Not long ago, most people viewed energy conservation as turning off the lights when they left a room or closing the windows when the AC is running. But the energy conservation programs of today ask us to take a much more involved, hands-on role. Utility companies across the country now offer incentives to add green building features to our homes, upgrade appliances, and generally take a more proactive approach to energy conservation. In some states these programs have already enjoyed notable success, but in most of the country there is still a feeling-out process underway: utilities touting new programs, customers asking questions, and both sides trying to agree on the best way to pursue energy conservation.

Building the Incentives

The success of energy-efficiency programs is hard to measure when you consider all the variables that come into play -- population growth, fluctuating energy prices, and program costs -- but groups like the National Resources Defense Council (NRDC) are working to put standards in place and promote the independent verification of results.

The areas of the country with the most developed and successful energy conservation programs are California, Texas, New York, New England and the Pacific Northwest, says Sheryl Carter, the co-director of the energy program at the NRDC. With utilities and government agencies anxious to create more conservation programs, the NRDC is advising these groups and promoting legislation that will help the programs succeed.

"States that have never had programs before are contacting us, regulators and utilities both. It's important how you design the program, and we look for aggressive targets and making sure the portfolio is cost-effective and there is independent verification [of the program's results]," says Carter. "At that point, there are so many different designs, but we do know that regulators need to be more involved."

While federal, state, and even local governments use incentive programs to encourage conservation and investment in renewables -- often in the form of tax breaks and grants -- the majority of these programs are offered directly through utility companies. Many of the incentive programs are aimed at small businesses and large commercial customers because they can make the biggest impact in the shortest amount of time. However, utilities increasingly are targeting residential customers, offering everything from rebates to loan programs and giveaways that are designed to appeal to both their wallet and eco-conscience. The primary goals are to increase energy efficiency and lower energy prices, but most utilities are still in the early stages of building out these programs.

"The important thing is to go after a whole package of policies," said Carter. "Light bulb programs are cheap and offer the quickest bang for the buck, but you need to look at plug loads for all of our electronics. HDTVs are now a major energy user, and there isn't a good standard or labeling, so there is a lot of work to do in that area as more efficient designs become clear."

Some of the most prominent green building incentives in the commercial sector are tied to LEED, a certification system that awards points for site selection, materials, energy and water efficiency, and renewable technologies, among other things. On the residential front, utilities offer rebates on home improvements such as insulation, double-paned windows, energy efficient lighting and air conditioning systems, solar water heating and photovoltaic (PV) systems. Utilities that give rate discounts to encourage residential energy efficiency often use the federal Energy Star program as a guideline, and offer the owner or tenant a percentage discount on each month’s electric bill.

The Database of State Incentives for Renewables & Efficiency has a comprehensive listing of renewable energy and energy efficiency incentive programs and regulatory policies administered by federal and state agencies, utilities, and local organizations. Even with all of this information available, however, customers still need to do some legwork to figure out how the programs work, which can entail anything from researching solar technologies and foam insulation to having a home energy audit done.

Utilities sometimes struggle to get enough customers involved to make these programs pay off, and this is where effective education and marketing comes into play. In addition to informing customers about technologies and concepts that are often complex and difficult to comprehend, the utilities need to offer the right type of financial incentives to get more customers involved. And this is where things can get sticky.

The Marketing Conundrum

When Florida launched energy incentive programs in 2003, the promise was to bring more clean energy to the state, and to reduce the price of energy for all its customers through conservation. However, when it was revealed that most of the money collected from customers was used to pay for administrative and marketing costs, it caused an eco-uproar, and in July state regulators shut the program down and launched an investigation.

Florida Power & Light (FPL) hired eco-utility provider Green Mountain to market the Sunshine Energy Program to create demand for more than 1.2 million megawatt hours of renewable energy and over 450 kilowatts of new solar projects in Florida. Under the program, some 39,000 customers agreed to pay an extra $9.75 per month for renewable energy projects, but when a recent audit showed that three quarters of the $11.4 million collected from FPL customers since 2004 went to administrative, marketing and management expenses, customers started to complain. The problems escalated when FPL customers found out about an eight percent rate hike this summer, and another eight percent increase planned for January to cover costs associated with solar projects.

Sunshine Energy customers were promised renewable energy credits and solar development, and according to Green Mountain the costs for sales and marketing were $5.8 million, which resulted in 38,000 new customers in four years. So where did all that money go? Since 2004, Green Mountain made 56,000 hours of telemarketing calls, mailed 3.6 million pieces of direct mail, delivered 38 million enrollment forms on customer bills and sent 7.6 million bill inserts to market the program to FPL customers.

The Green Mountain case highlights the importance of educating customers not only on the energy program, but also the costs and other details of the programs. In California, about 15 percent of the money collected from customers enrolled in Silicon Valley Power's Green Power program goes to administrative and marketing costs, and in Georgia Power's green energy program about 1 percent of the money collected is spent on marketing and about 14 percent on administration.

Of course, for utilities that are trying to promote green programs for the first time, the marketing costs represent something of a Catch-22: without effective marketing, customers may not understand the programs and incentives for them to participate. But if the costs go too high, they run the risk of upsetting and alienating the very customers they want to attract.

"Marketing and education is critical and the way to resolve it is to have a portfolio of programs, so if some are more expensive it makes the marketing more cost effective. It's done that way here, and in California and the Northwest," said Carter. "You also have to take into account the life of the program, which is 10-15 years for some, and put it all together and present the value of the costs."

In addition to determining the costs, utilities also have to report the results of these programs in order to justify their continuation.

"These incentive programs have become an important part of earnings, and we need to be sure they can verify and validate performance. There are people who are skeptical and raise questions because the reporting and monitoring system is fairly elaborate," said V. John White, executive director of the Center for Energy Efficiency and Renewable Technologies (CEERT). He also noted that utilities are better at validating performance in the commercial sector, but there is more work to do with residential programs.

Case Study: Austin Energy

Austin Energy is a community-owned electric utility that has one of the most successful energy efficiency programs in the country, which has been growing for more than 20 years and is focused on renewable energy, green building and solar rebates. Energy efficiency has become a major part of Austin Energy's generation plan, which aims for 55 megawatts of carbon offsets every year.

"We think energy efficiency is the least expensive form of generation," said Ed Clark, the communications director at Austin Energy. The utility's overall goal is to offset 700 megawatts of energy between 2003 and 2020, and it is already approaching 200. By 2020, 30 percent of its power will be from renewable sources, and it expects to hit 11 percent by end of year, according to Clark.

When new batches of renewable energy come onto the grid, Austin Energy offers fixed-rate plans that are locked-in for a period of 15 years. Clark said that 80 percent of this renewable energy is sold to some 500 businesses around town, but about 10,000 residential customers are in on the action, too.

"We're entirely different from Florida because we contract for wind power and give customers the benefit of the costs," said Clark. "We do not add profit to the price we charge, so it costs 5.5 cents per kilowatt hour, fixed for the life of the contract.

Austin Energy’s Home Performance with Energy Star program offers rebates and loans for energy-efficiency improvements, and since 1982 more than 200,000 Austinites have participated in the utility’s energy efficiency programs. The Power Saver program offers customers rebates up to $1,575 for air conditioning, attic insulation, solar screens, and similar green upgrades, and the utility will also pay for as much as 75 percent of the cost of installing solar panels, and has rebates of as much as $2,000 for solar-water heaters. All in all, Clark said that Austin Energy gives back about $15 million in efficiency rebates every year.

One of the keys to Austin Energy's success is that it has a built-in marketing and outreach infrastructure and doesn't have to spend much money on marketing. With significant support from contractors, heating and cooling and other companies that support and carry out the green programs, the word gets out to an already green-minded community. So with annual revenues of $1.3 billion, the utility spends only $2 million per year for all of its marketing programs, and does very little advertising. Clark said that Austin Energy gets frequent calls from other utilities around the country asking for advice on how to build up their energy efficiency programs, which is a long and involved process.

"A utility starting from scratch can have a long list of things to go through to get a comprehensive program going, and they need a way to pay for it that doesn't create a burden on customers," Clark says. "They also need to figure out rebates and how much to pay – is it enough to entice customers and keep you in a reasonable cost framework?" he adds.

Another factor in Austin Energy's renewable program success is that it's publicly-owned and managed by the city, so green initiatives can be proposed and passed at the discretion of the city council and voters. In the utility biz, not having to answer to investors – who may not be as concerned with long-term benefits and environmental concerns – can be a big advantage. According to an American Public Power's annual report, there are 2010 publicly-owned utilities, 882 co-ops, and 217 investor-owned companies. However, the investor-owned utilities account for almost 70 percent of the customers nationwide.

A Bumpy Road Ahead?

In 2005 the EPA launched its National Action Plan for Energy Efficiency, a private-public initiative that is meant to get utility companies and regulators working together to create new incentive programs. While this may bode well for the success of new programs, there is still resistance to some of the offers that have been proposed by utility companies trying to get customers on board. In some instances, customers are accusing utilities of taking advantage of the situation, and are simply using conservation programs to boost profits.

In North Carolina, there is an ongoing and heated debate over Duke Energy's Save-a-Watt program, which rewards the utility for cutting energy demand in the state. Opposition has come from all sides -- consumer and church groups, environmentalists, the City of Durham, and the state's consumer protection agency – and critics charge the program would raise prices for customers while rewarding shareholders and delivering only modest energy savings. The North Carolina Utilities Commission is expected to rule on the Save-a-Watt proposal later this year, and its decision will likely impact the program's success in the other four states where Duke Energy provides power. In those states, the utility is already negotiating terms that are more favorable to customers, and put caps on shareholder profits.

Despite the setbacks of individual programs, there is little doubt that energy conservation programs will be a major source of reducing carbon emissions into the future, but informing customers about the programs' expenses and goals will be an important part of the equation.

"Utilities have had a good experience in the commercial sector, but the residential market will remain a challenge," says White.

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