Last Fall, the LA City Council approved the LADWP’s request for a $267-million energy efficiency budget for the next two fiscal years. Supported by an 11 percent rate increase, the budget will go towards a goal of 10-15 percent energy efficiency by 2020. David Jacot, formerly of SCE, joined the LADWP as Director of Energy Efficiency; he is tasked with the development and management of the utility’s energy-saving programs. TPR presents the following interview with Mr. Jacot. See VERDEXCHANGE for more information.
We need the lending industry en mass to get behind financing energy efficiency projects, and the only way that really scales up is if we have the flexibility for the industry to leverage on-bill repayment mechanisms where it makes sense for the utilities, and where it doesn’t, still provide for off-bill financing of energy efficiency as a standard offering on the part of the lending community. -David Jacot
In October of 2012, the Los Angeles City Council approved LADWP’s budget of $267 million in energy efficiency programs along with an 11 percent rate increase over a two-year period. Please share with our readers how LADWP’s rsources will be spent.
David Jacot: There’s a broad array of programs that we’re expanding, and new programs we’re creating in order to fully implement that money. But before reaching the point of designing programs, we worked with the City, with the environmental community, with labor and business organizations, to develop a series of guiding principles around how we would design the portfolio to best leverage that money for customer participation as well as other important issues to the City and our stakeholders.
Begin then by sharing LADWP’s guiding principles for expending these new energy efficiency program dollars.
I can paraphrase them pretty easily. First and foremost is to serve all customer segments in all of their energy end uses, so that we don’t skip over customers who could benefit from energy efficiency even if they’re harder to serve than other customer classes.
The next four guiding principles specifically call for commercial, residential, industrial, and lower-income customers to positively and economically benefit from maximizing high levels of energy efficiency within or around their facilities.
The sixth principle is to leverage the energy efficiency programs to support the creation of good job opportunities and green jobs for the local workforce.
The seventh principle is to be transparent in the design and operation of our portfolio with regular reporting of results to stakeholders, to the board, and in the public forum, as well as ongoing measurement and verification of energy savings to ensure that the actual savings expected are being realized.
The eighth principle is to engage community-based organizations to connect with hard-to-reach customers, getting them involved in our program so they might realize the benefits of energy efficiency as well. Some of those hard-to-reach customers include low-income customers, multifamily customers, and small businesses.
Sounds like ROI and the discipline of a bottom line are not what’s driving this program.
Well, there’s multiple bottom lines; you can map all of those principles into the triple bottom line, which is that we need to derive broad economic benefits from the program. Obviously, the City is very interested in green job creation and the economic benefits of a more prosperous workforce, and that’s just as important to the City as the economic benefits that come from a customer base that has more discretionary income because their bills have been reduced.
Let’s elaborate on LADWP’s new energy efficiency programs.
The first key piece is the principle of serving all customer segments and uses. We’ve partnered with the Gas Company to deliver co-funded programs on each other’s behalf where one of us is the lead utility and the other provides incentives for their particular fuel.
SoCal Gas and Southern California Edison have done this for a while. The LADWP has talked about it for a long time, but we’re finally doing it—partnering with our other utilities that serve the same service territory to provide combined electric and gas projects so our customers benefit from the same program. This is especially helpful for our small business and residential customers. We are also partnering with SoCal Gas to better serve LAUSD.
In addition to electric and gas incentives in these programs, we are adding in DWP’s Water Efficiency Rebates Incentives. So our Small Business Direct Install program will actually have electric, gas, and water measures all in the same program. This program is given to our small business customers free of charge, and as such, will help them on all three of those bills plus a fourth—the sewer bill, which is pegged to their water consumption.
Another example of how we’re serving our customer segments across all their energy uses is in new construction, where we’re partnering with the gas company to leverage new construction programs that they already have in place. They’ll deliver the program co-branded by both SoCal Gas and LADWP, so customers will know they are getting both electric and gas incentives on those projects. Additionally, our water rebates are applicable if they undertake water efficiency upgrades at the same time.
Have you or the department given any consideration to the City mandating energy audits for existing buildings, residential and commercial?
Energy audits are used to identify opportunities for energy and resource efficiency, and some of our joint programs with the Gas Company will give us the capability to perform those audits. Where we’re taking the energy efficiency programs with our expanded budget is beyond just offering rebates and waiting for customers to come.
We recognize that one of the big market barriers to customer adoption of energy efficiency is that customers don’t know they have the opportunity, and that’s what audits are designed to address. It helps customers quantify what might originally be a feeling that they have an efficiency opportunity, though they don’t know what that opportunity might be. So performing audits is a lead-in to participating in energy efficiency programs.
We do offer some audit services on the energy and water sides, and the gas company does the same. We will use those offerings to fill our pipeline of programs with projects that have these opportunities identified, so we can help customers realize the savings.
But to be clear, to date LADWP has not recommended mandating energy audits.
No. When you say mandating energy audits, what scenario would you mean?
Well, every year the DMV mandates that Californians get a certificate for our cars. Is it not within the power of the City of Los Angeles to mandate periodic energy audits?
That might be within the power of the City. The department has certainly not proposed that, nor would the department be the correct entity to propose something like that. That would be something that would have to come from City leadership. However, we are excited to be building the capacity at LADWP to provide these audits, as a service to our customers, upon their request.
Do you believe, as someone long involved with utilities, that pricing signals from the new LADWP rates are powerful enough to incent the modification of consumer behavior regarding conservation of energy?
The Department has tiered incentive rates that are intended to differentiate usage categories. Now, whether those tiers are differentiated enough to have a quantifiably significant effect on customer behavior, is something we will continue to study and analyze in order to inform future rate design. But the tiered rates are there on both the electric and water sides.
Has LADWP considered on-bill financing by customers of the installation of efficiency devices in homes and businesses to reduce their energy demand from the grid?
We’re exploring forming a partnership with the Gas Company to leverage their on-bill financing mechanism on their bills to incorporate both gas and electric measures in the same project. We’re also looking at working with the Gas Company on the financing of energy efficiency projects by third-party financial institutions.
To be honest, we’re more interested in finding financing for energy efficiency than making sure it’s on-bill financing. The key is to have financing at an attractive interest rate available for customers for energy efficiency, so that it’s not an unsecured loan on the level of a credit card. Having the financing on the bill is nice, but it is more important to have financing at an attractive interest rate, period. The reason for that is that there is far more demand for financing for energy efficiency than we can handle with either utilities lending directly or a small amount of third-party lenders.
We need the lending industry en mass to get behind financing energy efficiency projects, and the only way that really scales up is if we have the flexibility for the industry to leverage on-bill repayment mechanisms where it makes sense for the utilities, and where it doesn’t, still provide for off-bill financing of energy efficiency as a standard offering on the part of the lending community.
David, before you transitioned this summer to LADWP from Southern California Edison, you managed SCE’s Energy Efficient Business Portfolio and a program called Savings By Design. Please elaborate on the applicability of your work at SCE to your new responsibilities at LADWP.
Savings By Design was one of over 50 programs I managed at Edison. Savings By Design is a new commercial construction program whose final details we are working out with the Gas Company offer to the businesses and institutions of LA. That is an offering that has not recently been available within the City of Los Angeles but has been provided by the other utilities in Southern California. When I was at Edison, I managed not just new construction but all the retrofit offerings, the direct install offerings, and cross-cutting strategies for Edison. I managed programs across all customer segments, including residential, even though I was the Business Portfolio Manager.
Many readers remember well, because you spoke representing SCE at the first VerdeXchange. What precisely enticed you to leave an investor-owned utility, SCE, and come to a municipal utility. What’s the difference, if any?
The attraction was the fact that the LADWP is entering a new phase where it is redoubling its investment in energy efficiency and, as such, has increased its funding from a fairly low level for energy efficiency to a level that is commensurate with the IOUs on a per-ratepayer basis. LADWP has stepped up to the table to prepare and offer an energy efficiency portfolio that is at least on par with what the IOUs do in California. In fact, we now have the third largest energy efficiency portfolio in California behind only PG&E and SCE and ahead of SDG&E and SoCal Gas. So the LADWP is number three in terms of its energy efficiency portfolio, and that’s appropriate because we are the third largest electric utility in the state.
It’s a good fit, and that growth opportunity was really what attracted me to LADWP, to help ramp up our operations, portfolio, program design, and outreach, and achieve our goal to reduce usage in LA through efficiency by 10% by 2020. And LADWP is very serious about this goal, as we wrote it into our 2012 Power Integrate Resource Plan. We are making power procurement decisions that depend on the achievement of our energy efficiency targets.
David, we’d welcome your take on LADWP’s infrastructure needs and capital investment plans. In operation for over 100 years and needing to replace 70 percent of its aging infrastructure in the next 15 years, what role will you or energy efficiency technologies play in remaking LADWP for the next 100 years?
The energy efficiency portfolio is, for the most part, capitalized—it’s treated as a capital expenditure. The LADWP is in a situation with its infrastructure that’s very common across the electric industry—Edison’s in the same position. We have aging infrastructure and a rate of replacement that hasn’t kept pace with the equipment lifecycle, on top of a lot of unfunded mandates issued by the state and federal governments around renewables, emissions, and environmental quality standards. It’s a very common cost pressure that runs throughout the industry.
We have a significant amount of energy efficiency potential in the City of LA, and by mining that potential through cost-effective energy efficiency programs, we can help alleviate some of the infrastructural costs in the future that otherwise would be necessary as investments. Where we can keep demand and consumption as flat as possible, we’ll still need to do those infrastructure replacements. But we can help stave off substantial expansions in infrastructure that would otherwise be needed to meet an unbridled growth in electric demand.
Let’s end this powerful interview by asking you to share your perspective on why there’s less of a stakeholder lobbying effort among the civic, business, labor and environmental communities for energy efficiency than there is for supply-side programs like wind, solar, geothermal, and feed-in tariffs. Why is it so much more difficult to get a powerful lobbying force behind energy efficiency?
I have a two-part answer. First, I’d say we do have a coalition supporting energy efficiency, and that’s one of the reasons why we’ve upped energy efficiency investment and had the support of the LA City Council to approve the rate increase that will pay for it. We have a coalition of labor, environmental, and business communities as well as the Council folks, the Mayor’s Office, and the commitment within LADWP, recognizing that energy efficiency is simultaneously the lowest-cost source of new procurement and a skilled local job creator. So we do have a coalition supporting it, and without that coalition we would not have the third largest energy efficiency portfolio in California, and we would not have gotten the rate increase needed to support it through.
But, to answer the second part, you’re right— physical-infrastructure-type investments, such as renewables on rooftops, and policies like feed-in tariffs, do compete for attention. In my experience, it’s hard for a lot of folks to wrap their minds around the concept of energy efficiency and the economic/business argument for it. When you’re installing solar, it’s very tangible and visible; it’s panels on the roof.
A great analogy lies in the early hybrid vehicle market, where the Toyota Prius sold fabulously while the hybrid version of the Honda Civic did not. One of the chief reasons was that the Prius was readily, visually identifiable as a hybrid—there was no non-hybrid version of it. The Honda Civic hybrid had a badge on the back that said “hybrid,” but people who wanted a hybrid wanted something that shouted it.
When you start taking about sustainability and energy independence, there are multiple ways to get there. Renewables, solar on the rooftop, and energy efficiency are different strategies to get there. When people want to be “sustainable,” they want something that shouts that. You can see solar on a roof; you can’t see energy efficiency. I think that is the crux of why it’s a struggle to elevate energy efficiency to be on par with solar. And so solar gets the attention.
The analogy I like to use is racing, another car analogy. I’m a car guy, and in racing, the first thing you do when you’re building a racecar is reduce the weight, and then you soup up the engine and put in horse power. But you get the weight down first. Energy efficiency is like getting the weight out of a racecar first, and then we can talk about the rest. There’s nothing wrong with doing solar. It’s great to do, but it’s smart to do the energy efficiency first, so you know that you’re working less, as far as how much solar you need. And, if you’re working with the feed-in tariff, the more efficiency you do, the more solar generation you’ll have left over to sell. So it’s a win-win.