Why Avista Does DSM

1

Demand-Side Management

Bruce Folsom, Regulatory Compliance Manager

before theDSM Subcommittee of theInterim Energy Committee

August 23, 2006

2

Why Avista Does DSM

• Fulfilling Avista’s least-cost resource acquisition obligation

• Customer Service

– Customers expect Avista to be their “energy experts”

• Community Service

– Helps meet needs of the limited income community

• Economic Development

– Cost-effective DSM improves the competitiveness of existing customers in national and world-wide markets

3

How Avista Does DSM:Northwest Electric DSM Basics

• Electric DSM history:

– The Regional Review of the 1990’s established a non-binding recommendation for a 3% public purposes charge for, among other things, electric-efficiency funding

– Deregulation and the prospects for vertical disintegration led to the “stranded rate base” issue in the early ’90s

– Northwest utilities substantially reduced DSM funding

– Washington Water Power initiated a “non-bypassable public purposes charge,” the first in the country, to continue DSM by:

• Establishing funding for DSM that was not subject to the utility capital budgeting process

• Ensuring timely cost-recovery for DSM investments without incurring the risks of stranding rate base

4

How Avista Does DSM:Natural Gas DSM Basics

• Natural Gas DSM

– Prior to 2002 natural gas DSM was difficult to “sell”

• Natural Gas DSM typically:

– Used in passive end-uses (space and water heating)

– Was inexpensive

– Has fewer efficient technology alternatives

– Doesn’t incur the same environmental concerns as electric

• MUCH of this has changed since 2002

– Future natural gas DSM planning does not have a rich historical precedence as found on the electric side

• Own-price and cross-price elasticity issues currently being analyzed

5

How Avista Does DSM:Regulatory & Political History

• The tariff rider approach is favorable in that:

– Provides a significant funding mechanism for DSM to meet customer need

– It shields DSM infrastructure from fluctuating capital budgets

• And unfavorable in that:

– Utilities aren’t permitted to earn on what would otherwise be a very secure investment

• This approach has been widely copied throughout the country

• There is no significant internal or external demand for revising this successful approach to DSM funding

6

How Avista Does DSM:Regulatory & Political History

• Avista has used the “non-bypassable public purposes” tariff rider funding since 1995

– A tariff surcharge on

• All retail electric customers

• All non-transport gas customers

– Excludes transport schedules 146 and 148

– Surcharges tariffed as Schedule 91 (electric) and Schedule 191 (natural gas)

– Tariff rider levels have changed several times since this time, generally ranging from

• 1.00% to 1.95% electric

• 0.00% to 0.96% natural gas

7

External Energy Efficiency (“Triple-E”) Board

• Successful stakeholder participation• Non-binding external oversight board

– A sounding board and communication vehicle– The board can convene their own meetings and make board

recommendations to regulators• Two traditional meetings per year• Quarterly newsletter established 2005• “Triple-E Reports”

– Primary tool for communicating cost-effectiveness, measurement & evaluation (M&E), resource acquisition, disclosure

– Used as a basis for DSM regulatory and informational requests– Summarizes selected managerial accounting and analysis findings

8

Our Tariffs and Programs• Programs regulated under Schedules 90 (electric) and 190 (gas)

– Electric incentives increased in early ’05 (ID) and mid ’05 (WA)

• Incentives based upon– Customer simple payback– First-year kWh’s or therms– Tiered incentive structure

• Addresses “free-ridership” issues with regulators• Increases incentive $ per kWh / therm results• Subject to 50% and 30% cap

– Commercial / Industrial applications• “Site-Specific” programs subject to Dual Fuel Incentive

Calculation– An “anything qualifies” program

• Prescriptive programs conform with tariff based on prototypical application

– Reduces administrative cost (used for routine, homogenous measures)

9

Electric DSM Incentive Tiers

$-

$0.02

$0.04

$0.06

$0.08

$0.10

$0.12

$0.14

$0.16

0 20 40 60 80 100 120 140 160 180 200

$ per first-year kWh

Mon

ths

Sim

ple

Payb

ack

El-Eff

Fuel-Eff

10

Gas DSM Incentive Tiers

0

0.5

1

1.5

2

2.5

3

3.5

4

0 20 40 60 80 100 120 140 160 180 200

$ per first-year therm

Mon

ths

sim

ple

payb

ack

Gas-Eff

New Tech

11

DSM Role in Resource Planning – Electric

• Electric Integrated Resource Planning (IRP) process– Regulated process– Mandatory IRP every two years– Followed by Request For Proposals (RFP)– Typically six to twelve month process– For DSM

• Cumulatively DSM aggregates to a moderate-sized resource (approximately 80 aMW on-line net of degradation)

• Requires comprehensive assessment of cost-effectiveness of potential utility programs, characterization of risk and other characteristics, etc.

• Ultimately leading to a DSM supply curve thus identifying the DSM goal for the foreseeable future

– To be modified two years later in the next IRP

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• Request For Proposals process

• Two previous DSM experiences

– Early 1990s process resulted in one short-listed project

– 2000 All-Resource RFP

• Rec’d 8 proposals, 3 short-listed and negotiated, 2 selected

• WAGA and Quantum Engineering

• Focus no specified market segments and jurisdictions

• 2002-2004 identification, 2005 completion

– 38 mills levelized cost to be paid over ten year period

• 2005 identification, 2006 completion

– 25 cents front-loaded cost (approx 38 mills levelized)

• Acquisition:

– WAGA (2 + 1 aMW); Quantum (1 + 1 aMW)

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• 2005 / 2006 RFPs

– In addition to Avista’s standard DSM programs

– Power Supply Department is fielding a renewable (predominantly wind) RFP

– Current DSM direction is to pursue a series of targeted RFP’s plus a general solicitation for cost-effective DSM resources

14

Demand Response

• Demand Response

– Interruptible, curtailable, TOU, real-time pricing options

– Past evaluation of opportunities failed to clear the Cost-Effectiveness hurdle

• Technology advancements, growing TOU differentials and price spikes

Need to continuously evaluate potential and be prepared to respond

15

Summary of Cost-Effectiveness Tests

• Cost-effectiveness is the cornerstone of DSM acquisition• The 1987 California Standard Practice Tests:

– Total Resource Cost (TRC)• Comparison of avoided cost and non-energy benefits vs. customer

and non-incentive utility cost– Utility Cost Test (UCT)

• Comparison of avoided cost vs. total utility cost (incentives and non-incentives)

– Participant Cost Test• Comparison of bill reduction and non-energy benefits vs. customer

cost– Non-Participant (AKA Rate Impact Measure, or RIM) Test

• Measure of rate impact upon the non-participant customer (DSM will almost never pass the RIM test)

– Societal Test• TRC test with the addition of quantifiable externality reduction as a

program benefit

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Cost-Effectiveness Tests Used by Avista

• Primarily TRC and UCT-based– Difference is

• TRC includes customer cost, UCT does not• TRC excludes utility incentives, UCT includes them• TRC includes non-energy benefits, UCT does not• TRC < UCT since customer cost > incentive

• Cost-Effectiveness Issues– Quantification of non-energy benefits

• We apply a conservative standard– Timeliness of avoided cost streams– Reviewed by entire Triple-E plus other external parties on a regular basis

17

2002-2005 DSM Business Plan

• Objectives

– Recover $12.4 million negative balance from 2001 Western Energy Crisis

– Recovery without revision to rider

– Recovery while meeting resource acquisition guidelines

• Plan

– Established “ordered priorities”

• Meet customer obligations

• Field a cost-effective portfolio

• Recover the negative balance in a timely fashion

– Target lost opportunities and low-cost / no-cost market niches

– Aggressively apply cost-containment strategies

– Hit zero in aggregate by the close of 2005

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• Results– Made modifications (reductions) to tariff riders

• Down in ID electric, sunsetted increase in WA gas

– Also received non-tariff rider funding

• Oil rebate over-refund and tax credits, hydro facility sale

– Successfully implemented cost-containment strategies

– Reached balance in August 2005

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2002-2005 DSM Business Plan• Four individual tariff riders

• Hit zero in August ‘05

Actual and Projected Rider Balances

$(10,000,000)

$(8,000,000)

$(6,000,000)

$(4,000,000)

$(2,000,000)

$-

$2,000,000

$4,000,000

WA Electric

WA E projected

ID Electric

ID E projected

WA Gas

WA G projected

ID Gas

ID G projected

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2002-2005 DSM Business Plan• Management of aggregate vs. individual tariff rider levels

Balance Expressed in # of Months of Revenue

(30.0)

(27.0)

(24.0)

(21.0)

(18.0)

(15.0)

(12.0)

(9.0)

(6.0)

(3.0)

-

3.0

6.0

9.0

WA electric WA gas ID electric ID gas WA total ID total Electric total Gas total Overall total

Rider Jurisdiction Fuel Aggregate

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2002-2005 DSM Business Plan• Substantially exceeded our overall mmbtu goal

Combined Gas and Electric DSM Acquisition

-

100,000

200,000

300,000

400,000

500,000

600,000

700,000

0 10 20 30 40 50 60 70 80 90

Month

mm

btu Actual mmbtu

mmbtu goal

1999 2000

2001

2002

2003

2004 2005 2006

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2002-2005 DSM Business Plan• Exceeded tariffed gas goal

Gas DSM Acquisition

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

0 10 20 30 40 50 60 70 80 90

Month

Th

erm

s

Actual therms

Therm goal

2001

2002

2003

2004

2005

2006

23


Electric DSM Acquisition

0.00

5.00

10.00

15.00

20.00

25.00

0 10 20 30 40 50 60 70 80 90

Months

aM

W

Actual aMW

aMW goal

W regional

NPCC

20041999

2000

2001

20022003

20052006

24

2006 DSM Business Plan

• Oriented around “stewardship”

– Achieve the maximum benefit for our customers’ tariff rider funding

– Add new programs

– Annually revise tariff rider to recover carryover balance and recover budgeted expenditures in the following calendar year

25

2006 DSM Business Plan• Additional programs under evaluation

– Non-residential• Rooftop HVAC• Steam trap maintenance• Whole-building commissioning• Boiler tune-ups• Pre-rinse sprayers• Burner-tip maintenance• Prescriptive premium-efficiency motors• Computer controls (Verdiem-type)• LEED assistance• Prescriptive LED traffic lights• Dairy heat exchangers• Greenhouse curtains

26

2006 DSM Business Plan

• Residential programs

– Gas back-up heat pumps

– Programmable thermostats

• Planned “Sunsetted” programs

– Programs with a specified end-date

– Oftentimes seasonal windows of opportunity

– Addresses procrastination issue

27

.

2006 DSM Budget

60%

7%

9%

10%

14% C/I incentives

Residentialincentives

Limited incomeincentives

Non-incentive, non-labor

Labor

28

.

2006 Electric Budget

63%

4%

8%

12%

13% C/I incentives




Labor

29

.

2006 Gas DSM Budget

47%

23%

13%

1%

16% C/I incentives




Labor

30

Total DSM Composition

83%

17%

Electric

Gas

31

Commercial / Industrial DSM• Everything qualifies

• Site-Specific vs. Prescriptive

– Performance contract policy

• RFP contracts

– Quantum Engineering and WAGA

– 2002-2004 / 2005 plus 2005 / 2006 contracts

• Operations

– Engineers / Technicians

– Contracting process (including scheduling)

– Coordination / program development

32

Residential DSM

• Prescriptive-based (i.e., “standard offer” based on rebate)

– Covering gas and electric opportunities

– Has and is continuing to change as new programs are ramped-up

– Rebate processing operation focus

• Geographic Saturation program

33

Limited Income DSM

• High profile• Currently conducted through six agencies under annual

contract– One WA & ID, four WA electric-only, one WA gas

only• Recent funding enhancements

– Added $350k total funding in ID– Added $200k to existing funding in WA plus flexibility

• Operational revisions– Scheduled periodic in-person visits with CAP agencies

34

BPA Conservation & Renewables Discount • BPA’s 2001-2006 approach for DSM

– A ½ mill discount on firm sales• Our 90 aMW of residential exchange $2.0 million in five

years– To be expended in accordance with BPA program guidelines– Incremental language– Regional Technical Forum– Avista’s use

• 2001 CFLs• Conservation Voltage Reduction• Limited income

– Reporting and audit requirements• 2006-2011 program

– Generally similar

35

Regional DSMNorthwest Energy Efficiency Alliance (NEEA)

• Regional market transformation orientation

• Electric-only

• Funded by BPA, all significant generating publics, all regional IOUs

• 1997-1999, 2000-2004 and 2005-2009 contracts

• Current funding $20 million / year

– Subject to NEEA board approval of expenditures

– Avista slightly under 4% of funding

• Delivering 10 mill resource

• Avista represented on the board

• Future … regional coordination, gas market transformation ?

36

Recommendations

• Energy Codes• Appliance Codes• Updated tax credits• State LIHEAP

Why Avista Does DSM

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