One of the hardest things about energy efficiency is measuring it. It's difficult to do, but with increasingly sophisticated software platforms, it's getting easier and more precise. As homes and buildings begin to use more electricity for things like heat pumps and electric vehicles, and as solar and wind power continue to grow, there will be many times a day and most times of the year when it will actually be energy efficient to use more electricity. But at certain times and places, we'll need to use less or even send power from solar and storage, and even the storage in electric vehicles, at homes and businesses back to the grid.

My guest this week was Carmen Best, Chief Policy Officer at Recurve, a company working to measure the time and locational benefits of flexible demand in the most rigorous way possible by actually measuring the end use changes and power consumed at the meter. Grid operators and policymakers are increasingly focused on dispatchable generation in Texas, sources they can turn on with a push of a button. But what they should be focused on is not only dispatchable generation, but dispatchable resources of all kinds, including demand side resources.

To have confidence in them though, grid operators and utilities have to be confident they're deployed at the right time and in the right place. In this podcast, you'll learn the policies needed to truly scale demand side resources, including energy efficiency, demand response, and solar and storage, and how a leading company in this space is approaching the challenges. Carmen has spent over 20 years working on energy efficiency with much of that time focused on how to evaluate, measure, and verify energy savings.

She's one of the leading experts on demand flexibility, energy efficiency, and the policies needed to make sure all demand side resources can contribute to reliability and affordability. I learn something every time I talk to Carmen, and this podcast was no exception.

This episode is particularly well timed as today was the deadline for comments in response to the PUC’s energy efficiency questions. I answered some of the questions in this article. You can see the responses of over 20 commenters, including Recurve, here.

I look forward to hearing your thoughts about this episode and about measuring and valuing energy efficiency. As always, thank you for listening and for being a subscriber! Transcript, show notes, and timestamps are below.

Timestamps

4:00 - About Recurve

5:00 - The challenge of measuring demand reductions and Recurve’s approach to solving that problem

9:32 - How Recurve’s data can be used by system operators to manage distributed resources, improve system reliability, and empower consumers

13:41 - The link between energy efficiency and demand response

18:57 - How can we be sure energy efficiency delivers value?

23:33 - System benefit targets vs. savings targets; how this impacts consumers, costs, and competition.

27:42 - Shifting energy efficiency from a utility program to a competitive market

35:06 - Using energy efficiency measurement pilots to better determine costs and benefits

45:17 - Texas’ ADER (Aggregated Distributed Energy Resource) Task Force; the role and potential of demand-side resources in ancillary services markets

52:35 - Utility shutoffs. Challenges and opportunities in programs targeted low-income customers

58:34 - Policies to prioritize to increase reliability and affordability

Show Notes

Recurve

FLEXMarket

Mission:data

Smart Thermostat Pilot filing with the Texas PUC

Energy Efficiency Questions filing with the Texas PUC

Project 56517: The energy efficiency docket (here you can see all the responses to the PUC’s questions)

The PUC’s Efficiency Questions: A Potential Turning Point for Grid Reliability

Community Voices in Energy Survey: Texas Statewide Report from the Texas Energy and Poverty Research Institute (TEPRI)

Transcript

Doug Lewin

Carmen Best, welcome to the Energy Capital Podcast.

Carmen Best

Thanks for having me, Doug.

Doug Lewin

Thanks so much for doing this. I am a big fan of yours and the work you do and of Recurve, have been following Recurve for a long time, but I suspect some of our audience will not yet be familiar with Recurve and what it does. Can you just start us off by talking a little bit about the company and what it does?

Carmen Best

Yeah, sure. So, Recurve is a company that is focused on analytics and we're a software company. And we're contributing to the clean energy future by looking at energy consumption patterns in effect. So, changes in energy consumption are really important to distributed energy resources and demand flexibility.

And we kind of got our start in the energy efficiency space. And one of the problems we were trying to solve was having standardized measurement and verification. And that our open source products have kind of evolved to be a broader swath of solutions that include being able to forecast where demand resources are going to be best suited for the grid, be that distribution or decarbonization initiatives, look at how they performed. So, utilizing that measurement verification interface of how well they did.

And then the last part is really about settlement. If you have the information about how they performed, how does that track to the value that you want out of these resources and how do you pay folks for what they've delivered as opposed to just having fixed incentives for single technologies or something? We're really trying to build out a way for utilities and other entities to be able to buy demand flexibility direct from the market.

Doug Lewin

So much there. This is so exciting and so like music to my ears and hopefully to a lot of our listeners as well. So we, on a lot of the podcasts, we've had discussions in the Jason Ryan podcast and Will McAdams, Pablo Vegas, so on and so forth. I've been talking a lot about the distributed resources that are coming. And I use that word resources very explicitly because some of the resources are supply like solar, storage and the like. There's others as well: fuel cells, Bloom boxes, there's all kinds of different things that can be supply resources on the demand side.

But then there's also the actual reductions of demand. And this is where it gets really tricky because you're kind of trying to measure a reduction as a, it's much easier to measure when you're adding something, it's kind of more difficult to measure the subtraction. Can you talk a little bit about how y'all do that and how you've evolved a system to do that?

Carmen Best

Sure. I think at the crux of it, it's really about a counterfactual analysis. And this is something that's being done in lots of different industries to understand or academic spaces to understand what would have happened if we wouldn't have done what we did. Right? And it's not really an esoteric question. It is a quantifiable, answerable thing, but you need to be able to agree on a couple of important things like… well, what was happening and what was likely to continue to happen. We answer that by looking at past energy consumption and can make some assumptions about what energy usage would be in the future in a business as usual situation.

And then the other component is having information of what changed. So how are you using energy after an intervention? And that intervention might be installing a heat pump, it might be upgrading your windows, etc. It might be an event-based intervention. So you did something in response to a call for load reduction or something like that. And you can be looking at that during a certain timeframe, maybe four hours or two hours or whatever the fact may be. But you're building that counterfactual analysis so you can see what that change in energy consumption was and then tie that back to the value that it was delivering during that point in time.

Doug Lewin

And when you guys are doing that, Carmen, you're actually doing that measurement at the meter. So this is not a bunch of spreadsheets and slide rules and whatever else. This is not some grand estimate. You're actually measuring whether it's output of something like a solar panel or a battery or the reduction from something like a smart thermostat cycling, or like you said, a heat pump replacing some other system, right?

Carmen Best

Yeah, we're typically looking at a whole building analysis, so be that a home or a commercial building and we're looking at their energy consumption at the utility meter, usually an hourly estimate. And then we have a timestamp of when an intervention, whatever we're tracking happened. And then we're looking at the energy consumption pattern after that intervention.

It's also weather normalized. So you're factoring in how people typically respond to heat or cool or cold because that is one of the main drivers of our energy usage. And then more recently, we've been factoring in other big use cases like is there solar on the site? Is there an electric vehicle on the site, etc.? And those are other ways that you kind of have to factor in that site level energy consumption pattern either by backing them out or doing other analytics around how that change in consumption is happening.

Doug Lewin

Yeah. So just to take just one step back, we're going to go, we're going to go back into the, into the, you know, details here in a little bit. But if we take a step back, I actually want to go back to, and folks, if you haven't listened to this already after this podcast, you go back and listen to this other one with Pablo Vegas, where the CEO of ERCOT, and I asked him about his kind of ten year vision for where their ERCOT grid was going.

And I, wasn't really sure what he was gonna say in that answer. Thought he might talk about, it could have been any number of different things, but actually the first thing he said was, and I'm quoting, “I see a future where there are distributed generation resources scattered throughout every community we live in. Those resources could be electric vehicles. They could be HVAC systems in your house that are connected to a smart internet connected grid thermostat.” He went on, he kind of gave this list of different things and said, I think this is gonna be one of the defining features of the grid in 10 years is all these distributed resources.

So again, it's been a theme running throughout these podcasts and a lot of my writing on the Texas Energy and Power Newsletter and a lot of the discussions that are just happening at ERCOT, at the PUC, at the legislature and around the country and around the world is how do we orchestrate all of that stuff, right? We're going from a world where you had, you know, a few hundred really large power plants sending power one way. Now you're going to this world where you have thousands, even millions of tiny little points.

And if I understand, and I'm not sure I do, so correct me if I've got this wrong, but I understand what Recurve is doing, you guys have built this kind of platform where all of these different resources can be on that platform and whether it's a utility or grid operator, essentially whoever's playing the function of the distribution system operator doesn't have to be somebody actually named capital D capital S capital O, but whoever is playing that function can then see at each of these nodes or whatever, what is happening and actually orchestrate all that tiny stuff up into something that is at a system level going to work to increase reliability, keep costs low, and deliver other values as well. So did I describe that right? Correct me where I got it wrong. If it is right, I'd love for you to talk a little bit more about that and some of the values that you can actually realize, because it's not just there's an emergency push a button. It is that, but there's a lot of other value streams in this, right?

Carmen Best

Right. I think a couple things that I encounter when I'm talking to potential customers or current customers. What you described of kind of that distributed world of devices is definitely one aspect of the future energy grid that we're looking at. And I think for folks to be able to understand how all those different devices are operating there's going to be different degrees of control that's going to be of interest to customers. Right? Some folks will want to allow their smart thermostat to be controlled, other folks might not. And what we're really offering to the market is being able to see where different types of interventions could have the biggest bang for the buck for that distribution system value. So you can use current patterns in energy consumption to understand where you might want to do a smart thermostat installations or heat pump installations, etc. And on the flip side, when those interventions have happened, be them an orchestration of a DER, maybe through a DERMS [Distributed Energy Resource Management System] platform, which we are not, we run alongside a DERMS and give that extra layer of insight of how did this actually deliver? How did it perform? And how did it perform not just for those devices, but in relation to the rest of the grid? We can do comparison analyses that are really insightful to be able to have that kind of bigger picture of how things are delivered.

And then what that really enables is different types of aggregations that can be really valuable to the grid. So I think a lot of times when people are thinking about virtual power plants, or they're thinking about dispatchable devices, et cetera. They get really granular and they think about all the little widgets and how we're going to have levers, who can I envision, little levers all over the place that we're going to be able to control these things. But there's a lot of potential out there for just base load virtual power plants, right? Energy efficiency. And what we haven't really had is an ability to tap into that in a meaningful way that's really tied to the complementary grid value that you could get from installing technologies that are going to deliver a quote unquote shape that's going to be really grid beneficial for the wholesale grid, but then also for distribution systems. And also be able to be targeted to places where there may have been historical inequities, et cetera. So you can combine these different win-win propositions to values as they were to be able to deliver aggregations of systems and really optimize this ever increasingly distributed energy model that we have. So it can be bringing benefits to lots of different folks in the system, customers who are engaging with those devices, but then also all the rest of the people who are just trying to live their lives and have affordable energy in the world.

Doug Lewin

Yeah. And I love that you brought that back to energy efficiency, because it's funny. I like anybody who's listening to this podcast probably knows I talk about energy efficiency all the time. Some people get tired of me talking about energy efficiency, but I'm going to keep talking about it because it's incredibly important. But even like the way I asked the question, I was kind of leaving out energy efficiency, right? I'm asking about like, there's all these little resources that are able to respond at the push of a button. It's very easy for our minds to go there because that dispatch ability is important, but it's also important alongside, as you put it, these kinds of more long-term load shaping, right? That with energy efficiency, talk a little bit about, and you must see this all the time in the data, it's sort of how energy efficiency and demand response are actually not only complimentary, but almost kind of, maybe I'm overstating it, but kind of almost need each other.

Carmen Best

Yeah, I think it's been one of the interesting evolutions of my career too, because I've spent most of my time in energy efficiency, not so much in demand response. Over my career, there are different people who have been working in demand response and energy efficiency, et cetera. One of the analogies that really has stuck with me is that demand response is really about building the fire station, as it were, making sure you're ready so you can drop load and be reactive very quickly. It can be a high cost for a really short event or for a really short intervention.

Energy efficiency can be thought of as kind of pruning trees or making sure that you're mitigating the risk of needing to drop load at an immediate time. And how I see those really coming together in this modern context is that there are more and more devices that are controllable. So as we're investing in energy efficiency, like a heat pump, you're also getting the control value of being able to control that device in a DERM system to drop load, move load, whatever, in addition to the long-term kind of base load value of reducing a higher efficiency unit, right? Compliment that with insulation, for example, and having a shell that's also going to allow that heat pump to operate more efficiently and do pre-cooling and all that other stuff. Those two things can be coming together as well.

Now where it gets interesting is how do we have programs and policy structures where we can be paying for both of those at the same time? Because right now I've heard folks say, well, I don't want us to do energy efficiency because then that's going to mean that I don't have as much load to drop when I need to. Well, sure, but you're also going to have less flexibility within the system to be able to manage the loads. And wouldn't it be nice if you don't have to drop loads in an emergency, but rather you're managing loads on a more regular basis.

And I think for both historic demand response and historic energy efficiency to have a path for the future, which is really demand flexibility, they need to be able to come together and the value streams of that long-term avoided cost value from efficiency should be paid for and the short-term load reductions should also be paid for. Demand donation is kind of, I don't know if you came up with that term, Doug, but it's one that floats around our place a lot. If we're asking people to reduce load, they should be compensated for it. And when you can aggregate that all together with the different solutions that are out there, those two things can come together quite nicely and be able to create a system where you can really be bringing customers along on their own energy journey to optimize their own, improve their own resilience to be able to respond in emergency events, you know, extreme weather on either end of the spectrum of too hot, too cold, and also be able to address affordability at the same time.

Doug Lewin

Yeah, let's, so first of all, I didn't come up with demand donation. I like that. I often say uncompensated demand response, and I will give credit where it's due. I first heard Michael Murray of Mission:data. So folks should look up, we can put the link to that great organization in our, uh, in the show notes, but uncompensated demand response is usually the, the term I use, but I like demand donation as well.

Let's stay though, for a little bit longer on energy efficiency. So in Texas, just a couple of days ago, we're recording at the end of April, just a couple of days ago, the PUC staff has created a new docket and put some questions out there. Looks like they are beginning to make some moves to implement Senate Bill 1699 by Senator Johnson, who was on this podcast a few weeks ago.

Energy efficiency, I think it would be hard for anybody to argue the counter at this point. There's a lot more potential for energy efficiency in Texas right now. But we're kind of struggling to get over the hump of really sort of putting something bigger into place. And I think there's a few reasons for that, but I think one of those kind of comes back to, there's this kind of skepticism of what the savings are and are they really being realized? And I know we've already covered this a little bit, but I just wanna make sure we do cover it quite thoroughly because…

Carmen Best

It’s my favorite subject.

Doug Lewin

Right, because it's your favorite subject. This is one of the reasons why I asked you to be on this podcast. Cause this is really what I want to talk about is how do we really know the savings are materializing? And, and you know, the, the system that we use right now obviously has a lot of deemed savings that you basically, right, there's a calculation. If I do this, I replace this thing with this thing. I get X amount of savings.

But what you all are doing is actually again, measuring that at the meter. But that means you're also just not getting this kind of like peanut butter, here's what it's saving over the course of a year. But here's what it's saving at, oh, let me just randomly pick a time, 7:30 or 8:00 on a summer evening or 8am on a winter morning, right? You can really see where the problems on your grid, where the savings are materializing or where they're not, where you might be spending dollars on energy efficiency and looks like this thing we said we were doing rather than having years and years of studies and reviews and all this, you have the meter data instantaneously. I'm going to let you respond. I'm so sorry. I asked really, really long questions,

But there's one other aspect of this too, right, which is location, right? You can see where those are happening. So it's not just this kind of peanut butter throughout the entire Houston area, the entire DFW. No, there's a transmission constraint somewhere and we need, you know, not only demand response, but there's all this discussion right now of a transmission constraint that caused problems on September 6th last year, and they want to go after demand response. They could conceivably go after energy efficiency too, as long as, but the grid operator has to know that those savings are really there, right?

Carmen Best

Right. Yeah, I think, you know, the reason I say it's kind of my favorite subject is because I'm, as a former PUC staffer myself, I'm all about the accountability. This has been the trajectory of my career the whole time of like, how do we know this stuff actually showed up? And it's not always so popular to be the evaluator on the back end, but I think it's becoming increasingly important. And it's become a lot easier to be able to do that in effect because of our computing power and kind of enabling software and smart meter infrastructure, etc. that's available to us today. So there's really no reason not to use it in my humble opinion.

I think we're even seeing states kind of move into a paradigm where they're like, measurement is our default. We're going to start with that and we'll make exceptions where we can't measure it. In those cases we'll use deemed savings estimates, which is just fixed estimates for a single technology. And I'm really encouraged by that, because I think it does just what you're saying. It allows you to align that measured savings impact with your end in mind. So if you know that you are going to have hotspots on the grid that correspond with solar turning off, four to nine, for example, that's kind of where things happen a lot, then you can make sure that the efficiency interventions that are being installed are going to be kind of aligning with that value and you couple that with controls that are also going to deliver a value at that time.

What we've seen is when you set that up of here's what we need, when we need it, and where we need it and put an appropriate value next to it, aggregators and folks out in the market can definitely respond to that. That is no new news to Texas, I'm sure, because you've had markets out there for a long time, but I think that are constructed with that intention in mind of being able to drive down price, etc. But I think that being able to have that avoided cost curve that is aligned with grid value is a really important piece of the puzzle to have out there.

The Texas PUC recently adopted kind of a new avoided cost, but I think it's not quite yet aligned with more of the distribution system value that might be out there to get a little more targeted for locational value that could be captured. The emissions value would be another thing that could be captured in there as well. And then we've also experimented and had some success with using adders for equity. So making sure that populations that have historically been kind of left out of the equation can be part of the solution going forward.

And I kind of went off track there for a second. Let me come back to why measurement as a default is really important. It's important for us to know, like for the Public Utilities Commission to know and for ERCOT to have visibility, et cetera. But it's also what can drive business and appropriate incentives and compensation for the folks that are doing the work. When you have just an average for every technology that's installed, it really doesn't differentiate between a quality project and a non-quality project. You're kind of just counting widgets installed. And at the end of the day, you have this broad assumption of what they might have delivered, but you don't have that tied back to what they actually delivered.

Sometimes when I first say this, folks say, well, how are they going to know or isn't that too risky, et cetera? And I think what we've found is as we've run what we call FLEXmarkets and put that price out there and ask people to respond, it maybe takes one cycle, maybe two for them to figure out kind of what the right projects are going to be to be able to deliver on that and start making a return on that. And it's so much nicer because they have so much more flexibility of how they can meet their customer and deliver products and services to the customer that are going to resonate. They don't have to deal with all the fixed incentives and that almost becomes like baggage versus being able to deliver a value stream that really fits into their business models and how they're delivering services to customers already.

Doug Lewin

And when you're saying ‘their’, you're talking about the folks you're referring to would be like it could be HVAC companies, it could be energy efficiency implementation companies, it could be retail electric providers, who else?

Carmen Best

Yeah. Well, those are the main ones. I mean, we kind of have this block of folks that we call aggregators, and they're really all the entities that have creative business ideas to go out and get these impacts, right? I hesitate to say savings because sometimes it's going up, sometimes it's going down, and really what we want is the value…

Doug Lewin

And sometimes we want it going up too, right?

Carmen Best

Exactly.

Doug Lewin

I mean, we're starting to have a system where we want to get more resources to come on the grid, but if those resources really don't have any value for many, many hours during the day, we actually may want to start driving energy use and demand up at certain points. And that's also energy efficiency.

Carmen Best

Yep, exactly. And that's where some states are starting to consider moving away from savings targets and move into system benefit targets. Even in Texas, the performance incentives are really anchored with the system benefits that are delivered. No extra commentary on if it's the right amount at this point, but the concept of being able to set a goal based on system benefits that's inclusive of all the different types of benefits, not just the savings, I think is one that needs to kind of continue in the conversation because it actually normalizes across a lot of other things that could be out there and allows you to translate that back into a market price to go out and set up systems, simplified systems to go get energy efficiency and demand response potentially that doesn't have a lot of the centralized planning baggage that we've historically had with program design.

Doug Lewin

So yeah, not only is it not centrally planned, it's really, yeah, it can be almost exactly the opposite. It becomes a very open competitive free market with the thing that the regulator or policymaker or whoever's making that decision does need to decide is what are we after, right? Like what is the outcome we're trying to reach here? Is it reductions at a particular time of day? Is it trying to bend the cost curve for the cost of the distribution system, which has been rising very, very rapidly over the last few years and putting a lot of upward pressure on prices actually?

I get asked this question all the time, right? Like why if renewables are so cheap aren't energy bills going down? And one reason is that while the cost of generation, at least this is true in Texas, the cost of generation has gone down, the cost of distribution has gone up a lot and has eliminated a lot of those savings so they don't show up. There's other reasons. It's not just that simple, but that is one of the reasons. So as long as a, whoever the policymaker is, in this case, it'd probably be the Public Utility Commission would say, here's the goal and the outcome we're after. And now we have, you would have a system where you're measuring the outcomes and then saying to the market, I don't really care if you do windows, thermostat, HVAC, solar, storage, EV charging. I want the outcome. You guys figure out how to get there and then these companies are competing in that market. Is that right?

Carmen Best

Yep, exactly. So it creates more customer choice, which is a good thing for everyone. It should be able to drive the cost down. I think it's also appropriate for the state agency, at least in the early days, to lay out kind of a willingness-to-pay price of” this is how much we're valuing this avoided cost value”. And then the TDUs or Transmission Distribution Utilities could be including, along with that, the distribution system value that might complement the overall. Then you can stack as many other values on top of that as you might want to.

But yeah, at the end of the day, you have this open platform that can also continue to evolve. So as you solve different parts of the grid challenges that exist today, you can shift that price to other parts or other components. It can continue to be factored into services and offerings and new technologies that we haven't even thought of yet that might be available to customers to manage their energy consumption or optimize their bills, meaning bring them down as low. In most cases, maybe there's folks who want to optimize their bills the other way. But all of those things combined can be much more streamlined way to get at that otherwise stranded resource that's out there.

Folks don't do efficiency just on their own a lot of times because there are other barriers to adoption and timelines and things like that. It's totally appropriate to kind of build that into the grid value that is going to be coming from those interventions. And it should be something that utilities can really buy from the open market without having to have, you know, high cost programs or rate payer funded programs that don't really have that accountability.

Let me touch on that point for a second too, because I think another component of accountability that I think really resonates with this sort of model. You can call it FlexMarket Model or the Market Access Model that we've been working on. Since it's a pay for performance model, that if the savings or the impacts are delivered based on what everyone's agreed to as the value and they match that measurement regime, i.e. they show up, then ratepayers are only on the hook for what's actually delivered as opposed to having to make a good faith investment in a program or a big construct of, we don't know necessarily if the program is going to deliver or not. But when you're deploying it like this with this open market model, it's scalable. If the price is wrong and folks don't show up, well, you won't get anything. If the price is not aligned with what the market is willing to deliver, then ratepayers are actually protected from not getting what they paid for, right? I don't know if that came out quite right…

Doug Lewin

Yeah, no, that makes sense. That makes perfect sense. I mean, you're, again, because it's actually measured and you actually know what happened, you're, I mean, it's pay for performance. It's paying for what actually happens.

Carmen Best

You're paying for accountability. I think I wanted to add a couple of anecdotes too because it's been interesting for me. One of the great things that I like about working at Recurve is I get to kind of explore the whole country. Texas has been one place that I've been learning a lot about in the last year and a half. There's two other states that are kind of interesting that recently took this measured by default approach. It was really on the basis of this ratepayer accountability construct that they kind of, was in essence the tipping point. So Kansas in adopting their energy efficiency paradigm said, we want to make sure that it's measured on the basis of accountability. And Louisiana was the other state that did that recently. So they adopted a new statewide energy efficiency program paradigm. And they too said, we're going to measure it first. And that's one way that we can build that confidence that it was actually delivered.

Doug Lewin

Very interesting. But they're doing that within the context of what you would still call a utility program, right? Or no?

Carmen Best

Exactly. Yeah.

Yeah. Okay. So there is this kind of like a little bit of a threshold question. I think it's a really interesting one for Texas as to whether or not, and I think this is very much an open question in Texas right now. Maybe it's not an open question. It's certainly out there. Are the utilities the right place to have the energy efficiency programs, is there sort of a need to go maybe from quote unquote programs to more of a market based structure? And that's a little bit, little bit scary because nobody's really sure exactly what that means. Does it live at ERCOT? Like where does that market even live?

So there's, there's a little bit of like a crawl, walk, run there, right? Of like, the first step is to within the utility programs, move to more of this pay-for-performance see how it works. I think a lot of people want to kind of jump to the absolute, but if you kind of take that crawl, walk, run, even if you don't move past the crawl, you've made some good progress because now you've made sure that there's accountability and more accountability. Not that there's not any, there's definitely, don't want to sound like, the programs right now are great for what they do. The EM and V that's there shows like $4 a benefit for every dollar spent. So this let’s be very, very clear there that the programs as they are today are good, but as with anything, there's always room for improvement. So if you look at this as kind of an evolutionary step of now we'll measure it, make sure that the things that are showing the biggest, again, I almost said savings, but the biggest impact that we're looking for are the things we continue to do. And as you're doing that, then that gives policymakers in Texas, that at least historically, maybe a little less so today, but hopefully still favor competitive markets, the opportunity to gain some lessons learned and look at how this might actually evolve from a program to a market.

Carmen Best

Yeah. And I think there's two really interesting opportunities that are out there that kind of demonstrate that experimental stage as it were. One is, you know, Texas is obviously on the cusp of some reliability challenges. And to me it occurred...

Doug Lewin

Cusp? I think we're there. I think we’re past the cusp.

Carmen Best

Okay, we're there. The fact that Texas is facing some reliability challenges, I think there's an opportunity to take a no-regret step to carve out a space that could test this open market model and really position it to be incremental to the existing portfolio. This has been done in other states and all the tools and capabilities are readily available for the utilities or in partnership with REPs even to be able to go out and do this, set up an open market model, you can mirror it after the FLEXmarket model or the market access program design. Set that up and then give a little bit of space from the existing regulatory models of the performance incentives and kind of all the energy efficiency legislative mandate stuff and say, we're going to run this alongside in the interest of reliability. No regrets. Ratepayers are only going to pay for what’s delivered. Try it out and see how it goes.

And then based on the data and the information that comes back, see if we want to scale it up, scale it down, get rid of it, whatever you need to do. I think that really aligns with the objectives of SB 1699. It could also align with the opportunities for federal funding that are present in the Inflation Reduction Act and the HOMES program, which allows for a measured pathway. So that would be the kind of space where you could have a residential pathway that is using this measured pay for performance sort of model, which could be synergistic with whatever the state energy office ends up doing with those funds, but it'd be effectively compliant with that IRA funding mechanism.

And I think by having kind of a sandbox or a space in which you could be testing that out, you’d be able to, like you're saying, do the crawl, walk, run and kind of get a sense of, okay, what's the right value for this? That would definitely be something that would need to be figured out. And then, who's showing up to deliver it? How did they do? And do we want to do it again? And I think that could happen in the EEIP, in the efficiency proceeding. It might also be possible in the ADER task force where they're calling for more blocky resources. You know, first round of ADER injection resources, etc. I was fortunate to be on the task force and kind of contribute to that, but mostly witness kind of how it played out. And I think the next iteration I'm really hopeful that we can get to some of these longer term resources too that might not have that granularity in the data specifications that have to be SCED following, etc. But they're offering other resources like that long-term load shaping that can also be really valuable to the grid. So there's lots of places where it could be tested, and it's really a matter of which ones are going to resonate at this moment within Texas.

Doug Lewin

Yeah, let's, I want to come back to the ADER task force in just a minute. I do, I do want to talk about that, but before we go there, I just want to go a little further with what you're talking about there. So what you're suggesting is the, if I'm hearing this right, is you basically… So the PUC has this requirement right now it's in Senate Bill 1699 that says you got to reduce average residential load. They have just put out some questions, hired a Director of Energy Efficiency. The energy efficiency programs, the way the timeline usually works is the utilities put in their plans on April 1 for the next year. So they've already put in those plans. Two PUC meetings have come and gone. The PUC hasn't, none of the commissioners, at least publicly in the meetings, have said anything to the utilities about their plans. Those are probably gonna be the plans in 2025.

What they could do though, and there's two things that are really kind of top of mind for me here as far as something like you're suggesting, there's like an add-on. Like you do this market on top of your existing utility efficiency programs. There is this, um, looks like there's going to be an RFP for demand response. Again, what they're, what they're trying to do here is you have a, you have a major line from south to north. They are worried that line is going to be overloaded so they're curtailing generation on the south part. They need to reduce demand on the north part to keep everything balanced. So basically anywhere north of like somewhere south of San Antonio. So you're talking about San Antonio, Austin, pretty big areas. The value of that DR goes down when you get up towards Dallas, Fort Worth, but pretty valuable there in central Texas. They could put something like this in place for those areas and not limit it to demand response because to the point with this kind of measurement, you can actually see at the time the constraint is binding or whatever. When that is happening, they could measure, wow, that energy efficiency intervention we did delivered more than the demand response or delivered less. I don't know how that's gonna come out. We can all guess, we can all sit around and guess, but the point is to actually have the data and we can have that, right?

So that was one example. I'm gonna give one more and then I'll stop talking. The other example would be, we're recording in the end of April, but like winter's not that far off. And if you wanna actually get after resistance heat, that could be, they could say, okay, rather than utilities change all your programs and focus on resistance heat, we're gonna do X number of dollars, take a $30 million day that we're gonna do this and like really go after resistance heat and we're gonna measure it so that we can see that all these people out there, the SPEER, the South-Central Partnership for Energy Efficiency Resource, American Council for Energy Efficient Economy, people like me that are always shouting about resistance heat, like let's get the data and see if these people are right. Maybe they are, maybe they aren't. There's one way to find out is to actually get a market going and measure and see. So those are two examples. Would those make sense to you? Can you think of others?

Carmen Best

Yeah. Those to me, the first one in particular sounds a lot like a non-wires alternative sort of solution where you're saying, here's where the constraints are, go get it. It also occurs to me that the timelines for being able to deploy that are a lot shorter than being able to build other resources to fill that gap, right?

So that was one of the reasons why the FLEXmarket was launched really quickly in response to summer reliability issues and within about six months, it was starting to deliver impacts. Now, did it meet all those obligations? No, but it was really a no regrets sort of investment to reduce load at certain times of the day. I guess I'd boil it down to, and then the second one on heat pumps and resistance heating. That's really looking at like there's clearly an opportunity here for reducing constraints. Those could be geolocated as well. In addition to the general no regrets technology targeted solutions as well, you could also target it to build impacts, I would say too, because there's probably a lot of folks who have resistance heating that are suffering from really high bills that don't need to. So that'd be another dimension that you could do that targeting.

I think the main thing right now of looking at a potential pilot or an opportunity for standing up that type of FLEXmarket or open market model could be deployable in all of those different situations in my view. And it kind of boils down to three key things. One is setting measurement as a default. So if we're going to run these things, we're going to measure them. We've got the data to do it. Let's do it. The second one is let's make sure that we're not leaving resources out, demand flexibility resources. So if we're going to run demand response ops, let's put energy efficiency in there too, at least don't exclude it. Then the third thing being, let's use an open market model so that we can bring as many brains as possible to the creative technologies and solutions that could solve that problem, then just limiting it to one technology potentially.

I think another one of the solutions that's out there right now is the smart thermostat pilots that were just proposed. I think they're a great solution for getting to summer reliability this year. I think that you could do more by saying, let's measure these impacts. And then let's also make sure that they're tied to a longer term solution. There's urgency now to get this done, but I also think that it could be tied to a continued partnership between TDUs and REPs, which is kind of illustrated in the proposals that are in front of the commission right now to really be going after these resources together and making sure that they're addressing reliability for the state and reliability, affordability, and sustainability too, because it also delivers a lot of emissions reductions.

Doug Lewin

Yeah, absolutely. And so, yeah, you're referring to the filing by the transmission distribution utilities. We'll put a link in the show notes so people can see that. Give a lot of credit there that they are, I'm critical a lot of times. I like to give credit when good things are happening too. They have proposed a smart thermostat pilot program. I believe Oncor is one of the four Investor-Owned Utilities within ERCOT that wants to implement that this summer, CenterPoint 2025, AEP-TNMP 2026. And the Retail Electric Providers put in comments in support of that too. Doesn't happen a whole lot where you see sort of TDUs and REPs, the Retail Electric Providers and the Transmission Distribution Utilities in Texas agreeing on something like that. So that is really exciting to see. And I think that's a great point that one could be a really big deal for this summer and could scale a lot faster if we really had the ability to measure where the results are happening. That makes a lot of sense.

I do want to talk about the ADER Task Force a little bit. You mentioned you are on the Task Force. You have seen how that has evolved. In the beginning, it is really pretty focused on, I think as you referred to it earlier, an injection. That really is like storage injecting power into the grid. My understanding of this is that it is being set up such that aggregated load resources, aggregations of for instance, smart thermostats or sensors on electric hot water heaters or any number of other things could also participate there. And that is a value stream we really haven't talked about yet.

We've talked about a bunch of different ones, but we really haven't talked about ancillary services, which have gotten a lot of attention over the last year for being very expensive. There's arguments about how expensive they actually are, but there's no doubt it's in the billions of dollars. And this is a potential to have more competition in those markets too, and for customers to actually earn some back.

Are you bullish on the potential for demand response to actually participate in ancillary services or, because our listeners are probably going, well, of course she is, that's obvious. But I think the question though is, is that really the best place for demand to realize value? Or is that, because I think there's at least a potential, I'm not sure about this, I don't think this way, I'm just sort of putting it out, there's a possibility, is like, maybe there's other places where there's a lot more value that could be tapped into and sort of chasing after ancillary service markets, maybe that's better left to others and demand should really play somewhere else. I'm curious how you see that. Does aggregated demand response have a big role to play in ancillary service markets? And tell us anything else you wanna say about ADER Task Force and the pilot and where you think it might be headed.

Carmen Best

Yeah, I mean, first of all, I'll just say like I'm a huge fan of task forces. I think just the timeline and the impact of that group in such a short timeframe, I've been involved in many working groups over my career, but this task force was like in terms of delivering on a promise quickly was really impressive. So I'll start with that. That's not self-congratulatory. It was more like to say that the team was really focused and got the job done. And having Commissioner McAdams and Commissioner Glotfelty at the helm really made a big difference on that front too.

Now, where it goes, I don't know either Doug if that's going to be the best place for demand response to play. But I am generally a fan of open definitions on a lot of stuff, like trying to be able to consider all the different resources that can come to bear for different services that we might need and then be able to value them properly.

So ancillary services, it's not something I've spent a lot of time in my career looking at. I think there is probably some value there, but I also think that isolated by itself, we probably won't tap into the full value that could be out there. So having kind of scaled options for being able to get, you could do an ABC of, okay, in some situations we're just going to have energy value, long-term value, and then in certain instances you'll also be able to be paid for the ancillary value. So in effect, if you can deliver more services, you'd be paid for, excuse me, paid a premium for delivering on that maximum value. Same with SCED following. If you can follow that …

Doug Lewin

And go ahead and explain, because we do have some folks that are not as in the industry. So do explain SCED following if you would.

Carmen Best

Oh gosh, now I'm going to have to explain that…

Doug Lewin

Well, it basically is following a market price. It's following, right?

Carmen Best

Yeah. In my simplified version of it, you have to follow basically the market price on a minute-to-minute, almost minute-to-minute basis, which is a pretty complex technical task that was achieved, might I add, and impressively so. Kudos for that. But, that is not the threshold that every demand response or energy efficiency service needs to be held to because there's a lot of value to be had and to be seen on an hourly basis, for example.

So all of that to say that if it can be delivered that way, I think it's appropriate to pay a premium. And then for the other resources you may pay less per unit, but the volume and the scale is where you're going to be able to do more comprehensive projects that are really going to extend the value of this distributed system being more effective all the way out to the endpoints, endpoints being homes, businesses, et cetera, and not just the injection of specific technologies, injection resources from specific technologies, et cetera. So that's kind of where I land on that one.

Doug Lewin

Yeah, so, if I were to summarize that, and I think this is where I fall on this too, is sure, like DERs, whether it's demand response or what have you, should be able to participate in the ancillary service markets, whether or not the aggregators that are serving customers are able to make that work or not, that's a market function. In other words, you need to enable it, make it possible. And then you see if the value stream is big enough to justify it or if, you know, maybe large battery operators are just able to do it more efficiently, from an economic perspective more efficiently, then they win that competition. And that's fine. And you look for places that demand response and energy efficiency can realize other values. But you don't foreclose that. You don't just take it off the table. You see what happens at the competition.

Carmen Best

Well, and I think that also brings up in my mind, Doug, some of the debates around like double counting or where you can participate in multiple markets. I think in most situations, we want to be able to enable folks to capture value streams from multiple services and solutions, within reason, obviously. We don't want people getting paid twice for the same thing. But in most cases, they're delivering different things and it's possible to segment the value streams for each of those things and therefore we can pay for them separately such that we can get more resources and more flexibility onto the system, which will reduce costs for everyone in the long term.

Doug Lewin

Makes good sense. Speaking of reducing costs, you said something earlier that caught me and I wanted to follow up on. You were talking about the DR RFP that looks like it's gonna be coming out from a PUC or ERCOT, I guess it'd be from ERCOT sometime in the next month or two and about heat pumps. And you mentioned you could also have a focus on customers that are having trouble paying their bills. So we know in Texas, I believe it was a TEPRI study, the Texas Energy Poverty Research Institute, that 40% of Texans they surveyed were struggling to pay their power bills. That was down a little bit from 45% the US census had in 2022, but that's two different data points that tell us just shy of one out of every two Texas families are struggling to pay their energy bills.

So with this kind of a model, you can also then, as you were pointing out, and I'd love for you to talk about this more, I don't know if it's happened other places, but in the state of Texas, and Texas is in a minority of states on this, the state of Texas does not even track utility shutoffs, or maybe it's tracked, but it's not reported. There's no place you can go on the PUC website or anywhere else and see that last month, X number of customers were shut off. But obviously the utilities know where those customers are because they're doing the remote disconnect. And I don't know exactly what the, in great, great detail, what the process is before you shut somebody off, but it seems like somewhere in that process, there should be a step where somebody looks at, oh, this person, I can see on a tax record, this person lives in a 1200 square foot house and their energy bill was $450 last month. Something's wrong, we probably should target some energy efficiency savings here, so they can actually afford their bill and not be shut off.

What is the potential? I mean, there's potential for that in sort of usual, and maybe the answer is just, yeah, if you have a FLEXmarket and you have this sort of measured rather than deemed, sure it's possible, but it's no different than the other programs. Is there some additional sort of benefit of evolving utility programs to actually get the measured performance that extends to low-income customers at risk or who are actually about to be shut off?

Carmen Best

Yeah, we don't have a lot of the intel on the about to be shut-off question because we just haven't deployed our platform in that respect. But effectively what we're doing is we're looking at those consumption patterns and then can match that to rates that align with low-income customer streams. If those exist, in Texas, you could be layering those two pieces of information together and then be targeting interventions for those populations or those individuals. The other component is obviously geographic targeting because since, for better or worse, poverty is usually concentrated geographically, that's also a pretty straightforward way that you could be looking at different pockets of the population and then be going out to offer services and solutions for them.

Now, I don't have a long experience of low-income programs either, and I know they introduce a lot of unique challenges of delivering services from building infrastructure. It's hard to retrofit a home that's on the brink of falling over, for example. So I know other states though have used their public funds to be able to address kind of those basic issues and not have to jump over serving those customers, but be able to do the basic upgrades to their homes such that they can do the retrofits and really tighten up their homes, etc. So having those structures that are supporting customers to get to a place where they can reduce their energy waste is one of the solutions that I've heard. And I think it's in Missouri has a good example of that where they use those funds to do that.

I think for the grid value though, those homes are wasting a lot of energy for the grid and for the individuals that are living in them. So there's no reason to segment who's benefiting from those or not benefiting from those homes being upgraded. All customers in Texas will benefit from those homes being better insulated, a more solid shell, et cetera, and reducing the cost for those individual customers will also reduce the cost for the whole system because there will be less energy that's wasted likely in the system. So I guess back to my point of like there's multiple value streams that should be recognized and captured. And there's been, just to give one example of where we've set up a FLEXmarket wherein we have the avoided cost value. That's kind of the base price for delivering the energy services, so you may do a retrofit. And then we have adders that are built into that market. If you're delivering to a customer that has a low income, you'll get a 2X incentive. If you're doing the work with a local contractor that actually serves that community, so there's local economic development benefits, you'll get another adder. So since you just have this market price, you can kind of stack these other components on top of it to draw people into places where you want them to be delivering services and getting value both for the customers and for the grid. And it doesn't have to be like a whole separate program, etc. You can really just be calibrating it to address the different needs that are out there in the market.

Doug Lewin

Got it, that makes a lot of sense, that's great. I want to just ask you, you know, sometimes I started this podcast with the intention of asking every guest like the same three questions and it just hasn't really panned out that way because the conversations end up being really interesting to me and I run out of time. But I do want to ask you, because we talked about it a little bit beforehand, the two to three energy policies you think would have the biggest impact to increase reliability, lower systems costs, reduce pollution. I thought your answer is really good. I think it'll probably also work as a pretty good summary of this conversation. So what are the two to three policies you think would have the biggest impact?

Carmen Best

So it kind of comes back to the core things that Recurve has been doing over the last years and that really is measure everything because we can. And it's not measurement just for the academic exercise, but really because it drives the ability to target and get to where the resources are going to have the biggest impact. Make sure that they delivered on those resources, and then also have fair compensation for quality projects. And that means fair compensation both for the folks doing the work, but also fair compensation for the customers that might be participating in demand response, etc. So that's kind of my number one, and that's been a thread throughout my career that I'm sticking with. And that's another thing that Recurve is really operationalizing in a way that's streamlined and accessible. It's not really that we invented measurement, not by a long shot, but it's where we're putting it into the process to make it accessible and actionable is really where we're trying to innovate on that front. So measure everything and make it accessible so people can act on it.

The second one is really being like we talked about, making sure that demand flexibility is all-inclusive of energy efficiency and demand response when and where we can. So you have, don't leave one out of the other and definitely don't leave them competing with one another. Come up with systems wherein they can be operationalized together and the value streams that are delivered both from that long-term intervention and the short-term can be calibrated and managed with a common measurement framework. That's what we're doing in the Recurve platform. We can measure both of them using the same basic models. It's just different time horizons, which allows you to do both and not, quote unquote, eat each other's lunch, right?

Doug Lewin

Yeah, and before you go to the last one, I'm gonna mention this RFP that ERCOT’s gonna put out again, because I think it just shows where there is, in the grid operator mentality, and I can understand this, it's like I have to be able to push a button to get it, but you really have to take a step back and say, is that actually true? If I have reduced the demand, right? And the key is you have to know that it's there. And I think that's where, this is why I wanted to have this conversation. I hope this is becoming clear to the audience or was clear long ago, if not as clearing up now, because this is really what Recurve potentially brings is the ability to then measure that energy efficiency. So as a grid operator, a regulator, do I really care if it's demand response or energy efficiency? What I need is the demand reduction. And I totally get not being able to run a grid on a deemed savings, but on a measured savings, that's different, right?

Carmen Best

Yeah. And it's really giving visibility to that end in mind. Like, what do we want? We want grid impacts. When do we want it? Now? That sort of theme, right? Yeah.

And then I would say the last thing is really allowing for open market models to kind of thrive and answer these questions. I think you'd brought it up on a podcast a couple of weeks ago. When we have open markets, it allows us to bring all the brains together to be able to solve these problems. And I think as the grid is evolving and as technologies and customer journeys and energy are evolving from electric vehicles to all kinds of different technological solutions, our ability to adapt to that is going to be very limited if we're trying to pick each technology and design a program around it. If we have an open structure that's focused on the end in mind, we're going to be able to have a lot more fluidity in evolving the solutions in addition to having more accountability for driving towards those end goals. So that's really what the market access model and the FLEXmarket design was really all about. And having the tools, and solutions, and software to enable that transactive visibility and that end in mind is really what Recurve is all about.

Doug Lewin

Yeah. And it actually makes your head hurt if you do this sort of, you know, empathetic, you know, work of putting yourself in the position of a regulator who is like among everything else they've got going on. And they've got, you know, I think they said today at the PUC open meeting, they've got like 25 rule makings out of the last session alone, 25 out of the one before that. And now you need to like design, you need to actually work with utilities and stakeholders to design a program for EV charging for electric hot water heater sensors for HVAC cycling for, I could go on and on and on and on. You don't need to do all that. You need to set up one market where you measure the results and pay based on the results. And now, not only do you not have to design each of those individual ones, you've created a structure where when the next thing comes along, you don't have to design it. It can just come right into the market.

Carmen Best

Right. Yep. And you imagine all the vendors that are out there as well, like knocking down utility doors too trying to sell them the next greatest thing too. It's another way that you can kind of synergize across all those solutions and use it as a test bed as well. Like what does it deliver in this context? And then make decisions and resource allocations based on that as well. But also give more choice to folks so they can take their own journey into this next, this huge energy transition that we're all experiencing.

Doug Lewin

And they can really accrue to the benefit of customers. It gives customers a chance to be part of that energy transition, put some dollars back in their pockets. This doesn't have to all be a one way street from the customers to the energy companies for more and more, turn that flow around and let customers get some back too.

Carmen Best

Yep.

Doug Lewin

Carmen, is there anything that I should have asked you that I didn't?

Carmen Best

Oh boy. I don't think so. I think this was a great conversation. It's really been exciting for me personally to get to know Texas and learn more about how things work. I have to confess, I was a little intimidated in the early years, but what I've found is people are really solutions oriented and really excited about trying to find solutions. And that's really inspiring and invigorating. So I've just been really honored to be part of the conversation at all and hopefully have contributed to the next solutions that might be viable for addressing reliability, affordability, and sustainability.

Doug Lewin

Yeah, you already have and I'm looking forward to see what's next. And I think you're right, like the ADER Task Force is a great example of where Texas can move really fast. And maybe what we need is, now like a demand flexibility spinoff of the ADER Task Force or something.

Carmen Best

All right. Now you’re talking.

Doug Lewin

Stay tuned. All right, cool. Carmen, thanks so much for being with us.

Carmen Best

Thanks, Doug.

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Measuring and Valuing Energy Efficiency and DERs with Carmen Best

Energy Capital Podcast (private feed for maxwang1990@126.com)