Snuller Price

1
The Role of Energy Efficiency in Utility Energy
Planning

• Snuller Price
• Partner
• Energy and Environmental Economics, Inc.

2
Action Plan MotivationEfficiency Helps Meets
Todays Challenges

• Utility System Benefits
• Near-term tool with persistent, long-term
  benefits
• Improved security of systems
• Lower baseload and peak demand
• Reduce need for hard to site GT assets
• Targeted, modular, manageable
• Risk Management
• Diversifies utility resource portfolios
• Zero carbon emissions

• Environmental
• Lower carbon emissions and criteria pollutants
• Lower water use
• Economic
• Savings to customers
• Lower cost (about half) compared to new GT
• Downward pressure on natural gas prices and
  volatility
• Improved local economy, using local labor
• Benefits lowincome, seniors

Quick, cheap, and clean resource
3
Action Plan MotivationPersistent Barriers Hinder
EE Investments

• Market barriers
• Split incentives
• Transaction costs
• Customer barriers
• Lack of information
• Competing vendor claims
• Lack of funding
• Public policy and utility regulatory barriers
• Lack of good documentation on energy efficiency
  policy options
• Misperception that energy efficiency is not a
  guaranteed, reliable cost effective resource
• Ratemaking policies may financially discourage
  utilities from investing in efficiency
• Resources planning processes may not consider
  energy efficiency resources
• Program barriers
• Lack of good documentation and education on
  demand-side programs
• Lack of knowledge about the most effective and
  cost-effective program portfolios

4
National Action Plan for Energy Efficiency
Addresses Utility Barriers

• National Action Plan for Energy Efficiency
• Recommendations
• Recognize energy efficiency as a high-priority
  energy resource.
• Make a strong, long-term commitment to implement
  cost-effective energy efficiency as a resource.
• Broadly communicate the benefits of and
  opportunities for energy efficiency.
• Provide sufficient, timely and stable program
  funding to deliver energy efficiency where
  cost-effective.
• Modify policies to align utility incentives with
  the delivery of cost-effective energy efficiency
  and modify ratemaking practices to promote energy
  efficiency investments.

• Released on July 31, 2006 at the National
  Association of Regulatory Utility Commissioners
  meeting
• Goal To create a sustainable, aggressive
  national commitment to energy efficiency through
  gas and electric utilities, utility regulators,
  and partner organizations
• 60 member public-private Leadership Group
  developed five recommendations and commits to
  take action
• Commitments to energy efficiency by over120
  organizations
• Released its Vision for 2025 in November 2007

5
Action Plan Leadership Group

• Sets tone and overall direction of the Action
  Plan
• Released Action Plan Report and Recommendations
• Co-Chaired by
• Commissioner Marsha Smith, NARUC First Vice
  President and Member of Idaho Public Utility
  Commission
• Jim Rogers, Chairman, President and CEO of Duke
  Energy
• Includes 60 leading electric and gas utilities,
  state utility commissioners, state air and energy
  agencies, energy services providers, energy
  consumers, and energy efficiency and consumer
  advocates
• US DOE and US EPA facilitated

6
Leadership Group Members

• The Leadership Group includes 30 electric and gas
  utilities, 18 state agencies, and 13 other
  organizations

• PJM Interconnection
• PNM Resources
• Public Advocate State of Maine
• Puget Sound
• Sacramento Municipal Utility District
• Santee Cooper
• Seattle City Light
• Servidyne Systems
• Southern California Edison
• Southern Company
• Tennessee Valley Authority
• Texas State Energy Conservation Office
• The Dow Chemical Company
• Tristate Generation and Transmission Association,
  Inc.
• USAA Realty Company
• Vectren Corporation
• Vermont Energy Investment Corporation
• Wal-Mart Stores, Inc.
• Washington Utilities and Transportation
  Commission

• Entergy Corporation
• Environmental Defense
• Exelon
• Food Lion
• Great River Energy
• Idaho Public Utilities Commission
• ISO New England Inc.
• Johnson Controls
• Long Island Power Authority
• MidAmerican Energy Company
• Minnesota Public Utilities Commission
• National Grid
• Natural Resources Defense Council
• New Jersey Board of Public Utilities
• New Jersey Natural Gas
• New York Power Authority
• New York State Public Service Commission
• North Carolina Air Office
• North Carolina Energy Office

• Alliance to Save Energy
• American Council for an Energy-Efficient Economy
• Ameren
• American Electric Power
• Arkansas Electric Cooperative Corporation
• Arkansas Public Service Commission
• Austin Energy
• Baltimore Gas and Electric
• Bonneville Power Administration
• California Energy Commission
• California Public Utilities Commission
• Servidyne Systems
• Connecticut Consumer Counsel
• Connecticut Department of Environmental
  Protection
• Connecticut Department of Public Utility Control
• Delaware General Assembly
• District of Columbia Public Service Commission
• Duke Energy

7
Observers to the Action Plan

• National Association of Energy Service Companies
• National Association of Regulatory Utility
  Commissioners
• National Association of State Energy Officials
• National Conference of State Legislatures
• National Council on Electricity Policy
• National Electrical Manufacturers Association
• National Rural Electric Cooperative Association
• North American Insulation Manufacturers
  Association
• Steel Manufacturers Association

• American Gas Association
• American Public Power Association
• Association of Energy Engineers
• Business Council for Sustainable Energy
• Consortium for Energy Efficiency
• Council of Energy Resource Tribes
• Demand Response Coordinating Committee
• Edison Electric Institute
• Electric Power Research Institute
• Energy Programs Consortium
• Gas Appliance Manufacturers Association
• Gas Technology Institute

8
Energy Efficiency in Utility Planning

• Many reasons to include EE in mid- and long-term
  resource planning process
• Develop lower cost plan for providing energy
• Establish framework for resource savings targets
• Set appropriate funding targets
• The value of EE can be integrated into resource
  planning decisions
• Energy-related planning (electricity generation
  and wholesale purchases) and
• Capacity-related planning (new power plant
  construction or gas pipeline).
• Many utilities, states, and regions have
  experience with integrating cost-effective EE
  into resource planning process
• Estimating and verifying benefits from EE
• Successfully integrating EE into the resource
  planning process.

9
EE Saves Energy and Capacity
Potential EE-based Savings in California With
Increased Program Funding
Achievable Electricity Savings (GWh per Year)
Achievable Peak Demand Savings (MW)
Potential is 17, 32, and 50 of forecasted GWh
growth
Potential is 3, 6, and 10 of forecasted peak
load by 2011
Source Californias Secret Surplus The
Potential for Energy Efficiency. September 2002.
The Energy Foundation. The Hewlett Foundation.
10
Key Challenges/Steps in Integrating EE into
Resource Plan

• Determining the value of EE
• Energy procurement (estimating and valuing
  savings)
• Capacity benefits (estimating and valuing
  savings, factors in achieving benefits)
• Incorporating non-energy benefits (such as
  reductions in GHG emissions)
• Setting targets and allocating budgets
• Quantity of EE to implement
• Estimating program effectiveness
• Institutional difficulty in reallocating budget
• Cost expenditure timing vs. benefits
• Ensuring program costs are recaptured
• Measuring impacts and adjusting resource plans

11
Efficiency Benefits Shown to Exceed Costs

• Primary driver for EE in planning is the low cost
  of energy savings.
• Utility cost of EE 0.01/kWh to 0.03/kWh
• Utility program costs and customer costs
  0.03/kWh to 0.05/kWh
• Benefits for electric EE 0.06/kWh to 0.08/kWh

Levelized Costs and Benefits from Four Regions
12
Overall Organization of the Guide
13
Assessing Cost-Effective Potential and
Determining Achievable Energy Savings

• Well-designed EE potential studies assess 5 types
  of potential
• Technical and Economic potential - Estimates the
  size of the EE resource in MW, MWh or MMBtu.
• Maximum Achievable potential Estimates the
  economic potential achieved over a given time
  period in the most aggressive program scenario.
• Achievable potential Estimates energy saved
  resulting from specific program funding levels
  and incentives that are beyond those that would
  occur naturally.
• Naturally Occurring potential Estimates energy
  saved as a result of normal market forces.
• Many states and utilities use a
  cost-effectiveness test that reflects the
  long-term benefits of EE
• Total Resource Cost Test
• Societal Test

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Definitions of Energy Efficiency Potential
15
Typical Components of Avoided Costs

• Avoided Component
• Electricity Energy (with losses)
• Electricity Capacity (with losses)
• Natural Gas Commodity (with losses)
• Natural Gas Capacity (with storage, and
  compression)
• Other Components
• Ancillary Services
• Transmission and Distribution Capacity
• Air Emissions (including greenhouse gas
  emissions)
• Hedge of Fossil Fuel Prices
• Price Effect of Demand Reduction
• Savings in water, fuel oil, or other value streams

16
Standard Practice Manual Cost Tests

• Utility Cost Test (Program Administrator Cost)
• Change in Revenue Requirement
• Ratepayer Impact Measure
• Impact on rates and non-participants
• Total Resource Cost
• Total monetized community costs
• Societal Cost Test
• Total monetized and non-monetized costs
• Participant Cost Test
• Participant finanical picture

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Questions Addressed by the Various Cost Tests
(1/3)
Cost Test Questions Addressed
Participant Cost Test Is it worth it to the customer to install energy efficiency? Is the customer likely to want to participate in a utility program that promotes energy efficiency?
Ratepayer Impact What is the impact of the energy efficiency project on the utilitys operating margin? Would the project require an increase in rates to reach the same operating margin?
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Questions Addressed by the Various Cost Tests
(2/3)
Cost Test Questions Addressed
Utility Cost Test (also called Program Administrator Cost Test) Do total utility costs increase or decrease?What is the change in total customer bills required to keep the utility whole (the change in revenue requirement)?
Total Resource Cost Test (TRC) What is the regional benefit of the energy efficiency project including the net costs and benefits to the utility and its customers? Are all of the benefits greater than all of the costs (regardless of who pays the costs and who receives the benefits)? Is more or less money required by the region to pay for energy needs?
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Questions Addressed by the Various Cost Tests
(3/3)
Cost Test Questions Addressed
Societal Cost Test What is the overall benefit to the community of the energy efficiency project, including indirect benefits? Are all of the benefits, including indirect benefits, greater than all of the costs (regardless of who pays the costs and who receives the benefits)?
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Determining the Value of EE Estimating energy
benefits

• Standard practice analysis compares costs of EE
  resources to costs of the displaced resources,
  avoided cost
• Forecast expected future costs with and without
  EE resources
• Estimate the level of savings EE resources will
  provide
• Analysis can be conducted with a variety of
  levels of sophistication depending on metric used
  to compare alternate resource plans
• Databases provide EE savings from a variety of
  common measures
• Northwest and California maintain public
  databases of cost and performance, other
  jurisdictions also have a history of data
• Well-established approaches address measurement
  issues such as free-riders and improvements in EE
  that happen anyway.
• Value of energy savings can be benchmarked
  against price of wholesale electricity or gas, or
  deferred cost of new power plant.
• Utilities can use same techniques and assumptions
  for EE avoided costs as they use to forecast
  long-term market prices

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Determining the Value of EEEstimating capacity
benefits

• Apply capacity savings to load growth forecasts
• Determine amount of capacity reduced by EE during
  critical/peak hours
• Estimate the equivalent reliability of the load
  reduction.
• Value capacity savings
• Cost of not building or purchasing new
  infrastructure, or
• Capacity markets payments for system reliability.
• Requires close coordination between efficiency
  and resource planners
• Needed to ensure specific investments can
  actually be deferred as a result of EE programs.

22
Determining the Value of EE Incorporating
non-energy benefits

• Value of non-energy benefits are less common in
  resource planning
• Environmental costs (growing popularity)
• Support for low-income customers
• Economic development
• Customer satisfaction and comfort
• Several utilities incorporate the estimated
  future costs of CO2 emissions into their resource
  planning process
• Addresses financial risks associated with future
  regulatory changes
• Californias assessment of EE includes costs of
  CO2 8/ton in 2004 escalating 5 per year.
• Examples Idaho Power, Pacificorp, Xcel, Avista
  and Portland General Electric

23
Allocating Budgets

• Common barrier to EE is developing a budget to
  fund programs.
• Action Plan Recommendation
• Provide sufficient, timely, and stable program
  funding to deliver EE where cost-effective.
• Two common approaches for funding EE
• Resource planning processes
• If EE is a resource, the EE funding will be
  allocated through planning process based on
  cost-effectiveness, portfolio risk, energy and
  capacity benefits, etc.
• Cost recovery mechanism should be included to
  ensure recover EE spending.
• Public goods-funded charges
• Collected in rates.
• Separates the EE budget from the planning process.

24
Reporting Energy Efficiency Impacts for Resource
Planning

• Resource plan documents are an increasingly
  important source of information on energy
  efficiency impacts that can be used to measure
  progress toward state, regional or national
  energy efficiency goals or greenhouse gas (GHG)
  reduction targets.
• Regardless of the methods used to forecast the
  energy and capacity impacts of energy efficiency
  programs, they should be reported clearly and
  consistently.
• Two key conceptstotal resource requirements and
  net resources for loadcan help distinguish
  energy efficiency impacts in load forecasts.
• A spreadsheet tool to facilitate the reporting
  and accounting of loads and resources in the
  resource plan, with adaptable data reporting
  forms and tables, is available at
  http//eetd.lbl.gov/ea/EMS/rplan-pubs.html

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Tracking Energy Efficiency Resources in Load
Forecasts
Note Energy Efficiency in Western Utility
Resource Plans Impacts on Regional Resource
Assessment and Support for WGA Policies can be
downloaded at httpeetd.lbl.gov/ea/EMS/rplan-pubs.
html
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Procurement of Energy Efficiency Services

• The program administrator in many states will be
  the utility, but in some states, it is the state
  energy agency or a third party.
• Program administrators typically procure various
  types of energy efficiency services from
  contractors (e.g. consultants, vendors,
  engineering firms, architects, academic
  institutions, community-based organizations), as
  part of managing, implementing, and evaluating
  their portfolio of energy efficiency programs.
• In order to utilize contractors effectively, a
  program administrator should consider issues
  related to the scope of functional
  responsibilities of contractors, methods to
  stimulate innovative new program concepts and
  designs, the types of performance risks that
  should be borne by contractors, and alternative
  procurement methods (e.g. competitive
  solicitations involving Request for
  Qualifications or Request for Proposals, or
  partnership arrangements with contractors).

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Potential Roles of Third-Party Contractors in
Providing Energy Efficiency Services and Savings
28
Evaluation, Measurement and Verification (EMV)

• Evaluation, measurement, and verification (EMV)
  is the process of determining and documenting the
  results, benefits, and lessons learned from an
  energy-efficiency program.
• A rough rule of thumb is to spend 2-5 of the
  energy efficiency budget on EMV activities. The
  specific funding level is a function of the scope
  and purpose of EMV and the scale of the
  efficiency program. It also depends on whether
  EMV is conducted at the level of the individual
  utility or statewide.

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EMV Consists of Three Main Types of Activities

• Process evaluation Used to verify whether the
  program was (or is being) correctly implemented,
  and to understand any problems or issues that
  arose (or may arise) in program implementation.
  Customer feedback and acceptance information can
  also be part of process evaluation. All energy
  efficiency program categories can have process
  evaluations.
• Impact evaluation Used to determine the actual
  savings achieved by different programs and
  specific measures.
• Market effects evaluation Used to estimate a
  programs influence on encouraging future energy
  efficiency projects because of changes in the
  energy marketplace. All categories of programs
  can have market effects evaluations, however
  these evaluations are primarily associated with
  market transformation programs that indirectly
  achieve impacts.

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Best Practices

• Coordination between different energy efficiency
  planning functions can improve the accuracy and
  confidence of energy efficiency projections.
  Areas to improve coordination include
• Potential studies and utility energy efficiency
  resource plans should be coordinated, or at a
  minimum, there should be an understanding of
  differences
• Supply-side resource investment decisions should
  made in coordination with forecasted energy
  efficiency impacts
• Evaluation, Measurement and Verification results
  should be used to adjust expected future energy
  efficiency measure and program impacts, with
  improved assumptions on program participation,
  net to gross ratio, expected useful life and
  other factors.

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Resources and Next Steps

• National Action Plan for Energy Efficiency The
  Report
• Covers key barriers and policy options for EE in
  resource planning, utility revenue requirements,
  rate design and program implementation.
• Chapter 3 Energy Resource Planning Processes.
• Guidebook on Energy Resource Planning and
  Procurement Processes Integrating Energy
  Efficiency (Forthcoming Spring 07)
• A How-to-Guide that walks through important
  methodology and data input assumptions for
  incorporating EE in the resource planning
  process.
• Will list important sources of data that are
  commonly used to develop the necessary data and
  information.
• Clean Energy-Environment Guide to Action
• A resource document for state air, energy and
  utility officials and other stakeholders that
  details 16 policies and strategies that are
  delivering economic and environmental results for
  states
• Chapter 6.1 Portfolio Management Strategies.
• www.epa.gov/cleanenergy/stateandlocal/guidetoactio
  n.htm

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For More Information
www.epa.gov/eeactionplan
Speakers contact information Snuller
Price snuller_at_ethree.com [phone]

• Katrina Pielli
• Pielli.Katrina_at_epa.gov
• [phone]
• Larry Mansueti
• Lawrence.Mansueti_at_hq.doe.gov
• [phone]

33
Overall Organization of the Guide to Resource
Planning with Energy Efficiency
34
Potential Studies

• Key Questions for Utilities and Regulators
• What is this potential studys goal? Does it
  achieve that goal?
• Are the potential study results realistic,
  reflecting what we are likely to achieve through
  energy efficiency programs?
• How do the results of this study compare to the
  results for other jurisdictions?
• Does the potential study highlight any new
  opportunities to add to the efficiency portfolio?

35
Development of Energy Efficiency Measures

• Key Questions for Utilities and Regulators
• Are we missing any good energy savings
  opportunities?
• Have we developed measures and programs that
  provide savings to the range of residential,
  commercial, industrial, agricultural and other
  energy user types? For example, do we have
  measures to address the harder to reach customers
  such as low-income and small commercial
  customers?
• Do we have a mix of measures so that we are able
  to reach customers at different stages of the
  energy efficiency purchase decision? (New
  construction, retrofit, replacement of failed old
  equipment, early replacement to high efficiency
  devices, etc.)
• Have we considered the way that energy efficiency
  measures can be integrated together into a
  comprehensive approach that considers the
  interactions and potential for overlap between
  measures?

36
Determining Cost-Effectiveness

• Key Questions for Utilities and Regulators
• What perspective(s) should we use to determine
  cost-effectiveness?
• Have we defined the appropriate costs and
  benefits to get the right program trade-offs?
• Are we using the correct discount rate?
• Do we have a Standard Practice Manual for
  determining cost effectiveness of energy
  efficiency to ensure that the criteria used are
  transparent to stakeholders?

37
Development of Energy Efficiency Programs and
Portfolios

• Key Questions for Utilities and Regulators
• Have we developed a program that is
  cost-effective, achieves energy savings, and
  meets other criteria appropriate for our service
  territory?
• Does the portfolio of programs reach all of the
  customer classes and consider all of the energy
  efficiency opportunities?

38
Estimating Energy Efficiency Impacts for Resource
Planning

• Key Points for Utilities and Regulators
• Do the estimates, especially of peak reductions,
  reflect the unique characteristics of our region?
• Do the estimates reflect expected or overly
  optimistic levels?

39
Reporting Energy Efficiency Impacts for Resource
Planning

• Key Questions for Utilities and Regulators
• Are energy efficiency impacts reported clearly
  enough that an outsider could easily distinguish
  energy efficiency load impacts from load met with
  supply resources?
• Does the resource plan provide enough information
  to determine my utilitys progress toward energy
  efficiency or GHG goals or targets?

40
EE Services Procurement

• Key Questions for Utilities and Regulators
• What functions are most appropriately done by a
  program administrator and/ or contractors, so as
  to guide staffing and contracting needs?
• Does the approach used by a program administrator
  in procuring energy efficiency services
  contribute to the longer term goal of creating a
  vibrant, private sector energy efficiency
  services industry?

41
Evaluation, Measurement and Verification (EMV)

• Key Questions for Utilities and Regulators
• Do we have the appropriate protocols for EMV?
• Is responsibility for conducting EMV clearly
  assigned, and is its independence assured? Have
  we assured that the EMV analysis and results
  will be transparent and robust?
• Do we have the right level of resources allocated
  to EMV?
• Are retrospective EMV results being used to
  improve programs and determine cost-effectiveness
  in the planning phase?

42
Best Practices

• Key Questions for Utilities and Regulators
• Is each energy efficiency function coordinated
  with other energy efficiency planning processes
  to take advantage of available information?
• Are EMV results being used to improve program
  designs and accuracy of savings forecasts?
• Are expected peak load savings incorporated into
  estimates of avoided capacity costs?

43
Overcoming Challenges

• Highlights of successful incorporation of EE in
  planning processes.
• California
• Bonneville Power Administration
• New York
• Minnesota
• Texas
• Pacificorp

44
Successful Incorporation of EE into Planning
Processes

• California
• Active energy efficiency program since the 1970s
  led by utility programs and building standards.
• Current utility budget for EE is 2 billion over
  the next 3 years (06 to 08) (pop. 35
  million).
• Aggressive targets for MWh and MW reductions.
• Utilities have decoupling to separate revenues
  from throughput, development of shareholder
  incentives for EE is underway at the CPUC
  (decision in 2007).
• Cost-effectiveness favors EE in high cost
  locations, and for improvement in end-uses that
  contribute to peak.

45
Successful Incorporation of EE into Planning
Processes (2)

• Bonneville Power Administration (BPA)
• BPA operates the federal power system and
  transmission and serves Local Distribution
  Companies (LDCs) throughout the Northwest.
• Integrated planning of transmission and
  distributed energy resources (DER) including
  energy efficiency.
• BPA is active in pilot projects to defer
  transmission investment, savings on transmission
  can be used to promote DER.
• EE, distributed generation, load shifting, and
  dynamic pricing
• Established Roundtable that includes BPA, LDCs,
  NWPCC, environmental groups, and others to
  coordinate planning and address barriers of EE
  and DER.
• Open process with data and reports available
  publicly.
• Stakeholder Groups
• Project reports on studies of non-wires DER
  solutions to BPA transmission projects

46
Successful Incorporation of EE into Planning
Processes (3)

• New York
• Energy efficiency programs managed and delivered
  by the New York State Energy Research and
  Development. Authority (NYSERDA) since utility
  restructuring in the mid 1990s.
• Program budget funded primarily by System
  Benefits Charge (175 million / year) collected
  by utilities.
• State management of EE removes disincentives
  associated with decreasing utility throughput.
• Cost-effectiveness based on forecasts of energy
  and capacity market in New York, and measurement
  and evaluation (MV) of utility programs.

47
Successful Incorporation of EE into Planning
Processes (4)

• Minnesota
• Conservation Incentive Program (CIP) established
  in 1982, 1.5 to 2 of utility revenue to be
  spent on EE at a minimum for electric utilities,
  0.5 for natural gas utilities.
• Utilities develop integrated resource plans
  (IRPS) every two years and manage EE programs.
• Plans and targets are approved by the Department
  of Commerce, and financial incentives are
  provided to utilities that exceed goals.
• Minnesota utilities have been exceeding targets
  for the last several years.

48
Successful Incorporation of EE into Planning
Processes (5)

• Texas
• Texas law (Senate Bill 7, 1999) requires
  utilities to offset a minimum of 10 of the
  growth with EE.
• Utilities hire 3rd party EE companies to
  implement the programs, and make payments based
  on deemed savings amounts for each
  installation.
• Program costs are allowed in utility rates.
• Efficiency program cost-effectiveness is
  determined by avoided costs of energy and
  capacity set by statute.
• Annual reporting of past success and future
  plans, programs have been exceeding established
  targets.

49
Successful Incorporation of EE into Planning
Processes (6)

• Pacificorp
• Utility that serves 1.6 million customers in
  Utah, Oregon, Wyoming, Washington, Idaho, and
  California.
• Utility incorporates EE as an element in the
  resource planning process and supply portfolio.
  This allows
• Establishing specific targets to defer generation
  supply, increases value to EE that saves peak
• Evaluating costs of EE against savings of
  specific projects
• Included in supply planning tools as a shaped
  reduction in the forecasted load.
• 2004 10-year plan includes 250 aMW of EE with an
  additional 200 aMW if cost-effective.