Energy Efficiency Resource Standards

Summary

The Illinois Power Agency Act (IPAA), enacted in 2007, created energy efficiency and demand response programs in Illinois. Under the IPAA, electric utilities are required to demonstrate 2% annual savings relative to the previous year's consumption in 2015 and each year thereafter. Natural gas utilities are required to demonstrate 8.5% cumulative savings by 2020, with annual targets that ramp up annually. 

Utilities are required to file an energy efficiency and demand-response plan with the Illinois Commerce Commission (ICC) every three years, beginning in 2007.

Electric Sales Reduction

The electricity reduction goals apply to utilities that had 100,000 or more customers on December 31, 2005. In February 2008, the ICC approved utility implementation plans for these requirements, available in Dockets 07-0539 (Ameren) and 07-0540 (ComEd). The IPAA established an electricity savings goal of incremental annual sales reduction over the previous Energy Year* (EY) consumption, with a goal for EY 2016 of a 2.0% reduction of EY 2015 electricity sales (see table below). Each EY benchmark is thus set by the preceding EY’s electricity sales. The electricity sales reduction percentage holds at 2.0% for every EY after EY 2016. Beginning for the compliance period starting in EY 2015, utilities can also meet annual incremental savings goals by showing that the total cumulative annual savings within a 3-year planning period (beginning in EY 2015) were equal to the sum of each annual incremental savings requirement (see S.B. 1603).

Electric utilities are also required to implement cost-effective demand-response measures to reduce peak demand by 0.1% over the prior year for eligible retail customers. Commencing on June 1, 2008, this requirement continues for 10 years. Utilities are responsible for 100% of the demand-response measures.

Natural Gas Sales Reduction

Natural gas utilities that served 100,000 customers or more on January 1, 2009, must implement cost-effective energy efficiency measures with the goal of meeting annual incremental reduction benchmarks, starting with a 0.2% reduction of 2011 natural gas sales for EY 2012. The natural gas annual sales percentage reduction increases annually until EY 2019 for a total of 7.1% savings by May 31, 2019. Each year thereafter, utilities must continue to increase efficiency reductions 1.5% per EY. 

The measurement for compliance is a reduction percentage of the previous year's total amount of natural gas delivered to retail customers. Beginning for the compliance period starting in EY 2012, utilities can also meet annual incremental savings goals by showing that the total cumulative annual savings within a 3-year planning period were equal to the sum of each annual incremental savings requirement (see S.B. 1603).

Similar to the electricity programs, utilities are responsible for implementing 75% of the energy efficiency measures, and the Department of Commerce and Economic Opportunity (DCEO) is responsible for 25%, administered through the  Energy Efficiency Portfolio Standards (EEPS) Fund.

Program Administrator Type

Utilities are responsible for implementing 75% of the energy efficiency measures approved by the ICC, and the DCEO is responsible for 25% of the savings by administering public programs through the EEPS Fund. Utilities are responsible for collecting funds for measures implemented by the DCEO and transferring those funds directly to the DCEO.

Cost-Effectiveness and Program Evaluation

To evaluate the cost effectiveness of its utilities' efficiency and demand reduction activities, Illinois utilizes the Total Resource Cost test (TRC) (one of the five "California tests" from the California Standard Practice Manual) as its primary test for measuring the cost-effectiveness of energy efficiency programs. The statute also allows "other quantifiable societal benefits," which are specified to include, but are not strictly limited to, "avoided natural gas utility costs."

Utility Cost Recovery Provisions

While People's Gas and North Shore Gas operate under a decoupled rate structure, no electric or gas utility is permitted to collect performance incentives for achieving energy efficiency goals. Illinois does not currently have decoupling in place for the utilities required to meet these standards, nor are performance incentives available. However, utilities are permitted to recover all "prudently incurred" costs, which Illinois law defines as administrative, start-up, and program evaluation costs.

For both natural gas and electric utilities, failure to submit an energy reduction plan will result in a fine of $100,000 for each day until the plan is filed. This penalty is deposited in the Energy Efficiency Trust Fund and may not be recovered through charges on ratepayers. Plans are due on September 1 every 3 years. 

If an electric utility fails to comply with its plan after 2 years, it must make a contribution to the Low-Income Home Energy Assistance Program (LIHEAP). Large utilities (those with more than 2,000,000 customers on December 31, 2005) must contribute $665,000, and medium utilities (those with between 100,000 and 2,000,000 customers) must contribute $335,000. 

Utilities that fail to meet their plans again after the third year must make another contribution to the fund ($665,000 for large utilities and $335,000 for medium utilities). After three years of non-compliance, the Illinois Power Agency (IPA) shall assume control over energy efficiency incentive programs. For natural gas utilities that fail to meet their efficiency plans after three years, large utilities (those with more than 1,500,000 customers on December 31, 2008) must pay $600,000 into LIHEAP, medium utilities (those with 500,000-1,500,000 customers on December 31, 2008) must pay $400,000, and small utilities (those with 100,000-500,000 customers on December 31, 2008) must pay $200,000. If a utility fails to meet the standard for two consecutive 3-year planning periods, the ICC will transfer responsibility of the utility's energy efficiency programs to an independent administrator.

In addition, in 2008 through 2011, annual per kilowatt-hour (kWh) charges are limited based on the previous year's rates. Beginning in 2012, the estimated average net increase due to the cost of efficiency measures shall be no more than 2.015% of the amount paid per kWh by customers in EY 2007 or the incremental amount paid per kWh paid for the measures in 2011, whichever is greater. 

*The term Energy Year refers to compliance period for the standard, which runs from June - May and is defined by the year in which an energy year ends.