Methodology

Cost-effectiveness is an important measure of value and performance. In order to ensure a level playing field for multiple programs, the Commission will continue to use the standard cost-effectiveness methodologies articulated in the California Standard Practices Manual (SPM): Economic Analysis of Demand-Side Management Programs. See the second page of this manual for information on how to obtain a copy of the SPM.

Two cost-effectiveness tests identified in the SPM are particularly important to the Commission in evaluating energy efficiency programs on an ongoing basis. The first is the Total Resource Cost (TRC) test - Societal Version. This test, as defined in the SPM, is intended to measure the overall cost-effectiveness of energy efficiency programs from a societal perspective, taking into account benefits and costs from more than just an individual perspective. The Commission will primarily rely upon the results of this test in assessing program cost-effectiveness.

The TRC should be calculated by treating programs as multi-year (rather than single-year) activities so that programs explicitly designed as integrated, multi-year strategies, which may have modest benefits (and/or high start-up costs) in early program years, can be evaluated considering the expected larger benefits (and/or lower costs) in later program years.

The Commission will not rely on the TRC exclusively in making funding allocation decisions among programs, but instead will use cost-effectiveness as one criterion among many (as summarized in Chapter 2 above).

In addition to the TRC test, the Commission will rely on the Participant Test (also identified in the SPM) to evaluate programs that are aimed at inducing individual customers to make energy efficiency decisions. The Participant Test measures the cost-effectiveness of a program from the perspective of energy consumers participating in the program. Proposals for programs designed to provide financial incentives directly to customers should include the results of the Participant Test as well as the TRC.

The Energy Division is in the process of developing a spreadsheet, in addition to the SPM, for use by parties proposing programs.