Ms. Dina Mackin
Project Manager – Potential and Goals Study Update
Integrated Demand Side Analysis
California Public Utilities Commission
Re: Comments Related to Navigant Consulting’s EE Potential and Goal Update Scoping Plan
Dear Ms. Mackin,
On August 2, 2011, the California Public Utilities Commission-Energy Division (CPUC-ED)
released the EE Potential and Goals Update Study Scoping Plan (Scoping Plan) for review and
comment. Southern California Edison Company (SCE), Pacific Gas & Electric Company
(PG&E) and San Diego Gas and Electric Company (SDG&E, and together with SCE and PG&E,
(the Joint IOUs) appreciate the opportunity to provide the following comments and
recommendations on the proposed plan.
Background
The California Public Utilities Commission (CPUC) selected Navigant Consulting (Navigant) to
conduct a study to assess energy efficiency (EE) potential and update EE goals (Study). Based
on the Request for Proposal, Navigant proposes to conduct this study in two tracks:


Track 1: will provide a thorough analysis of the economic potential energy
savings within the state’s IOU territories using Navigant’s EERAM (Energy
Efficiency Resource Assessment Model) tool.
Track 2: will focus on identifying key market drivers that can impact the Total
Market Gross, and yield a set of goals and targets that encompass the breadth of
activity occurring within the state.
The Scoping Plan details the methodology Navigant will deploy to assess EE potential and
update EE goals. The remainder of this document contains two sections:
1. Comments and clarifications on the Scoping Plan
2. Input on specific questions posed in the Scoping Plan
Comments and Clarifications on the Scoping Plan
It is difficult to assess the Scoping Plan in its entirety as there are many moving parts and select
aspects require further clarification. Below, please find our review and comments on identified
issues.
Congruence Between Data Inputs and Regulatory Requirements
The Joint IOUs support this study’s output as contributory evidence in the following
proceedings - Long-Term Procurement Plan (LTPP), Integrated Energy Policy Report
(IEPR) Demand Forecast, Greenhouse Gas (GHG) Reductions, Risk/Reward Incentives
(RRIM), etc. Additionally, the Joint IOUs support the use of “scenarios” to help
establish a bounded range of EE potential or goals given possible future changes to model
inputs (adders for resource attributes, cost effectiveness, etc.). The Joint IOUs are
concerned about possible incongruence between data inputs used to calculate the goals
and the regulatory requirements used to evaluate EE program savings. Specifically,
avoided cost inputs which are used to develop the goals should be aligned with avoided
cost inputs used to evaluate program performance.
Sector Level Methodology
The Scoping Plan omits detail modeling plans for the Agriculture, Industrial and New
Construction sectors. The Joint IOUs look forward to reviewing these modeling details
when they are available.
Database for Energy Efficiency Resources (DEER)
The Scoping Plan indicates that the 2008 update to DEER will be used as a source for
energy and demand impacts, useful life, net to gross ratios, and measure cost information1.
The use of DEER is well suited for these purposes. The Joint IOUs request that specific
versions of DEER, Workpapers, etc. be clearly denoted for all scenarios.
Uncertainty
The Joint IOUs support the work plan’s focus on attempting to better understand and
characterize the uncertainty inherent in estimates of EE potential over the forecast horizon.
However, the Joint IOUs suggest that in addition to the input variables already identified for
each scenario Navigant should develop scenarios which include high, medium and low unit
energy savings (UES) for each measure or measure group. The experience of the prior
rounds of EM&V studies convinces us that there is a high degree of uncertainty with respect
to the level of UES which are associated with measures when they are deployed in “real
world” conditions. The uncertainty analysis in the potential and goals study update will be
significantly enhanced by allowing measure UES to vary among the scenarios.
1
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Input on specific question posed in the Scoping Plan
Comments on Navigant’s proposals on Key Foundational Issues described in
section 1.1 of the Scoping Plan
1. Incentive Scenarios: Navigant proposes to build the goals and targets model to accommodate
variable incentive levels for measures, as a function of their adoption status in the market, rather
than applying a single filter to all measures. The Joint IOUs support the underlying concept of
incorporating variable incentive levels throughout the measure lifecycle as having value.
However, it will be important to combine this element of the modeling in a consistent fashion
with other aspects of the modeling in order to produce reasonable estimates of the economic
potential. Prior estimates of measure potential have been based on a “snapshot” of first year costeffectiveness. Navigant’s proposal suggests that the updated potential study will somehow be
looking at a multi-year/lifecycle cost-effectiveness criteria. While this would be an improvement
in the modeling the details of such a multi-year/lifecycle cost-effectiveness criteria have not yet
been developed. The Joint IOUs would appreciate the opportunity to review and comment on
the modeling details when they are available.
2. Avoided Cost and the Loading Order: Navigant proposes to build the models to accommodate
various avoided cost of energy efficiency scenarios, including variations of both fossil generation
and renewable generation avoided costs. Rather than developing multiple avoided costs for
energy efficiency, the Joint IOUs suggest the following methodology. The avoided cost of energy
efficiency should be based on the cost of market purchases avoided as a result of additional
energy efficiency, variations performed through the use of “adders” to account for other resource
attributes provided by energy efficiency. Alternatively, Navigant could compare the
incremental cost and incremental performance of different energy efficiency scenarios and
compute metrics such a $/ton of GHG emissions abated. This is what was done in the recent IOU
LTPP submissions.
3. Alternatives to the TRC: Navigant proposes to build models that allow users to apply different
cost tests used to establish economic potential and to establish goals. The Joint IOUs support the
use of “scenarios” to help bound the impacts of changes to EE potential or goals when varying
the model inputs. Congruence between data inputs used to calculate the goals and the CPUC's
regulatory requirements placed on EE programs used to capture these savings is a must. The
Total Resource Cost (TRC) and Program Administrator Cost (PAC) Tests are used to calculate EE
measure and portfolio cost effectiveness from different perspectives and are required by D.09-09047 the EE Policy Manual. However, all the standard cost-effectiveness tests should be included
in the model in order to fully understand energy efficiency program impacts, consistent with
long-standing CPUC practice. The tests are not intended to be used individually or in isolation.
A multi-perspective approach allows the consideration of trade-offs and an understanding of the
impacts to all parties.
4. Treatment of Market Transformation Benefit: In the Track 2 model, Navigant proposes to
build variable benefit/cost criteria (varying by market adoption status and time) into the Track 2
model. The Joint IOUs accept that defining and measuring the impacts of Market Transformation
is an appropriate goal, but determining how Market Transformation will be evaluated needs to
occur prior to building a model. In Decision 09-09-047, the CPUC supplied the definition of
Market Transformation as follows:
Market transformation is long-lasting, sustainable changes in the structure or functioning of a
market achieved by reducing barriers to the adoption of energy efficiency measures to the point
where continuation of the same publicly-funded intervention is no longer appropriate in that
specific market. Market transformation includes promoting one set of efficient technologies until
they are adopted into codes and standards (or otherwise adopted by the market), while also moving
forward to bring the next generation of even more efficient technologies to the market.
This definition does a good job of defining when Market Transformation occurs, but stops short
of defining the changes in the market that need to occur that result in Market Transformation.
This definition does not include how Market Transformation will be measured or how the
benefits will be reflected in the standard practice tests.
5. Navigant proposes using 2008 inputs and results to calibrate the validity of their EERAM
model. This proposal by Navigant assumes that the ITRON study was accurate and that such
calibration is the best way to confirm the validity of EERAM. An alternative approach would be
to contrast EERAM results with those observed in IOU portfolio tracking databases for several
years (e.g. 2008-2010). The market context today is very different from the one the 2008 ITRON
EE potential used to “calibrate” their model
Comments on Questions Asked in Section 2.1.1 of the Scoping Plan
1. What additional emerging technologies or other sources of potential energy savings should
be included as sources of technical potential that have not already been included in the
potential study? (See Appendix 4.2 for the current list of technologies being considered).
It is the Joint IOUs understanding that emerging technology identification will be addressed
separately from this Scoping Plan
2. How should behavioral impacts be quantified?
The potential from measures focused on changing customer behavior should be treated in the
same fashion as Measures of Interest and Emerging Technologies. If there is significant historical
experience with the measure then an estimate of potential can be generated based on the historic
data and input from utilities regarding the possible market penetration of the measures and their
costs. For measures where there is little or no historic experience no attempt should be made to
generate a specific estimate of the potential from those measures, however, to the extent possible,
a range of the possible cost-effective savings from this “class” of measure may be desirable to
inform future program direction/design.
3. Should there be an alternative cost-effectiveness screen (such as the PAC) included in the
model?
The PAC test should be included in the model along with the other standard practice manual
tests. Currently the economic benefit of a measure from the perspective of the RRIM is
determined by applying 2/3 TRC and 1/3 PAC.
As Navigant and the CPUC-ED have discussed previously in addition to the type of test (TRC,
PAC), key assumptions within the test, in particular the discount rate used to develop the net
present value (NPV) of measures and non-energy adders should be allowed to vary by scenario.
The Joint IOUs suggest that, at a minimum, a scenario should be run wherein the discount rate
used in the TRC model is a “societal discount rate” rather than the IOUs weighted average cost of
capital (WACC). The Joint IOUs question whether the WACC is the appropriate discount rate for
the TRC test in particular given the penalty which such a high discount rate imposes upon
measures which yield “deep savings” but have longer pay-back periods. However, as noted
earlier, it is important to maintain consistency between inputs upon which goals are set and those
upon which programs are later evaluated. Any such change which is implemented in goal
setting must flow through to program evaluation.
4. Should the cost-effectiveness screen include an estimate of administrative costs?
It is the Joint IOU’s opinion that the administrative costs should be included in the costeffectiveness tests. While it is difficult to assess what level of administrative costs would be
needed to achieve economic potential a reasonable estimate could likely be developed based on
historic costs. It may be good practice in the potential study update to include these costs at the
overall portfolio, program sector, technology group or measure group level rather burdening any
individual technology or measure with an allocation of administrative costs. The Joint IOUs
advise that it will be important to clearly define all cost inputs defined as program administration
to provide a clear understanding the modeling results.
5. Should the low income market potential be treated separately by separating the low income
population from the remaining housing stock and model their impacts separately 1?
Low income market potential should be treated separately. Low income programs currently are
not subject to the same cost-effectiveness tests as the larger energy efficiency portfolio. In
addition it is the case that, historically, low income households have not participated in any
significant fashion in non-low income EE programs.
6. Should there be adjustments made to the total potential to account for the current housing
market conditions, (i.e. 30% of homeowners that are “underwater”?)
Certainly the difficulty customers are facing in procuring financing to support EE projects which
require large customer side investment must be taken into account in some fashion. In an
economic downturn incentive levels may need to be higher to induce the same level of customer
activity.
7. How to address re-participation at the end of Measure Life:
a. Assume savings continue by assuming the original participant installs at least an
equivalently efficient technology?
In past EE potential studies, lighting and industrial measures were assumed to be auto replaced
(Autorep) by the participant. In essence this assumed that a widget would be replaced by a
similar efficiency widget upon burnout. For measures with short to medium term estimated
useful life (EUL), the Joint IOUs support the use of the Autorep assumption for long lived
measures taking into account changes in codes and standards. For measures with short to
medium term estimated useful lives, the Joint IOUs request more information on Navigant’s
EERAM estimates customer EE adoption upon measure burnout. . It may well be the case that
some material amount of customers would not Autorep for shorter lived measures in the absence
of utility incentive programs.
b. Make this a blanket assumption or a variable assumption?
Whether this assumption is made as a blanket assumption or a variable assumption should be a
function of the capability of the model to accurately predict consumer behavior and the potential
impact of the assumption on the final estimates of potential.
Comments on Questions Asked in Section 3.1.1 of the Work-Plan
1. How should “naturally occurring savings” be defined and calculated?
In order to aid in the interpretation of the results, naturally occurring savings should be defined
as they were in the prior ITRON study.
Naturally occurring potential is the savings estimate associated with high efficiency
adoptions that occur due to natural or normal market forces within a utility program. It takes
into account a variety of factors such as customer cost-effectiveness, payback period,
awareness and willingness to adopt (which in turn depends on various market barriers such
as risk perceptions, limited rationality, etc.). To estimate naturally occurring potential, the
ASSET model estimates market outcomes under alternative market conditions, assuming that
utility incentives are not available.
In other words naturally occurring potential is modeled as the amount of EE savings that would
occur in the absence of utility programs. The Joint IOUs caution against defining “naturally
occurring” EE potential to include reductions in demand due to price effects. Reductions in
demand due to higher prices may or may not be related to adoption of higher EE but may reflect
reductions in energy use due to reduction in service demand. Additionally any calculation of
price induced reduction in demand is dependent on two highly speculative assumptions:
estimates of how prices increase or decrease through time and how consumer’s responds to price
changes. Finally, since price response is already included in demand forecasting models it is
important to be sure it is not also included in the EE potential estimates to avoid double counting.
2. Since Total Market Gross (TMG) is only defined as savings in IOU territories, should TMG
goals include non-IOU potential, or should codes and standards savings associated with nonIOU territories be removed from the TMG?
If the intent of the studies is to produce statewide EE potential and goals then the studies must
include non-IOU potential.
Joint IOU Comments on Incorporation of Codes and Standards in Track 1 and
Track 2
a) Track 1 Model: Over a 10 year time horizon, the transition to code for EE measures may represent
the single largest variable in determining technical and economic potential. Whereas most
voluntary programs impact a small fraction of a potential market on an annual basis, codes and
standards affect an entire market discounted for noncompliance. The EERAM schematic (Figure
1) indicates that all pending standards will be incorporated into the analytical model.
Outstanding questions include:
1.
2.
3.
4.
5.
What is the definition of pending standards? Previously adopted standards with past
effective dates that continue to produce new savings each year? Adopted standards with
future effective dates? Standards in the process of being adopted. Standards that should be
adopted in the future?
The commoditizing effect of code stimulates innovation by manufacturers and builders,
further expanding the technical potential. In buildings, for example, the 3-year code cycle
forces a periodic step function improvement in the performance of envelope, mechanical, and
lighting systems that affects many measures. How will the model comprehend future
innovations?
Will the model forecast increased stringency of building codes in 2016, and 2019? A 20%
increase in stringency of building codes, for example, could be included as a measure; in
particular, since there is a disconnect between measures and whole building performance.
The commoditizing effect of code also causes the incremental cost of a measure to decrease,
further improving economic potential. Prior to adoption, a differentiated product will be
sold at a premium but, after adoption into code, increased volume and competition will drive
down costs. From a policy perspective, one could argue that the incremental cost after
adoption is zero. How will the model handle this?
Do changes in incremental costs after adoption support the use of PAC only? There is no way
(at least, not yet) to forecast the decrease in incremental cost after adoption. Or should the
model produce economic potential scenarios based on different inputs for incremental costs
that account for code?
b) Discussion of the Track 2 Model is not very clear. Questions include the following.
1.
2.
3.
4.
5.
Track 1 outputs should include the technical and economic potential of C&S, however, state
and federal standards are presented as KMDs. To avoid double counting, this implies that
Navigant will predict the savings attribution to IOUs, and savings attributable to non-IOU
parties, for future regulatory proceedings. True? Or is this an oversight?
Although unfunded legislation such as AB 1109 may be considered a key market driver, one
cannot associate savings with it. Savings are achieved through programs and new
regulations that directly impact goals to reduce residential and nonresidential lighting by
50% and 25%. What are the criteria to differentiate between aspirational KMDs and those
that may increase potential savings? Does the Strategic Plan increase the technical or
economic potentials, or save energy?
Naturally occurring efficiencies cannot be modeled accurately without spending huge sums
of money on long-term research. This has already been tried during the C&S evaluation of
the 2006-08 program cycle. Evaluators found it almost impossible to collect realistic inputs
for “p” and “q” coefficients...and these data do not exist for EE products. We support an
alternative approach suggested by CADMUS to estimate average efficiency over time.
The “what-if” component of the model must support a policy decision that sets different
baselines for technical and economic potentials based on 2005, 2008 or 2013 standards. If new
savings from 2005 or 2008 standards continue to be counted in 2013 and beyond, portfolio
cost effectiveness can be maintained with a large number of innovative technologies with
TRCs less than 1. This approach would support longer term market transformation
objectives.
A new input is needed to model key market barriers: federal preemption of state appliance
standards, inaction by the California Energy Commission, etc.
If you have any questions or need additional information about these written comments, please
contact Manuel Alvarez at (916) 441-2369, Janice Berman at (415) 973-1018 or Tamara
Rasberry at (916) 492-4252.
Very truly yours,
/s/ Manuel Alvarez
.
Manuel Alvarez, Manager
Regulatory Policy and Affairs
Southern California Edison
Company
/s/ Janice Berman
Janice Berman, Sr. Director
CES-Policy and Integrated
Planning
Pacific Gas & Electric
/s/ Tamara Rasberry
.
Tamara Rasberry,
Governmental Affairs
Manager
San Diego Gas & Electric
1201 K Street, Ste. 1810
Sacramento, California 95814
(916) 441-2369
Company
245 Market Street, Ste 663
San Francisco, CA 94105
(415) 973-1018
Company
925 L St Ste 650
Sacramento, CA 95814
(916) 492-4252