New Energy Efficiency Rules Will Cut Carbon & Lower Costs

With the sixth annual Energy Efficiency Day planned for Wednesday, it’s a good time to remember that efficiency is one of the most effective ways to fight dangerous climate pollution and catalyze action to address historic underinvestment in vulnerable communities. To do just that, the California Public Utilities Commission (CPUC) recently passed several critical decisions that re-envision energy efficiency and lay the groundwork to ensure everyone can reap the benefits of cutting energy waste.

The new rules tackle multiple barriers, such as those that were impeding the delivery of efficiency to customers who are ineligible for low-income efficiency programs but unable to afford participation in other offerings. Obstacles like these have also hindered how much efficiency could contribute to the state’s equity and climate goals. With the updated rules and new approach to planning for efficiency, Californians will have additional opportunities to cut their energy waste, improve the health and comfort of their homes or businesses, and help the state combat the climate crisis.

Redefining the value of efficiency with the Total System Benefit metric

Traditionally, progress toward cutting energy use is measured by how many kilowatt-hours or therms are reduced. However, this does not capture the fact that the value of energy savings varies with time. In particular, cutting energy use in the late afternoon and evening is more valuable than saving power at noon because that is when California’s extensive system of solar arrays power down and more costly and polluting resources power up. We therefore want programs that save electricity in the mid-afternoon and evening when there is high electricity demand but no solar to meet it.

To address this, the CPUC approved a new way to value efficiency, measured in dollars, called the Total System Benefit. The new metric combines this time varying value of energy savings along with greenhouse gas reduction benefits to better value efficiency for our climate goals and energy needs. This will also give program planners and implementers a better signal of which types of efficiency programs should be pursued.

Reorganizing energy efficiency programs through segmentation

Making sure that investment in efficiency programs yields greater benefit than cost is an important way to protect customer funds and ensure the most effective programs. However, when efficiency portfolios try to achieve multiple things (e.g., reducing greenhouse gas emissions, serving disadvantaged communities, and lowering energy use) yet have only one measurement of cost-effectiveness that is based mostly on an energy provider’s economic perspective, the value and opportunity of these different objectives get lost.

To address this, the CPUC approved a new way to organize programs so they are appropriately valued for what they are trying to achieve. While there will undoubtedly be overlap between these categories, program portfolios will now be organized in the following segments based on their primary purpose:

  • Resource Acquisition Programs: These programs are the closest equivalent to supply-side resources, with the primary purpose of cutting gas and electricity use to displace the need for conventional and/or more expensive energy services.
  • Market Support Programs: These programs focus on the advancement of efficiency (e.g., education, training, partnerships, and supporting new technologies), distinct from the separate category created by the commission in 2019 to advance comprehensive market transformation initiatives.
  • Equity Programs: These programs have a primary purpose of serving harder-to-reach customers, such as those that might have language barriers or who rent in a multifamily building. These programs are also intended to provide more access to efficiency options for disadvantaged communities in line with the CPUC’s Environmental and Social Justice Action Plan.

Markus Spiske, Unsplash

The resource acquisition programs will continue to be measured by traditional cost-effectiveness tests with a budget that will be determined through forthcoming program applications due in February 2022. The market support and equity segment programs will have a budget cap of 30 percent of the overall budget and will rely on metrics to track progress. In addition, with the new four-year portfolio structure also recently approved, the California Energy Efficiency Committee will be utilized to assess progress and brainstorm solutions as needed.

Capturing available energy savings while lowering carbon emissions

The CPUC set new electric and gas energy savings goals that push California’s utilities and community choice aggregators to better use efficiency to meet the state’s long-term greenhouse gas reductions, in addition to providing energy benefits. These goals are based on a new approach to calculate potential energy efficiency savings and include significant levels of building electrification measures. The goals also combine demand response with efficiency measures for the first time.

Program administrators have the freedom of figuring out how to meet these goals through a combination of resource acquisition, market support, and equity programs. These goals send a strong policy signal to program designers to start evolving their energy efficiency offerings to meet the state’s carbon, energy savings, and equity goals. The decision also requires programs to track energy savings claims through the new total system benefit metric and permanently move to this new metric in 2024.

Trying out new ways to serve low-income customers

The commission also recently approved energy-saving goals and $2.2 billion to implement the next six years of the income-qualified Energy Saving Assistance Program, which includes a number of substantial modifications. The following list is a sampling of the changes. In particular, the decision:

  • Reimagines program design to provide deeper savings opportunities to customers by adding additional measures and customizing program offerings based on need and customer profile.
  • Establishes a new multifamily whole building program to be designed through a competitive solicitation, inclusive of national best practices and tenant protections.
  • Directs workforce, education, and training efforts to serve local and disadvantaged communities.
  • Creates a working group to address a number of outstanding items and to monitor program progress.

These modifications—and numerous others outlined in the decision—are intended to deepen the offerings for communities most in need to improve the health and comfort of their homes and the affordability of their energy.

What’s next?

While these decisions lay the path for progress, they are innovative ideas to test out. Therefore, over the next few years it will be important to ensure that the segmentation, new valuation, and low-income pilots are implemented well. It is also imperative that programs are designed to take advantage of these opportunities, especially for the equity segment and to support electrification programs.

There are also additional changes that should be explored moving forward. For example, the current cost-benefit test for resource acquisition programs is outmoded and in need of a refresh. Communities also need more accessible pathways to engage in the decision-making process of the very programs that intend to serve them (see Goal 5 of the CPUC's Environmental and Social Justice Action Plan).

By continuously improving the approach, strategies, and opportunities to serve customers, the commission can continue to be a leader and scale deep energy savings, provide meaningful and inclusive opportunities for all customers, and dramatically cut climate-harming pollution.

About the Authors

Lara Ettenson

Director, Energy Efficiency Initiative, Climate & Clean Energy Program

Mohit Chhabra

Senior Scientist, Climate & Clean Energy Program

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