9. Program Guidance for the Commercial Sector
D.09-09-047 approved $1 billion in commercial energy efficiency programs for both existing buildings and new construction for the 2010-2012 program cycle. Budgets were approved for three types of utility administered programs: statewide, local, and third-party. Statewide programs constitute core programs that all four IOUs provide in their territory, while local and third-party programs are distinct to each of the utility portfolios. We provide guidance focused on the statewide and third-party programs in this decision.
The 2010-2012 Commercial Statewide Programs included five subprograms: Non-Residential Audits, Deemed Incentives,253 Calculated Incentives, Direct Install, and Continuous Energy Improvement. Third-party programs are administered outside of the standard IOU statewide programs and are intended to pilot innovative approaches and delivery mechanisms for targeted customers. Third-party programs target niche markets such as schools, retail, healthcare, grocery stores, office buildings, lodging and hospitality.254
The December 7, 2011 Programmatic Guidance Ruling solicited comments on a Staff Proposal for the various market segments within the IOUs' energy efficiency portfolio. The proposal encourages commercial sector programs to focus on several specific areas to achieve deep energy savings in the 2013-2014 period, including the following:
· Targeting the untapped potential of small commercial buildings;
· Increasing the adoption of Emerging Technologies (ETs) into current programs;
· Increasing the measurement of performance data at the building level;
· Providing deeper energy retrofits through innovative auditing approaches and packages of measures; and
· Addressing split-incentive barriers in multi-tenant buildings.255
Parties are generally in favor of the direction of the Staff proposal. In addition, many parties provide further detailed recommendations to the Commission to consider for the 2013-2014 transition period.
9.1. Targeting the Untapped Potential of Small
Commercial Buildings
Small commercial customers are notoriously hard to reach. Indeed, while small commercial buildings represent over 90% of SCE's and SDG&E's customer base, on average less than three percent are participating in energy efficiency non-residential programs.256 In 2010, Commission Staff recognized the challenge of this particular market segment and, in conjunction with the IOUs, developed Program Performance Metrics (PPMs) to assess mid-cycle progress of small commercial customers. The Staff proposal suggests four strategies to address small commercial buildings:
1) Increasing coordination with Local Government Partnerships and Business Improvement Districts (BIDs) for hard to reach customers;
2) Acceptance of rebates in the small business market should include a commitment to an audit;
3) Utilizing the Energy Smart Jobs (ESJ) model for outreach, and piloting Building Energy Asset Rating System (BEARS); and
4) Programs focused on tenant-leased space should compile a participant "toolkit."257
Though most parties agree that small commercial buildings present energy efficiency opportunities and should be a focus for the 2013-2014 transition period, parties disagreed about two of Staff's four strategies.
The IOUs did not agree with the recommendation that acceptance of rebates should include a commitment to an audit. The IOUs are concerned that requiring this commitment will hinder participation by a group of customers that are already hard to reach. SDG&E/SoCalGas caution that requiring audits in their territory would bar participation by gas customers of municipal electric utilities, such as Los Angeles Department of Water and Power (LADWP), which do not currently support an electric audit tool.258 PG&E suggests that the IOUs should motivate the market through increased education and increased awareness.259
The Energy Smart Jobs model "is an initiative of [Energy Upgrade California]; administered and funded by American Recovery and Reinvestment Act through the U.S. Department of Energy and California Energy Commission."260 The Energy Smart Jobs trains energy surveyors to complete energy assessments, and provides incentives for technologies for businesses. SCE supports utilizing the Energy Smart Jobs model for outreach, while SDG&E/SoCalGas recommend that this model should undergo a program evaluation to gauge its effectiveness before IOUs are directed to replicate it. Most utilities support piloting the Building Energy Asset Rating System tool but caution that it is in an early stage of development and that they do not want to risk creating market confusion at this point. SCE and SDG&E/SoCalGas recommend that a Building Energy Asset Rating System pilot be deferred until after the tool is fully developed so as to not hinder benchmarking progress in this area.261
Parties overwhelming agree that small commercial customers are hard to reach and that increased participation of this market segment is needed. The IOUs are actively engaging commercial customers, but reaching small businesses with less than a 200 kW demand is still a challenge. Local Government Partnerships often cater to small and medium commercial customers and have knowledge of these customers within their city and county confines. Local governments can also leverage insight on neighborhoods within a city, to further engage small commercial customers. Direct Install programs, often leveraged by Local Government Partnerships (LGPs), provide free to low cost measures for customers, and work well for small businesses. In addition, Business Improvement Districts 262 are another resource available to local governments and the IOUs to help support education and engagement of the small businesses.
Over the past few years California Air Resources Board has organized a program called the Small Business Energy and Water Makeover that coordinates with Business Improvement Districts, local officials, and utilities to pool small businesses together for energy assessments.263 This has led to a cluster of small businesses doing energy efficiency measure replacements utilizing rebates from the IOU Direct Install program. PG&E concurs with the idea of increased coordination between Direct Install, Business Improvement Districts, and LGPs, but notes that cost-effectiveness could be affected because many LGPs are non-resource programs and the energy savings are not attributable to IOU goals.264 In addition, increasing this collaboration with only Direct Install programs, could affect portfolio Total Resource Cost as this program provides free to low cost measures for customers, resulting in little investment from customers and high subsidies for measures. While Business Improvement Districts create value and can reduce outreach and marketing costs for IOUs by gathering small to medium sized businesses together, increased coordination of LGPs and Business Improvement Districts will entail a cost since this is a new activity not currently occurring in the LGP programs.
We find it reasonable to utilize the Small Business Energy and Water Makeover model and direct the 2013-2014 IOU applications to detail in their implementation plan, how their Direct Install and Deemed Incentive programs can utilize and coordinate with the Local Government Partnership Programs, and Business Improvement Districts. Additionally, we direct the IOUs to utilize Business Improvement Districts resources and direct the IOUs to file in their PIPs a plan for how they will utilize Business Improvement Districts to engage customers. In some cases, this might require contract amendments between IOUs and LGPs.
Audits help customers identify additional energy efficiency opportunities. Offering audits at the time of measure replacement would educate customers on increased available energy savings, and reduce outreach costs to these customers at a later date.
We understand small businesses are hard to reach, and have limited budget for additional efficiency activities, specifically larger projects with a long payback. We do not want the IOUs to turn customers away because of an audit prerequisite, and will not adopt this requirement at this junction. However, we direct the IOUs to explore this requirement for customers considering three or more measures, as these customers are interested in deeper savings and potentially could make the additional investment. We direct the IOUs to set forth this approach for their Deemed Incentive and Direct Install Programs in their applications.
In D.11-04-005, the Commission suggested that the IOUs should pilot the Building Energy Asset Rating System tool when available from the California Energy Commission. We now direct the IOUs to propose to pilot the Building Energy Asset Rating System tool in the 2013-2014 transition period, starting in 2013, as this is the expected date the California Energy Commission has informed us it will be available for benchmarking.
9.2. Increasing the Adoption of Emerging
Technologies into Current Programs
Emerging Technologies are highlighted as a significant contribution to energy savings for 2013 and beyond in the Potential Study.265 The IOUs' annual reports show that Emerging Technologies make up between 1% and 14% of measures installed in the Deemed and Calculated Incentives statewide programs.266 The Staff proposal for the 2013-2014 transition identified specific Emerging Technologies from the Potential Study for integration in the commercial Deemed and Calculated Incentives programs, and suggested coordination with the Lighting Market Transformation Program.
All four IOUs support increasing emerging technologies in the commercial Deemed and Calculated Incentive programs. For example, PG&E states the commercial market is risk averse, and emphasizes careful selection for these technologies and along with increased incentives to ensure participation with the least amount of risk for customers.267 PG&E further suggests collaboration between Commission Staff and the IOUs to identify the most promising Emerging Technologies.268 PG&E also supports increasing the installation of cost-effective measures identified in the Potential Study but recommends that the IOUs and Commission Staff jointly determine these technologies.269 SCE agrees with PG&E's recommendations, but notes that success is also contingent on Commission Staff's swift validation of corresponding workpapers for approval of new measures.270 Lastly, both PG&E and SDG&E/SoCalGas warn that this recommendation may increase program cost and reduce cost-effectiveness.271
Emerging Technologies support market transformation and their development is an important policy tool that can help achieve California's Zero Net Energy goals. Innovators and early adopters help demonstrate the commercial viability of Emerging Technology pilots and deployments, but incentives are needed to help defray the higher initial cost and motivate mainstream market adoption. The IOUs acknowledge the potential of Emerging Technologies and suggest increasing incentive levels are needed to prime the market for these innovative measures. We agree that it is reasonable to offer higher subsidies for new technologies to spur traction in the market. We approve the IOUs' request to raise incentive levels for Emerging Technologies in the 2013-2014 period, and direct them to file in their PIPs the incentive levels they propose to implement.
The IOUs suggested collaboration with Commission Staff to specify which Emerging Technologies in the Potential Study should be incorporated into the Statewide Programs. We agree collaboration is important between Commission Staff and the IOUs on Emerging Technologies, but also find that there are many other industry stakeholders that would be valuable to include in the collaboration about such technologies. We recommend improvements to the existing Emerging Technologies Coordinating Council to advise on technologies in the 2013-2014 transition period.
9.3. Increasing the Measurement of Performance Data
The Staff Proposal acknowledges the importance of gathering performance data for energy efficiency projects to support additional investment in the commercial sector. Measures of energy savings after energy efficiency installations are not readily available for commercial building projects. The Staff Proposal sets forth multiple strategies for gathering performance data. Parties commented on two of these strategies as follows: (1) incorporate better modeling tools for pre- and post-installation measured savings; and (2) provide incentives for the installation of data-gathering plug load technologies (e.g., watt meters), and for sub-metering.272
PG&E believes there is a need for performance data and is supportive of pre- and post-installation measurements and of sub-metering to verify actual project savings. PG&E also suggests the use of software-based energy management systems, as these systems use performance data to identify deeper energy savings in the commercial sector.273 PG&E supports testing ideas for data gathering in the 2013-2014 transition period through pilots, and expanding successful methods in 2015. 274 SCE concurs with the need to increase the measurement of performance data, but is concerned that the technical capability may not be available at a reasonable cost prior to 2015, and recommends piloting several technologies in 2013-2014.275
All parties who comment on this topic agree that performance data, including at the building, tenant level, or end-use level, is pertinent information and that improved ways to gather and utilize such information should be a part of the 2013-2014 transition portfolio.
Increasing the measurement of energy and energy savings at the tenant, building, or end use level may encourage additional financing for energy efficiency projects, as it will help reduce the performance risk of successful projects.276 We previously emphasized the importance of customer level data by instituting benchmarking in D.09-09-047 for commercial energy efficiency programs; in D.11-04-055, the Commission revised targets and approaches to reach this goal. Sub-metering is identified in the Strategic Plan as a critical strategy to implement in the near term to help achieve the commercial buildings zero net energy goals. We continue to recognize the significance of performance data and direct the IOUs to file in their applications methods by which more detailed performance and usage data can be measured, stored, and used, for implementation and/or piloting during the 2013-2014 transition period.
9.4. Providing Deeper Energy Retrofits Through
Innovative Auditing Approaches and
Packages of Measures
Staff proposed ways to deliver deeper energy retrofits in the commercial sector through innovative auditing approaches and measure packages. High Impact Measure replacements are one of the primary approaches to energy savings for commercial statewide programs.277 The Staff Proposal recommended a wide range of broad principles for programs geared toward deeper savings. The proposals addressed in this subsection include:
· Presentation of return on investment in audit results, and
· Tailoring audits to market segments, investigating the Energy Smart Jobs model.278
PG&E agrees to explore new audit tools, but cautions that there is a need for better software tools. In particular, PG&E sees, "the need for a more cohesive and well-articulated software strategy which leverages SmartMeterTM capabilities for a full suite customer engagement and education approach to address time-varying pricing and to increase participation in demand-side management."279 SDG&E/SoCalGas also support the development of strategies that would lead to deeper energy retrofits. SDG&E/SoCalGas note that in order to have a basic audit tool present a set of measures with consistent savings before the auditor leaves a customer site, savings assumptions and workpapers need to be finalized with ex ante savings data. CILMT supports deep whole building retrofits and suggests focusing on municipalities, universities, colleges, schools and hospitals, as they represent a strong area for investment since these customers face fewer market barriers than residential and small commercial customers. According to CILMT these "customers are much more likely to invest in deep, whole building retrofits rather than single, high cost measures (such as lamp replacement)."280
No parties contest the need to focus commercial energy efficiency programs on deeper energy retrofits and packages of measures in the 2013-2014 transition period. We agree with the proposal as laid out by Staff. We direct the IOU applications to incorporate new approaches in their commercial programs to achieve deeper energy retrofits and packages of measures, as specified in the Staff proposal. We are dismayed at the apparent misconception by SDG&E/SoCalGas that the ex ante savings review process should affect customer interaction, as implied by their comments. SDG&E/SoCalGas refer to the review process for custom projects and non-DEER measures workpapers, which in their view bear some "risk" due to the additional time built in for Staff's review of workpapers and savings assumptions. These should not deter the presentation of return on investment to a customer, because the reviews are to be conducted in parallel or prior to the utility and its customer signing a project agreement. We address concerns regarding delays in the ex ante savings review process below.
We are concerned that the ex ante savings misconception may permeate audit tools generally employed by the IOUs for commercial customers. Therefore, we direct the IOUs to explain whether or not their audit tools incorporate the ex ante savings referenced by SDG&E/SoCalGas in their applications. Further we direct the IOUs to file in their applications how they will use the return on investment approach at the time of an audit to present the business case to customers. Finally, we agree with CILMT that the "MUSH" market (municipalities, universities, colleges, schools, and hospitals) should be a focal point to test ideas for deep energy retrofits in the transition period and direct the IOUs to include programs that cater to these entities in their applications.
9.5. Addressing Split-Incentive Barriers in
Multi-Tenant Buildings
Split incentives are an inherent market barrier in tenant leased space in the commercial sector.281 The Staff's Proposal provides two program recommendations to address this investment challenge. The first program modification seeks to engage owners and tenants through the compilation of a "toolkit" with tenant outreach materials. The second recommendation is for programs to increase the installation of sub-meters, plug load control technologies, and energy management systems through incentives for multi-tenant buildings.282 As mentioned earlier, providing incentives for sub-metering and plug load control technologies will begin to pave the way for improved energy awareness and management for building owners and tenants.
PG&E and SCE both agree there is a need to increase owner participation in energy efficiency projects and address the split-incentive barriers that exist in non-owner occupied buildings. PG&E suggests pilot programs for sub-metering and software-based energy management in the 2013-2014 transition period, with expansion of successful methods in 2015.283 PG&E states that savings associated with these methods need to be documented, to avoid decreased portfolio cost-effectiveness that could result from the increased cost of these tools.284
The parties that commented on this issue agree the split-incentive barrier is important and warrants program attention in the 2013-2014 transition period. Innovative program designs and resources such as a "green lease tool kit" for tenant-occupied buildings, along with incentives for plug load control technologies, sub-metering, and energy management tools, can help better identify and understand what approaches work to overcome the split-incentive market barrier. We direct the IOUs to propose programs focused on overcoming the split-incentive barrier in multi-tenant buildings. We also direct the IOUs to submit an approach to include incentives for sub-metering and plug load control technologies for both owner and non-owner occupied buildings.
253 "Deemed Incentives" refers to pre-determined incentives for measures that are in DEER.
254 Programmatic Guidance Ruling, Attachment A at A10. http://docs.cpuc.ca.gov/efile/RULINGS/154861.pdf.
255 Programmatic Guidance Ruling, at 3-4. http://docs.cpuc.ca.gov/efile/RULINGS/154860.pdf.
256 2011 Annual Reports and PPMs filed pursuant to Res E-4385.
257 The Staff recommendation to include a "tool kit" for small commercial buildings in tenant-leased spaces is addressed below in the discussion on split incentives.
258 SDG&E and SoCalGas Comments on Programmatic Guidance Ruling at 10.
259 Ibid. at 11.
260 http://energysmartjobs.org/about/index.html.
261 SCE Comments on Staff Proposal at 10.
262 A Business Improvement District is a public/private partnership that performs a variety of services to improve the image of its city and promote individual business districts. It can also carry out economic development services by working to attract, retain and expand businesses.
263 http://www.coolcalifornia.org/sites/coolcalifornia/files/NorthPark.pdf.
264 Institutional Partnership Programs are resource programs, but Local Government Partnerships are non-resource programs.
265 Analysis To Update Energy Efficiency Potential, Goals, And Targets For 2013 And Beyond, at 100. http://www.cpuc.ca.gov/NR/rdonlyres/7C233849-9726-497DA60DFE84A057591A/0/PotentialGoalsandTargetsStudyTrack1DraftReport20111108.pdf.
266 Staff Proposal in the Guidance Ruling Attachment A at A11. http://docs.cpuc.ca.gov/efile/RULINGS/154861.pdf.
267 PG&E Comments on Staff Proposal at 9.
268 Ibid.
269 Ibid. at 11.
270 SCE Comments on Staff Proposal at 11.
271 Ibid. at 10.
272 Sub-metering is the metering of individual buildings or commercial spaces, which creates awareness of energy usage by individual tenants or buildings where previously disguised by a master meter.
273 PG&E Comments on Staff Proposal at 10.
274 Ibid.
275 SCE Comments on Staff Proposal at 11.
276 Harcourt Brown & Carey, Inc. Energy Efficiency Financing in California Needs and Gaps - Preliminary Assessment and Recommendations, at 45. http://www.cpuc.ca.gov/NR/rdonlyres/9A7637A9-BE7E-4762-B48F-93530D11DF8D/0/EEFinanceReport_final.pdf.
277 A High Impact Measure is an energy efficiency measure that represents a significant portion of the IOU portfolio energy savings and demand reduction.
278 Programmatic Guidance Ruling.
279 PG&E Comments on Programmatic Guidance Ruling at 11.
280 CILMT Comments on Programmatic Guidance Ruling at 3.
281 Split incentives refers to a condition where neither the owner nor the tenant is willing to make improvements to a leased space because neither party is likely to accrue the entirety of benefits associated with their investment.
282 Programmatic Guidance Ruling at A15.
283 PG&E Comments to Staff Proposal at 10.
284 Ibid.
