Ask the expert: Why do costs and benefits matter to Efficiency Vermont?

November 16, 2022 | 7 min read

Gillian Eaton is a Senior Regulatory Manager at Efficiency Vermont. She works with our regulators and our program managers to ensure our portfolio of programs and services is cost-effective for Vermont. We sat with her to learn more about our programs' design.

One of the frequent questions we get from customers is,  “Why don't you have a rebate for this energy efficient product?", like windows, for example.

It makes sense that people think we should have a rebate for any energy efficient product. In the case of windows, Vermonters with old windows might feel drafts coming in in the winter. A window that doesn’t shut properly isn’t keeping out the outside air. That will lead to increased energy and costs for heating. But windows are very expensive. A replacement doesn’t save enough money on your energy bill to pay back the high upfront cost. You get much more energy savings bang for your buck by repairing and weatherizing your windows.

That’s a key consideration for Efficiency Vermont whenever we consider a new offer. Is it cost-effective for Vermont? Is the cost of the efficiency upgrade offset by the energy savings and other benefits for all who support Efficiency Vermont? Efficiency Vermont is a regulated efficiency utility. Our regulators are the Public Utility Commission and the Department of Public Service.

Determining cost-effectiveness for Vermont is a complex process.  To keep things simple, this blog focuses on concepts instead of detailed calculations and regulatory nuances.

Why does cost-effectiveness matter to Efficiency Vermont?

Gillian: We help Vermont and Vermont households save energy and achieve associated benefits by unlocking savings with energy efficiency. We can do that best when we help Vermonters invest in actions that are cost-effective on a statewide basis. That means actions that help the Vermont electric grid and Vermont ratepayers, and participants get a return on their investment. Saved power costs the least and has the least impact on the environment. 

Efficiency Vermont’s funding is primarily from Vermonters, through a fee on their electric bill. We and our regulators have a responsibility to ensure that we’re using those funds well. The way we do that is through a process called the societal cost-benefit analysis. This is how we make sure that Vermonters’ investment in energy efficiency is delivering the returns we expect.

So far, this has proved successful. From the time Efficiency Vermont started in 2000 through 2021, the investments Vermonters have made in energy efficiency will save them more than $3 billion over the lifetime of those products. They will also avoid more than 13 million tons of greenhouse gas (GHG) emissions.

How does the societal cost-benefit analysis help determine which programs and services to offer?

Gillian: When we are considering adding a new efficiency measure to our portfolio, we look at all the societal benefits that accrue over its lifetime. Each of those benefits is assigned a dollar value. Then we compare that dollar value with the lifetime societal costs to install and use that measure. We consider the societal benefits and costs of individual measures and across our entire portfolio of programs and services. When all our offers are added together, the societal benefits must be greater than the societal costs.

What are the specific benefits that you look at?

Gillian: The biggest thing we look at is how much energy (electricity or fuel) an efficiency measure will save a customer. We look at the entire lifetime of the product or service and calculate how much money it will save during its lifetime by reducing energy use.  For many products, like LED bulbs, efficient electric motors, or appliances, the lifetime is 10 to 15 years. Compressed air leak repairs at a factory have much shorter lifetimes of 1-5 years. Others, like air sealing and insulation in a building, last 20-30 years or longer.

Are the benefits only about the cost of energy?

Gillian: Oh no, that’s just the beginning! There are many other benefits to energy efficiency. For example, energy efficiency can save natural resources like water. It reduces air pollution and greenhouse gas emissions. It often lowers operating and maintenance costs in buildings. It can help low-income families keep up with their utility bill payments. Each of these benefits is assigned a dollar value and helps determine the total societal benefits of an energy efficiency measure. Our regulators update the dollar values used for energy and non-energy benefits every two-to-three years through a regulatory process.    

After you add up all the societal benefits, how do you determine the societal cost?

Gillian: One measure of cost is the purchase cost of a product. Other costs include installation labor.

In the example of windows, the costs associated with high-efficiency windows are greater than the societal benefits they would produce.

That said, we are not against new windows! There are lots of great reasons to consider replacing windows. They can help make your home or business more comfortable, more attractive, and more marketable if you decide to sell it. But when you evaluate windows only on the societal energy efficiency benefits and compare that against the costs, they don’t pass the test. Weatherization does pass the test and includes actions like weatherstripping and air sealing for windows. We’re also considering products like storm windows that can help tighten up existing windows at a much lower cost.

Does Efficiency Vermont offer any programs that don’t pass the societal cost/benefit test?

Gillian: Yes, there are some exceptions. But we look at our full portfolio of programs. If our overall portfolio of programs and services is still societally cost-effective, we are able to make some exceptions.

Many of our programs for low-income customers fall into this category.  To make some measures accessible for customers with high energy burdens, additional services with additional costs might be needed. As costs associated with implementing a project increase, they may become greater than the societal benefits. But the customer benefits are large and it’s important to ensure that all customers are able to access our programs and services. In these situations, we may also pay much higher incentives than we otherwise would. In some cases, we may cover the whole cost of a measure.

Our regulators understand that this is an issue of equity. Customers with a high energy burden might not be able to afford their energy bills. But they also might not be able to afford efficiency upgrades, even though those upgrades could lower their bills. Helping ensure all Vermonters have access to energy-saving opportunities is a key part of our service.

Programs like our low-income services are balanced by programs with very high benefits. For instance, historically, some lighting measures and some industrial process measures have had high benefits compared to costs.  When we consider the cost-effectiveness of our entire portfolio, we also look across our programs to include the overall cost of all our services, like program design, marketing, and customer support. We compare those combined costs to the societal benefits of all our measures installed together, to make sure the societal benefits outweigh the costs.

Can the types and values of benefits change?

Gillian: Yes. We live in an evolving world and energy system. We have regulatory proceedings every few years to evaluate the categories of societal costs and benefits of energy efficiency, as well as how highly they are valued.

For instance, we’ve always considered GHG emissions reductions associated with reduced electricity and fuel use to be a societal benefit. But we haven’t assigned a value to GHG fugitive emissions. These are emissions that are accidentally released into the atmosphere. One big example is leakage from refrigeration systems. These leaks have a huge impact. Early analysis indicates that if all of Vermont's commercial refrigeration systems cut their annual leakage rate in half, it would save about 80,000 metric tons of carbon equivalent GHG annually.

There are also well-documented health benefits to some energy efficiency measures. This means lower healthcare costs, especially related to weatherization-related activities and improvements.  There is a proposal currently under consideration by the Public Utility Commission to add both fugitive GHG emissions reductions and health/healthcare benefits associated with weatherization-related measures as benefits in our societal screening.

We do this all in close consultation with our regulators. We share the goal of ensuring that efficiency remains a powerful investment for Vermont. Continuing to evaluate societal benefits and societal costs for our offers is a critical way to ensure Vermonters keep benefitting from that investment for years to come.