Guest Juice: California’s Energy Efficiency Pickle. California Current. February 12, 2016

Pickle: pretty pickle, fine how-do-you-do, tight squeeze, mess, stew, no-win situation.

(Roget’s International Thesaurus, 2001)

The California Public Utility Commission and California Energy Commission are in a pretty pickle when it comes to achieving AB 802 and SB 350, the two intertwining laws aimed at overhauling energy efficiency.

Many utilities and market actors are looking to AB 802’s provision to count and incent efficiency savings from existing building conditions and energy use (“existing conditions baseline”). That’s to replace the state’s minimum building energy code requirements, as leading the way to SB 350’s mandate to double electric and natural gas savings by 2030.[1]

Counting and incenting efficiency based on existing building conditions and energy use could be a significant and much needed “game changer” to the private utilities’ efficiency programs.[2]

Many stakeholders agree that the Energy Commission’s existing building energy codes are not being met, leaving lots of “stranded” energy efficiency. However, the CPUC’s efficiency savings and goals incorporate an expectation that energy code savings are already reached. That is, the CPUC’s goals are “pre-loaded” with these 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.[3]

Understanding the roots of CPUC’s and CEC’s pretty pickle requires tracing the workings of energy codes between the two agencies.

The Energy Commission drafts and implements new energy codes and includes the projected savings in its state demand forecast. California investor-owned utilities pay for some of the Energy Commission’s energy code work, and the CPUC includes a large portion of the CEC’s forecasted energy code savings in the private utility energy goals. The CPUC allows the investor-owned utilities to use ratepayer funds to achieve above-code savings through voluntary energy efficiency programs.

Changes in baseline policies are appropriate and necessary to improve the reliability and veracity of efficiency. But alone, they will not address the stranded opportunity problem. Without additional significant regulatory and market reforms and initiatives, AB 802 is no SB 350 silver bullet.[4]

A Pickle Mess

As the CEC’s building codes have gotten more complex, the agency has pushed attempts to comply into an increasing pickle mess. The energy code is now so rigorous that building owners go out of their way to avoid triggering compliance requirements in their retrofit projects. In other words, the code intended to increase efficiency, is actually delaying and hampering it.

This observation calls into question the “cost effectiveness” premise of the current generation of Title 24 – the state’s building codes.[5] The burden of energy code compliance for existing buildings may have become the limiting or constraining factor in stranding efficiency, and not what default baseline assumption is used to count savings for incentive qualification purposes.

This also calls into question how effective it will be to pay incentives[6]based on existing building conditions when retrofits must still comply with what may be daunting code requirements with no way to get cost-effective savings.

The CEC and CPUC must together revisit the strategies behind the existing building energy codes and consider whether changes are needed to capture, rather than “strand,” efficiency savings.

The risk is that California will focus on “baseline policies” without looking more broadly to the nature and extent of market barriers to maximizing economic efficiency in existing buildings.[7]

Both are urgent inquiries.

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.

[1] The state is leaning heavily on energy efficiency to help meet its greenhouse gas reduction goals. That’s because buildings use 40 percent, or more, of all the energy used in California, according to the Energy Information Administration. California Current, “Utility Efficiency Efforts Hit Wall as State Hiked Goals,” Sept. 3, 2015.

[2] Current and historic energy efficiency achievements are lackluster in both savings and economics, at a time when California policies are placing increasing emphasis and pressure for energy efficiency to perform. California needs to do something other than rely on consumer voluntary uptake of efficiency via rebates and financing. See California Current Guest Juice, “Capitalizing Energy Efficiency”, C. Mitchell, Oct. 9, 2015.

[3] Energy code savings have in recent years comprised about one-third of the CPUC’s efficiency goals. For 2016 and 2017, energy code savings are about half of the CPUC’s efficiency goals. R. 13-11-005, D. 15-10-028, October 22, 2015, pps. 8 & 9.

[4] “’If we just rejigger engineered baselines’ and continue to use ‘complex simulations, we are not going to scale up our energy efficiency’” Martha Brook, CEC at the CPUC Jan. 26, 2016, workshop on Existing Conditions Baseline, California Current, “To Tell the Efficiency Truth Gets Debated”, Jan. 28, 2016.

[5] Recent research has revealed the key difference between “cost effective to the building” and “cost effective to the owner.” The building has a multi-decade useful life and savings flow, but the building owner may realize only a small part of that, because she expects to sell the building – or none of it, because her tenants get the savings. To her, CEC’s argument that the savings value of the code is cost-effective is nonsensical.

[6] Incentives should be paid at some fraction of building system replacement cost, with the incentives pegged to the incremental energy savings value.

[7] There exists a gap between the potential of efficiency that is economic based on a long-term utility avoided cost of energy (e.g. 20-30 year investment horizon, and using utility or asset-based finance and cost of capital), and what California is getting: lots of short-lived, quick pay-back efficiency measures based on consumer and business needs for a 5 year or less payback on efficiency investments. R. 13-11-005, D. 15-10-025, October 22, 2015, pps. 15-16.