This week, the California Public Utilities Commission (CPUC) issued the long-awaited update to the rulebook for utility programs that employ meter-based quantification, or Normalized Metered Energy Consumption (NMEC) as it is known in California. This revision provides a host of critical updates to the original rule book based on a broad range of stakeholder input and working group process. 

Establishing functional regulations around NMEC and enabling more streamlined and efficient population NMEC approaches are crucial steps in transforming our energy system and paving the way for decarbonization in line with California's ambitious climate goals. 

We applaud the new rules’ reaffirmation that public, open source methods and calculations are critical for creating revenue-grade demand flexibility that can be defined upfront, implemented transparently, and easily verified by all parties -- the key ingredients that define all markets. To this end, the Commission called for continued collaboration and conversation as final reporting requirements are developed, while also providing a short-term pathway to claim savings.  

Perhaps most importantly, the new rulebook enumerates the necessary rules to deploy Population NMEC (aka Aggregated NMEC), including critical requirements around the need for transparent open source methods and calculations, alignment of incentives through P4P, and clear rules for aggregation.

The CPUC is also clear that, “When new versions of the Rulebook are adopted, PAs (and Implementers) should look to adapt their existing programs to new Rulebook requirements when feasible and appropriate.” 

We encourage everyone to read the ruling and the rulebook themselves to capture the details. Below we provide a few highlights that we at Recurve find to be essential in enabling a meter-based paradigm. The updated rulebook can be found here and the ruling is here.

Open Source: Providing Consistency and Transparency

The draft rulebook created an expedited review path for programs utilizing open source methods and code, and solicited comments on this position. After consideration of the comments, the revised ruling maintained the CPUC’s position that open source methods and software are critical for NMEC M&V:  

“As NMEC programs grow, stakeholders and experts are encouraged to work together to develop common, public, open source methods and savings calculation software that can be reliably used to produce --and reproduce --savings determinations for NMEC programs. This type of transparency and collaboration will help build a strong platform for NMEC programs to succeed.”

The Commission also maintained a pathway for proprietary quantification methods and software to be reviewed and adopted through the custom pathway:

"The adopted Rulebook retains the requirement of custom review for proprietary methods and software via the Custom Tools Archive (consistent with the draft Rulebook)."

NMEC-P4P Symbiosis

The CPUC's draft rules from last year initially set a new requirement that 75 percent of program payments through population-level NMEC programs were to be paid via pay-for-performance approaches, unless the program administrator submitted an explanation of an alternative approach. This was done to shore up the value of meter-based feedback to align with incentives and performance. The connection of NMEC and pay-for-performance was called out in the original legislation (SB350), but the tightness of this bond has been subject to some debate as implementation has evolved.

In response to stakeholder feedback, the CPUC modified their initial proposal to:

"50 percent pay-for-performance threshold, which will mitigate risk of overpayment and allow some additional flexibility for now as NMEC programs scale up and we learn more. Programs not meeting the 50 percent threshold may still seek an exception by submitting an explanation of an alternative approach via an advice letter that includes their Program-level M&V Plan."

Recurve supports the accountability that comes with pay-for-performance program designs. In these early stages of development we appreciate the needs of vendors and program administrators to better understand performance with meter-based feedback to optimize their deployment and assess risk.  As the market matures, we expect that the 50 percent threshold may migrate as parties learn which business models are most successful and develop greater confidence in the pay-for-performance approach.

Ironing Out the Wrinkles for NMEC Savings Claims 

Current reporting rules and specifications at the CPUC are all designed around fixed (deemed) measure-based claims. NMEC does not fit this paradigm directly and working groups have been tasked with adapting the current structures or devising a new one.  The new Rulebook recognizes that while developing processes for reporting and claiming savings are ongoing, an interim approach is needed to ensure existing programs can get credit for their impacts while guidance is refined:

“As an interim approach while more permanent guidance is developed, for NMEC program retrofits/interventions installed through program year 2020, PAs may count savings from these activities toward goal attainment in the program year installed (for example, savings from NMEC projects installed in 2020 could count toward 2020 goal attainment) even though the NMEC performance period may not yet be complete.  

“Goal attainment submissions that include savings from NMEC projects must include any final savings numbers available for projects or cohorts of projects whose performance periods are complete, and up-to-date estimates for projects or cohorts of projects whose performance period is not complete; and

“PAs must submit a final claim, with savings calculated using NMEC methods after the performance period is complete, for all NMEC-based savings counted toward goal attainment by January 31st of two years after the program year installed. For example, to count savings from 2020 installed projects toward 2020 goal attainment, the PA must submit a final savings claim for those projects by January 31, 2022.”

Taken together, these changes suggest that California is well on its way to transforming programmatic measure-based energy efficiency into a dynamic, meter-based system for demand flexibility that rewards innovation and supports the time and locational needs of a modern, decarbonizing grid.

Opt-Out Programs Reflect the Diversity of NMEC Potential

While the draft rulebook stated that NMEC rules do not apply to opt-out program designs (such as randomized control trials), based on review of party comments, the updated Rulebook recognized that this might limit new types of innovative program designs. Therefore, the updated Rulebook

"allows for the consideration of programs that have opt-in and opt-out components with the additional requirement of a pre-program advice letter,which must include the Program-Level M&V Plan with a description of how control groups will be used to determine savings, and why an NMEC method rather than a standard RCT approach is necessary and appropriate."

The Revised NMEC Rulebook 2.0 Should Be Applied Whenever Feasible and Appropriate

“For third-party programs, subsequent Rulebook versions apply to Program Administrator’s Request for Proposal issued after the adoption of the revised Rulebook. When new versions of the Rulebook are adopted, PAs (and Implementers) should look to adapt their existing programs to new Rulebook requirements when feasible and appropriate.”

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The flexibility and applicability of NMEC is an evolving field, and the opportunities to demonstrate value, while maintaining accountability, are numerous.  

Taken together, these changes suggest that California is well on its way to transforming programmatic measure-based energy efficiency into a dynamic, meter-based system for demand flexibility that rewards innovation and supports the time and locational needs of a modern, decarbonizing grid.

Want to find out more? Contact us.