4. Energy Savings Goals for the 2013-2014
Applications
4.1. Background
Our guidance for the 2013-2014 energy efficiency applications discusses strategies to implement the Strategic Plan and adopt updated savings goals. Specifically, we want to move toward a new generation of energy efficiency programs for which substantial changes to the goals process are needed. So as to reflect the latest information on energy efficiency potential and to have a successful transitional portfolio for 2013-2014, several changes need to be made with respect to the energy savings goals. The goals for the 2013-2014 transition portfolio should be informed by the 2011 Energy Efficiency Potential Study.23
The 2011 Update to Energy Efficiency Potential, Goals and Targets was originally designed along two tracks: Track 1 provided an update to energy efficiency potential analysis, consistent with the approach of the 2008 Potential Study. Track 2 was designed to support the adoption of goals by considering all delivery channels adopted in the Total Market Gross goals in D.08-07-047 and determining the appropriate attribution of savings to IOU specific targets. Since Track 2 is not scheduled to be completed until mid-2012, we update the 2013-2014 transition portfolio goals using the Potential Study results from Track 1 to ensure that goals for the transition portfolio are based on the best available information and are consistent with updated DEER planning assumptions.
In order for the IOUs to develop the 2013-2014 transition portfolio, the Commission Staff prepared updates to the avoided costs methodology and the DEER.24 These updates were intended to assist in designing the 2013-2014 portfolio using the most up-to-date planning assumptions. The final updates of the avoided costs and DEER, discussed below, were incorporated into the final potential study adopted in this decision.
4.2. Avoided Cost and Cost-Effectiveness
Guidance for 2013-2014 Applications
In estimating the cost-effectiveness of energy efficiency programs, we compare the actual costs of those programs (e.g., administration and equipment costs) with the avoided costs of providing the energy that would have been needed in the program's absence.25 The avoided cost estimates also encompass the deferral or avoidance of transmission- and distribution-related costs, and (beginning with the 2013-2014 portfolio) the reduced need for Renewable Portfolio Standard (RPS) compliance resources.26
The Total Resource Cost (TRC) and Program Administrator Cost (PAC) cost-effectiveness tests are used to determine the cost-effectiveness of the energy efficiency portfolio and are described in the California Standard Practice Manual.27 Energy efficiency portfolios as a whole must have a TRC benefit cost ratio greater than one (i.e., the net benefit must be positive).
Pursuant to a December 23, 2010, ruling, Commission Staff prepared a Cost-Effectiveness proposal to update the cost-effectiveness methodology. The Cost-Effectiveness proposal was included as an attachment to the October 5, 2011, Avoided Cost Inputs and Methodology Ruling. The Cost-Effectiveness proposal urged the following changes to the energy efficiency avoided costs inputs and methodology:
1. Updating the data inputs used to determine the avoided costs of electricity generation, transmission, and distribution; as well as the data inputs for natural gas;
2 Separating the avoided cost of electricity generation into components to better reflect capacity, generation, and other costs in the short and long run; and
3. Changing the discount rate used in the cost-effectiveness analysis of Energy Efficiency programs from the before-tax Weighted Average Cost of Capital (WACC) to the after-tax WACC.
The Cost-Effectiveness proposal and the Avoided Cost Inputs and Methodology Ruling also referenced the "Energy Efficiency Avoided Cost Scenario Comparison" spreadsheet.28 This spreadsheet was provided to facilitate the comparison of current and proposed energy efficiency cost-effectiveness methodologies. It estimates the variation in Total Resource Cost and Program Administrator Cost benefit cost ratios of the IOUs' energy efficiency programs that would result from the three changes in the Staff Proposal when applied to the utilities' 2010 Energy Efficiency claims. These estimates are summarized in the table below. The proposed changes result in a roughly 15% increase (on a TRC basis) in the cost-effectiveness of the current 2010-2012 portfolio.
Energy Efficiency Portfolio Benefit Cost Ratios Resulting from Proposed Changes29 | ||||||||||
|
PG&E |
SCE |
SDG&E |
SoCalGas |
All IOUs | |||||
|
TRC |
PAC |
TRC |
PAC |
TRC |
PAC |
TRC |
PAC |
TRC |
PAC |
Current Calculator |
1.43 |
2.63 |
2.04 |
3.73 |
1.66 |
2.65 |
1.42 |
3.11 |
1.66 |
3.06 |
#1: Updated Inputs |
1.47 |
2.70 |
1.94 |
3.56 |
1.51 |
2.42 |
1.43 |
3.13 |
1.64 |
3.01 |
+ #2: Separated Components |
1.62 |
2.97 |
2.06 |
3.77 |
1.53 |
2.45 |
1.44 |
3.15 |
1.76 |
3.23 |
+ #3: New |
1.74 |
3.19 |
2.19 |
4.01 |
1.63 |
2.60 |
1.59 |
3.48 |
1.88 |
3.45 |
In general, the updated inputs (See #1 above) tend to lower the benefit cost ratios, mostly because of decreased natural gas prices. Adding the avoided cost calculator which uses separated components (See #2 above) increases all the benefit cost ratios relative to the current calculator, and as examination of the spreadsheet tool shows, this increase is largest for HVAC programs.30 Adding the third proposed change, using the after-tax rather than the before-tax WACC as the discount rate, raises the benefit-cost ratios because the after-tax WACCs are lower than the before-tax WACCs, as discussed below.
The October 25, 2011 Avoided Cost Inputs and Methodology Ruling asked parties to answer six questions. Party input in response to these questions is discussed below.31
The "separated components" proposal would replace the current avoided cost calculator with a new one that separates the avoided cost of electricity generation into several components to better reflect capacity, generation, and other costs in the short and long run. This new avoided cost calculator was adopted for use by Distributed Generation programs in D.09-08-026 and for Demand Response programs in D.10-12-024. These decisions adopted this new avoided cost calculator because it more accurately reflects key components of avoided costs, including capacity, energy, GHG, transmission and distribution, and costs associated with the RPS and Ancillary Services markets. Consistency among demand-side programs is a key component of the Strategic Plan.32
While parties agree that consistency among demand-side programs is desirable, most parties also point out that variations in the cost-effectiveness models are required so that the unique characteristics of these programs are accurately represented.
The Staff Proposal attached to the Avoided Cost Inputs and Methodology Ruling proposed the following updates to the data inputs in the avoided cost calculator to reflect more recent market conditions:
1. Using the December 2010 New York Mercantile Exchange price forecast for natural gas prices; and
2. Using the Synapse Consulting forecast for carbon prices, approved in the Renewable Portfolio Standard Market Price Referent proceeding.
Parties had no objections to these two data updates.
The proposed new avoided cost calculator incorporates significant methodology changes. The most significant change is that rather than using one all-in avoided cost for electricity and the California Power Exchange market price shape, energy and capacity prices are calculated and allocated separately and the energy prices are based on the more recent (2010) California Independent System Operator (CAISO) Market Redesign and Technology Upgrade (MRTU). As in the past, the proposed avoided costs of energy and capacity are split into long and short-run costs, with the transition between long- and short-run costs occurring in the "resource balance year" (which is defined as the first year in which the capacity and energy markets will reflect the full cost of new plants). Both the new and old avoided cost calculators also calculate the costs associated with the avoidance or deferral of transmission and distribution system upgrades and maintenance, and the avoided costs of GHG emissions. The new calculator adds two additional avoided costs - the costs associated with providing ancillary services and renewable procurement - for a total of six avoided cost components.
The process used to determine the resource balance year was established for the cost-effectiveness of distributed generation in D.09-08-026. The capacity value for each year between 2008 and the resource balance year is calculated by linear interpolation, and the resource balance year is currently calculated for energy efficiency as 2017.33
Pacific Gas and Electric Company (PG&E) recommends that the scope of this cost-effectiveness update be expanded to include correcting errors in the current version of the E3 cost-effectiveness calculator.34 Specifically, PG&E argues that the E3 calculator contains an error whereby it discounts all program benefits but only some program costs. The calculator assumes that all administrative, marketing, and direct implementation (non-incentive) costs are incurred at the beginning of the program cycle. PG&E further states that correcting this error is important because by failing to discount the costs in the same manner as benefits, the calculator consistently underestimates cost-effectiveness of energy efficiency programs, and that this correction is fairly simple and will not cause any delay to the Commission's proposed schedule. This change has been made in the new avoided cost calculator.
The avoided cost of energy is defined as the costs that would have been borne by the ratepayers via rate increases in the absence of energy efficiency programs. Avoided cost is estimated for all 8,760 hours of the year. Prior to the resource balance year, the short-run average avoided energy cost is based on New York Mercantile Exchange market price forecasts, where available. If the forecasts are not available, the data is obtained by interpolating between the last available New York Mercantile Exchange price and the long-run energy market price. The long-run energy market price, used for the resource balance year and subsequent years, is based on the 2010 MRTU day-ahead market price and is escalated by the natural gas burner tip forecast. The annual long-run energy market price is set so that the Combined Cycle Gas Turbine's (CCGT) energy market revenue plus the capacity market payments is equal to the fixed and variable costs of the CCGT.
The avoided capacity calculation is an estimate of the cost of building (or purchasing) sufficient capacity to meet the IOUs' Resource Adequacy requirement and insure there is sufficient capacity to provide electricity at times of peak demand. The proposed avoided costs for generation capacity include both a short-run and a long-run forecast. The short-run value of capacity is based on the 2008 resource adequacy market payments; the relatively low value ($28 per kilowatt-year (kW-yr)) reflects the large surplus of capacity currently available on the CAISOs. The long-run cost of capacity is calculated based on the cost of a simple-cycle Combustion Turbine, instead of the CCGT used in the current avoided cost calculator. The long-run capacity value is equal to the Combustion Turbine's annualized fixed cost less the net revenues (gross margins) it would earn through participation in the real-time energy and ancillary services markets-the residual capacity value. The net revenues are based on a capacity factor typical of a CCGT so as to make the model based on a marginal power plant. The residual capacity value is allocated among the top 250 load level hours of the year.
The Transmission and Distribution capacity avoided costs measure the value of deferral of transmission and distribution network upgrades due to reduction in local peak loads. There is no change in the method used to calculate them, as they are obtained from values submitted by the utilities. PG&E's transmission and distribution avoided costs have been updated by climate zone and are taken from its 2011 General Rate Case Phase II. SCE and SDG&E system level values are the same as those used in the Demand Response and Distributed Generation.
Parties raised some concerns which require additional stakeholder discussion, these are listed below.
The avoided cost of ancillary services accounts for the decrease in the additional services needed to deliver electricity, as defined by the Federal Energy Regulatory Commission, due to load reductions resulting from energy efficiency. The cost has been updated to reflect MRTU values. There was little discussion of this avoided cost in parties' comments.
The avoided cost of renewable procurement reflects the fact that, as energy usage declines, the amount of utility renewable purchases required to meet the 2020 renewable requirement (33%), also declines.
The forecasted cost of renewable energy is higher than the forecasted cost of wholesale energy and capacity market purchases. This difference is known as the Renewable Premium, which is the incremental cost of the marginal renewable resource above the cost of conventional generation. In the Demand Response proceeding, R.07-01-041, the avoided RPS cost was calculated as 33% (the RPS goal in 2020) of the cost difference forecast between RPS-eligible resources and the wholesale market price, beginning in 2020. The updated methodology proposed for the 2013-2014 transition portfolio incorporates the newer interim goals of 20% in 2013 and 25% in 2016.
Several parties questioned the wisdom of applying the newer interim goals as step increases in 2013 and 2016, rather than a linear interpolation, given that renewable capacity is not likely to be added to the system in a step-wise fashion. We agree that a linear approach would more accurately reflect the likely renewable procurement trajectory, and we note that this would also conform with the approach adopted for the RPS program in D.11-12-020. We anticipate that this would likely represent a relatively modest adjustment, but it would be a useful "second-order improvement" in our avoided cost calculations.
Due to the compressed schedule for developing this guidance decision, we were unable to make the adjustment for the 2013-2014 avoided cost calculations. We will plan to incorporate this approach in future portfolio cycles.
The value of the GHG reduction used in the new avoided cost calculator is based on a forecast developed through a meta-analysis of various studies of proposed climate legislation. This is the same forecast approved in the most recent RPS Market Price Referent and Long-Term Procurement Plan proceedings, and it is also the forecast used by the Commission for cost-effectiveness analyses of Distributed Generation and Demand Response programs. The mid-level forecast used for the update was developed explicitly for use in electricity sector integrated resource planning and so serves as an appropriate applied value for the cost of GHG emissions in the future.
Absent a market for GHG allowances, any value chosen for avoided GHG emissions is necessarily somewhat speculative. While several parties question the accuracy of the forecast, we find the most appropriate value to use in this proceeding is that value which has already been litigated and approved the above-cited Commission proceedings.
We recognize that there will be much price discovery in the carbon market over the 2013-2014 portfolio cycle. Starting with the 2015 cycle, we intend to use the carbon market price index as feasible. We direct Commission Staff to explore the best feasible way to do this analysis during the 2013-2014 cycle so that it is ready as an option for consideration starting with the 2015 cycle.
The discount rate is used to determine the net present value of each cost and benefit included in the California Standard Practice Manual tests. We traditionally use each utility's Weighted Average Cost of Capital (WACC), which is the minimum return that the utility must earn on its existing asset base to satisfy its creditors, owners, and other providers of capital. Companies generally use their WACC to determine if the investment projects available to them are worthwhile to undertake; therefore it is appropriate to use each utility's WACC as the discount rate in cost-effectiveness calculations.
In energy efficiency proceedings, the Commission has at different times used either the before-tax or the after-tax WACC as the discount rate, and there has been much debate about which is more appropriate.
For Demand Response programs, D.10-12-024 adopted the after-tax value of the WACC, finding that "the after-tax WACC best reflects the costs borne by ratepayers for demand response activities, and is therefore the appropriate discount rate." To maintain consistency across demand-side resource proceedings, Staff proposed that we apply the same discount rate to the energy efficiency portfolio. The before- and after-tax WACCs for each IOU are shown in the table below.
IOU |
Before-tax WACC |
After-tax WACC |
PG&E |
8.79% |
7.66% |
SCE |
8.75% |
7.65% |
SDG&E |
8.40% |
7.36% |
SoCalGas |
8.68% |
7.38% |
PG&E and SCE support the Staff proposal to use the after-tax WACC, while SDG&E/SoCalGas advocate retaining the before-tax WACC. In its comments,35 Division of Ratepayer Advocates (DRA) initially proposed using three different social discount rates and comparing results. However, in reply comments DRA advocated that we further explore using a societal cost test rather than a societal discount rate.36 National Resources Defense Council (NRDC) suggests using the after-tax WACC for the Program Administrator Cost and a societal discount rate of 3% for the Total Resource Cost.37 In its reply comments The Utility Reform Network (TURN) argues that a societal discount rate is inappropriate for energy efficiency.38 The Efficiency Council recommends that since there is little agreement on this issue, we use the after-tax WACC for now and continue to discuss the issue.39
We agree with the Efficiency Council that this issue merits continued discussion and therefore the after-tax WACC should be used for the 2013-2014 cycle.
Parties generally agree that the proposed data updates and use of the new avoided cost calculator will improve the accuracy of the IOUs' estimations of the cost-effectiveness of their energy efficiency programs. However, parties raised many issues that cannot be resolved in time for the 2013-2014 portfolio, and that should be discussed among all stakeholders for future energy efficiency portfolios. These discussions will undoubtedly further improve the cost-effectiveness methodology.
We will adopt the Staff Proposal and direct the IOUs to use the new avoided cost calculator (which includes the recommended data inputs) and the after-tax WACC as the discount rate. In addition, we will direct Staff to continue its efforts to update cost-effectiveness methodologies with particular emphasis on improving and standardizing the cost-effectiveness methodologies used for Energy Efficiency, Demand Response, Distributed Generation, Energy Savings Assistance Program, and other ongoing efforts to address the cost-effectiveness of demand-side programs.
As noted above, many parties raised questions and concerns, and suggested improvements to various aspects of the calculation of avoided costs and the selection of an appropriate discount rate that cannot be properly addressed within this guidance decision for 2013-2014 portfolios. As these concerns warrant further consideration, we direct Staff to continue to explore these issues so that improvements may be made to the energy efficiency cost-effectiveness methodology for use in planning future portfolios. Issues that have been identified for additional record development include, but are not limited to:
· Consistency across demand-side proceedings - Can we continue to separately address cost-effectiveness for Energy Efficiency, Demand Response, Distributed Generation, Energy Savings Assistance Program, etc., or can consistency only be accomplished by updating avoided costs and cost-effectiveness methodologies in proceedings simultaneously in an integrated manner? What relationship should the existing Energy Efficiency, Demand Response, Energy Savings Assistance Program and Distributed Generation cost-effectiveness efforts have to one another?
· Resource Balance Year - The resource balance years used for Energy Efficiency, Demand Response, and Distributed Generation are different. Is this appropriate, given the inherent differences among those programs, or is this an inaccuracy that should be corrected? Should the resource balance year be updated periodically?
· Additional Benefits - Are there additional benefits of Energy Efficiency that should be added to the cost-effectiveness calculations, such as the avoided costs of embedded energy in water and non-energy benefits?
· Load Shapes - Do we need additional load shapes to more accurately calculate the avoided costs of generation energy and capacity? If so, which of the thousands of available load shapes should be used and/or how should they be aggregated?
· Avoided costs of generation capacity - Given that most of the new capacity that will be built in the coming years is expected to be renewable generation, would it be appropriate to model avoided capacity costs on renewable generation (the likely marginal new capacity resource) rather than gas-powered generation? Or does the addition of the avoided RPS cost properly account for the change in the generation capacity mix?
· Allocation of the avoided costs of generation capacity - How should these costs be properly allocated across the hours of the year? Should capacity be allocated to the top 250 hours, the top 100 hours, or using a different method?
· Transmission and distribution system avoided costs - Does Energy Efficiency actually avoid transmission and distribution costs? If so, are the (average system) costs we are using now correct? How could they be better estimated for different locations and measures? The feed-in tariff proceedings have considered identifying specific locations or "hotspots" where distributed generation will provide higher avoided transmission and distribution cost savings. Should those be adopted for Energy Efficiency?
· Discounting Costs - Should the cost-effectiveness methodology discount costs as well as benefits? If so, should that be done over the program cycle, or the lifetime of the costs, or a combination of the two?
· Accuracy of the avoided RPS cost - Is it more appropriate to assume a stepwise or a linear increase in the percentage of renewable capacity? How much impact will changing this calculation have on the cost-effectiveness of the Energy Efficiency portfolio?
· Accuracy of the avoided GHG cost - Are we double counting because of RPS and/or embedded GHG cost in electricity forward prices?
4.3. DEER 2011 Update
As discussed above, to ensure the utilities follow our policy and procure cost effective energy efficiency that meets our goals, we have adopted the Total Resource Cost and Program Administrator Cost-effectiveness indicators. We require the utilities to submit in their portfolio applications a prospective showing of the estimated Total Resource Cost and Program Administrator Cost for their proposed portfolios. We refer to the cost-effectiveness parameters that are used in this required prospective showing as ex ante values.
The primary source of our ex ante values is the DEER.40 The assumptions used to produce ex ante values contained in DEER, including analytic and calculation methods, are included in our adoption of DEER.41
Pursuant to the Phase IV Scoping Memo, Commission Staff updated DEER for use in the 2013-2014 transition portfolio, focusing on updates to High Impact Measures (HIM) and changes expected to have the biggest impact on savings potential, while striving to incorporate the best available information from the most current evaluations.42 The draft DEER 2011 Update was posted on the DEER website43 and incorporated into this proceeding by ALJ Ruling.44,.45
In comments, parties raised issues on the overall DEER update process and on specific aspects of Commission Staff's proposed DEER 2011 Update. These issues are taken up below.
Parties generally agree that at least certain values in the DEER database should be updated for the 2013-2014 transition period.46 PG&E agrees with the direction in the Phase IV Scoping Memo that the focus of the ex ante update should be on High Impact Measures as they have the largest impact on savings potential.47 NRDC agrees with PG&E that "targeted updates" are appropriate.48 The Efficiency Council recommends that the Phase 1 update and simpler, widely-agreed upon ex ante data inputs be incorporated into DEER.49 DRA agrees with the Scoping Memo that updates should focus on High Impact Measures and "changes having the biggest impact on savings."50
In contrast, SCE requests that there be a full ex ante update prior to the development of the transition portfolios.51 SCE points out that the version of the software used to develop savings estimates was released to the public on December 5, 2011, which was about one month into the review period.52 SCE is concerned that there have been "no requests for the DEER team [for] input into the process, since August," when the process started, and believes that the "process is inherently biased" since stakeholders were not consulted and "the DEER team had over a year to develop the inputs." SCE states that the current "process is not the collaborative process envisioned and requested by the Commission in this proceeding."53 NRDC's statement, that the limited time for review and input by the utilities, third-party implementers and other stakeholders prevents the integration of DEER updates into portfolios for the transition period, supports SCE's request.54
We find that the Commission Staff's proposed update has followed our guidance to focus on the expected High Impact Measures in the utilities' portfolios. We decline to adopt parties' request that only noncontroversial values be updated. In many cases, the values that parties find the most controversial are the values most important to developing accurate overall portfolio impacts and thus are the most important values to be researched and updated regularly to ensure that our estimates of overall portfolio impacts and cost-effectiveness are as accurate as possible within the time and resources constraints on the updating process.
Nor do we agree with parties' comments concerning the lack of time for review of the current proposed DEER 2011 Update. The primary input parameter changes in the proposed updates are drawn from data from the 2006-2008 evaluations that were published during the first quarter of 2010. Commission Staff proposed many of the software updates and modeling methodology changes during that same time period. We decided not to adopt the recommended changes to DEER in D.10-12-054, all the evaluation results and DEER modeling changes recommended at that time (and now incorporated into the proposed DEER 2011 Update) have been available for review since early 2010.
The final proposed update, which included updates beyond those provided in early 2010, was released last November, and Commission Staff made information requested by parties available during December. The time allowed for comments was extended into January 2012 to accommodate the subsequently added information. Moreover, some parties provided comments on very detailed aspects of the update modeling methods (as listed in Attachment A). The detail of these comments seems to run counter to the suggestion that there exists a lack of transparency or inadequate opportunity for review and comment.
In comments, several parties assert that development of unit energy savings values has become needlessly complex and that this complexity has greatly slowed the updating of unit energy savings values to reflect improvements in technological efficiency. These same parties point out that older versions of DEER included a mix of energy simulation-based unit energy savings values and savings estimates based on simplified engineering calculations. For example, PG&E states that, "since 2005, DEER has evolved into a set of derived values based on complex modeling methods, which is inconsistent with the original intent of the tool." Further, PG&E "believes DEER should use agreed-upon [Evaluation] values ..."55 and additional levels of detail "can provide a false sense of accuracy."56 SCE believes that versions of DEER, dating back to 2005 and before, used appropriate methodologies for specific applications and "The Draft DEER 2011 Update relies solely on building simulation models rather than determining the best methodology for estimating ex ante cost-effectiveness ..." and "[w]hile a simulation may provide more precise hourly savings estimates" the cost of these calculation approaches may have limited benefits compared to "simpler engineering calculations."57 SDGE/SoCalGas echo this sentiment, pointing out the complexity of the DEER database and recommend that it be simplified and reduced.58 SDG&E states that, "The Commission must re-evaluate whether this ... increasing, intense data generation is itself cost effective ..." and proposes that, "the previous version of DEER, built solidly on averages and much easier to understand, would be a much better tool going forward into the next program cycle."59 NRDC agrees with utility comments and believes the level of complexity does not provide additional value to DEER and also "imposes substantial costs" on all parties by requiring additional implementation, consulting and administrative services and costs.60
The proposed DEER 2011 Update utilizes building simulation methods that are similar to those used in all previous versions of DEER and to DEER predecessors developed in the early 1990s.61 It is our understanding that the utilities have used similar building simulations for their own ex ante value development efforts.62 Impact evaluation activities dating back to the 1990s have relied upon these building simulation methods for estimating the energy savings and cost-effectiveness of energy efficiency measures relating to indoor lighting systems, heating and air-conditioning systems, and building shell elements.63 We disagree with SCE that the DEER methodologies rely solely on building simulation. The current methodology, which includes the use of building simulation, meets our expectations and directions for this DEER update.64
We expect a combination of methodologies that provide accurate estimates in a cost-efficient manner to be used. While we agree with comments that our adopted ex ante values should not imply a sense of accuracy beyond that which is defensible based upon the underlying data and methods, we also believe there is benefit in having specific point value estimates for all ex ante values that are reflective of the best information available. We recognize that there is an inherent conflict between the need to adopt point values and the complexity and uncertainty of methods and data being utilized to produce those point estimates, and understand that some values have greater uncertainty than we would like and that point values may represent an "expected value" while individual customer experienced values may fall within a wide range. To this end, we direct Commission Staff to take steps to ensure ex ante values are not presented in a manner that appears to overstate the accuracy of the underlying information.
4.3.3. DEER Net-To-Gross Values
4.3.3.1. Net-to-Gross Development Methodology and
Complexity of Resulting Values
Many parties expressed concerns over the development and applicability of proposed Net-to-Gross (or NTG) values.65 For example, PG&E disagrees with many underlying methodologies and questions whether the proposed values truly reflect actual free-ridership.66 According to PG&E, "[i]t appears that many Net-to-Gross ratios were based on inadequate ... sample size, insufficient response levels, and/or [an] eighteen to thirty-six month delay in surveying customers ..."67 PG&E further asserts that the "Strategic Plan supports deep, lasting energy savings, yet the proposed Net-to-Gross values ... are not in line with these goals."68 PG&E advocates for a transition to a "gross savings measurement methodology."69 Similarly, SCE argues that proposed Net-to-Gross values rely on the 2006-2008 Evaluation studies and that the "flaws of [these studies] have been well documented by parties, including the Commission, particularly the fact that they were conducted during the biggest economic recession in a generation."70
NRDC states that some references to evaluation results provide "the appearance of analytical foundation, but many of the cited studies offer little to no analytical support for the recommended values."71 NRDC goes on to assert that the Commission's increasing focus on attribution vis-à-vis Net-to-Gross is "both analytically flawed and counterproductive" and that this focus is counter to the Commission's history of energy efficiency policies "that ensure California utilities rely on efficiency as their first resource to reduce the need for increased generation."72 SDG&E/SoCalGas argue that the proposed Net-to-Gross values are not consistent with other existing Commission policies or with common program implementations. For example, SDG&E/SoCalGas highlight how the proposed value for emerging technologies (0.70) conflicts with the much higher market penetration suggested in the Draft 2011 Potential Study.73 SDG&E/SoCalGas also express concern that proposed Net-to-Gross values for custom projects may get applied to all custom projects including those subject to the Commission Staff Custom Project Review Process, and therefore recommend that the Commission clarify that these values should not apply to reviewed projects.74
TURN is concerned that Net-to-Gross values for Compact Fluorescent Lamps measures and programs understate free rider levels. TURN notes that only two of the values from the 2006-2008 Evaluation studies are above 0.5, many are much lower, and yet the proposed Net-to-Gross for basic Compact Fluorescent Lamps is 0.54.75 TURN is concerned that, (1) the proposed DEER includes "one particular estimate from the upstream lighting program" even though the "evaluation includes ... alternative estimates that are lower"; and (2) the recommended Net-to-Gross value "was developed a number of years ago" and does not consider "the impact of changes in lighting market and other factors on Compact Fluorescent Lamps Net-to-Gross ratios." TURN recommends that the Net-to-Gross ratio for basic Compact Fluorescent Lamps be reevaluated.76 SCE disagrees with TURN's assessment and recommendation related to Net-to-Gross values for Compact Fluorescent Lamps.77
Many parties assert that several of the proposals related to Net-to-Gross add complexity without benefit. Proposed revisions include different Net-to-Gross for electricity consumption (kWh), electricity demand (kW), and natural gas consumption (therm). Regarding separate Net-to-Gross for kWh, kW and therm, PG&E comments, "While the validity of this theory is questionable at best, the additional complexities it adds to the process are not justified."78 The proposed revisions also include different Net-to-Gross values for each utility. According to SCE, while these differences may be statistically valid, "it is not clear how most customers will be influenced differently for the same measure, relative to the resulting energy savings and demand reduction."79 SCE believes varying Net-to-Gross by utility causes "anomalies in shared climate zones and ... where an Net-to-Gross does not exist for a specific IOU" and therefore recommends statewide Net-to-Gross values.80
We believe the Net-to-Gross work undertaken by Commission Staff for the 2006-2008 period is equal, if not superior to, past Net-to-Gross work and the resultant values overall are also superior to the values that resulted from similar work by the utilities. While that there are instances where the sample size used to develop particular utility program results should have been larger (to reduce uncertainty in those results), this does not lead us to agree that those results should be rejected in favor of older results that are likely even less representative of the current activity. We agree with Commission Staff's recommendation to update DEER with 2006-2008 evaluation Net-to-Gross results rather than retain older DEER values based upon older evaluation results.
We reject the notion that only gross savings are important and the analysis of net savings should be either downplayed or abandoned completely. Net savings are a key component of the Commission's adopted cost-effectiveness calculations performed to ensure that the utilities' ratepayer funded activities are cost-effective, as required by statute.
While we agree that interviews with customers and others who participate in the utility programs are best made when their memories are fresh, this is a desired improvement that holds equally true for older evaluation activities (i.e., 2004-2005 and earlier) performed under utility direction. Undertaking Net-to-Gross interviews earlier requires the utilities and their customers to cooperate and facilitate these early interviews. We require this facilitation from the utilities and this cooperation by customers as a condition of receipt of energy efficiency funds. We are concerned by reports from Commission Staff that the needed cooperation and facilitation has been hampered. The utilities must respond to Commission Staff's request for Evaluation data in a timely manner to facilitate our ability to interview customers early so as to improve the reliability of their Net-to-Gross results.
We share the concerns TURN expresses about Net-to-Gross values for basic Compact Fluorescent Lamps measures, but note that the kW, kWh and therm energy savings values for those measures appear to have been subject to much larger percentage changes than Net-to-Gross based upon recent evaluation results. The proposed DEER updates to Net-to-Gross values suggest a downward adjustment by 10% of the previous values while the kWh values are adjusted downward by close to 30%. While TURN correctly notes that the 2006-2008 evaluation report included alternative statewide values for upstream Compact Fluorescent Lamps as low as 0.43, it is equally true that the report recommended the use of a higher value of 0.54. Commission Staff chose to retain the evaluation report recommended value for the DEER update, and we agree with that recommendation.81
We agree that similar measures delivered by similar activities should have single statewide values unless recent evaluations show a significant variation between utilities and that difference is supported by a historical trend of evaluation results. While it would be inappropriate to adopt planning values based on anomalous results we do not believe the 2006-2008 evaluation Net-to-Gross results overall are anomalous. We therefore accept Staff's recommendation to use those results. We direct Commission Staff to strive for uniform statewide Net-to-Gross planning values that represent typical expected results in the DEER update for the next planning cycle for measures in which the variation between utilities is not significant.
Finally, while we see how a project composed of separate gas and electric measures may have a composite Net-to-Gross we do not see the need to use different Net-to-Gross values for kWh, kW and therm for a single measure. Commission Staff should revise the DEER 2011 Update to remove this complexity for the case of single measures and better document how the DEER values are to be used for projects which include both gas and electric measures.
Several parties are concerned that the proposed Net-to-Gross values do not consider recent improvements to program design and implementation - that past performance is not an indicator of future success because the programs have been revised and are addressing different market conditions. NRDC comments that, "the proposed Net-to-Gross Ratios represent a backward-looking static approach to program design" and that this approach "provides a counterproductive focus on the past that confounds the Commission's efforts to field ambitious, forward-looking programs."82 National Association of Energy Service Companies (NAESCO),83 PG&E,84 SCE,85 and SDG&E/SoCalGas86 hold similar views that proposed Net-to-Gross values do not adequately consider changes in program design, program delivery and market conditions to produce forward looking values.
SDG&E/SoCalGas "recommend that before the Net-to-Gross values are finalized discussions on program design and changes to improve Net-to-Gross for the coming cycle be done prior to filing the program applications."87 NRDC recommends the Commission utilize the 2013-2014 period to resolve key disputes88 and "transition to an alternative framework for addressing the issue of attribution."89 PG&E states that 2006-2008 programs have been modified in a variety of ways and that "it is of questionable benefit to apply Net-to-Gross values that were developed using a previous set of assumptions." On claims that, "the Net-to-Gross values indicate a serious disconnect between program strategy and program practicality," PG&E recommends the Commission "revisit proposed Net-to-Gross values so that they help, rather than hinder, achievement of the Strategic Plan goals."90
We agree that Net-to-Gross, like many other cost-effectiveness and program performance metrics, can be difficult and/or expensive to measure with a high degree of certainty. We disagree with comments that suggest that Net-to-Gross is not an important metric in the valuation of portfolio activities. However, this does not mean, in our view, that the utilization of Net-to-Gross as a metric is diminished in its importance. A low Net-to-Gross value indicates that much of the savings resulting from the activity would have occurred without utility portfolio support.
While we have decided to adopt goals using a gross savings metric in past decisions, and consider the use of gross goals later in this section, we continue to measure portfolio cost-effectiveness using net metrics and expect the utilities to take actions in their portfolio design and implementation that act to maximize the net program benefits for the ratepayers dollars invested in the energy efficiency activities. For these reasons, we disagree with comments that suggest that Net-to-Gross is not an important metric in the valuation of portfolio activities.
SoCalGas believes the proposed Net-to-Gross values treat natural gas projects unfairly, asserting that the higher capital costs and lower energy cost savings of gas measures, particularly for residential and commercial customers, make it inappropriate to combine electricity and natural gas projects into single calculations for Net-to-Gross. By this logic electricity measures will have greater financial benefit than natural gas measures and, "when the DEER Study melds together results from a dual-fuel utility with those of a single-fuel utility, the latter quickly becomes diluted and may not even be meaningful."91 SoCalGas believes that Net-to-Gross for large custom projects cannot be developed using the approaches in the 2006-2008 Evaluation research. Large capital costs for these projects means approval takes several years, and the project can move through several different entities prior to moving forward. As a result, identifying free-ridership requires more than a single survey of one customer representative.92 SoCalGas also notes that the 2006-2008 Evaluation research identified as free riders "customers who were ... replacing their equipment in response to jurisdictional (e.g., air quality) requirements." For the current program cycle, SoCalGas has formalized a process for disallowing applicants whose only objective is meeting regulatory requirements.93 SoCalGas emphasizes that, "larger scale projects are more likely to be cost-effective, and are consequently a large component of how the overall cost-effectiveness is maintained."94 SoCalGas has provided a recommended alternative calculation resulting in an Net-to-Gross ratio of 0.63 for custom projects compared to the DEER proposed value of 0.54.95
NRDC believes that proposed Net-to-Gross values for custom measures will exclude all but the most cost-effective custom projects, which will typically be short-term lighting dependent measures.96 NRDC states that the proposed Net-to-Gross values for custom projects ignore the impacts of the recently implemented custom project review process, which is "intended to address concerns raised about biased ex ante estimates and should result in fewer free riders and higher Net-to-Gross Ratios."97 NRDC also notes that, as part of the custom review process, savings of un-reviewed custom projects are reduced by 10% due to the adopted default Gross Realization Rate of 90% and states, "The proposed DEER updates appear to ignore these changes [embodied in the CPRT] and propose to assume further significant downward adjustment to saving estimates." NAESCO argues that the proposed lower Net-to-Gross values for custom projects do not take into account the expertise provided by third-party implementers in identifying benefits to customers of large complex processes. NAESCO points out "in other parts of this proceeding [Commission Staff describes] the failure of the market to provide a significant level of Energy Efficiency implementation [and requests] all interested parties to provide suggestions about how the market can be enhanced."98 PG&E agrees with NAESCO and NRDC that the reduced Net-to-Gross for custom projects is not justified.99
Several parties express concern that the proposed Net-to-Gross values discourage emerging technologies, unfairly treat early retirement measures and otherwise unjustifiably reduce savings. SCE states, "If the presumption is that transformed measures must have lower Net-to-Gross, then emerging technologies measures should be presumed to have high NTGs."100 SDG&E/SoCalGas disagree with the approach of using traditional methods of establishing Net-to-Gross values and then applying those Net-to-Gross values to early retirement projects subject to the dual baseline.101 Current definitions of Net-to-Gross overlap "with the Net-to-Gross ratio calculation by unilaterally assuming that a participant would, in fact, have replaced the pre-existing equipment in a later year" and that, with the application of the dual baseline approach to calculating savings "the Net-to-Gross values becomes redundant and irrelevant." SDG&E/SoCalGas recommend that an Net-to-Gross of 1.0 be used for projects subject to a dual baseline.102
We agree with the SDG&E/SoCalGas comments related to combining Net-to-Gross values for gas and electric projects. Commission Staff must provide separate Net-to-Gross values for gas and electric projects that are developed for those types of projects alone, unless the values are sufficiently similar that a single value is warranted. This will require Commission Staff to apply judgment in cases where the line between gas and electric project designation is less clear and provide guidance to the utilities as to how to apply gas versus electric Net-to-Gross values to projects that include a combination of gas and electric measures. We adopt the specific direction on this matter provided in Attachment A as part of the DEER 2011 Update.
We share the SDG&E/SoCalGas concerns regarding Net-to-Gross values for large versus small projects. Although we do not direct any changes at this time, we direct Commission Staff to research this issue for the next ex ante update and, if appropriate and supported by existing data, propose alternative values that account for the differences based on project size for custom gas and electric measures.
We also share the SDG&E/SoCalGas concerns about the proposed update to the Net-to-Gross value for commercial and industrial custom gas projects. The recommended value of 0.35 is lowered primarily due to a 0.31 result from the 2006-2008 evaluation of PG&E program activities. Although we have no reason to doubt the validity of that result, we do not expect that such a low value would be best for planning for the 2013-2014 cycle. In D.11-07-030 we adopted a custom measure and project review process by which Commission Staff will be able to review and update ex ante values based upon current activities.103 We adopted that review process first due to the desire to improve the ex ante values for those projects and second to allow the utilities to respond to Commission Staff reviews with program design changes that improve overall program ex ante versus ex post results.
We expect the utilities to respond to Commission Staff reviews, not just by accepting altered ex ante values, but by taking steps to change program activities to improve the Net-to-Gross results. We do not expect the utilities to curtail custom measure and project activities due to low gross savings or Net-to-Gross results. They should to respond to any such poor results with programmatic changes designed to improve performance. For example, when a customer is found to be likely to carry out a project without incentive support, the program should strive to push the customer to augment its plans to include additional action that would not occur without incentive support, or redesign the incentive structure offered to encourage deeper and more comprehensive retrofit activities as well as aligning the dollar amounts to be commensurate with the level of savings that can be attributed to the program.
In anticipation of the custom project review and programmatic changes mentioned above, we agree that it is reasonable to expect improvements to the evaluated Net-to-Gross results for both the 2010-2012 program cycle and the 2013-2014 transition portfolio relative to the 2006-2008 ex post results. For this reason, we increase the commercial and industrial custom project Net-to-Gross value in the DEER 2011 Update from 0.35 to 0.50. We direct Commission Staff to track the results of its custom project and measure review activities as well as related 2010-12 impact evaluation activities and report any results on Net-to-Gross values in a timely manner for consideration when ex ante update values are adopted for the next program cycle.
We also agree with comments regarding Net-to-Gross values to use for measures added to the utility portfolios as a direct result of Emerging Technology Program activities (or Emerging Technologies measures). We direct Commission Staff to assign a new Net-to-Gross category for Emerging Technology measures with a default Net-to-Gross value of 0.85. The existing non-DEER measure submission process shall also cover Emerging Technology measures, and the utilities may request, in their non-DEER Emerging Technologies measure workpaper submissions, that measure be assigned an Net-to-Gross value at or above the 0.85 default value.
Commission Staff shall have the authority to accept or reject a utility Emerging Technology measure classification and to set any Emerging Technology measure's Net-to-Gross at a higher value than the default value as it deems appropriate.
Many parties oppose the use of interactive effects in estimating savings claims.104 SDG&E notes that, in 2010-2011, "estimated negative therm values from the DEER resulted in negating approximately 70% of all of SDG&E's real gas savings."105 Many parties claim DEER interactive effects are un-vetted and should be set aside. SDG&E states that, in addition to the DEER work to produce interactive effects, only one other study has been performed, and "that study indicates ... the gas interactive effect is not significantly different from zero."106 NRDC also believes the interactive effects are "overestimated and unfounded," and refers to the same study referenced by SDG&E. NRDC also cites several other jurisdictions in the country where interactive effects are assumed to be small or non-existent.107 PG&E acknowledges that, "more efficient devices within a building produce less waste heat, thus enabling air-conditioning systems to use less energy in the cooling season," while "during the heating season, furnaces will use more energy."108 However, PG&E feels more expert review is needed for the DEER models used for estimating interactive effects and, "requests and proposes that any model used for DEER purposes be widely circulated for industry expert evaluation and approval prior to use."109
During the review of party comments relating to HVAC interactive effects, Commission Staff identified and corrected some mistakes in the DEER interactive effects calculation methods, and these corrections have been made in the DEER 2011 Update. We remain open to reconsidering this issue in the future, as additional evaluation results are available for review and comment. It is our understanding that a soon-to-be released draft Commission Staff report specifically examines HVAC interactive effects as currently contained in DEER and that Commission Staff intends to continue work to improve both the methods and underlying data upon which DEER HVAC interactive effects are based.
In the meantime, we affirm our order in D.09-05-037 that HVAC interactive effects are appropriate for incorporation into DEER.110 We also affirm that the inclusion of HVAC interactive effects into DEER places a similar requirement for inclusion of those effects into non-DEER workpapers and custom measures and projects calculations. In its review of utilities' workpapers and custom measures and projects, Commission Staff shall ensure the utilities include these effects when Staff deems that inclusion has a significant impact on the savings estimate.
Our potential and goals studies now incorporate HVAC interactive effects, so we do not expect goals to need any adjustment due to these effects, as long as the goals values remain updated based on ex ante values which include these effects. We expect consistent treatment of HVAC interactive effects among the DEER, potential, and goals studies.
Several parties comment on the details of the proposed updates to DEER kW, kWh and Therm unit energy savings and other DEER values or methods. These detailed comments are enumerated in Attachment A along with a Commission Staff discussion of the issues raised and any recommendations for changes based on the comments.
Many parties' comments offer their preferred assumptions and values for use in DEER, and opine that the Staff's recommendations are biased against their activities and energy efficiency in general. As previously articulated in D.09-09-047, we reject the utilities' request to utilize their preferred values in updating DEER in place of the recommendations provided by Commission Staff. As stated in D.09-09.047:
The updates to DEER resulting from [Commission Staff's] independent analysis do not in any way diminish the utilities ability to deliver savings. Rather they ensure that reported savings are more closely aligned with actual load impacts, as informed by our best Evaluation data. We believe it is of the utmost importance that reported achievements reflect honest representations of load impacts, and to the extent that a discrepancy exists, it is far preferable to align goals with reality than to resist adjustments based on updated data.111
In our view, reliance on Commission Staff to develop ex ante updates, with input from the utilities and other stakeholders, provides better assurance that the utilities' estimates of portfolio goal attainment and cost-effectiveness prospectively during planning as well as retrospectively during implementation reporting are reliable and thus appropriate for us to use as a basis for our decision making. We direct Commission Staff to include all of the recommended changes provided in Attachment A in the final DEER 2011 release.
We adopt Staff's recommendations for updates to DEER, with the modifications discussed in the sections above, which have been posted on the DEER website ( http://www.DEEResources.com) on the page labeled "DEER 2011 for 2013-2014 Planning." The DEER 2011 update adopted in this decision was utilized as a first reference source for values and assumptions in the production of the final potential study, discussed later in this section.
4.4. 2011 Energy Efficiency Potential Study
The draft 2011 Energy Efficiency Potential Study (draft Potential Study), issued by ALJ ruling on November 17, 2011, was an update to the 2008 Potential Study and 2003 Secret Surplus Study. Like the previous two studies, the 2011 Potential Study provides a statewide assessment of energy efficiency potential at three levels: technical, economic, and market. Technical potential encompasses complete penetration of all energy efficiency measures that are technically feasible to install from an end-use and engineering standpoint. Economic potential typically refers to the portion of technical potential that is cost-effective when compared to supply-side alternatives. Market or "maximum achievable" potential is the amount of energy efficiency potential estimated to be achievable over a period of time, based on established incentive scenarios and customers' willingness to adopt the identified technical and economic potential.
The Potential Study was developed in close coordination with the DEER and avoided cost updates to ensure that the final adopted values and methodology were incorporated in the final Potential Study. The Potential Study was developed with the support of the Demand Analysis Working Group (DAWG), a collaborative public input process jointly coordinated by the California Energy Commission and this Commission to discuss demand and energy efficiency forecast issues. DAWG provided ongoing informal comments, which were posted on the "Dataweb" site.112
The Potential Study provides important information to guide utilities' changes to their portfolios for the mainstream programs and the measures that were assessed. The results of the Potential Study indicate that savings from codes and standards activity will increase significantly and IOU program market potential will decrease compared to the 2008 Potential Study due to the following factors:
· Codes and Standards adoption: A number of measures have been or are expected to be adopted into Title 20 or Title 24 codes or federal appliance standards.
· 2006-2008 ex post value adjustment: The Commission's 2006-2008 evaluations found that a significant number of gross ex ante planning assumptions were overestimated, such that the evaluated 2006-2008 program savings were 40% lower than the savings calculated based on ex ante planning assumptions. The measure groups with the most significant changes were standard Compact Fluorescent Lamps and refrigerator recycling.
· Low income energy efficiency assumptions adjustment: The low income energy efficiency savings assumptions in the 2008 Potential Study were higher than in the 2011 Potential Study.
· New construction adjustment: Economic conditions have significantly reduced new construction in the residential and commercial sector since 2008.
Contrary to the downward trends above, and despite limited capacity to develop a comprehensive assessment of the emerging technology potential in the time available to complete the Potential Study for this decision, emerging technologies constitute an increasing percentage of potential beyond 2014. The greater emphasis on savings from emerging technologies partially offsets the decline in IOU program potential resulting from these downward adjustments.
In addition, due to the aforementioned time constraints, the Potential Study was not able to assess additional sources of savings potential from Strategic Plan initiatives (e.g., deep, whole house retrofits and Zero Net Energy programs), energy efficiency financing, and other market transformation programs. As noted above, these analyses will be developed in Track 2 of Navigant's work.
Comments on the draft Potential Study were submitted in conjunction with the DEER update and the Goals Proposal. NRDC, California Energy Efficiency Industry Council (CEEIC), Women's Energy Matters (WEM), Local Government Sustainable Energy Coalition (LGSEC), TURN, EnerNoc, SCE, PG&E, SDG&E/SoCalGas, and OPower filed comments in response to the ruling, and NRDC, WEM, LGSEC, TURN, SCE, PG&E, and SDG&E/SoCalGas filed reply comments. Several parties argue that deficiencies in the draft Potential Study lead to an underestimation of market potential. In particular, EnerNoc, NRDC, PG&E, and SCE suggest that Navigant's approach to emerging technologies is too restrictive. NRDC points out that the list of measures studied was limited to only 21 of the 90 identified measures, and suggests that this does not capture the full potential.113 SCE notes that the study did not include agricultural potential.
Some parties express a concern about a disconnect between the results of the draft Potential Study and the many aspects of the Phase IV Scoping Memo policy guidance. As CEEIC states, "The Commission must not consider the adoption of the 2013-2014 savings goals in isolation from other policy guidance that determines how performance against the goals is assessed."114 TURN, PG&E, SCE, and SDG&E/SoCalGas concur with this point and specifically point to the Compact Fluorescent Lamps and refrigerator recycling components of the study, which the Scoping Memo indicated should be significantly reduced or eliminated. SCE and NRDC also point out that the limited scope of the draft Potential Study did not include Strategic Plan and market transformation initiatives.
Some parties express concern about some of the data inputs and assumptions upon which the draft Potential Study was based. For example, NRDC, EnerNoc, PG&E, and SCE question the use of the 2006-2008 evaluation results, arguing that these results have not previously been adopted by the Commission and that certain values remain questionable and should not be the basis for the Potential Study. Additionally, SCE argues that the final goals should be based on the final potential, which should use the adopted DEER values and avoided cost methodology.
Parties recommend a number of specific changes to the data inputs and assumptions in the draft Potential Study and seek further explanations regarding the content of the report. For example, TURN and SCE point out that the energy savings for low income households were based on historical data and that the 2010 evaluation of the Energy Savings Assistance Program has found an increase in potential savings, from 146 kWh per household in the 2009 evaluation to 330 kWh.115
The Final Potential Study report has been released and is publicly available on the Commission website.116 Many of the changes recommended by parties were incorporated into the Final Potential Study. For instance, the assessment of emerging technologies was expanded to include ten new measures. Additionally, low income potential estimates, were revised and are now based on the 2010 evaluation results of the Energy Savings Assistance Program. Regarding the use of the 2006-2008 evaluation results, the Commission made clear in D.10-12-045 that evaluation results were to be incorporated into the DEER, and we now affirm that it is appropriate to use these updated DEER values as inputs in the Final Potential Study. We adopt the Final Potential Study at this time.
Other issues, including those associated with refrigerator recycling, basic Compact Fluorescent Lamps, and behavior programs, are the subject of significant debate. These program areas are further discussed below and in the Final Potential Study, adopted herein.
Refrigerator recycling is the primary component of the IOUs' Appliance Recycling Programs.117 The 2006-2008 evaluation indicated that 20% of all refrigerators removed or replaced in California homes were recycled, the other 80% of units were given away or sold, became secondary refrigerators, or were picked up by retailers. The Potential Study accounts for this finding by applying a 20% "applicability" factor to the refrigerator recycling measure potential.
SCE states that the method used to calculate potential is inaccurate, and proposes an alternate approach to estimate refrigerator recycling. SCE's approach uses weighted averages of primary and secondary refrigerator size to estimate savings from the recycling of the appliances.118
We believe that the IOUs should redesign the Appliance Recycling Program to be more effective. Since the 2006-2008 evaluation results indicated that 20% of all refrigerators were recycled, it appears the draft potential study methodology misinterpreted the evaluation results. After revisions, the final Potential Study corrects this error.
The Phase IV Scoping Memo recommended significantly reducing or eliminating basic Compact Fluorescent Lamps in the 2013-2014 transition portfolio. The Potential Study found that the market potential for basic Compact Fluorescent Lamps is approximately 64 gigawatt-hours (gWh) in 2013-2014, and is projected to decline to zero by 2018 as AB 1109 (Huffman, 2009) lighting standards are implemented. This is a substantial reduction from both the previous market potential and the 2010 IOUs' reported savings for Compact Fluorescent Lamps.
SCE, PG&E and TURN argue that if the 2011 Potential Study includes additional potential for basic Compact Fluorescent Lamps, then the proposed portfolio goals (which are based on the 2011 Potential Study) will need to be reduced if the Commission directs the IOUs to not include basic Compact Fluorescent Lamps in the 2013-2014 transition portfolio.
According to the Final Potential Study, the 64 gWh of incremental market potential for basic Compact Fluorescent Lamps represents an 84% reduction in Compact Fluorescent Lamps savings compared to the market potential available in 2010-2012, due to the implementation of AB 1109. Basic Compact Fluorescent Lamps are forecast to account for no more than 4% of the 2013-2014 portfolio. This change adequately reflects the significant reduction in Compact Fluorescent Lamps envisioned in the Phase IV Scoping Memo.
The Potential Study provides an estimate of the potential for behavioral initiatives that were not included in the 2008 study. While California IOUs have coordinated behavior programs such as the Home Energy Reports and online audit tools at the pilot scale, there has been no impact evaluation of these programs to date. Given the lack of evaluation data, the potential estimates must be based on data from other state programs and reasonable assumptions about the IOUs' plans for Home Energy Reports and comparable programs. The draft Potential Study based its savings estimates on an average impact across all evaluated programs in the country and found that the programs save 1.5% of total consumption, using whole house billing data analysis. The savings resulting from behavior-based initiatives can be broadly characterized as either equipment-based or usage-based:
· Equipment-based behavior - Savings from the purchase and installation of higher efficiency equipment, relative to baseline conditions. Equipment-based behavior includes the purchase of energy efficiency equipment when incentives are and are not provided.
· Usage-based behavior - Savings from changes in usage and maintenance of existing equipment.
The draft Potential Study assumed that the disaggregated impacts of behavior programs savings are 75% equipment-based behavior and 25% usage-based behavior, based on the only past study that evaluated the disaggregated impacts.119
Based on informal input, it appears that the different types of behavior programs currently pursued had different kinds of impacts, and thus may require different assumptions. For example, the Home Energy Reports programs were lower cost and more easily broadcast across large populations, whereas home energy audit tools were more intensive to implement, but led to deeper savings. Lastly, the draft Potential Study made assumptions about the participation rates based on the IOUs' scale of behavior programs, which currently function as pilot programs reach 6% of households in PG&E territory and 1.7% of households in SDG&E territory.
OPower, EnerNoc, and SCE argue that the draft Potential Study underestimates savings from behavior programs by several orders of magnitude. OPower states that there are two causes for the underestimate: (1) the assumed scale of the program will remain small, and (2) the assumption that behavior based savings are 25% usage-based and 75% equipment-based lacks supporting empirical evidence. OPower asserts, "Since there is no present way to measure empirically exactly what purchases recipients made, it is impossible to conclude with any statistical confidence what percentage of overall savings they represent."
The IOUs' program plans for behavior programs are summarized in the final Potential Study. Input from the IOUs suggest that PG&E plans to roll out behavior programs to 20% of households by 2014, SCE plans to roll them out to 0.4% of households, SDG&E plans to reach 3.3% of households, and SoCalGas plans to emphasize the home energy audits and to maintain its programs on a pilot scale.
The use of the IOUs' program plans to estimate behavior potential would lead to potential estimates, and thus energy savings goals, that are orders of magnitude greater for PG&E than for SCE. This raises several concerns. For one, there is clearly untapped potential in behavioral programs that has yet to be effectively estimated. However, it is clear that the number of assumptions required to calculate the behavior potential makes these savings less reliable for the purposes of goal setting and procurement planning. In addition, the widely divergent assumptions for behavior potential across the utilities would lead to substantially different goals. We expect all of the IOUs to pursue cost effective potential from behavioral programs with equivalent effort and timeliness. Therefore, we find it reasonable and prudent to set consistent assumptions for program participation at 5% of households, signaling our expectation that behavioral programs should be substantively, but not excessively, represented in IOU program portfolios. Further, the IOUs may apply alternate behavioral programs to achieve their goals if they find other approaches to be more effective. These goals represent a floor, not a ceiling, and we encourage the IOUs to exceed this target by pursuing behavioral programs on a greater scale if they believe we have underestimated potential in this area.
To disaggregate the types of impacts, the assumptions were adjusted to reflect 67% usage-based savings and 33% equipment based savings. As discussed in the Potential Study, these adjustments were based on informal input from utilities that currently implement behavioral programs. Given the limitations of the data available at this time, we adopt this proposed approach for the transition portfolio. We intend to further refine this approach for the portfolio starting in 2015.
4.5. 2013-2014 Transition Portfolio Goals
The Phase IV Scoping Memo directed Commission Staff to prepare a proposal for energy efficiency goals for the 2013-2014 transition portfolio. The Staff Proposal for 2013-2014 Energy Efficiency Goals (Goals Proposal), issued by ruling on December 28, 2011, recommended that the 2013-2014 goals remain consistent with the Commission's intent in past decisions. Specifically, goals should (1) be aggressive yet achievable;120 (2) support long-term planning;121 (3) encourage a focus on long-term savings;122 and (4) be based on the best available information.123
In the Goals Proposal, Staff recommends that the goals for the 2013-2014 transition portfolio be established on the following basis:
· Use the 2011 Potential Study, IOU program, and codes and standards advocacy savings estimates as the basis for goals;
· Separate targets for codes and standards, IOU programs, and emerging technologies;
· Apply goals on a gross basis consistent with recent Commission policy; and
· Develop annual and cumulative goals, with cumulative goals including recovery of savings lost from decay of past energy efficiency activities, but not the recovery of unmet goals prior to 2010.
NRDC, CEEIC, WEM, LGSEC, TURN, EnerNoc, SCE, PG&E, SDG&E/SoCalGas, and OPower filed comments in response to the Energy Efficiency Goals Ruling. NRDC, WEM, LGSEC, TURN, SCE, PG&E, and SDG&E/SoCalGas also filed reply comments. All parties except TURN support the Goals Proposal and consider it to be generally reasonable, provided that the goal values are updated with the final Potential Study to include the final DEER and avoided cost updates and to respond to the parties' specific concerns. TURN disagrees with the Staff proposal because TURN believes the work is incomplete, and the complex issues in goal setting should not be allowed to impede the Commission's overarching energy efficiency portfolio transition process.124 While CEEIC does not oppose the Goals Proposal, it shares TURN's concerns and urges the Commission to move quickly to set goals and guidance for the 2013-2014 transition portfolio and minimize market disruption and delays. It specifically recommends that the transition period be simply an extension of the current portfolio.125
CEEIC, NRDC, TURN, SCE, PG&E, and SDG&E/SoCalGas note that the Goals Proposal does not incorporate potential savings from key strategic plan initiatives such as financing, integrated whole house/building programs, and market transformation. SDG&E/SoCalGas, CEEIC, and NRDC express concern that the utilities will be unable to build a cost effective portfolio with the remaining available potential. WEM states that the goals are far too low, reflecting only 0.3% of total energy consumption, and that past goals were far too easy for IOUs to achieve.126
LGSEC argues that the "ruling proposes to not only perpetuate but to greatly expand the preferential role related to codes and standards that has up to this point been ceded by the [Commission] to the utilities."127 Furthermore, LGSEC states that the proposal does not appreciate the challenge of local governments' permitting offices ensuring compliance, that the goals give all the credit to the IOUs, and that the goals for codes and standards should account for the role of the local governments.
We agree with parties that the Goals Proposal is generally reasonable provided the adopted goals include the final DEER values and avoided cost methodology. While we recognize parties' concerns that the goals do not currently incorporate savings potential from strategic plan initiatives, we nonetheless consider the information in the Potential Study essential for an effective update of the utilities' portfolio goals. Regardless of the current limitations associated with using the Potential Study without a more complete goals analysis, a portfolio built on the latest DEER update, revised economic forecasts, new codes and standards, and other updates is far more relevant than one built on data that is over five years old. Although the goals in fact do not include quantified savings from the Strategic Plan initiatives, goals are intended to represent a floor for IOU savings, not a ceiling. Our adoption of goals for each utility based on the 2011 Potential Study does not in any way prevent the utilities from proposing programs and estimating savings that exceed the adopted goals if they are convinced that additional attainable potential not identified in the Potential Study exists, and we encourage them to do so.
While we appreciate the challenges that local governments face in ensuring compliance for codes, and applaud their efforts in this area, their interpretation of credit toward goals appears to be out of context. The Commission only sets goals for the utilities in order to hold them responsible for pursuing all available cost effective energy efficiency opportunities, and utilities receive credit for the savings associated with the code and standard adoption attributable to their codes and standards advocacy programs. The role of the compliance rate embedded in the codes and standards goal is to reduce the savings estimate for which the IOUs get credit to reflect the fact that compliance is not 100%.
In its Goals Proposal, Staff recommends that goals be established as the sum of incremental market potential in the 2011 study and the expected savings of IOU codes and standards advocacy work. The potential input assumptions are consistent with the mid-case scenario adopted in D.08-07-047 from the 2008 Potential Study and calibrated to the 2006-2008 portfolio evaluated savings. IOU program goals would be based on 100% of incremental market potential for both gas and electric savings. This proposal would diverge from the application of potential to goals in D.04-09-060, which expected the utilities to capture 90% of the maximum achievable electric potential over a ten-year period, and 60% of the maximum achievable gas potential.128
All parties support this proposal with the exception of TURN, which recommends that the goals be based on the Total Market Gross goals adopted in D.08-07-047. While PG&E does not oppose the proposal, it claims that its ability to achieve 100% of the gas potential depends on the exclusion of interactive effects from the portfolio. PG&E recommends that natural gas goals be established excluding interactive effects. PG&E states that, if interactive effects are excluded as currently indicated by the values in Table 4 (Attachment A) of the Goals study, "it is appropriate to establish natural gas goals assuming 100% of market potential."129 SDG&E also recommends that we omit interactive effects.
In D.09-05-037, we required the IOUs to account for interactive effects--the collective efficiency impacts of individual measures on the overall building load. D.09-05-037 determined that accounting for interactive effects was necessary to ensure we meet the AB 32 mandate that all energy savings are real, verifiable and additional. As stated therein, "it is of paramount importance to maintain the analytical rigor of our methodologies to count savings. Compromising the technical integrity of our counting methodologies is tantamount to compromising the reliability of energy efficiency as a resource." Parties provide no convincing arguments to support changing the policy, so utilities will continue to be responsible for interactive effects.
We believe that the 2011 Potential Study represents the best available information upon which to establish IOU program goals; therefore, we adopt Staff's proposal. Regarding PG&E's recommendation for gas goals, the 2011 Potential Study modeled the impact of interactive effects on gas potential and found that it varied by utility. Since interactive effects have been accounted for in the 2011 Potential Study, we see no reason to set gas goals below 100% of incremental market potential. Therefore, we adopt both electric and gas IOU program targets at 100% of incremental market potential.
In D.05-09-043, we recognized the need to encourage the utilities to support adoption of energy efficiency measures into state building codes, and state and federal appliance standards, and determined that IOUs could credit savings from codes and standards advocacy toward their energy efficiency goals. Specifically, the utilities were given credit for 100% of the savings associated with their attributed codes and standards advocacy work adjusted for compliance levels and naturally occurring market potential, beginning in the 2010-2012 program cycle.130 The utilities' codes and standards advocacy programs have successfully supported the adoption of a number of new codes and standards which will become effective in the 2013-2014 period and for which the IOUs will receive credit toward their goals.
The Goals Proposal presented a separate category of estimated codes and standards savings that have already been adopted or are expected to be adopted in 2012. These estimated savings values are based on the Addendum to the 2011 Potential Study (Addendum).131 The codes and standards advocacy category represents the estimated energy savings forecasted for the Title 20 and 24 updates and federal appliance standards that can be attributed to the IOUs' codes and standards advocacy program; it is intended to be additive to the market potential to reflect the savings from codes and standards advocacy established in D.05-09-043. The estimated savings assume an 85% compliance rate for Title 20 codes and 83% compliance rate for Title 24 codes. The Addendum, assumed that the compliance rate would increase to 100% by 2020 due to utilities' compliance enhancement efforts.
The codes and standards savings in the Addendum are based on the model developed for 2006-2008 impact evaluations, consistent with the evaluation protocol that was adopted by ruling on April 13, 2006. However, a modification was made to the calculation in order to count the incremental savings produced by the adoption of each new code. While the evaluation protocol includes savings for first-time and future replacements as well as new installations, the measure life calculation was adjusted to only include first-time replacement in determining the incremental estimated savings.132 This approach diverges from the 2006-2008 evaluation protocol, which only calculates codes and standards savings on a cumulative basis.
Though they generally support the codes and standards component of Staff's proposal several parties urge further modification. For example, SCE argues that the savings are overestimated and claims that the IOU attribution adjustment and an ex-post realization adjustment were omitted. SCE also states that the estimated savings had been applied on an adjusted gross basis rather than a net basis, which would include the attribution and the Naturally Occurring Market Adoption (NOMAD) adjustments. While SCE states that the attribution adjustment should be applied, it argues that codes and standards goals should be maintained as gross by omitting NOMAD (but not ex post realization) in order to make them consistent with the gross IOU program goals.
NRDC supports Staff's proposal provided that the Potential Study is updated to include the best available data, which NRDC states is not necessarily the most recent data or the 2006-2008 evaluation results.
TURN opposes Staff's proposal, stating that "simply adding a large quantity of goals from codes and standards advocacy will not ensure that the transition period will see a new approach to energy efficiency program design and market strategy."133
PG&E requests several modifications to the codes and standards model. PG&E recommends that the codes and standards calculation exclude the adjustment to measure life calculation and remain consistent with the 2006-2008 evaluation protocols. PG&E states that the protocols use this approach because, "it is assumed that once a measure is adopted as a result of a code or standard change, the behavior will be repeated until that code or standard is eliminated or updated."134 PG&E further comments that the proposed compliance rates of 85% for appliances and 83% for buildings are reasonable and should remain constant through 2013 and 2014.135 NRDC concurs with PG&E, while TURN and SCE oppose the proposed compliance rate, recommending that a more conservative rate should be used.
We agree with the utilities that the codes and standards savings are overestimated in the draft Goals Proposal, and that they should be adjusted for attribution and realization of verified savings. We do not agree with PG&E's measure life calculation argument or requested modifications to the codes and standards model. Given that the protocol calculates the measure savings under the assumption that "the behavior will be repeated until that code or standard is eliminated or updated," the protocol is structured on a cumulative basis, and does not count only new incremental savings. We observe that the savings values in Table IV of the goal proposal are annual savings. Annual savings represent new, incremental savings in this context. Cumulative savings are accounted for in the cumulative goals adopted by the Commission, but this cumulative calculation is performed separately from incremental savings.
Finally, we agree with PG&E's request to maintain the compliance rates constant at 85% for appliances and 83% for codes. Without any evidence to support an alternative compliance rate, we find that using existing compliance rates is appropriate.
As noted above, to encourage the utilities to support adoption of energy efficiency into codes and standards, D.05-09-043 determined that IOUs could credit savings from codes and standards advocacy toward their energy efficiency goals. That decision stated that, "these estimates should be treated as basically `bonus' savings, more like a hedge against inherent risks that other programs may not meet their performance goals."136 For the 2006-2008 program cycle, codes and standards savings accounted for only 9% of the total savings (356 gWh of the total 4,093 gWh evaluated savings in the portfolio).137 Thus, in the 2006-2008 portfolio the realization of codes and standards savings as a portion of the total portfolio did indeed act as a hedge, as the policy intended.
To ensure that utilities aggressively pursue energy efficiency strategies beyond codes and standards advocacy, the Goals Proposal recommends that separate targets be set for IOU programs for existing technologies, emerging technologies programs, and codes and standards savings. As the Goals Proposal states:
While the 2011 Potential Study indicates that [energy efficiency] potential for IOU programs will decline, the savings accrued from codes and standards activity is anticipated to grow substantially. ... This proposal is intended to avoid the risk of overemphasis on codes and standards advocacy at the expense of the utility programs that are needed to ensure technologies and building practices are available and affordable as they become required by code.138
CEEIC, TURN, EnerNoc, and SDG&E/SoCalGas all support the proposal for separate targets for codes and standards; however, CEEIC and EnerNoc recommend that the targets be defined with a degree of flexibility. NRDC, SCE, and PG&E oppose the proposal because, as SCE argues, "the IOUs should maintain flexibility so that they can be held fully accountable to achieve the energy efficiency goal."
NRDC points out that emerging technologies have not been clearly defined. PG&E is concerned that the current work paper process used to calculate energy savings for new measures must be improved to expedite the introduction of new and emerging technologies in the portfolio. SDG&E/SoCalGas state that it is not clear whether the savings will be attributed while emerging technology projects are still in the "investigative" or pilot stage where installations are limited to very few customers willing to participate.
In the Addendum, the projected codes and standards goals were adjusted gross estimates that represented 64% of the total goals in 2013 and 72% in 2014. Based on the adjustments described in this section, the final codes and standards targets represent 29% of the total goals in 2013 and 28% in 2014. The lower final codes and standards targets lessens the likelihood that the proportional codes and standards savings might overshadow the IOU program efforts; however, we continue to believe it is prudent to develop and hold utilities accountable for separate codes and standards and IOU program goals. The utility role in and programmatic approach towards these two types of efficiency-generating activities are wholly different from one another. It is important that we continue to encourage the utilities to develop the market for new technologies through both emerging technology and mainstream incentive programs. It is equally important that measures are not pushed through to code before they are market ready, and that we do not incent the utilities to do so. For these reasons, we adopt in this decision separate codes and standards advocacy and IOU program goals.
We agree with the intent of the Goals Proposal to provide firm indicators to the IOUs to drive emerging technologies toward market adoption. Emerging technologies are critical to the future of energy efficiency, and as discussed in the section on Emerging Technologies, we have not witnessed the consistent, effective transition of these technologies into mainstream incentive programs in past portfolios. However, we agree that the proposal does not satisfactorily address questions regarding how to define what technologies should qualify to meet the emerging technologies goals, and there is insufficient record to act on this issue at this time. Clearly, a more concerted effort to accelerate emerging technology adoption into mainstream programs is desirable. We will reconsider the role of emerging technologies when we set goals for future portfolio cycles.
The goals originally adopted in D.04-09-060 were applied on a net basis, meaning that IOU credit toward goals was "net" of free ridership. D.08-07-047 adjusted the IOU-specific goals to a gross basis citing an increased opportunity to support more strategic, long-term energy efficiency programs. Defining goals as gross "may open up the opportunity for more program options which support the long-term goals for energy efficiency than the use of net goals."139
The Goals Proposal recommended that the Commission maintain the policy established in D.08-07-047 and apply 2013-2014 portfolio goals on a gross basis, as this approach represents "a more expansive definition of goals that seeks to achieve 100% of gross market potential provides the greatest opportunity to achieve the breadth of energy savings that the Commission is seeking, and would align with statewide activity to advance the Strategic Plan."140 The Goals Proposal did not specifically address whether the goals for codes and standards advocacy should be applied on a net or a gross basis.
All parties except TURN support the Goals Proposal recommendation to maintain gross goals for IOU programs. TURN argues that it provides incentive for the IOUs to continue to focus on easier-to-achieve, short-term annual savings, e.g., from Compact Fluorescent Lamps, at the expense of more complex and longer-term savings.141 SDG&E/SoCalGas support gross goals, but argue that the requirement for a cost-effective portfolio should be applied on a gross basis as well, due to the additional costs necessary to achieve the Strategic Plan initiatives.142
The IOUs point out that the numerical values presented in the Goals Proposal for codes and standards savings were calculated on an adjusted gross basis, which did not include an adjustment for IOU attribution or for NOMAD as defined in the California Energy Efficiency Evaluation Protocols.143 SCE further argues that codes and standards goals should be gross in order to be consistent with IOU program goals. TURN and CEEIC question whether it is accurate to assess codes and standards goals on a gross basis and requests further clarification.
Because we expect the IOUs to support more strategic, statewide long-term energy efficiency programs in the portfolio design, it is reasonable to continue to set IOU program goals on a gross basis. However, we disagree with the utilities that codes and standards goals should be established on a gross basis to be consistent with gross IOU program goals. As discussed above, the nature and design of codes and standards and IOU programs are fundamentally different, and there is no inherent reason why their goal structures should be aligned. As the Commission stated in D.08-07-047, the purpose of gross goals for IOU programs is to support more strategic long-term energy efficiency programs and to encourage the IOUs to take an expansive approach toward program design by leveraging other entities in the state to maximize savings opportunities, as outlined in the Strategic Plan. Conversely, the purpose of codes and standards goals is to give the IOUs credit for their specific contributions to new energy savings via their codes and standards advocacy work, which should not include naturally occurring savings or the advocacy work of other entities. As discussed above, we adopt codes and standards goals on an adjusted net basis.
Finally, we reject SDG&E/SoCalGas's request to apply the portfolio cost-effectiveness requirements on a gross basis. As stated above, we do not believe it is reasonable for the portfolio to include free riders in order to meet its cost-effectiveness requirements, as this runs counter to our statutory mandate to pursue all cost-effective energy efficiency.
D.04-09-060 established both annual and cumulative goals, with cumulative savings representing the annual savings from energy efficiency program efforts up to and including that program year.144 Cumulative goals encourage IOUs to invest in long-lived energy efficiency measures that produce persistent savings and are also needed for planning purposes, such as for supply-side procurement decisions.145 Cumulative goals include savings that persist from prior cycles and, conversely, hold the IOUs responsible for shortfalls in annual savings in previous years and/or replacement of savings that have expired or "decayed."
The concept of decay concerns what happens to energy savings at the end of the EUL of a measure. When measures installed in past years are no longer installed and operating, the savings from those measures are no longer available on the grid unless the customers choose to maintain or improve the efficiency of the original equipment. This choice affects the savings available for the IOUs to achieve their cumulative goals. If IOU programs have successfully induced behavioral changes such that the customer replaces the equipment with another efficient unit without participating in an IOU program, then past savings should be considered to persist and be included in (and count towards) savings to achieve cumulative goals. In D.07-10-032, the Commission began to address this issue by clarifying the definition of cumulative savings and recognizing three ways the IOUs could maintain decayed savings from expiring past measures: repeating the programs, promoting measures with longer lives, or achieving market transformation (i.e., a market state in which like-kind efficiency measures are the norm without program intervention).146 In D.09-05-037 we acknowledged a high likelihood that some (50%, pending review) of the decayed savings were already being replenished due to continued influence of the programs on consumer behavior. D.09-05-037 gave the IOUs credit towards their cumulative savings goals for the 50% of decayed savings from past programs that was assumed to be replaced with like-kind efficiency measures by "market transformed" customers without re-participation in a utility efficiency program, and held the IOUs accountable to replenish the other half of the savings to meet their cumulative goals.
The Goals Proposal recommended that cumulative goals for the 2013-2014 transition portfolio be based exclusively on:
· The annual goals for 2013-2014;
· Recovery of unmet goals based on 2010-12 ex ante planning assumptions pursuant to D.11-07-030 and D.10-12-052; and
· Recovery of savings from the effects of decay.
The proposed cumulative goals also include the persistent savings from 2006 through 2012, using evaluated results from 2006-2009, and the ex ante reported savings to date for the 2010-2012 cycle. Persistent savings are the remaining cumulative energy savings after the effects of decay have been removed. However, the proposed goals do not include recovery of savings from unmet goals prior to 2010, or recovery of any shortfalls relative to 2010-2012 ex-post savings in the event evaluation results in downward adjustments. In the Goals Proposal, Staff recommends the omission of these savings requirements, because:
While the IOUs achieved their goals using the ex-ante assumptions upon which the 2006-2008 portfolios were based, the 2006-2008 ex post values adjusted savings downward by 40%.147 For the current cycle, the goals received just a 5% downward adjustment for PG&E and SCE and a 25% adjustment for SDG&E. Therefore, the difference between goals and evaluated savings represents a change in the expected achievable potential since the original potential study-potential savings that is no longer forecasted to exist. Therefore, it is no longer reasonable to expect the IOUs to achieve these savings.148
While the Goals Proposal did not recommend that the IOUs continue to be held responsible for recovery of pre-2010 cumulative goals, the forecasted cumulative energy savings would still need to be calculated for procurement planning purposes. Commission Staff clarified that the IOUs should still be expected to achieve their 2010-2012 goals based on frozen ex ante values, and that ex post evaluations would continue to update the planning assumptions for the following cycle. Accordingly, Navigant modeled savings decay in the final Potential Study report.
All parties except PG&E support the proposal for cumulative and annual goals. PG&E argues the cumulative savings calculations are not transparent and are derived in large part from the Commission's current theory of decay, which the Commission previously acknowledged has not been clearly defined and may have large program impacts.149 PG&E recommends that decay and interactive effects should be set to zero until the correct values can be vetted, because they are currently based on assumptions that overstate the values.150
SCE supports the Goals Proposal, but states that it diverges from the specific approach to decay adopted in D.09-05-037 and D.09-09-047. These decisions required recovery of decayed savings starting in 2006, whereas the Goals Proposal alters the base year of the existing cumulative framework from 2006 to 2010.151 SDG&E/SoCalGas also request clarification regarding whether there was decay in interactive effects.152
NRDC recommends that "the Commission more fully define 'decay` and 'decay replacement,' as it has yet to be clearly articulated both for resource planning as well program planning purposes. For example, how will the proposed decay replacement (1) relate to future market potential (e.g., does it reduce future market potential or is it a separate 'bucket'), (2) affect achievement of future annual savings goals (e.g., is decay incremental or included in future goals), and (3) incorporate the findings from the forthcoming study directed in D.09-05-037 to evaluate a reasonable estimate of decay."153
Our adoption of cumulative goals in the past was intended to encourage the utilities to focus on measures with longer design lives by requiring them to recover savings that would otherwise decay when energy efficiency measures burned out. As evidenced by much of the direction provided in this decision, we remain committed to encouraging the utilities to focus their portfolios on long-term savings.
However, based on many comments on the treatment of decay in the cumulative goals provided in the proposed decision, it is evident that there are many challenges associated with accounting for decay that must be addressed prior to including it in utility goals in a meaningful and robust manner.
We therefore will adopt only annual goals for the 2013-2014 transition portfolio, with the intention of developing a better understanding of the sustained impact of the utility programs (including decay and market transformative effects) to encourage programs that will have lasting impacts and to hold utilities accountable for long term savings in future portfolios.154
The adopted 2013-2014 Goals are provided in the table below. Based on the final update to the potential study.155 A "foreword" has also been added to the potential study that describes the sources of the goals and identifies the respective tables from which the various goal components were obtained.
2013-14 Electric Goals |
PG&E |
SCE |
SDG&E | |||
2013 |
2014 |
2013 |
2014 |
2013 |
2014 | |
Annual electricity savings (GWh/yr) | ||||||
IOU program targets |
599 |
593 |
660 |
678 |
162 |
156 |
Codes and Standards Advocacy |
276 |
262 |
285 |
270 |
65 |
61 |
Total Annual Targets |
876 |
855 |
945 |
949 |
227 |
217 |
| ||||||
Annual peak savings (MW) | ||||||
IOU program targets |
114 |
100 |
149 |
144 |
36 |
33 |
Codes and Standards Advocacy |
36 |
38 |
37 |
40 |
8 |
9 |
Total Peak Savings Targets |
150 |
139 |
187 |
183 |
45 |
42 |
Adopted 2013-2014 Natural Gas Savings Goals
2013-14 Gas Goals |
PG&E |
SoCalGas |
SDG&E | |||
2013 |
2014 |
2013 |
2014 |
2013 |
2014 | |
Annual natural gas savings with interactive effects (MMMT/yr) | ||||||
IOU program targets |
21.0 |
20.3 |
24.0 |
22.3 |
2.2 |
2.1 |
Codes and Standards Advocacy |
1.1 |
1.6 |
1.8 |
2.5 |
0.1 |
0.2 |
Total Annual Targets |
22.1 |
21.8 |
25.8 |
24.9 |
2.3 |
2.3 |
| ||||||
Annual natural gas savings without interactive effects (MMMT/yr) | ||||||
IOU program targets |
21.9 |
21.1 |
24.0 |
22.3 |
2.5 |
2.4 |
Codes and Standards Advocacy |
2.8 |
3.0 |
4.5 |
4.7 |
0.3 |
0.3 |
Total Annual Gas Targets |
24.7 |
24.0 |
28.5 |
27.1 |
2.8 |
2.7 |
23 By rulings dated November 17, 2011, and December 28, 2011, the Potential Study and Staff's goal proposal were circulated for comment.
24 Issued by ruling on October 5, 2011 and November 17, 2011, respectively.
25 The term "avoided costs" refers to the incremental costs avoided by energy efficiency programs when the resulting decrease in demand for electric or gas services defers or avoids generation from existing or new utility supply-side investments or energy purchases in the market.
26 The energy efficiency avoided costs methodology was adopted in D.05-04-024, and updated in D.06-06-063 and D.09-09-047.
27 http://www.energy.ca.gov/greenbuilding/documents/background/07-J_CPUC_STANDARD_PRACTICE_MANUAL.PDF.
28 This spreadsheet based tool can be accessed at: http://www.cpuc.ca.gov/PUC/energy/Energy+Efficiency/Cost-effectiveness.htm.
29 Benefit cost ratios were estimated using 2010 full measure claim content tracking data, as submitted by the utilities.
30 This is likely due to the fact that the original calculator under-values the avoided cost of generation capacity because it is not sufficiently factoring in the fact that improving HVAC efficiency lowers peak demand, resulting in increased avoided capacity costs.
31 In their responses, some parties asked general questions about avoided costs and cost-effectiveness. Parties expressed a desire for more details about the proposed new avoided cost model and the proposed new discount rate. Commission Staff responded to these requests for information by providing more background information to the parties, in the form of several papers written by Commission Staff's consultants, E3. These papers were sent to the service list of this proceeding on January 27, 2012.
32 Strategic Plan January 2011 update at 67.
33 Parties have some concerns about the resource balance year which we will defer to future proceedings, as they require stakeholder discussion to resolve.
34 PG&E comments on the Phase IV Scoping Memo (November 8, 2011) at 10.
35 Division of Ratepayer Advocates comments on the Avoided Cost Inputs and Methodology Ruling (October 27, 2011) at 12.
36 DRA reply comments on the Avoided Cost Inputs and Methodology Ruling (November 7, 2011) at 12.
37 NRDC comments on the Avoided Cost Inputs and Methodology Ruling (October 27, 2011) at 9.
38 TURN reply comments on the Avoided Cost Inputs and Methodology Ruling (November 7, 2011) at 3.
39 Efficiency Council reply comments on the Avoided Cost Inputs and Methodology Ruling (November 7, 2011) at 2.
40 Energy Efficiency Policy Manual, Version 4 (EEPMv4), Rule II.11.
41 DEER is not the full universe of ex ante assumptions and values that may be used by the utilities for planning and reporting purposes. The utilities are encouraged to augment their portfolio with measures and activities that are not identified in DEER to increase their ability to meet our energy efficiency goals in a cost effective manner. To this end, we have authorized the utilities to submit workpapers that contain proposed additional assumptions and values for measures not contained in DEER.
42 The Phase IV Scoping Memo at 14, states that, "The DEER will be updated by the Commission Staff to reflect all relevant and sufficiently supported data and results from the 2006-08 evaluation activities."
43 The DEER website is located at http://deeresources.com/ and the draft DEER 2011 update values and documentation are on the "DEER 2011 for 2013-2014" page with addition information on the "DEER 2011 Issues & FAQ" page.
44 ALJ November 17, 2011 Ruling.
45 ALJ November 17, 2011 Ruling, with due date revised in ALJ December 28, 2011 Ruling.
46 PG&E, Comment on Phase IV Scoping Ruling at 10; NRDC Comment on Phase IV Scoping Memo at 7; Efficiency Council Comment on Phase IV Scoping Ruling at 10; SCE Comment on Phase IV Scoping Memo at 7; Ecology Action Comment on Phase IV Scoping Ruling at 2; SDG&E and SoCalGas Comment on Phase IV Scoping Memo at 13; TURN Comment on Phase IV Scoping Memo at 13; DRA Comment on Phase IV Scoping Memo at 10; Synergy Cos. Comment on Phase IV Scoping Memo at 5.
47 PG&E, Comment on Phase IV Scoping Memo at 11; Phase IV Scoping Memo at 14.
48 NRDC, Comment on Phase IV Scoping Memo at 7.
49 Efficiency Council, Reply Comment on Phase IV Scoping Memo at 4.
50 DRA, Comment on Phase IV Scoping Memo at 10-11, quoting Phase IV Scoping Memo at 14.
51 SCE, Comment on Phase IV Scoping Memo at 14.
52 SCE opening comments on the DEER and Potential Ruling at 11.
53 Ibid. at 11.
54 NRDC opening comments on the DEER and Potential Ruling at 2.
55 PG&E opening comments on DEER at 16.
56 Id. at 18.
57 SCE opening comments on DEER at 20.
58 SDG&E/SoCalGas, Comment on Programmatic Guidance Ruling at 2.
59 SDG&E opening comments on DEER at 3.
60 NRDC reply comments on DEER at 2.
61 "Final Report on Technology Energy Savings," for California Conservation Inventory Group (CCIG), May 1994; "2001 DEER Update Study Final Report," for CEC, August, 2001; "2004-2005 Database for Energy Efficiency Resources (DEER) Update Study," for SCE, December 2005.
62 The Non-Residential New Constructions programs have been requiring use of CEC approved whole building simulation programs since their inception more than a decade ago. All such CEC approved non-residential compliance software utilize the Department of Energy (DOE)-2 simulation program which is also used for DEER modeling. Similarly, the utilities' non-residential customized retrofit programs utilize savings estimating software based upon DOE-2 (see, for example, the Estimating Energy Savings and Incentives section of the 2012 Statewide Customized Offering Manual ( http://www.aesc-inc.com/download/spc/2012SPCDocs/UnifiedManual/Customized%202.0%20Energy%20Savings.pdf).
63 See, for example, "International Performance Measurement & Verification Protocol," March 2002, Section 3.4.4 Option D: Calibrated Simulation.
64 However, Commission Staff should continue to seek input from parties to determine where and when to use a particular analytical approach from the range of available techniques and to choose approaches that make the most sense given the weight of evidence and requirements for a particular measure or program activity.
65 The subject of Net-To-Gross ratio values, as in previous and other ongoing proceedings, has been a topic of much discussion and comment by parties.
66 PG&E opening comments on DEER at 23.
67 Id. at 24.
68 Id. at 9.
69 Id. at 8.
70 SCE reply comment on DEER at 12.
71 NRDC opening comments on DEER at 4.
72 Id. at 4.
73 SDG&E/SoCalGas opening comments on DEER at 6.
74 Id. at 8.
75 TURN opening comments on DEER at 3.
76 Id. at 4.
77 SCE reply comments on DEER at 13.
78 PG&E opening comments on DEER at 25.
79 SCE opening comments on DEER at 19.
80 Id.
81 We address our overall concerns on basic Compact Flourescent Lamps programs and the rather steep decline in both net and gross savings in our direction related to those activities.
82 NRDC opening comments on DEER at 4.
83 NAESCO reply comments on DEER at 3.
84 PG&E reply comments on DEER at 8-9.
85 SCE opening comments on DEER at 16.
86 SDG&E/SoCalGas reply comments on DEER at 3.
87 SDG&E/SoCalGas opening comments on DEER at 6-7.
88 NRDC opening comments on DEER at 3-4.
89 Id. at 5.
90 PG&E reply comments on DEER at 9.
91 SDG&E/SoCalGas opening comments on DEER at 3.
92 Id. at 4.
93 SDG&E/SoCalGas opening comments on DEER at 7.
94 Id. at 4.
95 SDG&E/SoCalGas opening comments on DEER, Attachment at 1.
96 NRDC opening comments on DEER at 7.
97 Id. at 6.
98 NAESCO opening comments on DEER at 3.
99 PG&E reply comments on DEER at 10.
100 SCE opening comments on DEER at 27.
101 For early retirement measures, a "dual baseline" applies which means that a customer average baseline is used for the calculation of energy savings for the remaining useful life (RUL) of the removed equipment. At the end of the RUL, the customer would have needed to replace the failed equipment with equipment that reflected current energy efficiency standards and/or market practices. This second baseline is used to calculate the [reduced] savings for the remainder of the effective useful life (EUL) of the measure.
102 SDG&E/SoCalGas opening comments on DEER at 5.
103 D.11-07-030, Attachment B.
104 Measures such as lighting retrofits and appliance replacements reduce the amount of energy rejected as heat to conditioned space. This will result in an increased need for heating energy and a decreased need for cooling energy. The increased need for heating energy is often referred to as a "negative impact." This phenomenon of an energy efficiency measure also causing a change in the energy use of the space conditioning equipment is called an "interactive effect."
105 SDG&E/SoCalGas opening comments on DEER at 9.
106 Id. at 8.
107 NRDC opening comments on DEER at 6.
108 PG&E opening comments on DEER at 18.
109 Ibid.
110 D.09-05-037, Ordering Paragraph 3 denied the utilities' proposal to eliminate HVAC interactive effects from DEER.
111 D.09-09-047, Section 4.2.2 at 3.
112 Energy Dataweb can be accessed at http://www.energydataweb.com/cpuc/home.aspx.
113 NRDC Opening Comments on the 2013-2014 Energy Efficiency Goals Ruling at 9.
114 CEEIC Opening Comments on the 2013-2014 Energy Efficiency Goals Ruling at 2.
115 TURN Opening Comments on the 2013-2014 Energy Efficiency Goals Ruling at 12.
116 The Potential Study is available online at http://www.cpuc.ca.gov/PUC/energy/Energy+Efficiency/Energy+Efficiency+Goals+and+Potential+Studies.htm.
117 Refrigerator recycling is the decommissioning of a secondary refrigerator, with the secondary refrigerator being removed from the grid.
118 SCE Opening Comments on the Potential Study and DEER Ruling at A-5-6.
119 Potential Study at 61-62.
120 D.04-09-060 at 3.
121 D.04-09-060 at 35.
122 D.07-10-032 at 5.
123 D.08-07-047 at 18-19.
124 TURN Opening Comments on the 2013-2014 Energy Efficiency Goals Ruling at 3-4.
125 CEEIC Opening Comments on the 2013-2014 Energy Efficiency Goals Ruling at 5.
126 WEM Opening Comments on the 2013-2014 Energy Efficiency Goals Ruling at 3.
127 LGSEC Opening Comments on the 2013-2014 Energy Efficiency Goals Ruling at 3.
128 D.04-09-060 at 2-3. The level of expectation for natural gas savings was lower based on "the fact that natural gas program funding levels have dropped substantially over the last five years, and that ramping up those efforts to meet the full savings potential may take more time than on the electric side."
129 PG&E Opening Comments on the 2013-2014 Energy Efficiency Goals Ruling at 9.
130 D.09-09-047 at 205-207.
131 "Addendum to the 2011 Potential Study in Support of the [Commission Staff]'s Goals Proposal," 2013-2014 Energy Efficiency Goals Ruling (December 28, 2011) Attachment B.
132 Ibid. at 32.
133 TURN Opening Comments on the 2013-2014 Energy Efficiency Goals Ruling at 4.
134 California Energy Efficiency Evaluation Protocols: Technical, Methodological, and Reporting Requirements for Evaluation Professionals, prepared by The TecMarket Works Team on behalf of the Commission (April 2006) at 97.
135 PG&E Opening Comments on the 2013-2014 Energy Efficiency Goals Ruling at 4-5.
136 D.05-04-043 at 91.
137 Table 24, 2006-2008 Energy Efficiency Evaluation Report, at 100. For the 2006-2008 cycle, the utilities received 50% credit for the evaluated codes and standards savings, per D.05-09-043.
138 "Goals Proposal," Attachment A of 2013-2014 Energy Efficiency Goals Ruling at 9.
139 D.08-07-047 at 30.
140 "Goals Proposal," Attachment A of Energy Efficiency Goals Proposal Ruling at 10.
141 TURN Opening Comments on the Energy Efficiency Goals Proposal Ruling at 6.
142 SDG&E/SoCalGas Opening Comments on the Energy Efficiency Goals Proposal Ruling at 12.
143 The Evaluation Protocols can be viewed at http://www.cpuc.ca.gov/PUC/energy/Energy+Efficiency/EM+and+V/.
144 D.04-09-060 at 10.
145 D.08-07-047 at 9.
146 D.07-10-032 at 75-77.
147 2006-08 Energy Efficiency Evaluation Report can be found at http://eega2006.cpuc.ca.gov/ERT.aspx.
148 Energy Efficiency Goals Proposal at 11.
149 PG&E Opening Comments on the 2013-2014 Energy Efficiency Goals Ruling at 7.
150 PG&E Reply Comments on the 2013-2014 Energy Efficiency Goals Ruling at 4.
151 SCE Opening Comments on the 2013-2014 Energy Efficiency Goals Ruling at 8.
152 SDG&E/SoCalGas Opening Comments on the 2013-2014 Energy Efficiency Goals Ruling at 12-13.
153 NRDC Opening Comments on the 2013-2014 Energy Efficiency Goals Ruling at 12.
154 We note, too, that cumulative energy efficiency savings estimates are needed for use in long-term procurement planning, even if they are not explicit utility goals. Therefore, we direct Commission staff to continue to work with the CEC, the utilities, and other stakeholders to improve our methodologies for estimating cumulative energy efficiency savings, including whether and how decayed utility program measures are replaced.
155 The final potential study is available at: http://www.cpuc.ca.gov/PUC/energy/Energy+Efficiency/Energy+Efficiency+Goals+and+Potential+Studies.htm.
