Energy Efficiency Policy Trends A Look Nationally

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Energy Efficiency Policy TrendsA Look Nationally
Katrina Pielli Clean Energy Program
Manager Climate Protection Partnerships
Division U.S. Environmental Protection
Agency Florida PSC Energy Efficiency Initiatives
Workshop November 29, 2007
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Agenda

• Todays energy challenges and EE
• Issues Garnering Increased Interest
• Quick start EE programs
• Aligning utility incentives with EE
• Incorporating EE as a resource in utility
  planning processes
• Cost-effectiveness tests
• State examples
• Resources and Summary

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Energy Efficiency is a Key Part of the Solution
to Todays Energy 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
Energy efficiency is vast
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Large Potential for Cost-Effective Energy
Efficiency

• McKinsey Global Institutes Curbing Global Energy
  Demand Growth The Energy Productivity
  Opportunity (May 07) - By capturing the potential
  available from existing technologies with an
  internal rate of return of 10 or more, we could
  cut global energy demand by half or more over the
  next 15 years.
• ACEEEs Energy Efficiencys Role in a Carbon
  Cap-and-Trade System (May 06) - Doubling
  efficiency would cut load growth by about
  two-thirds in 2024, from about 20 to about 6
  above 2006 levels.
• Report of the Clean and Diversified Energy
  Advisory Committee to the Western Governors
  Association (WGA) (June 06) - By adopting the
  WGA's best practices scenario in the 18 WGA
  states, load growth could be reduced by as much
  as 75 over the next 15 years.

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Despite Potential, Utility Sector Energy
Efficiency Has Declined
Annual Spending on Utility Sector Energy
Efficiency Programs 1992-2003(2005 real
dollars)
Source Data from ACEEE 2005 Scorecard adjusted
for inflation using U.S. Department of Labor
Bureau of Labor Statistics Inflation Calculator
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Programs Help Overcome Key Barriers Limiting
Efficiency

• ENERGY STAR
• Helps homeowners reduce energy use by 10, 20, or
  30 while purchasing products, home improvements,
  or buying a new home
• Helps businesses, public sector, schools reduce
  energy use by 10 or more
• Overcomes lack of information, competing vendor
  claims, split incentives
• Broad-based platform with government-backed
  credibility and network of retailers and
  manufacturers to leverage
• Important utility barriers remain
• Existing electricity and gas regulations / market
  rules provide additional financial incentives for
  supply-side resources
• View that EE is not a reliable, measurable, cost
  effective resource
• Concern that EE will raise rates
• Lack of good documentation and guidance on
  demand-side programs

Barriers important to address do not go away
with carbon regulation
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• Todays energy challenges and EE
• Issues Garnering Increased Interest
• Quick start EE programs
• Aligning utility incentives with EE
• Incorporating EE as a resource in utility
  planning processes
• Cost-effectiveness tests
• State examples
• Resources and Summary

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Quick start EE programs

• Quick Start programs are a basic set of
  programs that
• Are quick to get off the ground
• Offer measurable benefits in the near-term
• Can be expanded to a broader and more
  comprehensive set of programs over a few years
• AR PSC completed a successful collaborative in
  2006 which resulted in EE rulemaking in June 07.
• Quick Start EE programs filed by 4 electric 3
  gas utilities
• Approved statewide EE education program and
  weatherization program for Severely
  Energy-Inefficient Houses
• Allows for cost recovery via rate rider.

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Quick start EE programs (2)

• Residential Sector
• Promoting the purchase of ENERGY STAR qualifying
  lighting and appliances through existing supply
  channels with financial incentives for some
  products, coupled with education and outreach
• Promoting retirement and recycling of old and
  inefficient appliances such as refrigerators,
  freezers, and room air conditioners through
  turn-in incentive programs.
• Promoting proper functioning of existing
  residential HVAC equipment, as well as proper
  sizing and installation of new equipment.
• Developing pilot-scale initiatives to promote
  comprehensive home energy improvements for
  existing homes through Home Performance with
  ENERGY STAR.
• Developing pilot-scale initiatives to promote the
  construction of ENERGY STAR qualified new homes
  (both site built and manufactured) through
  builder networks.

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Quick start EE programs (3)

• Commercial Sector
• Offering prescriptive incentives for lighting and
  HVAC measures to a broad range of commercial
  facilities along with education and/or technical
  assistance to promote increased efficiency in
  lighting and HVAC system design.
• Offering prescriptive incentives to promote the
  purchase of ENERGY STAR qualifying commercial
  food service equipment for use in restaurants,
  hotels/hospitality venues, schools, and other
  applicable commercial or institutional
  facilities.
• Developing pilot-scale initiatives to facilitate
  whole-building energy performance using the
  ENERGY STAR building performance rating system,
  coupled with incentives for energy efficient
  lighting and HVAC systems, and general education
  about building tune-ups and/or retrocommissioning
  to improve building operation and maintenance.
• Promoting power management of computer monitors
  through direct outreach to large end users and
  online tools for smaller end users, along with
  education about additional opportunities for
  saving energy through purchase and proper use of
  ENERGY STAR qualifying office products.

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• Todays energy challenges and EE
• Issues Garnering Increased Interest
• Quick start EE programs
• Aligning utility incentives with EE
• Incorporating EE as a resource in utility
  planning processes
• Cost-effectiveness tests
• State examples
• Resources and Summary

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Aligning utility incentives with EE investment

• Increased interest in broad topic by many
  stakeholders (Commissions, utilities,
  legislators, non-profits, etc)
• Renewed interest in exploring decoupling
• Idaho Power pilot in ID
• Legislation in CT, NY, MN
• Filing by Pepco in MD and DC
• Docket in IA
• LRAM seems to be out of favor
• Large variety of approaches for performance
  incentives
• CA Rewards and penalties based on a) how well
  the utility met CPUC established energy savings
  targets b) the economic benefits generated from
  the utilitys EE portfolio
• NV Enhanced ROR
• Xcel Energy filings in NM and CO

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The Status of EE Cost Recovery and Incentive  Mech
anisms for IOUs
Source Aligning Utility Incentives
with Investment in Energy Efficiency - a Product
of the National Action Plan for Energy
Efficiency. 2007.
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(No Transcript)
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Idaho Power Pilot

• Mechanism adopted to address impacts of EE
  program-induced changes in sales - should not be
  viewed as decoupling in the broadest sense of
  that term.
• Mechanism focused specifically on recovery of
  lost fixed cost revenues.
• PUC initiated proceeding in August 2004 to
  investigate financial disincentives to investment
  in EE by Idaho Power Company. Held a series of
  workshops and a written report was filed in early
  2005.
• Parties agreed there were disincentives
  preventing higher EE investment by Idaho Power,
  but no agreement was reached on whether or not
  the return of lost fixed cost revenues would
  result in removing the disincentives.
• Parties agreed to conduct a simulation of the
  proposed mechanism, the results of which
  indicated that lost fixed cost revenues in fact
  produced barriers to EE investments and,
  therefore, a three-year pilot mechanism to allow
  recovery of fixed cost revenue losses should be
  approved.

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Idaho Power Pilot (2)

• Idaho Power filed in January of 2006 and
  requested authority to implement a Fixed Cost
  Adjustment (FCA) decoupling or true-up mechanism
  for its residential and small general service
  customers.
• PUC approved the FCA as a three-year pilot
  program.
• Program implementation began on January 1 2007
  and will last through December 31, 2009 plus any
  carryover.
• The first rate adjustment will occur June 1, 2008
  and subsequent rate adjustments will occur on
  June 1 of each year during the term of the pilot.
• FCA is applicable to residential and small
  general service customers, as the Company noted
  that these two classes present the most fixed
  cost exposure for the Company.
• FCA is designed to provide symmetric rate
  adjustment (up or down) when fixed cost recovery
  per customer varies above or below a Commission
  established level.
• FCA mechanism incorporates a 3 cap on annual
  increases with carryover of unrecovered deferred
  costs to subsequent years.

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CA Risk/Reward Incentive Mechanism

• CPUC decision issued September 20, 2007
• Reward
• First opportunity if utility exceeds 85 of CPUC
  goals.
• Reward of 9 of the total net benefits generated
  from its portfolio.
• At 100 or above CPUC goals
• Reward of 12 of the total net benefits generated
  from its portfolio.
• Total rewards across all IOUs for each 3-yr
  program cycle capped at 450 million
• Penalty
• Savings below 65 of CPUC goals penalty.
• Larger of either 1) summed per unit penalty for
  every kWh, kW and therm below goals 2) any
  positive net costs to the EE portfolios
• Total penalties across all IOUs for each 3-yr
  program cycle capped at 450 million.
• Deadband
• No reward or penalty if performance 65-85 of
  CPUC goals.

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CA Risk/Reward Incentive Mechanism (2)
85 of goal
65 of goal
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HI DSM Docket

• HI PUC Docket -- DSM Programs and Recovery of
  Program Costs and DSM Utility Incentives. 2 years
  to reach decision.
• Decision on February 13, 2007
• Established EE goals for the HECO Companies
  until their next IRP dockets
• Selected the appropriate market structures for
  providing DSM programs
• Determined the cost recovery mechanisms for
  utility recovery of utility-incurred DSM program
  costs
• Determined the types of costs that are
  appropriate for utility recovery of
  utility-incurred DSM program costs
• Established the appropriate DSM incentive
  mechanism for the HECO Companies
• Determined that HECOs proposed EE DSM programs
  are likely to achieve the EE goals and be
  cost-effective
• Established the appropriate cost level for HECOs
  utility-incurred costs in base rates
• Approved HECOs proposed DSM utility incentive,
  with modifications
• Approved HECOs Proposed EE DSM Programs and
  Residential Customer Energy Awareness Program,
  with modifications

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HI DSM Docket (2)

• EE goals until next IRP Based on MW and MWh
  savings that HECO Companies proposed EE programs
  could and would achieve.
• CI 2007 - 91,549 MWh, 13,041 MW 2008 137,324
  MWh, 19,563 MW.
• Residential 2007 50,553, 13,336 2008
  66,914, 18, 068
• Non-Utility Market Structure for administering EE
  programs by Jan 2009.
• Deferred decoupling for possible consideration in
  future.
• Shared savings mechanism to serve as an
  incentive.
• Cost-effectiveness of EE Portfolio IRP framework
  requires use of 5 tests - utility cost, rate
  impact measure, participant impact, societal cost
  and total resource cost.
• Most weight given to TRC.
• Program Portfolio filed has benefit-to-cost
  rations above 1 for all tests but RIM.

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• Todays energy challenges and EE
• Issues Garnering Increased Interest
• Quick start EE programs
• Aligning utility incentives with EE
• Incorporating EE as a resource in utility
  planning processes
• Cost-effectiveness tests
• State examples
• Resources and Summary

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Incorporate EE as a resource in utility planning
processes

• Renewed interest in treating EE as a resource in
  planning
• CA loading order
• WA ballot initiative 937 conservation is
  resource of first choice
• NC IRP comparison of demand and supply side
  options to determine the least-cost, long-term
  set of resources needed
• ISO New England Forward Capacity Market EE can
  bid in as a resource to provide capacity
• TVA Board approved goal of 1200 MW demand
  reduction through EE and DR in 5 years.

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Incorporate EE as a resource in utility planning
processes (2)

• WI legislation requires the PSC to conduct EE
  planning every four years results incorporated
  into Strategic Energy Assessment by PSC.
• AR PSC decision in June 2007 -- Resource Planning
  Guidelines, directs utilities to give comparable
  consideration to demand and supply resources and
  to assess all reasonably useful and economic
  supply and demand resources that may be available
  to a utility or its customers, and to identify
  and investigate resources including energy
  efficiency, conservation, demand-side management,
  interruptible load, and price responsive demand.

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Incorporate EE as a resource in utility planning
processes (3)

• Data necessary to integrate EE into resource
  planning are readily available
• Cost and savings data
• Potential studies for what is achievable through
  EE measures
• Energy, capacity and non-energy benefits can
  justify robust EE programs
• Clear path to funding is needed to establish a
  budget for EE resources
• Integrate EE early in the resource planning
  process to capture the full value
• Update resource plan as information changes

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• Todays energy challenges and EE
• Issues Garnering Increased Interest
• Quick start EE programs
• Aligning utility incentives with EE
• Incorporating EE as a resource in utility
  planning processes
• Cost-effectiveness tests
• State examples
• Resources and Summary

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Importance of cost-effectiveness tests

• Several tests for evaluating EE
  cost-effectiveness, each reflect a different
  stakeholder perspective on the impact of EE.
• Common misperception that there is a single best
  perspective for evaluation of cost-effectiveness.
  Each test is useful and accurate, but the results
  of each test are intended to answer a different
  set of questions.
• Amount of cost-effective EE is different
  depending on perspective
• Criteria for defining cost-effectiveness - the
  California Standard Practice Manual is
  authoritative source
• Many other states now also refer to the
  California Standard Practice Manual as the source
  of their own cost-effectiveness criteria.
• The California criteria include five major tests.

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Snapshot of states use of cost tests

• No specific test/s required
• KY, PA, ME, IL, ND, OK, ID, WY, NC, SC
• All 5 tests required
• VA, IN, MN, CA, HI, GA

Doesnt include info. from MD, WV, MI, NE, OH,
SD, AK, NV, TX, UT, WA, AL, LA, MS, TN
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Source Guide to Resource Planning with Energy
Efficiency - a Product of the National Action
Plan for Energy Efficiency. 2007.
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• Todays energy challenges and EE
• Issues Garnering Increased Interest
• Quick start EE programs
• Aligning utility incentives with EE
• Incorporating EE as a resource in utility
  planning processes
• Cost-effectiveness tests
• State examples
• Resources and Summary

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Energy Efficiency in Arizona

• Policy Overview
• In September 1999, the Arizona Corporation
  Commission ordered utilities to include a system
  benefits charge (SBC) in their restructuring
  plans to fund demand side management programs,
  consumer education, etc.
• The bulk of the SBC funding for IOUs finances the
  Environmental Portfolio Standard, which requires
  all utility companies that sell retail
  electricity in Arizona to generate a percentage
  of their electricity from renewable resources.
  There is no set percentage for EE programs.
  However, the public benefits fund for Salt River
  Project (the second largest utility in Arizona)
  does support several energy efficiency programs.
• 2003-2004 2.5-3 reduction in energy use for
  state buildings
• 2004-2005 10 reduction in energy use for state
  buildings

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Arizona Public Service Co. (APS)

• In June 2003, APS filed an application for a rate
  increase and a settlement agreement was signed
  between APS and the involved parties in August
  2004. The settlement agreement issued in April
  2005, includes
• An annual 10 million base rate DSM allowance for
  the costs of approved eligible DSM-related
  items, defined as the planning, implementation,
  and evaluation of programs that reduce the use of
  electricity by means of energy efficiency
  products, services, or practices. Performance
  incentives are included as an allowable expense.
• In addition to expending the annual 10 million
  base rate allowance, APS is obligated to spend,
  on average, at least another 6 million annually
  on approved eligible DSM-related items. These
  additional amounts are to be recovered through a
  DSM adjustment mechanism.

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Arizona Public Service Co. (APS)

• Programs implemented by APS
• ENERGY STAR New Homes
• ENERGY STAR Lighting (CFLs) rebates
• ENERGY STAR HVAC rebates
• Home Performance with ENERGY STAR program is
  currently being developed
• From 2005-2007, APS set the following goals for
  its DSM Portfolio
• 3,435,000 MWh in lifetime savings
• 51.7 MW in peak demand savings, and
• 68 million in net benefits

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Energy Efficiency in Nevada

• Policy Overview
• In 2001, the Nevada legislature enacted resource
  portfolio standard legislation.
• In 2005 this law was amended to increase the
  portfolio requirement, but also to allow the
  utilities to use EE programs to help meet the
  requirements.
• Under the new law, renewable energy and EE is
  required to meet 20 of the state's electricity
  needs by 2015. The contribution from EE measures
  to meet the portfolio standard is capped at
  one-quarter of the total standard in any
  particular year.

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Energy Efficiency in Nevada

• Nevada is the only state currently that allows
  recovery of EE program costs using capitalization
  as well as a bonus return on those costs.
• Over the past several years, spending on EE
  programs has risen substantially, due to
• Rapid growth in electricity demand
• Attempts by Nevada Power and Sierra Pacific Power
  to maximize the contribution of EE to resource
  portfolio requirements as those requirements grow.

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Energy Efficiency in Nevada

• Utility EE investments are mainly a product of
  IRP process.
• The addition of the resource portfolio
  requirement and the ability to meet up to 25 of
  that requirement provides further incentive to
  pursue EE investment.
• Most incurred costs associated with EE programs
  are recoverable pursuant to the Nevada
  Administrative Code 704.9523.
• A utility may seek to recover any costs
  associated with approved programs for
  conservation and DSM, including labor, overhead,
  materials, incentives paid to customer,
  advertising, and program monitoring and
  evaluation.

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Energy Efficiency in Nevada

• Programs implemented (Nevada Power/Sierra Pacific
  Power)
• ENERGY STAR Appliance rebates
• ENERGY STAR Lighting (CFLs and fixtures) rebates
• ENERGY STAR Plus Homes Program
• Nevada Power and Sierra Pacific Power Energy
  Savings
• 2003 35 GWh/yr, 16 MW
• 2004 78 GWh/yr, 21 MW
• 2005 93 GWh/yr, 33 MW

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• Todays energy challenges and EE
• Issues Garnering Increased Interest
• Quick start EE programs
• Aligning utility incentives with EE
• Incorporating EE as a resource in utility
  planning processes
• Cost-effectiveness tests
• State examples
• Resources and Summary

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Resources

• National Action Plan for Energy Efficiency Guides
  and Papers
• www.epa.gov/eeactionplan
• National Action Plan for Energy Efficiency Report
  
• Aligning Utility Incentives with Energy
  Efficiency Investment
• Resource Planning with Energy Efficiency
• Conducting Potential Studies for Cost-Effective
  Energy Efficiency
• Model Energy Efficiency Program Evaluation
• National Action Plan Vision for 2025
• EPA Clean Energy-Environment Guide to Action
• www.epa.gov/cleanenergy/stateandlocal
• Sections on Energy Efficiency Portfolio
  Standards, Public Benefits Funds for Energy
  Efficiency, Portfolio Management Strategies and
  Utility Incentives for Demand-Side Resources.

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Summary

• Growing momentum across the country
• Interest in learning how to increase use of EE
• Recognition that EE is a valuable part of energy
  mix and is one key as the nation addresses
  climate change solutions

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For More Information

• Katrina Pielli
• U.S. Environmental Protection Agency
• Clean Energy Program Manager
• [phone]
• Pielli.Katrina_at_epa.gov
• www.epa.gov/cleanenergy