CPUC Shifts Gears for Greater Efficiency Savings

Seeking to maximize the cost-effectiveness and savings from energy-efficiency programs, the California Public Utilities Commission adopted a new system of calculating the avoided costs utilities would otherwise have to pay to generate or procure power. On April 7, the CPUC directed utilities to use the energy forecasting methodology employed by the E3 consulting firm in a report it prepared for the commission last fall. ?The E3 methodology is a significant improvement and much more accurate. The old methodology simply did not reflect reality,? said commissioner Susan Kennedy. The new methodology measures total avoided costs to society from reductions in energy demand, including both direct cost savings and externalities, such as reductions in carbon dioxide greenhouse gas emissions. The resulting avoided-cost estimate is supposed to be easily revised to reflect changes in natural gas prices, the costs of new generation, anticipated load-resource balances, and other significant factors, the commission said. The E3 methodology reflects three key differences from the CPUC?s outmoded system of calculating avoided costs. Those are incorporating the effects of market prices; containing the price of ancillary services and valuing reliability; and accounting for differences in time, weather, and climate zones. The CPUC concluded that the E3 methodology will more accurately reflect the utilities? actual savings from individual energy-efficiency programs and help select the most cost-effective programs. For instance, the savings from air conditioning avoided costs would go from 8 cents/kWh to 13 cents/kWh. The difference is because the majority of savings in air conditioning upgrades occur during summer peak-demand times when avoided costs are highest. ?Today?s decision will go a long way to ensuring that energy efficiency gives real energy savings for the state of California,? Kennedy said. The commission directed Pacific Gas & Electric, Southern California Edison, San Diego Gas & Electric, and Southern California Gas to use the E3 methodology in evaluating avoided costs for energy-efficiency programs beginning in 2006 through 2008. The CPUC will evaluate the benefits of adopting this methodology for distributed generation, demand response, and other resource programs in a subsequent proceeding.

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CPUC Shifts Gears for Greater Efficiency Savings

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