Regulatory Policy on Energy Efficiency Programs

1. Regulatory Policy on Energy Efficiency Programs Kansas Corporation Commission General Investigation Docket Presenter: James Sanderson Senior Research Economist KCC

2. Commission General Investigation • In the Matter of a General Investigation Regarding Energy Efficiency Programs • Docket No. 07-GIMX-247-GIV

3. Brief History • May 2005: Commission defers consideration of a low-income weatherization program until it had the opportunity to examine the appropriateness of proposed evaluation methodologies for weatherization and demand side management programs generally. • Docket 05-AQLG-367-RTS

4. Brief History • August 2005: Commission accepts the Report and Recommendation of the Commission Staff concerning special rates for electricity and gas service to low-income ratepayers. • Part of Staffs recommendation called for further inquiry into the potential for low-income weatherization programs and demand side management (DSM) initiatives. • Docket No. 04-GIMX-531-GIV

5. Brief History • August 2006: Commission sponsored an workshop on energy efficiency conducted by Richard Sedano with the Regulatory Assistance Project. • The Commission had held a similar workshop in January 2006 with a more limited audience.

6. Brief History • September 2006: Commission opens general investigation docket • In the Matter of a General Investigation Regarding Energy Efficiency Programs • 07-GIMX-247-GIV • Call for comments • May 2007: Staff Report and Recommendation

7. Threshold Question • The threshold question is the extent to which the Commission has legal authority to require or encourage electric and natural gas utilities to offer energy efficiency programs.

8. Commission Statutory Authority • K.S.A. 66-101b, 66-117 • Authority to ensure that utilities provide reasonably efficient and sufficient services and facilities at just and reasonable rates. • K.S.A. 66- 101 and 66-1,201 • The Commission has full power, authority and jurisdiction to supervise and control the electric and natural gas public utilities and is empowered to do all things necessary and convenient for the exercise of such power. • K.S.A. 66- 101g and 66- 1,207 • The provisions of the Kansas Public Utilities Act and all grants of power, authority, and jurisdiction made to the Commission should be liberally construed, and all incidental powers necessary to carry into effect the provisions of the act are expressly granted and conferred upon the Commission.

9. Statutory Provision for Incentives • K.S.A. 66-117(e) • the Commission may allow a return of an extra ½% to 2% on investments that can be reasonably expected: • to produce energy from a renewable resource other than nuclear for the use of its customers. • to cause the conservation of energy used by its customers. • to bring about the more efficient use of energy by its customers.

10. Commission Statutory Authority • If programs fall under the above statutes, Commission clearly has authority. • If not, Commission role may be limited. • New legislation may be necessary.

11. Commission Questions • We therefore seek comments on the Commission's legal authority with regard to energy efficiency programs, especially in light of K.S.A. 66-117(e).

12. Commission Questions 1. Are there limitations on the Commission's authority to require utility companies to offer energy efficiency programs to customers? 2. Are there any limitations on the kind of "incentives" that the Commission may offer to utilities for energy efficiency programs? 3. May the Commission authorize a "decoupling" of revenue requirements from usage in order to remove disincentives for energy efficiency programs?

13. Commission Questions 4. What are the legal parameters for KCC adoption of benefit-cost tests for efficiency programs? 5. Can the Commission consider societal benefits, such as external environmental benefits, in balancing interests to decide whether it should approve energy efficiency programs? 6. If the Commission's legal authority is unclear, should the Commission seek clarifying legislation?

14. Commission Questions 7. Is there a need for the Commission to establish the “rules of the game” with regard to energy efficiency? • What areas need to be addressed in order to establish such "rules"? • Should the Commission promulgate administrative rules and regulations? • Whatever the form of the "rules," how detailed do they need to be?

15. Different Approaches 1. Require that utilities periodically submit and implement least cost integrated resource plans that treat energy efficiency programs as potential alternatives to traditional supply resources. 2. Utilities could be required to assess and screen potential energy efficiency efforts according to benefit-cost tests adopted by the Commission.

16. Different Approaches 3. Rely on the utility companies to propose programs that would presumably earn the extra return allowed by K.S.A. 66-117(e) or be given some other beneficial rate treatment. 4. Require utilities to offer specific types of programs such as those that have proven to be most effective in other states or those that are targeted toward low-income consumers who might not otherwise be able to install energy efficient measures.

17. Different Approaches 5. Require utilities to offer a net positive cash flow type program in which only participating customers repay the costs of energy efficiency measures with the savings achieved from reduced energy bills 6. Require utilities to implement demand side management programs, including time of use pricing, or a combination of strategies

18. Different Approaches 7. Require certain limited efforts on a trial basis while studying the question of whether more comprehensive efforts are warranted 8. A third-party administrator, similar to Efficiency Vermont, could be designated to administer programs?

19. Staff Report and Recommendation • Staff sets forth a view of the threshold legal issues and recommends an interim approach that the Commission may wish to adopt until further conclusions may be reached based on potential future proceedings.

20. Staff Report and Recommendation • Staff believes that the Commission generally has the authority to not only approve but also to require energy efficiency programs if it finds that such programs are reasonable and necessary in order to ensure that utility acts, practices and services are just, reasonable, and reasonably sufficient and efficient

21. Staff Report and Recommendation • With regard to requiring a third-party administrator, Staff is not sure it would be an improper delegation of Commission authority. • Staff suggests that the Commission conduct further proceedings on these issues before attempting to determine whether a third-party administrator should be mandated and whether legislation is needed to support such a mandate.

22. Staff Report and Recommendation • Because energy efficiency programs do relate to service characteristics and effects on the utility system, Staff believes that the manner of allocating and recovering the costs of such programs is really a rate design function. The courts have repeatedly found that policy considerations have a valid place in rate design and that a rate structure that imposes different rates on different customer classes will be upheld if there is reasonable basis to support it.

23. Staff Report and Recommendation • Staff does not believe judicial opinions compel the Commission to apply any particular benefit-cost test. • Staff agrees with the majority of commenters that the Commission likely has the discretion to consider "externalities," such as environmental consequences, as part of the overall benefit cost testing and analysis.

24. Staff Report and Recommendation • Staff agrees with the consensus that the Commission has the authority to provide utilities with incentives to offer energy efficiency programs in addition to an increased rate of return • Staff agrees with the consensus among the commenters that the Commission's broad authority extends to an ability to "decouple" revenue requirements from usage.

25. Staff Report and Recommendation • Staff suggests that the Commission either require or encourage electric and natural gas utilities to evaluate and offer energy efficiency programs to their customers in order to comply with obligations to provide efficient services. • Staff suggests that more extensive discussions, workshops or hearings are desirable in order for the Commission to make informed decisions.

26. Other KCC Actions/Activities • The KCC has approved four energy efficiency programs and two major demand response programs for KCPL, the state’s second largest electric utility. • The KCC has authorized Westar, the state’s largest electric utility, to implement a pilot real time pricing tariff.

27. Other KCC Actions/Activities • The KCC has approved a request by Midwest Energy, a regulated electric and gas cooperative, to implement a pilot program that allows ratepayers to finance cost-effective energy conservation improvements through an additional tariffed charge on their utility bill.

28. Other KCC Actions/Activities • Westar recently created an energy efficiency division with plans to roll out an employee pilot thermostat program in first quarter 2008 with residential/commercial and medium/large commercial demand response programs scheduled for implementation in the second quarter 2008.

29. Other State Activities • The Kansas Energy Council, a 35-member energy policy advisory group, is funding a statewide energy efficiency potential study of residential, commercial, and industrial sectors that will be completed no later than July 2008. • The Kansas Energy Office, at the KCC, has applied for a $1.2 million DOE grant to fund implementation of a statewide energy conservation education project, in partnership with the state’s jurisdictional utilities, as well as munis and coops.

30. Other State Activities • In response to Governor Sebelius’ January 2007 Executive Directive (#07-373), State of Kansas agencies have implemented or are implementing the following initiatives: • Survey of state employees for energy savings practices and suggestions. • Require energy audits on all facilities being considered as leased space and require landlords to make necessary improvements.

31. Other State Activities • Governor Directives continued: • Collect energy data on all state facilities to identify those using excessive energy. • Raise average state fleet EPA mileage 10% by 2010. • Assure compliance or increase existing energy efficiency purchasing requirements for appliances, light bulbs, and computers, using Energy Star as a minimum.

32. Other State Activities • Governor Directives continued: • Use Facilities Conservation Improvement Program (FCIP) to implement cost-effective conservation and efficiency measures in all state-owned buildings by 2010. • Accelerate marketing of FCIP to local school districts and units of government.

33. Conclude • Visit the KCC website at: • www.kcc.ks.gov • All filings in the 07-GIMX-247-GIV docket may be downloaded from that location. • Thank you for your participation.