NARUC Energy Regulatory Partnership Program The Georgian National Energy Regulatory Commission

NARUC Energy Regulatory Partnership Program

The Georgian National Energy Regulatory Commission and

The Vermont Public Service Board

by Andrea McHugh

Vermont Public Service Board

June 30, 2008

Electric Energy Efficiency in Vermont

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Overview

Part I:Choosing Energy EfficiencyPart II: BackgroundPart III: EEU Institutional StructurePart IV: Funding and BudgetPart V: Performance Contract Part VI: How Other States Deliver

Energy Efficiency Part VII: Efficiency Results

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Energy Efficiency Terminology

Demand side management – three major components– Energy efficiency– Load management– Conservation

Conservation versus efficiency– Behavioral changes versus installed

technology

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Why Choose Energy Efficiency?

Cost of saving electricity with energy efficiency efforts in 2007– 2.6¢/kWh

Cost of comparable electric supply in 2007– 10.7¢ / kWh

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Early Efficiency Programs

Most programs targeted to homes with electric heat– Conducted energy audits– Electric hot water heater jackets– Weatherization

Load control devices on electric hot water heaters

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Early Board Policy on Efficiency

1990, Board issued an order finding:– Energy efficiency programs could meet a

significant portion of present and future load– Utilities needed to take energy efficiency

programs seriously and treat equivalently to supply options

– Energy efficiency programs could be improved to produce better results

– A comprehensive energy efficiency program was needed

Solution – least-cost integrated resource planning

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Pre-EEU History

22 franchised distribution utilities providing retail service in separate territories (now 20) – 5 (now 3) investor-owned distribution utilities– 2 member-owned distribution utilities

(cooperatives)– 15 municipal government distribution utilities

Electric distribution utilities were obliged to deliver electric energy efficiency services

Utilities delivered within their own territories, via own personnel or contractors

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VermontElectric UtilityService Territories(as they existed beforethe EfficiencyUtility)

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Improving Energy Efficiency Efforts in Vermont

Statewide coordination of efforts – contact one organization for efficiency services

Spread the efficiency message to all ratepayers across the state and combine savings results

Provide customers of small utilities with same opportunity for energy efficiency savings as customers of large utilities

Board process to create the EEU resulted in a settlement among utilities, public advocates, and many intervenors

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Creation of the EEU in 2000

Statewide program designs– Uniformity of program structure, incentives– Statewide costs used for screening

Single delivery entity, the Energy Efficiency Utility, for majority of state ratepayers– Contractor to Public Service Board; not franchised– Barred from delivery of power

– Efficiency Vermont Burlington Electric Department delivers same

programs within its locality; cooperation required

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Roles of State Agencies

Public Service Board– Hires (after RFP process) Efficiency Vermont,

Contract Administrator, Fiscal Agent– Approves Efficiency Vermont’s Annual Plans– Approves payment of any performance

incentives– Establishes total EEU program budget and

energy efficiency charge rates– Reports to legislature annually on the

revenues collected via the energy efficiency charge and EEU program expenditures

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Roles of State Agencies (cont.)

Department of Public Service– Proposed initial efficiency programs, can

propose changes and new programs– Verifies Efficiency Vermont’s energy savings

claims– Performs efficiency program evaluations– Evaluates Efficiency Vermont’s performance– Evaluates market conditions and available

DSM potential– Annual evaluation budget from funds

collected via energy efficiency charge

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Roles of Contractors

Efficiency Vermont: Contractor hired by Board to design, propose, deliver, and subcontract efficiency services

Contract Administrator: Contractor hired by Board to oversee performance of Efficiency Vermont and resolve disputes

Fiscal Agent: Contractor hired by Board to collect and disburse Energy Efficiency Charge funds

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Roles of Other Entities

Advisory Committee– Consists of representatives of stakeholder

groups appointed by Board– Meets at least quarterly to provide advice to

Efficiency Vermont– Purely advisory, no managerial authority

Electric distribution utilities– Provide information to and receive data from

efficiency utility– Retain active obligation to deliver efficiency to

address system constraints; may hire efficiency utility to do so

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EEU StructurePUBLIC SERVICE BOARD

DISTRIBUTIONUTILITIES

FISCALAGENT

CONTRACTADMINISTRATO

R

EFFICIENCYUTILITY

CONTRACTS REGULATION

$$CONTRACTOVERSIGHT

PUBLIC SERV DEPT

EVALUATION &VERIFICATION

EEU Services

Address key markets:– Business new construction– Existing businesses– Residential new construction– Existing homes– Retail efficient products (lighting and

appliances) Initiatives target certain types of customers

– For example: ski areas, schools, multi-family housing, state buildings, low-income

EEU Services

Market-based approach– Focus on market-driven opportunities for

energy efficiency– Identify and focus on those who make and

influence efficiency decisions– Work via existing market structures that

are recognized and used by customers Retailers and Suppliers Architects and Engineers Trade Associations

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Funding

The EEU is funded by a non-bypassable volumetric wires charge known as the Energy Efficiency Charge (“EEC”) that is shown separately on customers’ bills

Statewide charge set by customer class The Board determines the total budget

for the EEU program and the amount to be collected via the wires charge

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How the Dollars Flow Each distribution utility bills its customers

the EEC Each utility sends the Fiscal Agent the total

amount of EEC billed (not collected) the prior month, along with certain accounting forms

The Fiscal Agent pays invoices that have been approved by the Contract Administrator and certain taxes that are collected as part of the EEC

In the following year, there is a “true-up” for utility EEC uncollectibles

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Design of EEC Initially was a percent of bill

– Differed by utility service territory– Was the same for all customer classes in

each service territory Because underlying utility rates

differed, customers in different service territories were paying different amounts for EEU services

Low-usage customers paid a large amount of EEC compared to the savings they could realize from EEU services

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Design of EEC (cont.) In 2003 moved to statewide kW and kWh

EEC charges, methodology refined in 2004, now described in a Board Rule– Allocate total EEC collections between

residential, commercial and industrial customers based on their contributions to utility revenues

– Determine kWh rates for each class– For commercial and industrial demand

customers, use energy/demand revenue split to determine portion of revenues to be collected via kW and kWh charges

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EEU Budget

Statute requires the Board to consider the following objectives when determining the budget:– Reduce the need for future power purchases– Reduce the generation of greenhouse gases– Limit the need to upgrade the transmission and

distribution structure– Minimize the costs of electricity– Provide efficiency and conservation services as part of

a comprehensive resource supply strategy– Provide the opportunity for all Vermonters to

participate in the programs– Target efforts to markets where they may provide the

greatest value

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EEU Budget (cont.)

Initial budget capped at $17.5 million Budgets ramped up and reached the

statutory cap in 2005 In 2005, new legislation removed cap;

Board increased 2006-2008 budgets 2008 Budget is $30.75 million:

approximately 4% of distribution utility retail revenues

2009-2011 Budgets: To be determined

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EEU Budget Process

Board has used different procedures to establish budgets– Settlement agreement (years 1-3)– Administrative process, based in part on

DPS technical potential study (years 4-6 and 7-9)

– Contested case proceeding (year 4) Board is using an administrative

process to set the years 10-12 budgets

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Performance Contract

3-year, performance-based contract, with option to renew for up to 3 more years

Performance indicators are an excellent tool for focusing Efficiency Vermont’s attention on Board’s policy goals

Well-designed performance indicators are easier to administer than detailed budget restrictions

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Performance Contract (cont.)

Board determines policy objectives for EEU

Specific performance measures and goals are negotiated with contractor at the beginning of the contract

Portion of contractor’s pay is tied to achieving the performance goals ($2.347 million over 3-year contract)

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Board’s Policy Objectives

Resource acquisition (primary focus) Market transformation Equity considerations

– Customer class– Geographic region

Board recognizes some of these objectives conflict with others– Performance goals provide guidance to

contractor on how to balance competing objectives

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Board’s Policy Objectives (cont.)

Achieve maximum societal net benefits while acquiring comprehensive cost-effective electric efficiency savings

Respond appropriately to markets in order to increase the level and comprehensiveness of energy efficiency services to Vermonters

Effectively capture potential “lost opportunity” markets

Strive for distributional equity across customer classes and geographic regions

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Recently Added Performance Goal for the EEU

Board directed Efficiency Vermont to target 40% of the EEU budget in certain defined geographic areas of the state that were experiencing transmission and distribution constraints

Goal is to reduce peak demand in the targeted areas

Defer the need for future transmission and distribution capacity investment

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Performance Indicators

Cumulative annual electricity savings Total resource benefits – includes

electricity, fossil fuel, and water savings Summer & Winter peak kW demand

savings Program results incentives – direct

market impacts Community awareness

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Performance Indicators (cont.)

All performance indicators are multi-year Many performance indicator awards are

scaled– Efficiency Vermont must achieve a minimum

level in order to receive any award for that indicator

– If Efficiency Vermont reaches the target, it earns 100% of the award for that indicator

– If Efficiency Vermont exceeds the target, it can earn more than 100% of the award for that indicator; however, the total performance award is capped

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Minimum Performance Standards

Electric benefits must exceed costs; failure to meet means ineligible for any performance incentive

Minimum spending on residential customers; failure to meet reduces performance award cap by $359,100

Minimum low-income spending; failure to meet reduces performance award cap by $359,100

Minimum participation by small non-residential customers; failure to meet reduces performance award cap by $359,100

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Process for Verifying EEU’s Performance

For annual electricity savings, total resource benefits, and summer and winter peak kW savings, each year:– Efficiency Vermont submits annual report that

establishes its claimed savings– DPS verifies the savings claims, makes

recommendation to Contract Administrator– Contract Administrator attempts to resolve any

disputes, makes recommendation to the Board– Board makes final determination regarding

Efficiency Vermont’s performance

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Process for Verifying EEU’s Performance (cont.)

For other performance indicators, claims are made by Efficiency Vermont at end of three years, same verification process is followed

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How Other States Deliver Energy Efficiency

Two primary funding mechanisms– Electric rates– Public benefits funds

Three types of entities delivering efficiency– Electric utilities – Third party administrators– Government agencies

Some states use a combination of funding mechanisms and delivery entities

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Results in Vermont

Results in Vermont (cont.)

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Natural Gas Energy Efficiency

Single supplier of natural gas in Vermont: Vermont Gas Systems, Inc. (VGS) with 40,800 customers

Delivers energy efficiency services for its customers– Technical and financial assistance– Home energy audits– Commercial facility audits

High level of customer participation: over 16,000 ratepayers have installed measures to save energy

EEU and VGS coordinate closely to treat customers comprehensively