KMSA Spring Meeting

Covington, KY

April 24, 2008

Energy Efficiency From A G&T Coop Perspective

Jim LambEast Kentucky Power

2

Which Word Is More Important – “Energy” Or “Efficiency”?

• The definition of efficiency is as follows –

accomplishment of or ability to accomplish a job with a minimum expenditure of time and effort: The Button Up program increases homeowner efficiency.

• Or

the ratio of the work done or energy developed by a machine, engine, etc., to the energy supplied to it, usually expressed as a percentage.

3

Air Conditioning Is Increasing Its Efficiency

Residential Appliance Efficiency Trends East South Central Region

0

2

4

6

8

10

12

14

16

Eff

icie

ncy R

ati

ng

Heat Pump Heating (HSPF)

Heat Pump Cooling (SEER)

Central Air (SEER)

Room Air (EER)

Water Heating (EF)

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But Efficiency Isn’t Limited To Retail Use

• The concept of efficiency can be applied to the other side of the meter.

• More efficient, generation, for example, means the same MW output but at a lower cost

5

The Concept Of Efficiency – Type of Generation Technology

Heat Rate Production

(Btu/kWh) Efficiency Cost

GAS @ $10/mmBtu

GE LMS100 8,500 40% 85 $/kWh

GE 7EA 10,600 32% 106 $/kWh

ABB 11N2 11,500 30% 115 $/kWh

*Combined Cycle 6,000 57% 60 $/kWh

COAL @ $2/mmBtu

CFB 9,600 36% 19 $/kWh

PC 9,800 35% 20 $/kWh

*SCPC 8,600 39% 17 $/kWh

*Not in EKPC Fleet

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Efficient Pricing

• The idea of efficiency very much extends to how electricity is priced

– EKPC’s price to its 16 distribution members

– Distribution coop’s price to its retail members

• Traditionally, prices have been set by taking total cost and dividing by total kWh sales – this is what is called “average cost” pricing

• Fuel Adjustment Clause (FAC) is used like a broom, to sweep up anything that average cost pricing doesn’t cover

• All fuel markets are in turmoil today, resulting in an EKPC FAC that is both high and volatile

– Coal

– Natural Gas

– Wholesale Power Market

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What Does Efficient Pricing Mean?

• Here’s an example of good intentions yet a bad outcome – extreme energy conservation

• Why is the outcome bad? Because of the way that prices are structured

• Efficient pricing is the idea that extreme energy conservation can have good intentions and a good outcome

• Efficient pricing also is the idea that the FAC has very little to sweep up

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Hourly Market Power Prices

January 25, 2008

$80

$60

$103$95

$72

$0

$107

$171

$98 $99$111

$94$100

$65

$0 $0 $0

$82

$248

$139

$75

$59$70

$42

$0

$50

$100

$150

$200

$250

$300

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24Hour Of Day

$ /

MW

h

Spot Market Purchase Price

EKPC Base Fuel Cost

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So What Are EK And Its Members Doing Futurely?

• Retail Efficiency

– Envision

– Contemplating An RFP For Energy Efficiency

• Generation Efficiency

– Direct Load Control

– GE LMS 100 Combustion Turbines

• Price Efficiency

– RTP Pilot

– Rate Design Task Force

– Have Filed New (Higher) Cogen Tariff• Not Yet Approved

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One Thing Is Unequivocally True About Energy Efficiency – EKPC (the G&T) Cannot Embrace The Concept Alone, Nor Can Its Members Embrace The Concept Alone. We Affect Each Other.