1. Investing in Energy Efficiency: Experience from California
Managing Energy Demand – Bern ’09
November 4, 2009
Julie A. Fitch
Director, Energy Division
California Public Utilities Commission

2. Presentation Overview
Introduction to California experience
Regulatory / financial mechanisms for utilities
Recent energy efficiency results
Current energy efficiency activities
Climate change context

3. California: A long history of investing in clean power and energy efficiency
Yesterday…
… Today

4. While the nation’s appetite for electricity has steadily grown, California has become a model of efficiency.
Per Capita Electricity Sales (not including self-generation)
∆(2005)
= 4,000kWh/yr
= $400/capita
United States
kWh/person
California

5. Energy Efficiency Strategies
Flattening out the curve – yesterday
Decouple sales from revenues– eliminate disincentive
Set and strengthen building and appliance standards
Invest in utility energy efficiency programs
Bending the curve downward– tomorrow
Strengthen incentives– “Decoupling Plus”
Set long term goals to achieve durable, broad-based reductions
Enhance strategic planning: work backwards from goals
Improve branding, messaging and marketing
Invest in workforce and research and development

6. Presentation Overview
Introduction to California experience
Regulatory / financial mechanisms for utilities
Recent energy efficiency results
Current energy efficiency activities
Climate change context

7. Decoupling: How it works
Utility revenues are de-linked from energy sales
Utilities submit revenue requirements and estimated sales annually
Regulatory agency sets per-kWh rates by type of customer
If sales are lower, shortfall is covered in subsequent year
If sales are higher, excess revenues are credited to customers

8. Decoupling: Why it works
Removes disincentive for utilities to encourage conservation, since revenues are not tied to amount of energy sold
Aligns utility shareholder and customer interests for more efficient resource decisions
Necessary, but not sufficient, to induce utility enthusiasm for energy efficiency

9. Decoupling “PLUS” Utility shareholder incentives
Financial rewards for utilities for successful energy efficiency
“Shared savings” with consumers
Concept is to make financial return comparable to investment in supply resources (generation, transmission, distribution)
First tried in 1990s; new mechanism adopted in California in 2007

10. Risk/Reward Incentive Mechanism basic concepts
Cost of utility energy efficiency programs is subtracted from the value of energy saved each year
If utilities reach a certain percentage of their savings goals, they are awarded a graduated percentage of these “net benefits” (currently set between 9 and 12%), up to a maximum cap, as additional revenues
If utilities fail to reach required goals, they face potential for penalties

11. Presentation Overview
Introduction to California experience
Regulatory / financial mechanisms for utilities
Recent energy efficiency results
Current energy efficiency activities
Climate change context

12. Energy Efficiency Costs, Energy Savings and Benefits: 2006-08
Ratepayer Cost: $1.8B
Customer Cost: $ .9B
Benefits
Energy Savings: $5.4B
Total Cost: $2.7B
Total Benefits: $5.4B
The Bottom Line:
Net Social Benefit = $5.4B - $2.7B = $2.7B
Return on Investment = 100%

13. Savings
Equivalent to three 500 MW power plants (one each year)
3 Million metric tons of CO2 equivalent

14. Presentation Overview
Introduction to California experience
Regulatory / financial mechanisms for utilities
Recent energy efficiency results
Current energy efficiency activities
Climate change context

15. The California Long Term Energy Efficiency Strategic Plan

16. 2010-2012 Utility Program Goals
Savings Impacts Anticipated:
6,965 GWH
1,537 MW
150.3 MMTherms
3.07 million tons of CO2e emissions avoided
Equivalent of 3 large power plants
Authorizes $3.1 billion in cost-effective energy efficiency programs

17. 2010-12 Portfolio Highlights
12 Statewide Programs
Cal SPREE (Statewide Program for Residential Energy Efficiency) – existing homes
Commercial: Benchmarking
Industrial: Continuous Energy Improvement
Zero Net Energy New Construction
Heating, ventilation, & air conditioning: Focus on compliance
Statewide Marketing, Education & Outreach
Six other Statewide programs: Agriculture; Building Codes & Appliance Standards; Emerging Technologies; Lighting Market Transformation; Integrated Demand Side Management; Workforce Training
Plus Other Localized Programs: government partnerships; individual utility and 3rd party programs, and pilot projects

18. Zero Net Energy Buildings
Advanced Home Partnership - $63.2 million
Aims toward Strategic Plan 2011 milestone: 50% of new homes exceed existing building standards by 20%; 10% exceed by 40%
15% above 2008 building code
Calculated incentive structure up to 50% incremental cost
Emphasizes “green” marketing- leverage existing consumer awareness
Zero Net Energy Pilots
$43.16 million utility programs
$60 million for innovative local government programs focused on Advanced Building (“Reach”) Codes and GHG Action Plans
Commercial buildings
100,000 building statewide benchmarking target ( )
“Path to Zero” Commercial Buildings Collaborative

19. Other Portfolio Highlights
Advanced Lighting Programs (53% of total lighting budget)
$89 million (LEDs, specialty/super CFLs, halogens); $78 M - CFLs
2020 Strategic Lighting Plan Work Group
Codes and Standards Programs
New Compliance Enhancement Program
training/support to building officials;
streamlining permitting and compliance requirements;
enhanced certification processes; Focus on HVAC
Reach Codes; coordination at state level and with voluntary codes
Heating, Ventilation and Air Conditioning
Compliance focus: certification and training, CA specifications, quality installation and maintenance
Industrial – certification/pilots on energy management

20. Marketing/Brand that engages moves customers to take action
New or Revised Clean Energy Brand (2010)
Interactive EE Web Portal
exchange expert resources & engage average citizens
Will utilize social networking techniques
Variety of in-language marketing and outreach programs
Universal Integrated Audit/Survey Tool
Behavioral Programs

21. Financing Funds - Growing
Additional financing of US$8 - $25 billion needed
for efficient hardware alone
Statewide Utility On-bill financing (OBF):
For commercial and institutional customers
Initial $41.5 million in new funds for OBF loan pool
Common loan caps and terms
Utility program coordination with municipal property-based financing
linked to national economic stimulus funds/retrofit programs
CPUC/State Treasurer’s office collaboration on state facilities

22. Economic Impact of Energy Efficiency Programs 2010-2012
15,000 – 18,000 new “green collar” jobs in over
6,000 – 10,000 jobs in Residential Retrofit alone
$122 million budgeted for workforce education
*Job benefits calculated based on Council of Economic Advisers’ May 2009 publication of “Estimates of Job Creation from the American Recovery and Reinvestment Act of 2009”

23. McKinsey and Co’s Compelling Case for Energy Efficiency as U. S
McKinsey and Co’s Compelling Case for Energy Efficiency as U.S. Climate Action
U. S. National Potential:
23% reduction in end use energy consumption
Reduce 1.1 gigatons GHG (15% of US 2005 emissions)
$1.2 trillion in gross energy bill savings (Net Present Value)
$ billion net savings (NPV) after EE investment & program costs*
Strategies Needed:
Comprehensive, innovative scale approaches to “unlock” EE in 100 million buildings, with billions of devices
Biggest challenges:
up-front funds, fragmented stage, stakeholder alignment, low “mind-share”
* 10-30% of investment)

24. Presentation Overview
Introduction to California experience
Regulatory / financial mechanisms for utilities
Recent energy efficiency results
Current energy efficiency activities
Climate change context

25. California Global Warming Solutions Act of 2006 (AB 32)
2010: emissions at 2000
levels
2020: emissions at 1990
2050: emissions 80% below 1990 levels*
Covers all major emitters, to be defined by California Air Resources Board (ARB).
Covers all major greenhouse gases (GHGs).
*Set in Executive Order S-3-05, June 2005.

26. California’s Greenhouse Gas Emissions (480 MMTCO2E)
Residential
Commercial
Elec. Gen. (Imports)
Transportation
Elec. Gen. (In State)
Source: CEC
Industrial
Agriculture
CARB 2007

27. Electricity-Related Emissions: Imports
Source: CEC (for electricity sales); CARB (for emissions inventory)

28. California’s Climate Policy Road Map
Required by AB32
Adopted by California Air Resources Board (CARB) Dec. 2008
Targets 174 MMtCO2e reduction from BAU
Multi-agency effort led by CARB
CPUC provided formal recommendation of strategies for the electricity and gas industries
Lays out comprehensive regulatory program
Combines mandates with market based measures

29. A Role for GHG Trading… Reduce Demand Choose Cleaner Supplies
Stimulate
Technological
Innovation

30. … And for Mandatory Measures
Reduce Demand
Energy efficiency
Advanced metering/demand response
Water conservation
Choose Cleaner Supplies
Loading Order
Renewable Portfolio Std.
CA Solar Initiative
Emissions Performance Std.
Promote Technological Innovation
RD&D investments
Standards

31. Total Reductions from 2020 BAU: Electricity/Gas Mandates:
Nearly 40% of reductions from mandates are from electric sector programs
Total Reductions from 2020 BAU:
169 MMTCO2E
Electricity/Gas Mandates:
49.7 MMTCO2E
21.2M
26.4M
2.1M
Source: CARB Proposed Scoping Plan

32. California’s Loading Order
Efficiency and
Demand Response
Staged priorities for procurement
of new resources
Renewable Energy
Clean and Efficient
Fossil-fired Energy
Mostly command and control mandates

33. Aggressive EE/GHG Goals
California Air Resources Board Scoping Plan Target (Nov, 2008):
32,000 GWh and 800 MMTherms/year by 2020
19.5 MMT CO2E in 2020
CPUC 2020 interim energy efficiency goals (July, 2008):
16,000 GWh and 620 MMTherms/year
Equal to nine or ten power plants avoided

34. Climate/EE Policy Issues Ahead for California and the U.S.
Demand-side management (DSM) strategies not part of Cap and Trade; no mechanism to sell GHG benefits from DSM
Cap and trade places limits on sources of GHGs; demand-side strategies not directly integrated into cap and trade.
GHG emission price will make more DSM “cost-effective”
“Offsets” typically allowed outside the capped jurisdiction only
Local Governments can influence building and transportation, but how to pay for actions?
Allowance auctions may provide EE funds to expand programs &/or creative allowance “retirement”
EE Institutional challenge: Need broad vision, strong and clear leadership, over sustained period – to overcome ”friction” of diffuse markets and action venues

35. Thank You Julie A. Fitch jf2@cpuc.ca.gov www.cpuc.ca.gov