SCG Portfolio Overview

Southern California Gas's (SCG's) program portfolio is primarily an expansion of previous utility or statewide programs. SCG plans to significantly increase its budget in the next few years, going from $48 million to $61 million in 2007 (a 27 percent increase) and $73 million in 2008 (a 52 percent increase compared to 2006). This is a substantial increase, considering that SCG's budget for 2004 and 2005 program years together was $54 million.6 Thus, the key difference from the past is the substantial increase in budgets and partnerships, as well as a bidding program. Table 49 presents information on the programs that will be receiving funding for 2006-2008, grouped according to whether they will lead to energy and demand savings or are designed for information purposes only. Approximately 25 percent of the total three-year funding ($182 million) will go into third-party programs and partnership programs, and since they have not been developed, there was little information on these programs in the SCG portfolio to review. An analysis of budget and savings by sector (residential, non-residential, etc.) is described later.

Goals Attainment - SCG

Comparison with CPUC Goals

According to the information available to the TecMarket Works Team during the review period, SCG projects that their portfolio will meet the natural gas goals provided by the California Public Utilities Commission (CPUC) in each of the program years 2006, 2007 and 2008. They project that SCG's programs will achieve 107 percent of the CPUC's first-year natural gas goals, and they project that by the end of 2008 they will have achieved 106 percent of the natural gas savings goals. Table 50 presents SCG's projections of their portfolio's ability to reach CPUC energy savings goals.

The TecMarket Works Team's opinion of SCG's goal projection is that the goals are reasonable given the portfolio being developed and programs being offered. However, we have some concerns about the partnership programs being able to cost-effectively support SCG's energy goals, and there is limited information on how the goals will be supported by the third-party providers (via the 20 percent of the portfolio that must be competitively bid). We have no information on the expected cost-effectiveness or on the projected savings from the third-party programs as well as the partnership programs being planned by SCG.

Comparison with Potential

In order to conduct the comparison of SCG's portfolio goals with the SCG energy potentials, we used KEMA's "100 percent achievable potentials" (potential amount of energy savings that could be achieved if the program funding was increased by 100 percent). This allowed for a comparison of an expanded program portfolio that more closely matched the spending levels of the current portfolio. However, the current portfolio budget may be greater than the 100 percent increase reported in KEMA's potential reports for residential and non-residential programs. At this time, there is no published report for industrial potentials, however, there is an industrial potentials study currently being finalized by KEMA. For the SCG industrials potential, we used preliminary estimates from the yet to be published 2005 industrial potentials study being completed by KEMA. The industrial potentials should be considered proxy estimates that will need to be adjusted once the KEMA study is released in 2005.

KEMA's published potential reports provide 10-year estimates of program potential, or the amount of energy impacts that can be achieved over a 10-year period. In order to adjust the KEMA potentials to the 3-year program cycle, we multiplied the KEMA potentials by .3. We use 3-year potentials in this assessment because the current program planning cycle is three years in length.

We were unable to segregate the programs into residential, non-residential and industrial sectors using the portfolio data, as several programs cut across sector lines. As a result, we summed the potential estimates for the 100 percent increase in funding levels across the residential, non-residential and industrial sectors (note: the non-residential sector does not include industrial potentials) and compared these potential estimates with the SCG portfolio estimates. Table 51 provides the results of this comparison.

*Preliminary data for industrial, not yet published or finalized

As noted in Table 51, the total natural gas potential, as identified by KEMA is 35.7 mega-therms (Mth) for a three-year period (KEMA's 10 year potential x .3). The CPUC's goal for the capture of natural gas by the SCG portfolio is 57.3 mega-therms, or a 160 percent increase above the KEMA-identified potential. A review of the SCG portfolio indicates that SCG will capture 60.70 mega-therms of natural gas over the three-year program period. This is about a 6 percent increase over the CPUC's goal and represents a 170 percent increase over KEMA's 100 percent potential estimate.

This goal seems reasonable and obtainable with the doubling of the portfolio budget each year, and this challenge will require SCG to improve program performance each year of the portfolio. The addition of the bid and partnership programs will significantly help SCG to meet these goals.

Budgets and Service Offerings Balance

SCG's portfolio is distributed among several sectors in terms of funding and expected energy savings (Table 52). Most of the funding is going into the "Other" sector (this may reflect the fact that 23 percent of funding is going to third parties and it is premature to calculate which sectors will be targeted by third-party programs). Of the programs that are targeting specific sectors, 51 percent of the savings is expected to be achieved in the non-residential sector, and another 15 percent in the non-residential new construction sector. While 17 percent of the savings are expected in the residential sector, no savings are to be achieved in residential new construction. This last result is not surprising, since SCG does not have a residential new construction program, they have an Advanced Home Program that will explore new technologies.

Over 50 percent of the natural gas savings are in space cooling/heating, 30 percent in the "Other" category (primarily cooking), and 17 percent in water heating. This is quite a contrast to the other utilities where lighting is the predominant end use of savings.

In summary, the budget and service offerings are substantially targeted to certain sectors ("Other" and Non-Residential) and specific end uses (cooking and water heating). Because the focus is on natural gas savings, this strategy may be appropriate.

We expect that the programs that are more closely linked to previous programs run by SCG will accomplish their objectives in an efficient and timely fashion. However, the program descriptions for the bid and partnership programs are not clear in their presentations of what will be accomplished in each of the programs. We suspect that the partnership programs will have some organization and development issues similar to the past performance of these programs. That is, some will go more quickly and more smoothly than others. Likewise, we must assume that the bid programs to be implemented by third-party contractors will also have organizational and development issues consistent with the past performance of these programs. That is, some will be developed and fielded quickly and begin to achieve their energy goals, while others will move more slowly. Nevertheless, bid and partnership programs should be closely monitored and evaluated to ensure that these expectations are met.

Energy Savings Issues

To assess if the portfolio energy savings are reasonable for the measures used, we conducted a two-step review of the measures included in the SCG portfolio. First, we sorted for all the measures that used the energy savings from the DEER database, and compared them to DEER for accuracy. Next, we examined all of the measures that did not use DEER in estimating impacts. The energy impacts for these measures were estimated using non-DEER-associated approaches.

Not many measures in the SCG portfolio were tied to the DEER database (See Table 53). It is interesting to note that they did rely more heavily on DEER for the electric and demand related savings, but not for savings in their primary energy type of natural gas. This could be related to the availability of therm savings data in DEER.

DEER Measures Estimates

All of the measures that were estimated using DEER were reviewed for accuracy and consistency with the DEER 2005 Database. The DEER data was downloaded format from http://www.rtf.nwppc.org/deer2005/# on May 13, 2005.

In the "measure list" tables of the utility workbooks, the "Measure ID" was typically a match with the "RUNID" field in the DEER data. In some cases averages across the DEER "Measure ID" were used instead of the more specific "RUN ID". Comparisons of the utility estimate and DEER estimate were made based on the information available in the filed workbooks. For example, if the utility noted that they used an average for all DEER refrigerators, the evaluation team attempted to replicate their calculations for a valid comparison.

For a majority of the kWh savings in the portfolio, which are attributable to insulation, SCG seems to have significantly undershot the DEER estimate. However, there appears to be a difference in the units (i.e. square ft) used by SCG and DEER that has caused this discrepancy. We did not have enough information to replicate SCG's calculations.

These same measures were accountable for the difference in the DEER and utility estimates used for therms.

These same measures were accountable for the difference in the DEER and utility estimates used for demand savings in terms of kW.

Non-DEER Measures Estimates

Based on our review of the measures making up the majority of the non-DEER related savings, about 32 percent of the therm savings appeared reasonable based on our review, and 50 percent still presented some concern. Concern arose either from ambiguity of the documentation, or questions about the assumptions or calculations used. For more detail about the specific concerns for these measures see Appendix A.

We reviewed the energy savings estimates of the non-DEER measures that made up the largest proportion of energy savings, where possible (Table 57). Of the measures analyzed, we found:

· 10 measures had some additional documentation provided to the evaluation team but there was insufficient time for detailed review (representing 43 percent of SCG's therm savings)

· 10 measures had reasonable energy savings based on documentation (representing 32 percent of SCG's therm savings)

· 4 measures had questions regarding energy savings or similar measures not promoted in SCG's portfolio (representing 4 percent of SCG's therm savings)

Details on the concerns about the four measures listed in Table 57 can be found in Appendix A. Further review of the 10 measures that still are unclear should be done before final approval of SCG's portfolio.

Cost-Effectiveness - SCG

SCG estimates the TRC cost-effectiveness ratio for their portfolio at 1.4, indicating the portfolio is cost-effective in acquiring energy resources for California. However, several of SCG's programs do not show a cost-effectiveness estimate and were excluded from the portfolio cost-benefit calculations.

TRC Not Yet Developed

The third-party programs are not yet structured and cannot have a cost benefit ratio until after they are planned in greater detail. In addition, there are several partnership programs, and they also do not have an assigned cost benefit ratio because these programs are not yet formed to the extent that a TRC can be calculated.

TRC Not Applicable

There are four programs for which the TRC test is not applicable. These include the Codes and Standards Program, the Energy Efficiency Delivery Channel Innovation Program, the Emerging Technologies Program, EM&V, Statewide Marketing and Outreach, the Home Energy Efficiency Survey Program, and the crosscutting On-Bill Financing Initiative.

TRC Reported

The remaining programs in the SCG portfolio have a cost benefit ratio estimated using the TRC test. Most were cost-effective (TRC greater or equal to 1), particularly in the non-residential sector (Table 58). As expected, programs focusing on demonstrations and information and education were not cost-effective. The TRC for the entire SCG portfolio is 1.4.

TRC and PAC Issues

We did not see any variation in the relative differences between TRC and PAC numbers: the TRC was always less than the PAC, which is what one would expect if one assumes that the only variation between the two indices is cost (the TRC includes all costs, while the PAC excludes customer costs).

Issues Addressed - SCG

Administrative Costs

Administrative costs represent approximately 20 percent of the portfolio budget for 2006-2008: $37.4 million, out of $182 million. This is the highest percentage, when compared to other utilities. However, it is unclear whether all of the utilities are using the same definition and calculation of administrative costs. If the CPUC could clarify the contents and definitions of such costs, a clearer picture will probably emerge when we compare utilities.

Some programs have especially high administration costs, and the percentages ranged from a high of 44 percent (On-Bill Financing) to a low of 0 percent (for the Statewide Marketing and Information Program) (Table 59). The endpoints appear to be reasonable: (1) the On-Bill Financing Program is expected to have high administrative costs, especially in the beginning when designing the program and because there are no incentives and rebates, and (2) the Statewide Marketing and Information Program is expected to be simply a transfer of funds from SCG to the organization implementing this program.

Net to Gross

As mentioned in the overall assessment of the utility portfolios, the spreadsheets for each utility have net to gross (NTG) numbers for each measure. However, the NTG numbers were generally the same across all the measures within a program, or within groups of measures. As instructed, the utilities used default NTG numbers based on the CPUC Policy Manual. However, using these numbers increases the risk of the portfolio not producing the savings indicated by the program and may be inconsistent with some evaluation findings that report different NTG values. As a result, the cost benefit estimates across the portfolio are higher than what will likely be confirmed via the evaluation process. Accordingly, the net energy savings will cost more than what is reflected in the portfolio planning documents. While these standard NTG levels make it easier for planning and analysis, they increase the risk by overstating savings goals from the portfolio.

Risk Issues

Much of SCG's portfolio is the continuation of programs that have performed well over the past years. The use of proven programs helps lower the risks of programs not performing up to their expectations. However, one risk to the portfolio is associated with the significant increase in operating budgets and size of the goals compared to previous programs. There will be an increased risk in launching many programs with large budgets at the same time. SCG's 2005 portfolio budget was about $28 million, the 2006 budget is about $47.8 million, a 71 percent increase in one year. This will require significant management and utility supervision to oversee this ramp up, and to successfully implement larger and more aggressive programs. There is also a risk that as the programs attempt to ramp up, the higher administrative and management costs that will be associated with this ramp up will need to be offset by increased enrollments and installations. SCG will need to carefully monitor these programs to see that they are successfully moving in a cost-effective direction.

We also want to point out several categories of risk associated with SCG's programs:

Oversight Risk

SCG proposes fund shifting guidelines according to the following table:

Notes:

1. For Emerging Technologies, Codes and Standards, Statewide Marketing and Outreach, and EM&V, pre-Commission approval is required before funds are shifted out of these programs.

2. Funds may be shifted among competitive bid programs. Upon approval from the Commission, funds may be shifted out of these non-utility programs into other areas of the program portfolio.

This framework appears to provide sufficient flexibility for the program administrator and provides sufficient overview for the CPUC for the following cases:

· For Emerging Technologies, Codes and Standards, Statewide Marketing and Outreach, and EM&V, pre-Commission approval is required before funds are shifted out of these programs.

· For fund shifts among categories exceeding the 25% limitation, pre-Commission approval is required before funds are shifted.

In addition, the CPUC has other oversight responsibilities:

· Approval of the addition of new programs that are developed outside of the program administrator's competitive bid process.

· Oversight of program solicitations and selects in the competitive bid process.

The California Energy Commission also is provided one oversight responsibility: approval of a proposed measure and corresponding measure assumptions (e.g., energy savings, useful life, etc.).

Ramp Up

Much of the SCG portfolio is the continuation of programs that have performed well over the past years. The use of proven programs helps lower the risks of programs not performing up to their expectations. However, one risk to the portfolio is associated with the significant increase in operating budgets and size of the goals compared to previous programs. The SCG portfolio will need to be able to increase participation rates and capture the additional installations at a much greater rate than previous programs. While the IOU's ability to capture these additional participants remains to be demonstrated, the program description should state how they plan to accomplish the increased participation and installations, especially when the projected savings are greater than the potential savings. This explanation should not be a brief indication that the program size will be increased, but should be a strategic presentation of how the program will be increased and what aspects of the program will be adjusted to capture the increased participation.

There will be increased risk in launching on a wide number of programs all ramping up at the same time. This will require significant management and IOU supervision to oversee this ramp up, and to successfully implement larger and more aggressive programs. There is also a risk that as the programs attempt to ramp up, the higher administrative and management costs associated with this ramp up will need to be offset by increased enrollments and installations. SCG will need to carefully monitor these programs to see that they are successfully moving in a cost-effective direction.

Short-Term versus Long-Term Savings

SCG's program designs and measures are primarily a continuation and expansion of what has worked in the past: accordingly, they focus on the short-term, in order to reach or exceed the three-year goals set by the CPUC. It is anticipated that the long-term savings will occur through the efforts of the Advanced Home Program and the Emerging Technology Program, although in the opinion of the TecMarket Team, both of these programs are underfunded.

New Program Characteristics

Some programs will have some risks associated with completely new ways to approach the market. For example, the Local Business Energy Efficiency Program contains a "Recognition Program" that provides a non-monetary recognition award to non-residential customers who increase their natural gas efficiency based on energy audit recommendations or knowledge gained through energy efficiency seminars and consultations. Savings are assumed with this effort, and evidence will be needed from monitoring and evaluation. Similarly, the On-Bill Financing Program is innovative and somewhat risky (e.g., defaults), and the costs and benefits need to be monitored, evaluated, and assessed for this program (independently from other programs).

New Technologies

Some programs will be advancing energy efficiency technologies to make them ready for the marketplace (e.g., the Advanced Home Program and the Emerging Technology Program). These programs are inherently risky, since many technologies are unable to cross the chasm from R&D into the marketplace. In recognition of this risk, a small amount of natural gas savings is at risk in these programs.

Barriers

Many of SCG's programs are directed towards addressing key program barriers by offering rebates, information, training, education, etc. These barriers are expected to remain, and therefore present a risk to the achievement of SCG's objectives. One barrier in particular is of concern: the split incentives in the multifamily sector (i.e., owners versus tenants) in investing in energy efficiency. Accordingly, there will be greater risk in the multifamily sector (e.g., the Residential Multifamily Energy Efficiency Retrofit Program), compared to other sectors.

Third-Party Bid Programs

This part of the SCG's portfolio is significantly unknown at this time. Essentially, SCG is placing a larger component of the portfolio into the competitive market without guarantees that it will be able to find service providers that can cost-effectively deliver services. Past experience has shown that there are effective third-party programs as well as programs that need improvements to be cost-effective, thus risk increases.

Partnership Programs

SCG has fewer resources in partnership programs than the other IOUs, however, the success of these programs often hinge on the ability of the partner to acquire cost-effective savings. While partnership programs can look good in the design stage, in practice they often have implementation issues that work to lower the amount of energy that can be acquired through these programs. However, if they are effectively directed, managed and operated, partnership programs can expand the effects of the portfolio. Again, those unknowns increase portfolio risk.

Statewide Marketing and Outreach and Other Information Programs

The Statewide Marketing and Outreach program in particular, and similar programs in general, are a significant risk. It is a high-budget program being funded without a solid understanding of what types of messages and promotional events are successful at not just informing, but in causing action to be taken. Past evaluations have not addressed these issues well. This program is a significant unknown in terms of its ability to increase energy savings directly or indirectly. Funding seems to be based on applied trust that it will directly or indirectly accomplish some level of energy savings across all sectors, without supporting documentation that this relationship is real.

Program-Specific Risks

The above discussions of risks focus on selected key areas of risk. However, there are also risks associated with one or more programs offered within the SCG portfolio. These program-specific risks are presented in the program-specific review tables provided at the end of this chapter. The reader is encouraged to review these program-specific risks in addition to the more general or crosscutting risks discussed above.

Comprehensiveness and Lost Opportunities - SCG

SCG's program portfolio is more limited than other utilities, since SCG's focus is on attaining natural gas savings. After careful review, we only noted a few areas of potentially lost opportunities, mainly related to specific technologies:

1. The Single Family Home Energy Efficiency Retrofit Program does not include motors (since it is a gas program). However, consideration of providing incentives to promote electro-commutated motors (ECM) on furnaces (fans) saves electricity both in the summer and in the winter (for locations with heating). It is possible that a lost opportunity exists in not promoting more efficient ECM furnaces. A cost-effectiveness analysis is recommended for determining if it is cost-effective to include more efficient condensing furnaces (92 percent AFUE and above) in this program.

2. The Residential Multifamily Energy Efficiency Retrofit Program does not include clothes washers. Renters and owners use clothes washers in these buildings (especially if condos and duplexes are included, but also in apartment units and common areas), and studies have shown this measure to be very cost-effective (and even more cost-effective if one includes water savings and other non-energy benefits).

3. The Residential Multifamily Energy Efficiency Retrofit Program may be missing opportunities in boilers: (a) boiler resets and cutoffs, and (b) new high efficiency modulating boilers for small applications, or chained for larger applications. Although these measures are used throughout the country, a cost-effectiveness analysis is recommended for determining if these measures should be included in this program for this service territory.

Evaluation Considerations

Based on our review of the SCG portfolio, we believe that there is a strong need for a comprehensive and high quality evaluation (both impact and process evaluation) of SCG's programs in the next three years, for the following reasons:

· Natural gas savings have not received as much attention from the evaluation community as electricity savings.

· Many of the proposed programs are new or significant modifications of past programs (especially, the partnership and third-party (bid) programs). Thus, past evaluations of past programs may not be relevant for this new era.

· The documentation for many measures was not available, making the evaluation effort even more important.

· Most of SCG's programs have not undergone an evaluation. As noted in the last row of the table of SCG programs in the following section, ("Past Experience/Evaluations") we could only find the following evaluations that may be relevant for the next three years (based on CALMAC website):

1. Evaluation of the 2003 Express Efficiency Program

3. Codes and Standards White Paper (2005)

4. Evaluation of the 2002 Statewide Emerging Technologies Program

· Many of the assumptions used in the calculation of energy savings are based on old data (10-15 years old): e.g., NTG ratio, hours of occupancy, and pre-codes and standards requirements.

As part of the evaluation effort, we also recommend the following:

1. Periodic updating of the potential studies in all sectors (residential, commercial, industrial, and agricultural).

2. Development of a data dictionary that all users can access for information on definitions of measures, baselines, energy savings, costs, and references.

3. Market-based evaluations to see how specific markets are changing, some of which may be due to the IOU programs.

Bidding and Third-Party Issues - SCG

There was not enough information to assess this aspect of the portfolio.

Partnership Program - SCG

There was not enough information to assess this aspect of the portfolio.

Policy Issues - SCG

Residential New Construction

The four utilities have taken different approaches to Residential New Construction. SCG has decided to eliminate its Residential New Construction program - instead, it has its Advanced Home Program, with a budget of $335,000.

"The Advanced Home Program promotes residential new construction with a crosscutting focus to sustainable design and construction, green building practices and emerging technologies. Additionally, the program supports efficient heating, cooling, water heating system and building envelope design and installation. Through a combination of education, design assistance and financial support, the program works with the building and related industries to exceed compliance with the California Building Energy Efficiency Standards (Standards), to prepare builders for future changes in the Standards and to create future pathways to go far beyond compliance and traditional energy savings objectives. The program will interact on a statewide basis to share best practices but will be implemented locally by the utility."

Given the concerns about cost-effectiveness of residential new construction programs and the need to focus on cost-effective programs, this change might be the preferred method for addressing residential new construction, however, the TecMarket Team suggests that this program be evaluated with attention paid to how well these types of programs help develop a growing market for energy efficient homes.

From observing the Public Advisory Group (PAG) process, it appears that there is a strong interest in having Residential New Construction programs at the utilities. An alternative to constantly scrutinizing this program for cost-effectiveness is to combine it with related programs that are designed to attack the same market. New Construction or Advanced Homes programs could be integrated with other programs, such as the Emerging Technologies Program, Codes and Standards Program, and Sustainability programs in order to establish a strategic initiative that is specifically designed to provide cost-effective long-term savings through adding innovations to a large dissemination program, and eventually to code changes. In that way, the efforts are strategically designed and would meet the criteria of actually being run to produce long-term cost-effective savings. Even then, the program that helps disseminate the technological improvements may need to be larger than that supportable by the current budget..

Conclusion

We offer the following conclusions from our review of the SCG portfolio:

· The SCG portfolio will just meet the goals set out by the CPUC.

· In general, there should be little risk in meeting these savings, since most of the programs will be expansions of previous utility or statewide programs.

· If one significant program is not cost-effective, it is possible that the entire portfolio may not be cost-effective (i.e., TRC < 1).

· The substantial increase in budgets, partnerships, and the use of third parties will present a major challenge that this utility will need to overcome, and that will require comprehensive and high quality monitoring and evaluation.

Program-Level Assessment - SCG

This section of the report presents the program-specific assessment information and issue discussions that were identified during the portfolio review effort. The issues reviewed are presented in the left-most column of Table 61, each subsequent column represents a specific program, allowing the reader to see if the review team determined there to be a issue associated with a specific program, and to understand the review team's perspectives associated with each issue.

6 California Public Utilities Commission, Decision 04-02-059 (Feb. 26, 2004), San Francisco, CA.

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