Energy Efficiency Policy Trends A Look Nationally

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Energy Efficiency Policy TrendsA Look Nationally
David Pickles Vice President ICF
International dpickles_at_icfi.com On behalf of the
U.S. Environmental Protection Agency NARUC Staff
Subcommittee on Accounting and Finance March 31,
2008
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Agenda

• Impetus and Challenges for Energy Efficiency
• 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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Growing Impetus for Energy Efficiency

• Shrinking reserve margins and the need for
  additional generation and transmission capacity
• Increasing environmental concerns, especially
  around coal
• Desire for increased local economic activity
• Desire for improved energy security and reduced
  exposure to volatility
• Desire for increased customer satisfaction
• Potential increased flexibility and modularity in
  the planning of the utility system
• Increasing political attention
• Synergy with Advanced Metering Infrastructure

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Challenges in Energy Efficiency

• Potential adverse short term increases in rates
• Equity between customers and customer classes
• Uncertainty surrounding the persistence and
  measurement of the impacts of the programs
• Difficulty in forecasting EE participation and
  costs
• Diminishing economies of scale as DSM programs
  grow
• Impact on the system if utilities rely upon DSM
  programs that ultimately do not yield the
  intended impact
• Lack of clear legislative and regulatory
  direction, ratemaking treatments, and goal
  setting
• Role of EE and local distribution companies in
  states with retail competition
• Role of non-utility parties

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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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Utility Sector Energy Efficiency Had Declined,
But Is Now On An Upswing
Source ACEEE, ICF
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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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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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Aligning Utility Incentives with EE
Expense Rate Case Rider
Lost Revenue Recovery Mechanism (LRAM)
Decoupling
Program Cost Recovery
Lost Margin Recovery
Capitalize Rate Case Deferral
Earnings/Net Operating Margin
Performance Incentives
Shared Savings
Performance Payment
ROR Adder
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Support from National Organizations

• 1989 NARUC resolution urging its member state
  commissions to
• consider the loss of earnings potential connected
  with the use of demand-side resources and
• adopt appropriate ratemaking mechanisms to
  encourage utilities to help their customers
  improve end-use efficiency cost-effectively and
• otherwise ensure that the successful
  implementation of a utilitys least-cost plan is
  its most profitable course of action
• National Action Plan for Energy Efficiency offers
  the following recommendations as ways to overcome
  barriers that have limited greater investment in
  energy efficiency
• .Promote sufficient, timely, and stable program
  funding to deliver energy efficiency where
  cost-effective, and
• Modify policies to align utility incentives with
  the delivery of cost-effective energy efficiency
  and modify ratemaking practices to promote energy
  efficiency investments.

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Significant State Regulatory Activity

• Shareholder incentives are very common with 18 of
  the 36 states with significant DSM funding
  offering utility incentives of some kind
• Six states provide a separate mechanism for the
  recovery of lost electricity margins
• 14 states have either approved or have pending
  electric decoupling mechanisms to insulate
  utility earnings from DSM program performance
• Ten states have either an approved or pending
  mechanism treating both lost margins and
  shareholder incentives

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Status of Regulatory Treatments of EE
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Trends in Utility Incentives

• 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 less prevalent but still being explored
• 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
• TX Shared Savings

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Incorporating 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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Incorporating 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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Issues in Incorporating EE in the Utility
Planning Processes

• Fragmented regulatory authority (siting,
  emissions, transmission, reliability, etc.)
• Timing of CPCN and related dockets and the
  timeliness of EE. Integrate EE early in the
  resource planning process to capture the full
  value
• Inconsistent planning and evaluation criteria for
  supply and EE investments
• Data necessary to integrate EE into resource
  planning are now readily available
• Cost and savings data
• Potential studies for what is achievable through
  EE measures
• Energy, capacity and non-energy benefits can
  often justify significant EE programs
• Clear path to funding is needed to establish a
  budget for EE resources
• Update resource plan as information changes

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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. Also impact on shared
  savings and related MV requirements
• Criteria for defining cost-effectiveness - the
  California Standard Practice Manual is
  authoritative source, and is referred to by many
  states

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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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Snapshot of State Use of Tests
Doesnt include info. from MD, WV, MI, NE, OH,
SD, AK, NV, TX, UT, WA, AL, LA, MS, TN

• All 5 tests required
• VA, IN, MN, CA, HI, GA

• No specific test/s required
• KY, PA, ME, IL, ND, OK, ID, WY, NC, SC

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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

• David Pickles
• ICF International
• 7160 North Dallas Parkway, Suite 340
• Plano, TX 75024
• [phone]
• dpickles_at_icfi.com
• www.icfi.com
• Katrina Pielli
• U.S. Environmental Protection Agency
• Clean Energy Program Manager
• [phone]
• Pielli.Katrina_at_epa.gov
• www.epa.gov/cleanenergy