3. Joint Staff's March 26 2004 Recommendations
Tables 2 and 3 present Joint Staff's March 26, 2004 recommendations for electricity and natural gas savings goals. We summarize below the methods used by Joint Staff to develop these goals.
3.1. Electricity Savings Goals
In developing its recommendations for electricity savings goals, Joint Staff started with the statewide goals developed by CEC staff for the 2003 Integrated
Energy Policy Report (referred to hereafter as the "statewide goals study").8 Those statewide goals were, in turn, based on a review of the economic potential for energy efficiency programs, i.e., the magnitude of savings that could be achieved by programs at a cost equal to or less than the projected cost of supply alternatives.
The statewide goals study utilized the costs and benefits information provided in the Hewlett Foundation Report to develop an estimate of the potential to increase the number of energy efficiency investments made by customers and businesses in specific segments over the next decade. This report presents estimates of the remaining potential to reduce energy usage over the next 10 years by influencing customers to make energy efficiency investments. It does so by examining market saturation for a list of over 200 measures for the residential, commercial and industrial sectors, and deriving cost of conserved energy supply curves. Based in this information, the report shows that additional energy savings can be achieved equivalent to 10 percent of total electricity sales in 2011, and at a levelized cost of less than 5 cents per kilowatt hour (kWh). The cost of conserved energy includes administration costs, incremental measure costs, rebate costs and marketing costs.
The statewide goals study utilizes the supply curves and other information presented in the Hewlett Foundation Report to compare the cost of energy
efficiency measures to the levelized costs of three separate supply cost benchmarks. The benchmarks are: (1) a peak load plant designed to run from 10 to 999 hours per year, (2) a plant designed to serve shoulder load for one to four thousand hours per year and (3) a baseload plant designed to run year round. Based on this comparison, the statewide goals study projects the remaining economic potential for energy efficiency measures. That economic potential was estimated at 35,325 gigawatt hours (GWh) per year, by the year 2013. This reflects the lower end of the range for economic potential presented by the generalized cost of conservation curve analysis in the Hewlett Foundation Report.
The statewide goals study also considers the impact of achieving these savings goals on future per capita energy usage levels as well as on the overall electricity forecast, and assesses the feasibility of using energy efficiency programs to reach different per capita reduction goals. Based on an evaluation of previous program experience and trends in cost-effectiveness, the study concludes that the maximum achievable potential (or program potential) is on the order of 30,000 GWh statewide over the next decade, and establishes this level as a long-term goal. In developing this estimate of program potential, CEC staff considered various limiting factors, including constraints to ramping up program funding and the trend in market saturation for certain measures.
In the March 26, 2004 report, Joint Staff translates this statewide level of energy savings goals to the individual IOU service territory levels. This was accomplished by applying a baseline ratio of savings per dollar of expenditure to each IOU's relative share of program funding. Table 2 presents Joint Staff's March 26 2004 recommendations for electricity savings goals on an annual and cumulative basis over 2004-2013 by IOU service territory. The annual numbers represent the annual GWh and megawatt (MW) savings achieved by the set of programs and measures implemented in that specific program year. The cumulative numbers represent the annual savings from energy efficiency program efforts up to and including that program year.
As indicated in Table 2, Joint Staff recommends a cumulative goal for electricity savings of 26,508 GWh (6,892 MW peak) by 2013 for PG&E, SCE and SDG&E combined. This total is approximately 85% of the savings goals adopted in the statewide goals study, reflecting the exclusion of incremental savings estimates for energy efficiency programs in municipal utility areas.
As Joint Staff explains in the report, there are two ways to describe the impacts of electricity savings goals on trends in per capita usage or, alternatively, to estimate the level of savings necessary to meet a requirement to reduce per capita electricity energy use by a certain percentage. In this proceeding, Joint Staff looked at per capita reductions relative to an initial base year level of usage in 2003, as did PG&E. On the other hand, SCE and SDG&E chose to look at per
capita reductions relative to their own forecasts of per capita usage in future years, which can be rising, stable or declining.9 In other words, the Joint Staff method assumes that establishing a "per capita reduction goal" means to reduce per capita electricity use each year, starting now, and not from a forecasted value ten years from now.
Use of these different methods yields very different forecasts of savings achieved for the same per capita reduction percentage. For example, relative to the level of per capita usage in the 2003 base year, the savings goals recommended in both the statewide goals study and the Joint Staff report translate to a reduction in per capita electricity usage on the order of 0.3 to 0.4 percent over the next 10 years. Using the lower end of the range means that per capita usage in 2004 would be 0.3 percent lower (in absolute value) than the level of per capita usage in 2003, or 99.7 percent of that level. In 2005, the per capita usage would be 99.4 percent (99.7 x 99.7 percent) of the level in 2003, and so on compounded out to 2013, when per capita usage is approximately 3% lower than the 2003 base value.
Using the second method, where reductions to per capita usage occur relative to the forecast of future per capita usage, the Joint Staff recommendation for savings goals for each utility translates to a reduction in the annual forecasts of per capita electricity usages of 0.6% per year for PG&E, 0.8% per year for SCE and 0.93% per year for SDG&E. This means that per capita usage in each of the years forecasted over the 2004-2013 period would need to be reduced by the per capita reductions calculated above for each IOU to achieve the equivalent energy savings goal contained in Joint Staff's recommendations. The percentage change in per capita usage derived using the second method is higher because the reductions are not compounded over time from a base per capita usage level. Rather, the reductions are simply used to scale down a forecast of per capita usage that is already trending upwards for all three utility forecasts.
Regardless of the interpretation of how to calculate per capita reductions achieved by energy efficiency program savings, Joint Staff recommends that the Commission "adopt our aggressive overall savings goals that were determined based on potential studies and cost-effectiveness and are not tied to any particular interpretation of trends in per capita usage."10
3.2. Natural Gas Savings Goals
The analysis in the March 26 2004 Joint Staff report on natural gas savings goals was based on Xenergy's recent evaluations of the potential for energy efficiency to reduce natural gas use.11 First, Joint Staff calculated the "technical, economic and maximum achievable" potential estimates from the Xenergy studies by combining the results for each market segment (residential, commercial and industrial). To develop the "economic and maximum achievable potential," Joint Staff utilized the energy cost scenario closest to current conditions and future natural gas price projections, and summed the results. Staff also compared the assumed avoided cost figures from the Xenergy reports with updated figures, and found that the differences were minimal and not expected to dramatically affect the results of Xenergy's potential analysis. Finally, Staff evaluated factors suggesting that Xenergy's natural gas savings estimates may be too high or too low, and identified several that could bias the results in both directions.
Figure 1 shows the natural gas savings potential that result from Xenergy's evaluations. Technical potential encompasses complete penetration of all measures that are technically feasible to install from an end-use and engineering standpoint. An estimated 4,559 million therms fall into this category for the residential, commercial and industrial markets. Economic potential typically refers to that portion of technical potential that is cost-effective for customers when compared to supply-side alternatives. At 1,592 million therms, the economic portion of the total potential is considerably smaller than what is technically possible.
The third type of potential, maximum achievable, is the amount estimated to be achievable over a period of time with an aggressive program scenario. This scenario assumes that programs use cash rebates equivalent to 95% of the incremental cost of the measures to reach roughly 80% of the eligible population. It also assumes that program managers significantly increase the fraction of customers reached by their programs from roughly 3 to 5% of the population to 15 to 20% of the population on an annual basis. Xenergy's estimates of the maximum achievable savings for the residential, commercial and industrial customers sum to a total of 1,057 million therms over a ten year period, for SoCalGas, SDG&E and PG&E, combined. However, for all three definitions of potential, the savings estimates are based on measures that can be substituted for, or applied to, already installed technologies on a retrofit basis. They do not reflect emerging technologies or energy savings that might be achieved through an integrated redesign of a building's existing energy-using systems.
Joint Staff also examined Xenergy's projections of natural gas savings achieved using different program funding trajectories: (1) Level 1--current spending of $45 million per year, (2) Level 2--50% more than current spending, (3) Level 3--100% more or doubling the current spending trend, and (4) Level 4--spending for the maximum feasible potential. Table 5 presents the results of those projections. Based on an evaluation of historic natural gas efficiency program experience and trends in cost-effectiveness, Joint Staff develops in its March 2004 report natural gas savings goals that are slightly higher than the Level 3 trajectory, i.e., reflecting 100% increase in program funding levels. In presenting its recommendations, Joint Staff states the following:
"We conclude that it would be feasible to ramp up program funding to achieve the term savings reported by Xenergy for the Level 2 and Level 3 funding levels but not the Level 4 (Maximum Achievable). We find it very unlikely that the Commission would approve a five fold increase in funding in 2006 to begin to achieve the savings envisioned in the Maximum Achievable scenario. This level of funding increases and actual expenditures have never occurred over the last two decades. Our review of the funding levels over the last 5, 10 and 20 years and the trends in existing program effectiveness rules out Maximum Achievable as a feasible goal....[S]taff does not believe it wise to pursue goals much greater than the Level 3 Increase, or 100% increase in program funding levels until more experience is gained with respect to the IOUs ability to rapidly ramp up both funding and achieve incremental natural gas savings."
Joint Staff's March 26, 2004 recommendations for natural gas savings goals are presented in Table 3. As described in Section 5 below, Joint Staff revised these initial recommendations in response to the workshop discussion and post-workshop written comments.
