Evaluation of Public Service Electric & Gas Company's Standard Offer Program

In May 1993, Public Service Electric and Gas (PSE&G), the largest investor-owned utility in New Jersey, initiated the Standard Offer program, an innovative approach to acquiring demand-side management (DSM) resources. In this program, PSE&G offers long-term contracts with standard terms and conditions to project sponsors, either customers or third party energy service companies (ESCOs), on a first-come, first-serve basis to fill a resource block. The design includes posted, time-differentiated prices which are paid for energy savings that will be verified over the contract term (5, 10, or 15 years) based on a statewide measurement and verification (M&V) protocol. The design of the Standard Offer differs significantly from DSM bidding programs in several respects. The eligibility requirements and posted prices allow ESCOs and other energy service providers to market and develop projects among customers with few constraints on acceptable end use efficiency technologies. In contrast, in DSM bidding, ESCOs typically submit bids without final commitments from customers and the utility selects a limited number of winning bidders who often agree to deliver a pre-specified mix of savings from various end uses in targeted markets. In the Standard Offer, competition for projects among ESCOs occurs at the customer level, while in DSM bidding, competition among ESCOs occurs during the utility's bid evaluation process and at the customer level, depending on the market overlap among winning bidders. From a policy perspective, the program is interesting for several reasons: (1) its potential size (150 MW) is significantly larger than any current utility program that relies primarily on ESCOs and contractors to market and deliver energy services, (2) the program's scope is quite broad and includes new construction and retrofits in existing commercial, industrial, and residential buildings, and (3) participation by PSE&G's subsidiary, Public Service Conservation Resources Corporation (PSCRC), raises important competition policy issues in emerging energy services markets. The relationship between program design and regulatory incentive treatment is crucial to understanding the development of the Standard Offer program. The DSM incentive regulations adopted by the New Jersey Board of Public Utilities (BPU) in 1992 allow PSE&G to operate in its own service territory through an energy services subsidiary in a Standard Offer-type program. As part of the Stipulation of Settlement that approved the Standard Offer pilot, the New Jersey BPU asked PSE&G to conduct an independent evaluation of the program. Lawrence Berkeley National Laboratory (LBNL), with co-funding from the Department of Energy, was retained to perform a process and impact evaluation. The major objectives of the LBNL evaluation were to assess market response and customer satisfaction; analyze program costs and cost-effectiveness; review and evaluate the utility's administration and delivery of the program; examine the role of PSE&G's energy services subsidiary (PSCRC) in the program and the effect of its involvement on the development of the energy services industry in New Jersey; and discuss the potential applicability of the Standard Offer concept given current trends in the electricity industry (i.e., increasing competition and the prospect of industry restructuring). Based on our findings, we also suggest options to improve the design and implementation of PSE&G's next Standard Offer and related DSM programs.