The Consortium for Energy Efficiency The Policy Paradigm: How Regulatory Drivers and Constraints Impact Energy Efficiency on Every Level Facilitator: Hilary Forster, CEE Speakers: Bruce Carter, Tacoma Power Fred Gordon, Energy Trust of Oregon September 19, 2013

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Introduction Presentation Topics • Overview of current regulatory landscape • Regulatory drivers, considerations, challenges, and

constraints • Recent policy trends and implications

Speakers • Understanding Your Utility Partners: Bruce Carter,

Conservation Resources, Tacoma Power • Energy Efficiency Policy - Navigating through the

Rapids: Fred Gordon, Director of Planning and Evaluation, Energy Trust of Oregon

UNDERSTANDING YOUR UTILITY PARTNERS

UTILITY ENERGY EFFICIENCY DRIVERS AND CONSTRAINTS

CEE INDUSTRY PARTNERS MEETING ATLANTA, SEPTEMBER 2013

NO SOUP FOR YOU!

LESS ENERGY FOR YOU!

Why don’t we want to maximize sales? (seems odd to customers)

We’ll discuss EE drivers

Why don’t we want to maximize savings? (seems odd to trade allies)

We’ll discuss EE constraints

DRIVER #1: REGULATION

EARLY REGULATION

Genesis of regulated energy efficiency: 1978 Jimmy Carter, Energy Crisis

1979 National Energy Conservation Policy Act

(supported National Energy Act 1978) Required utilities to provide residential consumers with energy audits and other services to reduce growth of energy demand

FAST FORWARD TO 2013

VARIOUS STATE REGULATORY APPROACHES

Require integrated resource planning

Set system benefits charges

Require energy efficiency acquisition as percent of load

Require acquisition of “all cost effective” conservation

Allow for revenue decoupling (various types)

Set penalties for failure to achieve targets

Set rewards for savings

DRIVER #2: AVOIDING OR DELAYING ACQUISITION OF FUTURE RESOURCES

INTEGRATED RESOURCE PLANNING

A strategic planning process utilities use to: • Systematically assess whether they need additional resources

to satisfy their projected retail demand and, if so… • Determine the combination of new resources that are most

cost-effective and impose the least risk

Load Resource

CONSERVATION ADDS COSTS TODAY, BUT REDUCES COSTS TOMORROW

$-

$50

$100

$150

$200

$250

$300

Marginal Resource Costs U.S. average levelized costs (2011 $/MWh) for plants entering service in 2018

TACOMA POWER LOAD RESOURCE BALANCE

0.0

100.0

200.0

300.0

400.0

500.0

600.0

700.0

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 BPA Slice/Block Contract: Critical Water Other Contract Resources (Priest Rapids & GCPHA) Owned Hydro Resources: Critical Water Load Forecast Without Conservation

DRIVER #3: CUSTOMER SERVICE

“THESE PROGRAMS OFFER PEOPLE THE CHANCE TO SAVE MONEY, IMPROVE THEIR HOME, AND HELP THE ENVIRONMENT. WHAT’S NOT TO LOVE?” “…THAT WE’RE SAVING ENERGY AND DOING SOMETHING FOR THE ENVIRONMENT – IT MEANS A LOT TO THE PEOPLE WHO WORK HERE.”

CUSTOMERS ARE MORE SATISFIED WHEN THEY ARE FAMILIAR WITH UTILITY ENERGY EFFICIENCY PROGRAMS – J.D. POWER

671

577

Familiar with energy efficiency programs Not Familiar

Industry Overall CSI

© 2011 J.D. Power and Associates, The McGraw-Hill Companies, Inc. All Rights Reserved.

Source: J.D. Power and Associates 2011 Electric Utility Residential Customer Satisfaction StudySM

J.D. Power and Associates Proprietary and Confidential—For Internal Use Only

DRIVER #4: MANAGE LOADS TO SYSTEM CAPACITY

Not conservation, but related • Shifts load from peak time to

off peak times to avoid or delay enhancements to infrastructure

• Helpful for “capacity constrained” utilities

• Demand response: Uses “smart” meters, appliances and T&D improvements to optimize loads to system capacity

• Traditionally, supply follows load; now we can manage load to supply

CONSTRAINT #1: COST EFFECTIVENESS TESTING

Regulatory compact implies greater scrutiny to ensure the utility is serving the public interest

KEY COST EFFECTIVENESS TESTS

CE Test Question Answered Summary /Approach

Participant Cost Will participants benefit over the measure life?

Cost/benefit analysis from participant's perspective

Utility (Administrator) Cost

Will utility bills increase?

Cost/benefit analysis from utility's perspective

Total Resource Cost Will the total cost of energy in the service area decrease over the measure life?

Cost/benefit analysis from combined customer and utility perspective

Adapted from Presentation to Public Utilities Commission of Ohio Snuller Price and Richard Sedano , Aug 5, 2009

http://www.puco.ohio.gov/emplibrary/files/util/EnergyEnvironment/09-512/TRCWorkshopPresentations.pdf

KEY TEST COMPONENTS

Component Participant Utility TRC

Avoided cost of energy and capacity - Benefit Benefit

Additional resource savings (non energy) - - Benefit

Incremental measure costs Cost - Cost

Program overhead - Cost Cost

Incentive payments Benefit Cost -

Utility bill savings Benefit - -

Adapted from Presentation to Public Utilities Commission of Ohio Snuller Price and Richard Sedano , Aug 5, 2009

http://www.puco.ohio.gov/emplibrary/files/util/EnergyEnvironment/09-512/TRCWorkshopPresentations.pdf

EVALUATION TENDS TO FOCUS ON CE (ACCOUNTABILITY)

Rewards and penalties vary by state IOUs: negative findings may mean costs are disallowed Publics: reviews of cost effectiveness are handled variously Proving attribution – can’t prove would have happened absent the program Prudency reviews by commissions

CONTINUOUS IMPROVEMENT

design

implement evaluate

attribution

cost effectiveness

customer satisfaction persistence

usability

prudency

CONSTRAINT #2: EQUITY

Variable Frequency Drive BCR 3.5

Grandma BCR 0.98

CONSTRAINT #3: CUSTOMER SATISFACTION

Every program is an advertisement for future programs!

CONSTRAINT #4: DIVERSITY

TWO MAIN TYPES OF UTILITIES

Investor-Owned Utilities Publically-Owned Utilities

Ownership shareholders city, co-op members, or customers

Regulation state public utility commission local board or commission

Structure investor-owned corporation not-for-profit agency

Key financial metric return on equity bond ratings

National market share ≈75% ≈25%

Rates tend to be higher tend to be lower

Size tend to be bigger tend to be smaller

Energy Efficiency Policy: Navigating through the Rapids

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What’s Changing? Why?

• Lower long term forecasts of fossil cost reduce value of efficiency – 50% drop for gas (still going down) – Significant drop for electric power

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What’s Changing? Why? Massive Success of Efficiency Programs • We Won! Easy savings are locked in by codes, standards,

market changes • We need additional approaches, markets • Requiring more market planning and systematic, sustained

intervention • But most oversight systems judge success a year at a time!

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Reinvention Must Be Based on Past Success, Market Conditions Many policymakers newly enchanted with efficiency- want to help. And leave a thumbprint. “New concepts” with overly broad expectations, not incorporating 35 years of program experience. • “Everything is a commodity.” • “The solution is public/private partnerships” • “Financing is the solution - what’s the problem?” • Legislative or policy goal setting often called “planning.”

- Disney’s First Law ”wishing will make it so” does not apply

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Most Utility Commissions Are Sticking with Efficiency How? No clear national pattern: • OR, WA: “breather” • VT, MA, BC: deemed values for “soft” non-energy benefits • BC: gas price forecast as 50% of electric • NY (maybe): program level test • Several states: do part of it “anyway” • Idaho: suspend gas programs

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Advocacy Positions On Cost-Effectiveness are Shifting Home Performance Guild • Do the Societal or Total Resource test “right” • However, few states are addressing non-energy

benefits, risk reduction, employment and economic benefits

• So, is there another way? • Use the utility test and do consumer protection

outside the test?

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Carbon Valuation in the TRC

• Market forecasts of electric and gas price incorporate carbon costs – but it’s not clear that markets are

valuing carbon • So, some states are “pegging” a carbon

value on top of market prices

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Impact of Other Regulations Renewable Portfolio Standards • Efficiency reduces renewable purchase requirements

in some states- varies based on details of RPS. • Efficiency Portfolio Standard and Cost Effectiveness Efficiency Portfolio Standards • Many require cost-effective conservation • Confusion when the cost and goals don’t line up Coal Plant Mercury Regulation • Shutting down coal plants • What replaces? Efficiency is often first choice

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Market Transformation is a framework for achieving savings based on multi-year market influence

Proven, massively effective, cheap, but: • Requires sophistication and nimbleness from program deliverers and

regulators • Doesn’t work for every opportunity • Overseers must buy the paradigm, plan and the success indicators.

Different process. • The plan is never perfect. Oversight must adjust with market learning. • Easier to predict success than to predict timing.

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Integration of Demand and Energy Management Programs

• 30+ years of experience • Efforts to integrate (how they are valued and marketed)

are lagging at some utilities • Cultural and institutional barriers • Renewed focus on integration in many states • New hardware opportunities (inverter-driven, control

friendly devices, cheaper better consumer communications electronics) may force better integration

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Electric Cars and Energy Efficiency

• Most discussion by utilities is about new

power sales, load shaping, grid integration • Efficiency opportunities in charging

equipment? • Efficiency opportunities in vehicle design?

– Grid-related consumer side → energy efficiency – But WAY outside our area of expertise – Channels of influence may be national/global

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How Our Partners Can Navigate Changes

• Utility funded support for EE will continue to be huge IT’S WORTH THE AGGRAVATION • Expect state-by-state differences • Expect evolution • Sniff out the dead ends • Don’t look for places where nothing changes • Look for places where the changes are intentional, and

favorable to your objectives • Work to understand the new policies and lingo that seem

headed somewhere

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Thank you

Working Together, Advancing Efficiency