The 1990 Report documents the tremendous accomplishments made in California in the areas of energy efficiency and chronicles the role of the Energy Commission, the California Public Utilities Commission, and the state's utilities in achieving those efficiency accomplishments. The 1990 Report also identifies a potential to achieve even higher levels of efficiency.
Rather than repeating earlier work, the 1992 Energy Efficiency Report relies on the 1990 analyses and identifies the policies and actions needed to achieve additional energy efficiency in California. Most participants in the 1992 proceeding agree that, although higher levels of energy efficiency are achievable, consumers are not motivated to capture that potential. Debate remains over the reasons for consumer reluctance, and what role, if any, government should play in assisting consumers in overcoming their reluctance.
Although the public at large remains skeptical about the merits of additional energy efficiency, the Energy Commission's challenge is to identify additional effective programs and policy actions to overcome these obstacles in a period of constrained public and private resources.
The 1992 Report recommends increasing program effectiveness through providing better information about energy use and savings, encouraging consumer involvement and acceptance, and better coordinating programs and policies.
This perception proved to be wrong. Energy consumption since the mid-1970s has been less than half of the Commission's original forecasts and economic growth has not been inhibited by insufficient energy supply. Since 1976, total energy use in California has risen only 23%, while the gross state product has climbed 60% in real terms.
California Total End-Use Energy Consumption
1989 2011
End Use Sector TBtu % TBtu %
Transportation 3007 48 3615 46
Industrial 1733 27 2264 29
Residential 780 12 925 12
Commercial 642 10 906 11
Agricultural 181 3 196 2
TOTAL 6343 100 7905 100
Table 1-1
California Energy End Uses 1989 and 2011
Through 2011, transportation will continue to
be the largest end-use sector, comprising
nearly 50% of total energy consumption.
Table 1-1 shows total end-use energy
consumption, expressed in trillions of British
thermal units, the standard unit for measuring
a quantity of thermal energy. One British
thermal unit equals the amount of energy
required to raise the temperature of one pound
of water by one degree Fahrenheit at sea level.
Whichever path California follows, a major commitment will be required to improve energy efficiency. By 2011, the baseline path results in a reduction in total annual energy consumption of 10%, or the equivalent of 170 million barrels of oil.
The Energy Commission's 1990 Electricity Report forecast that about three-fourths of the new cost-effective additions which should be made to California's electric resource system by 2001 would be comprised of savings from demand side management programs. The 1992-1993 California Energy Plan recommends that 75% of the state's additional electricity needs should be met by increasing energy efficiency by the year 2001.
The 1992 Electricity Report built on this recommendation by identifying 1,774 megawatts of additional savings as demand side management program goals for 1996 and 5,933 megawatts for 2003. To ensure that these savings are realized the Energy Commission worked with the California Public Utilities Commission to develop measurement and evaluation protocols to improve understanding and increase the reliability of demand side management program savings estimates.
Demand side management consists of measures taken to influence the level or
timing of customer energy demand in order to optimize the use of available energy
resources.
The next phase of the Inventory Group's work includes testing the methodologies for collecting data on the effective life of efficiency measures; and gathering more data on measure costs, market saturation, penetration rates, and energy savings. Understanding information about market saturation will be crucial in assessing the plausibility of utility estimates of the potential energy impacts of future demand side management programs.
Once all this data is collected, reviewed, and stored in an easily retrievable electronic form, work can begin on estimating economic and achievable energy savings for selected utility service territories.
In January 1990, an Energy Efficiency Blueprint for California was produced by a diverse group of individuals and institutions joined in collaboration to reassert California's leadership in energy efficiency. The California Public Utilities Commission endorsed the goals of this group, called the "Collaborative," in two related decisions (D.90-08-068 and D.90-12-071).
Those decisions increased the availability of capital by directly stimulating California utilities to almost double their total energy efficiency program expenditures between 1989 and 1992, from $190 million to $350 million per year. Including customer contributions to purchase more energy efficient equipment, this led to an infusion of about $2 billion of new capital into the demand-side management market over the last 4 years attributable to Collaborative-related programs.
The consumers in the focus groups identified three general problems: people do not believe the claims of energy efficiency product vendors, the costs of these products are high, and programs promoting energy efficiency are inconsistent. These conclusions were also reached at public workshops on transportation efficiency and on the general problem of market barriers. These insights reinforce the notion that current programs are addressing the correct issues, but need to increase efforts on consumer perspectives, providing information, and program coordination.
In spite of this extensive involvement, the general public remains skeptical about the merits of increased energy efficiency. If better, more reliable, and easily understandable information is needed, then the Commission should broaden its outreach efforts. Programs should help the energy consumer, or end user, to evaluate the costs and benefits of specific energy efficiency measures. Program actions that can help the consumer make this evaluation and come to decisions about improving energy efficiency include providing credible information, establishing partnerships to share costs, and identifying ways to capture a broad array of direct and indirect benefits. Program design should consider these goals, and programs should be monitored to ensure that energy efficiency benefits are achieved at or below expected costs.
The next step along this path is to open a dialogue and solicit comments from all affected parties to verify our findings and recommendations.
The strategy discussed in this Report is aimed at promoting energy efficiency by emphasizing access to information, analyzing costs and benefits, coordinating government actions with private sector activities, and periodically re- evaluating government programs. That re- evaluation should include comment through some public forum such as focus groups, public hearings, or workshops, in order to provide a means for all stakeholders to reach common objectives.
A periodic review also creates a feedback mechanism to correct for deviation from program goals and strengthens accountability to consumer needs and concerns. If program objectives are not being met or there is need to make changes, the review provides an opportunity for timely response. Making programs more responsive and flexible should result in increased program effectiveness and improved energy savings.
By providing credible information, choices, and a better understanding of costs and benefits, the consumer is empowered to make informed market decisions. The periodic review ensures that consumer and program goals are in alignment. Providing complementary information across all programs reinforces them and reduces costs across the board. Information collection and analysis can be a valuable tool; providing flexibility to respond to changes and uncertainties in the energy market, the economy, and advances in energy use and generation technologies.
Government agencies should develop close working relationships with trade and service associations to facilitate energy expertise through training, seminars, and publications. Opportunities for partnerships and multi-objective planning should be identified and acted upon.
Programs should be designed to take advantage of funding and incentives available through the National Energy Policy Act, the Intermodal Surface Transportation Efficiency Act, and the new federal tax and economic stimulus package.
The energy crisis of the 1970s demonstrated California's vulnerability to unstable energy markets. Initial government energy conservation programs enjoyed popular support. The public accepted the need for government policies and programs to encourage new technologies and efficiency improvements. Also accepted was the premise that government has a responsibility to intervene during a crisis to reduce potential vulnerabilities.
In the mid 1980s, energy markets reversed course. This resulted in energy oversupply and a rapid decline in energy prices. Interest in energy conservation consequently waned.
Recently, the environmental benefits of energy efficiency have enjoyed renewed widespread acknowledgement. The California Legislature has directed the Energy Commission to consider environmental benefits in calculating the cost effectiveness of opportunities to improve energy efficiency [Section 25000.1 of the Public Resources Code]. Quantification of the air quality benefits of demand side management (DSM) is an issue in the 1994 Electricity Report proceedings.
Starting in 1989, the state's investor-owned utilities participated in a process called the "Collaborative." Through the Collaborative, the utilities, regulatory agencies, and environmental groups have worked together to expand programs to deliver cost-effective energy efficiency.
In 1992, the state's publicly-owned utilities, through the California Municipal Utilities Association (CMUA) and with support of the Western Area Power Administration and the Energy Commission, developed a "Model Energy Plan" for Energy-efficiency promotion in their service areas. The plan is a "best management practices" manual recommended by CMUA to its members for adoption. To date, 10 of CMUA's 21 members have adopted the Model Energy Plan policies.
Ed Aghjayan of the Anaheim Public Utilities Department chaired the CMUA
Energy Efficiency Committee that developed the Model Energy Plan. Recently,
Mr. Aghjayan's efforts have been instrumental in helping the people of Armenia
ameliorate their electricity crisis -- the Armenian government adopted the policies
incorporated in the Model Energy Plan to manage electricity use.
CMUA's Model Energy Plan provides basic
tools to ensure that resources are used wisely.
The Plan's underlying philosophy is that
consumer-owners are best served and are
afforded the lowest cost energy, including
societal costs, when energy efficiency is
practiced by the utility and its consumer-
owners.CMUA recognizes energy efficiency programs as a means to displace future supply resources and reduce costs, provide a valuable service, and address growing environmental concerns. DSM and supply resources are treated equally in analysis in order to acquire the best mix to achieve the utility's goals. CMUA's Energy Efficiency Committee is continuing to work and will be pursuing programs addressing both energy and water conservation.
The Los Angeles Department of Water and Power (LADWP) and the Sacramento Municipal Utility District (SMUD), the state's two largest publicly-owned utilities, have aggressively pursued energy efficiency as diligently as the investor-owned utilities.
To maintain and improve its position as one of the leading economic powers in the world, California's economy must be strengthened through an environment conducive to increased productivity, competitiveness, and growth that also minimizes environmental impacts. To improve California's economic future, the state needs to identify, develop, and promote policies and programs for California which maximize cost-effective energy efficiency.
Focus groups were convened for five major energy-using sectors: industrial, residential, commercial, government, and agricultural. The sixth end-use sector, transportation, was discussed in a workshop. Participants in each focus group represented a range of interests. For example, the residential group included a homeowner, a tenant, a builder, an architect, a remodeling contractor, a retailer, an energy service company representative, an environmentalist, and a utility employee. The groups were used to determine what, if any, barriers they could identify from their individual experiences. Once barriers were identified, the groups were then asked to offer solutions.
The focus group participants were uncertain about how much additional conservation or efficiency can be economically justified. Engineering and technical studies indicate that considerable amounts of efficiency can be obtained at competitive prices, yet participants expressed reluctance about purchasing energy efficient products or measures. While each group presented slightly different perspectives, the barriers fell into three categories: low credibility, high investment risk, and program stability.
The focus groups told the Energy Commission that energy efficiency products and services are not well received by consumers. Information about energy savings and reliability of products is hard to obtain, and can be confusing or contradictory. Because of this difficulty, a penalty or "cost" is associated with improving energy efficiency: the cost of obtaining information to verify claims or offset poor reputations.
Consumers, builders, and manufacturers in the focus groups perceived that investment in energy efficiency carries a higher risk than standard practice. The difficulty in obtaining credible information adds costs, and therefore risks, to investment in energy efficiency. The delay necessary to obtain or verify information adds costs to the investment process as well. In a competitive environment, these incremental costs are sufficient to have broad institutional consequences.
The basic argument supporting government implementation of programs is that there is market failure. This economic analysis is based on an assumption that ideally functioning markets which provide perfect information, instantaneous and cost-free transactions, and access to all markets. The Energy Efficiency Optimization viewpoint maintains that these conditions are, in general, unrealistic; especially with respect to energy. The existence of under-used cost-effective efficiency is a demonstration of market failure, and of the existence of market barriers.
This group maintains that low consumer confidence reflects a normal market response and does not necessarily demonstrate any unusual market failure. If the cause of consumer reluctance is incorrectly analyzed, then programs to cure market failure will not be effective and, instead, will add to program costs.
If the Market Efficiency advocates are correct and consumers are acting appropriately, then the answer is not the existence of market failures. This contradiction is a puzzle -- if cost-effective energy efficiency improvements are possible but not acted upon and yet no market failure exists, some factor is not being considered.
The focus groups maintain that the problem is insufficient credible information compounded by inconsistencies among various programs. The groups suggest that if consumers had relevant information, from sources they trust, they would make appropriate decisions and take action to invest in energy efficiency. If the focus groups are correct, then existing programs should be evaluated from this consumer perspective to determine what could be done to supply sufficient, relevant, credible information to energy consumers.
From a consumer perspective, individuals must be confident enough in their knowledge regarding the product and its costs and benefits to justify a preference. As consumer confidence is increased, program costs can also be reduced. Increasing consumer confidence can benefit all programs. The challenge is to find mechanisms to share the costs of this mutually beneficial activity, which will assist the consumer in making an informed market decision.
Various parties at the workshop commented on the overlapping jurisdictions and authorities in transportation as a barrier to improving efficiency levels. One area of common concern was the impact of land use decisions at the local level on overall transportation energy efficiency. Reinforcing the comments of the focus groups, participants at the workshop encouraged greater cooperation among the various government agencies, jurisdictions, and authorities.
Conveying credible information to the consumer is the first step in promoting energy efficient technologies, equipment, programs, and planning. This can be achieved by either state mandate or by the utilities and the state encouraging vendors to provide credible and useful information on particular products and services. Or by the state or utilities developing such information independently. Although information is already collected, it is often too technical or in a form of little use to consumers. For example, Energy Efficiency Rating (EER) or Seasonal Energy Efficiency Rating (SEER) numbers for air conditioning may be technically accurate, but may not be well understood by the general public. In addition, reinforcement or verification of that information by objective third parties such as a government agency or utility can increase credibility. The independent verification is most useful if it is consistent, compatible with other sources of information, and easily understood. Information which does not meet these criteria may result in confusing consumers, adding to credibility and program effectiveness problems, and thus raising total costs and lowering benefits.
Finally, there is a need for demonstrations and not just claims. Actual demonstrations where consumers can "kick the tires" would help overcome consumer skepticism. All levels of government and public institutions should become showcases of new, cost-effective technologies and techniques by incorporating them, in their activities and on their sites. The showcase provides both a visible demonstration and credible information. Utilities are developing regional energy technology centers throughout the state in recognition of this need.
Most conservation measures displace energy consumption through new technology. The cost of the new technology typically adds to the initial costs of the building or equipment. Consumers usually are expected to pay higher up-front costs and then be compensated by lower energy consumption and energy bills over time. In some cases, however, expected bill savings are not realized due to premature introduction of technologies, unrealistic vendor claims, or poor workmanship unrelated to the new technologies. Benefit claims must be presented in a manner which avoids unrealistic expectations, if consumer confidence is to be improved.
Partnerships should be developed to coordinate common interests, messages, and information. A good starting point is with the aforementioned information, education, and demonstration efforts. Other areas of potential activity include coordinating delivery or incentive programs to share and lower program costs. The FareCal program being developed by CMUA is a good example of public agencies deriving benefits from joint purchasing, contracting, planning and training. Coordinating programs, particularly those which at first do not appear to be related, will take openness, flexibility, and innovation on the part of all parties.
In response to differences in specific circumstances and changes in conditions, program incentives have varied over time among providers. Unfortunately, these differences have created confusion resulting in decreased program effectiveness and higher program costs.
Although public and private programs have been changed in response to new knowledge and experiences, the frequency and extent of changes can be reduced through better coordination. Sharing information and knowledge can reduce risks of new programs and thus the need to make frequent adjustments. Understanding the impact of such changes on consumers and program effectiveness provides a better context for considering changes.
The Energy Commission expects utilities to play a major role in achieving its forecast DSM savings. Some savings will come from utility programs and some will come from third-party providers of DSM services. The Energy Commission expects utilities to take appropriate steps to ensure that DSM programs are achieved at least cost to utility ratepayers by utilizing competitive bidding for DSM services and installations to the maximum extent feasible. The Energy Commission also expects third party providers of DSM services to be major contributors to meeting the state's uncommitted DSM goals, both through competing for utility DSM contracts and by providing services directly to customers.
Existing programs at University of California and national research laboratories predominantly focus on the energy savings associated with conservation and renewable technologies. At the same time many important side benefits which are so compelling they could drive the use of these technologies with minimal incentives are ignored. Thus, the state should develop a program in partnership with the University and laboratories to identify and quantify these non-energy benefits and educate users about them.
Current public and private programs may not be as effective as desired; therefore, consumers remain uninformed or skeptical about the merits of increased levels of energy efficiency. The Energy Commission will increase its effectiveness by re-evaluating its programs and making appropriate policy and program changes to emphasize consumer needs. Periodic re-evaluation with public participation should provide insights on program policy and on opportunities to make mid-course program corrections.
These periodic reviews will serve as a feedback mechanism to verify program assumptions and effectiveness, and to maintain flexibility to consumer concerns. The reviews will also address problems stemming from various sources; such as unexpected changes in conditions, use of improper assumptions, or flows in program design.