# Presentation: 327570

**Regulatory Policy for Energy-Efficiency Programs in California**
**Edward Vine**
**Lawrence Berkeley National Laboratory**
**Building 90-4000, Berkeley, CA 94720 USA**
**Phone: 1-510-486-6047; Email: elvine@lbl.gov**
**Presented to the Policy Implementation Committee **
**of the Energy Conservation and GHG **
**Emissions Reduction in Chinese TVEs**
**September 15, 2003**

## Outline of Presentation

- Pre-1998: Integrated Resource Planning and the Dawn of Restructuring
- 1998-2000: Energy Efficiency and Electric Industry Restructuring
- 2000-2001: California’s Energy Crisis
- Post-2001: Transition Period
- Resource Procurement and Portfolio Management

## Pre-1998: Integrated Resource Planning and the Dawn of Restructuring (1)

- For over 20 years: the California Public Utilities Commission (CPUC) has approved the use of ratepayer funds to promote energy efficiency (EE)
- The CPUC has authorized the major investor-owned utilities (IOUs) to administer EE programs
- Part of the Biennial Resource Planning Process (Integrated Resource Planning)
- EE was identified as a viable, cost-effective alternative to supply-side energy generation projects (the “resource acquisition” perspective)

## Pre-1998: Integrated Resource Planning and the Dawn of Restructuring (2)

- Late 1980s - 2002: CPUC allowed the utilities to recover from ratepayers the costs of “shareholder incentive mechanisms”
- The terms and conditions under which the utilities were allowed to claim and recover these transfers varied greatly from utility to utility, especially from 1990-1994
- 1995-1997: statewide consistency established for the shareholder incentive mechanisms
- More rigorous terms and conditions for the measurement and verification of costs and benefits was established (protocols)

## Pre-1998: Integrated Resource Planning and the Dawn of Restructuring (3)

- 1990- 1997: California IOUs spent over $300 million per year in electric and gas revenues collected from ratepayers on EE
- $200 million in the nonresidential sector
- $40 million in the residential sector
- $60 million in new construction (crosscutting)
- _______
- $160 million for financial assistance and program-specific administration
- $93 million for shareholder incentives
- $40 million for general administrative and information services
- $7 million for measurement and evaluation (M&E)

## Pre-1998: Integrated Resource Planning and the Dawn of Restructuring (4)

- 1996 - Restructuring of Electricity Industry in California (AB 1890)
- Wires charge (1% of each customer’s monthly electricity bill) => Public Goods Charge, funding 4 types of programs:
- Energy Efficiency Programs ($300 M) - CPUC regulated
- Low Income Programs ($22 M) - CPUC regulated
- Renewables ($135 M) - CEC regulated
- Research and Development ($62.5 M) - CEC regulated
- Public Goods Charge
- Initially established for 4 years: 1998-2001
- Extended by State Legislature: 2002-2011

## 1998-2000: Energy Efficiency and Electric Industry Restructuring (1)

- Changes in EE Program Design and Implementation
- Traditional rebates were reduced and replaced by Standard Performance Contract programs, where savings and incentives were based on measured performance
- Funding for “upstream market transformation” interventions was substantially increased
- Activities that focused on product developers and/or suppliers, rather than customers
- Funding increased to > $42M by 2001
- Utility performance awards were substantially de-linked from cost-effectiveness considerations
- Reductions in earnings opportunities for utilities
- Significant increases in expenditures on M&E studies for quantifying market effects and indirect benefits

## 1998-2000: Energy Efficiency and Electric Industry Restructuring (2)

- 1998: CPUC policy emphasized removing barriers to EE in the market to promote market transformation
- 1998-2000: short-term energy savings were de-emphasized relative to less quantitative goals of improving overall infrastructure and the ability of energy service providers to deliver EE
- Market transformation
- Focus on EE
- Strategic approach to understanding and working with the market
- Focus on opportunities for synergism with market actors resulting in leverage
- Overall result: self-sustaining or lasting effects (EE attitudes & behavior)

## 1998-2000: Energy Efficiency and Electric Industry Restructuring (2)

- Since 1998: California IOUs spent about $250 million per year in electric and gas revenues collected from ratepayers on EE
- $120 million in the nonresidential sector
- $80 million in the residential sector
- $50 million in new construction (crosscutting)
- _______
- $160 million for financial assistance and program-specific administration
- $25 million for “upstream market transformation”
- $26 million for shareholder incentives
- $34 million for general administrative and information services
- $12 million for measurement and evaluation (M&E)

## 2000-2001: California’s Energy Crisis

- Between Summer of 2000 and early Winter months of 2001:
- 70 days of system emergencies
- Rolling blackouts on several occasions
- Prediction of shortfall of 5,000 MW during June through September
- Unprecedented and historical response:
- $1.3 billion authorized for EE and demand reduction (250% increase over 2000 spending) = total EE program spending for all other states combined
- Successful: 10% cut in peak demand (14% in June) and 6.7% reduction in overall electricity use, after adjusting for economic growth and weather
- No rolling blackout incidences for the rest of 2001

## Post-2001: Transition Period (1)

- Nov. 2001: CPUC Decision 01-011-066
- Allows non-utilities to compete with utilities for EE funding
- Approximately $100 M was later awarded to third parties, about 20% of 2002 and 2003 program funds
- Energy Efficiency Policy Manual
- Guidelines for statewide and local program proposals and scoring system
- August 2003: CPUC Decision 03-08-067
- Continues 2001 Decision: non-utilities can compete with utilities for EE funding
- Approximately $110 M awarded to third parties, about 20% of 2004 and 2005 program funds
- Energy Efficiency Policy Manual revised

## Post-2001: Transition Period (2)

- Revised Energy Efficiency Policy Manual
- Program criteria, in order of importance:
- Cost effectiveness
- Long-term annual energy savings
- Peak demand savings
- Equity
- Ability to overcome market barriers
- Innovation
- Coordination with programs run by other entities
- Demonstrated success implementing energy efficiency programs
- Points (criteria) vary by type of program:
- Hardware and incentive programs
- Information-only and statewide marketing and outreach programs

## Post-2001: Transition Period (3)

- Resource Procurement and Portfolio Management
- October 2002: CPUC Decision 02-10-062
- IOUs are responsible for resource procurement to maintain the reliability of California’s electric grid
- EE would be a required and integral part of the IOU’s resource plan: “**Resource adequacy should first be met through all cost-effective EE and demand-response programs**”
- CPUC might consider an **EE portfolio standard**, similar to the renewable portfolio standard in California

## Post-2001: Transition Period (4)

- April 2003 - Utilities filed portfolio management plans (proposals)
- $700 M in EE spending over the next 5 years, in addition to current PGC funding
- SDG&E - 1.1 million MWh of energy reduction and 176 MW of peak load reduction over the next 5 years - 70% more than savings from PGC-funded programs
- PG&E  - spend an additional $300 M between 2004-2008 to achieve a cumulative savings of 1,397 GWh and 355 MW by the end of 2008
- SCE - spend an additional $60 M between 2004-2008 to achieve a cumulative savings of 4,000 GWh and 700 MW by the end of 2008