TODAY’S STUDY: HOW RATEPAYERS BENEFIT WHEN UTILITIES BUY EFFICIENCY

The Program Administrator Cost of Saved Energy for Utility Customer-Funded Energy Efficiency Programs

Megan A. Billingsley, Ian M. Hoffman, Elizabeth Stuart, Steven R. Schiller, Charles A. Goldman, Kristina LaCommare, March 2014 (Lawrence Berkeley National Laboratory)

Executive Summary

End-use energy efficiency is increasingly being relied upon as a resource for meeting electricity and natural gas utility system needs within the United States. There is a direct connection between the maturation of energy efficiency as a resource and the need for consistent, high-quality data and reporting of efficiency program costs and impacts. To support this effort, LBNL initiated the Cost of Saved Energy Project (CSE Project) and created a Demand-Side Management (DSM) Program Impacts Database to provide a resource for policy makers, regulators, and the efficiency industry as a whole.

This study is the first technical report of the LBNL CSE Project and provides an overview of the project scope, approach, and initial findings, including:

• Providing a proof of concept that the program-level cost and savings data can be collected, organized, and analyzed in a systematic fashion;

• Presenting initial program, sector, and portfolio level results for the program administrator CSE for a recent time period (2009-2011); and

• Encouraging state and regional entities to establish common reporting definitions and formats that would make the collection and comparison of CSE data more reliable.

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The LBNL DSM Program Impacts Database includes the program results reported to state regulators by more than 100 program administrators in 31 states, primarily for the years 2009-2011. In total, we have compiled cost and energy savings data on more than 1,700 programs over one or more program-years for a total of more than 4,000 program-years’ worth of data, providing a rich dataset for analyses. We use the information to report costs-per-unit of electricity and natural gas savings for utility customer-funded, end-use energy efficiency programs. The program administrator CSE values are presented at national, state, and regional levels by market sector (e.g., commercial, industrial, residential) and by program type (e.g., residential whole home programs, commercial new construction, commercial/industrial custom rebate programs).

In this report, the focus is on gross energy savings and the costs borne by the program administrator—including administration, payments to implementation contractors, marketing, incentives to program participants (end users) and both midstream and upstream trade allies, and evaluation costs. We collected data on net savings and costs incurred by program participants. However, there were insufficient data on participant cost contributions, and uncertainty and variability in the ways in which net savings were reported and defined across states (and program administrators). As a result, they were not used extensively in this report. It is also important to note that savings metrics reported by program administrators draw heavily from estimated values.

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Results

The CSE values presented in this study are retrospective and may not necessarily reflect future CSE for specific programs, particularly given updated appliance and lighting standards. The CSE values are presented as either (a) the savings-weighted average values; (b) as an inter-quartile range with median3 values across the sample of programs; or (c) both.

Table ES-1 provides an overall indication of national, savings-weighted average program administrator CSE values by sector using two indicators (e.g., levelized CSE 6% real discount rate and first-year CSE).4 Figure ES-1 indicates the savings-weighted averages, medians and inter-quartile ranges for levelized CSE values using a 6% discount rate.

Our key national and regional findings are:

• The U.S. average levelized CSE was slightly more than two cents per kilowatt-hour when gross savings and spending is aggregated at the national level and the CSE is weighted by savings.

• Residential electricity efficiency programs had the lowest average levelized CSE at $0.018/kWh. Lighting rebate programs accounted for at least 44% of total residential lifetime savings with a savings-weighted average levelized CSE of $0.007/kWh. The residential CSE, when the lighting programs were removed, was $0.028/kWh. Low-income programs have an average levelized CSE at $0.070/kWh.

• Commercial, industrial and agricultural (C&I) programs had an average levelized CSE of $0.021/kWh.

• Not surprisingly, the levelized CSE varies widely, both among and within program types. We find that the median value is typically higher than the savings-weighted average for nearly all types of programs. One possible explanation is that our sample includes a number of very large programs and for any given program type, larger efficiency programs have lower CSE than smaller programs because administrative costs are spread over more projects (e.g., economies of scale).

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• In reviewing regional results, efficiency programs in the midwest had the lowest average levelized CSE ($0.014/kWh), while programs in northeast states had a higher average CSE value ($0.033/kWh). Programs in western states are at $0.023/kWh and for the southern states included in the database, the comparable program CSE was $0.028/kWh.

• Natural gas efficiency programs had a national, program administrator savings-weighted average CSE of $0.38 per therm, with significant differences between the C&I and residential sectors (average values of $0.17 vs. $0.56 per therm, respectively).

• The cost of saved energy may vary across program administrator portfolios for reasons that have little to do with programmatic efficiency. In some jurisdictions, a policy mandate of acquiring all reasonably available cost-effective energy efficiency can lead to a focus on more comprehensive programs which will tend to have a higher CSE because they are serving more diverse constituencies and technologies. In other jurisdictions, the focus may be on acquiring the cheapest savings possible.

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Program-level results

We also examined the cost of saved energy by program type for both residential and C&I programs (see Chapter 3). Figure ES-2 shows an example for the C&I programs, including savings-weighted average (pale green bar) CSE values, the inter-quartile ranges (blue line) and median (red dotted line) CSE values. The median value and inter-quartile ranges for CSE are based on calculations for each individual program and gives equal weighting to programs irrespective of their relative size in terms of either savings or costs.

The simplified C&I programs have median values for program administratorCSE that range from $0.01/kWh to $0.05/kWh. It is worth noting that the savings-weighted average CSE values for custom and prescriptive rebate program categories are $0.018/kWh and $0.015/kWh, respectively. Since these two program categories account for almost 70% of C&I sector savings, they tend to drive the overall CSE results for the C&I sector (less than $0.02/kWh).

For the residential programs, several program categories have a relatively tight range of program CSE values (see Figure ES-3). For example, Consumer Product Rebate programs have an inter-quartile range of $0.01/kWh to $0.04/kWh and a low savings-weighted average (~$0.01/kWh). However, the residential prescriptive ($0.03/kWh to $0.11/kWh), new construction ($0.03/kWh to $0.11/kWh) and whole-home upgrade ($0.03/kWh to $0.21/kWh) program types have significantly larger ranges. There are several possible reasons for the range of CSE values in each of these program categories. The prescriptive simplified program category includes detailed program types that implement a wide variety of measures (e.g., HVAC, insulation, windows, pool pumps) as well as some generic “prescriptive” programs6 that often include measures also found in the consumer product rebate category. This broad measure mix, and the variation in costs and measure lifetimes associated with those measures, are possible drivers for the wide range of CSE values for the prescriptive category.

For the Whole-Home Upgrade program category, the broad range of program designs and delivery mechanisms (this category includes audit, direct install, and retrofit/upgrade programs) may help explain the relatively wide range of CSE values. Overall, most C&I program categories have a relatively smaller inter-quartile range of CSE values compared to residential program categories.

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Total resource cost of saved energy

Although we focus on program administrator costs in this report, it is important to note that these metrics do not reflect a total cost perspective since program administrators infrequently report participant costs. We were able to collect participant cost data from a handful of program administrators. However, given small sample size and uncertainty in how participant costs were derived, it is difficult to confidently assess the “all-in” or total resource cost of efficiency or analyze potential influences on the total cost of the efficiency resource. For these reasons, in Figure ES-4, we compare the program administrator’s levelized CSE vs. a total resource levelized CSE for illustrative purposes only. We calculate this total resource CSE for the simplified program categories where both program administrator and participant costs are available for more than 18 program years.

For this small sample of programs, we found that the levelized total resource CSE values are typically double the program administrator CSE with the exception of the Residential Whole Home Upgrade program category (which has a savings-weighted total resource CSE about 25-30% higher than the program administrator CSE). Further data collection and analyses could better characterize the way in which the ratio of program administrator costs to participant costs varies as a function of sector, measure types, and market maturity; and how incentives and direct support might be optimized to pay no more than is necessary to meet a state’s efficiency policy objectives.

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Observations and Recommendations on Reporting

In calculating the CSE, we utilized information on program administrator costs, annual energy savings, estimated lifetime of measures installed in a program, and an assumed discount rate. However, with respect to current program reporting practices, we observed several challenges to the collection of this data for the purposes of calculating the CSE:

• Inconsistencies in the quality and quantity of the costs and savings data led LBNL to develop and attempt to apply consistent data definitions in reviewing and entering program data:

o Program administrators in different states did not define savings metrics (e.g., varying definitions of net savings) and program costs consistently; and

o Market sectors and program types were not characterized in a consistent fashion among program administrators.

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• Many program administrators did not provide the basic data needed to calculate CSE values at the program level (i.e., program administrator costs, lifetime savings or program-average measure lifetimes), which can introduce uncertainties into the calculation of CSE values (as we developed and utilized methods to impute missing values in some cases).

As a practical matter, the quality and quantity of program data reported by program administrators is an important factor in assessing energy efficiency as a resource in the utility sector. Additional rigor, completeness, standard terms, and consensus on at least essential elements of reporting could pay significant dividends for program administrators and increase confidence in energy efficiency savings among policymakers and other stakeholders, particularly in situations where efficiency is treated as a resource in utility procurement decisions, ISO/RTO forward capacity markets or as an environmental compliance or mitigation option by state or federal environmental agencies.

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Of the 45 states currently running utility-customer funded efficiency programs (Barbose et. al. 2013), only 31 states provided reporting with sufficient transparency to complete a program-level CSE analysis, and almost all of the 31 states’ data required some interpretation for purposes of regional or national comparison. With more consistent and comprehensive reporting of program results, additional insights can quite possibly be obtained on trends in the costs of energy efficiency as a resource as program administrators scale up efforts, what saving energy costs among an array of strategies, and what and how cost efficiencies might be achieved.

Therefore, we urge state regulators and program administrators to consider annually reporting certain essential data fields at a portfolio level and more comprehensive reporting of program-level data in order to facilitate the comparison of efficiency program results at state, regional and national levels. A diagram illustrating this reporting hierarchy approach can be found in Chapter 5, Figure 5-1.

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As part of the LBNL CSE Project, we intend to continue collecting energy efficiency program data and analyzing and reporting the CSE for efficiency actions funded by utility customers. We also plan to:

• Work with state, regional and national stakeholders to encourage the collection of program cost and impact data using a common terminology and program typology as defined in this report and a companion policy brief (Hoffman et al. 2013). This is important for organizing program data into appropriate and consistent categories so that programmatic energy efficiency, as a regional and national resource, can be reliably assessed.

• Annually compile data reported by program administrators and state agencies from across the United States.

• Conduct additional analyses to help increase understanding of factors that influence EE program impacts, costs and the cost of saved energy.

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