California Public Utilities Commission Legislative Briefing February 13, 2009 Energy Efficiency for California: Achieving Maximum Energy Savings in California.

California Public Utilities CommissionLegislative BriefingFebruary 13, 2009

Energy Efficiency for California: Achieving

Maximum Energy Savings in California for

2009 and Beyond

2

Presentation Overview

Energy Efficiency Basics CPUC Policies & Programs

• Investor Owned Utility Efficiency Programs• California Long Term Energy Efficiency

Strategic Plan

Federal Stimulus Summary of challenges and

opportunities

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Energy Efficiency Basics

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What is Energy Efficiency?

Using less to offer more

Appliances and Equipment• Lighting, Electronics, Refrigerators, Stoves, Dishwashers,

Washers and Dryers, Water Heaters

Building Design • Insulation, Weatherization, White Roofs, Skylights, Passive

Solar Heating, Infrared Sensors, Energy Management Systems, Smart Meters

Process Improvement• Advanced Boilers and Furnaces, Steam Line Insulation,

Variable Speed Motors, Voltage Optimization, Combined Heat and Power/Cogeneration

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Energy Efficiency as a Resource

Generation Benefits• Saves capacity and energy• Lowers fuel costs• Reduces required reserves

Transmission and Distribution Benefits• Reduces strain on transmission

infrastructure• Improves reliability

Environmental Benefits• Paves the way for sustainable growth• Reduces GHG emissions

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An Untapped Solution, still

• A largely untapped solution to addressing global warming, rising energy prices, and burgeoning demand.

"there are sufficient economically viable opportunities for energy-productivity improvements that could keep global energy-demand growth at less than 1 percent per annum" -- less than half of the 2.2 percent average growth anticipated through 2020.

- McKinsey, 2006

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#1 in California’s “Loading Order”

Energy efficiency

Demand response

Distributed generation

Renewable generation

Cleanest available fossil resources

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A Strategy Proven in California

While the nation’s appetite for electricity has steadily grown California’s demonstrated economic growth correlates with energy efficiency.

kWh/

pers

on

∆(2005)= 5,300 kWh/yr

United States

California

Per Capita Electricity Sales (not including self-generation)

Per Capita Income in Constant 2000 $1975 2005 % change

US GDP/capita

Cal GSP/capita

$16,241 $31,442 94%

$18,760 $33,536 79%

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Clear Policy • EE linked to resource planning through explicit and

aggressive savings goals

Adequate Financial Mechanisms and Funding• Decoupling sales from revenues removes disincentive• Performance-based incentives/penalties adds profit motive

Evaluation, Measurement, and Verification (EM&V)• Rigorous verification activities ensure savings are real

• Program evaluation allows continual adaptation and improvement

Progressive Standards and Enforcement• Building and appliance standards ensure efficiency

measures are incorporated into standard practice

What’s Gotten Us This Far

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The AB 32 Challenge

14.313.3 13.3

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422

284

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5

10

15

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25

1990 2000 2010 2020 2030 2040 2050

Em

issi

ons Per

Cap

ita

0

100

200

300

400

500

600

Statew

ide E

mission

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Emissions Per Capita Statewide Emissions

While California efforts in EE have contributed to stabilized per capita emission levels, California’s long-term goals will require dramatically redoubled efforts and success.

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Energy Efficiency in AB 32 Scoping Plan

• Cornerstone of approach within electricity and natural gas sectors

• Unique GHG reduction strategy with “negative” cost

• Buildings & industrial efficiency to provide min. 15% of GHG reductions, second largest strategy after vehicle fuel standards

• Also expected to provide some additional reductions via cap & trade

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What’s Needed to Take Us Further

1. Statewide Efforts• CPUC policy leadership with investor-owned utilities as the

exclusive providers of EE impacts is insufficient for the scale of our challenge. California needs:

– more expansive local government policies on buildings & development,

– participation by municipal utilities, – motivated entrepreneurial engagement, and – broader policy leadership.

2. Broader, Comprehensive Approaches to End Users• Utility and retailer campaigns have focused on single-

purpose actions. This leads to: – missed opportunities, – customer confusion, and – higher overall costs to go back to the same customers

year-after-year for successive waves of single-purpose activities.

• California needs more comprehensive one-stop program offerings and co-branding of energy and climate change benefits.

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What’s Needed to Take Us Further (continued)

3. Deep-seated, Durable Savings• The majority of recent utility energy savings come from

short-term measures like CFL light bulbs. These generate lucrative low-cost savings in the short run.

• However, the energy resource and GHG benefits of efficiency demand a transformative approach -- strategic spending of ratepayer funds to generate deep, long-lasting savings.

4. End-to-End Planning• Short-term, single-purpose programs lack long-term,

market-capturing goals.• California needs outcome-oriented planning that links

strategies “end-to-end”:– from RD&D and emerging technology, – through incentive and technical assistance programs,

and – eventually to permanent market transformation via

statewide codes and standards.

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Identifying Strategies to Fill in the “White Space”

IOU Programs

BBEES

Huffman Bill

Economic

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Cu

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T24+Fed StandardsCurrent Goals

(gross equivalent)

Current Goals (net)

savings eligible to

be partially claimed by

IOUs

naturally-occurring

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Utility Efficiency Programs and CPUC Oversight

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CPUC Sets the Bars

• Annual goals set on the basis of best available information regarding energy efficiency potential with IOU service areas• 2005-2011 goals set in 2004 decision.• 2012-2020 goals set in 2008 decision.

• Program Savings verified by independent evaluators• Approximately 8% of overall budget committed to evaluation,

measurement and verification.• Evaluation contracts managed by CPUC Energy Division

• Utility program performance assessed relative to goals under Risk Reward Incentive Mechanism.• If utilities fall short, subject to penalties• If utilities meet goals, entitled to earnings on investment

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EE Potential by End Use (Illustrative)

Source – Itron 2008 Potential Study as exhibited in Southern California Edison Testimony, Application for Approval of Low Income Assistance Programs and Budgets for Program Years 2009-2011, pg. 32.

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CPUC EE Goals Through 2020

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Goals set for CPUC-regulated utilities from 2004 through 2020, in accordance with best available data on energy efficiency potential.

• Does not take into account potential within Publicly-Owned Utility Service Areas

• Based primarily on existing technologies and rates of adoption

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Program Implementation at-a-Glance

Utility Energy Efficiency Programs are implemented in multi-year program cycles• 2004-2005 • 2006-2008• 2009-2011

For each cycle, • CPUC sets targets and policy guidance; • Utilities propose EE Portfolios; • CPUC reviews; takes public comment, approves a final

portfolio– Approximately $1B per year in programs– CPUC ensures cost and savings assumptions are

prudent and portfolio is cost-effective as a whole.

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Where the Money Goes: 2009-2011 Investor-Owned Utility Portfolios (as proposed 7/08)

56%25%

9%

10%

Utility Core Programs

Third-party Programs

Partnership Programs

Strategic Plan

By Program Implementer

43%

35%

13%

9%

Pacific Gas & Electric

Southern California Edison

San Diego Gas & Electric

Southern California Gas

By Utility

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Where the Money Goes: 2009-2011 Investor-Owned Utility Portfolios (as proposed 7/08)

31%

38%

13%

15%3%

Residential

Commercial

Industrial

Cross-cutting

Agricultural

By Market Sector

By End-Use (Residential Example)

63%14%

17%

2% 2% 2%Lighting

HVAC

Water Heating

Consumer Electronics

Appliances

Other

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Program Types• Rebates – Customer purchases energy efficiency measure at lower

cost with the difference paid for by the program• Audits – Inspection of a home or business to identify energy

efficiency opportunities• Direct Installs – Installation of energy efficiency measures at no

cost to the customer• Appliance Turn-In – Takes inefficient appliances out of circulation

with free or rebated recycling services• Education – Training for the general public as well as trade allies

such as builders or building operators• Performance Contracting – Typically non-residential programs;

provides rebate for equipment and building retrofit per unit of energy saved rather than per measure purchased or installed

• Energy Management Services – Typically non-residential programs. A combination of audit services, rebates and/or direct install, as well as load management and self-generation

• Codes and Standards – Advocacy and technical assistance on code development, as well as code compliance.

Where the Money Goes: Investor-Owned Utility Energy Efficiency Portfolios

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Low Income Energy Efficiency Programs

• Independent of General EE Application and Programs

• Free of charge for income eligible customers• Not required to meet cost effectiveness standard of other EE

programs• 200% of federal poverty guidelines ($41,500/family of four)• 5,500,000 eligible households in California IOU service areas

• Services offered:• Weatherization• Appliance repair and/or replacement• Lighting• Energy efficiency education• “Cool Centers”

• 2005 Programs (2006-2008 not yet finally evaluated)• $130,000,000 budget • 188,000 homes treated • 48,700 MWh and 2,200 Mtherms saved

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• Comprehensive program designs to reach deeper savings & avoid costs of re-approaching same customers over long-term

• Expanded market player input to program designs to improve outcomes

• Addressing non-compliance issues with codes and standards

• Renewing a market transformation perspective -- coordinated strategies across research activities, emerging technology promotion, technical assistance, incentive levels and phase-outs

Why the CPUC Spearheaded the Development of a Strategic Plan for California Energy Efficiency

Feedback from the 2006-08 utility programs’ implementation rang an early bell for needing a change in approach. Needs:

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Re-Visioning Energy Efficiency

• Newer, smarter technologies • Deployment that captures deeper, more

comprehensive savings • Promotion strategies matched to market delivery and

decision channels

Define the desired outcome; then work backwards to determine “what it will take”:

Gave rise to Long Term Strategic Planning effort in order to:• Ensure public purpose programs are highly effective

• Maximize capacity to achieve maximum EE potential• Square utility energy efficiency with the challenge of

meeting California’s ambitious GHG reduction targets

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Strategic Planning Philosophy

• Stakeholders keys to success:• Identifying enthusiastic, objective experts to facilitate the

dialogue & action plans• Inviting significant numbers of thoughtful stakeholders to

be a majority compared to utility staff participants

• Focus of stakeholder engagement was:• Identifying the key moving edges of strategies needed to

achieve bold levels of EE• Identifying stakeholders with good ideas, beyond utilities• “How do we set up the motivation and create a market

demand, alongside capabilities to deliver results?

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• Motivation: smarter 2009-2011 utility filings and utilization of multi-billion expenditures

• Leadership: vision for role of EE in energy resources and GHG reductions

• Leverage: utilities important to catalyze others

• The Market: unprecedented engagement by stakeholders (40 workshops, 500+ participants)

• Resources: Tapped utility program evaluation & planning budget to engage expert convenors & support information exchange

Regulator -- Unusual Champion?

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The California Long Term Energy Efficiency Strategic Plan

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• All new commercial construction in California will be zero net energy by 2030.

Commercial New

Construction

• All new residential construction in California will be zero net energy by 2020.

Residential New Construction

• Heating, Ventilation, and Air Conditioning (HVAC) industry will be reshaped

Residential / Small Commercial HVAC

BIG BOLD

Energy Efficiency Strategies

Low- Income Energy Efficiency • All eligible

low-income homes will be energy-efficient by 2020

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Goals Example: COMMERCIAL

Goal Goal Results

1. New construction will increasingly embrace zero net energy performance including clean, on-site distributed generation, reaching 100 percent penetration of new starts in 2030.

An increasing percentage of the 50-120 million sq. ft./ year of new commercial construction will be progressively more efficient; all new construction ZNE by 2030.

2. 50% existing buildings equivalent to ZNE buildings by 2030 through deep efficiency & clean DG.

250 million square feet (1/20th of existing space) per year through 2030 reach deep levels of energy efficiency improvements through whole building approaches.

3. Commercial lighting will transform to high-efficiency, high-performance technologies, pushed by state & national codes and standards.

Utilities will phase out mass market CFL bulb promotions, shifting focus to new technologies & innovations to long-life solutions & higher consumer uptake.

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Putting the Plan into Action – Road Map/Reference

We expect to use the Plan to:• First, shape better utility programs for 2009-2011• Serve as a reference for GHG reduction strategies &

regulations, and/or possible legislative initiatives to support action

• Engage non-utility stakeholders to choose their own roles – via collaboration or market services

Next Steps:• Approve IOU 2009-2011 EE Portfolios consistent with Strategic Plan Objectives and

direction

• Organize working apparatus for – More detailed analysis and prioritization– Resource and Leadership Commitments– Multi-stakeholder Collaborative Action

• Energy Efficiency Web portal• Statewide Branding Initiative

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Energy Efficiency In Federal Stimulus Package

Due to “perfect storm” of challenges, Energy Efficiency is in the national spotlight for the first time in three decades• Immediate economic relief through lower bills for American homes,

businesses and industry• Scalable foundation for diverse domestic workforce• Low cost means to achieving energy policy objectives

House Stimulus package = largest federal EE commitment ever• $6B for EE in Federal Buildings

• $3B for EE in Public and Federal-Assisted Housing

• $1.5B for Energy Efficiency Grants and Loan Guarantees

• $6B for Weatherization Assistance Program

• $3.5B for Energy Efficiency Block Grants

• $3.4B for State Energy Offices

• $300 M for Energy Star Rebate Program

• $500 M for Industrial Energy Efficiency

• Tax Credits for Energy Efficiency Improvements to Existing Homes

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Summary of Challenges and Opportunities

1. Leadership on Statewide Action• CARB, CEC, CPUC policies in alignment• Need to engage Publicly-owned utilities alongside Investor-owned utilities• Need to integrate work plans and resources of CEC and CPUC

2. Absence of widespread benchmarks to identify homes, businesses, facilities with large potential for EE

• AB 1103 (Saldana) starts commercial building energy data sharing; but needs systematic attention

• No equivalent mandate for rating homes• Only a handful of local governments require upgrades; real estate industry

opposed

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Summary of Challenges and Opportunities (cont.)

3. Creating public and market demand for EE• Challenge to convey “value proposition” of EE, especially to tenant-occupied

homes and businesses• Opportunity to equate EE with climate action• Opportunity for leadership from local governments, but they lack knowledge

and funding resources to launch activities• CPUC and stakeholder statewide marketing & outreach task force working

on “brand”, messaging, coordinated public communication

4. Financing instruments needed to match customer cash flow of EE investments to the rate of utility bill savings

• Long-neglected dimension of action, made worse by US finance industry crisis

5. EE “industry” balkanized • Lighting retailers, insulation contractors, HVAC contractors, plumbers/hot

water dealers, appliance retailers, …• Ineffective in leading market development & delivery compared to the solar

industry & its integrators