Energy Efficiency in California

Energy Efficiency Energy Efficiency in Californiain California

June 2011June 2011

The Voice of Consumers, Making a Difference! 2

Presentation Overview

Overview of Energy Efficiency (EE) in California

Top 5 problems with current EE structure

4 ways to address EE problems

The Voice of Consumers, Making a Difference!

3

California’s Policy GoalsEnergy Action Plan

Minimize need for new generation

Reduce peak demand

Reduce GHG emissions

Improve energy reliability

Improve price stability and lower costs for customers


4

History: Energy Efficiency Policy 1970/80’s: Low-level demand side programs

1980’s: Funded through General Rate Cases (minimal reporting requirements)

1983: EE Manual determines cost-effectiveness

1998: AB 1890 introduces PGC; caps budget at $228 million

2002-04: CPUC orders pursuit of all cost-effective EE; EAP puts EE at top of loading order

2003: CPUC adds PEEBA – procurement dollars as additional funding source; significantly increases EE budget

2006: IOU EE program savings independently verified, for first time

2008: The Energy Action Plan (EAP) EE as top resource to reduce GHG from energy

Key Policies Impact EE Budget

0

200

400

600

800

1,000

1,200

Year

EE B

udge

t (in

mill

ions

)

D.02-10-062

Pursue all cost-effective EE

First year EE savings are

independently verified ex-post

D.03-12-060

PEEBA funds supplement PGC

EAP

EAPEAP


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Trends: EE Budget vs. Energy Savings

Changes in: Annual Budget vs. Annual Savings

+47.6%

+5.5%

6500

6700

6900

7100

7300

7500

7700

7900

2004-2005 2006-2008

Portfolio Cycle

Sav

ing

s G

oal

(G

Wh

)

$0.68

$0.73

$0.78

$0.83

$0.88

$0.93

$0.98

$1.03

$1.08

Budget Annual, ($ billion)

Savings Goal -Cumulative Electric(GWh)

Peak savings goal increased by 9.2%

Natural gas savings goal increased by ~35% over the same period


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Energy Savings vs. Goals2006-2008 IOU Energy Efficiency Savings Against Goals

Utility Goals Performance

Cumulative Energy Savings (GWh)PG&E 2826 1766

80 - 85% of Goal71%

SCE 3135 1963 70%SDG&E 638 364 65%SoCalGas N/A

Peak Savings (MW)PGE 613 320

80 - 85% of Goal60%

SCE 672 384 64%SDG&E 122 72 69%SoCalGas N/A

Cumulative Gas Savings (MMTh)PGE 45 22 80 - 85% of Goal 63%SCE N/ASDG&E 10 3

80 - 85% of Goal37%

SoCalGas 57 32 37%

Minimum Performance

Standard

% of Goals Achieved

Source: CPUC 2006-2008 Energy Efficiency Evaluation Report, July 2010

Shareholder Reward: $211 million


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DRA Page 1 of 1 9/11/2007

Background Material on EE Incentives

1. California has offered EE incentives since 1990. Historic data shows energy savings are correlated to EE budgets, but not to incentive payments:

Utility EE Incentives vs. Energy Savings

$0

$50

$100

$150

$200

$250

$300

$350

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006-PD

Program Year

EE

In

cen

tiv

es

($ M

illio

ns

)

0

500

1,000

1,500

2,000

2,500

3,000

3,500

To

tal

En

erg

y S

avin

gs (

GW

h/y

r)

Total Incentives Total Net Energy Savings

2. Since initiated in 1990, shared savings rates for EE programs have varied from 0% to 30%:

3. Budgets for 2006-2008 EE programs were established by the utilities using the EE savings goals established by the CPUC in D.04-09-060

4. The 2006-2008 budget of $700 million per year ($2.1 billion total) is approximately double the 2004 budget and more than 25% higher than the 2005 budget:

Incentives and Energy Savings


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Current EE Planning and Evaluation

Source: Energy Division


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EE Structural Problems

1. EE goals do not align with statewide goals. Focus on energy savings leads to “treading water effect” in

reaching AB32 GHG goals and lower total demand

2. IOU administration is narrow in scope; objectives to expand ratebase conflicts with energy conservation.

3. Lack of prioritization and targeted strategies. “All cost-effective EE” keeps portfolios stagnant

4. Lack of Market Transformation approach for EE programs.

5. Lack of enforcement of state’s policies Independence. Independent evaluation Changing rules


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Total CA electricity consumption 1960-2005 & an AB32*-derived trajectory through 2050

* Executive Order S-03-05 stipulates the 2020 & 2050 targetsSource: Reuben Deumling, Associate Energy Economics Inc. Separating Means and End: Reorienting Energy Efficiency Programs and Policy Toward Reducing Energy Consumption in California

0

50

100

150

200

250

300

1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050

TW

h/y

r

80% below 1990

1990

2000 2010

2020

2050

Data Source: EIA Electric Power Annual <http://www.eia.doe.gov/cneaf/electricity/epa/epa_sprdshts.html>

‘06‘07

‘08

‘05

Achieving AB 32 Goals RequiresReducing Energy Consumption


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Consequences of Weak EE StructureIOU EE Programs have inherent structural problems:

Savings achievements do not directly translate to reduced procurement or reduced GHG emissions.

Widget focus, not reduction in total energy consumption (e.g., total building or systems savings approach).

Portfolio skewed toward short-term, non-peak savings (e.g., CFLs).

Squander ratepayer capital: ► EE budget increasing at a faster pace than EE savings► No strategy for ramp-down of ratepayer-subsidized rebates and

transition to market forces► IOU programs informed by significantly outdated assumptions► IOUs received $211 million in unearned bonuses based on

self-reported data► Disconnect between timing of EM&V and portfolio planning

Utilities utilize CPUC procedural process to continually change the rules.


13

IOU Programs Do Not Target Peak


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The CFL Scenario CFL programs subsidized for 20 years in California, now have

high free ridership. Key market indicators demonstrate market transformation:

high availability through multiple channels, high awareness.

Market distortion: CFL programs keep prices artificially low, preventing higher quality CFLs from entering the market; sending wrong message to consumers about cost.

40 million CFLs in storage.

Significant leakage resulting in arbitrage.

IOU portfolios are dependent on CFLs to keep portfolios cost-effective, rather than evolving, targeted strategies. Short-term CFL savings decay quickly and can not be counted on in

long-term procurement planning Residential CFLs do little to reduce peak demand

IOU Programs Inhibit Market Sustainability


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EE Strategies Don’t Align with California’s Energy Use

In the 2010-2012 Portfolio:

HVAC = 30% of summer peak, but only 3% of portfolio peak savings goal (32 MW over 3 years)

Despite spending, $1M of ratepayer money, SDG&E’s savings goal for HVAC = 0

Commercial Buildings = 38% of total energy use, but only 20% of the savings goal


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Characteristics of a Successful EE Program

Focuses on Total Energy Demand Reduction.

Prioritizes EE investment. Potential to reduce peak demand, level of risk to ratepayers,

location, and duration of savings

Develops and implements market strategies: Removes barriers to EE measure adoption Transitions to self-sustaining EE market

Implements EE strategy and planning informed by timely market and evaluation feedback.

Utilizes a coordinated, statewide approach. Multiple market actors


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DRA Recommendations

Design goals based on desired direction and magnitude of overall consumption.

Prioritize EE strategies that would optimize energy savings.

Remove requirement to pursue “all cost-effective EE” and replace with Prioritization and Market Transformation approach.

Establish an Independent Administrator (IA) to implement Market Transformation strategies: ► The IA would implement Market Transformation through development

and implementation of a Strategic Plan► The IA would act as an air-traffic controller to coordinate relevant market

actors and statewide EE effort

Remove Shareholder Incentive Mechanism.


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Market Transformation

Identifying market barriers impeding the adoption of an energy efficiency measure.

Introducing a market intervention to remove the market barrier.

Creating an Exit Strategy to stop funding the interventions when barriers are removed and the free market takes over and becomes sustainable.

Market Transformation is a strategy to introduce consumer demand for and sustain a market for an energy efficiency measure or strategy

that replaces an existing lower efficiency energy application.

Market Transformation is achieved by…


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Technology Adoption Curve

Derived from: http://www-rohan.sdsu.edu/~renglish/370/notes/chapt11/adoption_curve_05.gif


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Market Transformation

Natural Baseline(free riders)

Time

Transformation

Ma

rke

t

Dollars Invested

WindowsClothes Washer

CFLs

Food Processing

Commercial Real Estate

Consumer Electronics

DHPs

Existing Building Renewal

Codes & Standards

•

M

arke

t S

har

e

Source: NEEA – Northwest Energy Efficiency Alliance


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Administrative Models

Utility Independent Administrator (IA)

Rate-base focus Incentive-driven Unable to adapt to changing market conditions

Mission-driven Partnership driven Adaptable Product, marketing, sales, channel developmentObjective high-level Air Traffic Controller

Utilities have a role to play in statewide, independent model by leveraging utility-customer relationships


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Independent Administrator Expertise

An administrative entity separate from IOUs capable of developing and implementing a strategic plan that prioritizes energy efficiency strategies.

Must have market and business expertise and can react quickly to a changing marketplace.

Expertise to work with a variety of market players to implement market transformation for priority strategies as identified by the strategic plan.


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PUC-IOU Hybrid (1)

New Jersey (2003)

IA (7)

Oregon (2002)Vermont (1999)Hawaii (2009)Maine (2010)Wisconsin (2002)Delaware (2009)Washington DC (2009)

IA-IOU Hybrid (4)

Washington State (1996)New Hampshire (2002)Idaho (1996)Montana (1996)

State Agency-IOU Hybrid (2)

Illinois (2008)New York (1998)

Alternatives to IOU-Only Administration (14)

Examples of Independent Administration


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Procedural Opportunities

Proceedings: A.08-07-021 – setting ex ante parameters A.09-11-014 – bridge funding A.09-01-019 – shareholder incentive mechanism

Studies and Pilots: Macro-consumption metrics study and pilot Market transformation study and pilot

Energy Efficiency in California

Documents

natural gas savings

iou ee program savings

ee manual

ee budget2006

costeffective ee eap

vs annual budget increase

ee evaluation reporthighlight

energy action plan eap