1 Overcoming Market Barriers to Water DSM: Leapfrogging to Excellence a presentation to the NARUC Water Staff Subcommittee by Nancy Brockway, Director, Multi-Utility Research and Analysis NRRI NARUC Summer Meetings Portland, Oregon July 2008

2 There’s $ to be saved, if we can tap it. Water Supply (& Wastewater) Costs are Rising Water Efficiency Costs are Falling Cash flow tappable for efficiency $ $ $ $ $ $ $

3 Technology marches forward…

4 Potential GPD savings from package of residential water efficiency measures

5 Don’t forget the energy savings!

6 If efficiency is such a good deal, then why utility DSM?  Residents and businesses don’t install most efficient end uses  System costs go up, everyone pays, reliability at risk  BUT why don’t customers install efficiency? Prices don’t signal true costs Prices don’t signal true costs Even where they do, customers face market barriers Even where they do, customers face market barriers

7 What are the market barriers?  High first costs, and competition for capital  Customer can’t/won’t incur more debt  Concerned lifetime savings won’t materialize  Transaction hassles exceed expected benefit  Uncertainty about duration of occupancy  Split incentives E.g., builders, developers, landlords control plumbing and toilet choices - want cheapest units with fewest call backs - but tenant pays water billsE.g., builders, developers, landlords control plumbing and toilet choices - want cheapest units with fewest call backs - but tenant pays water bills

8 How to overcome the market barriers?  Lower/eliminate first cost  Eliminate debt obligation  Remove efficiency choice hassles  Marry obligation to benefits, not to individual  Only require payment if end use works as promised  Have independent certification of measure quality  Allow tenant/purchasing manager to reap benefits, without committing to pay beyond time of benefit

9 To address all market barriers, include these elements: Tariff assigned to meter location, not individual Tariff assigned to meter location, not individual Bill & pay on the utility bill with DNP Bill & pay on the utility bill with DNP Customer pays only if measure can work so that savings exceed payments Customer pays only if measure can work so that savings exceed payments Independent certification that products are appropriate & savings estimates exceed payments Independent certification that products are appropriate & savings estimates exceed payments Program guarantees payment to capital provider to obtain unlimited, low cost capital Program guarantees payment to capital provider to obtain unlimited, low cost capital

10 Does anyone offer this? Full package available with Pay As You Save® Electric/multi-resource savings in New HampshireElectric/multi-resource savings in New Hampshire Residential solar hot water installation in HawaiiResidential solar hot water installation in Hawaii PAYS® trademarked like Energy Star®PAYS® trademarked like Energy Star® to preserve program integrityto preserve program integrity Nancy Brockway is immediate past Board ChairNancy Brockway is immediate past Board Chair  Similar offerings (w/out all elements) for CFLs in Burlington VTfor CFLs in Burlington VT Midwest Gas customers in KansasMidwest Gas customers in Kansas approved in Michigan for DTE and Consumersapproved in Michigan for DTE and Consumers renewables in MA legislationrenewables in MA legislation

11 Close, and yet pretty far  Performance-based contracting “Water Service Company” identifies and installs all measures“Water Service Company” identifies and installs all measures May or may not require money down.May or may not require money down. Customer shares savings per contract with WSCoCustomer shares savings per contract with WSCo If customer leaves premises, brings WSCo obligation with him/her.If customer leaves premises, brings WSCo obligation with him/her.  On the Bill Financing Utility or approved vendor identifies/installs measuresUtility or approved vendor identifies/installs measures May or may not require money down.May or may not require money down. Repay with interest over time on utility bill.Repay with interest over time on utility bill. If customer leaves premises, brings OBF obligation with him/her.If customer leaves premises, brings OBF obligation with him/her.

12 PAYS® v. Rebates Alone  Vendors pay for marketing  Measure cost includes all admin (after start-up)  All customers can participate  No budget limit to savings  Uses rebates to expand program reach, not as limit  Taps locked-in savings  Independent measure certification  Major admin/outreach costs  Up to 75% of value of measure in rebates  Still, many customers cannot take advantage  Limit on public tolerance of rate increases for rebates limits participation  Resources left on table

13 Market Barriers Addressed? Tool to Overcome Market BarrierRebatesOBF/ Shared SavingsPAYS® Eliminate first cost NYY Eliminate debt obligation MNY Remove efficiency choice hassles NMY Tie pmts to benefits, not person NNY Must pay only if measure can work MMY Certified measure quality MNY Open to all TRC measures YNM Lowers price of new construction NNY Vendors pay outreach NYY Can be multi-resource MMY Overcome split incentives NNY

14 Main Message: Be open to new ways of getting efficiency for customers  Natural to imitate electricity/gas programs  But these programs have limits  No need to limit water/wastewater DSM to old models  Good time to experiment with new models

15 References/Resources  Edwin Orrett, P.E., Resource Performance Partners, Inc., MMWD Water Efficiency, a presentation to the Marin Municipal Water District, 2006 (Mr. Orrett’s graphics copied here with permission). More information available at  Edwin Orrett, P.E., Pay As You Save® - High Performance Resource Efficiency System, Resource Performance Partners, Inc., July  Paul A Cillo & Harlan Lachman, Energy Efficiency Institute, Pay-As-You-Save Energy Efficiency Products: Restructuring Energy Efficiency, A Report to NARUC, December 1, 1999, available at  Direct Testimony of Thomas S. Stanton, In the Matter of the Application of Consumers Energy, Case No , before the Michigan PSC (outlining Staff recommendation for development of a Consumers Energy PAYS® Tariff), June 3, Available at