1. RALPH PRAHL CONSULTANT TO CPUC ENERGY DIVISION IEPR Workshop on 2030 Efficiency Goals JULY 6, 2015 Building a Policy Framework to Support Energy Efficiency Market Transformation in California

2. Introduction My Background  Independent consultant specializing in advising state agencies on oversight of EE Evaluation, Measurement and Verification (EM&V) activities  30 years of experience in this area, including many years advising CPUC Energy Division  20 years ago, began sideline analyzing and writing on public policy issues pertaining to market transformation  In 2014, with coauthor Ken Keating, wrote white paper for CPUC Energy Division called “Building a Policy Framework to Support Energy Efficiency Market Transformation in California” Focus of my comments today:  What policy changes would be needed to more fully support market transformation in California?  What organizational models could work in California?  Both of these topics addressed directly and at length in white paper 2

3. What Policy Changes are Needed to Support Market Transformation? 3

4. First, Two Key Terms Resource Acquisition (RA) attempts to produce near- term savings as reliably and predictably as possible  Buying savings one kWh at a time  Financial incentives tend to play a central role  Focus tends to be on annual savings Targeted Market Transformation Initiatives (MT) attempt to produce sustained increases in the adoption of EE technologies and practices through structural changes in the market and in behaviors of market actors  Tend to involve a wider range of marketing approaches than RA  Success takes 5-10 years to achieve  Riskier than RA, but may produce outsized long-term gains 4

5. Need #1: Treat MT as a Policy Tool Rather Than an Overall Policy Objective Experience shows that MT is a valuable component of a balanced and cost effective energy efficiency portfolio However, MT is best approached as an intervention strategy or policy tool rather than as a policy objective Treating MT as a policy objective is a mistake:  Does not recognize that not all markets are in need of, or susceptible to, being transformed  Tends to pressure program administrators to fit all programs into an arbitrary framework 55

6. Need #2: MT Must be Carefully Coordinated With Resource Acquisition (RA) Efforts) Widespread potential for tensions between the two approaches in the absence of coordination  Pressure to generate quick returns may weaken MT initiatives over longer term  Desire to maximize reliability of all savings may limit MT strategies  RA and MT can be used in combination to target the same market, but this requires systematic coordination Respect differences between what each program type can accomplish, with neither expected to do the work of the other  Don’t expect MT to generate quick, reliable savings  Don’t expect RA to transform markets  Don’t try to deploy both in the same market at the same time without close coordination 66

7. Need #3: Limited Changes to Cost-Benefit Analysis Methods No need for fundamental changes to cost-benefit analysis framework DO need to change the handling of individual inputs  Both costs and benefits need to be analyzed using a much longer time-frame than for RA programs o Costs tend to be front-loaded o Benefits tend to take a long time to fully realize Recommend doing sensitivity analyses in recognition of the uncertainties  (For example, vary baseline, future costs, size of market uptake)  Done both by program administrator as part of planning, and by regulator as part of oversight 77

8. What Organization Model Could Work in California? 8

9. Should IOUs Play a Major Role in Administering MT Initiatives? Ties into the broader issue of whether to delegate to existing program administrators (IOUs, RENs, POUs) or create new entity Key question because of potential effects on other policy issues Pros  Momentum from last twelve years of IOU program portfolio development  Seamless access to utility resources and data Cons  IOUs are customer-facing enterprises – better adapted to marketing to end- users than to trying to alter entire markets  As publicly listed corporations, IOUs subject to short-term pressures  Tensions with IOU resource acquisition responsibilities  Probably for the above reasons, there are relatively few success stories for MT initiatives administered solely by IOUs 99

10. Who Should Administer MT Initiatives: Recommendations Can either  Create a dedicated statewide entity or  Delegate to existing program administrators (including IOUs, RENs, POUs) However, if the latter approach is used, need policy measures to overcome institutional barriers facing IOUs  Separately targeted MT performance incentives (e.g., rewarding shareholders for achieving specific changes in leading indicators)  Essential that IOUs collaborate more extensively and systematically than in past 10

11. To Access MT Policy White Paper Directly Go to CPUC public documents area: http://www.energydataweb.com/cpuc/home.aspx http://www.energydataweb.com/cpuc/home.aspx To locate, click on “Search,” select “2013-14” Portfolio Cycle, and type “market transformation” into the Search Text box 11