7/30/2019 NARUC Water Committee Feb 2013 MCR
1/16
MCR Performance Solutions, LLC
NARUC Winter Committee Meetings
February 3-6, 2013
Washington, DC
Energy Water Nexus:
Sharing Energy Efficiency and Alternative Ratemaking
NARUC Water Comm ittee
Febru ary 5, 2013
7/30/2019 NARUC Water Committee Feb 2013 MCR
2/16
1
MCR Performance Solutions, LLC
Proprietary & Confidential
2013 All Rights Reserved
Todays Topics
Energy Water Nexus #1: Energy Efficiency Opportunities for Water Companies
Energy Water Nexus #2: Alternative Ratemaking Mechanisms
7/30/2019 NARUC Water Committee Feb 2013 MCR
3/16
2
MCR Performance Solutions, LLC
Proprietary & Confidential
2013 All Rights Reserved
Energy Eff ic iency Oppo rtun it ies for Water Companies
7/30/2019 NARUC Water Committee Feb 2013 MCR
4/16
3
MCR Performance Solutions, LLC
Proprietary & Confidential
2013 All Rights Reserved
Qualifying the Opportunity for Water Companies
Energy represents the largest controllable cost of providing water and wastewaterservices (source: U.S. EPA)
Water system energy represents as much as 40% total plant O&M
Wastewater treatment energy represents 25-30% total plant O&M
Electric utilities are under regulatory mandates to demonstrate efficiency gainthrough energy efficiency programs funded via bill surcharges
Energy efficiency low-hanging fruit is evaporating(technology market transformation / federal efficiency standards)
To energy utilities, water and wastewater utilities represent a cost-effective,verifiable, means to achieve their energy efficiency regulatory mandates
Water purveyors should take advantage of the opportunity to reduce operatingcosts, offset required infrastructure costs and recoup bill surcharge funds
Energy Efficient Infrastructure Funding
Energy efficiency programs are either prescriptive ($/light fixture, motor HP, etc.),or performance-based ($/kWh saved or peak kW reduced)
Larger energy utility payouts are for complex projects, where baseline energy usequantifies post-project efficiency gain
Energy Efficiency Opportunities for Water Utilities
7/30/2019 NARUC Water Committee Feb 2013 MCR
5/16
4
MCR Performance Solutions, LLC
Proprietary & Confidential
2013 All Rights Reserved
Examples of Energy Efficiency Projects for Water Companies
EE projects result in either prescriptive or performance-based cash payments:
Prescriptive-based EE payments: A motor pumps water uphill tostorage; water company receives a rebate for buying a high-efficiencymotor in place of a standard efficiency motor
Performance-based EE payments: Water company receives cashincentives for moving the tank down the hill
Add i t ional Examp les of More Complex Performance-based EE
A wastewater treatment plant reduceselectric energy consumption 30-50%by implementing automated dissolvedoxygen monitoring/control in aerationtanks along with other associated plantautomation; operator receives cash
incentives based on pre-post-measurement of electric demand usingplant SCADA systems.
A water company must replace asegment of pipeline. The installationof two parallel pipes reduces overallhead-pressure and associated energyrequirements. Utility cash incentives,
based on measured energy savings,offset significant portions of the entireproject.
Capita l imp rovement p lans shou ld be reviewed for
abi l i ty to q ual i fy for ef f ic iency g ain payments.
7/30/2019 NARUC Water Committee Feb 2013 MCR
6/16
5
MCR Performance Solutions, LLC
Proprietary & Confidential
2013 All Rights Reserved
Identify Projects Capital improvement plan review Preliminary screening
Establish Energy Utility Project Baseline analytics Savings projections Economic review (energy/water utility)
Project file development and submission Legal and regulatory approval
Project Implementation Site verification Cost documentation Post installation measurement
Final measure submission
Energy Utility Project Review Process incentive payments Evaluator post-inspection
Energy Efficient Infrastructure Funding
7/30/2019 NARUC Water Committee Feb 2013 MCR
7/16
6
MCR Performance Solutions, LLC
Proprietary & Confidential
2013 All Rights Reserved
Identify Projects Capital improvement plan review Preliminary screening
Establish Energy Utility Project Baseline analytics Savings projections Economic review (energy/water utility)
Project file development and submission Legal and regulatory approval
Project Implementation Site verification Cost documentation Post installation measurement
Final measure submission
Energy Utility Project Review Process incentive payments Evaluator post-inspection
Energy Efficient Infrastructure Funding (cont inued)
Example:Cost of two 2,000-HP VFD = $529,310
Payback = 6.3 yearsIncentive = $252,540
Cost = 47.7% costPayback = 3.3 years
Reduction in annual energy use = 44%Equivalent to 105,250 13W CFLs
7/30/2019 NARUC Water Committee Feb 2013 MCR
8/16
7
MCR Performance Solutions, LLC
Proprietary & Confidential
2013 All Rights Reserved
Jurisdictional Energy Efficiency Opportunities
StateEE
($ million)% UtilityRevenue
ACEEERank
Massachusetts $453.00 5.77% 1
California $1,162.50 3.35% 2
New York $1,073.20 4.69% 3
Oregon $171.80 4.51% 4
Vermont $40.70 5.64% 5
Connecticut $138.30 2.83% 6
Rhode Island $54.20 5.34% 7
Washington $274.90 4.36% 8
Maryland $156.40 2.05% T-9
Minnesota $191.25 3.24% T-9Iowa $99.80 2.55% 11
Arizona $126.10 1.74% 12
Michigan $127.60 1.50% 13
Colorado $64.10 1.28% 14
Illinois $115.70 0.91% 15
Source: American Council for an Energy-Efficient Economy (ACEEE)
2012 State Energy Efficiency Scorecard, MCR Analysis
ACEEEs Top 15 States ACEEEs Bottom 15 States
StateEE
($ million)% UtilityRevenue
ACEEERank
Kentucky $28.20 0.44% 36
Arkansas $25.20 0.70% 37
Virginia $0.10 0.00% 37
Oklahoma $39.60 0.85% 39
Alabama $10.70 0.13% T-40
South Carolina $16.30 0.23% T-40
Nebraska $16.50 0.71% 42
Louisana $9.00 0.13% 43
Missouri $47.20 0.67% 44
Kansas $9.10 0.25% 45Alaska $0.00 0.00% 46
South Dakota $4.30 0.46% 47
Wyoming $5.40 0.47% 48
West Virginia $0.00 0.00% 49
North Dakota $0.00 0.00% 50
7/30/2019 NARUC Water Committee Feb 2013 MCR
9/16
8
MCR Performance Solutions, LLC
Proprietary & Confidential
2013 All Rights Reserved
Jurisdictional Energy Efficiency Opportunities (cont inued)
StateEE
($ million)% UtilityRevenue
ACEEERank
Massachusetts $453.00 5.77% 1
California $1,162.50 3.35% 2
New York $1,073.20 4.69% 3
Oregon $171.80 4.51% 4
Vermont $40.70 5.64% 5
Connecticut $138.30 2.83% 6
Rhode Island $54.20 5.34% 7
Washington $274.90 4.36% 8
Maryland $156.40 2.05% T-9
Minnesota $191.25 3.24% T-9Iowa $99.80 2.55% 11
Arizona $126.10 1.74% 12
Michigan $127.60 1.50% 13
Colorado $64.10 1.28% 14
Illinois $115.70 0.91% 15
Source: American Council for an Energy-Efficient Economy (ACEEE)
2012 State Energy Efficiency Scorecard, MCR Analysis
StateEE
($ million)% UtilityRevenue
ACEEERank
Kentucky $28.20 0.44% 36
Arkansas $25.20 0.70% 37
Virginia $0.10 0.00% 37
Oklahoma $39.60 0.85% 39
Alabama $10.70 0.13% T-40
South Carolina $16.30 0.23% T-40
Nebraska $16.50 0.71% 42
Louisana $9.00 0.13% 43
Missouri $47.20 0.67% 44
Kansas $9.10 0.25% 45Alaska $0.00 0.00% 46
South Dakota $4.30 0.46% 47
Wyoming $5.40 0.47% 48
West Virginia $0.00 0.00% 49
North Dakota $0.00 0.00% 50
ACEEEs Top 15 States ACEEEs Bottom 15 States
TOTAL SPEND OF $5.9 BILLION
7/30/2019 NARUC Water Committee Feb 2013 MCR
10/16
9
MCR Performance Solutions, LLC
Proprietary & Confidential
2013 All Rights Reserved
Alternat ive Ratemaking Mechanism s
7/30/2019 NARUC Water Committee Feb 2013 MCR
11/16
10
MCR Performance Solutions, LLC
Proprietary & Confidential
2013 All Rights Reserved
Markets changed
Customer growth: slowed or declined Use-per-customer trends: slowed or declined
Costs of service changed
Costs were rising more quickly than rates
Certain costs escalated dramatically (outside of management control)
Existing infrastructure (often fully depreciated) required substantialrepair/replacement, with no associated incremental revenues
Traditional volumetric ratemaking did NOT change (attempting to recoversubstantially increasing fixed costs through variable rates)
Results of volumetric rates, increased costs and sluggish markets include:
Frequent and contentious rate cases became common
Few, if any, regulated distribution companies earned authorized returns
What Happened to Natural Gas LDCs?
Water Companies
Sound familiar?
7/30/2019 NARUC Water Committee Feb 2013 MCR
12/16
11
MCR Performance Solutions, LLC
Proprietary & Confidential
2013 All Rights Reserved
New ratemaking approaches seek to improve on traditional ratemaking
Provide realistic opportunities to earn authorized rates of return
Make smaller, more frequent rate adjustments
Avoid the time and expense of litigation
Enable timely rate changes in response to changes in costs and revenues
Adjust for differences between projected and actual results
Recover infrastructure replacement costs between rate cases
Align customers and investors interests within public policy initiatives, such aswater conservation and improved efficiencies
Provide safeguards for customers, regulators and rate case participants through: Revenue stability and rate stability
Increased transparency of financial and operational information
More accurate cost recovery mechanisms and/or true ups through periodicreporting
Alternative Ratemaking Objectives
7/30/2019 NARUC Water Committee Feb 2013 MCR
13/16
12
MCR Performance Solutions, LLC
Proprietary & Confidential
2013 All Rights Reserved
Options may include some combination of:
Straight fixed variable (SFV) rates Specific-issue trackers
Partial/full decoupling
Rate stabilization
Comprehensive trackers
Optimal alternative mechanism is found at the intersection of what will addressthe customers needs, what addresses the utilitys needs and what isconsistent with state regulatory policy
Consequently, solutions may vary:
From jurisdiction to jurisdiction
From industry to industry And perhaps, even from company to company within the same industry,
within the same jurisdiction
One Mechanism Does Not Fit All Requirements
7/30/2019 NARUC Water Committee Feb 2013 MCR
14/16
13
MCR Performance Solutions, LLC
Proprietary & Confidential
2013 All Rights Reserved
Selected Regulated States Alternative Rate Mechanisms
Gas Electric Both
State DecouplingStraight Fixed
Variable
Infrastructure
Replacement
Program
Rate StabilizationMulti-year Rate
Plans
Cap Ex
Trackers
Alabama
Arizona
Arkansas
California
Colorado
Connecticut
Delaware
Florida
Georgia
Hawaii
Idaho
Illinois
Indiana
Iowa
Kansas
7/30/2019 NARUC Water Committee Feb 2013 MCR
15/16
14
MCR Performance Solutions, LLC
Proprietary & Confidential
2013 All Rights Reserved
Declining Use per Customer is Driving Action in the Industry
Explore national trends
Develop a common understanding of the current situation in each state inwhich you do business
Develop a set of guidelines and a recommended approach
Identify specific jurisdictions that are candidates for the initial pursuit
Review the menu of options available to your utility
Determine the regulatory climate for alternative rate mechanisms
The optimal alternative mechanism is found at the intersection of
what will address the customers needs, what addresses the
utilitys needs and what is consistent with state regulatory policy.
7/30/2019 NARUC Water Committee Feb 2013 MCR
16/16
15Proprietary & Confidential
Contact Information
Cindy Menhorn Tom [email protected] [email protected]: 724.244.5333 Tel: 530.676.2401
MCR PERFORMANCE SOLUTIONSwww.mcr-group.com
MCR Performance Solutions is committed to the energyindustry. We have years of experience and expertiseassisting clients in numerous areas, including:Electric/Natural Gas Regulatory Services; EnergyEfficiency; Strategic and Capital Planning; EnterpriseRisk Management; Financial Forecasting; FinancialManagement; Nuclear Asset Management; andTechnical Services.
155 N. Pfingsten RoadSuite 155Deerfield, IL 60015Tel: 847-562-0066