California

Summary California has been a leading state for a long time for its utility-sector customer energy efficiency programs, which date back to the 1970s and have grown and evolved substantially over three decades. Its programs and related energy efficiency policies have had a significant impact on per capita electricity use, which has remained essentially constant over the past 30 years. Investor-owned utilities administer energy efficiency programs with oversight by the California Public Utilities Commission (CPUC), which establishes key policies and guidelines, sets program goals, and approves spending levels. California's publicly owned utilities (POUs) also administer customer programs. For the 2006–2008 efficiency program cycle, California’s investor-owned utilities (IOUs) budgeted $2 billion for three years of efficiency programs and reported spending $316 million in 2006, $670 million in 2007, and $932 million in 2008. All of the investor-owned electric and gas utilities in California have decoupling, which has been in place for many years in California and is an integral part of California's "big, bold" energy efficiency initiative. California’s 2010-2012 Energy Efficiency Plan sets targets for its four major electric and gas utilities. The plan calls for 7,000 GWh to be saved over the three year period, or 0.9% of California's 2007 sales annually.

Investor-owned utilities (IOUs) administer energy efficiency programs with oversight by the California Public Utilities Commission, which establishes key policies and guidelines, sets program goals, and approves spending levels. Investor-owned utilities and third-party contractors implement the programs. A certain share of public benefits funding is designated to go to non-utility organizations.

For the 2006–2008 efficiency program cycle, California’s investor-owned utilities budgeted $2 billion for three years of efficiency programs and reported spending $316 million in 2006, $670 million in 2007, and $932 million in 2008. Reported electricity savings in 2007 were 3,562 GWh, growing to 5,082 GWh in 2008. Reported natural gas savings were 49 million therms in 2007, growing to 67 million therms in 2008.

The recently approved 2010-2012 energy efficiency plan submitted by the four main IOUs sets out a portfolio of twelve statewide programs that will be offered throughout the utilities’ service areas.

For more information on the 2010-2012 plan, read a summary on ACEEE's State Current.

California's publicly-owned utilities, such as large municipal utilities serving Los Angeles and Sacramento, also administer and provide programs to their customers. The POUs collectively spent $104 million on energy efficiency programs in 2008, a 65 percent increase from their 2007 reported expenditures.

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California's utilities fund some of their programs and initiatives through resource procurement budgets and recover their costs through rate cases brought before the CPUC. California's utilities also collect a Public Goods Charge (PGC) (California’s name for a public benefits fund that was established in Assembly Bill 1890 in 1996) on customer utility bills to fund utility energy efficiency programs.  The PGC on electricity consumption is about 0.48 cents/kWh and covers energy efficiency, renewable energy, and R&D.  About 0.3 cents of this charge support energy efficiency programs.  AB 995, which became law in 2000, extended the electric PGC through January 1, 2012.  A natural gas PGC was created by AB 1002 in 1999 and funds cost-effective energy efficiency and other public purpose programs.

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The California Public Utilities Commission formalized energy savings goals in decision 04-09-060 in September 2004. The goals called for electricity use reductions in 2013 of 23 billion kWh and peak demand reductions of 4.9 million kW from programs operated over the 2004–2013 period. These goals constitute approximately 8.2% electricity savings by 2013, meeting 55% to 59% of the IOU’s incremental energy needs between 2004 and 2013.

From 2006 to 2008, California IOUs saved over 10 billion kWh and 1.8 million kW, exceeding the goals to date of 6.8 billion kWh and 1.4 MW. These savings represent 3.5% of electricity generated in 2006.

The 2010–2012 plan updates savings goals established in a previous decision to reflect an updated assessment of energy savings potential available to the utilities. The plan calls for nearly 1,500 MW of peak savings and 7,000 GWh of electricity savings over the three-year period, which would avert 3 million tons of greenhouse gas emissions and the construction of three power plants. The electricity savings target is equivalent to almost 4% of the combined 2007 electricity sales for the three IOU’s and 2.6% of the state’s 2007 sales.

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California initially implemented decoupling through the Supply Adjustment Mechanism (SAM) for gas utilities beginning in 1978 (Decision 88835).  By 1982, similar mechanisms were in place for the three electric IOUs.  As the gas industry restructured, gas utilities began to serve large customers under a straight fixed-variable rate design, which continues through today.  The CPUC stopped the electric decoupling mechanisms in 1996 due to restructuring of the electric power industry.  

In 2001, the legislature passed Section 739.10, which required that the CPUC resume decoupling.  Decoupling resumed for Pacific Gas & Electric, Southern California Edison, and San Diego Gas & Electric, beginning with the 2004 revenue requirement. Currently, the revenue decoupling program is combined with performance incentives for meeting or exceeding energy efficiency targets. Revenue requirements are adjusted for customer growth, productivity, weather, and inflation on an annual basis with rate cases every three or four years, varying by utility.

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The California Public Utilities Commission defined a new Risk/Reward Mechanism for investor-owned utilities in the Energy Efficiency Proceeding (CPUC Rulemaking 06-04-010). Decision 07-9-043 (October 2007) establishes a minimum performance standard for the utilities under which incentive earnings accrue only if the IOU energy efficiency portfolio of programs achieves at least 85% of the CPUC’s goals. The incentive formula calls for utilities to receive 9% of net benefits if they achieve between 85 and 99% of savings goals, and 12% of net benefits if they meet or exceed savings goals up to the earnings caps established for each utility.  In addition, utilities can earn a percentage of their incentive earnings before evaluation procedures verify their impacts.

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California has established energy efficiency as its highest priority energy resource for procurement of new resources. Key legislation that established this priority are Assembly Bill 1890 (1996) and Assembly 995 (2000). Under this legislation, California has established a “loading order” that calls for first pursing all cost-effective efficiency resources, then using cost-effective renewable resources, and only after that using conventional energy sources to meet new load.  The California Public Utilities Commission has established aggressive targets and associated funding for energy efficiency programs.

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• California Incentives for Renewables and Energy Efficiency
• California Energy Commission Web site, Efficiency and Renewable Energy Division
• California Public Utilities Commission, energy efficiency
• The CPUC has held and continues to hold numerous proceedings covering energy efficiency as part of utility rate cases, statewide energy plans, and related regulatory issues.
• Energy efficiency program reporting (tracking of program plans and results)

Selected CPUC decisions and orders on energy efficiency programs:

• Administrative structure
• Savings goals
• CPUC's role in energy efficiency (including public goods charge)
• Shareholder incentives (reward mechanisms)
• Draft decision on the 2010-2012 Energy Efficiency Plan

Last Updated 11/02/2009

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