7. Measuring Utility Success: Energy Savings Goals
D.04-09-060 adopted annual and cumulative goals for energy savings from 2004-2013 for PG&E, SDG&E, SCE, and SoCalGas. The decision also announced that the Commission would update the goals every three years, in concert with the three-year program planning and funding cycle for energy efficiency.108 The April 13, 2007 assigned Commissioner's ruling in this docket provided guidance on the three-goal update areas that would be addressed:
· Whether energy efficiency goals should be changed for 2009-2011 and, if so, what relevant new information they should consider;
· An approach to setting long-term goals for 2012-2020 - how they should be developed and what they should be; and
· To what extent savings from certain activity areas should or should not be counted toward satisfying 2009-2011 portfolio goals - building codes and standards, water conservation programs, timing of credit for impacts that occur in a future period, non-utility energy efficiency strategies initiated by local communities, other non-utility energy efficiency impacts (e.g., market initiatives by manufacturers, distributors, business and professional organizations), and low income energy efficiency programs.109
Commission staff conducted a workshop on May 3-4, 2007 that included presentations by CPUC and Energy Commission collaborative staff, Itron, KEMA, and TecMarket Works. Based on the extensive workshop discussion, the assigned Commissioner issued a ruling on June 1 soliciting responses to a number of questions related to whether and how to change the utility energy savings goals. The utilities, TURN/DRA, NRDC, CCSF, the Community Environmental Council, LAC, The Energy Coalition, EPI, and Small Business California filed comments.
7.1. Adopted Energy Savings Goals for 2009-2011
Parties' Positions. The parties disagree on whether to modify our goals adopted in D.04-09-060. The utilities argue the adopted goals are unrealistic and should be lowered. Other parties urge us to retain our adopted goals, as reasonable targets that can and should be achieved. The CE Council requests that we increase our adopted goals. PG&E, SCE, and SDG&E/SoCalGas rely on a 2006 report by Itron and KEMA commissioned by PG&E,110 that they argue shows the data upon which D.04-09-060 relied is outdated and that the new information justifies significantly lowering our adopted goals. For example, they point to new building C&S adopted since 2002 and they state that some of their energy efficiency programs have been so successful that the market for them will become saturated before or during 2009-2011. PG&E states that the 2006 maximum net achievable savings potential is about 30% lower than the value in a 2002 study relied in part by the Commission in its 2004 decision.
SDG&E argues that its goals are highly unrealistic because it claims the Commission has used a methodology for developing the SDG&E goals that is significantly different from that used for PG&E and SCE. SDG&E states that the savings goals for SDG&E are 118% of the cumulative maximum achievable potential, compared to a value of 88% for PG&E and SCE, presenting a much more difficult challenge for SDG&E in its efforts to achieve its goals. SDG&E also cites the Commission policy decision in 2006 to count only actual projects delivering savings, as opposed to "committed" projects as a further hurdle in meeting our adopted goals. Although PG&E advocates lowering our adopted energy savings goals, it presents the alternative of increasing the types of energy savings that are attributed to meeting energy savings goals.
TURN/DRA, NRDC, CCSF, and Small Business California all argue there is no basis to justify changing and in particular lowering our 2009-2011 goals. NRDC and TURN/DRA claim that the effects of possible market saturation from current utility programs will be offset by countervailing factors, such as the growing demand for greenhouse gas emission reductions and public awareness of global climate change. NRDC, the Community Environmental Council, and TURN/DRA also believe the PG&E-sponsored KEMA/Itron 2006 study underestimates potential energy savings because it does not forecast the effects of improved energy efficiency technologies. TURN/DRA also note that the 2006 study does not include data from the entire 2004-2005 program cycle. TURN/DRA also argue the substantial resources required to modify our goals would be better spent on improving energy efficiency programs.
EPI suggests that the goals should be modified so that reductions in energy during peak periods are assigned more value than energy savings produced during off peak periods. The CE Council recommends that the goals be raised, believing that continually rising energy generation costs will make more energy efficiency measures cost-effective, in turn making it easier for utilities to introduce more energy efficiency programs and expand existing programs.
Discussion. The only question we address in this portion of the decision is whether to modify existing energy savings goals. If we were to agree that the goals should be modified, we could not, on the basis of the existing record in this proceeding, make such changes now.111 We conclude that the goals we adopted for PG&E, SCE, and SoCalGas in 2004 for the years 2009-2011 are reasonable and appropriate to use in the next program planning cycle; we decline to modify these goals.
As TURN and DRA observe, modifying the energy savings goals at this time would be a contentious and complex technical exercise. This work would necessarily divert our attention from matters that are higher priority, namely, the development of more and better energy efficiency programs and strategies. Moreover, we are cognizant of the inconsistent message we would send if we reduced our expectations of utility performance in energy efficiency program delivery at a time when we are aggressively promoting energy efficiency as urgent and essential for the health of the state's economy and environment. For these reasons, the utilities have a substantial burden to demonstrate the reasonableness of their proposals to lower our adopted energy savings goals. They have not satisfied that burden.
The utilities have not persuaded us that the energy savings goals we adopted in 2004 are either unachievable or unreasonable on the basis of new information or changed circumstances. The parties opposing lowering our existing goals make a convincing case that any changes that might reduce energy savings potential - such as market saturation or new codes and standards -- are likely to be offset by other circumstances, such as the development of improved energy efficiency technologies, increased public awareness of greenhouse gasses, and the effects of higher rates. Although we agree with CE Council that there may be an argument for increasing the goals, we are not convinced that the likelihood of increased energy savings is high enough to justify an elaborate and controversial inquiry on the matter.
Our adopted energy savings goals are deliberately aggressive. We designed them to motivate utility action and, under the risk/reward incentive mechanism, the utilities may be amply rewarded for their successful efforts. Modification of the goals is both unnecessary and counterproductive, and such an inquiry would hamper everyone's ability to address more important issues. We therefore retain PG&E, SoCalGas, and SCE's existing energy savings goals for the 2009-2011 period.
We make one exception, however, in the case of SDG&E. D.04-09-060 adopted energy savings goals for SDG&E that are substantially higher than those adopted for SCE and PG&E. That is, SDG&E's energy savings goals are equal to 118% of the "maximum (energy savings) achievable potential" over ten years while the allocation to SCE, SoCalGas, and PG&E is 88%. We adopted this allocation in order to avoid certain practical problems that might occur if we were to allocate energy savings more equally between the three companies.
SDG&E argues that the allocation is inequitable, that it has saturated its territory with energy efficiency, and that such results are not sustainable over the long term.112 TURN and DRA acknowledge this inequity as it applies to SDG&E and suggest remedying this imbalance by ensuring SDG&E has adequate funding rather than adjusting SDG&E's goals downward.113
In adopting SDG&E's 2006-2008 energy savings goals, we stated our intent to "take a fresh look at the underlying assumptions that create the disparity in the 2004/2005 savings baseline and estimated savings potential across the three service territories when we update our savings potential estimates in the future."114 Accordingly, we hereby commit to revisiting SDG&E's energy savings goals, as SDG&E proposes, or addressing the matter in the budget process as TURN and DRA propose. In either forum SDG&E will have the burden to provide a proposal that is technically sound and does not compromise our objectives to promote an aggressive energy efficiency strategy in Sempra's territory. The assigned Commissioner may determine the forum and schedule for this inquiry.
7.2. An Approach to Setting Long-term Goals for 2012-2020
The issue of setting long-term goals for 2012-2020 has two components. First, what should be done with regard to any changes in the goals we have adopted for 2012-2013 and second, what approach should we take in setting goals further out, to 2020.
Parties' Positions. TURN/DRA, NRDC, PG&E, and SDG&E/SoCalGas suggest that changing our adopted goals for 2012-2013 is premature until more data is available. PG&E and SDG&E/SoCalGas recommend obtaining feedback from the 2009-2011 project cycle before considering changes to the goals for 2012-2013. Small Business California suggests that the goals for 2012-2013 be changed only if EM&V studies demonstrate significant shortfalls from the ex ante projections. SCE was the only respondent advocating immediate modification of the 2012-2013 goals. SCE requests lowering the goals for the same reasons at it argues for lowering the 2009-2011 goals, claiming new developments from those considered in D.04-09-060.
With regard to the approach for setting post-2013 goals, NRDC supports adoption of longer-term goals and recommends a similar timeframe to that established in AB 32 (e.g., at least through 2020).
Discussion. We decline to reduce adopted goals for 2012-2013 for the same reasons we retain the goals adopted for 2009-2011.
The Assigned Commissioner's April 13 scoping ruling stated that we would investigate energy savings goals through 2020 in recognition of the timeline set forth in AB 32 for greenhouse gas reduction programs. To that end, we have commissioned a study to guide our decision regarding appropriate goals for 2012 through 2020. D.04-09-060 stated our intent to extend the goals during each three year planning period, and directed staff to develop a timeline for developing these goals as expeditiously as possible.115
7.3. Adjustments to the Counting Rules for the 2009-2011 Portfolio Goals
The assigned Commissioner's April 13 scoping ruling stated our intent to address the extent to which savings from certain activity areas should be counted toward satisfying 2009-2011 portfolio goals. We address below each of the six activity areas listed in the ruling: codes and standards, water conservation, impacts from future budget cycles, local government energy efficiency activities, other non-utility energy efficiency impacts, and low income energy efficiency savings.
We reaffirm our 2005 goal that the utility programs should include efforts to encourage the adoption of more stringent C&S. We stated that these programs
... have been an essential and valuable component of the energy efficiency program portfolio in the past, and continue to be recognized as such in our updated policy rules. In fact, using ratepayer dollars to work towards adoption of higher appliance and building standards may be one of the most cost-effective ways to tap the savings potential for energy efficiency and procure least-cost energy resources on behalf of all ratepayers.116
In D.05-09-043, we adopted a policy of counting 50% of the verified savings from pre-2006 utility C&S advocacy work towards energy savings goals for 2006-2008. In addition, we count 100% of the energy impacts of the utilities' post-2006 C&S advocacy work in estimating progress toward energy savings goals. The issue we address today is whether to use the same rules for counting utility C&S activities for our upcoming 2009-2011 program cycle. This involves both how we count savings from the utilities' pre-2006 C&S and for post-2006 C&S advocacy work.
Parties' Positions. Parties generally agree that utilities should be allowed to count at least some of the results of their work on C&S to the extent that they produce verified energy savings. TURN/DRA and SCE propose retaining the current policy of counting half of the savings for the period prior to 2006. TURN/DRA believe the 50% rule strikes a balance that motivates the utilities to assure builder compliance with C&S in effect during the pre-2006 period and to pursue aggressive energy efficiency in the post-2006 period. PG&E suggests that all verified energy savings from pre-2006 C&S work should count. CCSF supports including the energy savings attributable to C&S assistance but urges improvements in the method for quantifying these effects.
CCSF, TURN/DRA, SCE, NRDC, and SDG&E/SoCalGas discuss the importance of ensuring compliance with C&S. TURN/DRA and NRDC propose that all savings attributable to utility compliance efforts be counted in addition to their work assisting in C&S changes. SCE disagrees, arguing that utilities cannot enforce C&S, only governmental agencies.
Discussion. We reaffirm our existing policy of allowing utility C&S advocacy activities to count towards their savings goals. We agree with SCE and TURN/DRA that current Commission policy should be continued for the next program cycle. Therefore, we will count 50% of verified savings from the utilities' pre-2006 C&S advocacy work towards achievement of goals for 2009-2011, and 100% of verified savings from post-2006 C&S advocacy work.
We recognize the importance of compliance with C&S but agree with SCE that utilities cannot and should not displace the responsibility of government to ensure compliance. Nevertheless, as we discuss above, all parties agree that there is widespread lack of compliance with HVAC requirements and the utilities are expected to play a proactive role in identifying and assisting in steps to enhance compliance. To the extent that the IOUs believe that additional activities centered on C&S compliance warrant counting towards achievement of the goals, we encourage them to address this issue in their work on the HVAC programmatic initiative.
Because compliance is essential, we are open to allowing utility efforts in support of compliance if the utilities choose to include these in their portfolios to strengthen the total expected energy savings. Moreover, because we already address in our EM&V protocols determining verified energy savings from C&S work, we view this as a utility program strategy choice of allocating expenditures between advocacy and compliance.
In. D.05-09-043, we declined to adopt the proposal of NRDC and CCSF to count "embedded energy savings" in reducing water usage towards the 2006-2008 savings goals.117 NRDC has provided information from an Energy Commission study that indicates that saving water also saves substantial amounts of energy associated with water use efficiency, due to reduced pumping, treatment and wastewater treatment. It is these upstream or "embedded" savings that NRDC and CCSF argued should also explicitly count towards the savings goals. D.05-09-043 directed the assigned Commissioner to explore this counting issue further.118
In this docket, staff sponsored a workshop on this issue on July 17, 2006 and received comments from interested parties on July 31 and August 18. Assigned Commissioner Grueneich then issued a ruling on October 16 that directed each of the utilities to file applications seeking approval of one-year pilot programs, to begin on July 1, 2007, forming partnerships with large water providers to implement a jointly-funded program designed to maximize embedded energy savings per dollar of program cost.119 The IOUs have filed those applications and they have been consolidated.
In this docket, we have taken comments on whether and under which conditions energy savings associated with water conservation programs should be counted toward the utilities 2009-2011 savings goals.
Parties' Positions. Most parties agree that in principle, energy savings associated with water conservation programs should count toward utility goals where the program is cost-effective and supported by utility efforts. TURN/DRA, NRDC, and PG&E note that it is still difficult to quantify the effects of water-embedded energy savings and recommend that the pilot projects under development be completed before the Commission makes a decision on the counting issue. If the Commission finds that water conservation programs can be a cost-effective method of saving energy, these parties suggest the savings should be counted toward energy savings goals and be applied during a utility program cycle. NRDC would limit to 10% of total energy savings the amount of savings counted from water conservation programs.
Discussion. We agree with the parties that is premature to decide whether and how to count energy savings from water conservation until we have assessed the results of the utilities' pilot programs, including the cost-effectiveness of water conservation programs from the standpoint of saving energy. We direct the assigned Commissioner and staff to continue to explore this issue as expeditiously as possible. If, through the Water Energy Pilot process currently underway, we find the water conservation savings to be cost-effective from the standpoint of energy savings, we will consider allowing a mid-cycle program addition upon a petition from a utility or other party. The energy savings arising from the program addition may be applied toward the utilities' energy savings goals; however, we will not count any energy savings generated from the water-embedded energy pilot programs the Commission is considering in A.07-01-24 et al.
7.3.3. Local Government Programs
Parties' Positions. The utilities, TURN/DRA, NRDC, LAC, and CCSF all agree on the importance of partnerships between utilities and local governments. SCE, PG&E, and LAC suggest that energy savings attributable to these programs should only count in cases where the local government program can be attributed to the influence of the utility partnership, or instances where utilities provide significant financial or resource support.
Discussion. We have previously articulated our support for local government partnerships that take advantage of the expertise, access and infrastructure of local agencies for implementing energy efficiency programs. Partnerships between utilities and local governments must be an essential part of a long-term strategy for energy efficiency programs in California. We will continue to count savings from local government programs when they can be attributed to a utility's partnership with the local government, or where the utility can demonstrate that the financial or informational support it provided the local government affected energy savings.
Utility energy efficiency programs can influence energy savings in two indirect ways. One occurs when program participants undertake energy efficiency improvements beyond the scope of the utility's program. Some refer to the energy savings from these program participants in such situations as "participant spillover."120 The second occurs when those not directly participating in a utility program reduce their energy use after being influenced by a utility program. This second indirect effect is often referred to as a case of "non-participant spillover." The issue we address is whether to allow utilities to count savings beginning with the 2009-2011 portfolios from such indirect effects for purposes of calculating progress toward goals.
Parties' Positions. Parties had differing views on whether the utilities should be able to count savings from spillover effects toward energy savings goals. The utilities recommend that savings from participant spillover activities should count toward utility savings goals when the savings are attributable to the influence of the utility program. SCE further argues that this issues warrants attention as the Commission considers broader bases for action to reach more ambitious goals, as with the "Big, Bold" initiatives.121 Similarly, SDG&E/SoCalGas states that the Commission's goal to implement more aggressive energy efficiency strategies would not be served if utility accomplishments reduce the utilities' opportunities to earn incentives every time there is progress in the market.122 PG&E states that the most cost-effective programs are those that have high spillover and the Commission should encourage their implementation.123
SCE suggests that the EM&V protocols be applied to assess when a program participant undertakes efficiency actions "to the extent and only to the extent, that the additional improvements can be attributed to the influence of the [utility] program." SCE acknowledges the difficult question of attributing savings when there are increasingly indirect effects (arguably "non-participant spillover"), such as when architects, builders, and building owners apply knowledge learned in some aspect of a utility program to other building construction projects. SCE states such instances could "be highly cost-effective savings that policy-makers should want to encourage, not discourage, because they can lead to a higher level of efficiency penetration." SCE recommends an investigative process to determine "documentation and measurements methods that could provide reliable, perhaps conservative, savings estimates in which [policy-makers] could have a high level of confidence."124
TURN/DRA argue that such indirect savings should not be counted because it will reduce the motivation for utilities to seek other more direct energy efficiency savings, or could possibly cause utilities to "reap a windfall in shareholder incentives".125 Rather than count these savings, TURN/DRA recommend that if utility "efficiency savings diminishes significantly in the future because of `mainstreaming'," the Commission reduce utility goals and budgets.126 TURN/DRA further claim that "it is not clear that allowing the utilities to count spillover or free driver savings would stimulate any changed [utility] behavior," such as "to work with a business with multiple branches."127
Discussion. TURN/DRA make a good case that counting spillover effects may not motivate the best energy efficiency program strategies and give the utilities credit for energy savings they did not motivate. However, the opposite may be true. That is, counting participant spillover may encourage the utilities to support program participants to take additional, independent actions, and counting conservative estimates of "non-participant spillover" savings can support broad initiatives that change the "mainstream" market actions. Both cases could thereby promote energy efficiency improvements that ratepayers do not fund. We should encourage the utilities to design programs that promote independent action.
We are willing to entertain proposals for counting savings for the 2009-2011 program cycle from the first type of indirect effects discussed above, that of participant spillover as we define it here, to the extent program impact evaluation studies can identify quantifiable savings.
We direct our staff, under the direction of the assigned Commissioner and working with parties during the evaluation of 2006-08 programs, to assess our existing EM&V protocols, the availability of data, the credibility of estimating savings, the gain from doing so relative to any incremental evaluation costs, to determine if there are participant spillover market effects that should be attributed to ratepayer-supported programs beginning with the next program cycle (2009-2011).128
We are less certain about the feasibility of reliably estimating the effects of the second type of indirect effects, that of "non-participant spillover." There can be multiple factors (not just IOU programs) that drive the efficiency effects in a market, including motivations to reduce greenhouse gases or a desire to enhance corporate reputation through energy efficiency or "green" initiatives. These factors make the challenge of attribution more daunting. Still, we are cognizant of our directive for more integration and broader coordination with stakeholders beyond utility programs. With regard to the TURN/DRA comment on multiple business locations, we encourage utilities to market efficiency recommendations to high-level business managers and officers who can commit to efficiency actions occurring at multiple locations.
For these reasons we choose a conservative path to address the issue of "non-participant spillover" savings. We direct Commission staff and its EM&V consultants to explore during 2008-2009 the ability to credibly quantify and credit "non-participant spillover" market effects. We direct staff to report their findings following the process evaluation and market impact studies of the 2006-2008 program cycle on the ability of current protocols to measure such "non-participant spillover" savings and to propose possible revisions to market effects protocols, utility savings goals, and/or performance incentive mechanisms for subsequent action by this Commission. This report will serve to initiate workshop discussion on the subject in 2009. Such effects should be credited only when they can be 1) observed and, 2) attributed to utility programs within some high standard of certainty.
The final area of counting rules we address today is whether to modify our current rules that allow utilities to include savings from low income energy efficiency programs in assessing progress towards their energy savings goals. Unlike other utility energy efficiency programs, the low income programs are fully subsidized, require the customer to demonstrate low income status, and are less likely to be cost-effective. They are funded and managed separately from other utility energy efficiency programs. While our current rules permit utilities to count the savings from the low income energy efficiency goals in their general savings targets, we do not count the costs of the programs in determining the cost-effectiveness of the utility portfolios or in calculating utility incentive awards.
Parties' Positions. The parties addressing this issue agree that the energy savings from low income programs should continue to be considered in the estimates of potential energy savings and in considering whether the utilities have met their goals. No party advocates for their inclusion in the calculation of utility incentive awards, probably because the programs are not consistently cost-effective.
Discussion. We agree that there is no reason to change the treatment of low income energy efficiency programs in estimating energy savings and progress toward goals at this time. We may reconsider this treatment if and when low income programs are treated more like resource programs, that is, with an increased emphasis on cost-effectiveness and the program's value as an energy resource.
108 D.04-09-060, p. 3 provides detailed background on the events and information leading to the adoption of our current goals
109 Assigned Commissioner's Scoping Memo and Ruling, April 13, 2007, pp. 3 and 6-7.
110 California Energy Efficiency Potential Study, Itron, Inc., RLW Analytics, Inc., and Architectural Energy Corp., May 2006.
111 Although the utilities presented a study to support their proposal to lower our adopted goals, the study only assists us in deciding the threshold issue of whether to modify our goals. Far more detailed information would be needed to actually change the goals.
112 July 2, 2007 Reply Comments of SDG&E and SoCalGas.
113 July 2, 2007 Reply Comments of TURN and DRA.
114 D.04-09-060, pp. 26-27.
115 We direct staff to work with utilities on "temporary" goals for 2014 through at least 2020 for the IOU Strategic Plan. Such an approach is acceptable for now, since the purpose of the Strategic Plan is to set a general course and with the understanding that it will require ongoing refinements.
116 D.05-09-043, pp. 120-121.
117 D.05-09-043, p. 164.
118 D.05-09-043, p. 165.
119 These applications were filed in A.07-01-030, and are currently under review.
120 Our EM&V Protocols (Glossary) define "Spillover" as "Reductions in energy consumption and/or demand in a utility's service area caused by the presence of the DSM program, beyond program related gross or net savings of participants. These effects could result from: (a) additional energy efficiency actions that program participants take outside the program as a result of having participated; (b) changes in the array of energy-using equipment that manufacturers, dealers and contractors offer all customers as a result of program availability; and (c) changes in the energy use of non-participants as a result of utility programs, whether direct (e.g., utility program advertising) or indirect (e.g., stocking practices such as (b) above or changes in consumer buying habits)." Participant spillover is described by (a), and non-participant spillover, by (b) and (c). Some parties refer to non-participant spillover as "free-drivers."
121 SCE Reply Comments, July 2, 2007, pp. 8-9.
122 SDG&E/SoCalGas Reply Comments, July 2, 2007, p.4. This comment refers to the measurement protocol whereby the energy savings for which utilities get credit towards their goals are adjusted by a fraction that excludes efficiency actions occurring in the marketplace and for which utility programs are not directly responsible. Thus the utility gets credit for the "net" amount, not the "gross" savings occurring in the market. To the extent that some of the excluded savings might have been caused indirectly by the utility program, the utility (and the corresponding ratepayer expenditure) may receive less credit or "benefit" than if the savings were counted and the "net-to-gross ratio" higher. This would make it harder for a utility to reach its savings goals and performance targets, decrease the calculated net present value and cost-effectiveness of the program or portfolio, and reduce the performance earnings basis of the utility's risk/reward incentive.
123 PG&E Reply Comments, July 6, 2007, p. 5.
124 SCE Comments, June 18, 2007, pp. 11-12.
125 TURN/DRA Joint Comments, June 18, 2007, p. 19.
126 TURN/DRA Joint Comments, June 18, 2007, p. 20.
127 TURN/DRA Joint Reply Comments, July 2, 2007, p. 29.
128 If we do determine to count "participant spillover" we may deem it reasonable to raise future goals in recognition of demonstrated significant market effects and apply the market evaluation estimates to those higher goals.
