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Demand-Side Management
Bruce Folsom, Regulatory Compliance Manager
before theDSM Subcommittee of theInterim Energy Committee
August 23, 2006
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Why Avista Does DSM
• Fulfilling Avista’s least-cost resource acquisition obligation
• Customer Service
– Customers expect Avista to be their “energy experts”
• Community Service
– Helps meet needs of the limited income community
• Economic Development
– Cost-effective DSM improves the competitiveness of existing customers in national and world-wide markets
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How Avista Does DSM:Northwest Electric DSM Basics
• Electric DSM history:
– The Regional Review of the 1990’s established a non-binding recommendation for a 3% public purposes charge for, among other things, electric-efficiency funding
– Deregulation and the prospects for vertical disintegration led to the “stranded rate base” issue in the early ’90s
– Northwest utilities substantially reduced DSM funding
– Washington Water Power initiated a “non-bypassable public purposes charge,” the first in the country, to continue DSM by:
• Establishing funding for DSM that was not subject to the utility capital budgeting process
• Ensuring timely cost-recovery for DSM investments without incurring the risks of stranding rate base
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How Avista Does DSM:Natural Gas DSM Basics
• Natural Gas DSM
– Prior to 2002 natural gas DSM was difficult to “sell”
• Natural Gas DSM typically:
– Used in passive end-uses (space and water heating)
– Was inexpensive
– Has fewer efficient technology alternatives
– Doesn’t incur the same environmental concerns as electric
• MUCH of this has changed since 2002
– Future natural gas DSM planning does not have a rich historical precedence as found on the electric side
• Own-price and cross-price elasticity issues currently being analyzed
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How Avista Does DSM:Regulatory & Political History
• The tariff rider approach is favorable in that:
– Provides a significant funding mechanism for DSM to meet customer need
– It shields DSM infrastructure from fluctuating capital budgets
• And unfavorable in that:
– Utilities aren’t permitted to earn on what would otherwise be a very secure investment
• This approach has been widely copied throughout the country
• There is no significant internal or external demand for revising this successful approach to DSM funding
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How Avista Does DSM:Regulatory & Political History
• Avista has used the “non-bypassable public purposes” tariff rider funding since 1995
– A tariff surcharge on
• All retail electric customers
• All non-transport gas customers
– Excludes transport schedules 146 and 148
– Surcharges tariffed as Schedule 91 (electric) and Schedule 191 (natural gas)
– Tariff rider levels have changed several times since this time, generally ranging from
• 1.00% to 1.95% electric
• 0.00% to 0.96% natural gas
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External Energy Efficiency (“Triple-E”) Board
• Successful stakeholder participation• Non-binding external oversight board
– A sounding board and communication vehicle– The board can convene their own meetings and make board
recommendations to regulators• Two traditional meetings per year• Quarterly newsletter established 2005• “Triple-E Reports”
– Primary tool for communicating cost-effectiveness, measurement & evaluation (M&E), resource acquisition, disclosure
– Used as a basis for DSM regulatory and informational requests– Summarizes selected managerial accounting and analysis findings
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Our Tariffs and Programs• Programs regulated under Schedules 90 (electric) and 190 (gas)
– Electric incentives increased in early ’05 (ID) and mid ’05 (WA)
• Incentives based upon– Customer simple payback– First-year kWh’s or therms– Tiered incentive structure
• Addresses “free-ridership” issues with regulators• Increases incentive $ per kWh / therm results• Subject to 50% and 30% cap
– Commercial / Industrial applications• “Site-Specific” programs subject to Dual Fuel Incentive
Calculation– An “anything qualifies” program
• Prescriptive programs conform with tariff based on prototypical application
– Reduces administrative cost (used for routine, homogenous measures)
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Electric DSM Incentive Tiers
$-
$0.02
$0.04
$0.06
$0.08
$0.10
$0.12
$0.14
$0.16
0 20 40 60 80 100 120 140 160 180 200
$ per first-year kWh
Mon
ths
Sim
ple
Payb
ack
El-Eff
Fuel-Eff
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Gas DSM Incentive Tiers
0
0.5
1
1.5
2
2.5
3
3.5
4
0 20 40 60 80 100 120 140 160 180 200
$ per first-year therm
Mon
ths
sim
ple
payb
ack
Gas-Eff
New Tech
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DSM Role in Resource Planning – Electric
• Electric Integrated Resource Planning (IRP) process– Regulated process– Mandatory IRP every two years– Followed by Request For Proposals (RFP)– Typically six to twelve month process– For DSM
• Cumulatively DSM aggregates to a moderate-sized resource (approximately 80 aMW on-line net of degradation)
• Requires comprehensive assessment of cost-effectiveness of potential utility programs, characterization of risk and other characteristics, etc.
• Ultimately leading to a DSM supply curve thus identifying the DSM goal for the foreseeable future
– To be modified two years later in the next IRP
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DSM Role in Resource Planning – Electric
• Request For Proposals process
• Two previous DSM experiences
– Early 1990s process resulted in one short-listed project
– 2000 All-Resource RFP
• Rec’d 8 proposals, 3 short-listed and negotiated, 2 selected
• WAGA and Quantum Engineering
• Focus no specified market segments and jurisdictions
• 2002-2004 identification, 2005 completion
– 38 mills levelized cost to be paid over ten year period
• 2005 identification, 2006 completion
– 25 cents front-loaded cost (approx 38 mills levelized)
• Acquisition:
– WAGA (2 + 1 aMW); Quantum (1 + 1 aMW)
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DSM Role in Resource Planning – Electric
• 2005 / 2006 RFPs
– In addition to Avista’s standard DSM programs
– Power Supply Department is fielding a renewable (predominantly wind) RFP
– Current DSM direction is to pursue a series of targeted RFP’s plus a general solicitation for cost-effective DSM resources
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Demand Response
• Demand Response
– Interruptible, curtailable, TOU, real-time pricing options
– Past evaluation of opportunities failed to clear the Cost-Effectiveness hurdle
• Technology advancements, growing TOU differentials and price spikes
Need to continuously evaluate potential and be prepared to respond
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Summary of Cost-Effectiveness Tests
• Cost-effectiveness is the cornerstone of DSM acquisition• The 1987 California Standard Practice Tests:
– Total Resource Cost (TRC)• Comparison of avoided cost and non-energy benefits vs. customer
and non-incentive utility cost– Utility Cost Test (UCT)
• Comparison of avoided cost vs. total utility cost (incentives and non-incentives)
– Participant Cost Test• Comparison of bill reduction and non-energy benefits vs. customer
cost– Non-Participant (AKA Rate Impact Measure, or RIM) Test
• Measure of rate impact upon the non-participant customer (DSM will almost never pass the RIM test)
– Societal Test• TRC test with the addition of quantifiable externality reduction as a
program benefit
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Cost-Effectiveness Tests Used by Avista
• Primarily TRC and UCT-based– Difference is
• TRC includes customer cost, UCT does not• TRC excludes utility incentives, UCT includes them• TRC includes non-energy benefits, UCT does not• TRC < UCT since customer cost > incentive
• Cost-Effectiveness Issues– Quantification of non-energy benefits
• We apply a conservative standard– Timeliness of avoided cost streams– Reviewed by entire Triple-E plus other external parties on a regular basis
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2002-2005 DSM Business Plan
• Objectives
– Recover $12.4 million negative balance from 2001 Western Energy Crisis
– Recovery without revision to rider
– Recovery while meeting resource acquisition guidelines
• Plan
– Established “ordered priorities”
• Meet customer obligations
• Field a cost-effective portfolio
• Recover the negative balance in a timely fashion
– Target lost opportunities and low-cost / no-cost market niches
– Aggressively apply cost-containment strategies
– Hit zero in aggregate by the close of 2005
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2002-2005 DSM Business Plan
• Results– Made modifications (reductions) to tariff riders
• Down in ID electric, sunsetted increase in WA gas
– Also received non-tariff rider funding
• Oil rebate over-refund and tax credits, hydro facility sale
– Successfully implemented cost-containment strategies
– Reached balance in August 2005
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2002-2005 DSM Business Plan• Four individual tariff riders
• Hit zero in August ‘05
Actual and Projected Rider Balances
$(10,000,000)
$(8,000,000)
$(6,000,000)
$(4,000,000)
$(2,000,000)
$-
$2,000,000
$4,000,000
WA Electric
WA E projected
ID Electric
ID E projected
WA Gas
WA G projected
ID Gas
ID G projected
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2002-2005 DSM Business Plan• Management of aggregate vs. individual tariff rider levels
Balance Expressed in # of Months of Revenue
(30.0)
(27.0)
(24.0)
(21.0)
(18.0)
(15.0)
(12.0)
(9.0)
(6.0)
(3.0)
-
3.0
6.0
9.0
WA electric WA gas ID electric ID gas WA total ID total Electric total Gas total Overall total
Rider Jurisdiction Fuel Aggregate
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2002-2005 DSM Business Plan• Substantially exceeded our overall mmbtu goal
Combined Gas and Electric DSM Acquisition
-
100,000
200,000
300,000
400,000
500,000
600,000
700,000
0 10 20 30 40 50 60 70 80 90
Month
mm
btu Actual mmbtu
mmbtu goal
1999 2000
2001
2002
2003
2004 2005 2006
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2002-2005 DSM Business Plan• Exceeded tariffed gas goal
Gas DSM Acquisition
0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
1,600,000
0 10 20 30 40 50 60 70 80 90
Month
Th
erm
s
Actual therms
Therm goal
2001
2002
2003
2004
2005
2006
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2002-2005 DSM Business Plan
Electric DSM Acquisition
0.00
5.00
10.00
15.00
20.00
25.00
0 10 20 30 40 50 60 70 80 90
Months
aM
W
Actual aMW
aMW goal
W regional
NPCC
20041999
2000
2001
20022003
20052006
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2006 DSM Business Plan
• Oriented around “stewardship”
– Achieve the maximum benefit for our customers’ tariff rider funding
– Add new programs
– Annually revise tariff rider to recover carryover balance and recover budgeted expenditures in the following calendar year
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2006 DSM Business Plan• Additional programs under evaluation
– Non-residential• Rooftop HVAC• Steam trap maintenance• Whole-building commissioning• Boiler tune-ups• Pre-rinse sprayers• Burner-tip maintenance• Prescriptive premium-efficiency motors• Computer controls (Verdiem-type)• LEED assistance• Prescriptive LED traffic lights• Dairy heat exchangers• Greenhouse curtains
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2006 DSM Business Plan
• Residential programs
– Gas back-up heat pumps
– Programmable thermostats
• Planned “Sunsetted” programs
– Programs with a specified end-date
– Oftentimes seasonal windows of opportunity
– Addresses procrastination issue
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.
2006 DSM Budget
60%
7%
9%
10%
14% C/I incentives
Residentialincentives
Limited incomeincentives
Non-incentive, non-labor
Labor
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.
2006 Electric Budget
63%
4%
8%
12%
13% C/I incentives
Residentialincentives
Limited incomeincentives
Non-incentive, non-labor
Labor
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.
2006 Gas DSM Budget
47%
23%
13%
1%
16% C/I incentives
Residentialincentives
Limited incomeincentives
Non-incentive, non-labor
Labor
30
Total DSM Composition
83%
17%
Electric
Gas
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Commercial / Industrial DSM• Everything qualifies
• Site-Specific vs. Prescriptive
– Performance contract policy
• RFP contracts
– Quantum Engineering and WAGA
– 2002-2004 / 2005 plus 2005 / 2006 contracts
• Operations
– Engineers / Technicians
– Contracting process (including scheduling)
– Coordination / program development
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Residential DSM
• Prescriptive-based (i.e., “standard offer” based on rebate)
– Covering gas and electric opportunities
– Has and is continuing to change as new programs are ramped-up
– Rebate processing operation focus
• Geographic Saturation program
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Limited Income DSM
• High profile• Currently conducted through six agencies under annual
contract– One WA & ID, four WA electric-only, one WA gas
only• Recent funding enhancements
– Added $350k total funding in ID– Added $200k to existing funding in WA plus flexibility
• Operational revisions– Scheduled periodic in-person visits with CAP agencies
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BPA Conservation & Renewables Discount • BPA’s 2001-2006 approach for DSM
– A ½ mill discount on firm sales• Our 90 aMW of residential exchange $2.0 million in five
years– To be expended in accordance with BPA program guidelines– Incremental language– Regional Technical Forum– Avista’s use
• 2001 CFLs• Conservation Voltage Reduction• Limited income
– Reporting and audit requirements• 2006-2011 program
– Generally similar
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Regional DSMNorthwest Energy Efficiency Alliance (NEEA)
• Regional market transformation orientation
• Electric-only
• Funded by BPA, all significant generating publics, all regional IOUs
• 1997-1999, 2000-2004 and 2005-2009 contracts
• Current funding $20 million / year
– Subject to NEEA board approval of expenditures
– Avista slightly under 4% of funding
• Delivering 10 mill resource
• Avista represented on the board
• Future … regional coordination, gas market transformation ?
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Recommendations
• Energy Codes• Appliance Codes• Updated tax credits• State LIHEAP