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The Resource ValueThe Resource Value Framework: A New Approach to Cost-Eff ti T tiEffectiveness TestingRobin LeBaron, Senior AdvisorHome Performance Coalition
Presentation to the New Jersey Clean Energy ProgramNovember 13th, 2014
Robin LeBaron
Senior Advisor for Policy and ResearchSenior Advisor for Policy and ResearchHome Performance Coalition
HOME PERFORMANCE COALITION
• National stakeholder and conference organizationg
• Takes on challenges to the home performance i d tindustry• Reducing data-related pain and suffering through standards
• Making the value of energy efficient homes visible
• Intersections between smart grid and home performance
• Cost-effectiveness testing
“WHITE BOARD AND BEER” CALL TO ACTION
• Stakeholders convene at ACI 2011 to discuss problems cost-effectiveness testing is creating for the industry
• Context of cost-effectiveness challenges across the U.S.• Measure-level testing in New York grinds home performance progam to
a halt
• Programs threatened in Arizona by unusual applications of Societal test
• Programs can’t be created in Virginia because of RIM testPrograms can t be created in Virginia because of RIM test
• Oregon gas programs cut because of lower avoided costs
• Need practical solutions to urgent problem
NHPC’S FIRST CUT AT PROBLEM: BEST PRACTICES
• NHPC first engages with project in 2011in 2011
• Drafts report recommendingDrafts report recommending use of best practices
P i i i i• Positive reception convinces us to commission Synapse Energy E i dEconomics to conduct more definitive study
BEST PRACTICES: EXAMPLESBEST PRACTICES: EXAMPLES
• Account for all avoided costs
• Uses appropriate measure livespp p
• Appropriately accounts for spillover as well as free ridership
• Account for Other Program Impacts
• Other fuel costs
• Water savings
• Non-energy benefits
• Ensure appropriate discount rate that accounts for the low risk pp passociated with EE investments
A GOOD FIRST STEP BUTA GOOD FIRST STEP, BUT…
• NEBs still not widely understood and considered
• As long as this is the case, TRC and Societal tests d l fl d i tideeply flawed in practice
• Need a more fundamental solution to the issue
A NEW APPROACHTHE RESOURCE VALUE FRAMEWORK
• A new approach
• A framework – not a test
• Provides a method to “test your test”
OR
• Provides a method to create a new, theoretically coherent testcoherent test
THE RVF PRINCIPLESTHE RVF PRINCIPLES
• The ultimate goal of cost-effectiveness testing is to determine whether a program is in the public interest
• Energy efficiency screening should account for a state’s energy policy goals
• Tests should be symmetrical, i.e. corresponding costs and benefits should both accounted for
• Test inputs should be transparent to stakeholders
H d t tif b fit h ld b d t l t d f• Hard-to-quantify benefits should be adequately accounted for
• The principles underlying the RVF should be applicable to all resources, both demand- and supply-side
SYMMETRYSYMMETRY
• If costs are included in a test, the associated benefits must also be included
• Costs and benefits must be accounted for even if they are difficult to monetize or quantify
• If benefits cannot be reasonably included in the test, h h ld l b l d d ( b l dthe costs should also be excluded (or balanced using reasonable proxy values)
COME TO GRIPS WITH THE UNQUANTIFIABLE
• Monetization: useful if possible, NOT zero, even if difficult
• Quantification: impacts in non-monetary terms
• Proxy adders: adjustments meant to provide best approximate valuepp
• Alternative screening benchmarks: change to the th h ld i i d t lthreshold a program is required to clear
• Regulatory judgmentRegulatory judgment
TRANSPARENCYTRANSPARENCY
• Inputs and methods should be clear and ptransparent
• Use the worksheet to make inputs and assumptionsUse the worksheet to make inputs and assumptions clear to all stakeholders
WHAT IS THE PUBLIC INTEREST?WHAT IS THE PUBLIC INTEREST?
• Concept familiar to utility regulators
• Guides decision making regarding choices on• Guides decision-making regarding choices on energy resources generally
• May require consideration of qualitative as well as quantitative factorsq• Examples: short-term impacts versus long-term impacts
Customer costs• Customer costs• Reliability• Safety• Safety• Customer equity
ENERGY POLICY GOALSENERGY POLICY GOALS
• Energy Policy goals can be seen as a proxy for the public interest
• Policies that are directly relevant to the energy efficiency (or other) resource
• Water conservation
• Support for low-income ratepayers that prevents loss of vital services
• Reliability and resilience
Job creation• Job creation
• Each such policy should be listed and considered in the cost-effectiveness testeffectiveness test
HOW TO APPLY THE RVFHOW TO APPLY THE RVF
• Decide on inputs for screening test with reference to appropriate perspective
• Identify and account for energy policy goals
• Determine most appropriate method to account for hard-to-quantify benefits
• Maintain transparency and symmetry throughout the processprocess
• Use Resource Value Worksheet can be used as a tool t t d i i ki i h f thto support decision-making in each of these areas
THE RVF: OVERVIEWTHE RVF: OVERVIEW
THE RVF: THE UTILITY SYSTEMTHE RVF: THE UTILITY SYSTEM
THE RVF: PARTICIPANTSTHE RVF: PARTICIPANTS
THE RVF: THE PUBLICTHE RVF: THE PUBLIC
THE RVF: DOES IT PASS?THE RVF: DOES IT PASS?
WORKSHEET FOR GUIDANCEWORKSHEET FOR GUIDANCE
• Method for ensuring transparency and consistency in testing
• Recommends statement of key assumptions: discount rate level of testing etcdiscount rate, level of testing, etc.
• Groups costs and benefits by category: participant, p y g y p p ,utility, society, etc.
B d i i l f t di• Based on principle of symmetry: corresponding costs and benefits must be fully accounted for
THE QUESTION THAT WON’T GO AWAY: WHICH TEST?
• “Utility system” perspective• Is this resource less expensive for the utility than other resources?
• Does not allow for consideration of public policy objectives (low-income, other fuels, etc.)
• “Total” / “Societal” perspectiveDo the total benefits of the program outweigh the total costs a large• Do the total benefits of the program outweigh the total costs – a large, abstract question
• Comprehensive in theory but extremely difficult to apply consistentlyComprehensive in theory, but extremely difficult to apply consistently in practice due to problems of monetization and quantification
• In some states, certain costs and benefits have been ruled as beyond ythe purview of commissions
TAKE CARE WITH THE TRCTAKE CARE WITH THE TRC
Slippage between “utility and ratepayers” and “society”a d soc ety
By including participant costs of efficiency t hi h t id f thresources – costs which are outside of the scope
of utility costs – the TRC test crosses a f d t l b d d t dfundamental boundary and moves toward a
societal scope. If the goal of the test is to include total costs and benefits beyond a utility costtotal costs and benefits beyond a utility cost framework, a societal perspective is more appropriate than the TRC test perspectiveappropriate than the TRC test perspective
“PUBLIC INTEREST” UTILITY TEST
• RVF suggests a coherent alternative to the TRC / Societal Tests
• UCT with public interest, as indicated by energy policies taken into accountpolicies, taken into account
• Participant costs and benefits excluded because of the difficulty involved in quantification
BEST PRACTICES STILL NEEDEDBEST PRACTICES STILL NEEDED
• Best practices still important
• Guidance from national organizations
• NHPC / Synapse Best Practice report
• RAP “layer cake” and other reports
• Upcoming NEEP report
THE NATIONAL EFFICIENCY SCREENING PROJECT
• Working to promote the Resource Value Framework nationally
• Working with states where stakeholders are interested in applying RVF principlesinterested in applying RVF principles
• Regular calls / e-mailg
• Planning to develop a new standard practice lmanual
http://www nhpci org/campaigns htmlhttp://www.nhpci.org/campaigns.html
THE NATIONAL EFFICIENCY SCREENING PROJECT WANTS YOU
• Please sign up
• Talk to NHPC staff or sign up at• Talk to NHPC staff or sign up at
http://www.nhpci.org/campaigns.htmlp p g p g
Thank you!
