4. Energy Savings and Cost Effectiveness
4.1. Introduction
The Plan requires that LIEE programs serve as an energy resource for California, while continuing to enhance low income customers' quality of life. Goal 2 of the LIEE section of the Plan specifies that the LIEE programs will be an energy resource by delivering increasingly cost-effective and longer-term savings. Thus, the IOUs shall focus on providing cost-effective measures, by focusing in their LIEE programs on measures that meet the 0.25 threshold we describe below. We allow measures in the program that do not meet the 0.25 threshold - heating, water heating, and cooling measures in hot climates - but add reporting requirements so we can track how these measures are affecting the overall energy savings and cost of the LIEE program.
The cost effectiveness of LIEE measures is measured using the Utility Cost Test (UCT) and Modified Participant Cost (PCm) test. Where a measure has a cost effectiveness figure above 0.25, IOUs may offer it in their LIEE programs, and we will consider the measures to be consistent with our goal of increasing the energy savings of the program.31 We allow the IOUs to offer certain measures (water heater repair and replacement, furnace repair and replacement, room and central air conditioning, and evaporative cooler maintenance and installation) that fall below the 0.25 threshold, with certain limitations.32 First, we do not allow air conditioning in moderate climates, as our previously authorized LIEE budget decision did not allow such measures either. Second, for the "add-back" measures, we adopt enhanced IOU reporting requirements so we can better track the budget and energy savings impacts of these measures standing alone.
Third, no furnace repair and replacement or water heater repair and replacement work shall occur in violation of our holding in D.07-12-051 that heating and water heating in rented housing are the responsibility of the landlord:
We are not convinced that utility ratepayers should assume the costs of appliance repairs and replacements. Section 1941.1 of the California Civil Code requires landlords to provide space heating and hot water to renters. California law also requires landlords to be responsible for certain household repairs, to assure the unit is habitable and to repair problems that make the unit uninhabitable.33 It is the landlord's responsibility to assure rental property is safe.
PG&E projects the following energy savings for program year 2009-11 for the number of homes expected to be treated:
|
PG&E | ||||
|
Homes Treated |
Program Budget |
KWH Savings |
KW Reduction |
Therms |
200834 |
63,319 |
$ 77,733,500.00 |
27,554,191 |
5,410 |
1,208,300 |
2009 |
80,000 |
$ 112,702,000.00 |
32,512,408 |
6,504 |
1,402,586 |
2010 |
110,000 |
$ 152,011,000.00 |
44,619,340 |
8,932 |
1,910,241 |
2011 |
110,000 |
$ 157,625,000.00 |
44,735,113 |
8,949 |
1,928,886 |
3 Years |
300,000 |
$ 422,338,000.00 |
121,866,861 |
24,385 |
5,241,713 |
In response to an ALJ ruling on this subject,35 PG&E states that are several reasons why energy savings will not increase in the same ratio as spending. According to PG&E, costs went up each year to account for inflation, while energy savings remained constant. Further, different Impact Evaluation study results were used for previous years than were used for 2009-11, skewing the numbers.
SDG&E projects the following energy savings for program year 2009-11 for the number of homes expected to be treated:
|
SDG&E | ||||
|
Homes Treated |
Program Budget |
KWH Savings |
KW Reduction |
Therms |
2008 |
15,000 |
$ 13,302,750.00 |
6,170,007 |
0.000 |
179,453 |
2009 |
20,000 |
$ 21,000,000.00 |
8,887,914 |
2,010.000 |
478,745 |
2010 |
20,000 |
$ 21,000,000.00 |
8,887,914 |
2,010.000 |
478,745 |
2011 |
20,000 |
$ 20,250,000.00 |
8,575,260 |
1,965.000 |
452,749 |
3 Years |
60,000 |
$ 62,250,000.00 |
26,351,088 |
5,985.000 |
1,410,239 |
SDG&E agrees that the increase in its budget does not result in a comparable increase in energy savings and gives the following reasons: (1) measure costs are increasing, (2) contractor installation costs are increasing, (3) its measure mix has changed for 2009-11 with a larger proportion of savings coming from gas measures, (4) a different set of savings estimates is being used for this application, many of which are lower than those previously used, (5) outreach and education activities are being increased for 2009-11, and (6) development costs for an audit tool are included in its budget.
SDG&E states that on a total program basis, the increase in energy savings is significant. If both kWh savings and therms are converted to a common denominator, the total energy savings estimated for 2009 is an increase of 101% over 2008 compared to a budget increase of 58%. The majority of the increased savings is attributable to gas measures, SDG&E claims.36
SCE projects the following energy savings for program year 2009-11 for the number of homes expected to be treated:
SCE responds that its energy savings forecasts for 2009-11 are based on the 2005 LIEE Impact Evaluation with supplementary estimates drawn from other sources (e.g., 2001 LIEE Impact Evaluation by KEMA, DEER,37 utility engineering estimates, etc.) where appropriate savings were not available, and in many instances the savings according to the 2005 Impact Study are significantly lower than the savings used for the 2008 forecast. In addition to these significant reductions in forecasted per-unit energy savings, the planned 2009-11 program also contains more expensive, greatly enhanced energy education materials for which SCE is not claiming any direct energy savings. (We disallow spending ratepayer money to produce and distribute many of these materials, as discussed below in the Energy Education section of this decision.)
SoCalGas projects the following energy savings for program year 2009-11 for the number of homes expected to be treated:
SoCalGas cites most of the same reasons as SDG&E for why the increase in its budget does not result in a comparable increase in energy savings. It notes, however, that its portfolio results in a higher relative increase in total energy savings than in 2008 primarily because it has replaced low benefit-cost ratio measures in its program with measures having higher benefit-cost ratios. One of the new measures proposed by SoCalGas is a forced air unit (FAU) furnace pilot conversion that provides significantly higher energy savings in comparison to weather-stripping, which SoCalGas has proposed to remove from the available mix of measures.
In its original protest, DRA expressed concern that the IOUs' applications were seeking large budget increases without corresponding energy savings. DRA recommended that the IOUs supplement their applications to require a greater match between spending and energy savings. In its August 1, 2008 brief, DRA again asked that the IOUs deliver long term and enduring energy and bill savings.
In its August 1, 2008 brief, A W.I.S.H. states that increased LIEE budgets should be accompanied by concomitant increases in energy savings. It urges adoption of a mix of measures that does not solely consist of CFLs or energy education. It notes that the true cost of the LIEE program appears to be in reaching the home, rather than in the measures themselves, and therefore opposes eliminating measures from the program given that measures in the program already deliver low levels of cost effectiveness. Measures that are not cost effective may nonetheless deliver Non Energy Benefits, A W.I.S.H. contends, or may interact with other, more cost effective measures in a positive way. Finally, A W.I.S.H. questions the accuracy of the IOUs' energy savings estimates.
In its August 1, 2008 brief, Greenlining notes that many measures, including attic insulation and envelope and air sealing take up large portions of IOU LIEE budgets (between 13% of SDG&E's proposed budget and up to 32% of SoCalGas' budget) while delivering little energy savings. Greenlining compares the IOUs' weatherization programs unfavorably with the U.S. Department of Energy Weatherization Assistance Program. Greenlining favors a focus on effective weatherization methods, which according to Greenlining to involve a comprehensive utilization of all different measures, rather than individual measures.
The Plan has a clear focus on cost effective energy efficiency measures; it requires that "by 2020, 100% of eligible and willing customers will have received all cost effective Low Income Energy Efficiency measures." Thus, the Plan is focused on making the LIEE program a resource program that delivers significant energy savings to California. While the LIEE program has a companion goal of contributing to the quality of life of low income customers, the measurable aspect of Plan compliance will focus on delivering energy savings. Generally speaking, those measures will meet or exceed the 0.25 threshold. Measures that fall below the threshold may deliver significant energy savings, but we will need a new system of IOU reporting so that we can determine whether and the extent to which measures such as furnaces, water heaters and air conditioners deliver energy savings to the program.
We do not know, under the current scheme of IOU reporting, how many furnaces, water heaters and air conditioners installed under the LIEE program are first time installations of such appliances, or replacements of less efficient units. We need reporting on this breakdown, because installation of such measures in a home that does not already have them will increase rather than decrease energy usage. The IOUs' current energy savings estimates assume increased energy savings from all furnaces, water heaters and air conditioners, which cannot be accurate. Therefore, going forward, we require IOUs to report more accurately the impact of such units on energy savings, by showing how much these units increase energy usage as part of the LIEE program. Replacement of units should increase energy savings, but we will require IOUs to verify this assumption by reporting the energy savings from such replacements.
The new reporting we require will occur in two steps. First, within 30 days of the effective date of this decision, the IOUs shall forecast, for 2009-2011 (per year and for the full three year period), for any measure that we include in the program that falls below the 0.25 cost effectiveness threshold test,38 the following:
1. The measure type and climate zone;
2. How many such measures the IOU anticipates installing in 2009-011 in each "add-back" climate zone;
3. The budget impact of the "add-backs"; and
4. The energy savings impacts of the "add-backs," based on the assumption that installation of measures that do not already exist in a home will increase, rather than decrease, energy usage.
We also add a reporting requirement to the IOUs' annual reports, due in May of each year. The IOUs shall report, for the prior year, the actual figures in each of the foregoing four categories. If the "add-backs" will compromise the IOUs' ability to meet the 2020 Plan goal that 100% of eligible and willing customers will have received all cost effective LIEE measures, they should include a narrative in their annual reports on how they propose to address the shortfall in other parts of their LIEE program. We will examine these reports when they are submitted, and may take action aimed at enhancing program energy savings depending on the information reported.
Even under current reporting requirements, the IOUs' increased LIEE budgets do not deliver energy savings in proportion to the budget increases. The IOUs provide several explanations for this phenomenon, but we plan to review the IOUs' assertions more carefully with our enhanced reporting requirements. As we move toward 2020, the IOUs must be prepared to demonstrate that they are focusing on and achieving energy savings for California through the significant expenditures of the LIEE program.
We are also concerned about the low level of energy savings we see in the 2009-11 budget applications by PG&E and SCE, and for SDG&E its electric savings, as compared to the requested budget increases. We would expect to see a closer correlation between budget increase and rises in overall program energy savings. The following are the IOUs' actual numbers, which show that budget increases will not produce corresponding energy savings:
We remind the IOUs that the key policy objective for LIEE programs is to provide cost effective energy savings that serve as an energy resource and to promote environmental benefits. As a result, we should be seeing LIEE energy savings for the IOU portfolios increase over the years rather than decrease. We also understand that it may not be best to compare the 2008 energy savings to the 2009-11 energy savings, as they are based or will be based on different Impact Evaluation studies. We will require that the IOUs perform a 2009 Impact Evaluation study, and grant them leave to perform a new Non Energy Benefits study, as discussed in the section of this decision relating to the IOUs' proposed pilots and studies, below. We will also require that the IOUs report the new energy savings values in the next annual report to the Commission once the Impact Evaluation Study and Non Energy Benefits studies are complete. We anticipate that these published results will show that energy savings of the portfolio are increasing over time, with an increased correlation between program spending and energy savings.
4.2. Cost Effectiveness of Proposed Measures
PG&E forecasts the following cost effectiveness values for its 2009-11 portfolio:
SDG&E forecasts the following cost effectiveness values for its 2009-11 portfolio:
SCE forecasts the following cost effectiveness values for its 2009-11 portfolio:
SoCalGas forecasts the following cost effectiveness values for its 2009-11 portfolio:
In its PHC statement filed June 10, 2008, DRA questions the validity of the IOUs' cost effectiveness test results. According to DRA, the utilities included administrative costs in measure-level cost effectiveness tests, therefore skewing the results. DRA also believes the program-level total resource cost test results are invalid because the IOUs, contrary to the direction in D.02-03-034, did not include Non Energy Benefits as inputs to the test.
In its August 1, 2008 brief, DRA continues to question the validity of the cost effectiveness results, noting that updates required in the non-low income Energy Efficiency program did not occur in the LIEE program. DRA points out that the IOUs also filed errata to their original applications that changed the cost effectiveness results, "call[ing] into question the degree to which their applications are informed by cost effectiveness."39 DRA suggests that the LIEE program employ the same rigorous Evaluation, Measurement and Verification (EM&V) standards as the Energy Efficiency program.
This decision asks the IOUs to focus on LIEE measures with cost effectiveness results at or above 0.25, as described below. However, we also allow the program to deliver some measures that are not cost effective, but require the IOUs to report on how use of these measures will affect Plan goals.
In 2001, the Commission ordered the utilities to develop a cost benefit test that included Non Energy Benefits to assess LIEE program cost effectiveness, both for the overall program and for the individual low income program measures.40 LIEE cost effectiveness was assessed at both the LIEE program level and at the individual measure level, using low income cost effectiveness tests that incorporate such Non Energy Benefits as comfort, health and safety as well as direct energy-related benefits.41
The cost-effectiveness approach adopted by the Commission in D.02-08-034 directed the application of the UCT and the PCm. Both tests incorporate Non Energy Benefits as well as direct energy related benefits. Non Energy Benefits capture a variety of effects, such as changes in comfort and reduction in hardship, that are not captured by the energy savings estimates derived from load impact billing evaluations, and are ignored in more traditional cost effectiveness approaches like the Total Resource Cost (TRC) Test.
For the 2009-11 LIEE program cycles, the Commission directed the IOUs to review the cost effectiveness of each of their LIEE programs using the UCT and the PCm test, as well as identify the benefit/cost ratio for each measure/program. Additionally, the IOUs performed the TRC test, as directed in the Assigned Commissioner's Ruling Providing Guidance for Low income Energy Efficiency 2009-11 Budget Applications, dated April 1, 2008, and included them in their filings for informational purposes.
In reviewing the IOUs' benefit-cost ratio results, it was difficult to compare the program level cost effectiveness across utilities. In addition, comparing the same measures across IOUs was also challenging. Variations in measure mix provided, gas versus electric savings, IOU climate zones, housing types and reported program costs make such comparisons problematic.
For this application cycle, the Commission allows energy efficiency measures in the LIEE program that "pass" and, under certain circumstances where necessary to customer quality of life, those that "fail" the cost effectiveness test described below.
A measure is deemed to have "passed" the cost effectiveness test if its benefit-cost ratio is greater than or equal to the 0.25 benefit-cost ratio benchmark for that utility. Decisions on the inclusion and exclusion of measures for LIEE will not be made exclusively on the basis of cost effectiveness tests, but may also explicitly take into account the quality of life of low income customers. We adopt the following methodology, as of January 1, 2009, for determining whether specific measures are cost effective (taking into account the housing type as well as climate zone) and set forth an approach to screening all measures going forward:
1. Measures that have both a PCm and a UCT benefit-cost ratio greater than or equal to 0.25 (taking into consideration the housing type and climate zone for that measure) for that utility shall be included in the LIEE program. This rule applies for both existing and new measures.
2. Existing measures that have either a PCm or a UCT benefit-cost ratio less than 0.25 shall be retained in the program.
3. Existing and new measures with both PCm and UCT test results less than 0.25 for that utility may be included in the LIEE program for all climate zones if they consist of furnace repair and replacement or water heater repair and replacement. Air conditioning and evaporative cooling measures may be included in the LIEE program in hot climates (in accordance with the measure guidelines of the 2007-08 LIEE program, which disallowed cooling measures in temperate climate zones), subject to new reporting requirements. Heating and water heating measures in landlord-owned property may not be installed with LIEE funds, as landlords' legal habitability obligations require them to pay for such amenities.
The reasoning behind retaining measures that pass one test and fail the other test is that either marginal adjustments in the measure offering or changes in economic conditions can swing measures back into a pass/no pass situation.
Attachment F contains the list of measures proposed by the IOUs for 2009-11. For each measure, we break down by climate zone the measures that meet and do not meet the 0.25 test. For reference purposes, a climate zone map appears at the following link: http://www.energy.ca.gov/maps/building_climate_zones.html. A measure labeled "Fails" but accompanied by an asterisk falls below the cut-off but falls into the "add-back" category, and therefore is subject to the new reporting requirements for "add-backs" described above. A measure labeled "Fails" without an asterisk may not be offered as part of the LIEE program. A measure labeled "Passes" meets the 0.25 test, and may be retained in the LIEE program. The IOUs shall make appropriate revisions to the P&P Manual by incorporating the results of Attachment F therein.
We direct the IOUs to apply the adopted methodology to their 2009-11 LIEE programs. To the extent the IOUs have proposed to add new measures that fail the foregoing test, we disapprove the request, unless we approve the measure as a pilot program as discussed in the Pilots and Studies section below.
31 These measures appear without asterisks in Attachments F-1 through F-4.
32 The "add-back" measures appear with asterisks in Attachments F-1 through F-4.
33 See Green v. Superior Court (1974) 10 Cal.3d 616 [111 Cal.Rptr. 704], which held that all residential leases and rental agreements contain an implied warranty of habitability. Under the implied warranty, the landlord is legally responsible for repairing conditions that seriously affect the rental unit's habitability. That is, the landlord must repair substantial defects in the rental unit and substantial failures to comply with state and local building and health codes.
34 PG&E Response to ALJ Thomas' Ruling Seeking Further Information on Large Investor Owned Utilities' 2009-11 Low income Energy Efficiency/Care Application, filed June 27, 2008.
35 ALJ Thomas' Ruling Seeking Further Information on Large Investor Owned Utilities' 2009-11 Low income Energy Efficiency/Care Application, filed June 17, 2008, p. 1.
36 SoCalGas cites largely the same factors explaining its budget increases.
37 California Energy Commission Database for Energy Efficient Resources, available at http://www.energy.ca.gov/deer/.
38 These measures have asterisks next to them in Attachments F-1 through F-4.
39 Brief of [DRA] on the Applications of [PG&E, SDG&E, SoCalGas and SCE] for Approval of 2009-11 LIEE and CARE Programs and Funding, filed August 1, 2008, p. 15.
40 Final Report for LIEE Program and Measure Cost Effectiveness, submitted to the CPUC by the Cost Effectiveness Subcommittee of the Reporting Requirements Manual (RRM) Working Group and the LIEE Standardization Project Team, March 28, 2002; The Joint Utilities Revised Results of Measure Cost Effectiveness, submitted to the CPUC by the LIEE Standardization Project Team, January 6, 2003; and LIEE Measure Cost Effectiveness Final Report, submitted to the CPUC by the LIEE Standardization Project Team, June 2, 2003.
41 The final Low Income Public Purpose Test (LIPPT) model was created for the RRM Working Group (including representatives from PG&E, SCE, SDG&E, SCG, CPUC Energy Division, DRA, and the public) by TecMRKT Works, SERA Inc., and Megdal Associates in 2001. The cost effectiveness methodology was later modified by the Cost Effectiveness Subcommittee of the RRM Working Group and the LIEE Standardization Team in 2002 to incorporate two separate tests, the Utility Cost Test and a modified Participant Test, both that incorporate Non Energy Benefits working in conjunction with Equipoise Consulting, Inc.
