Energy efficiency resource standard for retail electricity and natural gas distributors

(a)

In general

Title VI of the Public Utility Regulatory Policies Act of 1978 (16 U.S.C. 2601 and following) is amended by adding at the end the following:

610.

Federal energy efficiency resource standard for retail electricity and natural gas distributors

(a)

Statement of federal policy

The Federal energy efficiency resource standard established by this section sets nationwide minimum levels of electricity and natural gas savings to be achieved through utility efficiency programs, building energy codes, appliance standards, and related efficiency measures. In light of the cost-effective energy efficiency opportunities that exist across the country in every sector of the economy, retail electricity distributors, retail natural gas distributors, and States should additionally consider energy efficiency as a resource in utility planning and procurement activities and should seek to achieve all energy efficiency that is available at lower cost than energy supply options. (b)

Definitions

In this section: (1)

Affiliate

The term affiliate when used in relation to a person, means another person which owns or controls, is owned or controlled by, or is under common ownership control with, such person, as determined under regulations promulgated by the Secretary. (2)

Ashrae, ansi, and iesna

The terms ASHRAE, ANSI, and IESNA mean the American Society of Heating, Refrigerating and Air Conditioning Engineers, the American National Standards Institute, and the Illuminating Engineering Society of North America, respectively. (3)

Base quantity

The term base quantity, with respect to a retail electricity distributor or retail natural gas distributor, means, for each year for which a performance standard is established under subsection (d), the average annual quantity of electricity or natural gas delivered by the retail electricity distributor or retail natural gas distributor to retail customers during the 2 calendar years immediately preceding such year. In determining the base quantity of a retail natural gas distributor, natural gas delivered for purposes of electricity generation shall be excluded. (4)

Chp savings

The term CHP savings means— (A)CHP system savings from a combined heat and power system that commences operation after the date of enactment of this section; and (B)the increase in CHP system savings from upgrading or replacing, after the date of enactment of this section, a combined heat and power system that commenced operation on or before the date of enactment of this section. (5)

CHP system savings

The term CHP system savings means the electric output, and the electricity saved due to the mechanical output, of a combined heat and power system, adjusted to reflect any increase in fuel consumption by that system as compared to the fuel that would have been required to produce an equivalent useful thermal energy output in a separate thermal-only system, as determined in accordance with regulations promulgated by the Secretary. (6)

Codes and standards savings

(A)

In general

The term codes and standards savings means a reduction in end-use electricity or natural gas consumption in a retail electricity distributor or a retail natural gas distributor’s service territory as a result of the adoption and implementation, after the date of enactment of this section, of new or revised appliance and equipment efficiency standards or building energy codes. (B)

Baselines

In calculating codes and standards savings— (i)the baseline for calculating savings from building codes shall be the 2006 International Energy Conservation Code for residential buildings and the ASHRAE/ANSI/IESNA Standard 90.1–2004 for commercial buildings, or the relevant State building code in effect on date of enactment of this section, whichever is more stringent; and (ii)the baseline for calculating savings from appliance standards shall be the average efficiency of new appliances in the relevant category or categories prior to adoption and implementation of the new standard. (7)

Combined heat and power system

The term combined heat and power system means a system that uses the same energy source both for the generation of electrical or mechanical power and the production of steam or another form of useful thermal energy, provided that— (A)the system meets such requirements relating to efficiency and other operating characteristics as the Secretary may promulgate by regulation; and (B)the net wholesale sales of electricity by the facility will not exceed 50 percent of total annual electric generation by the facility. (8)

Cost-effective

The term cost-effective, with respect to an energy efficiency measure, means that the measure achieves a net present value of economic benefits over the life of the measure, both directly to the energy consumer and to the economy, that is greater than the net present value of the cost of the measure over the life of the measure, both directly to the energy consumer and to the economy. (9)

Customer facility savings

The term customer facility savings means a reduction in end-use electricity or natural gas consumption (including recycled energy savings) at a facility of an end-use consumer of electricity or natural gas served by a retail electricity distributor or natural gas distributor, as compared to— (A)in the case of a new facility, consumption at a reference facility of average efficiency; (B)in the case of an existing facility, consumption at such facility during a base period (which shall not be less than 1 year); or (C)in the case of new equipment, regardless of whether the new equipment replaces existing equipment at the end of the useful life of the existing equipment, consumption by new equipment of average efficiency of the same equipment type, provided that customer savings under this subparagraph shall not be counted towards customer savings under subparagraph (A) or (B). (10)

Electricity savings

The term electricity savings means reductions in electricity consumption achieved through measures implemented after the date of enactment of this section, as determined in accordance with regulations promulgated by the Secretary, limited to— (A)customer facility savings of electricity, adjusted to reflect any associated increase in fuel consumption at the facility; (B)reductions in distribution system losses of electricity achieved by a retail electricity distributor, as compared to losses attributable to new or replacement distribution system equipment of average efficiency (as defined in regulations to be promulgated by the Secretary); (C)CHP savings; and (D)codes and standards savings of electricity. (11)

Natural gas savings

The term natural gas savings means reductions in natural gas consumption from measures implemented after the date of enactment of this section, as determined in accordance with regulations promulgated by the Secretary, limited to— (A)customer facility savings of natural gas, adjusted to reflect any associated increase in electricity consumption or consumption of other fuels at the facility; (B)reductions in leakage, operational losses, and consumption of natural gas fuel to operate a gas distribution system, achieved by a retail natural gas distributor, as compared to similar leakage, losses, and consumption during a base period (which shall not be less than 1 year); and (C)codes and standards savings of natural gas. (12)

Power pool

The term power pool means an association of 2 or more interconnected electric systems that is recognized by the Commission as having an agreement to coordinate operations and planning for improved reliability and efficiencies, including a Regional Transmission Organization or an Independent System Operator. (13)

Recycled energy savings

The term recycled energy savings means a reduction in electricity or natural gas consumption that results from a modification of an industrial or commercial system that commenced operation before the date of enactment of this section, in order to recapture electrical, mechanical, or thermal energy that would otherwise be wasted, as determined in accordance with regulations promulgated by the Secretary. (14)

Reporting period

The term reporting period means— (A)calendar year 2012; and (B)each successive 2-calendar-year period thereafter. (15)

Retail electricity distributor

(A)

In general

The term retail electricity distributor means, for any given calendar year, an electric utility that owns or operates an electric distribution facility and, using the facility, delivered not less than 1,500,000 megawatt-hours of electric energy to electric consumers for purposes other than resale during the most recent 2-calendar-year period for which data are available. (B)

Inclusions and limitations

For purposes of determining whether an electric utility qualifies as a retail electricity distributor under subparagraph (A)— (i)deliveries by any affiliate of an electric utility to electric consumers for purposes other than resale shall be considered to be deliveries by such electric utility; and (ii)deliveries by any electric utility to a lessee, tenant, or affiliate of such electric utility shall not be treated as deliveries to electric consumers. (16)

Retail natural gas distributor

(A)

In general

The term retail natural gas distributor means, for any given calendar year, a local distribution company, as that term is defined in section 2(17) of the Natural Gas Policy Act of 1978 (15 U.S.C. 3301(17)), that delivered to natural gas consumers more than 5,000,000,000 cubic feet of natural gas during the most recent 2-calendar-year period for which data are available. (B)

Inclusions and limitations

For purposes of determining whether a person qualifies as a retail natural gas distributor under subparagraph (A)— (i)deliveries of natural gas by any affiliate of a local distribution company to consumers for purposes other than resale shall be considered to be deliveries by such local distribution company; and (ii)deliveries of natural gas to a lessee, tenant, or affiliate of a local distribution company shall not be treated as deliveries to natural gas consumers. (17)

Third-party efficiency provider

The term third-party efficiency provider means any retailer, building owner, energy service company, financial institution or other commercial, industrial or non-profit entity that is capable of providing electricity savings or natural gas savings in accordance with the requirements of subsections (e) and (f). (c)

Establishment of program

(1)

Regulations

Not later than 1 year after the date of enactment of this section, the Secretary shall, by regulation, establish a program to implement and enforce the requirements of this section, including— (A)measurement and verification procedures and standards under subsection (f); (B)requirements by which retail electricity distributors and retail natural gas distributors shall demonstrate, document, and report their compliance with the performance standards specified in subsection (d) and estimate the impact of the standards on current and future electricity and natural gas use in such distributors’ service territories; and (C)requirements governing applications for, and implementation of, delegated State administration under subsection (h). (2)

Coordination with state programs

In establishing and implementing this program, the Secretary shall, to the extent practicable, preserve the integrity, and incorporate best practices, of existing State energy efficiency programs. (d)

Performance standards

(1)

Compliance obligation

Not later than April 1 of the calendar year immediately following each reporting period— (A)each retail electricity distributor shall submit to the Secretary a report, in accordance with regulations issued by the Secretary, demonstrating that it has achieved cumulative electricity savings (adjusted to account for any attrition of savings measures implemented in prior years) in each calendar year that are equal to the applicable percentage, established under paragraph (2), (3), or (4) of this subsection, of the base quantity of such retail electricity distributor; and (B)each retail natural gas distributor shall submit to the Secretary a report, in accordance with regulations issued by the Secretary, demonstrating that it has achieved cumulative natural gas savings (adjusted to account for any attrition of savings measures implemented in prior years) in each calendar year that are equal to the applicable percentage, established under paragraph (2), (3), or (4) of this subsection, of the base quantity of such retail natural gas distributor. (2)

Standards for 2012 through 2020

For calendar years 2012 through 2020, the applicable percentages are as follows: Calendar YearCumulative Electricity Savings PercentageCumulative Natural Gas Savings Percentage 20121.000.75 20132.001.50 20143.252.50 20154.503.50 20166.004.75 20177.506.00 201810.007.25 201912.508.50 202015.0010.00

(3)

Subsequent years

(A)

Calendar years 2021 through 2030

Not later than December 31, 2018, the Secretary shall promulgate regulations establishing performance standards (expressed as applicable percentages of base quantity for both cumulative electricity savings and cumulative natural gas savings) for calendar years 2021 through 2030. (B)

Subsequent extensions

Except as provided in subparagraph (A), not later than December 31 of the penultimate reporting period for which performance standards have been set under this paragraph, the Secretary shall promulgate regulations establishing performance standards (expressed as applicable percentages of base quantity for both cumulative electricity savings and cumulative natural gas savings) for the 10-calendar-year period following the last calendar year for which performance standards previously were set. (C)

Requirements

The Secretary shall set standards under this paragraph at levels reflecting the maximum achievable level of cost-effective energy efficiency potential, taking into account cost-effective energy savings achieved by leading retail electricity distributors and retail natural gas distributors, opportunities for new codes and standard savings, technology improvements, and other indicators of cost-effective energy efficiency potential. In no case shall the applicable percentages for any calendar year be lower than those for calendar year 2020 (including any increase in the standard for calendar year 2020 pursuant to paragraph (4)). (4)

Midcourse review and adjustment of standards

Not later than December 31, 2014, and at 10-year intervals thereafter, the Secretary shall review the most recent standards established under paragraph (2) or (3) and shall, by regulation, increase the standards if the Secretary determines that additional cost-effective energy efficiency potential is achievable, taking into account the factors identified in paragraph (3)(C). If the Secretary revises standards pursuant to this paragraph, the regulations shall provide adequate lead time to ensure that compliance with the increased standards is feasible. (5)

Delay of submission for first reporting period

Notwithstanding paragraphs (1) and (2), for the 2012 reporting period, the Secretary may accept a request from a retail electricity distributor or a retail natural gas distributor to delay the required submission of documentation of some or all of the required savings for up to 2 years. The request for delay shall include a plan for coming into full compliance by the end of the 2013–2014 reporting period. (e)

Transfers of electricity or natural gas savings

(1)

Bilateral contracts for savings transfers

Subject to the limitations of this paragraph, a retail electricity distributor or retail natural gas distributor may use electricity savings or natural gas savings purchased, pursuant to a bilateral contract, from another retail electricity distributor or retail natural gas distributor, a State, or a third-party efficiency provider to meet the applicable performance standard under subsection (d). (2)

Requirements

Electricity or natural gas savings purchased and used for compliance pursuant to this paragraph shall be— (A)measured and verified in accordance with the procedures specified under subsection (f); (B)reported in accordance with subsection (d); and (C)achieved within the same State as is served by the retail electricity distributor or retail natural gas distributor. (3)

Exception

Notwithstanding paragraph (2)(C), a State regulatory authority may authorize a retail electricity distributor or a retail natural gas distributor regulated by such State regulatory authority to purchase savings achieved in a different State, provided that— (A)such savings are achieved within the same power pool; and (B)the State regulatory authority that regulates the purchaser oversees the measurement and verification of the savings pursuant to the procedures and standards applicable in the purchaser’s State. (4)

Regulatory approval

Nothing in this paragraph shall limit or affect the authority of a State regulatory authority to require a retail electricity distributor or retail natural gas distributor that is regulated by such State regulatory authority to obtain such State regulatory authority’s authorization or approval of a contract for transfer of savings under this paragraph. (5)

Limitations

In the interest of optimizing achievement of cost-effective efficiency potential, the Secretary may prescribe such limitations as the Secretary determines appropriate with respect to the proportion of a retail electricity or natural gas distributor’s compliance obligation, under the applicable performance standards under subsection (d), that may be met using electricity or natural gas savings that are purchased under this paragraph. (f)

Measurement and verification of savings

The regulations promulgated pursuant to subsection (b) shall include— (1)procedures and standards for defining and measuring electricity savings and natural gas savings that can be counted towards the performance standards set forth in subsection (d), which shall— (A)specify the types of energy efficiency and energy conservation measures that can be counted; (B)require that energy consumption estimates for customer facilities or portions of facilities in the applicable base and current years be adjusted, as appropriate, to account for changes in weather, level of production, and building area; (C)account for the useful life of measures; (D)include deemed savings values for specific, commonly-used measures; (E)allow for savings from a program to be estimated based on extrapolation from a representative sample of participating customers; (F)include procedures for counting CHP savings and recycled energy savings; (G)establish methods for calculating codes and standards energy savings, including the use of verified compliance rates; (H)count only measures and savings that are additional to business-as-usual practices; (I)except in the case of codes and standards savings, ensure that the retail electricity distributor or retail natural gas distributor claiming the savings played a significant role in achieving the savings (including through the activities of a designated agent of the distributor or through the purchase of transferred savings); (J)avoid double-counting of savings used for compliance with this section, including transferred savings; and (K)include savings from programs administered by the retail electric or natural gas distributor that are funded by State, Federal, or other sources; and (2)procedures and standards for third-party verification of reported electricity savings or natural gas savings. (g)

Enforcement and judicial review

(1)

Review of retail distributor reports

The Secretary shall review each report submitted to the Secretary by a retail electricity distributor or retail natural gas distributor under subsection (d) to verify that the applicable performance standards under subsection (d) have been met. In determining compliance with the applicable performance standards, the Secretary shall exclude reported electricity savings or natural gas savings that are not adequately demonstrated and documented, in accordance with the regulations issued under subsections (d), (e), and (f). (2)

Penalty for failure to document adequate savings

If a retail electricity distributor or a retail natural gas distributor fails to demonstrate compliance with an applicable performance standard under subsection (d), or to pay to the State an applicable alternative compliance payment under subsection (h)(4), the Secretary shall assess against the retail electricity distributor or retail natural gas distributor a civil penalty for each such failure in an amount equal to, as adjusted for inflation in accordance with such regulations as the Secretary may promulgate–– (A)$100 per megawatt-hour of electricity savings or alternative compliance payment that the retail electricity distributor failed to achieve or make, respectively; or (B)$10 per million Btu of natural gas savings or alternative compliance payment that the retail natural gas distributor failed to achieve or make, respectively. (3)

Offsetting state penalties

The Secretary shall reduce the amount of any penalty under paragraph (2) by the amount paid by the relevant retail electricity distributor or retail natural gas distributor to a State for failure to comply with the requirements of a State energy efficiency resource standard during the same compliance period, provided that the State standard is comparable in type to the Federal standard established under this section and is more stringent than the applicable performance standards under subsection (d). (4)

Enforcement procedures

The Secretary shall assess a civil penalty, as provided under paragraph (1), in accordance with the procedures described in section 333(d) of the Energy Policy and Conservation Act of 1954 (42 U.S.C. 6303). (5)

Judicial review

Any person who will be adversely affected by a final action taken by the Secretary under this section, other than the assessment of a civil penalty, may use the procedures for review described in section 336(b) of the Energy Policy and Conservation Act (42 U.S.C. 6306). For purposes of this paragraph, references to a rule in section 336(b) of the Energy Policy and Conservation Act shall be deemed to refer also to all other final actions of the Secretary under this section other than the assessment of a civil penalty. (h)

State administration

(1)

In general

Upon receipt of an application from the Governor of a State (including, for purposes of this subsection, the Mayor of the District of Columbia), the Secretary may delegate to the State the administration of this section within the State’s territory if the Secretary determines that the State will implement an energy efficiency program that meets or exceeds the requirements of this section, including— (A)achieving electricity savings and natural gas savings at least as great as those required under the applicable performance standards established under subsection (d); (B)reviewing reports and verifying electricity savings and natural gas savings achieved in the State (including savings transferred from outside the State); and (C)collecting any alternative compliance payments under paragraph (4) of this subsection and using such payments to implement cost-effective efficiency programs. (2)

Secretarial determination

The Secretary shall make a substantive determination approving or disapproving a State application, after public notice and comment, within 180 days of receipt of a complete application. (3)

Alternative measurement and verification procedures and standards

As part of an application submitted under paragraph (1), a State may request to use alternative measurement and verification procedures and standards to those specified in subsection (f), provided the State demonstrates that such alternative procedures and standards provide a level of accuracy of measurement and verification at least equivalent to the Federal procedures and standards promulgated under subsection (f). (4)

Alternative compliance payments

(A)

In general

As part of an application submitted under paragraph (1), a State may permit retail electricity distributors or retail natural gas distributors to pay to the State, by not later than April 1 of the calendar year immediately following the relevant reporting period, an alternative compliance payment in an amount equal to, as adjusted for inflation in accordance with such regulations as the Secretary may promulgate, not less than— (i)$50 per megawatt-hour of electricity savings needed to make up any deficit with regard to a compliance obligation under the applicable performance standard; or (ii)$5 per million Btu of natural gas savings needed to make up any deficit with regard to a compliance obligation under the applicable performance standard. (B)

Use of payments

Alternative compliance payments collected by a State pursuant to paragraph (4) shall be used by the State to administer its delegated authority under this section and to implement cost-effective energy efficiency programs. Such programs shall— (i)to the extent feasible, achieve electricity savings and natural gas savings in the State sufficient to make up the deficit associated with the alternative compliance payments; and (ii)be measured and verified in accordance with the applicable procedures and standards under subsection (f) or paragraph (3) of this subsection, as the case may be. (5)

Review of state implementation

(A)

Periodic review

Every 2 years, the Secretary shall review State implementation of this section for conformance with the requirements of this section in approximately one-half of the States that have received approval under this subsection to administer the program, such that each State shall be reviewed at least every 4 years. To facilitate such review, the Secretary may require the State to submit a report demonstrating its conformance with the requirements of this section, including— (i)reports submitted by retail electricity distributors and retail natural gas distributors to the State demonstrating compliance with applicable performance standards; (ii)the impact of such standards on projected electricity and natural gas demand within the State; (iii)an accounting of the State’s use of alternative compliance payments and the resulting electricity savings and natural gas savings achieved; and (iv)such other information as the Secretary determines appropriate. (B)

Review upon petition

Notwithstanding subparagraph (A), upon receipt of a public petition containing credible allegation of substantial deficiencies, the Secretary shall promptly review a State’s implementation of delegated authority under this section. (C)

Deficiencies

If deficiencies are found in a review under this paragraph, the Secretary shall notify the State and direct it to correct such deficiencies and to report to the Secretary on progress within 180 days of the receipt of review results. If the deficiencies are substantial, the Secretary shall— (i)disallow such reported savings as the Secretary determines are not credible due to deficiencies; (ii)re-review the State not later than 2 years after the original review; and (iii)if substantial deficiencies remain uncorrected after the review provided for under clause (ii), revoke the authority of such State to administer the program established under this section. (6)

Calls for revision of state applications

As a condition of maintaining its delegated authority to administer this section, the Secretary may require a State to submit a revised application under paragraph (1) if the Secretary has— (A)promulgated new or revised performance standards under subsection (d); (B)promulgated new or substantially revised measurement and verification procedures and standards under subsection (f); or (C)otherwise substantially revised the program established under this section. (i)

Information and reports

In accordance with section 13 of the Federal Energy Administration Act of 1974 (15 U.S.C. 772), the Secretary may require any retail electricity distributor, any retail natural gas distributor, any third-party efficiency provider, or such other entities as the Secretary deems appropriate, to provide any information the Secretary determines appropriate to carry out this section. (j)

State law

Nothing in this section shall diminish or qualify any authority of a State or political subdivision of a State to adopt or enforce any law or regulation respecting electricity savings or natural gas savings, including any law or regulation establishing energy efficiency requirements more stringent than those under this section, provided that no such law or regulation may relieve any person of any requirement otherwise applicable under this section. (k)

Program review

(1)

National academy of sciences review

The Secretary shall enter into a contract with the National Academy of Sciences under which the Academy shall, not later than July 1, 2017, and every 10 years thereafter, submit to the Secretary and to Congress a comprehensive evaluation of all aspects of the program established under this section, including— (A)an evaluation of the effectiveness of the program, including its specific design elements, in increasing the efficiency of retail natural gas and electricity distribution and consumption; (B)the opportunities for additional technologies and sources of efficiency that have emerged since enactment of this section; (C)the program’s impact on the reliability of electricity and natural gas supply; (D)the net benefits or costs of the program to the national and State economies, including effects on electricity and natural gas demand and prices, economic development benefits of investment, environmental benefits, and avoided costs related to environmental and congestion mitigation investments that otherwise would have been required; (E)an assessment of the benefits and costs of increasing the performance standards established under subsection (d) of this section; (F)the feasibility, advantages, and disadvantages of alternative models for demonstrating compliance with a Federal energy efficiency resource standard, including establishing a national trading system for energy efficiency credits or demonstrating compliance through actual reductions in delivery or sales of electricity and natural gas, rather than on program savings; and (G)recommendations regarding potential changes to this section, to regulations and procedures for implementing this section, or to related public policies. (2)

Recommendations to congress

Not later than January 1, 2018, and every 10 years thereafter, the Secretary shall transmit to the Committee on Energy and Commerce of the United States House of Representatives and the Committee on Energy and Natural Resources of the United States Senate a report making recommendations for modifications and improvements to the program established under this section and any related programs, including an explanation of the inconsistencies, if any, between the Secretary’s recommendations and those included in the National Academy of Sciences evaluation under paragraph (1).

(b)

Table of contents amendment

The table of contents of the Public Utility Regulatory Policies Act of 1978 (16 U.S.C. 2601 and following) is amended by adding at the end of the items relating to title VI the following:

Sec. 610. Federal energy efficiency resource standard.