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The promise and pitfalls of shareholder incentives: Lessons from California’s high-stakes test

February 19, 2014 |

 

This post originally appeared on Intelligent Utility.

How many millions of dollars does it take to change a state’s light bulbs?

This sounds like the start of a joke, but for the last seven years, it’s been anything but to California utilities and regulators. The crux of the dispute, which has had stakes in the hundreds of millions of dollars, has been an ambitious—but controversial—shareholder incentive designed to motivate California utilities toward greater energy efficiency.

The policy, called the Risk/Reward Incentive Mechanism, or RRIM, targeted California utilities. However, the concept of a shareholder incentive is one that 20 other states have adopted in recent years. It’s also under discussion at the federal level as part of President Obama’s proposed Race to the Top Energy Efficiency Initiative.

So what can utilities in other states learn from California’s experience? Climate Policy Initiative’s recent analysis, “Raising the Stakes for Energy Efficiency: California’s Risk/Reward Incentive Mechanism,” draws a few lessons that stand out.

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