Energy Efficiency Resource Standard

Summary

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 called for a 10% reduction in forecasted electricity consumption within 10 years. The bill also required 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.

The CPUC has revised the energy savings targets over time, most recently in August 2023 with Decision 23-08-005. While previous Decisions established separate targets for energy savings and peak demand savings, Decision 21-05-031, adopted a new Total System Benefit (TSB) goal metric to replace the two separate targets. The TSB metric reflects the lifecycle energy, capacity, and greenhouse gas benefits of a measure in dollar terms.

Annual Total System Benefit (TSB) Goals 

Annual Electric Demand Reduction Targets from Codes and Standards (in Megawatts (MW))

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.