[PPT] - Presentation to the Minnesota Legislature February 5, 2013 by PowerPoint Presentation

SLIDE 1 UTILITY SECTOR ENERGY EFFICIENCY IN MINNESOTA: DOING WELL….MANY REASONS TO DO MORE Presentation to the Minnesota Legislature February 5, 2013 by Martin Kushler, Ph.D. Senior Fellow American Council for an Energy-Efficient Economy American Council fur an Enlergy-Efficient Ecunnmy

SLIDE 2 2 2

The American Council for an Energy-Efficient Economy (ACEEE)

Nonprofit 501(c)(3) dedicated to advancing energy efficiency through

research, communications, and conferences. Founded in 1980.

~40 staff in Washington DC, + field offices in DE, MI, and WI.
Focus on End-Use Efficiency in Industry, Buildings, Utilities, and

Transportation; and State & National Policy

Funding: Foundations (34%), Federal & State Grants (7%), Contract

work (21%) Conferences and Publications (34%), Contributions and Other (4%) Martin Kushler, Ph.D. (Senior Fellow, ACEEE)

30 years conducting research in the utility industry, including:
10 years as Director of the ACEEE Utilities Program
10 years as the Supervisor of the Evaluation section at the Michigan PSC
Have assisted over a dozen states with utility EE policies
Minnesota experience:
Advisor to Xcel CIP Advisory Board 2000-2008, 2012-present
Advisor to MN Legislative Auditor on CIP evaluation (2005)
Advisor to MNCEE, 2012-present

Arnennan Buuncil in: an Eh.er§y-EiF:cier1:Enunumy

SLIDE 3

TOPICS

Minnesota’s energy disadvantage
Why energy efficiency should be the top priority
Energy efficiency as a utility system resource
Utility economic concerns regarding customer EE
Regulatory mechanisms to address utility concerns
Energy efficiency as economic development
A few current ‘hot topics’
Grading Minnesota
Opportunities for further progress

American Buuncil in: an ffiéréy-ElI:cieni Enunumy

SLIDE 4 4

KEY POINT #1: MINNESOTA HAS A BIG ENERGY PROBLEM

Minnesota uses a lot of energy

– Total cost $12 billion per year in 2000 By 2010, had increased to $21 billion!!!

Minnesota is essentially totally dependent on fuels

imported from other states and countries

Minnesota imports:

– 100% of the coal and uranium used – 100% of oil & petroleum products – 100% of the natural gas

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SLIDE 5 5

COST OF MINNESOTA’S ENERGY IMPORTS

Before the new ‘high energy cost’ era (circa

2000), roughly $7 billion per year was leaving Minnesota to pay for fuel imports

At 2010 market prices, this dollar outflow

was over $13 billion per year THIS IS A HUGE ECONOMIC DRAIN ON MINNESOTA’S STATE ECONOMY!

American Buuncil in: an ffiéréy-ElI:cieni Enunumy

SLIDE 6 6 Economic Burden on Minnesota Homes and Businesses: State Taxes vs. Energy Costs (2010) $14.2 $20.9 $0.0 $5.0 $10.0 $15.0 $20.0 $25.0 Total MN Taxes (2010) Total MN Energy Costs (2010) Billions of Dollars $13 billion drain for imported fuels Q 0

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SLIDE 7 7

EFFECTS ON THE STATE ECONOMY This additional $6 billion annual drain on Minnesota’s economy is roughly equivalent to the lost payroll from closing 120 major manufacturing plants. (assuming 1000 jobs @ $50,000 each, per plant) Even the Wall Street Journal has written about the unprecedented transfer of wealth, calling it a “bonanza” and “windfall” for the handful of big energy producing states (i.e., AK, NM, ND, WY and TX) and countries (e.g., OPEC).

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SLIDE 8 8

KEY POINT #2: MINNESOTA’S FUTURE IS NOT IN FOSSIL FUELS

MINNESOTA’S RECOVERABLE RESERVES AS A SHARE OF U.S. RECOVERABLE RESERVES (Source: U.S. EIA)

Coal: 0%
Oil: 0 %
Natural Gas: 0%

[also Uranium: 0%] Why would Minnesota support policies that encourage greater consumption of these resources? (At the state OR federal level !) A-'|1ur=.na:1 Buunuil in: an [;'|£F§}'-E€.‘:Ei3l1F.E|3UHUH'|)"

SLIDE 9 9

2011 Coal Production by Region

Million Short Tons (peroent change from 2010) _ Wstern uncludnsnlaska} 5B?.*1 1-new ' _ Appiaclian . 335.1 ' £11-I1‘!-H Interior ' "IE-9.! _

{'9.1‘i‘u]

Source: LLS. Energy Information Administration, Quarterly Coei Report, October-December 2011 {April 2012), preliminary 2011

date. Production does not include refuse recovery.

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SLIDE 10 10 Pacific Federal Olfshore 363 ‘ll "‘\ . 0. ‘ ~r‘,.n¢ M. WA Figure 9. Oil proved resewes by state/area, 2010 U.S. Total: 25.2 billion barrels of crude oil plus lease condensate MT _ 369 /*' _ I 4., TN1 MS AL 254 60 GA million barrels (statelarea count)

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SLIDE 12

As a matter of state policy, Minnesota should be trying to maximize the amount of energy efficiency it can accomplish… … and minimize the amount of additional fuel imports it needs

12 American Buuricil iii: ari tneroii-Eiiscierit Economy

SLIDE 13 13

KEY POINT #3 It is much cheaper to save energy than it is to produce it. [We can save electricity for about one-third the cost of producing it through a new power plant …. With no carbon (CO2) emissions]

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SLIDE 14 14

Cost of New Electricity Resources

Source: Lazard 2008 for NARUC (midpoint of range)

2

4 6 8 10 12 14 Energy Efficiency (a) Wind Biomass

Nat. Gas

Combined Cycle Pulverized Coal Thin Film PV Nuclear Solar Thermal Coal IGCC Levelized Cost (cents/kWh) w/o Carbon W/ $20/Ton Carbon Ir['/['/r['/r['/r['/r['/r['/ Wrérérérérr? ________ ,_______

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SLIDE 15

Cost of New Electricity Resources

[Source: Lazard 2011] 15 5 10 15 20 25 Energy Efficiency Wind Biomass Natural Gas Combined Cycle Pulverized Coal* Nuclear Coal IGCC Solar PV Range of Levelized Costs (cents per kWh) “I I I I I I I I I

SLIDE 16 16

Minnesota’s electricity policy, should be trying to maximize the amount of energy efficiency resources it can acquire, … and minimize the amount of new power plants needed (This is in fact now the declared policy of a

number of leading states…. )

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SLIDE 17 17 POLICY PRIORITY #1: UTILITY SECTOR ENERGY EFFICIENCY PROGRAMS

Substantial utility-funded energy efficiency

resource programs are the cornerstone of the policy efforts of every leading state on energy efficiency – States don’t spend tax dollars on this…they are all broke – Utilities spend $billions every year (~ $8 billion in Minnesota). Just direct 3% or 4% to energy efficiency

American Boimcil Io: arr Energy-Eilicieni Economy

SLIDE 18

Energy Efficiency as a utility system resource

18 American Boimcil Io: arr Energy-Eilicieni Economy

SLIDE 19 19

RATIONALE FOR ENERGY EFFICIENCY AS A UTILITY SYSTEM RESOURCE

SIMPLY STATED:

Utility systems need to have adequate supply resources

to meet customer demand

To keep the system in balance, you can add supply

resources, reduce customer demand, or a combination of the two

In virtually all cases today, it is much cheaper to reduce

customer demand than to acquire new supply resources

[True for electricity and natural gas] American Boimcil Io: arr Energy-Eilicieni Economy

SLIDE 20

ENERGY EFFICIENCY ON A “POWER PLANT” SCALE

Some leading state examples

Minnesota has saved over 2,300 MW since 1990 The Pacific Northwest has saved over 5,000 MW since 1980 California has saved over 1,500 MW in just the last 5 years

Over a dozen states have EE programs on a scale large

enough to displace power plants (i.e., save 1% of load or more each year)

AZ, CA, CT, IA, IL, MA, MI, MN, NY, OR, RI, VT, WA, WI

American Boimcil Io: arr Energy-Eilicieni Economy

SLIDE 21

THE PACIFIC NORTHWEST (ID, MT, OR, WA)

Best electric resource planning process in the U.S.
30 years of energy efficiency program experience
The 2005 plan was to meet all new electricity resource

needs through 2013, and two-thirds of new needs thru 2025, with energy efficiency ….And all at a levelized cost of 2.4 cents/kWh

The Fifth Northwest Electric Power and Conservation Plan Northwest Power and Conservation Council, May 2005. [http://www.nwcouncil.org/energy/powerplan/plan/]

American Booricil in: arr Eneroy-Eiiicierii Economy

SLIDE 22

5th NW Plan Relied on Conservation and Renewable Resources to Meet All Load Growth Thru 2016

500 1000 1500 2000 2500 3000 3500 4000 4500 5000 2004 2008 2012 2016 2020 2024 Year Installed Capacity (MW or aMW) Conservation (aMW) Wind (MW) DR (MW) SCGTurbine (MW) CCGTurbine (MW) Coal (ICG) (MW) 1

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SLIDE 23 23 500 1000 1500 2000 2500 3000 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Annual Savings (GWH/yr) Target Actual

Accomplishments Have Exceeded Plan Targets Every Year

iiiiiii|II

SLIDE 24 Utility Acquired Energy Efficiency Has Been A

BARGAIN!

$0 $10 $20 $30 $40 $50 $60 $70 $80 $90 $100 May-96 Nov-96 May-97 Nov-97 May-98 Nov-98 May-99 Nov-99 May-00 Nov-00 May-01 Nov-01 May-02 Nov-02 May-03 Nov-03 May-04 Nov-04 May-05 Nov-05 May-06 Nov-06 May-07 Nov-07 Wholesale Electricity Price (2006$/MWH) Levelized Cost of Utility Efficiency Acquisitions Monthly Average Wholesale Market Price @ Mid-C Trading Hub

SLIDE 25

Pacific NW 6th Plan Resource Portfolio (2010)

1000 2000 3000 4000 5000 6000 7000 8000 2010 2015 2020 2025 Cumulative Resource (Average Megawatts) SCCT CCCT Geothermal New Wind RPS Wind Conservation

SLIDE 26 26

The Pacific Northwest provides a great example of what is possible….

Minnesota can chart an energy course that is fundamentally based on energy efficiency and cost-effective local Minnesota renewable resources

American Boimcil Io: arr Energy-Eilicieni Economy

SLIDE 27

Why is public policy needed for energy efficiency?

American Boimcil Io: arr Energy-Eilicieni Economy

SLIDE 28 NEED FOR GOVT/REGULATORY PROGRAMS AND POLICIES

1) Most of the extra “benefits” of energy efficiency are external to the economic interests of utilities (i.e., reduced consumption of natural resources, reduced air emissions, reduced energy imports)

r are long-term in nature (e.g., long-term avoided system

costs) 2) Under traditional regulation, the short-term economic interests of utilities are adversely affected by customer energy efficiency

28 American Bocricil Io: ari Enercii-Eiiicierit Economy

SLIDE 29

UNDERSTANDING UTILITY ECONOMICS REGARDING CUSTOMER ENERGY EFFICIENCY

TWO KEY FACTORS:

1) Under traditional regulation, once rates are set, if utility sales go up the utility’s profits generally increase…. …. and if utility sales go down (e.g., through customer energy efficiency) the utility’s profits decline.

Therefore, utilities have strong economic incentives to seek greater energy sales and avoid declines in sales

[This is sometimes referred to as: “throughput addiction.]

American Boimcil Io: arr Energy-Eilicieni Economy

SLIDE 30

UTILITY ECONOMICS (CONTINUED) 2) Utilities earn a “rate of return” on their supply side investments (e.g., power plants, wires, meters), but not on energy efficiency programs (those are typically just “expensed”) Not surprisingly…. the combination of those two factors results in what we have historically seen from utilities: proposals to build more power plants and sell more energy….(& passive or active opposition to strong energy efficiency requirements)

American Boimcil Io: arr Energy-Eilicieni Economy

SLIDE 31 UTILITIES HAVE 3 KEY FINANCIAL CONCERNS REGARDING ENERGY EFFICIENCY PROGRAMS

[In order of importance]

Cost recovery for the direct costs of a program
Addressing the disincentives of “lost

revenues” resulting from energy efficiency improvements that reduce customer energy use

Providing an opportunity for earnings from

energy efficiency program activity (to reflect the fact that they can generate earnings from supply-side investment)

31 American Boimcil Io: arr Energy-Eilicieni Economy

SLIDE 32 32

3 Legs of the financial stool for utility energy efficiency programs

1. Cost recovery (of expenditures on programs,

incl. customer incentives

and program costs) 2. Addressing “Through-put incentive” (more sales = more revenue) 3. Opportunity to earn on investments (comparable to supply-side) [Note: MN’s financial stool is currently unbalanced] 32 Ifi ~ ‘I- _ )\\ “HI

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SLIDE 33

REVENUE “DECOUPLING”: ESSENTIAL FOR REACHING BROADER EE GOALS

Originally a challenge, but “decoupling” is growing fast
Not essential to achieving programs
Not sufficient by itself to assure programs
However, addressing the utility disincentive from lost

sales is essential to achieving true utility cooperation in broader energy efficiency objectives (e.g., building codes, appliance standards, government public efficiency campaigns, climate goals, etc.) [Utilities can be motivated to some extent through direct performance incentives, but the effect only applies to targeted programs….not to broader objectives for customer energy efficiency.]

33 American Boericil Io: ari Eiieroii-Eiiicierit Economy

SLIDE 34 34 34

KEY POINT #4 ENERGY EFFICIENCY is Minnesota’s best opportunity For economic development

American Boimcil Io: arr Energy-Eilicieni Economy

SLIDE 35 35

THE ECONOMIC “TRIPLE PLAY”

Energy Efficiency is the only resource that boosts the economy and provides jobs in 3 key ways: 1. Direct employment in delivering the EE 2. Local re-spending of saved energy dollars 3. Reduced energy costs for all ratepayers

Cheapest resource for the utility system
Downward pressure on market energy prices

American Boimcil Io: arr Energy-Eilicieni Economy

SLIDE 36

Some miscellaneous current ‘hot topics’

36 American Boimcil Io: arr Energy-Eilicieni Economy

SLIDE 37

DO THE CURRENT LOW NATURAL GAS PRICES MEAN THAT ENERGY EFFICIENCY IS NOT NEEDED?

1. No. Energy efficiency is still very cost-effective

[electricity: see next slide; gas: see appendix]

2. Natural gas prices won’t stay this low for very long

[resource decisions need to be made on 10, 20 and 30 year time horizons]

37 American Boimcil Io: arr Energy-Eilicieni Economy

SLIDE 38 38 Levelized Cost of Combined Cycle Combustion Turbine at Alternative Natural Gas Prices and Lifetime Capacity Factors Compared to Utility Cost of Conservation $0 $20 $40 $60 $80 $100 $120 $140 $160 $1.00/MMBtu $2.00/MMBtu $4.00/MMBtu $6.00/MMBtu Levelized Cost (2006$/MWH) Lifetime Natural Gas Price PNW Maximum CF (79%) PNW Average CF (51%) PNW Minimum CF (17%) Historical Utility Cost of Efficiency

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SLIDE 39

WHAT ABOUT CLIMATE CHANGE?

1. Energy efficiency is by far the cheapest electricity

resource option….even without adding CO2 costs

2. A modest $20/ton value for CO2 adds nearly

2 cents/kWh to the cost of electricity from coal, and nearly a penny/kWh to natural gas fired electricity (making EE even more cost-effective)

3. Energy efficiency is a “no regrets” policy because

it’s other benefits are so substantial….even if no dollar cost is ever attached to CO2 emissions

4. There is general consensus that any serious plan

to slow down climate change must have energy efficiency as the top priority policy.

39 American Boimcil Io: arr Energy-Eilicieni Economy

SLIDE 40

WHAT ABOUT INDUSTRIAL CUSTOMERS?

1. The industrial customer sector is a major share of

the total electric system load [~ a third of total MWh sales in MN]

2. The industrial sector holds the largest and cheapest

energy efficiency opportunities for the utility system [typically 1 to 2 cents/kWh or less]

3. Any serious effort to lower total electric system costs

for all customers must include capturing energy efficiency improvements in the industrial sector [If industrial customers “opt out”, that is a major policy and program failure]

4. The keys are strong policies keeping industrials “in”,

and attractive programs to encourage participation

40 American Boimcil Io: arr Energy-Eilicieni Economy

SLIDE 41

WHY INDUSTRIAL CUSTOMERS “ON THEIR OWN” DO NOT CAPTURE ALL COST-EFFECTIVE EE

The Problem A typical large corporation will not invest in a project unless there is a very quick return…a historical “rule of thumb” has been about a two-year ‘payback’ [With the current tight economy, it is likely closer to 1-year now] Assume a 2-yr. payback [device costs $2, saves $1 per year] Typical industrial rate: 7.5 cents/kWh [$1/.075 = 13.33 kWh] For the utility, a device that cost $2 and saved 13.33 kWh/yr., levelized over a 10-yr. life, would cost just 1.9 cents/kWh That means that any EE with a cost over 1.9 cents per kWh will likely not get done by the customer, “on their own” Here’s how utility EE programs overcome that problem…. 41 American Boericil Io: ari Eneroy-Eiiicierit Economy

SLIDE 42 EXAMPLE OF HOW A UTILITY EE PROGRAM FOR INDUSTRIAL CUSTOMERS PRODUCES COST-EFFECTIVE EE THAT WOULD NOT OTHERWISE HAPPEN

Assume an EE project with a four-year payback

Cost: $4, annual savings: $1 (again, 13.33 kWh/yr.) On its own, the customer would not do this project The Utility EE Program The utility provides a $2 incentive to the customer, to “buy down” the payback to 2 yrs, allowing the project to proceed

The utility is essentially “buying” energy efficiency savings

from the customer….in this case at a levelized cost of just 1.9 cents/kWh [$2 x CRF of .1294/13.33 kWh]

This is about one-fourth the cost of electricity from building,

fueling and operating a new power plant.

The industrial customer benefits directly, the utility system

(all ratepayers) benefit by avoiding higher-cost supply 42 American Boericil Io: ari Eneroii-Eiiicierit Economy

SLIDE 43

A LEADING STATE EXAMPLE: INDUSTRIAL CUSTOMERS SUPPORTING PLAN FOR RECORD LEVELS OF UTILITY ENERGY EFFICIENCY

"These are very ambitious goals and we look forward to partnering with the electric and gas utilities to realize these goals and deliver energy efficiency solutions to our members statewide,"

Robert Rio, SeniorVice President of Associated Industries

f Massachusetts, who serves on the Energy Efficiency

Advisory Council as its industrial energy users representative.

[In response to the announcement of Massachusetts’ new plan for a $1.1 billion three-year program , to save 2.4% per year through energy efficiency]

43 American Boericil Io: ari Eneroii-Eiiicierit Economy

SLIDE 44

So how does Minnesota compare to other states on utility-sector energy efficiency?

44 American Boimcil Io: arr Energy-Eilicieni Economy

SLIDE 45

Energy Efficiency Resource Standards

HI: 4,300 GWh by 2030 20% of load growth by 2010 11.5% by 2020 10% of 2005 sales by 2020 1.5% annual by 2010 >2%% annual by 2015 VT: 2.0% annual now MA: 2.4% annually by 2012 CT: 1.5%/yr now

24 States –as of 2011

DC: 20% by 2020 DE: 15% by 2015 ~10% by 2025 VA: 10% by 2020 2% annual by 2015 1.5% annual (post- 2010) >1% annual by 2012 1% annual. By 2011 4% by 2020 0.6% annually 2% annual by 2019 1.0% annual by2012 Standard Voluntary Goal Pending Standard or Goal Combined RES/EERS MD: 15% by 2015 (relative to 2007 sales) 20% of 2005 sales by 2020 2% annual by 2019 0.‘,'-T\’J

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I 0 American Bouncli for an Energy-Elficleni Economy IUIII

SLIDE 46 46 46 Eleven geographically dispersed states have committed to long-term targets to achieve over 10% cumulative annual savings by 2020 Sa es t ue 5A\r ngsas %

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Reta Cumu a 30.00% 25.00% State EERS Policies MA AZ 20.00% — 15.00% MD 10.00% - - - - - - - - - - - - - ||-HI WA MN Essie 5.00% — I\

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NM ‘- ——__— FL _, TX NV NC 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Year

ACEEFE

9 American Bouncll Ici an Energy-Ellicleni Economy

SLIDE 47 47 47

Cumulative Electricity Savings of State EERS Policies Extrapolated to 2020

State Cumulative 2020 Target State Cumulative 2020 Target Vermont* 27.00% Wisconsin* 13.50% Maryland* 26.70% Maine* 13.40% New York* 26.50% Connecticut* 13.14% Massachusetts 26.10% California 12.94% Rhode Island* 25.26% Ohio 12.13% Arizona 22.00% Michigan 10.55% Illinois 18.00% Oregon* 10.40% Hawaii* 18.00% Pennsylvania* 9.98% Washington 17.24% New Mexico 8.06% Minnesota 16.50% Arkansas* 6.75% Iowa* 16.10% Texas 4.60% Delaware 15.00% Florida 4.06% Colorado 14.93% Nevada 3.76% Indiana 13.81% North Carolina 2.92% *Savings beginning in 2009 extrapolated out to 2020 based on final year of annual savings required Note: Assumptions and methodology detailed in full report American Boimcll Io: arr Energy-Eliicleni Economy

SLIDE 48 48 48

Results of ACEEE EERS “Progress Report”

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2.00%

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SLIDE 49 49

2012 ACEEE State EE Scorecard Rankings

\

Oklahoma Arizona New Mexico NKBIISHS i *> llawali Amer can Bouicil Io: ari Energy Er :ci=ri* Economy N.l'l. 18 N.J. 16 " Mosl Improved

Ranksi - I0

Ranks II - 20

Z Ranks 2i -so

Ranks 31 - 40 Ranks 41 - SI

SLIDE 50 50 CHANGE IN ACEEE OVERALL EE SCORECARD RANKINGS MIDWEST STATES 2006  2012 99 5050 3542 3439 4643 1311 4846 1217 2614 3312 2722 3536

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American Eouncll ici an Energy-Elficlenl Economy

iv

SLIDE 51

GRADING MINNESOTA… ON UTILITY-SECTOR ENERGY EFFICIENCY POLICIES AND PERFORMANCE

Overall grade: B+/A-

Areas for improvement to be truly “top tier”:

Find ways to push beyond 1.5%/year
Balance the 3-legged stool (moderate incentives , add

decoupling)

Improve industrial customer buy-in to the EE strategy
Find a way to capture CHP as a win-win for all
Formally incorporate utility EE in state air quality
bjectives (ideally including GHG)
Ensure good performance by all utilities
Use hook-up fees and rate design to incentivize EE

51 Amer=can Bocricil IEII arr E;'|£F§y-Ei.’:EI3llF. Ecoriomy

SLIDE 52 52

CONCLUSIONS

Minnesota has a very good record on utility energy

efficiency

There are substantial opportunities to do even

better

Minnesota’s energy import dependence and energy

dollar drain provide extra impetus to the state’s interest in pursuing energy efficiency

Considering ‘climate’ (GHG) goals only adds

frosting to the cake

American Boimcil Io: arr Energy-Eilicieni Economy

SLIDE 53

APPENDIX

53 American Boimcil Io: arr Energy-Eilicieni Economy

SLIDE 54 54 WHAT IS AN “ENERGY EFFICIENCY PROGRAM” ?

An organized and comprehensive effort to try to encourage customers (residential and business) to implement energy efficiency improvements Key elements

Public information, education and persuasion
Information, training, and incentives to “trade allies”

(retailers, contractors, etc.)

Economic incentives for customers (e.g., rebates)
Quality control, monitoring, and evaluation

> Customers can often save 10-30% on utility bills [ACEEE has done several national studies to identify exemplary utility energy efficiency programs]

American Boericil Io: ari Enercy-Eiiicierit Economy

SLIDE 55 55 55 ENERGY SAVINGS FROM RATEPAYER-FUNDED NATURAL GAS ENERGY EFFICIENCY PROGRAMS

Historically, data for natural gas energy efficiency have

not been as consistently reported as for electricity

ACEEE’s recent report provides data for individual

states, for certain years where it is available

Based on cost and savings data for 42 individual years

across 12 states, one can calculate:

Average utility cost of saved gas: $2.88/Mcf
Median cost: $2.70/Mcf
Range: $0.57 to $7.42/Mcf
78% of all state/year results were < $4.00/Mcf

American Boimcil Io: arr Energy-Eilicieni Economy

SLIDE 56 56 56 SOME OTHER GOOD EXAMPLES OF NATURAL GAS ENERGY EFFICIENCY SAVINGS RESULTS

An ACEEE national review in 2009 of 6 states with major

natural gas EE programs found a median cost of conserved energy of $3.70/Mcf, with a range of $2.70 to $5.50/Mcf http://www.aceee.org/research-report/u092

A SWEEP review in 2006 of 9 leading utilities around the

U.S. found a median savings of 0.5% of annual sales (with a range of 0.1% to 1.0%/year), and a median benefit-cost ratio of 2.4 to 1 (with gas wholesale prices at ~ $6.00/Mcf) http://www.swenergy.org/publications/documents/Natural_Gas_DSM _Programs_A_National_Survey.pdf

An ACEEE study in 2005 provided case studies of key

programs at nine leading natural gas utilities, which reported saving gas at a median cost of $2.50/Mcf, with a range of $1.50 to $4.10/Mcf http://www.aceee.org/research-report/u051 American Boimcil Io: arr Energy-Eilicieni Economy

SLIDE 57

TWO BASIC MECHANISMS FOR ADDRESSING LOST REVENUES

Decoupling – Essentially, “truing up” for actual sales

above or below forecast NOTE: INCREASING THE FIXED CHARGE COMPONENT OF THE BILL IS NOT “DECOUPLING” !!!

Direct lost revenue compensation

DIRECT LOST REVENUE RECOVERY HAS SEVERAL DISADVANTAGES, AND HAS FALLEN OUT OF FAVOR

Vulnerable to ‘gaming’
Leads to very contentious reconciliation hearings
Doesn’t do anything to address the utility disincentive

regarding broader energy efficiency policies (e.g., codes and standards),

Nor does it diminish the general utility interest in pursuing

load-building 57 American Boimcil Io: arr Energy-Eilicieni Economy

SLIDE 58

RATIONALE FOR ‘TRUE’ DECOUPLING

Utilities have rates established based on approved costs and an

authorized rate of return, spread over a forecasted level of sales

If EE programs cause sales to decline below forecasted levels,

such that authorized fixed costs are not recovered, there is a ‘moral argument’ for allowing those costs to be collected (in exchange for the utility providing energy efficiency programs)

However, if sales are still above the forecasted level, there is no

actual deficit in recovering authorized costs, and no moral argument for collecting ‘lost revenues’

True symmetrical ‘decoupling’ recognizes those factors and

simply ‘trues up’ actual sales to forecasted sales + or – [in contrast, direct lost revenue recovery can lead to, in essence, ‘double dipping’, if sales are still above forecast] 58 American Boimcil Io: arr Energy-Eilicieni Economy

SLIDE 59 59 HOW LOCAL COMMUNITIES BENEFIT FROM UTILITY SECTOR ENERGY EFFICIENCY PROGRAMS

Direct local employment (installers, electricians,

skilled trades, service occupations and retail)

Direct savings on utility bills for customers

participating in the energy efficiency programs (10- 30% savings is possible)

Indirect benefit from reduced dollar drain from the

community (i.e., re-spending of the $ savings by customers)

Reduced air emissions from fossil fuel combustion (&

urban areas tend to have the most serious air quality problems …NOx, ozone, smog, mercury, particulates)

American Boimcil Io: arr Energy-Eilicieni Economy

SLIDE 60 60

ECONOMIC RESULTS FROM WISCONSIN

EFFECTS OF 10 YEARS OF ENERGY EFFICIENCY PROGRAMS:

25,000 net additional job-years

(91,000 over life of measures)

$1.1 billion additional net labor income

($5.7 billion over life of measures)

$1.9 billion net business activity increase

($12 billion over life of measures)

40 to 60 net additional job-years per million $ of EE

program spending [~1/3 are direct (“green jobs”), the rest are induced by re-spending of saved utility bill $; reducing energy imports; improved in-state business competitiveness, and indirect effects on the “supply chain” for energy efficiency products.] American Boericil Io: ari Eiieroii-Eiiicierit Economy