Energy Efficiency

Electricity usage patterns across the United States have significantly changed over the past decade. The saturation of energy-efficient technologies has caused slower growth of electricity consumption. This saturation has substantially been driven by federal energy policy, state requirements and energy efficiency and demand response programs implemented by utilities. AEP’s load forecasting modeling tracks these trends, which helps us develop resource plans for our companies that account for these changes over time.

Energy efficiency and demand response programs are important resources that are integral to a balanced portfolio; they give AEP and our customers the tools that encourage reduced energy consumption, either during times of peak demand, or throughout the day or year. The Energy Policy Act of 2005 (EPACT) was the catalyst for establishing energy efficiency as a priority for the nation. EPACT’s success led to more aggressive increases in efficiency standards with the passage of the Energy Independence and Security Act of 2007 (EISA). The EISA set new standards covering vehicles, lighting, motors, building codes and other categories of energy-using equipment. These increased standards have had an effect on energy consumption, which AEP has seen in its service territory, particularly over the past decade as we’ve ramped up these programs.

We view energy efficiency as a readily deployable, relatively low-cost and clean energy resource that provides many benefits. Energy efficiency reduces energy consumption by incorporating energy efficiency improvements in customers’ homes and businesses; the trade-off is the up-front investment in building, appliance and or equipment modification in upgrading or switching to new technology.

Technology plays an increasingly important role in energy efficiency. We are developing strategic partnerships with companies such as Tendril and Innovari to use energy management technologies to help us manage demand on the grid. We are also deploying smart circuit technologies such as Volt VAR to improve efficiency on the distribution grid. And, we are investing in companies such as Greensmith to be able to store energy for use during peak demand periods and to make the system more resilient.

Forecasted View of Relevant Energy Efficiency Code Improvements

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Energy Efficiency Gains

There have been steady gains achieved through energy efficiency during the past two decades, and AEP foresees additional future impacts, which we account for in our integrated resource planning process. Among the drivers of energy efficiency growth:

  • Energy costs - As the cost of energy increases, the value of energy efficiency increases.
  • Technology costs - The cost of energy efficiency technologies is decreasing.
  • Technology improvements – As devices become more interconnected and controllable, the ability to monitor and manage energy consumption rises. Today, this is seen more among commercial and industrial customers (e.g. more efficient building control systems) but is gaining penetration among residential customers through technologies such as smart thermostats.
  • Environmental reasons – Some customers want to reduce energy consumption to support environmental sustainability in addition to achieving economic benefits.
  • Building code efficiency standards – While building codes and standards can have a large impact over the life of a building, the adoption of these standards occurs gradually over time and the benefits are most often seen in new construction or major restorations or renovations.
  • Public policy – A combination of federal mandates and company-sponsored energy efficiency programs has had a significant impact on the development of more energy-efficient technologies and their rapid adoption rate in AEP’s service territory.
  • Appliances – In addition to lighting, there have been significant increases in the saturation of energy efficient technology related to other appliances such as cooling systems, clothes washers and dryers, water heaters, dishwashers, etc.

However, as a result of these developments, subsequent achievements from utility-sponsored energy efficiency programs that exceed the “naturally occurring” and efficiency codes-driven energy savings will likely be more challenging and expensive to implement in the future.

Residential Appliance Survey

Since 1980, AEP has conducted a residential appliance saturation survey every three to four years to monitor adoption trends and efficiencies of various residential appliances in use across our service territory. We use the results of this survey in our load-forecasting process, which supports development of resource plans and long-term financial forecasting for our operating companies. In 2016, we conducted this survey within our service territory. Here is what we learned:

  • Eighty-four percent of customers own their homes – a percentage much higher than the U.S. average. This is not surprising given the more rural nature of much of our service territory.
  • Forty-six percent of our customers use electricity to heat their homes.
  • Approximately two-thirds of our customers use central air conditioning to cool their homes.
  • More than half of AEP’s customers use electric water heaters; the survey also shows a modest increase in the use of on-demand water heaters since the last survey.
  • Despite higher lighting efficiency standards and utility demand-side management programs that have largely focused on lighting, customers are still maintaining their incandescent lighting for as long as they can.
  • Other household appliances – refrigerators, stoves, washers and dryers, TVs – are generally less than five years old. This indicates the presence of more energy efficient appliances in use.

2016 Results – Energy Efficiency

Today, AEP offers customers more than 125 programs across nearly all of our 11-state service territory. In 2016, AEP’s energy efficiency programs were credited with more than 1 million megawatt hours (MWh) of energy reduction and more than 250 megawatts (MW) of demand reduction, with associated program costs of approximately $169 million.

Cumulatively, from 2008 through 2016, these programs have been credited with reducing annual consumption by over 6 million MWh and peak demand by approximately 2,000 MWs, with program costs of approximately $1 billion.

We have also taken measures to reduce energy consumption in AEP’s office buildings and service centers. The kilowatt-hour (kWh) usage was reduced by 32 percent in nearly 280 buildings in 2016, compared with the 2007 baseline, when normalized for weather. The dollar savings from the reduced energy consumption was approximately $5.8 million in 2016. We achieved these energy consumption reductions mostly through equipment investments, such as new heating and cooling systems, and an employee education campaign.

In 2016, AEP received LEED Silver certification for our corporate headquarters in Columbus, Ohio, under the LEED for Buildings Operations and Maintenance - Existing Building program. We are evaluating our approach to tracking and managing sustainable business performance going forward to maintain this important certification for our corporate headquarters.

In April 2017, the U.S. Environmental Protection Agency announced its annual ENERGY STAR awards for businesses and organizations that have made outstanding contributions to protecting the environment through superior energy efficiency achievements. AEP Ohio, AEP Texas and Southwestern Electric Power Company (SWEPCO) were recognized as ENERGY STAR Partner of the Year – Sustained Excellence winners. Public Service Company of Oklahoma (PSO) received the ENERGY STAR Excellence in ENERGY STAR Promotion award.