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Utility Incentives and EE: A Consumer Advocate’s Perspective

Utility Incentives and EE: A Consumer Advocate’s Perspective. Andy Satchwell Electric Utility Analyst, Indiana Office of Utility Consumer Counselor December 4, 2007 . OUCC: Representing Utility Consumer Interests. State agency Created in 1933

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Utility Incentives and EE: A Consumer Advocate’s Perspective

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  1. Utility Incentives and EE: A Consumer Advocate’s Perspective Andy Satchwell Electric Utility Analyst, Indiana Office of Utility Consumer Counselor December 4, 2007 Indiana Office of Utility Consumer Counselor (12-07)

  2. OUCC: Representing Utility Consumer Interests • State agency • Created in 1933 • Represents business & residential consumer interests • Formal party to all IURC cases • 51 employees Indiana Office of Utility Consumer Counselor (12-07)

  3. The views in this presentation are those of the presenter, and not necessarily of the Indiana Office of Utility Consumer Counselor, as of December 4, 2007. Indiana Office of Utility Consumer Counselor (12-07)

  4. Outline • Indiana Energy Environment • Hoosier Homegrown Energy Plan • Indiana DSM Statute • Utility EE/DSM Programs • Cost Recovery Mechanisms • Incentives/Disincentives • Decoupling • Measurement and Verification • Collaborative Process Indiana Office of Utility Consumer Counselor (12-07)

  5. The Indiana Energy Environment • Historically low energy cost. • 2005 EIA report, Indiana ranked 7th lowest in average retail price (5.88 cents/kWh) • Energy intensive industry makes Indiana a high consumption state. • 2004 EIA consumption report, Indiana ranked 11th in total energy consumption, 4th in Industrial Sector consumption • Rising energy prices and demand and cost of environmental compliance (both current and anticipated), have given a new urgency to Energy Efficiency. Indiana Office of Utility Consumer Counselor (12-07)

  6. HOOSIER HOMEGROWN ENERGYEnergy Efficiency Recommendations from Indiana’s Strategic Energy Plan • “Support National Action Plan for Energy Efficiency through gas and electric utilities, regulators and industry partners to create a sustainable, aggressive U.S. commitment to energy efficiency.” (HHE, p. 14) Indiana Office of Utility Consumer Counselor (12-07)

  7. HOOSIER HOMEGROWN ENERGYEnergy Efficiency Recommendations from Indiana’s Strategic Energy Plan (continued) • Provide incentives for energy efficiency investments. • Support alternative pricing regulatory mechanisms. • Build name recognition for Energy Star products and practices. • Strengthen energy efficiency culture in industry. • Strengthen Indiana’s energy infrastructure. • Promote growth and stewardship through research and development. • Create Interagency Council on Energy, with Sub-Committee on Energy Efficiency, (chaired by Utility Consumer Counselor). Indiana Office of Utility Consumer Counselor (12-07)

  8. HOOSIER HOMEGROWN ENERGYEnergy Efficiency Recommendations from Indiana’s Strategic Energy Plan (continued) • “Indiana’s strategic energy plan can serve as a starting point for coordinating and developing statewide programs. It sets the stage for . . . expanding energy efficiency efforts in all sectors.” • IURC Commission Staff Report, April 2007, Cause No. 42963 Indiana Office of Utility Consumer Counselor (12-07)

  9. EE/DSM in Indiana • Statutory requirement for DSM inclusion in IRP • 170 Indiana Administrative Code (IAC) 4-7-4 through 4-7-9 • Commission DSM generic proceeding (Cause No. 42693): to examine DSM practices and issues and DSM administrative models. Focused primarily on electric utilities. • Need to consider and establish statewide EE/DSM objectives. • “We believe that Indiana is in a good position to move toward a more consistent statewide DSM effort, but the state is not yet ready to select an administrative model.” • IURC Commission Staff Report, April 2007. • Centralize data repository and use of University resources to provide consistent EE/DSM information. • Testimony of Barbara A. Smith, OUCC, May 2007 Indiana Office of Utility Consumer Counselor (12-07)

  10. Indiana Utility EE/DSM Programs • Major Electric Utility DSM program budgets and program examples for 2006. • Duke Energy: $6,747,469 • Power Manager, Smart $aver • Indianapolis Power & Light: $2,178,000 • Cool Cents, Energy Efficiency Education Program • Vectren Electric: $954,827 • A/C and H20 heater cycling • Indiana Michigan Power: $28,570 • Weatherization Program • Note: All numbers are from IURC Investigation report, Cause No. 42693. Duke numbers are budgeted and IPL numbers are expensed, both are tracked. Vectren and Indiana Michigan numbers are reported as expenses and not tracked Indiana Office of Utility Consumer Counselor (12-07)

  11. Cost Recovery • “Rule 8” • 170 IAC 4-8: Guidelines for Demand-Side Cost Recovery by Electric Utilities • Section 5 entitles a utility to cost recovery of planning and implementing a DSM program • This can occur through many ways, including building cost into base rates, using tracker for periodic recovery, or… • A cost recovery mechanism proposed by the utility, other parties, or Commission Indiana Office of Utility Consumer Counselor (12-07)

  12. Cost Recovery (continued) • Currently two Indiana electric utilities recover DSM costs • Duke and Indianapolis Power and Light (IPL) • Duke files annually and IPL files quarterly • No recovery of lost revenues or shareholder incentives Indiana Office of Utility Consumer Counselor (12-07)

  13. Why Incentives? • Goal of incentives is to encourage participation of and successful administration of EE/DSM programs • Indiana’s strategic energy plan supports incentives for energy efficient investment • Incentives may come in many forms • Prescriptive (rebates) • Custom incentives • Shareholder incentives • 170 IAC 4-8-7 Indiana Office of Utility Consumer Counselor (12-07)

  14. Evaluating Incentives • Appropriate B/C tests to use in screening programs are a function of the desired goal • Including shareholder incentives as direct cost • “shareholder incentives represent a true economic cost in the production of utility programs and should be included as a direct cost in the UCT” • California Public Utilities Commission, August 2007 Indiana Office of Utility Consumer Counselor (12-07)

  15. The Disincentive: Lost Revenues • Different within RTO markets versus traditional regulatory environment • Revenue Decoupling • Base revenues determined within traditional rate case. • Each future period has a calculated revenue requirement. • Differences between actual and allowed revenues, due to consumption variances, tracked and flowed to customers. • Decoupling for two gas utilities in Indiana • Vectren and Citizen’s Gas. Indiana Office of Utility Consumer Counselor (12-07)

  16. Revenue Decoupling • Advantages: • Utility can undertake beneficial EE programming without affecting coverage of fixed costs. • Administratively simple true-ups. • Can lower risk and lower cost of capital. • Disadvantages: • Concerns over frequency of rate changes (monthly changes vs. annual reconciliation). • Benefit of lower risk may not be passed to ratepayers (reduction in ROE). • Utility is insulated from financial effects of weather, growth misforecasts, unanticipated business cycle fluctuations, etc. Indiana Office of Utility Consumer Counselor (12-07)

  17. Measurement & Verification • 170 IAC 4-8-4 • Indiana utility submits to IURC an annual load impact evaluation study • Includes gross and net impacts of program participation on customer usage and demand • Have not developed broad standard for M&V • OUCC is working to improve effectiveness through collaboration with individual utilities Indiana Office of Utility Consumer Counselor (12-07)

  18. Indiana’s Collaborative Approach Indiana Office of Utility Consumer Counselor (12-07)

  19. Related Pilot Programs • Indiana Michigan “Smart Metering Pilot Program” • Reached through settlement (Cause No. 43259) • 10,000 participant pilot for AMI and time-based rates • Distribution Automation component • May lead to full deployment strategy • Will file plans first quarter 2008 • Vectren Advanced Metering Infrastructure (AMI) Study • Two-part program (Demand benefits and technology benefits) • Study and pilot in conjunction with each other • Includes time-based rates Indiana Office of Utility Consumer Counselor (12-07)

  20. Conclusion • Indiana’s energy plan supports EE/DSM • Indiana Statute allows for alternative regulatory plans. • Consumers should receive majority of benefits. • Appropriate B/C tests should be used for program evaluation. • M&V is vital component for EE program design. • Indiana OUCC uses a collaborative approach to develop and implement new approaches. Indiana Office of Utility Consumer Counselor (12-07)

  21. Contact Information Andy Satchwell Indiana Office of Utility Consumer Counselor 115 West Washington Street Suite 1500 South Indianapolis, Indiana 46204 317-233-0956 asatchwell@oucc.IN.gov Indiana Office of Utility Consumer Counselor (12-07)

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