Implications of Cost Effectiveness Screening Practices in a Low Natural Gas Price Environment: Case Study of a Midwestern Residential Energy Upgrade Program

April 12, 2013 Implications of Cost Effectiveness Screening Practices in a Low Natural Gas Price Environment: Case Study of a Midwestern Residential Energy Upgrade Program Ian Hoffman, Merrian Borgeson and Mark Zimring Executive Summary With the proliferation of statewide energy savings targets and other policies favorable to energy efficiency, savings from utility customer-funded energy efficiency programs could rise to offset much of annual load growth by 2025 (Barbose et al 2013). For these increased savings to occur, however, nearly all of these programs must pass screening for cost effectiveness. Some program administrators and state regulators are finding that conventional analyses, which only consider a narrow set of energy-savings related efficiency program benefits, are now resulting in some natural gas efficiency programs failing their cost-effectiveness criteria in the new low natural gas price environment. Regulators are considering whether to scale back or terminate gas portfolios in at least four states (WA, OR, ID, NM) because of cost-effectiveness concerns. Stakeholders in several regions of the country have asked LBNL to help assess alternatives to reducing the pursuit of energy savings in their regions. We address these requests by producing two working papers: one exploring cost-effectiveness screening policy implications of low to moderate natural gas prices, and a second assessing some of the values that policymakers may take into account in weighing the pros and cons of ending natural gas efficiency programs. In this policy brief, we lay out the challenges that low gas prices pose for cost effectiveness of an electric-gas efficiency program and portfolio. We then quantify options available to regulators and administrators who want to evaluate the tradeoffs among multiple policy objectives. A multi-measure, residential energy upgrade program in the Midwest is used as a lens to explore the implications of common and emerging cost-effectiveness policies in the context of low prices for natural gas. We illustrate the results across a range of cost-effectiveness screening options, including different discount rates, levels of test application, various benefit-cost tests, and the inclusion of non-energy resource benefits. While valuing cost effectiveness is a product of many choices regarding inputs and methodologies, this policy brief concentrates on several key issues that are likely to be common across most market and regulatory contexts: Funding Acknowledgement: The work described in this report was funded by the National Electricity Delivery Division of the U.S. Department of Energy’s Office of Electricity Delivery and Energy Reliability under Lawrence Berkeley National Laboratory Contract No. DE-AC02-05CH11231. This document is a part of LBNL’s Clean Energy Program Policy Brief series. These policy briefs highlight emerging program models, important issues that programs face, and how these issues are being addressed. To join the email list to receive briefs and papers from this series, please click here. Please direct questions or comments to Ian Hoffman (ihoffman@lbl.gov).