09

0.07

Energy Conservation Loan Fund

0.2

0.2

0.3

0.2

 

Heat Pump Water Heaters

0.2

0.1

0.1

0.1

 

Administration

2.9

1.2

0.9

1.3

1.1

Planning and Evaluation

1.3

1.3

2.6

1.5

1.1

Information Technology

0.6

1.0

1.1

2.1

1.9

ECMB

0.4

0.2

0.4

0.3

0.5

Performance Management Fee

3.0

5.3

4.7

5.0

6.8

Total

50.1

67.4

80.2

71.0

98.2

During the period covered by Table 1, C&LM expenditures accounted for 72.9% to 85.9% of the fund's expenditures. The majority of these expenditures go to programs serving commercial and industrial customers, which account for a majority of the electricity consumed in the state. Other major expenditure categories include (1) a performance management fee paid to the electric companies based on the C&LM programs' cost-effectiveness, (2) conservation education programs, and (3) administrative expenses. The management fee is required by CGS 16a-49, which requires DPUC to allow electric and gas companies to earn a return on prudently incurred multiyear C&LM expenditures on programs and measures approved by DPUC that the company successfully implements. Administrative expenses, which under the DPUC-approved budgets do not include such things as program planning and evaluation, have ranged from 1.1% to 5.8% of the budget.

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