Why Energy Efficiency is a Win-Win for Consumers and Utilities

Have you ever wondered why your utility offers energy efficiency tips? What’s their motivation? Don't they want me to use more energy?? The answer may surprise you: Your utility is on your side!

Utilities often offer programs and tips for saving energy — as well as things like free light bulbs, rebates, and other conservation perks. These initiatives are funded by utility programs because they want to save energy too. You see, electric utilities are part of a bigger, complex energy market. And energy efficiency programs fit within that market to incentivize deregulated utilities and help utilities follow state mandates. So, when you’re more energy efficient, it benefits both you and them.

The energy market is complex

There are two notable misconceptions about the energy market. The first is thinking that your utility provider is at fault for any cost fluctuation. The second is that they make an excessive profit when demand is high. However, regulators are there to make sure utilities are not making money on energy.

Matt Nelson, former Chair of the Massachusetts Department of Public Utilities, says, “Regulators spend a lot of time making sure utilities don't make money off of customers using more energy. They want the goal to be helping customers optimize their use so they’re happy.”

Consumers aren’t always aware of the complexities or the variety of factors affecting the energy market. But here’s a brief look at how it works:

The three components of your energy bill

Nelson says, “There are three major components that make up a customer's bill — the energy cost, the delivery or distribution costs, and what people often refer to as public policy costs.” Each of these components is a part of the energy market, and has a role in determining what you see on your bill.

  • Generators: These are the companies that own and operate power plants. The plants use fossil fuels, like coal and natural gas or renewable energy, like hydropower, wind and solar to generate electricity. Energy demand fluctuates, and when demand is exceedingly high, generators bid to produce more energy at a cost they can't pass on to you in the near term. When prices increase for consumers, it's because the long-term cost of production has increased and regulators have approved of generators passing that increase on to you.
  • Distribution companies: This is your electric company or utility — the people that send you your bill. They’re the main source for your energy market interactions. Regulators oversee distribution companies to ensure they’re operating safely and reliably. Their distribution rates are fixed and don't fluctuate with an increase in the cost of generation.
  • Public policy: Public policy costs cover a variety of things, such as a charge to ensure safety or fund cost-effective energy efficiency programs. Costs may be anything from a Renewable Energy Investment Charge to a Load Management Charge and will depend on the state and your utility.

Why your utilities sponsor energy-saving programs

Energy efficiency programs are there to benefit customers, but they help utilities as well. You’re in this together. The programs help utilities by “freeing” up energy (i.e. reducing energy use), which decreases the need to build power plants and power lines. Instead, utilities earn more when a sufficient number of people participate in an effective (or proven) energy program and they demonstrate the avoided energy use. But utilities are both incentivized and mandated to offer energy efficiency programs as well. Here’s why:

  • Deregulation and energy efficiency programs: As of 2023, 15 states have deregulated electricity and 26 have deregulated energy. Deregulation gives consumers their choice of energy providers. Since companies must compete for customers, offering better services is a must. Energy efficiency programs help lower energy costs and add extra comfort, making customers happier. “The idea is that the distribution utility no longer cares about generation or sales,” Nelson says. “The regulator is swapping out ‘building more plants’ for ‘customers saving money at home’ as the way to make additional profit.”
  • State energy efficiency mandates: Many states require utilities to offer energy efficiency programs. The Department of Energy describes these programs as a way to “ensure that utilities get a fair return on investment while giving a fair rate to the customer.” Some states set goals in line with meeting state policies and require a minimum performance that utilities must meet to earn any incentives. Other states require utilities to act in the customer's best interest. And the utilities have incentives to educate the customer and offer them efficiency equipment.
  • Increased involvement in energy efficiency programs is also a win-win: Increased participation in energy efficiency programs has wider-reaching benefits for communities. For example, reducing demand can help high-usage areas avoid rolling blackouts like the ones that occurred in California. When more people use less energy, your community can save costs by not having to build new plants. Another benefit is that peaker plants — those brought online to meet excess demand — are almost always fossil fuels, so it's not as clean. When communities work together to reduce energy, it will have a positive impact on the environment that provides a benefit for everyone.

Where Can You Find Energy Efficiency Programs, Rebates, and Incentives?

Energy efficiency programs often have incentives or rebates. For example, you can buy a new energy-efficient washer and get a rebate for that purchase. You can also increase the overall energy efficiency of your home and apply for a tax break when you file next year. And the newly-introduced Inflation Reduction Act (IRA) features extensive tax credits and benefits for residential energy efficiency.

Find incentives and rebates by asking your local utility or your local or state government. The Department of Energy offers weatherization assistance and lists rebates, tax credits, and savings programs. In addition, many home improvement or appliance stores will let you know about rebates that are available.

To better target what rebates and incentives will help you and your home’s unique needs, get an energy audit. You may be able to get an energy audit through your local utility. If not, there are other tax credits that can offset the cost of getting one. Another tool is technology that assesses the usage in the home.

Energy efficiency is worthwhile for everyone

In the end, energy efficiency always pays for itself, whether you're a homeowner or a utility.. And by offering energy-saving programs and tax credits, utilities can accelerate that benefit. So what are you waiting for?