Guest Juice California Current: California’s Energy Efficiency Pickle, Part 2. February 19, 2016

In last week’s Guest Juice I explained how the California Public Utility Commission and California Energy Commission are in a pretty pickle in implementing AB 802 and SB 350, the two intertwining laws aimed at overhauling energy efficiency.

AB 802’s provision to count and incent efficiency savings from existing building conditions and energy use (“existing conditions baseline”), instead of the state’s minimum building energy code requirements, is not the guaranteed boon to SB 350’s mandate to double electric and natural gas savings by 2030.

Even though the Energy Commission’s existing building energy codes are not being met, the CPUC’s efficiency savings and goals incorporate an expectation that energy code savings are reached.[1] That is, the CPUC’s efficiency goals are “pre-loaded” with these questionable savings, and programs start above them.

That leaves a lot of unmet opportunity for efficiency – stranded where codes are not producing it, and CPUC programs can’t touch it.

A first step out of this pickle regarding overly rosy energy efficiency gains based on modelled codes and standards is for the CPUC and Energy Commission to agree on reasonable methods to count and account for efficiency savings from existing buildings. Efficiency happens for different reasons, including: energy price-induced owner changes, building code-mandated changes, and voluntary improvements prompted by utility programs and incentives.

This is NOT some casual conversation supported with back of the envelope math. Over- and under-stating efficiency savings has potentially costly implications in the state’s energy demand forecast and the procuring of too many or too few electric resources.

The core truth of the existing conditions baseline is also the reality of grid management.

Even so, the complications of changing baselines are multi-dimensional with widespread implications for the many ingredients that have to mesh in the CEC’s forecast of state energy demand, the CPUC’s procurement of electric resources, and the California Independent System Operator’s operation of one of the largest power grids in the world.[2]

To enable AB 802 to contribute to SB 350’s doubling of efficiency, the CPUC needs tests and demonstrations of new meter-based transaction structures and business models that leverage building efficiency improvements as a capital market investment opportunity.[3] That way efficiency can be viewed as a persistent (20+ years) and meter verified validated resource. Utilities then could count on the metered negawatts from building retrofits just as much as they do the megawatts they get under power purchase agreements with generators today.[4]

Building owners, project developers, and capital markets testing and demonstrating meter-based transactions need to look beyond the CEC’s and CPUC’s current baseline counting and accounting pickle.

Businesses and markets care about how to pay for and profit from building refurbishment upgrades. If building refurbishments and retrofits can be justified in part or whole with energy savings, then that contributes to the overall value proposition. Whether the energy savings are due to the CEC’s energy code, or CPUC’s utility efficiency programs, or other related or independent actions, does not change the net savings effect at the meter. All of this is invisible to businesses and markets, however important to policymakers’ recordkeeping

To meet both regulatory counting and accounting needs, and to test and demonstrate meter-based transaction structures, the CPUC needs a set of reliable and standardized protocols.

Using the existing meter feed as input, counterfactual metered baselines that are dynamic over time can track what a building’s energy and load requirements would have been but for energy efficiency and other distributed resources.

A series of algorithms define the building’s energy and load requirements by compliant physical models that can be normalized over time, reflecting changes in the building’s energy math. Such dynamic metering solutions can track both savings (existing conditions baselines), and various regulatory baselines, thus allowing tracking for policy purposes of program effectiveness separately from the building’s core concern with savings measurements.

This all becomes much simpler and cleaner if separate ratepayer efficiency incentive dollars are not involved in metered transaction structures because of the separate measuring tools.

Metering techniques should account for incentive program effects from efficiency gains.

To avoid all of us stewing in the pickle barrel brine, we need to remember the bottom line: that the building owner is making decisions and to him or her it is the dollar savings that matter.

California can have one very sweet pickle implementing AB 802 by ensuring that any existing conditions baseline savings are properly counted and accounted, opening the door to new meter-based transaction structures that can be supported by capital market investments.[5] That would allow utilities and industry to realize just how compelling a business opportunity efficiency is.

Cynthia Mitchell is a 40-year veteran energy economist and utility consumer advocate and consultant for The Utility Reform Network. The views expressed herein are her own. www.chickenomicsinc.com

NOTES:

[1] As the CEC’s existing building codes have become more rigorous and complex, many stakeholders contend that they are not being met.

[2] CPUC Proceeding R. 13-11-005, D. 14-10-046, Oct. 16, 2014, p. 61.

[3] Going after stranded efficiency with ratepayer-funded incentives and technical support could mean increases in the CPUC’s $1 billion annual efficiency budget, with only minimal gains in incremental energy savings. Utility efficiency programs already cost as much as alternative generation, transmission, and distribution. In the CPUC’s own words, the utility efficiency programs “are on the verge of no longer being cost effective.” See R. 13-11-005, D 15-10-025, October 22, 2015, p. 2. The vast majority of SB 350 efficiency savings will result from investments outside of any utility incentive programs. See CEC “California Existing Buildings Energy Efficiency Action Plan”, p. 26.

[4] See California Current Guest Juice “Capitalizing Energy Efficiency”, C. Mitchell, Oct. 9, 2015.

[5] California has 2-3 times more efficiency that is economic than what is being achieved, requiring a shift in investment perspectives from short-term consumer finance to long-term (20+years) utility asset-based finance and cost of capital. CPUC R. 113-11-005, D. 15-10-025, pp. 15-16.