(a) It is the goal of the legislature that:
(1) electric utilities will administer energy efficiency incentive programs in a market-neutral, nondiscriminatory manner but will not offer underlying competitive services;
(2) all customers, in all customer classes, will have a choice of and access to energy efficiency alternatives and other choices from the market that allow each customer to reduce energy consumption, summer and winter peak demand, or energy costs;
(3) each electric utility annually will provide, through market-based standard offer programs or through targeted market-transformation programs, incentives sufficient for retail electric providers and competitive energy service providers to acquire additional cost-effective energy efficiency, subject to cost ceilings established by the commission, for the utility’s residential and commercial customers equivalent to:
(A) not less than:
(i) 30 percent of the electric utility’s annual growth in demand of residential and commercial customers by December 31 of each year beginning with the 2013 calendar year; and
(ii) the amount of energy efficiency to be acquired for the utility’s residential and commercial customers for the most recent preceding year; and
(B) for an electric utility whose amount of energy efficiency to be acquired under this subsection is equivalent to at least four-tenths of one percent of the electric utility’s summer weather-adjusted peak demand for residential and commercial customers in the previous calendar year, not less than:
(i) four-tenths of one percent of the utility’s summer weather-adjusted peak demand for residential and commercial customers by December 31 of each subsequent year; and
(ii) the amount of energy efficiency to be acquired for the utility’s residential and commercial customers for the most recent preceding year;
(4) each electric utility in the ERCOT region shall use its best efforts to encourage and facilitate the involvement of the region’s retail electric providers in the delivery of efficiency programs and demand response programs under this section, including programs for demand-side renewable energy systems that:
(A) use distributed renewable generation, as defined by § 39.916; or
(B) reduce the need for energy consumption by using a renewable energy technology, a geothermal heat pump, a solar water heater, or another natural mechanism of the environment;
(5) retail electric providers in the ERCOT region, and electric utilities outside of the ERCOT region, shall provide customers with energy efficiency educational materials; and
(6) notwithstanding Subsection (a)(3), electric utilities shall continue to make available, at 2007 funding and participation levels, any load management standard offer programs developed for industrial customers and implemented prior to May 1, 2007.
(b) The commission shall provide oversight and adopt rules and procedures to ensure that the utilities can achieve the goal of this section, including:
(1) establishing an energy efficiency cost recovery factor for ensuring timely and reasonable cost recovery for utility expenditures made to satisfy the goal of this section;
(2) establishing an incentive under § 36.204 to reward utilities administering programs under this section that exceed the minimum goals established by this section;
(3) providing a utility that is unable to establish an energy efficiency cost recovery factor in a timely manner due to a rate freeze with a mechanism to enable the utility to:
(A) defer the costs of complying with this section; and
(B) recover the deferred costs through an energy efficiency cost recovery factor on the expiration of the rate freeze period;
(4) ensuring that the costs associated with programs provided under this section and any shareholder bonus awarded are borne by the customer classes that receive the services under the programs;
(5) ensuring the program rules encourage the value of the incentives to be passed on to the end-use customer;
(6) ensuring that programs are evaluated, measured, and verified using a framework established by the commission that promotes effective program design and consistent and streamlined reporting; and
(7) ensuring that an independent organization certified under § 39.151 allows load participation in all energy markets for residential, commercial, and industrial customer classes, either directly or through aggregators of retail customers, to the extent that load participation by each of those customer classes complies with reasonable requirements adopted by the organization relating to the reliability and adequacy of the regional electric network and in a manner that will increase market efficiency, competition, and customer benefits.

(b-1) The energy efficiency cost recovery factor under Subsection (b)(1) may not result in an over-recovery of costs but may be adjusted each year to change rates to enable utilities to match revenues against energy efficiency costs and any incentives to which they are granted. The factor shall be adjusted to reflect any over-collection or under-collection of energy efficiency cost recovery revenues in previous years.
(b-2) Repealed by Acts 2011, 82nd Leg., R.S., Ch. 180, Sec. 3, eff. September 1, 2011.
(b-3) Beginning not later than January 1, 2008, the commission, in consultation with the State Energy Conservation Office, annually for a period of five years shall compute and report to ERCOT the projected energy savings and demand impacts for each entity in the ERCOT region that administers standard offer programs, market transformation programs, combined heating and power technology, demand response programs, solar incentive programs, appliance efficiency standards, energy efficiency programs in public buildings, and any other relevant programs that are reasonably anticipated to reduce electricity energy or peak demand or that serve as substitutes for electric supply.
(b-4) The commission and ERCOT shall develop a method to account for the projected efficiency impacts under Subsection (b-3) in ERCOT’s annual forecasts of future capacity, demand, and reserves.
(c) A standard offer program provided under Subsection (a)(3) must be neutral with respect to technologies, equipment, and fuels, including thermal, chemical, mechanical, and electrical energy storage technologies.
(d) The commission shall establish a procedure for reviewing and evaluating market-transformation program options described by this subsection and other options. In evaluating program options, the commission may consider the ability of a program option to reduce costs to customers through reduced demand, energy savings, and relief of congestion. Utilities may choose to implement any program option approved by the commission after its evaluation in order to satisfy the goal in Subsection (a), including:
(1) energy-smart schools;
(2) appliance retirement and recycling;
(3) air conditioning system tune-ups;
(4) the installation of variable speed air conditioning systems, motors, and drives;
(5) the use of trees or other landscaping for energy efficiency;
(6) customer energy management and demand response programs;
(7) high performance residential and commercial buildings that will achieve the levels of energy efficiency sufficient to qualify those buildings for federal tax incentives;
(8) commissioning services for commercial and institutional buildings that result in operational and maintenance practices that reduce the buildings’ energy consumption;
(9) programs for customers who rent or lease their residence or commercial space;
(10) programs providing energy monitoring equipment to customers that enable a customer to better understand the amount, price, and time of the customer’s energy use;
(11) energy audit programs for owners and other residents of single-family or multifamily residences and for small commercial customers;
(12) net-zero energy new home programs;
(13) solar thermal or solar electric programs;
(14) programs for using windows and other glazing systems, glass doors, and skylights in residential and commercial buildings that reduce solar gain by at least 30 percent from the level established for the federal Energy Star windows program;
(15) data center efficiency programs; and
(16) energy use programs with measurable and verifiable results that reduce energy consumption through behavioral changes that lead to efficient use patterns and practices.
(e) An electric utility may use money approved by the commission for energy efficiency programs to perform necessary energy efficiency research and development to foster continuous improvement and innovation in the application of energy efficiency technology and energy efficiency program design and implementation. Money the utility uses under this subsection may not exceed 10 percent of the greater of:
(1) the amount the commission approved for energy efficiency programs in the utility’s most recent full rate proceeding; or
(2) the commission-approved expenditures by the utility for energy efficiency in the previous year.
(f) Each unbundled transmission and distribution utility shall include in its energy efficiency plan a targeted low-income energy efficiency program, and the savings achieved by the program shall count toward the transmission and distribution utility’s energy efficiency goal. The commission shall determine the appropriate level of funding to be allocated to both targeted and standard offer low-income energy efficiency programs in each unbundled transmission and distribution utility service area. The level of funding for low-income energy efficiency programs shall be provided from money approved by the commission for the transmission and distribution utility’s energy efficiency programs. The commission shall ensure that annual expenditures for the targeted low-income energy efficiency programs of each unbundled transmission and distribution utility are not less than 10 percent of the transmission and distribution utility’s energy efficiency budget for the year. A targeted low-income energy efficiency program must comply with the same audit requirements that apply to federal weatherization subrecipients. In an energy efficiency cost recovery factor proceeding related to expenditures under this subsection, the commission shall make findings of fact regarding whether the utility meets requirements imposed under this subsection. The state agency that administers the federal weatherization assistance program shall participate in energy efficiency cost recovery factor proceedings related to expenditures under this subsection to ensure that targeted low-income weatherization programs are consistent with federal weatherization programs and adequately funded.
(g) The commission may provide for a good cause exemption to a utility’s liability for an administrative penalty or other sanction if the utility fails to meet a goal for energy efficiency under this section and the utility’s failure to meet the goal is caused by one or more factors outside of the utility’s control, including:
(1) insufficient demand by retail electric providers and competitive energy service providers for program incentive funds made available by the utility through its programs;
(2) changes in building energy codes; and
(3) changes in government-imposed appliance or equipment efficiency standards.
(h) For an electric utility operating in an area not open to competition, the utility may achieve the goal of this section by:
(1) providing rebate or incentive funds directly to customers to promote or facilitate the success of programs implemented under this section; or
(2) developing, subject to commission approval, new programs other than standard offer programs and market transformation programs, to the extent that the new programs satisfy the same cost-effectiveness requirements as standard offer programs and market transformation programs.
(i) For an electric utility operating in an area open to competition, on demonstration to the commission, after a contested case hearing, that the requirements under Subsection (a) cannot be met in a rural area through retail electric providers or competitive energy service providers, the utility may achieve the goal of this section by providing rebate or incentive funds directly to customers in the rural area to promote or facilitate the success of programs implemented under this section.
(j) An electric utility may use energy audit programs to achieve the goal of this section if:
(1) the programs do not constitute more than three percent of total program costs under this section; and
(2) the addition of the programs does not cause a utility’s portfolio of programs to no longer be cost-effective.
(k) To help a residential or nongovernmental nonprofit customer make informed decisions regarding energy efficiency, the commission may consider program designs that ensure, to the extent practicable, the customer is provided with information using standardized forms and terms that allow the customer to compare offers for varying degrees of energy efficiency attainable using a measure the customer is considering by cost, estimated energy savings, and payback periods.