At regulated utilities across the United States, energy efficiency efforts are driving down energy usage and saving money for ratepayers. The Consortium for Energy Efficiency estimated that utilities spent $4.5 billion on these programs in 2011, resulting in residential electricity savings of over 14 TWh per year, equivalent to the consumption of 1.25 million U.S. homes. These savings have been achieved primarily by providing incentives for one-time technology investments, such as more efficient appliances or better windows, lighting and HVAC systems. But technology is not the only way to save energy.
One area ripe for innovation is utility customers’ relationship with energy – how they use it, and how they think about it. During the energy challenges of the 1970s, Americans were asked to turn off lights and put on a sweater. Today, behavioral change is less about preaching, and more about social science. Innovations ranging from new software and hardware that let customers better manage their consumption to new market structures such as residential demand response let consumers get in touch with their energy usage and find ways to save – and feel good about it, rather than deprived.
More than 80 utilities have partnered with AEE member Opower to supply over 22 million households with social comparisons of their energy use. The idea is that merely seeing your energy use stacked up against those around you “nudges” you towards energy saving behaviors. Opower recently found there are 78 million households for which behavioral efficiency programs would be cost-effective.
Behavior-based appeals add new dimensions to utility programs, giving them ways to reach elusive demographic groups as well as increase customer satisfaction through greater engagement. Finally, behavior-based approaches avoid potential rebound effects, where energy reduction now turns into greater consumption later, and achievegreater permanent savings. A just-published McKinsey & Co. study estimated that behavioral efficiency programs could save up to 1.6% of current total residential energy use, or 19 TWh per year.
“Utilities face a new set of challenges due to stricter energy efficiency targets, combined with the phase-out of compact fluorescent lamp (CFL) programs and falling electricity generation costs,” said Dan Yates, CEO and co-founder at Opower. “Behavioral energy efficiency presents a real opportunity for utilities to harness the most powerful renewable resource: people. By engaging customers via personalized messages on multiple channels, utilities are able to reduce energy, engage their customers, and improve their bottom line.”
Still, to be included in utility efficiency programs, behavior-based efficiency measures have to be approved by their states’ Public Utility Commissions (PUCs). To give their approval, PUCs around the country are grappling with three key questions:
- How can the cost-effectiveness of behavioral efficiency be measured?
- How can regulators allow for program flexibility?
- How can savings from behavioral efficiency programs be counted toward EERS mandates?
Measuring Behavioral Efficiency
Behavioral change programs do not always fit neatly into the existing evaluation, measurement and verification (EM&V) tests utilized by PUCs. Evaluating the gains from behavior programs requires new statistical methodologies that often lack regulatory precedent. In 2011, the Connecticut DPUC denied a proposal from Efficiency 2.0 on the grounds that the statistical methodology necessary for EM&V was not sufficiently rigorous. However, several state regulators, including the California PUC (CPUC) and Arkansas PUC, have worked to develop statistical EM&V standards for behavioral programs.
One shortcoming of such statistical methods has been that they require a control group against which to compare future energy reductions. Rhode Island’s PUC overcame this obstacle by allowing households in surrounding states to act as the control group, thus enabling the first statewide roll-out of a behavioral efficiency initiative.
Bending Over Backwards
Innovation often requires flexibility, but that’s something hard for PUCs, which are required to be rigorous and consistent, to offer. For example, the California PUC requires any changes in evaluation procedure to be integrated into technical manuals at the beginning of program cycles, which can last for three years. This is a particular challenge for behavior-based strategies, which lend themselves to continual assessment and adjustment, rather than one-time engineering evaluations, which are better suited to technology deployments.
The New York PSC has been forward thinking in addressing this concern. Having identified a set of procedural issues that plagued program implementation, the commissioners gave program administrators the flexibility to propose and approve technical resource manual changes on the fly instead of waiting until the end of the program cycle.
While CPUC prevents program changes mid-cycle, the California commission does provide program flexibility in another way, by allowing for portfolio-level evaluation of energy efficiency. By assessing cost-effectiveness at the portfolio level instead of measure- and program-specific evaluations, innovative customer-engagement initiatives are afforded an opportunity to test their mettle within a range of measures.
Making Behavioral Efficiency Count
EERS mandates were made to deliver an overall level of energy savings. Unlike traditional, technological upgrades, which show savings over the lifespan of the installed technology, regulatory precedent holds that behavior-based programs have impact only while the program is in place. The rigidity of mandated, incremental targets could in practice be a constraint to behavioral efficiency initiatives with program realities that may not fit neatly into those buckets.
State PUCs have implemented various methods to fit behavioral programs into EERS mandates. The Kentucky PSC and the PUC of Ohio (PUCO) allowed for staggered deployment of behavior-based programs. Even better, the Minnesota PUC created an opt-in program, under which the Commission allowed savings over three years to be averaged and then allocated across mandates. For example, a savings of 3% in Year 1 for a behavioral program that runs for three years and maintains those savings can be counted as incremental savings of 1% in years 1, 2 and 3. PUCO also allows for gains over-and-above incremental efficiency targets to be credited to future compliance years. By taking the Minnesota banking approach instead of the Kentucky/Ohio staggering approach, to meet EERS goals, all customers can enjoy the benefits of behavior-based energy efficiency savings in a quicker manner.
For more information about public utility commissions and their role in regulatory policy, check out AEE's PUC Portal.
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