Joint Agency Workshop on the Governor’s Energy Efficiency Goals CEC IEPR Workshop on 2030 Efficiency Goals Panel Topic Codes and Existing Buildings Monday July 6, 2015 Cynthia Mitchell, TURN consultant

How well are the CEC’s and CPUC’s economic methodologies for cost effectiveness working for us? Should we modify or replace these methods to better align with the scale and pace needed to reach California’s climate goals? Whose capital should be used to achieve these goals – utility ratepayers, building owners, utility treasuries, government, and private capital? –

“To Do List” 1. Refine and improve current EE – consumer investment driven construct. 2. Realize CA’s full economic EE potential via long- term capital market investments. “Kilowatthours are now flowing two ways, as should EE revenue opportunities.” TURN, R , iDSM, May 29, 2015

New Transaction Structures (1) G,T,D; and solar, storage, DG finance their investments based on future cash flows from selling energy, or project finance. Finance EE like an energy infrastructure investment. Project finance for a power plant is based on the long term cash flows from selling power. Meter EE and pay for savings as they are delivered; turn EE into a cash flow, which can then be financed.

New Transaction Structures (2) Authorize iDSM pilots to test EE, bundled with DR and other DERs (“bundled Efficiency”). Bundled Efficiency is site-specific, persistent, correlates well to circuit and substation loads, and is measurable at the meter. Achieve significant site-specific load and consumption reductions – %. Commoditize the benefit streams to meet system needs. Use dynamic baselines (counterfactual algorithms) and smart meter data to create transparent and real time accounting for savings.

Chicken Picture

Economic Methodologies for Cost Effectiveness Benefits and Costs as a ratio: B/C, with 1.0 or greater positive benefits. Costs: utility / ratepayers + participant. Benefit: net present value of avoided costs of the supply-side resources (G,T,D) avoided or deferred. Avoided costs: energy, ancillary services, emissions (GHG), capacity, T&D (area & time-specific), xxx RPS, and losses. –On peak multiplier and T&D deferral values. End Notes

Market or Business as Usual: Encourage and promote customer EE investments. Consumers willing and able to make EE capital investments based on year paybacks. McKinsey 2009: Consumers very short payback requirements. Residential 2-3 yr; Commercial 3.6 yr; Industrial 18 mo – 3 yr. Largely “mass market”, statistical function integrated across thousands of discrete and dispersed efficiency measures. Estimation of savings. Economic: Supply side avoided cost analysis 20+ years. Large capital markets with returns on investments matched to energy value provided via G,T,D infrastructure investments over time. Efficiency bundled with DR, ES, solar, DG as DER. Location and site specific, significant load and energy reductions / management. Metered load reductions.

End Notes Market-based-BAU EE Portfolios Largely “low hanging fruit” savings – CFLs and T8s One-third savings from C&S assuming high compliance rates Utility savings claims adjusted downward by about 50% through the CPUC’s measurement and verification process. “Paper” cost-effectiveness marginal at best. Efficiency savings that are over time less than incremental load growth Rube Goldberg construct: 200+ programs

End Notes Modifications to make C/E analysis for EE, DR, ES, solar, and DG, more comparable and transparent. “Play Nice Together” Test: EE, DR, ES, solar, and DG effects be integrated into the CEC demand forecast to effect procurement. Counting / accounting effects: consider interactions, integration; format for tracking & reporting that is logical, traceable, transparent; consistent (where sensible); aggregate cumulative effect.