9. Conservation Benefits
PG&E asserts that the SmartMeter Upgrade Program with the HAN gateway device will enable PG&E to offer a set of information tools to residential customers that will allow for increased energy conservation. That is, the feedback of information on energy usage will increase energy awareness, resulting in a modification of energy usage behavior. PG&E cites a study that reviewed over 100 DR programs and showed residential customers who were provided with daily feedback on their electric usage via the Internet or in-home displays reduced their energy consumption by an average of 11%.64 Another study that focused on general energy conservation, instead of DR reductions, found feedback on consumption resulting in energy savings ranging from 0% to 20%.65 The author concluded that "feedback is an essential element in effective learning" and that feedback will have a significant role to play in raising energy awareness and in bringing about reduced consumption on the order of 10%.
PG&E's HAN gateway device will allow a customer purchased device with compatible communications technology to receive near real time information on the customer's energy use. According to PG&E, in most cases today, even with the next day web presentment of interval data (hourly for electric and daily for gas) included in PG&E's original AMI business case, customers evaluating their energy use or efficiency options will use survey or audit tools that must rely on average appliance consumption assumptions. PG&E asserts that (1) getting the consumption rate shortly after turning on appliances like the dishwasher or laundry equipment would have a more immediate impact; (2) customer interest in more detailed information can be inferred by the fact that plug in devices are appearing in retail stores to measure plug load; and (3) near real-time feedback in combination with interval data on the web will provide a powerful diagnostic tool for customers interesting in managing their energy use for financial, environmental or societal reasons.
PG&E estimated conservation benefits starting in 2012 using the following assumptions:
· A technology adoption curve adapted from historic cell phone annual adoption rates;
· Adoption rates begin at 2% in 2012, top out at 30% in 2024, and remain flat until 2030;
· An average of 6.5% energy conservation for both electricity and natural gas annually for a customer with an in-home display device;
· Average usage per customer is based on PG&E's share of the CEC's 2008-2018 demand forecast;
· Energy forecasts for 2019 through 2030 are extrapolated from the average annual growth rate in the 2008-2018 forecast; and
· PG&E's share of the CEC demand forecast is estimated based on PG&E's 2006 FERC Forms 1 (electric) and 2 (natural gas) sales as a percent of the CEC's area recorded 2006 sales.
9.1. Electric Conservation Benefits
For the time period 2012 - 2030, PG&E estimates an electric conservation level of 10,194 gigawatt-hours (GWh) resulting in a PVRR benefit of $311,881,000, as quantified in the application. That amount would be $384,067,000 if updated for more current energy costs recently incorporated into the E3 model for the 2009-2011 energy efficiency program cycle. PG&E recommends that the Commission should consider the updated amount.
DRA's estimate of electric conservation benefits is $209 million. DRA's analysis of the upgrade's potential electric energy conservation benefits hinges on three issues: (i) a comparison of the daily information feedback that customers can achieve through PG&E's approved AMI system, as opposed to the real-time feedback that the upgrade potentially provides; (ii) a different annual adoption rate of information display technology; and (iii) a double counting of energy efficiency benefits issue between this application and the energy efficiency program proceeding.
DRA accepts that direct information feedback has potential to deliver conservation benefits, however DRA distinguishes between the effects of real time versus day-late information. DRA argues that day-late information feedback conveyed via the personal computer can be achieved with the already approved AMI system. Furthermore, it is DRA's position that day-late presentation of usage information affects space conditioning usage, as it provides customers with insight into energy used for heating and cooling. DRA cites the work of Lou McClelland and Stuart Cook of the Institute of Behavioral Science at the University of Colorado that concluded, "...conservation actions taken by households with [display monitors] primarily affected energy uses other than heating and cooling."66
Using the California Energy Commission 2006 Update to the Residential Appliance Saturation Survey results for the PG&E service territory, DRA calculates that approximately 9.5% of the residential load is attributable to space heating and cooling, with the other 90.5% of residential energy sales attributable to base energy usage. DRA applied the 90.5% scalar adjustment to PG&E's annual residential sales forecast, which discounted the portion of residential sales forecast due to space heating and cooling load, leaving only the base energy load in the benefit calculations. This results in a PVRR reduction of $30 million to PG&E's application benefit estimate.
DRA also disagrees with PG&E's use of the cell phone adoption rate to determine such a rate for in-home information display devices, and instead used an adoption rate of compact fluorescent lamps (CFLs), which it considers to be a more analogous historic adoption rate of residential energy efficient technology. DRA made use of a report that examined the effect of customer preference on cost potentials of residential lighting.67 In the report it was calculated that, by 2005, a cumulative 25% of all residential light fixtures are assumed to be using CFLs. DRA then modified the HAN technology adoption rate by a ratio of 21 to 30, or a scalar factor of 0.7, resulting in adoption rates from 1% in 2012 to 21% in 2024 and a further PVRR reduction of $84 million to PG&E's application benefit estimate.
It is also DRA's position that, if customers do adopt HAN-enabled information feedback technology and conserve electric energy, the energy savings associated with the SmartMeter Upgrade should not be used to justify both the SmartMeter Upgrade cost and the shareholder incentive that PG&E would inevitably earn as the result of the Commission's D.07-09-043 on the shareholder risk/reward incentive mechanism for energy efficiency programs. DRA explains that the electric energy conservation benefits justify dollar-to-dollar the Upgrade project cost and the associated return on equity, and, if not properly accounted, PG&E shareholders would earn another 12% on the same energy saving benefits. Therefore, DRA proposes that 12% of the energy conservation benefits be deducted, to reflect the shareholder incentives PG&E could have earned if the energy savings attributable to the SmartMeter Upgrade were not separately identified from those due to energy efficiency programs. This results in a further PVRR reduction of $24 million to PG&E's application benefit estimate.
Lastly, DRA agrees with PG&E's position that updating the estimate of electric conservation benefits for more current energy costs recently incorporated into the E3 model for the 2009-2011 energy efficiency program cycle is appropriate. This results in a PVRR increase of $35 million to DRA's estimate of electric conservation benefits.
In response to DRA, PG&E argues that DRA's 9.5% adjustment related to space heating and cooling should be rejected. Regarding the 1979 study by McClelland and Cook used by DRA to reach its conclusion that day-late presentation of usage information affects space conditioning usage, PG&E states that a careful review reveals that: (1) it contains no actual data on day-late feedback and space heating and conditioning; (2) its statements about a reduced effect of real-time feedback on those end-uses are inferences; and (3) its interpretation of customer usage differences associated with real-time feedback supports a positive relationship in the study's summer months. PG&E also points out that there is nothing to indicate that day-later feedback was involved or studied, and the only information feedback described in the article was real-time. According to PG&E, lacking actual data, the authors inferred that the monthly differences between the test and control groups' energy consumption "suggest" that the monitors had a greater effect on uses other than heating and cooling. That interpretation, however, is attenuated in PG&E's opinion, given the study's lack of any identified day-late data collection or day-late feedback.
PG&E also asserts that most customers' access to their usage data via the web will be too infrequent to produce conservation benefits DRA claims for day-after information. The evidence indicates that 50% of customers indicate an interest in checking their usage via the internet once a month and, in the Statewide Pricing Pilot, 77% of customers visited the website at some time during the program. According to PG&E, that frequency is no better than the monthly bill that customers receive, and even if day-late feedback were sufficient to produce energy conservation benefits for space heating and conditioning, the majority of residential customers essentially will not use the AMI system's web-presentment next-day functionality for that purpose. According to PG&E, for many of these customers, the Upgrade HAN and IHD will be a better way of providing usage feedback that the customer will frequently see.
PG&E also disagrees with DRA's use of the percentage of residential light fixtures with CFLs to determine an IHD adoption level of 21%. PG&E does not object to the idea of using CFL data to develop IHD adoption levels, but maintains that CFL lamp penetration for fixtures is not an appropriate metric. PG&E argues that since a single household will have multiple light fixtures, it is not appropriate to assume that the percentage of light fixtures is an appropriate proxy for the number of households adopting IHDs, especially in light of the fact that most research to date was done with a single in-home display device per household. PG&E believes that the CFL household adoption is more analogous to the household adoption of IHDs than DRA's use of CFL lamps in fixtures.
While the report used by DRA provided the basis for its estimated assumption about the percentage of all fixtures assumed to be using CFLs, PG&E refers to a second report cited by DRA entitled "Compact Fluorescent Lighting in America: Lessons Learned on the Way to Market" that reports on an on-site survey of California CFL usage.68 This report indicates that 57% of homes in the 2004-2005 California Case Study had one or more CFLs installed. PG&E also notes that the 2005 update to the California Statewide Residential Lighting and Appliance Saturation Study found 57% of all homes had one or more CFLs installed, and the 2004 Residential Appliance Saturation Survey for PG&E found 51% of households with at least one CFL. Based on these studies, which show similar household penetrations for CFLs at over 50%, PG&E asserts that its 30% IHD adoption level is conservative and should not be adjusted downward.
PG&E also opposes DRA's recommendation to reduce electric conservation benefits by 12% due to the shareholder risk/reward incentive mechanism for energy efficiency programs, for two reasons.
First, PG&E indicates that even under the current mechanism, the utilities only claim energy efficiency for their energy efficiency program applications under the incentive mechanism; they do not make claims for energy conservation savings. With respect to the Upgrade conservation benefits, PG&E states there is insufficient information to differentiate between energy efficiency program benefits versus other energy conservation. Hence, DRA's adjustment would be too large, even based on their theory.
Second, the scope and structure of the incentive mechanism for 2012 and beyond is unknown at present. In D.07-09-043, the Commission directed the Energy Division to prepare a report by February 2011 so the Commission can consider possible modifications to the incentive mechanism in time for the 2012-2014 program cycle. PG&E indicates there will be many factors to consider, such as the Assembly Bill (AB) 32 framework as well as how the Commission defines the accounting rules for that period. PG&E agrees that there should be no double payment, and that the effect of the SmartMeter upgrade should be factored into the Commission's proceeding when it finalizes the energy efficiency goals for the 2012 and beyond period for the utilities. However, PG&E asserts that the coordination of Upgrade conservation benefits with the energy efficiency incentive mechanism framework for 2012 and beyond should occur when the Commission establishes that framework.
TURN notes that even though the display is an essential component of the notification protocol for the PTR rates and PG&E also relies upon the device to achieve sizeable conservation benefits, initially PG&E did not include any cost for this device in the application. Rather PG&E assumed that the homeowner will purchase it voluntarily. PG&E presented no evidence as to the cost of this device, and also lacks evidence that the customer will save enough energy to make purchase of the device cost effective. TURN also notes that, while in its supplemental testimony PG&E included $5 million to "promote the specification and adoption of consumer in-home devices" using a proxy price of $20 for an in-home device, no evidence has been provided that $20 is sufficient for an in-home display device of the type PG&E envisions.
According to TURN, evidence shows that devices that provide the benefits PG&E claims will result in conservation cost far more than PG&E indicates. For example, the Kill a Watt device for $25 will only display one device at a time, provides a readout only at the plug, could be hard to use behind a refrigerator, washer, dryer or any other bulky appliance, and is not designed for 220-volt appliances. A more powerful device, such as the Blue Line Powercost to monitor full house usage, is considerably more expensive at $140. According to TURN, only a device such as this is capable of monitoring more than one or a few devices plugged into the same power strip, and only a device of this cost level can monitor heating and cooling systems.
The lack of reasonably priced devices to achieve the benefits PG&E claims causes TURN to question the reasonableness of PG&E's energy conservation benefit.
In response, PG&E states that its data request response69 on IHD costs ranging from $25 to $235 confirms that the customer would purchase the display himself/herself. PG&E further states that it expects that future costs of simple IHDs will drive even lower and that IHDs costing less than $5 will become available. PG&E elaborates that some customers may want a very simple device that only provides one or two pieces of information, while other customers may want to have more features-for which they will be willing to pay. Also, the existing devices do not use HAN and must have a means of capturing interval load from the meter and displaying the information, such as with a "clamp on CT." In the future, HAN will perform the job of capturing the interval data, relieving the IHD of that function. With HAN, the IHD will only need to perform the receiving and display function, which will contribute to lower IHD costs. PG&E concludes that, as the technology and market develops, the costs of IHDs may also be expected to decline, just as the cost of solid state meters has come down significantly between its original AMI case and this case.
CCSF agrees with DRA's position that instead of relying on adoption rates for cellular telephones to determine HAN adoption rates, PG&E should have relied on adoption rates for CFLs.
Also, CCSF claims there is no evidence to support PG&E's assumption that its customers will use real time pricing information obtained from IHDs to change their electricity usage patterns. CCSF apparently argues that if customers are not using historical usage information available through web-presentment in the AMI project, there is no reason to think that they will use real-time information from IHDs.
In response, PG&E states there is solid evidence that IHDs do elicit significant conservation by showing customers how much energy they are using. According to PG&E:70
This is because displaying current energy usage in the home will reduce the effort required by customers to monitor their energy usage and correlate energy use changes associated with behavioral changes. Numerous research studies confirm that `direct feedback,' such as that provided on demand by the customer through the HAN gateway device and a receiving in-home display device, provides more energy conservation than `indirect feedback' such as monthly bills plus historical feedback. [Footnote: Darby, Sarah, 2004. `Making it obvious: Designing feedback into energy consumption." Proceedings of the 2nd International Conference on Energy Efficiency in Household Appliances and Lighting. Italian Association of Energy Economists/EC-SAVE programme.]
Also, while PG&E and DRA disagree on the IHD impact on space heating and conditioning, PG&E notes that DRA acknowledges that, for other end uses, IHDs do promote energy conservation with respect to over 90% of electric use.
To begin, we do not agree with DRA' adjustments for space heating and cooling or for double counting related to the shareholder risk/reward incentive mechanism for energy efficiency programs. Regarding the space heating and cooling adjustment, even if heating and cooling conservation can be accomplished through day-ahead notification, we have previously noted that we will use PG&E's definition of "incremental" for this proceeding. Therefore, since conservation benefits were not quantified in the original AMI proceeding, the conservation benefits we are considering for the Upgrade can result from either the results of the functionality of the original AMI request (day ahead information) or of the Upgrade and the HAN (near real time information). Also, in general, we agree with PG&E's response regarding the 1979 study by McClelland and Cook used by DRA to reach its conclusion that day-late presentation of usage information affects space conditioning usage. In light of PG&E's criticisms, that study does not provide persuasive evidence to support DRA's conclusions on this issue.
Regarding potential double counting related to the shareholder risk/reward incentive mechanism for energy efficiency programs, we note PG&E's assertion that the incentive mechanism relates to energy efficiency and not conservation and that its conservation benefits for the Upgrade include both. Since neither PG&E nor DRA separated energy efficiency from the conservation benefit estimate, we cannot properly apply a factor to prevent potential double counting of energy efficiency. Therefore we will not reduce PG&E's estimate of electric conservation benefits by 12% as recommended by DRA. Instead, when the future of the energy efficiency incentive mechanism is clarified and if further incentives are authorized, PG&E should ensure, through testimony in that future energy efficiency proceeding, that there is no double counting of energy efficiency embedded in the conservation benefits related to the Upgrade.
Regarding PG&E's estimate of 30% IHD penetration as opposed to DRA's estimate of 21%, we note that the estimates are based on new technology acceptance curves for different products (cell phones and CFLs). At this point, we have no way of knowing for sure which estimate is better. Both are educated guesses that are not substantially different. However, we will adopt DRA's lower value of 21%. We prefer to be conservative with respect to estimating this benefit partly because of the speculative nature of the forecasts and partly due to TURN's legitimate concerns regarding the cost of the IHD devices. Whether costs will be a significant impediment to customer acceptance is unknown. As does PG&E, we expect the prices of such devices to decline as the technology and market develops, but the economics have not been fully analyzed by any of the parties.71 There is uncertainty. Therefore, we feel that a reduction to PG&E's estimate of electric conservation benefits is reasonable.
With respect to CCSF's criticism regarding PG&E's assumption that customers will use information obtained from IHDs to change their electricity usage patterns, we feel there is sufficient evidence, as noted by PG&E, to determine that such devices do have that effect. CCSF has not cited any studies or produced any persuasive evidence to rebut those conclusions. Therefore, we will not adjust the estimated electric conservation benefit for that reason.
Finally, both PG&E and DRA recommend that the more recent avoided costs should be used for the purpose of estimating electric conservation benefits for the Upgrade, and we agree that it is reasonable to do so.
Based on the above discussion, we will adopt an electric conservation benefit amounting to $268,847,000 (PVRR).
9.2. Gas Conservation Benefits
For the time period 2012-2030, PG&E estimates a gas conservation level of 10,194 billion British thermal units (BBTU) resulting in a PVRR benefit of $167,190,000.
DRA questions the effect of the electric metering system upgrade on gas conservation, quoting PG&E's statement that the proposed SmartMeter Program Upgrade does not affect PG&E's gas meter infrastructure.72 DRA also states that PG&E justified its gas system technology and network provider in its original AMI case by stating that its technology provided functionalities that:73
Allow one-way or two way radio communication capability directly to each premise with PG&E gas service; use highly reliable and powerful licensed radio frequency communication channels owned by PG&E; provide 100% coverage for all gas customers in one system; has proven module battery backed by the best proposed warranty; provide daily gas usage with the potential for hourly data for selected customers; provide customer level tamper detection information; and enable messaging for smart thermostats, in-home displays, and home automation.
It is DRA's position that, since PG&E's gas AMI system was approved in D.06-07-027 and the SmartMeter Upgrade does not pertain to the gas AMI system, PG&E's $167 million claimed benefit of gas conservation is not contingent upon the approval of the SmartMeter Upgrade, and consequently the overall project benefit should be reduced by $167 million.
In response TURN argues that DRA errs in its description of the gas AMI system, and also misses the importance of HAN-enabled in-home information on energy conservation in general.
First, PG&E states that it clarified in rebuttal testimony that its request for the gas AMI system did not include equipment and technology required for in-home gas information display capabilities.
Second, PG&E states that the importance of HAN-enabled IHD is the increased awareness of energy usage occurring at the time in the customer's home. That awareness can extend beyond electrical consumption displayed on the IHD. According to PG&E, experience with residential customer surveys indicates many customers do not clearly differentiate electric and gas consumption by their appliances. PG&E points out that for these customers, the increased awareness of energy use occurring right then-and-there in their homes may encourage immediately cutting back on energy consumption, including gas use. For those customers who are aware of gas versus electric consumption, PG&E states that near-real time HAN enabled IHD information on electric use from motors or fans associated with gas appliances also could support reducing gas consumption by those appliances. Consequently, PG&E asserts that assuming no connection between HAN IHD near-real time information display and gas conservation as DRA has done, takes an overly restricted view of the effects of immediate energy usage feedback on residential customer behavior.
We are not convinced that any gas conservation benefits should be attributed to PG&E's original AMI project or to the Upgrade. The IHD shows electricity usage, not gas usage. By looking at the IHD, there is no way to tell if gas usage is high or low or possibly whether any gas is being used at all. If a customer reduces gas usage (e.g., space heating, water heating, drying clothes, or cooking), it is probably for economic reasons. That economic incentive is likely a result of a gas bill or an examination of gas rates rather than a customer looking at an IHD and noting electricity usage patterns.
With respect to customers that supposedly do not clearly differentiate electric and gas consumption by their appliances, there is no record evidence indicating what proportion of the customer base that might be. Furthermore, there is no record evidence indicating whether such customers would be the type that would even purchase an IHD. We cannot accept PG&E's reasoning on this issue as sufficient support for its gas conservation benefit estimate.
PG&E hypothesizes that near-real time HAN enabled IHD information on electric use from motors or fans associated with gas appliances could support reducing gas consumption by those appliances. We only note that a fan being on is one thing, knowing what the gas usage is and whether it is high or low is another thing. Also, it is fairly easy to know whether one's gas space heater is on. If heat is coming out of the vent, gas is probably being used at that time. The same can be said regarding a gas stove. If one is cooking, gas is being used. Neither PG&E's original AMI project nor the Upgrade is necessary to make those determinations. While the IHD can display near real time electricity usage and customers can view that information to determine whether they should cut back or not, the IHD does not display such information for gas. We do not feel that customers' decisions as to whether they should limit or curtail gas usage are significantly enhanced by the presence of IHDs that only display electricity usage patterns.
Therefore, we will assign zero gas conservation benefits in our cost effectiveness analysis of the Upgrade.
64 King and Delurey, Efficiency and Demand Response: Twins, Siblings, or Cousins? Public Utilities Fortnightly, March 2005, p. 57.
65 Darby, Sarah, "Making it obvious: Designing feedback into energy consumption." Proceedings of the 2nd International Conference on Energy Efficiency in Household Appliances and Lighting. Italian Association of Energy Economists/EC-SAVE programme, 2004 and The Effectiveness of Feedback on Energy Consumption, Environmental Change Institute, April 2006.
66 McClelland and Cook, 1979, "Energy Conservation Effects of Continuous In-home Feedback in All-electric Homes," Journal of Environmental Systems, 9 (2), pp. 169-173.
67 "Market Failures, Consumer Preferences, and Transaction Costs in Energy Efficiency Purchase Decisions" by Jayant Sathaye and Scott Murtishaw for the Lawrence Berkeley National Laboratory, 2005.
68 Portions of the report were entered into evidence as Exhibit 22.
69 See Exhibit 203.
70 Exhibit 3, p. 5-8.
71 TURN has not proposed a methodology for quantifying this effect.
72 PG&E, Exhibit 2, p. 2-5.
73 A.05-06-028, Exhibit 8-1, p. 1-7.
