This section presents a summary of conclusions and detailed recommendations for the four partnerships.
7.1
Observations
The following discussion provides observations relevant to the programs or program operating environment, based on partner interviews. These observations are intended to highlight topics that cannot be fully verified in the context of this report, but indicate about based on Navigant’s.
7.1.1 Observations about the Cyclical Nature of Program Funding
Consistent with most other resource programs operating during recent portfolio cycles, the institutional partnerships operate on a schedule where projects receiving incentives need to be completed by the end of the program funding cycle in order to receive full payment. Incentives for projects not completed during this time are subject to limitations and can go at risk. Partners consistently mentioned that this is a problem because project installation schedules and program operating cycles often do not align and many projects remain in process at the end of a funding cycle, resulting in uncertainty about unpaid
incentives58. This observation is not unique to institutional partnerships.
To emphasize the scope of the potential problem, a review of Energy Efficiency Groupware Application (EEGA) program tracking data for the 2012–2014 portfolio through July 2012 indicates that more than 48% of all institutional partnership projects are designated as “committed” with five months remaining in a three-year program cycle. This implies these projects are somewhere in the installation cycle, and uncertainty about the rebates calls into question the financial performance of some of these projects. It is also likely that the misalignment between program funding cycles and project timelines will become more problematic over time for a number of reasons:
1. The duration of portfolio cycles has historically been inconsistent. The most recent four portfolio
cycles59 have had three different durations, including one-, two-, and three-year
terms. Compounding this concern is that the calendar by which funding is actually available for each cycle also varies.
2. In general, partners are getting better at pursuing more complex projects with design, build, and
verification requirements that are more rigorous than the types of “low-hanging fruit” projects, such as lighting retrofits, that may have been more prevalent in past program cycles. As complexity and rigor increase, there is a commensurate risk that these projects will not be completed within a strictly defined portfolio cycle.
58 A project is defined as completed when it is fully operational at the design specification stated in the program
application.
59 The 2006 –2008 portfolio had a three-year duration and the 2009 portfolio had a one-year duration (and was not
established until late 2008 as simply a continuation of the previous cycle). The 2010–2012 (initially the 2001– 2011) portfolio had a three-year duration, while the 2013–2014 portfolio currently being planned has a two-year duration.
3. Partners are fairly unique among customers because they manage large and diverse portfolios of buildings and are usually mandated to provide services that require various long-term planning
efforts.60 As conservation and efficiency become increasingly important, issues associated with
trying to align and integrate institutional planning cycles with uncertain demand-side management (DSM) funding cycles could become a barrier to long-term sustainability efforts. Examples of planning activities that would benefit from alignment with EE incentive funding include the following:
» System-wide and campus-level master plans that are typically defined by three-, five-, and ten-
year planning horizons (e.g., Sustainability Plans, Strategic Energy Plans, New Construction Forecasts)
» Bond initiatives not subject to any regular calendar
» Unique initiatives such as the Governor’s Green Building initiative requiring specific EE actions
by 2018
4. It appears that reliance on financing, and the number of energy efficiency financing opportunities
available to partners, will continue to grow. Many financing vehicles are contingent upon incentives. For example, in the UC case, UCOP bond financing is explicitly tied to IOU-issued project agreements (i.e., the “Campus Payment Form”), and it is a prerequisite for bond funding. For CDCR, there is also an explicit link in that when loans are used, they are made only for the balance of project cost after the incentive. Under the SOC revolving loan fund and the past ARRA funds that lead to the creation of the revolving loan fund, leveraging EE incentives is a requirement for ESCOs in order for their proposals to be considered. Therefore, the certainty of rebates plays a critical role in the development of projects.
As noted above with 48% of all institutional partnership projects designated as “committed” with five months remaining in the 2010-2012 portfolio, it could be a problem that the Energy Efficiency Policy
Manual61 allows that “Encumbered funds may not exceed 20% of the value of the current program cycle
budget to come from the subsequent program cycle, except by approval in an advice letter process”, as noted in the following discussion from Decision 07-10-032:
"Funding of Program Cycle Extensions. IOUs may spend up to 15% of next-cycle funds within the final year of the program cycle after the next-cycle portfolio to avoid interruptions of those programs continuing into the next cycle, per 07-10-032. The IOUs may continue the average monthly level of expenditures for the final year of a budget cycle to continue on a month-to month basis until the next portfolio budget is approved (or as specified in the Commission decision for the next portfolio budget cycle).[1] Utilities should tap into the next-cycle funds only when no other energy efficiency funds (i.e. unspent uncommitted funds from previous programs years) are available to devote to this purpose.
60 It is true that some commercial customers operate building portfolios of similar scope to those of institutions;
however, they are generally not mandated to provide a service and often have different planning horizons based more on immediate economic concerns and market opportunities. It is likely they also have timeline issues, but these may not be the same institutional issues because of their unique business drivers.
61 Energy Efficiency Policy Manual, Version 4.0 (August 2008), Section 2 II. Energy Efficiency Policy Objectives and
Funds for Projects with Long Lead Times. Funds may be committed for projects with lead times beyond three years under the following conditions:[2]
Long-term projects that require funding beyond the three-year program cycle shall be specifically identified in the utility portfolio plans and shall include an estimate of the total costs broken down by year and associated energy savings;
Funds for long-term projects must be actually encumbered in the current program cycle;
Contracts with all types of implementing agencies and businesses must explicitly allow
completion of work beyond the end of a program cycle;
Encumbered funds may not exceed 20% of the value of the current program cycle budget to come
from the subsequent program cycle, except by approval in an advice letter process;
Long-term obligations must be reported and tracked separately and include information
regarding funds encumbered and estimated date of project completion; and
Energy savings for projects with long lead times will be calculated by defining the baseline as the applicable codes and standards at the time of the issuance of the building permit.
Committed funds are defined as those that are associated with individual customer projects and/or are contained within contracts signed during a previous program cycle and associated with specific activities under the contract. All activities carried out under a contract and/or customer obligation during a specific program cycle need not be completed and funds need not be spent during that particular program cycle so long as there is an expectation that the activities will be completed. However, those funds are considered "committed" and/or "encumbered" and thus are not considered "unspent" funds. Only funds that are both uncommitted and unspent during 2012 and prior are eligible for being rolled into 2013-2014 program budgets. [3]"
Navigant offers the following observations on this decision:
Item 3 from D.07-10-03262 states the “Contracts with all types of implementing agencies and businesses
must explicitly allow completion of work beyond the end of a program cycle.” This statement is in conflict with the observation that the utilities cannot enter into agreements that commit funds beyond the end of a program cycle; therefore, the revised/reissued agreements cannot be issued until the new program cycle officially begins. Each project has a project agreement that is a contract with an end date. Within a program cycle, the incentive is reserved by that agreement. Across program cycles, there is no contractual mechanism to guarantee the incentive in the next program cycle without revising or reissuing a project agreement. Historically, projects that have slipped between cycles have had agreements revised and the original terms honored. The exception to this case is new construction projects, where due to long project timelines, agreements often span program cycles.
Item 4 from D.07-10-032 states that, “Encumbered funds may not exceed 20% of the value of the current
program cycle budget to come from the subsequent program cycle, except by approval in an advice letter
process.” This implies that if current program budgets are not be sufficient to address work in
process, that future portfolio budgets will need to be debited to accommodate encumbered funds,
62 Encumbered funds may not exceed 20% of the value of the current program cycle budget to come from the
and that a cap on this encumbrance applies. However, the majority of project funds likely to be encumbered past the 2010-2012 cycle are covered in the current program budget. Specifically total commitments for all institutions at present are 49% of savings, as shown in and 33% of budget. The planned spend (including spent to date and committed) is 103% of budget.
Table 13. Total Commitments as a Percent of all Savings in July 2012
Partnership Total Commitments
as a Percent of all kWh Savings State of California 42% CCC 43% UC/CSU 51% CDCR 53% Total 49%
These decisions are portfolio specific in that they can and often do change with each portfolio
decision, and are largely inconsistent with the observations that institutional planning horizons frequently exceed one, two, or three portfolio plans cycles. This process simply results in a “rolling uncertainty.”
The evaluation contractor reviewed the Program Implementation Plans (PIPs) for the 2010-2012
institutional partner portfolio and did not find a reference to this process. Based on comments from the institutional partners during interviews, it does not appear that communication between the IOUs and partners has been sufficient to communicate the language in D.07-10-032 in a way that would accommodate committed projects within the 2013-2014 transition portfolio.
The definitions and conditions set forth in the Energy Efficiency Policy Manual and D 07-10-032
must address the following two project status types:
1. Programs with surplus funds remaining at the end of the project cycle where projects are
uninstalled but committed. This should define the process whereby current surplus funds are encumbered for a future program cycle or, if surplus funds are not carried forward, it should state that future program funding will be debited for current commitments.
2. Programs with no funds remaining at the end of the project cycle where projects are uninstalled
but committed. The policy manual most closely applies where no remaining current cycle funds and available, and future program funds must be encumbered for committed projects. The Navigant team did not undertake research to establish whether or not projects had been cancelled , delayed, or suffered financially from this issue. However, because the issue was mentioned during by multiple partner interviews, Navigant provides the following question that may help inform future research;
1. The operating objectives and planning horizon for Government agencies is fundamentally different
from commercial operations, yet they are subject to the same program planning rules and timeframes. For example;
a. Government agencies have longer lifespans than most commercial enterprises. Most of the California institutions represented by the partnership where created between 1920 and 1970, with an average age of well over 40 years. Some agencies that constitute a large percentage of state agency energy use have been in continuous operation for over 140 years old, such as the California State University and University of California, founded in 1857 and 1868 respectively. By contrast 40 percent of all newly created companies last less than 10 years . Indications are that the average life expectancy of all firms, regardless of size, is about 12.5 years.
b. Government agencies have different priorities than do commercial enterprises. Agencies have a
political mandate to provide a service, versus a commercial enterprise that operates by and large on economic opportunities. As such, capital projects, including energy efficiency
implementation, are prioritized and budgeted differently.
Given these difference s, is the DSM planning horizon used for the commercial sector the optimal planning environment for the government sector?
2. The issue may not be that projects are cancelled or delayed because of the short term nature of the
DSM portfolio cycle, but rather the question might be is this the environment where the planning and implementation of deep and comprehensive energy savings is optimal for government agencies?
3. State budgets must be developed annually and would a longer term energy planning environment
that shows positive financial results for institutions provide a degree of protection as funding decisions are made?
4. Can a DSM program cycle that is unique for government agencies with a high certainty of ongoing
operation be designed that provides a more stable planning platform while affording regulators the flexibility to deal with portfolio design and budgeting cycles that are 2 to 3 years in length?
5. The California energy efficiency policy manual63 defines the conditions that allow funds to be
committed for projects with lead times beyond three years, and also the process whereby advice letters can be used to secure funds for activities that extend beyond a portfolio end date. The research for this report did not identify how well institutional partners understand the policy
manual or their ability to work with the IOUs to use the policy manual to resolve end of cycle issues. It is recommended that this research be undertaken in future process evaluations of institutional partnerships.
7.2
Overarching Conclusions
The following subsections present Navigant’s overall conclusions for this evaluation.
7.2.1 Coordinated Planning, Management, and Funding Improves Performance
Our research identified several characteristics of high-performing institutional partnerships, including the following:
63 Energy Efficiency Policy Manual, version 4.0. (August 2008), Applicable to post-2005 Energy Efficiency Programs.
1. A clear and accurate understanding of the potential for energy efficiency that is based on
engineering analysis, covers the full scope of the institutions operations, and provides an assessment at the operating-unit level, such as campus or agency;
2. The ability to develop and use guidance documents, such as strategic energy plans, to organize and
direct sustained efforts at achieving energy efficiency over a timeframe that typically exceeds a single portfolio funding cycle;
3. An effective management structure that involves broad organizational participation, tracks
performance to plan, and makes effective use of both internal resources and support offered by the IOU partners, and
4. The ability to develop and employ funding that is targeted at energy efficiency improvements over a
sustained period of time, while leveraging IOU partner incentives.
The approach taken by the UC system during the 2010–2012 UC/CSU IOU partnership serves as an example of how these four characteristics can results in a high performing of energy efficiency programs designed to support institutions that operate large portfolios of buildings. The UC/CSU partnership is a high- performing program that has been operating continuously since 2006. Although these institutions have a similar mission and have demonstrated the ability to aggressively pursue energy efficiency, the UC system undertook several unique initiatives beginning during the 2006 – 2008 program cycle that were not pursued by the CSU system. These include the following:
1. Beginning in 2002, the UC system and student body collectively developed and adopted a Green
Building Policy and Clean Energy Standard.
2. Beginning in 2006, the UC system used the Green Building Policy and Clean Energy Standard to
develop a Strategic Energy Plan that included an assessment of energy efficiency potential at each UC campus and provided a roadmap for achieving savings. This plan was presented to the IOUs in the second quarter of 2008 and helped define the collaboration with the IOUs during subsequent program cycles.
3. In 2008, the UC system secured $178 million in 15-year revenue bond funding authorized by the
University of California Office of the President to begin system-wide implementation of projects identified through the Clean Energy Standard and Strategic Energy Plan.
Although both the CSU and UC systems have been effective at implementing energy efficiency projects since the IOU partnership began in 2006, Figure 4 shows that savings achieved by the UC system have
outpaced the CSU beginning in 200964. Navigant concludes that the approach used by the UC system to
assess, plan, and manage a portfolio approach to energy efficiency is responsible for some portion of the difference in performance. Supporting this conclusion is the observation that during 2010–2012, the number of projects and the savings per square foot of space at the UC campuses were considerably higher than those at CSU, as shown in Table 14.
64 Based on program tracking data supplied by Newcomb Anderson McCormick for the 2006 – 2008 and 2010 – 2012
Figure 4. Comparison of UC and CSU System Energy Savings for 2006 Through 2012
Table 14. UC/CSU Partnership Savings Metrics for 2006 Through 2012
System System Sq. Ft. kBtu / Sq. Ft. 2006-2008 Portfolio 2010-2012 Portfolio65 Total 2006–2012 Projects Verified kWh Saved / Sq. Ft. Projects Verified or Committed kWh Saved / Sq. Ft. Total Projects Verified or Committed Total kWh Saved kWh Saved / Sq. Ft. UC 126,000,000 15666 92 0.38 553 1.32 645 214,484,139 1.70 CSU 87,000,000 67 8568 61 0.33 220 0.49 281 74,602,536 0.86 Total 213,000,000 NA 153 0.36 773 0.36 926 289,086,675 1.36
65 Including 2009 bridge achievements.
66 Email to author from Dirk VanUlden, Tuesday, August 21, 2012 8:46 AM 67 Email to author from Len Pettis, Monday, August 20, 2012 3:10 PM
68 CSU Report on Sustainability and Energy Efficiency Goals, August 22, 2005
- 50,000,000 100,000,000 150,000,000 200,000,000 250,000,000
Ener
gy
S
av
ed
(kW
h)
Date
UC CSUUC Strategic Energy Plan formally presented to IOUs
Bond funding for EE projects authorized by UC regents
7.3
Specific Research Topic Conclusions
The following subsections summarize Navigant’s findings for this evaluation by research topic.
7.3.1 Overall Perceptions of Program Performance and Barriers
The objective of this research topic is to highlight the key barriers or obstacles to each institution’s successful program participation. Navigant’s general perceptions include the following:
The UC/CSU, CCC, and CDCR partnerships are continuing to develop longer term sustainability
plans and strategies, and are refining their approach to identifying and implementing energy efficiency, and the roll of the IOU partnership within those plans.
The SOC program has achieved its energy savings goals, but only four out of 29 agencies