Read this if you want to know what the E3 Calculator is and what it does. You know that sheet you get when you open the box of something you just purchased that needs assembly – READ THIS FIRST! Well, read this before opening the E3 Calculator.
FCI Management is a comprehensive energy solutions provider founded in Los Angeles with offices in Long Beach, CA and Queens NY. One of our many offerings is Utility Program Management. One of the key tools in our industry is this beast Workbook known as the E3 Calculator. The enticing thing is that it appears to be just another Excel spreadsheet like the one you use to prepare for the next fantasy football draft. But there’s a reason your fantasy football picks don’t consume more than 15GB of space on your hard drive. (If it does, go kiss your wife and kids right now because I guaranty you have bigger problems than the E3 Calculator.)
Who needs a Beast?
To fully understand what this beast is about we need a little background. The California Legislature, through the California Public Utilities Commission (CPUC) governs the operation of investor-owned utilities (IOUs) throughout the state. The largest IOUs include Pacific Gas and Electric, Southern California Edison, and Sempra Energy with its companies Southern California Gas Company and San Diego Gas & Electric.
A decade ago California adopted a plan to increase energy conservation by imposing on the IOUs a requirement that they curtail the use of energy each year. Each year the CPUC issues specific, measurable goals for energy savings which require regular reporting from the IOUs. The reasoning for this focus on energy savings is clear: It costs less to conserve than to produce or purchase new energy. The cost of energy can be high, and with the sting of Enron, Duke Energy and other still fresh, purchasing more energy is far from sexy. However, no one wants a power plant next to their soccer field much less their house (I wouldn’t be surprised if the phrase NIMBY (not in my back yard) originated in a conversation among neighbors relating to this issue.) With the recent failure of SCE’sSan Onofre Nuclear Generating Station the NIMBY cry increased in California. Point taken. It’s easier to conserve than buy or generate power. Regardless of what you think of California and our representatives (one of our favorites is Steve Bradford who chairs the Assembly Utilities and Commerce Committee), they’ve made it so that California is a clear leader in energy savings. Cue the band!
Who birthed the Beast?
So, utilities must convince regulators that they will save energy. So the utilities got together and decided that the best way to reduce energy usage is to operate programs that entice customers in targeted markets (commercial, industrial, residential, etc.) to use less. And how do the utilities demonstrate what they’re planning to do to save energy? Well, they need some way to develop confidence that these programs, which will undoubtedly have some cost to operate, end up delivering the required energy savings as cost effectively as possible. Enter the E3 Calculator.
In 2005, Energy + Environmental Economics (E3) developed the first Avoided Cost Calculator to model the avoided costs of energy saved in energy efficiency programs. According the CPUC website, “The “E3 Calculator” is an Excel-based tool used by all California IOUs to compute the cost-effectiveness of demand-side programs. Inputs to the E3 Calculator include the energy savings and costs of each measure proposed in a demand-side program, the anticipated installation rate of each measure, and costs related to program administration and implementation. The avoided cost model is built into the E3 Calculator such that the outputs of the E3 Calculator include the anticipated energy savings, emission reductions, and the TRC, PAC, and RIM test results.” Whew! Clearly written by a bunch of engineers.
Inside the Belly of the Beast
OK, let’s break, break, break it on down. The E3 Calculator is a Workbook or a series of linked spreadsheets. On the ‘Input’ tab it allows you to propose an energy efficiency program by specifying what energy efficiency measures (LED canopy lighting, low-flow showerhead, water heater pipe wrap, etc.) are in your program and how many of each you believe will be installed. You also need to specify the cost of each measure (both labor and materials) and what portion is paid by the customer vs. the utility. (There are more inputs, like proposed climate zone, which are not discussed here.) After you provide these inputs the workbook verifies the energy savings by comparing what you entered to the energy savings it expects (look for a discussion on deemed energy savings in another post). Once the input data has been entered the user can select the ‘Output’ tab to view the cost effectiveness of the proposed program. Passed down from the CPUC, the utilities require that the program has higher benefits than costs as measured by both the Total Resource Cost (TRC) and Program Administrator Cost (PAC). TRC is the measurement of the net benefits and costs that accrue to society, which is defined by the utility and its customers. It compares the benefits, (which are the avoided cost of generating electricity and supplying natural gas) with the total costs, which include program administration and customer costs. The TRC does not include the costs of incentives. On the other hand, the PAC test does not include the costs incurred by participating customers but does include incentives paid to participating customers. The PAC test measures the benefits and costs that accrue to the program administrator, which is usually, but not always, the utility.
That’s probably more than you ever want to know about TRC and PAC which measure cost effectiveness of a proposed program, but my editorial is that, as energy efficiency technology improves and California moves to “transform the market” toward the installation of energy efficiency measures without customer incentives, it’s getting harder and harder to design programs to meet the TRC and PAC requirements. Just a few years ago utilities were requiring proposed programs have a TRC of 1.0 or higher – meaning the program had to save at least a dollar for each dollar spent on the program. Today, TRC requirements of 1.5 or higher are common.
What? There’s More Than One Beast?
While the California IOUs started out using the same E3 Calculator tool most have since cloned a version and grafted on DNA specific to the utility. Some will lock certain cells or restrict how data is entered. Some will seed it with their specific climate zones. The point is, don’t expect the E3 Calculator you get from Southern California Edison to work the same as the E3 Calculator you get from San Diego Gas & Electric. However, like apes and humans, the E3 Calculators are 90% the same though they may look and smell operate differently at times. Don’t panic. Ground yourself by focusing on similarities. Find the things that are common (e.g. both like bananas), and isolate the things that appear different (e.g. volume of body hair). You’ll likely be able to isolate and understand these difference without losing your mind.
But I can’t guarantee it.