Carrots and sticks: A comprehensive business model for the successful achievement of energy efficiency resource standards

U.S. utilities face significant financial disincentives under traditional regulation in aggressively pursuing cost-effective energy efficiency. Regulators are considering some combination of mandated goals and alternative utility business model components to align the utility’s business and financial interests with state and federal energy efficiency public policy goals. We analyze the financial impacts of an Energy Efficiency Resource Standard on an Arizona electric utility using a pro-forma utility financial model, including impacts on utility earnings, ROE, customer bills and rates. We demonstrate how a viable business model can be designed to improve the business case while retaining sizable benefits for utility customers.

► We model the financial impacts of the Arizona EES on a large utility.
► We examine impacts on utility earnings and ROE, customer bills and rates.
► The Arizona EES provides sizeable ratepayer benefits at modest rate increases.
► A decoupling mechanism reduces the financial disincentive to energy efficiency.