Financial Impact of Energy Efficiency under a Federal Renewable Electricity Standard: Case Study of a Kansas “super-utility”

Local, state and federal policies that jointly promote the generation of electricity from renewable technologies and the pursuit of energy efficiency are expected to help mitigate the detrimental effects of global climate change and foster energy independence. We examine the financial impacts on various stakeholders from alternative compliance strategies with a Combined Efficiency and Renewable Electricity Standard (CERES) using a case study approach for utilities in Kansas. If only supply-side options are considered, our analysis suggests that a Kansas "super-utility" would prefer to build its own renewable energy resources, while ratepayers would favor a procurement strategy that relies on long-term renewable power purchase agreements. Introducing energy efficiency under varying levels as a CERES resource will, under our analysis, reduce ratepayer bills by ~$400M to ~$1.0B between 2009 and 2028, but commensurately erode shareholder returns by ~10 to ~100 basis points. If a business model for energy efficiency inclusive of both a lost fixed cost recovery mechanism and a shareholder incentive mechanism is implemented, our results illustrate how shareholder returns can be improved through the pursuit of energy efficiency, by at most ~20 basis points if certain conditions apply, while ratepayers continue to save between $10M and ~$840M over 20 years.

This is a pre-print version of an article published here in Energy Policy.