HD12 - Evaluation of the Establishment of Uniform Protocols for Measuring, Verifying, Validating, and Reporting the Impacts of Energy Efficiency Measures; a Methodology for Estimating Annual Kilowatt Savings; and a Formula to Calculate the Levelized Cost of Saved Energy for Energy Efficiency Measures Implemented by Investor-Owned Electric Utilities in the Commonwealth

Executive Summary:
In accordance with Chapters 255 and 517 of the 2016 Acts of the Virginia General Assembly, the State Corporation Commission ("Commission") conducted a proceeding focused primarily on various aspects of the evaluation, measurement and verification ("EM&V") of energy efficiency programs(*1) offered by utilities (the "Evaluation").(*2) Because the costs of utility-sponsored energy efficiency programs are paid by ratepayers, the programs are subject to approval by the Commission. As provided for in the Code of Virginia, when approval is sought by a utility, the Commission evaluates the projected costs and benefits of the proposed program using certain industry-standard cost/benefit tests to assure that the additional costs to be borne by most ratepayers are reasonable in light of the benefits received.(*3) To date, the Commission has approved numerous programs for both electric and gas utilities,(*4) some of which did not pass all tests.(*5) Once a program receives approval and is implemented, utilities conduct evaluations of the program's actual performance, commonly referred to in the industry as EM&V, to determine, among other things, if the program has performed as expected, is cost-effective, and whether modifications may be needed.

Because an important part of EM&V is an evaluation of the cost and benefits of the program as implemented compared to the original projections used in the cost/benefit tests to support program approval, the Commission also considered whether the cost/benefit analyses are being conducted similarly by investor-owned electric and gas utilities.(*6)

The Commission received written comments from 23 interested persons and entities and oral comments from 20 interested persons and entities at a public session. The Commission Staff ("Staff') also presented written and oral comments.

Upon completing its Evaluation, including consideration of all written and public comments, the Commission concludes as follows.

• First, with regard to the establishment of uniform protocols, the Commission finds it appropriate to promulgate formal regulations related to the EM&V of utility sponsored energy efficiency programs. Specifically, the Commission directs its Staff to draft proposed rules, incorporating Virginia-specific data where possible, to be considered in a separate docketed proceeding. Participants in the upcoming rulemaking may propose their own amendments to the draft rules should they desire to do so.

• Second, a method for estimating annual kilowatt savings is a related component of EM&V and will be included in the rulemaking.

• Third, a separate formula to calculate the levelized cost of saved energy ("LCSE") from energy efficiency measures or programs is unnecessary because an LCSE has limited application and does not consider all the costs and benefits that would be captured in connection with a more comprehensive approach to EM&V.

• Fourth, the application of costs and benefits is generally consistent across utilities, and warrants no further formal standardization at this time.

Accordingly, the Commission will direct its Staff to draft proposed rules regarding EM&V and anticipates commencing a formal rulemaking proceeding during the first quarter of 2017, with associated public notice, an opportunity for comment by interested persons and entities, and a hearing before the Commission.
(*1) Energy efficiency programs are generally programs designed to reduce the use of energy by participating customers. Common types of utility-sponsored energy efficiency programs include money for some customers to purchase more energy-efficient appliances, such as HVAC, refrigerators, and water heaters; money to upgrade lighting fixtures; and money to improve existing insulation.

(*2) Specifically, the General Assembly directed the Commission: (i) to evaluate the establishment of uniform protocols for measuring, verifying, validating, and reporting the impacts of energy efficiency measures implemented by investor-owned electric utilities providing retail electric utility service in the Commonwealth; (ii) the establishment of a methodology for estimating annual kilowatt savings; and (iii) a formula to calculate the levelized cost of saved energy for such energy efficiency measures.

(*3) See Code §§ 56-576, 56-600. Pursuant to Code § 56-585.1 A 5, certain large industrial customers are exempt from paying the costs of energy efficiency programs approved under that section. Certain other large non-residential customers may opt out of paying for energy efficiency programs.

(*4) A complete list of current programs may be found in Attachment A to this report.

(*5) Examples of such programs and measures include: CGV's High Efficiency Gas Furnace Measure (approved in Case No. PUE-2015-00072); WGL's High Efficiency Reporting Program (implemented by OPower) (approved in Case No. PUE-2015-00138); APCo's Manufactured Housing ENERGY STAR® Program (approved in Case No. PUE-2014-00039); and Dominion's Small Business Improvement Program (approved in Case No. PUE-2015-00089).

(*6) With respect to the cost/benefit tests, as part of the Evaluation, the Commission considered: (i) whether the application of costs and benefits is consistent across utilities; (ii) whether consistent application of costs and benefits across utilities is necessary or desirable; and (iii) whether the application of the cost/benefit tests can be improved by enhanced evaluation and verification protocols for estimating savings actually realized.