Least-Cost Procurement (2006)

In 2006, the Rhode Island General Assembly passed legislation that established the Comprehensive Energy Conservation, Efficiency and Affordability Act. The Act created a groundbreaking mandate termed “Least-Cost Procurement”— a policy that requires Rhode Island electric and natural gas distribution companies to invest in all cost-effective energy efficiency before the acquisition of additional supply. This strategy is “least-cost” because energy-saving measures—such as higher-efficiency lighting, HVAC systems, and appliances; insulation; air sealing—cost approximately 4 cents per kWh over their lifetime while electric supply costs between 8 cents  and 12 cents per kWh.

Prior to Least-Cost Procurement, Rhode Island electric distribution companies did implement demand-side management programs. The cost of the programs was recovered through a System Benefits Charge (SBC) levied on the distribution service portion of customer utility bills. The SBCs, however, were set at a fixed rate of 0.2 cents / kWh, limiting program funding to far below the amount needed to procure all cost-effective energy efficiency. In contrast, under Least-Cost Procurement, National Grid sizes yearly program budgets to meet ambitious annual targets for electricity and natural gas savings, which are based on a detailed analysis of the amount of available cost-effective energy efficiency. To achieve the targets, National Grid creates and implements annual “energy efficiency procurement plans,” working under the oversight and expert guidance of a consumer stakeholder committee, the Energy Efficiency and Resource Management Council (EERMC). The plans are composed of a portfolio of energy efficiency programs targeting different market sectors of energy consumers: residential, income-eligible, and commercial / industrial. The plans also contain an important component addressing system reliability, which considers the potential of “non-wires alternatives”—energy efficiency, demand response, distributed generation, and other innovative methods—to curtail electric load in constrained areas of the distribution network.