Monetizing Societal Health Impacts in BCA – Guidehouse Shares Illinois’ Methodology

(Continued from NESP Quarterly October 5, 2022) — In this article, guest writer Patricia Plympton, Associate Director at Guidehouse outlines the methodology used by Guidehouse to monetize societal health impacts for the BCA of ComEd’s energy efficiency portfolio. ComEd was the first IOU to include societal health impacts in BCA tests in alignment with Illinois policies using a relatively low-cost approach applicable to any electric or gas utility.

In 2016, the Illinois legislature passed the Future Energy Jobs Act (FEJA), and with this passage, Commonwealth Edison (ComEd) requested Guidehouse, their independent evaluator, to conduct non-energy impacts (NEIs) research to quantify and monetize NEIs, such as societal health impacts, to include in total resource cost (TRC) tests. This was reaffirmed in 2021 with the passage of the Climate and Equitable Jobs Act (CEJA), which directed the utilities to continue to include societal health NEIs in TRC tests and to report economic NEIs. The CEJA legislation explicitly set forth that:

“The plan shall be determined to be cost-beneficial if the total cost of beneficial electrification expenditures is less than the net present value of increased electricity costs …[including] the societal value of reduced carbon emissions and surface-level pollutants, particularly in environmental justice communities.” “The independent evaluator shall determine…an estimate of job impacts and other macroeconomic impacts of the efficiency programs for that [plan] year.”

Energy efficiency programs result in many benefits beyond direct energy and demand impacts, including those related to public health. Energy generation from fossil fuel sources leads to emissions of several harmful pollutants such as PM_2.5, SO₂, NO_x, and CO₂. These pollutants have several implications for public health, including:

• premature death,
• chronic and acute bronchitis,
• non-fatal heart attacks,
• respiratory or cardiovascular hospital admissions,
• upper and lower respiratory symptoms, and
• asthma, and asthma-related hospital visits.

Although utilities in several states have used one or more categories of monetized NEIs in their cost-effectiveness tests, Illinois is the first state—in alignment with its policies—to include monetized societal health NEIs in their cost-effectiveness tests. Guidehouse recently published an Evaluation of ComEd’s CY2020 Total Resource Cost Test which includes a years-long research project to quantify and monetize the societal health NEIs as a result of ComEd’s energy efficiency programs. Guidehouse’s methodology and the results of incorporating societal health NEIs into their Benefit Cost Analysis (BCA) are described below. 

Methodology for Monetizing Societal Health NEIs

To measure societal health NEIs and incorporate them into ComEd’s TRC values, Guidehouse developed a methodology for monetizing societal health NEIs using two tools developed and maintained by the US Environmental Protection Agency (EPA): AVoided Emissions and geneRation Tool (AVERT) and CO-Benefits Risk Assessment (COBRA).

At a high level, AVERT calculates avoided emissions associated with energy efficiency programs based on generation across the EPA-defined Great Lakes/Mid-Atlantic eGRID region for ComEd. COBRA calculates the societal health impacts of chronic and acute bronchitis, non-fatal heart attacks, respiratory or cardiovascular hospital admissions, work loss days, and other impacts associated with improved outdoor ambient particulate matter.

To estimate societal health NEIs, Guidehouse implements the following four-step process:

Step 1: Guidehouse develops the portfolio-level cumulative annual savings values.  

Step 2: Guidehouse applies the AVERT model to determine county-level emissions reductions for each pollutant studied.

Step 3: Guidehouse uses the AVERT outputs to execute the COBRA model to estimate the health impacts of reduced pollution exposure over a 20-year period.

Step 4: To be consistent with other TRC testing inputs, Guidehouse discounts each year’s COBRA results to the analysis year using a 0.42% real discount rate.

Figure 1 below shows the process Guidehouse uses to quantify and monetize societal health NEIs. See Chapter 7.2 of the Methods, Tools, and Resources handbook for more information about measuring societal health impacts.

ComEd Cost-effectiveness Test Results

To determine the impact of societal health NEIs on cost-effectiveness, Guidehouse produces annual TRC values with and without societal health NEIs for all of ComEd’s energy efficiency programs and pilots, as shown in Table 1.  

As can be seen from the table, ComEd’s portfolio-level TRC score increased by nearly 50% from 2.62 to 3.89 with the addition of societal health NEIs. Additionally, several programs saw their scores increase enough to push them past the 1.0 threshold that typically determines program cost-effectiveness, including Affordable Housing New Construction, Multi-Family Retrofits, Efficient Choice, and Electric Homes New Construction. Societal health NEIs increased the TRC scores for these programs by 25-50%, and while low-income programs are not required to meet the TRC test (per the Illinois Energy Efficiency Policy Manual 2.1), the non-income eligible programs may have been deemed not cost-effective absent accounting for the societal health NEIs.

Guidehouse’s methodology represents a relatively low-cost approach to reflect societal health benefits in BCA. To learn more about Guidehouse’s societal NEI research and methodology, read their ACEEE Summer Study paper and societal NEIs evaluation study.

For more information on state energy efficiency program cost-effectiveness testing practices, including which states include NEIs, please visit the Database of Screening Practices (DSP).