Towards a Resilient Rhode Island:

Responding to climate change with leadership, innovation, and economic development

The Supporting Story: Energy Efficiency in RI

by Alison Kirsch

Electricity Usage in Rhode Island

Electricity usage accounted for 20% of Rhode Island’s greenhouse gas emissions in 2010. One way to lower these emissions is to shift from fossil fuels to renewable energy sources, which have a lower carbon footprint. Yet, the easiest way to reduce the state’s energy carbon footprint is simply to use less energy – meaning fewer greenhouse gas emissions to the atmosphere.

Rhode Island’s electricity market is “restructured,” which means that the system of monopoly control of generation, transmission, and distribution has been replaced by competing generators. National Grid is the primary distribution utility in Rhode Island (and also operates in parts of NH, NY, and MA). It purchases electricity generated by various fossil fuel and renewable sources and delivers it to our homes through the poles and wires lining the streets. Electricity distributors such as National Grid are regulated by the Rhode Island Public Utilities Commission (PUC). Under state law, the PUC’s job is to ensure that electric utilities supply sufficient electricity at a fair price to consumers. In 2010, Rhode Island used 8.3 million megawatt-hours (MWh) of electricity, with sales totaling approximately $1.09 billion and generating the equivalent of 3.3 million tons of CO2.

Energy efficiency is the cheapest and cleanest “fuel,” and a cornerstone of Rhode Island’s strategy to reduce greenhouse gas emissions and the cost of our energy system. Rhode Island is benefiting from policies designed to prioritize energy efficiency, dramatically reducing the state’s consumption of fossil fuels, keeping more energy dollars at home, and driving economic growth.

Least Cost Procurement

In 2006, Rhode Island became a leader in energy efficiency in the US by adopting an economic strategy called Least Cost Procurement. The Comprehensive Energy Conservation, Efficiency and Affordability Act of 2006 requires utilities to invest in energy efficiency for its customers – thus lowering electricity consumption – whenever doing so is less expensive than purchasing the electricity that would be needed to meet that demand. The same economic principle applies to lowering the consumption of natural gas, which is used primarily for heating. Utility companies are required to put more money toward efficiency programs as the price of either electricity generation or natural gas thermal energy become more expensive. With both, National Grid and its customers save money by investing in energy efficiency, the most cost-effective resource available.

The 2006 legislation garnered widespread support by utilities, environmental groups, and consumer advocates because it reduces greenhouse gas pollution and saves money. In 2010, Rhode Island went a step further to encourage energy conservation by “decoupling” the utility’s profit from the amount of electricity sold. Utilities are much more willing to participate in energy efficiency programs when their profits don’t depend directly on the volume of electricity they sell. Yet it is the principle of Least Cost Procurement that has truly delivered increased investment in energy efficiency and savings in electricity usage.

How does the utility purchase energy efficiency? Instead of buying electricity and natural gas from power suppliers, National Grid invests in technologies and strategies that help its customers use less energy in the first place. The utility subsidizes and provides technical support for retrofits and upgrades for its large industrial and commercial customers. For residential customers, energy efficiency programs include free energy audits, personalized home energy reports, financial incentives for purchasing more efficient appliances, and home retrofitting and weatherization.

Take, for example, Cheryl Carbone’s single-family home in Cranston. As part of National Grid’s EnergyWise program, Cheryl received a personalized assessment of her home’s energy usage. The inspector found that she could make her home more efficient by sealing duct and air leaks, installing insulation, and switching out existing light bulbs for Compact Fluorescent Light bulbs (CFLs). National Grid then provided a rebate for these retrofits, which covered 85% of the project’s costs. Cheryl saves $892.76 per year on her electricity and gas bills are, and she made up the project’s upfront costs in the first year. All the money that National Grid spent on this program – paying the energy auditor, funding the rebate, and more – cost the utility less than it would have had to spend to provide Cheryl with the kilowatt-hours of energy that her inefficient home required. Instead, the Least Cost Procurement principle allowed the utility to invest in making Cheryl’s home more efficient for the long term.

National Grid’s residential Rhode Island customers pay $0.00941 per kilowatt-hour of electricity usage and $0.60 per dekatherm of natural gas. These tariffs are approved annually by the PUC, and are invested in cost-effective energy efficiency programs. The incentives and rebates are then available for all customers to take advantage of and lower their energy bills. Small tariffs contribute to significant savings: in 2012, every dollar invested in Rhode Island’s energy efficiency saves consumers $2.47.

Additional Benefits

Least Cost Procurement will continue to be flexible as technology advances. Take the light bulb, for example. CFLs use 25% of the energy of incandescent bulbs, meaning that energy efficiency programs can help customers replace incandescent bulbs with CFLs. Now, however, newer Light Emitting Diodes (LEDs) use even less energy per kilowatt-hour, and last 2.5 to 10 times as long as CFLs. As they become more cost-effective for the amount of energy they save, Least Cost Procurement ensures that utilities use LEDs in their energy efficiency programs.

Least Cost Procurement also makes room for further renewable energy development in Rhode Island. Renewable energy sources are often criticized as being too expensive compared to their fossil fuel counterparts. Yet a consumer’s total energy cost is equal to the amount of electricity used multiplied by its price: that is, Cost = Use x Price. Energy efficiency lowers the ‘use’ portion of this equation, which means the price of the energy source can go up while the cost remains the same. Thus, as consumers use less energy, more expensive renewable energy technologies become viable.

Before the Least Cost Procurement principle took effect, the American Council for an Energy-Efficient Economy ranked Rhode Island ninth best in its 2006 energy efficiency scorecard. The most recent 2013 rankings put Rhode Island in sixth place.

Least Cost Procurement has reduced Rhode Island’s energy usage by about 2% each year. Yet energy efficiency also promotes a healthier state economy, as it creates jobs and makes it less expensive to run a business in Rhode Island. In 2012, energy efficiency cost Rhode Island utilities $59.5 million, but brought $183.55 million in economic benefits to the state. These include higher consumer savings and less money flowing out of the state to import fossil fuel energy. The Gross State Product was enhanced by $469 million, as consumers had more money to spend locally. Energy efficiency programs that year generated the equivalent of 528 full time jobs directly involved in the sector, and economic multipliers suggest that an additional 2,682 job-years of employment will be generated. The benefits of energy efficiency increasingly outweigh the costs.

Rhode Island’s innovative legislation means that investment in energy efficiency continues to rise, contributing to an overall decrease in the state’s greenhouse gas emissions. Many other states have used Rhode Island’s energy efficiency program as a model to bring the same benefits to their jurisdictions.