The Curse of the TRC
Archaic utility cost effectiveness-testing is killing effective energy efficiency programs
Utility cost-effectiveness tests are used by program administrators, utilities, and regulators to understand whether the benefits of an energy program outweigh its costs. It seems to be a simple calculation, though it is anything but. Which benefits and which costs do you include, how do you calculate them, and are these the costs and benefits to the homeowner, the utility, or the program? Those in charge of taking public funds, often rate-payer funds, and using them to administer programs to advance public goods have been struggling with these questions since the ’70s when utility surcharges became a popular way of raising funds for improving utility performance, including advancing energy efficiency, conservation, and load management programs.
It is hard to argue with the need for a test of some sort to ensure that programs paid for with public dollars are used is the most cost-effective manner. There are five tests outlined in the 1983 California Standards Practice Manual and its 2001 update, though the Total Resource Cost (TRC) test is the most widely used. No matter the test, it can provide a distorted view of costs and benefits if all the costs and only some of the benefits are calculated, or vice versa. This is particularly acute in the case of energy efficiency programs. In fact, most states are NOT using a complete range of best practices that fully account for the value of energy efficiency. Thus, efficiency screening practices are providing policymakers with inaccurate results, and important measures and programs that will benefit consumers, the environment, and society are being rejected.
Why does this matter to the home performance industry? Because programs and incentives aimed to advance home performance may not materialize if these tests are not fixed to include all the benefits of energy efficiency. Builders and contractors frequently note that “comfort” and “indoor air quality” are among the top reasons for homeowners to choose energy efficient designs and retrofits. Policymakers often note the benefits of “environmental protection” and “national security” as a reason for advancing energy efficient homes. And utilities see benefit from energy efficiency by avoiding the costs of future “environmental regulation” and “capacity” requirements. Yet, in many circumstances, none of these and other non-energy benefits are calculated into the tests.
The TRC is the most widely used test and, because it is usually not being applied properly, it is failing beneficial programs. Not only are nonenergy benefits not included, but the entire cost to the homeowner is included as an energy efficiency program cost (even if part of the cost would have been incurred even if the energy efficiency program never existed—such as with a furnace replacement for example). If a program fails the test, a public utility commission may decide not to fund the program.
The National Home Performance Council commissioned a study by Synapse Energy Economics to get to the bottom of these tricky problems that have been plaguing some energy efficiency programs and threatening to end others. The report: “Best Practices in Energy Efficiency Program Screening: How to Ensure that the Value of Energy Efficiency is Properly Accounted For,” aims to explain how to fix this problem, for the TRC and other tests. It was released in July 2012 at the National Association of Regulated Utility Commissioners (NARUC)—the association of the very people charged with overseeing these tests—and notes that while the choice of test is important, the method for implementing the tests is also crucial. Using best practices will ensure that each test is applied in a way that achieves its underlying objectives, is internally consistent, accounts for the full value of energy efficiency resources, and uses appropriate planning methodologies and assumptions.
The best practices detailed in the report may be too nuanced and in-the-weeds for contractors and builders who are on the ground providing this efficiency through their knowledge, understanding, and salesmanship. However, the incentives and support that dries up or is not provided when these tests are administered poorly can impact the bottom-line of home performance contractors.
Get more information on the National Home Performance Council.
NHPC anticipates that while the report recommendations will provide guidance to commissions, commission staff, and program evaluators, it will also launch a robust conversation about best practices for cost-effectiveness testing. We invite comments and critique of the paper (email@example.com) and its recommendations—hearing from members of the home performance industry is important. It is essential that any test used to approve an energy efficiency program use best practices to provide the proper balance of costs and benefits in order to ensure programs are available to support home performance retrofits.
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