best eeworkshop 21 june 2011

8/6/2019 Best EEWorkshop 21 June 2011

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Evaluation and Financial Incentives

for Utility DSM (Energy Efficiency) Programs

Carmen Best

California Public Utilities Commission

June 21, 2011

Asia-Pacific Dialogue on Clean Energy Governance and Regulation



2

U.S. Energy Use Grows While

California Usage Remains Flat

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

1 9 6 0

1 9 6 2

1 9 6 4

1 9 6 6

1 9 6 8

1 9 7 0

1 9 7 2

1 9 7 4

1 9 7 6

1 9 7 8

1 9 8 0

1 9 8 2

1 9 8 4

1 9 8 6

1 9 8 8

1 9 9 0

1 9 9 2

1 9 9 4

1 9 9 6

1 9 9 8

2 0 0 0

2 0 0 2

k W h / p e r s o n

Per Capita Electricity Sales (not including self-generation)(kWh/person)

United States

California w/out stds

United States

California

California w/out stds



3

Energy Efficiency as a ResourceCalifornia’s Energy Action Plan establishes

energy efficiency and other demand sideresources as first priority resources

• Regulatory tools to maximize this resource

• Decoupling

• Policy direction and setting goals

• Funding

• Incentives for performance (EE only)• Quantifying the resource

• Evaluation Measurement and Verification

• Quantify in integrated resource planning



4

California Energy Efficiency Regulation

California Energy

Commission (CEC)

Establishes mandatory standards

- Building Codes

- Appliance Standards

Administers Research

Development and Deployment

funds through Public Interest

Energy Research (PIER) program

California Public Utilities

Commission (CPUC)

Regulates utility investment

in voluntary energy

efficiency programs (i.e.,

above code minimum)

- Four investor owned

utilities

- About 80% of the electric

consumption in the state.

State of CaliforniaGovernor and Legislature



5

Funding Sources for Mainstream

Utility Energy Efficiency Programs

• CPUC pools all

funding sources intoone overall (cost-effective) portfolio

• Gas PPP funds lost tobudget transfer for FY11-12

- 200 400 600 800

Energy

Procurement

Electric PGC

Gas PPP

$ Millions

$175

$256

$576

17%

25%

57%

Average Annual EE Budget by Funding Source

(Total ~ $1 billion)



6

CPUC Oversight of Energy Efficiency Programs

• Investor Owned Utilities administer energyefficiency programs with CPUC approval andoversight

• CPUC roles: – Establishes policy guidance specific to:

• Energy efficiency savings goals

• California Energy Efficiency Strategic Plan

• Risk Reward Incentive Mechanism (RRIM)

– Approve portfolio budget applications (currently on a3-year cycle);

– Oversee Evaluation, Measurement & Verification



7

Types of Value Added from Evaluation

• Evaluate progress against savings goals adopted by theCommission

• Assessing cost effectiveness of investments

• Updating savings estimates for future program cycles

• Improving accuracy of demand forecast

Assessing

program

impacts

• Improving program processes and implementation

• Developing feedback on new programs or measures

Improvingprogram

efficacy

• Assessing the potential for remaining energy savings

• Monitoring changing market conditions

Providing

marketfeedback



8

Energy Efficiency Savings Goals (GWh)

• Savings accrued by 2008 were estimated at~ 3% of electricity sales

• Reducing forecast energy need by ~ 6%



Historically the IOUs have not exceeded goals

on an evaluated basis

9

0

50

100

150

200

2002-2003 2004-2005 2006-2008

% G

o a l

Reported v. Evaluated GWh

Savings

Reported Evaluated

Source: 2006-2008 Energy Efficiency Evaluation Report, July 2010; table 3

Possible Reasons:

• Goals andpotential have notbeen updated

• Challenges toupdating pre-eval.assumptions

• Evaluation resultsreflect newinformation



Impact Evaluation is a key tool for

Quantifying the Resource

Evaluated savings represent updates toplanning assumptions based on field

assessment including: – Verification of claimed measure installations.

– In situ savings based on field conditions of

measures compared to the baseline.

– Influence of the program in leading to themeasure installation or action taken(program attribution).

10



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Risk Reward Incentive Mechanism (RRIM) –Rationale

• Authorized in late 2007 for post-2005 programs – After decoupling, incentives can address

disincentives to energy efficiency (EE) under cost-of-service regulation of IOUs

– Enables the IOUs to earn rewards on EE investmentsin amounts comparable to what they would otherwiseearn for their shareholders on “steel-in-the-ground”supply-side investments

– Balances utility bias towards supply-side since utilities

can generate earnings when they invest in supply-side resources, but not when procuring more cost-effective EE

– Incentives are potentially large enough to ensure thatutility managers and investors view EE as part of

utility operations that can generate meaningfulearnings



Risk Reward Incentive Mechanism (RRIM) –

2006-2008 Original Structure

Reward(% ofPEB)

(perunitbelowCPUC

goal)Penalty

65%

85% 100% % of CPUCgoals

ER = 9%

ER = 12%

Earnings cappedat $450 million

0%

5¢/kWh, $25/kW, 45 ¢/thermbelow goals, or payback ofnegative net benefits (cost-effectiveness guarantee),

Penalty capped

at $450 million.

Earnings = ER x PEB

PEB= Performance Earnings BasisER= Earnings Rate (or Shared- Savings Rate)

Tiered Earning Rate based on progress

toward goal

Minimum

Performance

Annual Earnings -Verify Installation - Verify Cost - 35% hold back

Final True Up -Full Evaluation Results



Incentives and Evaluation - Lessons Learned

• Large incentives created extreme focus on the precision ofquantifying the energy savings, taking resources and focusfrom other valuable evaluation.

• The strict boundaries of the incentive structure did not allow

for uncertainties in savings estimates from before and afterfield evaluation.

• Staff produced reliable results following Commission directionbut the results were ultimately not used for determining theincentive payments.

• The Commission has encouraged the development of energyefficiency programs that reach long term strategic objectivesand judging performance on the basis of energy savingsalone does not reflect this policy change.



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Risk Reward Incentives Awarded To Date

• 2006-2008 Portfolio – Earned 47% of the

maximum possible

• 2009 Bridge Year – Utilities are currently filing applications for 2009

incentives

– Earnings are to be based on the logic for awards in

2006-2008.

• 2010-2012- Proposed Decision (PD) addressing RRIM reformshas been suspended pending further review

0%

20%

40%

60%

80%

100%

PG&E SCE SDG&E SCG



Incentive Strategy Proposed in

(Withdrawn) 2010-2012 RRIM Reform PDContinue to .. .

• Relate incentive earnings to performance, and

• Measure performance in terms of avoided cost

savings from EE measures

But change the RRIM significantly by . . .

• Basing savings on CPUC-approved ex ante(forecast) values applied to installed measures, whichde-links the ex post evaluation of savings from theincentive earnings determination, and

• Eliminating penalty component and reducingearnings potential to reflect the lack of risk.

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best eeworkshop 21 june 2011

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