Glossary Energy Efficiency Terms by Category

by Sierra Martinez & Audrey Chang


Cost-Effectiveness: A measure of the relevant economic effects resulting from the implementation of an energy efficiency measure. If the benefits outweigh the cost, the measure is said to be cost-effective. An indicator of the relative performance or economic attractiveness of any energy efficiency investment or practice. In the energy efficiency field, the present value of the estimated benefits produced by an energy efficiency program is compared to the estimated total costs to determine if the proposed investment or measure is desirable from a variety of perspectives (e.g., whether the estimated benefits exceed the estimated costs from a societal perspective). See Participant Cost Test, Program Administrator Cost Test, Ratepayer Impact Measure, Total Resource Cost Test, Societal Cost Test.

Effective Useful Life: An estimate of the median number of years that the efficiency measures installed under a program are still in place and operable. See Cost Effectiveness.

Participant Cost Test: A cost-effectiveness test that measures the economic impact to the participating customer of adopting an energy efficiency measure. See Cost-Effectiveness.

Program Administrator Cost (PAC) Test: Same as Utility Cost Test. See Cost-Effectiveness.

Ratepayer Impact Measure (RIM): A cost-effectiveness test that measures the impact on utility operating margin and whether rates would have to increase to maintain the current levels of margin if a customer installed energy efficient measures. See Cost-Effectiveness.

Societal Cost Test: A cost-effectiveness test that is a variation of the total resource cost test that includes monetized effects of externalities (e.g., emissions impacts) benefits. See Cost-Effectiveness

Total Resource Cost (TRC) Test: A cost-effectiveness test that assesses the impacts of a portfolio of energy efficiency initiatives on the economy at large. The test compares the present value of costs of efficiency for all members of society (including costs to participants and program administrators) compared to the present value of benefits, including avoided energy supply and demand costs. See Cost-Effectiveness.

Utility Cost Test: A cost-effectiveness test that measures the change in the amount the utility must collect from the customers every year to meet an earnings target—e.g., a change in revenue requirement. In a number of states, this test is referred to as the program administrator cost test. See Program Administrator Cost Test.


Decoupling: A mechanism that weakens or eliminates the disincentive for EE by breaking the relationship between sales and revenue (or more narrowly the revenue collected to cover fixed costs) and allows a utility to adjust rates to recover authorized revenues independent of the level of sales.

Lost Revenue Adjustment Mechanisms: Mechanisms that attempt to estimate the amount of fixed cost or margin revenue that is “lost” as a result of reduced sales. The estimated lost revenue is then recovered through an adjustment to rates. See Decoupling.

Program Cost Recovery: Recovery of the direct costs associated with program administration (including evaluation), implementation, and incentives to program participants.

Straight Fixed-Variable: A rate structure that allocates all current fixed costs to a per customer charge that does not vary with consumption. Such a rate structure is undesirable because conservation incentive for customer is lost. See Decoupling.

Throughput Incentive: The incentive for utilities to promote sales growth that is created when fixed costs are recovered through volumetric charges without a decoupling mechanism. Many have identified the throughput incentive as the primary barrier to aggressive utility investment in energy efficiency.


Adjustments: For EM&V analyses, factors that modify baseline energy or demand values to account for independent variable values (conditions) in the reporting period.

Baseline: Conditions, including energy consumption and related emissions that would have occurred without implementation of the subject project or program. Baseline conditions are sometimes referred to as “business-as-usual” conditions. Baselines are defined as either project-specific baselines or performance standard baselines.

Baseline Period: The period of time selected as representative of facility operations before the energy efficiency activity takes place.

Deemed Savings: An estimate of an energy savings or energy-demand savings outcome for a single unit of an installed energy efficiency measure that (a) has been developed from data sources and analytical methods that are widely considered acceptable for the measure and purpose and (b) is applicable to the situation being evaluated.

Evaluation, Measurement, And Verification (EM&V): The performance of studies and activities aimed at determining and documenting the results, benefits, and effects of an EE program; any of a wide range of assessment activities associated with understanding or documenting program performance, assessing program or program-related markets and market operations; any of a wide range of evaluative efforts including assessing program-induced changes in energy efficiency markets, levels of demand or energy savings, and program cost-effectiveness. “Evaluation” refers to any real time and/or retrospective assessment of the performance and implementation of a program. “Measurement and verification” is the subset that includes data collection, monitoring, and analysis undertaken in the calculation of energy and demand savings from individual sites or projects.

Free Driver: A non-participant who has adopted a particular efficiency measure or practice as a result of the evaluated program.

Free Rider: A program participant who would have implemented the program measure or practice in the absence of the program. Free riders can be total, partial, or deferred.

Impact Evaluation: An evaluation of the program-specific, directly induced changes (e.g., energy and/or demand usage) attributable to an energy efficiency program. Used to determine the actual savings achieved by different programs and specific measures. See EM&V.

Market Effects Evaluation: Used to estimate a program’s influence on encouraging future energy efficiency projects because of changes in the energy marketplace. All categories of programs can have market effects evaluations; however, these evaluations are primarily associated with market transformation programs that indirectly achieve impacts.

Net Penetration Rate: The difference between the anticipated adoption rate of the efficiency measures after intervention and the “business as usual” adoption rate absent efficiency intervention.

Persistence Study: A study to assess changes in program impacts over time (including retention and degradation). See Impact Evaluation.

Process Evaluation: Used to verify whether the energy efficiency program is correctly implemented and to understand any problems or issues that arise in program implementation. See EM&V, Impact Evaluation.


Appliance Efficiency Standards: Standards that regulate the minimum performance requirements for appliances sold, including refrigerators, freezers, room air conditioners, central air conditioners, gas space heaters, water heaters, plumbing fittings, fluorescent lamp ballasts and luminaries, and ignition devices for gas cooking appliances and gas pool heaters.

Base Load: The lowest level of power production needs during a season or year. And: The minimum amount of electric power delivered or required over a given period of time at a steady rate.

Base Load Plant: A plant, usually housing high-efficiency steam-electric units, that is normally operated to take all or part of the minimum load of a system, and which consequently produces electricity at an essentially constant rate and runs continuously. These units are operated to maximize system mechanical and thermal efficiency and minimize system operating costs, and are intended to run constantly at near capacity levels, as much of the time as possible.

Building Efficiency Standards: Standards that regulate energy efficiency of buildings constructed

Capacity Factor: A percentage that tells how much of a power plant’s capacity is used over time. For example, typical plant capacity factors range as high as 80 percent for geothermal and 70 percent for co-generation.

Co-Benefits: The impacts of an energy efficiency program other than energy and demand savings.

Combined Cycle: An electric generating technology in which electricity is produced from otherwise lost waste heat exiting from one or more gas or combustion turbines. The exiting heat is routed to a conventional boiler or to a heat recovery steam generator for utilization by a steam turbine in the production of electricity. This process increases the efficiency of the electric generating unit.

Database For Energy-Efficient Resources (DEER): A California database designed to provide well-documented estimates of energy and peak demand savings values, measure costs, and effective useful life for selected EE technologies and resources. See

Demand: The time rate of energy flow. Demand usually refers to electric power measured in kW (equals kWh/h) but can also refer to natural gas, usually as Btu/hr, kBtu/hr, therms/day, etc. The level at which electricity or natural gas is delivered to users at a given point in time.

Demand-Side Management (DSM): Planning, implementation, and evaluation sponsored programs to influence the amount or timing of customers’ energy use. Includes conservation, efficiency, load management, demand response, and fuel substitution.

Distributed Generation: A distributed generation system involves small amounts of generation located on a utility’s distribution system for the purpose of meeting local (substation level) peak loads and/or displacing the need to build additional, or upgrade, local distribution lines.

Distribution: The delivery of electricity to the retail customer’s home or business through low voltage distribution lines.

End-Use: A category of equipment or service that consumes energy (e.g., lighting, refrigeration, heating, process heat).

Energy Efficiency (EE): The use of less energy to provide the same or an improved level of service to the energy consumer in an economically efficient way; or using less energy to perform the same function.

Energy Efficiency Measure: Installation of equipment, subsystems or systems, or modification of equipment, subsystems, systems, or operations on the customer side of the meter, for the purpose of reducing energy and/or demand (and, hence, energy and/or demand costs) at a comparable level of service.

Energy Service Company (ESCO): A company that offers to reduce a client’s electricity consumption with the cost savings being split with the client.

Gross Savings: The change in energy consumption and/or demand that results directly from program-related actions taken by participants in an efficiency program, regardless of why they participated.

Integrated Resource Planning: A public planning process and framework for developing an approved utility resource plan for utility investments in supply and demand side resources. Costs and benefits of both demand- and supply-side resources, as well as attributes outside the basic provision, or reduction, of electric capacity and energy, are evaluated to develop the least-total-cost mix of utility resource options. In many states, integrated resource planning includes a means for considering environmental damages caused by electricity supply/transmission and identifying cost-effective energy efficiency and renewable energy alternatives.

Load: An end use device or an end use customer that consumes power. Load should not be confused with demand, which is the measure of power that a load receives or requires. Or: The amount of electric power supplied to meet one or more end user’s needs.

Load Factor: A percent telling the difference between the amount of electricity a consumer used during a given time span and the amount that would have been used if the usage had stayed at the consumer’s highest demand level during the whole time. The term also is used to mean the percentage of capacity of an energy facility such as power plant or gas pipeline that is utilized in a given period of time.

Load Management: Steps taken to reduce power demand at peak load times or to shift some of it to off peak times. This may be with reference to peak hours, peak days or peak seasons. The main thing affecting electric peaks is air conditioning usage, which is therefore a prime target for load management efforts. Load management may be pursued by persuading consumers to modify behavior or by using equipment that regulates some electric consumption.

Load Profiles: Representations such as graphs, tables, and databases that describe energy consumption rates as a function of another variable such as time or outdoor air temperature.

Loading Factor: Ratio of actual electricity consumed and total potential consumption. Used when analyzing electricity consumption in a large population. A loading factor of 0.5 means that 50% of homes are consuming all of the electricity they are able or that, on average, all of the homes are only consuming 50% of the power they have the potential to consume.

Local Distribution Company (LDC): A utility that delivers natural gas to end-use customers through its own distribution system

Market Transformation: A reduction in market barriers resulting from a market intervention, as evidenced by a set of market effects, that lasts after the intervention has been withdrawn, reduced, or changed.

Net Savings: The total change in load that is attributable to an energy efficiency program. This change in load may include, implicitly or explicitly, the effects of free drivers, free riders, energy efficiency standards, changes in the level of energy service, and other causes of changes in energy consumption or demand. See Net-To-Gross.

Net-To-Gross Ratio (NTG): A factor representing net program savings divided by gross program savings that is applied to gross program impacts to convert them into net program load impacts. This ratio accounts for only those energy efficiency gains that are attributed to, and the direct result of, the energy efficiency program in question. Consequently, it gives evaluators an estimate of savings that would have occurred without program incentives. See Net Savings, Gross Savings, Free Riders.

Peak Demand: The maximum level of metered demand during a specified period, such as a billing month or a peak demand period.

Program Administrators: Typically procure various types of energy efficiency services from contractors (e.g., consultants, vendors, engineering firms, architects, academic institutions, community-based organizations), as part of managing, implementing, and evaluating their portfolio of energy efficiency programs. Program administrators in many states are the utilities; in some states they are state energy agencies or third parties.

Public Goods Charge (PGC): A non-bypassable surcharge imposed on all retail sales to fund public goods research, development and demonstration, and energy efficiency activities, and support low-income assistance programs. See System Benefits Charge.

Rebound Effect: A change in energy-using behavior that yields an increased level of service and occurs as a result of taking an energy efficiency action.

Resource Acquisition Program: Programs designed to directly achieve energy and or demand savings.

Retrofit: Refers to an efficiency measure or efficiency program that seeks to encourage the replacement of functional equipment before the end of its operating life with higher efficiency units (also called “early-retirement”) or the installation of additional controls, equipment, or materials in existing facilities for purposes of reducing energy consumption (e.g., increased insulation, lighting occupancy controls, economizer ventilation systems).

System Benefits Charge (SBC): A surcharge dictated by statute that is added to customers’ bills to pay for energy efficiency programs that may be administered by utilities or other entities. See Public Goods Charge.

Total Resource Requirements: Represents total expected (energy or capacity) demand in the absence of any energy efficiency measures or strategies. It can also be thought of as the sum of all supply-side and demand-side resources in the utility’s portfolio.

Transmission: The movement or transfer of electric energy over an interconnected group of lines and associated equipment between points of supply and points at which it is transformed for delivery to consumers, or is delivered to other electric systems. Transmission is considered to end when the energy is transformed for distribution to the consumer.


Achievable Potential: The amount of energy use that efficiency can realistically be expected to displace assuming the most aggressive program scenario possible (e.g., providing end-users with payments for the entire incremental cost of more efficiency equipment). The result of estimating how much market barriers and program uptake limits will reduce the economic potential. This is often referred to as maximum achievable potential, which is a larger subset than program potential, but smaller subset than economic potential and technical potential. See Economic Potential, Technical Potential, Program Potential.

Cream Skimming: The pursuit of only the lowest cost energy efficiency measures, which results in leaving behind other cost-effective opportunities. Cream skimming becomes a problem when lost opportunities are created in the process. See Lost Opportunity.

Economic Potential: Refers to the subset of the technical EE potential that is economically cost-effective as compared to conventional supply-side energy resources. The result of reducing the technical potential by applying cost-effectiveness and program eligibility criteria. This subset is smaller than technical potential, but larger than achievable and program potential. See Achievable Potential, Program Potential, Technical Potential.

Lost Opportunity: Those energy efficiency options which offer long-lived, cost-effective savings and which, if not exploited promptly or simultaneously with other low cost energy efficiency measures or in tandem with other load-reduction technologies or distributed generation technologies being installed at the site (e.g., solar heating or photovoltaics), are lost irretrievably or rendered much more costly to achieve.

Planning Study: A study of energy efficiency potential used by demand-side planners within utilities to incorporate efficiency into an integrated resource planning process. The objective of a planning study is to identify energy efficiency opportunities that are cost-effective alternatives to supply-side resources in generation, transmission, or distribution.

Potential Study: A study conducted to assess market baselines and energy efficiency savings potentials for different technologies and customer markets. Potential is typically defined in terms of technical, economic, achievable, and program potential.

Program Design Potential Study: Can be undertaken by a utility or third party for the purpose of developing specific measures for the energy efficiency portfolio.

Program Potential: The efficiency savings that can be realistically realized from the achievable potential, given the budget, staffing, and time constraints for the efficiency program. Program potential establishes the total, or gross, savings expected from a program. This subset is the smallest of all the potentials. See Achievable Potential, Economic Potential, Technical Potential.

Technical Potential: The theoretical maximum amount of energy use that could be displaced by efficiency, disregarding all non-engineering constraints such as cost-effectiveness and the willingness of end-users to adopt the efficiency measures. This subset is the largest of all the potentials. See Program Potential, Achievable Potential, Economic Potential.


Avoided Costs: The forecasted economic benefits of energy savings. These are the costs that would have been spent if the energy efficiency had not been put in place.

Cost Of Service: A method of using utility costs in rate design; a cost of service study measures a utility’s costs incurred in serving each customer class, including a reasonable return on investment.

Cost Recovery: Recovery of the direct costs associated with utility program administration (including evaluation), implementation, and incentives to program participants.

Depreciation: A means of accounting for the wearing out or gradual obsolescence of a utility plant’s equipment and buildings.

Fixed Costs: Expenses incurred by the utility that do not change in proportion to the volume of sales within a relevant time period. E.g., steel and cement in the ground.

Independent Variables: The factors that affect energy use and demand, but cannot be controlled (e.g., weather or occupancy).

Levelized Cost: A constant value or payment that, if applied in each year of the analysis, would result in a net present value equivalent to the actual values or payments which change (usually increase) each year. Often used to represent, on a consistent basis, the cost of energy saved by various efficiency measures with different useful lives.

Lost Margin: The reduction in revenue to cover fixed costs, including earnings or profits in the case of investor-owned utilities. Similar to lost revenue, but concerned only with fixed cost recovery, or with the opportunity costs of lost margins that would have been added to net income or created a cash buffer in excess of that reflected in the last rate case.

Marginal Cost: The sum that has to be paid for the next increment of product or service. The marginal cost of electricity is the price to be paid for kilowatt-hours above and beyond those supplied by presently available generating capacity. See Cream Skimming.

Performance-Based Ratemaking: An alternative to traditional return on rate base regulation that attempts to forego frequent rate cases by allowing rates or revenues to fluctuate as a function of specified utility performance against a set of benchmarks.

Rate Of Return: This figure, which is expressed as a percentage, reflects the utility’s weighted cost of capital.

Return On Equity: The profits distributed to common shareholders after all expenses, interest costs, and preferred stock dividends have been paid. In ratemaking, it represents the level of revenue needed that will permit equity stockholders the opportunity to earn a fair return on their investment in the utility. Based on an assessment of the financial returns that investors in that utility would expect to receive, an expectation that is influenced by the perceived riskiness of the investment.

Revenue Requirement: The total amount of revenue needed to pay all operating and capital costs of doing business.

Shared Savings: Incentive mechanisms that give utilities the opportunity to share the net benefits from successful implementation of energy efficiency programs with customers.

Stranded Costs: Prudent costs incurred by a utility that may not be recoverable under market-based deregulation. Examples are un-depreciated generating facilities, deferred costs, and long-term contract costs.