|Title||Carrots and Sticks: Shared-Savings Incentive Programs for Energy Efficiency|
|Publication Type||Journal Article|
|LBNL Report Number||LBNL-29503|
|Year of Publication||1990|
|Authors||Schultz, Donald, and Joseph H. Eto|
|Journal||The Electricity Journal|
|Keywords||Demand Side Management|
The focus of this work is on the practical issues that emerge when regulators review utility incentive proposals for energy efficiency programs. We examine one particular type of incentive mechanism-shared savings, in which the net benefits from the energy efficiency investment are shared between ratepayers and utility shareholders. The primary basis for the analysis is the shared-savings mechanisms recently put in place by two California investor-owned utilities, Pacific Gas and Electric (PG&E) and San Diego Gas and Electric (SDG&E). The discussion centers on the regulatory concerns and resolutions that arose in reviewing the shared-savings mechanisms proposed by these two utilities. The problems included establishing the basis for determining net benefits, establishing minimum levels of utility performance, rewarding cost-minimizing and resource-value maximizing behavior, and equitable allocating the risks associated with uncertainty in the performance and value of demand-side programs. We suggest that in some cases practical implementation considerations override the theoretically superior choice when addressing these issues. We also argue that important differences between utility demand-side programs make it unreasonable to apply the same incentive mechanism uniformly to all types of DSM programs.