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Why Avista Does DSM

Demand-Side Management Bruce Folsom, Regulatory Compliance Manager before the DSM Subcommittee of the Interim Energy Committee August 23, 2006. Fulfilling Avista’s least-cost resource acquisition obligation Customer Service Customers expect Avista to be their “energy experts”

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Why Avista Does DSM

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  1. Demand-Side ManagementBruce Folsom, Regulatory Compliance Managerbefore theDSM Subcommittee of theInterim Energy CommitteeAugust 23, 2006

  2. 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 Why Avista Does DSM

  3. 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 How Avista Does DSM:Northwest Electric DSM Basics

  4. 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 How Avista Does DSM:Natural Gas DSM Basics

  5. 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 How Avista Does DSM:Regulatory & Political History

  6. 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 How Avista Does DSM:Regulatory & Political History

  7. 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 External Energy Efficiency (“Triple-E”) Board

  8. 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) Our Tariffs and Programs

  9. 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 DSM Role in Resource Planning – Electric

  10. 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) DSM Role in Resource Planning – Electric

  11. 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 DSM Role in Resource Planning – Electric

  12. 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 Demand Response

  13. 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 Summary of Cost-Effectiveness Tests

  14. 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 Cost-Effectiveness Tests Used by Avista

  15. 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 2002-2005 DSM Business Plan

  16. 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 2002-2005 DSM Business Plan

  17. Four individual tariff riders Hit zero in August ‘05 2002-2005 DSM Business Plan

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

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

  20. Exceeded tariffed gas goal 2002-2005 DSM Business Plan

  21. 2002-2005 DSM Business Plan

  22. 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 2006 DSM Business Plan

  23. 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 2006 DSM Business Plan

  24. 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 2006 DSM Business Plan

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  28. 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 Commercial / Industrial DSM

  29. 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 Residential DSM

  30. 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 Limited Income DSM

  31. 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 BPA Conservation & Renewables Discount

  32. 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 ? Regional DSMNorthwest Energy Efficiency Alliance (NEEA)

  33. Energy Codes Appliance Codes Updated tax credits State LIHEAP Recommendations

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