Designing Efficiency Programs in an Uncertain World
An electric utility with no previous demand side management experience had to meet energy efficiency and demand reduction targets imposed by state legislation at a time of increased regulatory uncertainty. We designed a program suite and developed an implementation roadmap tailored to the client's situation. The outcome: Programs that exceeded regulatory scrutiny, achieved targets, stayed within budget, and increased customer satisfaction.
Our client — an electric utility in the Midwest — had to implement a suite of energy efficiency programs with very aggressive energy and demand targets under a compressed timeline. To meet targets for the first year, we had to design and begin implementation while state regulators were still drafting the rules for those very programs, creating uncertainty around success metrics, verification protocols, and cost recovery mechanisms.
Selecting the right business model
We performed an assessment of market opportunities as well as internal capabilities, in order to identify the right business model to deliver programs in the residential, commercial, and small industrial segments.
The residential programs (e.g., refrigerator recycling and lighting rebates) benefit from established relationships with manufacturers, contractors, and national retailers, particularly when targets need to be achieved quickly. In addition, these programs require extensive marketing and training resources, which our client did not have, while best-in-class vendors existed in each program category. As a result, we recommended that these programs be outsourced.
Conversely, the utility had strong relationships with commercial and industrial (C&I) customers and considered those relationships of strategic importance. The team thus decided hire a team to operate the C&I programs in-house.
Forging successful partnerships
With the emergence of state mandates along with capacity constraints in some markets, many companies have sprung up promising to deliver energy efficiency programs for utilities. Bridge conducted a detailed screening of potential recipients of the RFP for our client's suite of programs. Among other considerations, we were particularly interested in vendors that offered:
A verifiable track record of successful implementation for comparable utilities and service territories"Best-in-class" design over the "one-stop shop" approachWillingness to structure the relationship with simple, incentive-based contractsEasy and unrestricted access to program performance dataComprehensive QA/QC processesFlexibility in program design and performance tracking given the lack of a regulatory framework
Comprehensive EM&V and vendor management
One of the keys to success of any energy efficiency program is regulatory confidence in the operation of programs and the accounting of savings. A critical criterion when evaluating bids was their proposed approach to Quality Assurance/Quality Control (QA/QC). For example, in programs such as HVAC tune-ups, where independent contractors are performing checks on calibration on HVAC units, it is important for the vendor to provide multiple layers of QA/QC to avoid human error.
Our approach to program design included the recommendation to invest in a robust and trustworthy Evaluation, Measurement & Verification (EM&V) program. We instituted an EM&V function early on in the project, so that budgets and vendor comparisons were developed with realistic and up-to-date NTG assumptions. This also allowed the team to design programs in a way that would meet all forms of regulatory scrutiny.
Program integrity was enhanced with standard best practices for vendor management that Bridge introduced to the process. Our framework was based on four basic principles:
- Risk management
- Performance management
- Technology integration
- Knowledge management
Benefits of a tailored approach to energy efficiency
The Bridge approach to designing and implementing energy efficiency programs for our client led to success on multiple fronts: the programs passed regulatory scrutiny (even as rules were not yet fully drafted), savings targets were consistently achieved (and in some cases, exceeded), and the entire suite of programs has been operating within budget.
The frameworks we instituted for program implementation, EM&V, and vendor management have enabled quick issue resolution, and prevented the disruption of program implementation. Moreover, our client strengthened its relationships with C&I customers, critical in a deregulated environment. As energy efficiency expenditures in the US are expected to almost double in the next ten years, it will be crucial to work with the right partners and to adopt a strategy that fits a utility's unique situation.