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NARUC Energy Regulatory Partnership Program The Georgian National Energy Regulatory Commission

Electric Energy Efficiency in Vermont. 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. Overview. Part I: Choosing Energy Efficiency

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NARUC Energy Regulatory Partnership Program The Georgian National Energy Regulatory Commission

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  1. Electric Energy Efficiency in Vermont 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

  2. Overview Part I: Choosing Energy Efficiency Part II: Background Part III: EEU Institutional Structure Part IV: Funding and Budget Part V: Performance Contract Part VI: How Other States Deliver Energy Efficiency Part VII: Efficiency Results

  3. Energy Efficiency Terminology • Demand side management – three major components • Energy efficiency • Load management • Conservation • Conservation versus efficiency • Behavioral changes versus installed technology

  4. 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

  5. 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

  6. 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

  7. 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

  8. VermontElectric UtilityService Territories(as they existed beforethe EfficiencyUtility)

  9. 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

  10. 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

  11. 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

  12. 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

  13. 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

  14. 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

  15. EEU Structure PUBLIC SERVICE BOARD CONTRACTS REGULATION CONTRACT ADMINISTRATOR FISCAL AGENT CONTRACT $ $ OVERSIGHT EFFICIENCY UTILITY DISTRIBUTION UTILITIES PUBLIC SERV DEPT EVALUATION & VERIFICATION

  16. 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

  17. 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

  18. 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

  19. 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

  20. 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

  21. 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

  22. 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

  23. 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

  24. 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

  25. 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

  26. 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)

  27. 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

  28. 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

  29. 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

  30. 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

  31. 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

  32. 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

  33. 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

  34. 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

  35. 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

  36. Results in Vermont

  37. Results in Vermont (cont.)

  38. 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

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