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Section 7. Cost Recovery. (A) The Commission shall allow a utility that undertakes approved energy efficiency programs to recover the actual costs of implementing the programs. Costs exceeding the overall funding levels specified in the energy efficiency plan may be recovered as long as those costs are prudent and reasonable. (1) Costs shall be recovered from all classes of customers by volumetric charges applied to utility bills. (2) Upon petition by a utility and after an opportunity for public comment and hearing, the Commission may authorize the utility to capitalize certain costs of implementing approved energy efficiency programs. (3) To the extent feasible, charges collected from a particular customer rate class shall be devoted to energy efficiency programs and services for that rate class. However, the established funding level for low-income residential programs shall be provided from each customer rate class in proportion to that customer rate class’s funding of the utility’s total energy efficiency programs. (4) Charges shall be applied to distribution customers regardless of the source of their electricity or natural gas supply. One of the most problematic barriers to overcome when considering the implementation of utility energy efficiency or demand-side management (DSM) programs is that of financial risk. States have found several regulatory mechanisms to encourage development of utility DSM programs, including provisions to recover costs and create financial incentives (Section 8). Cost Recovery is a process whereby a utility is able to recover, through rates, the costs of implementing DSM programs. These costs can include staff costs, expenses, consultants, and rebates. Costs can either be “expensed” in the year they were spent or “capitalized” over a period of time. All utilities with DSM programs receive cost-recovery of some type. Typically costs can be recovered as long as they are “just and reasonable” (Kushler et al. 2006, Nadel 2006). The mechanism by which a utility recovers the cost of energy efficiency programs generally differs from state to state. Utilities usually recover program costs in one of three ways: though rates, tariff riders, or system benefits charges or a combination of mechanisms (e.g., combining a public benefits charge with the ability to recover program costs in rates) (Kushler et al. 2006). ACEEE research has found that program cost recovery is a minimum threshold for utility-sector customer energy efficiency programs to be funded and delivered. Utilities or other program administrators cannot be expected to operate “serious” programs without adequate funding and assurance that program costs can be recovered, whether via rates, tariff riders, or system benefits charges, thus this is an integral element for any state developing an EERS (Kushler et al. 2006). 18PDF Image | Energy Efficiency Resource Standards
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