Dive Brief:

• California is changing its approach to energy efficiency, and on Thursday the state's Public Utilities Commission (CPUC) passed new rules to address benefits beyond economic energy savings, and adopted a new "total system benefit" (TSB) metric to encourage conservation at high-value times and locations.
• With the decision, the PUC adopts a new approach to setting budgets for nonresource tranches of energy efficiency, including projects targeting equity and market development, said Mohit Chhabra, a senior scientist in Natural Resources Defense Council's climate and clean energy program who helped develop the metric.
• "I'm happy to say this is one of those decisions where there wasn't much consternation about it," Chhabra said. There is a two-year glide path to implementing the TSB, after which it will be the primary metric for assessing utilities' energy efficiency program portfolios.

Dive Insight:

California has been a leader on efficiency for years, and as a consequence it has run out of the typical "low-hanging fruit" to address a widening slate of resource, equity and market goals, say experts.

"In the past, there have been some very cost-effective actions, like LED lightbulb programs," said Chhabra. "For the past few years, as we've completed a lot of energy efficiency, and codes and standards have caught up, it's been hard to address energy efficiency as an economic-only resource."

The proposal adopts a new approach, segmenting the energy efficiency program portfolios into programs whose primary purposes are resource acquisition, market support, or equity. A cost-effectiveness threshold will be applied to resource acquisition programs, and the budget amount devoted to the market support and equity programs will be limited to 30% of the total budgets, in most cases.

"Energy savings goals alone, while important, do not capture the full set of policy goals and benefits of energy efficiency," regulators concluded.

The order requires a total resource cost ratio of at least 1.0 -- meaning programs produce a benefit of at least $1 for every dollar spent -- but regulators specified that this "does not mean that each individual resource acquisition program must be cost-effective on its own."

"Program administrators may balance their resource acquisition programs within the resource acquisition segment of their portfolios to ensure that the segment overall meets the 1.0 criteria," the order says.

Evaluation, measurement, and verification budgets remain capped at 4% of efficiency portfolio budgets.

The TSB will combine and optimize energy and peak demand savings goals, according to the proposal, "along with greenhouse gas benefits of energy efficiency, into one metric that can be forecasted and tracked." The TSB also encourages "high value" load reduction and longer-duration energy savings while being fuel agnostic, it says.

California efficiency programs are funded by customer bills and administered by utilities, though they outsource up to 60% of programs to third parties through competitive bidding, Chhabra said. The decision "really sets those programs up for success," he said.

The CPUC's decision also aims to enhance "alignment and stability of energy efficiency program goal-setting, approval, and evaluation processes," said regulators, by replacing the current 10-year business plan and yearly utility filings with a 4-year application cycle that includes a strategic planning component.

Regulators ordered the state's investor-owned utilities to file new efficiency program applications by February 2022, to take effect by January 2024. CPUC also said that this summer the commission will be considering new energy efficiency goals and "adding additional details" to the efficiency program changes changes to efficiency programs.

The changes implemented will help to continue California's leadership in energy efficiency, CPUC Commissioner Genevieve Shiroma said in a statement, "by reducing the conflict between cost-effectiveness and other equally or more important policy objectives that address equity and provide market support for our energy efficiency programs."

Shiroma said the decision also maximizes efficiency measures "for longer duration greenhouse gas reductions in support of our integrated resource plan and in delivering grid benefits."

While utilities did ask for clarification on some items, the state's IOUs support the efficiency program changes.

"We believe moving to this new metric of measuring success will allow energy efficiency to further support the grid, our customers and California's climate goals," the state's largest utility, Pacific Gas & Electric, said in a statement.