1. Energy Efficiency Policy Trends A Look Nationally
Katrina Pielli
Clean Energy Program Manager
Climate Protection Partnerships Division
U.S. Environmental Protection Agency
Florida PSC Energy Efficiency Initiatives Workshop
November 29, 2007

2. Agenda Today’s energy challenges and EE
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

3. Quick, cheap, and clean resource Energy efficiency is vast
Energy Efficiency is a Key Part of the Solution to Today’s Energy Challenges
Environmental
Lower carbon emissions and criteria pollutants
Lower water use
Economic
Savings to customers
Lower cost (about half) compared to new G&T
Downward pressure on natural gas prices and volatility
Improved local economy, using local labor
Benefits low–income, seniors
Utility System Benefits
Near-term tool with persistent, long-term benefits
Improved security of systems
Lower baseload and peak demand
Reduce need for “hard to site” G&T assets
Targeted, modular, manageable
Risk Management
Diversifies utility resource portfolios
Zero carbon emissions
Quick, cheap, and clean resource
Energy efficiency is vast

4. Large Potential for Cost-Effective Energy Efficiency
McKinsey Global Institute’s 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.
ACEEE’s Energy Efficiency’s 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.

5. Despite Potential, Utility Sector Energy Efficiency Has Declined
Annual Spending on Utility Sector Energy Efficiency Programs (2005 real dollars)
Source: Data from ACEEE 2005 Scorecard adjusted for inflation using U.S. Department of Labor Bureau of Labor Statistics Inflation Calculator

6. 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

7. Today’s energy challenges and EE 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

8. “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.

9. “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.

10. “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.

11. Today’s energy challenges and EE 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

12. Aligning utility incentives with EE investment
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 seems to be out of favor
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 utility’s EE portfolio
NV – Enhanced ROR
Xcel Energy filings in NM and CO

13. The Status of EE Cost Recovery and Incentive
Mechanisms for IOUs
Source: Aligning Utility Incentives with Investment in Energy Efficiency - a Product of the National Action Plan for Energy Efficiency

15. Idaho Power Pilot
Mechanism adopted to address impacts of EE program-induced changes in sales - should not be viewed as decoupling in the broadest sense of that term.
Mechanism focused specifically on recovery of lost fixed cost revenues.
PUC initiated proceeding in August 2004 to investigate financial disincentives to investment in EE by Idaho Power Company. Held a series of workshops and a written report was filed in early 2005.
Parties agreed there were disincentives preventing higher EE investment by Idaho Power, but no agreement was reached on whether or not the return of lost fixed cost revenues would result in removing the disincentives.
Parties agreed to conduct a simulation of the proposed mechanism, the results of which indicated that lost fixed cost revenues in fact produced barriers to EE investments and, therefore, a three-year pilot mechanism to allow recovery of fixed cost revenue losses should be approved.

16. Idaho Power Pilot (2)
Idaho Power filed in January of 2006 and requested authority to implement a Fixed Cost Adjustment (FCA) decoupling or true-up mechanism for its residential and small general service customers.
PUC approved the FCA as a three-year pilot program.
Program implementation began on January and will last through December 31, 2009 plus any carryover.
The first rate adjustment will occur June 1, 2008 and subsequent rate adjustments will occur on June 1 of each year during the term of the pilot.
FCA is applicable to residential and small general service customers, as the Company noted that these two classes present the most fixed cost exposure for the Company.
FCA is designed to provide symmetric rate adjustment (up or down) when fixed cost recovery per customer varies above or below a Commission established level.
FCA mechanism incorporates a 3% cap on annual increases with carryover of unrecovered deferred costs to subsequent years.

17. CA Risk/Reward Incentive Mechanism
CPUC decision issued September 20, 2007
Reward
First opportunity if utility exceeds 85% of CPUC goals.
Reward of 9% of the total net benefits generated from its portfolio.
At 100% or above CPUC goals
Reward of 12% of the total net benefits generated from its portfolio.
Total rewards across all IOUs for each 3-yr program cycle capped at $450 million
Penalty
Savings below 65% of CPUC goals = penalty.
Larger of either: 1) summed per unit penalty for every kWh, kW and therm below goals; 2) any positive net costs to the EE portfolios
Total penalties across all IOUs for each 3-yr program cycle capped at $450 million.
Deadband
No reward or penalty if performance 65%-85% of CPUC goals.

18. CA Risk/Reward Incentive Mechanism (2)
85% of goal
65% of goal

19. HI DSM Docket
HI PUC Docket -- DSM Programs and Recovery of Program Costs and DSM Utility Incentives. 2 years to reach decision.
Decision on February 13, 2007
Established EE goals for the “HECO Companies” until their next IRP dockets
Selected the appropriate market structures for providing DSM programs
Determined the cost recovery mechanisms for utility recovery of utility-incurred DSM program costs
Determined the types of costs that are appropriate for utility recovery of utility-incurred DSM program costs
Established the appropriate DSM incentive mechanism for the HECO Companies
Determined that HECO’s proposed EE DSM programs are likely to achieve the EE goals and be cost-effective
Established the appropriate cost level for HECO’s utility-incurred costs in base rates
Approved HECO’s proposed DSM utility incentive, with modifications
Approved HECO’s Proposed EE DSM Programs and Residential Customer Energy Awareness Program, with modifications

20. HI DSM Docket (2)
EE goals until next IRP: Based on MW and MWh savings that HECO Companies’ proposed EE programs could and would achieve.
C&I: ,549 MWh, 13,041 MW; 2008 – 137,324 MWh, 19,563 MW.
Residential: 2007 – 50,553, 13,336; 2008 – 66,914, 18, 068
Non-Utility Market Structure for administering EE programs by Jan 2009.
Deferred decoupling for possible consideration in future.
Shared savings mechanism to serve as an incentive.
Cost-effectiveness of EE Portfolio: IRP framework requires use of 5 tests - utility cost, rate impact measure, participant impact, societal cost and total resource cost.
Most weight given to TRC.
Program Portfolio filed has benefit-to-cost rations above 1 for all tests but RIM.

21. Today’s energy challenges and EE 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

22. Incorporate 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.

23. Incorporate 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 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.”

24. Incorporate EE as a resource in utility planning processes (3)
Data necessary to integrate EE into resource planning are readily available
Cost and savings data
Potential studies for what is achievable through EE measures
Energy, capacity and non-energy benefits can justify robust EE programs
Clear path to funding is needed to establish a budget for EE resources
Integrate EE early in the resource planning process to capture the full value
Update resource plan as information changes

25. Today’s energy challenges and EE 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

26. 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
Criteria for defining cost-effectiveness - the California Standard Practice Manual is authoritative source
Many other states now also refer to the California Standard Practice Manual as the source of their own cost-effectiveness criteria.
The California criteria include five major tests.

27. Snapshot of states use of cost tests
No specific test/s required:
KY, PA, ME, IL, ND, OK, ID, WY, NC, SC
All 5 tests required:
VA, IN, MN, CA, HI, GA
Doesn’t include info. from: MD, WV, MI, NE, OH, SD, AK, NV, TX, UT, WA, AL, LA, MS, TN

28. -Is it worth it to the customer to install EE?
Cost Test
Questions Addressed
Participant Cost Test
-Is it worth it to the customer to install EE?
-Is the customer likely to want to participate in a utility program that promotes EE?
Ratepayer Impact Measure
-What is the impact of the EE project on the utility’s operating margin?
-Would the project require an increase in rates to reach the same operating margin?
Utility Cost Test
-Do total utility costs increase or decrease?
-What is the change in total customer bills required to keep the utility whole (the change in revenue requirement)?
Total Resource Cost Test
-What is the regional benefit of the EE project including the net costs and benefits to the utility and its customers?
-Are all of the benefits greater than all of the costs (regardless of who pays the costs and who receives the benefits)?
-Is more or less money required by the region to pay for energy needs?
Societal Cost Test
-What is the overall benefit to the community of the EE project, including indirect benefits?
-Are all of the benefits, including indirect benefits, greater than all of the costs (regardless of who pays the costs and who receives the benefits)?
Source: Guide to Resource Planning with Energy Efficiency - a Product of the National Action Plan for Energy Efficiency

29. Today’s energy challenges and EE 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

30. Energy Efficiency in Arizona
Policy Overview:
In September 1999, the Arizona Corporation Commission ordered utilities to include a system benefits charge (SBC) in their restructuring plans to fund demand side management programs, consumer education, etc.
The bulk of the SBC funding for IOUs finances the Environmental Portfolio Standard, which requires all utility companies that sell retail electricity in Arizona to generate a percentage of their electricity from renewable resources. There is no set percentage for EE programs. However, the public benefits fund for Salt River Project (the second largest utility in Arizona) does support several energy efficiency programs.
: 2.5-3% reduction in energy use for state buildings
: ~10% reduction in energy use for state buildings

31. Arizona Public Service Co. (APS)
In June 2003, APS filed an application for a rate increase and a settlement agreement was signed between APS and the involved parties in August The settlement agreement issued in April 2005, includes:
An annual $10 million base rate DSM allowance for the costs of approved “eligible DSM-related items,” defined as the planning, implementation, and evaluation of programs that reduce the use of electricity by means of energy efficiency products, services, or practices. Performance incentives are included as an allowable expense.
In addition to expending the annual $10 million base rate allowance, APS is obligated to spend, on average, at least another $6 million annually on approved eligible DSM-related items. These additional amounts are to be recovered through a DSM adjustment mechanism.

32. Arizona Public Service Co. (APS)
Programs implemented by APS:
ENERGY STAR New Homes
ENERGY STAR Lighting (CFLs) rebates
ENERGY STAR HVAC rebates
Home Performance with ENERGY STAR program is currently being developed
From , APS set the following goals for its DSM Portfolio:
3,435,000 MWh in lifetime savings
51.7 MW in peak demand savings, and
$68 million in net benefits

33. Energy Efficiency in Nevada
Policy Overview:
In 2001, the Nevada legislature enacted resource portfolio standard legislation.
In 2005 this law was amended to increase the portfolio requirement, but also to allow the utilities to use EE programs to help meet the requirements.
Under the new law, renewable energy and EE is required to meet 20% of the state's electricity needs by The contribution from EE measures to meet the portfolio standard is capped at one-quarter of the total standard in any particular year.

34. Energy Efficiency in Nevada
Nevada is the only state currently that allows recovery of EE program costs using capitalization as well as a bonus return on those costs.
Over the past several years, spending on EE programs has risen substantially, due to:
Rapid growth in electricity demand
Attempts by Nevada Power and Sierra Pacific Power to maximize the contribution of EE to resource portfolio requirements as those requirements grow.

35. Energy Efficiency in Nevada
Utility EE investments are mainly a product of IRP process.
The addition of the resource portfolio requirement and the ability to meet up to 25% of that requirement provides further incentive to pursue EE investment.
Most incurred costs associated with EE programs are recoverable pursuant to the Nevada Administrative Code
A utility may seek to recover any costs associated with approved programs for conservation and DSM, including labor, overhead, materials, incentives paid to customer, advertising, and program monitoring and evaluation.

36. Energy Efficiency in Nevada
Programs implemented (Nevada Power/Sierra Pacific Power):
ENERGY STAR Appliance rebates
ENERGY STAR Lighting (CFLs and fixtures) rebates
ENERGY STAR Plus Homes Program
Nevada Power and Sierra Pacific Power Energy Savings:
2003: 35 GWh/yr, 16 MW
2004: 78 GWh/yr, 21 MW
2005: 93 GWh/yr, 33 MW

37. Today’s energy challenges and EE 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

38. Resources National Action Plan for Energy Efficiency Guides and Papers
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
Sections on Energy Efficiency Portfolio Standards, Public Benefits Funds for Energy Efficiency, Portfolio Management Strategies and Utility Incentives for Demand-Side Resources.

39. 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

40. For More Information Katrina Pielli
U.S. Environmental Protection Agency
Clean Energy Program Manager
(202)