At its August 1 meeting the California Public Utilities Commission (CPUC) revised the longstanding “three-prong” test used to determine whether programs aimed at substituting one fuel for another can qualify for energy efficiency program funding. As described in Decision 19-08-009, the three-prong test historically was established to evaluate proposals aimed at replacing electric equipment with natural gas. Under the framework originally created in 1992 (as modified over the years), fuel substitution projects could only receive funding if they met three criteria: (1) they should not increase energy consumption; (2) they were required to meet cost-effectiveness standards; and (3) they should not adversely impact the environment. In recent years, California has increasingly focused on the potential for fuel substitution to address greenhouse gas (GHG) emissions reduction goals, and so environmental groups have urged the Commission to review the test with this objective in mind.
The newly adopted methodology will be referred to as the “Fuel Substitution Test” since the CPUC’s decision significantly modifies and replaces the three-prong approach. First, the decision establishes that the baseline for analyzing fuel substitution will be determined in the same manner as other energy efficiency measures, using a code baseline, industry standard practice, or existing conditions. The fuel substitution measure must both save energy and also not harm the environment (as measured by GHG emissions). An individual fuel substitution measure will no longer be required to pass a cost-effectiveness threshold. Instead, cost-effectiveness will be evaluated on the basis of the utility’s overall energy efficiency portfolio.Finally, the decision addresses the allocation of costs between the new and old (e.g. electric versus gas) fuel ratepayers, with commensurate adjustment to energy savings goals.
The CPUC will consider other policy issues in Phase 3 of the proceeding.
ESHD attorneys can provide more information regarding California energy efficiency programs. Contact: Lynn Haug, Samantha Neumyer
