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By Cynthia Mitchell Matt Golden’s Sept. 25, 2015, Guest Juice “New Laws a Needed Energy Efficiency Paradigm Shift” is certainly a cause for celebration. Golden claims SB 350 and AB 802 essentially double California’s energy efficiency goals. If California could double actual new efficiency savings, this would be an amazing advance from the state’s decade-plus accomplishments of incremental savings and borderline-effectiveness. [1] To get there California will need to do something other than rely on voluntary consumer uptake of efficiency via rebates and incentives. Consumers require short paybacks, and have many competing needs for their money and time. [2] Households, businesses, and industries generally don’t buy and/or finance the bigger efficiency projects because it may take up to ten years to recoup investment cost. That’s why California’s decade-plus efficiency accomplishments, especially for existing buildings, generally are built on millions of compact and linear fluorescent lamps. While SB 350 ups the ante (and AB 802 potentially takes us backward a little in true incremental efficiency resources), to get the necessary greenhouse gas emissions reductions we need new transaction structures to rally investment behind efficiency in capital markets. Over time, 20-30+ years out, we can reduce building loads by 25-40 percent by creating long-term investment opportunities when efficiency is viewed as a persistent and measureable resource. Utilities then could count on the negawatts from building retrofits just as much as they do the megawatts they get under power purchase agreements with generators today. The Utility Reform Network and the Natural Resources Defense Council have proposed just this: that the California Public Utilities Commission test the concept with pilot projects in residential and commercial building markets. The commission has not yet taken up these ideas in either its efficiency or distributed energy resources proceedings. Such pilots need to be brought to the fore now to ease California out of its old efficiency paradigm. The California Energy Commission’s September 2015 AB 758 Existing Buildings Efficiency Action Plan states that the vast majority of additional SB 350 efficiency savings will result from investments and behavioral changes made by consumers and businesses outside of any incentive programs. [3] The order of magnitude for untapped “economic efficiency” is impressive, and offers a very affordable pathway for reaching California’s aggressive climate goals. [4] Getting there will require courage from regulators and utilities to enable entrepreneurs and market capital to undertake the path-breaking work needed to create a new stream of investment that unleashes efficiency on par with the explosive growth of solar energy, energy storage, and electric vehicles, in California. To truly leverage these legislative changes to create a fundamental shift in California’s approach to energy efficiency, means that the SB 350 and AB 802 provisions for meter-based savings measurement, in field existing condition building baselines, and meter-measured performance payments have to go beyond reliance on voluntary consumer uptake of efficiency. If not, the result will be a complex and convoluted rearranging of the current efficiency deck chairs. [5] For instance, SB 350’s authorization of pay for performance programs linking incentives to meter-measured energy savings may still be viewed by utilities as incentive based and customer financed. If so, California can still expect to run into consumers’ general need for short payback on efficiency investments. [6] This is a far cry from getting to a true pay for performance distributed energy services contract structure where large capital markets support efficiency investments – bundled with demand response, storage, solar, and electric vehicles – that create long-term savings streams (20-30 years). Also, a move to in field condition baselines, versus the current to code baselines, means the utilities’ efficiency goals will need to be adjusted downward to avoid double counting savings from the codes and standards savings “bucket” and the utility voluntary program savings “bucket”. [7] This likely will drive up overall efficiency spending since utility efficiency accounting now credits the utilities with the codes and standards efficiency savings at very little cost. With the annual $1 billion a year efficiency portfolios at best breaking even on cost effectiveness – in which, one dollar spent on efficiency in current portfolios returns one dollar in efficiency savings – costs should not be more than the current spending/savings ratio. In other words, valuing efficiency savings at the cost of generation, transmission, and distribution means a cost-effectiveness ratio of 1.0 is as low as we should go. [8] This creates pressure to game the savings, in part via SB 350’s provision for meter-based savings measurement, by claiming all load and consumption building reductions are utility efficiency program-related, so as to boost efficiency savings claims. It’s time to refine our current efficiency voluntary customer investment construct into something that can deliver larger results and move post haste to create long-term, large capital market investment opportunities in efficiency. This is the kind of response California should demand to ensure that the governor’s January goal of doubling the efficiency in existing buildings is real, sustained and even surpassed. —Cynthia Mitchell is a 40-year veteran energy economist and utility consumer advocate, and consultant for The Utility Reform Network. Footnotes: [1] www.chickenomicsinc.com , link: “Talkin’ Chickenomics”. “A New Energy Efficiency Manifesto: California Needs a More Integrated, Cost-Effective Approach”, Electricity Policy.com, November 2014; C, Mitchell comments for TURN California Energy Commission Commissioner Workshop on Governor’s 2030 Efficiency Goal, Monday July 6, 2015. See also TURN comments CPUC R. 13-11-005 Phase 2 Energy Efficiency, April 13, 2015, and R. 14-10-003, Distributed Energy Resources, May 15, 2015. See CPUC R.13-11-005 Proposed Decision Energy Efficiency Goals for 2016 and Beyond and Energy Efficiency Rolling Portfolio Mechanics, August 18, 2015. [2] McKinsey & Company, “Unlocking Energy Efficiency in the US Economy”, 2009, summarized experience across the U.S. Residential customers require a 2 to 3 year payback (McKinsey at 9) while commercial customers require a 3.6 year payback (McKinsey at 58) and industrial sites 18 months to three years (McKinsey at 81.) The CPUC’s “Energy Efficiency Potential and Goals Study for 2015 and Beyond Stage 1 Final Report”, September 25, 2015, pages 57-60, confirms this in its forecast of consumer financing on efficiency savings providing some, but not significant additional savings. [3] CEC “California’s Existing Buildings Energy Efficiency Action Plan”, page 26, http://www.energy.ca.gov/ab758/ [4] CPUC “Energy Efficiency Potential and Goals Study for 2015 and Beyond”, Figure ES-2: Statewide Technical, Economic and Cumulative Natural Gas Potential http://www.cpuc.ca.gov/PUC/energy/Energy+Efficiency/Energy+Efficiency+Goals+and+Potential+Studies.htm [5] California’s demand forecast and planning for energy resource acquisition via energy efficiency has three components or “buckets”: codes and standards, naturally-occurring or price driven or “industry standard practice” effects, and utility voluntary programs – with the latter supposedly delivering additional efficiency. [6] Ibid 2. Note that generation, transmission, and distribution energy investments are all funded over long-terms and with competitive “institutional” market capital. [7] Ibid 6. [8] My analysis for TURN finds the utilities’ efficiency portfolios with a cost-effectiveness ratio of less than 1.0. See R.14-10-003, [iDSM] Opening Responses of TURN to the AC and ALJ ruling Requesting Responses to Questions, May 15, 2015, p. 7, FN 8.

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