CPUC Greenlights Aggregated NMEC

February 4, 2019

Last week, the California Public Utilities Commission (CPUC) released new guidance that effectively greenlights the application of Normalized Metered Energy Consumption (NMEC) to aggregate (population-level) analysis for budding energy efficiency programs.

While the Commission did not adopt specific guidelines for population-level approaches, the guidance encouraged ongoing efforts to integrate NMEC into efficiency programs even as the Commission convenes a working group. Statements from program administrators suggest that the majority of the third party efficiency proposals will have an NMEC measurement and verification approach going forward, and several are currently underway.

Coincidentally, the announcement came even as many of the state’s evaluators, implementers, administrators and regulators were actively discussing lessons learned and remaining challenges for NMEC and pay for performance at an EM&V forum hosted by the industry group CEDMC. If there was one take-home from the CEDMC conference, it was that new approaches are gaining market traction and that the transformation of energy efficiency into a scalable resource is already underway. (Check out Carmen’s LinkedIn article update for a full inventory of decisions and guidance passed in 2018 on NMEC and pay for performance).

Ruling Responds to Stakeholder Comments from 2018 and Sets a Course for 2019

The January 31, 2019 ruling  provides guidance in response to comments on an earlier 2018 ruling and guidance documents that were meant to guide NMEC program development. The new ruling moves the discussion forward and provides some clarity on the key issues that the CPUC is looking to resolve as the use of NMEC begins to scale. Statements from program administrators suggest that the vast majority of the third party proposals will have an NMEC measurement and verification approach.

In anticipating this ruling, many expected it to spend a majority of the ink on the population level approaches for which the Commission has offered little guidance to date. Instead, while noting a lack of guidance on population-level programs, the Commission decided not to take the issue on independently and instead wisely chose to open a public discussion and engagement to develop well thought out guidance that leverages the learnings from current pilots and programs.  

Even more importantly, the CPUC made clear that current population level aggregate NMEC innovation should not be delayed.

“...while Commission guidance on population-level programs is not yet comprehensive, this should not prevent third parties or program implementers from considering population-level NMEC approaches in their third-party program proposals.“

Definitionally, the CPUC has broken NMEC into “site-level” and “population-level” to differentiate by methods, but also more importantly by nature of the savings claim. While this definition misses the applications in which a site-level result is rolled up or aggregated to a population (these are not discrete concepts), it generally fits for review criteria and savings claims.  

“This ruling also acknowledges two broad categories of normalized metered energy consumption (NMEC) approaches: “site-level,” where savings are calculated at an individual building, project, or site level; and “population-level,” where savings are measured based on the aggregation of many buildings.”

Site-level NMEC will be following the custom review process, and while this may be a disappointment to those ready to break away from what is sometimes a costly process, the CPUC offered a parallel review that has the potential be more streamlined than the existing model.  

“This ruling confirms that site-level NMEC will be classified as custom and will follow a modified custom process review.”

The adaptation was added to clarify the purpose of staff review, provide early feedback to program administrators and implementers, and to inform Commission staff-led evaluation (but not approval). Project level review will not be required for population-level NMEC approaches.  

The fundamental challenge for site-level NMEC projects is that it requires a high degree of hands-on engineering and subjective decisions to determine what non-routine events to adjust for, and exactly how to arrive at those numbers. This requires independent verification from a third party that does not stand to benefit from the calculation. In practice, this can lead to disagreements as to what is payable savings, and what isn't, and also may have an overall bias towards overestimating savings. The challenge is that while historical custom reviews were often burdensome, there is a real and valid requirement for independent review if site-level NMEC savings are to be claimed.

Despite some industry objections to the need for measure-level analysis for NMEC, the Commission will require it for both site-specific population-level approaches for the purpose of informing lifecycle savings.  

“This ruling confirms that, in the absence of alternative approaches, measure-level analysis is necessary to inform lifecycle savings and program or project benefits”

But the ruling also left a wide door open on the topic of lifecycle savings. The definition of measure-level analysis (to inform a savings claim in particular) was not clarified, so a variety of approaches may be tested. The Commission also noted that program administrators and implementers may propose alternative lifecycle savings assessments for Commission staff consideration as well as part of the working group. Lifecycle savings, expressed in the effective useful life (EUL) parameter, is a huge driver in the current cost-effectiveness models—a point of serious contention on its own. The ruling opens an opportunity for transformative approaches that help re-align the value metrics that drive energy efficiency in a distributed energy resource and decarbonized grid.  

The transition to NMEC is already underway in a big way!

This latest CPUC NMEC ruling was released on the same day that many of the state's evaluators, implementers, administrators and regulators were participating in an EM&V forum hosted by the California Efficiency and Demand Management Council.  

The forum provided a day-long review of progress and outstanding issues for NMEC and pay for performance. Material presented at the event clearly illustrated the hard work that has and is being done to make this model successful in delivering energy efficiency as a resource. The experience gained so far will undoubtedly serve as a foundation for the future.  

The key takeaways from the forum were:

  • Pay for performance based on population-level NMEC (PG&E) and site-specific NMEC (SCE) succeeds when based on transparent and open source M&V tools.
  • Time and locational values are the keys to energy efficiency's value in a decarbonized grid.
  • Updated evaluation structures are needed to focus on verification instead of re-doing impact analysis.

It is an exciting time to be providing solutions in California. OpenEE has been a cornerstone for the progress made to date on NMEC and pay for performance, and we will continue to support its success around the country.

California is moving rapidly to NMEC, pay for performance, and data-driven embedded M&V, in order to surmount the limitations of custom and deemed programs, engage market innovation and reduce the administrative overhead of delivering efficiency.

OpenEE is playing a key role in this transition and would be happy to talk with utilities, aggregators, or policymakers about our experiences, and how our NMEC platform can plug into nearly any program. If you can measure it, you can manage it.

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