Blair Hamilton

1. EFFICIENCY VERMONT COST-EFFECTIVENESS SCREENINGPRESENTATION TO COST-EFFECTIVENESS SCREENING WORKSHOPWORKSHOP - JUNE 25, 2009 Blair Hamilton

2. A Brief Summary of Relevant PSB Orders • Docket 5270 (1990) • Established cost-effectiveness guidance for efficiency investments made by utilities with ratepayer funds • Adopted societal cost-effectiveness test as primary • Set 5% environmental externality adder as rebuttable presumption • Adopted 10% adjustment to reflect lower risk of efficiency • Docket 5980 (1999 – Establishing Energy Efficiency Utility) • Reaffirmed use of societal test and 10% risk adjustment from 5270 • Adopted 0.7 cent/kWh electric externality from MOU • Asks DPS to develop externality adjustments for fuel-consuming measures consistent with the electric externality value • Docket6290 (2003 – Distributed Utility Planning Guidelines) • Includes discussion of externalities and risk adjustment

3. The “State Screening Tool” • Spreadsheet tool developed by the DPS • Updated annually by Efficiency Vermont • Inflation and discount rates: • Inflation rate based on Consumer Price Index - All Urban average of previous 10 years (2.60%) • Discount rate based on average of utility debt (6.13%) and equity (10.75%). Results in 8.4% nominal discount rate and 5.7% real discount rate.

4. Avoided Costs Used for Screening • Includes electric generation, residential fuel oil, commercial fuel oil, residential propane, commercial propane, kerosene, wood • Electricity avoided costs include 4 energy costing periods, summer generating capacity, T&D • Updated avoided costs proposed to PSB every two years by DPS (last done in 2007) • Largely based on bi-annual regional study conducted every two years (regional study does not include avoided costs for transmission and distribution “T&D”)

5. Example of Electric Avoided Costs

6. Example of Fuel Avoided Costs ($/MMBtu)

7. How Does EVT Currently Use Externality Values? • Externality values are added to costs for cost-effectiveness screening, but not included when reporting Total Resource Benefits (TRB) • Externality values are inflated (in State Screening Tool) from values established in 2000 (yr 2000 $): • $0.007/kWh • $0.90/MMBTU Natural Gas • $1.08/MMBTU Propane • $1.43/MMBTU Oil

8. Cost-Effectiveness Summary

9. What Benefits are counted in Screening? • Electric energy avoided costs (by 4 costing periods) • Electric generation capacity avoided costs • Electric transmission and distribution avoided costs • Fossil fuel avoided costs (only if decreased usage) • Water avoided costs (may be positive or negative benefit) • Electric externalities • Fossil fuel externalities (only if decreased usage)

10. What Costs are Counted in Screening? • Installed cost of measures • Operation and Maintenance (O&M) net costs (may be positive or negative cost) • Fossil fuel costs (only if increased usage) • Fossil fuel externality costs (only if increased usage) • Deferral credit for early retirement retrofit (always a negative cost) • Risk discount (10% reduction in positive costs, excluding fuel externalities) • Delivery and administrative costs at the project, initiative and portfolio level (as further detailed)

11. Example of Screening • Inputs • Measure name: Low Flow Showerhead with Oil DHW • Installed cost: $15 • Measure life: 9 years • Oil savings: 1.26 MMBTU per year • Water savings: 4.6 CCF per year • Outputs • Present Value of Societal Net Benefits: $482 • Present Value of Benefits: $496 • Present Value of Costs: $14 • Present Value of Fossil Fuel Benefits: $146 • Present Value of Water Benefits: $332

12. How Screening Varies in Different Settings • Market opportunity vs. discretionary retrofit: • Market opportunity: Costs and savings incremental to new equipment baseline • Discretionary retrofit: Full installed cost, including installation labor; initial savings relative to existing equipment efficiency • Screening of “early retirement” of equipment: • Reduced costs for deferring future replacements (deferral credit) • Decrease in future savings at time that equipment would have been replaced (baseline shift)

13. How Screening Varies at the 4 Levels • Individual measure: • uses marginal measure cost only • Project: • includes multiple measures that, bundled together, comprise a project for a customer • Initiatives: • total of all measures and projects for a particular market - includes allocated EVT delivery and administrative costs • Portfolios: • total of all initiatives – includes all EVT Costs

14. Source of Measure Cost and Savings Inputs Used by EVT in Screening • Cost and savings assumptions and adjustments (free ridership, spillover, install rates) for most, common measures are documented in the Technical Reference Manual (TRM) • TRM characterizations are developed by the Technical Advisory Group, that includes EVT and BED technical staff, DPS staff and the Contract Administrator • Measure characterizations are developed from evaluations and studies, both Vermont and elsewhere, and calculations or estimates, as appropriate • Measure characterization values are assigned for all prescriptive measures • For common custom measures, savings algorithms are specified in the TRM • Custom measures not in TRM are characterized by EVT Project Managers and documented in project files

15. Other Cost-Effectiveness Screening Standard Practices • Efficiency Vermont has developed formal policies, guidance or standard practices to address a number of screening situations, including, but not limited to: • Screening for “average” occupants vs. current occupants • Adjusting baselines • The value of water leak savings to water utilities • Screening when a customer chooses a more-expensive measure or form of a measure • Such policies are either documented and submitted for comment to the DPS as “Program Implementation Procedures,” or documented as internal EVT policies

16. What Benefits are Reported in EVT’s Annual Report? • Total Resource Benefits (TRB) • Avoided cost of electricity • Fossil fuel net savings • Water savings Reported on both annual and lifetime (present value) basis

17. What Costs are Reported in EVT’s Annual Report? • Costs reported by initiative and total portfolio: • Efficiency Vermont costs • Participant costs • Third party costs • O&M costs • Costs reported for total portfolio • Levelized net resource cost (¢/kWh), from both an EVT and TRC perspective (net of fossil fuel, water and O&M savings)

18. What Costs and Savings are Presented to Customers? For Prescriptive Measures/Projects: First-Year Savings at Current Retail Prices For Custom Projects: Cash Flow, with potential for dynamic input Costs First cost of project & net cost after EVT incentives Costs for each year and NPV of: O&M costs (baseline, new and net) Any increases in fuel costs, by fuel Benefits First years savings at current retail prices Savings for each year, and net cash flow to customer at current retail rates (annual and NPV)

19. Comparison of Cost-Effectiveness Screening DRAFT – 7/1/09

20. QUESTIONS OR COMMENTS ? Efficiency Vermont 255 S. Champlain St. Burlington, Vermont 888 – 921 – 5990 www.efficiencyvermont.com Blair Hamilton x 1024 bhamilton@veic.org