This post was written by R. Neal Elliott, associate director for research at the American Council for an Energy-Efficient Economy and a contributing author at the ACEEE blog.

Over the past year, the utility industry has experienced significant angst over pending updates to utility environmental regulations. Of particular concern is the question of whether to invest in plant updates to comply with these regulations, or to retire these plants all together and replace them with new (and most likely natural-gas fueled) power plants. Many inside and outside the utility industry have painted this situation as a crisis in the making. These effects will likely be felt most acutely in a crescent from the Great Plains through the Midwest and down the Appalachians, where utilities rely heavily on coal to generate electricity. Utilities are indicating that they will need to invest billions of dollars in these supply-side assets, resulting in significant increases in electric rates for customers.

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ICF mapImage: ICF 2010

But responding to these changes does not have to be a crisis. As explained in a new white paper from the American Council for an Energy-Efficient Economy (ACEEE), “How to Avoid a Train Wreck: Replacing Old Coal Plants with Energy Efficiency,” expanded investments in energy efficiency and combined heat and power (CHP) can meet much of this lost capacity at a fraction of the cost of upgrading old power plants or building new ones. These customer-side investments will have the added benefit of enhancing communities by creating more efficient, modern infrastructure that can result in more jobs and a more robust economy. Achieving this level of energy-efficiency investment will not be easy. Enabling these investments will require significant changes in the utility regulatory business model to allow utilities to make customer-side investments and be allowed to earn a preferred rate of return. ACEEE will shortly release another white paper that explores the details of this changed business model.

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It has often been observed that crisis and opportunity are inextricably linked, as a crisis encourages us to push the envelope of innovation and accomplish feats we didn’t think we were capable of. The so-called “coal train wreck” may afford just such an opportunity to modernize our electric utility regulations to reflect a new century of different economic and energy markets. Doing so would create opportunities for the utility industry to define a new path to sustained profitability by selling efficiency services, not just electricity, while ensuring reliable and affordable power to their customers.