Description

Origin

The California Legislature emphasized the importance of energy efficiency and established broad goals with the enactment of Assembly Bill 2021 of 2006. The bill calls for a 10% reduction in forecasted electricity consumption within 10 years. The bill also requires the California Energy Commission (CEC), the California Public Utilities Commission (CPUC) and other interested parties to develop a statewide estimate of all cost-effective electricity and natural gas savings and to develop efficiency savings and demand reduction targets for the next 10 years. This study must be updated every three years.

The CPUC has revised the energy savings targets over time, most recently in October 2015 with Decision 15-10-028. While previous Decisions established targets from 2004 – 2020, Decision 15-10-028 revised the targets for 2016 – 2020, and established new targets for 2021 – 2024. The goals consist of separate electricity savings and demand reduction requirements for each of the three investor-owned electrical utilities and energy savings requirements for the state’s three gas utilities.

Electric Energy Reduction Standard (in Gigawatt-Hours (GWh)

	2012	2013	2014	2015	2016	2017	2018	2019	2020	2021	2022	2023	2024
PG&E	1,114	853	832	980.5	1,236	1,144	916	912	900	850	836	812	821
SCE	1,093	922	924	983.0	1,304	1,216	949	955	946	879	863	835	840
SDGE	158	221	212	239.7	324	304	236	238	236	223	220	214	214
Total	2,365	1,997	1,968	2,203.2	2.864	2,664	1,185	2,105	2,082	1,952	1,919	1,861	1,875

Annual Electric Demand Reduction Standard (in Megawatts (MW))

	2012	2013	2014	2015	2016	2017	2018	2019	2020	2020	2020	2020	2020
PG&E	251	145	132	241	226	193	172	173	173	169	170	171	173
SCE	239	181	177	193	267	231	206	210	211	201	201	200	203
SDGE	31	43	41	38	57	50	44	44	45	43	43	43	44
Total	521	370	350	472	550	474	422	427	429	413	414	414	420

Annual Natural Gas Energy Reduction Standard (in Millions of Therms (MMTh))

	2012	2013	2014	2015	2016	2017	2018	2019	2020	2020	2020	2020	2020
PG&E	17.1Â	21.0	20.9	15.4	18.4	18.6	20.9	21.1	21.7	21.8	22.4	23.2	23.9
SoCal Gas	32	24.1	23.2	25.3	29.1	30.3	29.4	30.6	30.6	28.6	28.5	28.2	28.1
SDGE	4.1	2.2	2.2	2.5	3.2	3.3	3.9	3.9	4	3.7	3.7	3.8	3.8
Total	53.2	47.4	46.3	40.9	50.7	52.2	54.2	55.6	56.3	54.1	54.6	55.2	55.8

The required energy savings can be met through:

• Incentive programs for utility customers
• State building code
• Federal and state appliance standards
• Statewide market transformation efforts

Publicly-owned utilities in California are not regulated by the CPUC. Still, Assembly Bill 2021 requires them to pursue energy efficiency as well. The law required them by June 1, 2007 to identify all cost-effective energy efficiency and demand reduction possibilities, and to establish energy reduction goals for the next 10 years. Public utilities are required to update these studies every three years and to submit them to the CEC.

Program Administrator Type

California’s investor-owned utilities directly administer the energy efficiency and demand-side management programs intended to meet the standard.

Cost Effectiveness and Program Evaluation

To evaluate the cost effectiveness of its efficiency and demand reduction activities, California utilizes the Total Resource Cost test (TRC) (one of the five "California tests" from the California Standard Practice Manual) as its primary test for measuring the cost-effectiveness of energy efficiency programs. California also uses all four of its other namesake tests on a secondary basis in evaluating energy efficiency and DSM programs. 

Utility Cost Recovery Provisions (for Investor-Owned Utilities)

Under Section 739.10 of California Public Utilities Code, California’s investor-owned electric and gas utilities (Pacific Gas & Electric, Southern California Edison, San Diego Gas & Electric and the Southern California Gas Company) are required to have the revenues they earn from customers fully decoupled from their sales.

In addition, California’s investor-owned utilities are eligible to receive incentive compensation for their programmatic spending on energy efficiency and DSM goals through a mechanism known as the Efficiency Savings Performance Incentive (ESPI). The ESPI mechanism is based on four areas of savings achievement performance categories, which are 1) programs producing verified or "life-cycle" energy efficiency resource savings, 2) programs producing "ex ante review" (EAR) savings, which reward utilities for setting higher (but unverified initial goals, 3) programs by utilities influencing more aggressive statewide energy codes and standards-related savings and 4) "non-resource" programs that do not result in directly attributable and cost-effective energy and demand savings, but tend to support the goals of other forms of cost-effective energy conservation.

Program Performance Category	Basis for Incentive Payment (Less Administrative Costs)	Incentive Amount
Resource Programs	Annual Resource Program Budget	9%
Ex Ante Review (EAR)	Annual Resource Program Expenditures	3%
Codes & Standards (C&S) Advocacy	Annual Approved C&S Program Budgets	"Management Fee" of 12%
Non-Resource Programs	Annual Approved Non-Resource Program Budgets	"Management Fee" of 3%