Policy Profile

Modified Energy Efficiency Cost/benefit Tests

Policy description:

Most states include “cost effectiveness” criteria for investment in energy efficiency technologies. This is to ensure that any investments in efficiency are less expensive than the generation they will be offsetting. The majority of the states that have these tests have adopted the 2001 California Standard Practice Manual Economic Analysis of Demand-Side Programs and Projects “Total Resource Cost Test” (TRC). Stated simply, the TRC test is a measure of the total program benefits (for participants and non-participants) divided by the total program costs (for participants and non-participants). Importantly, the TRC test considers both rate payer-funded incentives and individual customer costs as the “total cost” in determining cost effectiveness. A recent analysis by Cadmus group suggests that applying TRC exclusively may not fully reflect the benefits to the utility and customer. Cadmus group proposed testing demand-side management (DSM) programs with the TRC when compared to supply side resources, and testing programs with the Utility Cost Test (UCT) to determine approval for cost recovery. For more information, see the full policy brief.

Download Full Policy Brief View Policy Component Questions

  1. Does the state employ a cost-effectiveness test?
  2. Does the state use a modified total resource cost test?
  3. Does the state use the social cost test, the utility/program administrator cost test, or both?
  4. Has the state reevaluated/researched their chosen cost test within the last 5 years?
  5. Does the state require that utilities achieve all cost-effective energy efficiency (without a spending or cost-effectiveness cap)?