Snuller Price Partner Energy and Environmental Economics, Inc.

1. The Role of Energy Efficiency in Utility Energy Planning Snuller Price Partner Energy and Environmental Economics, Inc.

2. Key Challenges/Steps in Integrating EE into Resource Plan • Determining the value of EE • Energy procurement (estimating and valuing savings) • Capacity benefits (estimating and valuing savings, factors in achieving benefits) • Incorporating non-energy benefits (such as reductions in GHG emissions) • Setting targets and allocating budgets • Quantity of EE to implement • Estimating program effectiveness • Institutional difficulty in reallocating budget • Cost expenditure timing vs. benefits • Ensuring program costs are recaptured • Measuring impacts and adjusting resource plans

3. Efficiency Benefits Shown to Exceed Costs Primary driver for EE in planning is the low cost of energy savings. • Utility cost of EE = $0.01/kWh to $0.03/kWh • Utility program costs and customer costs = $0.03/kWh to $0.05/kWh • Benefits for electric EE = $0.06/kWh to $0.08/kWh Levelized Costs and Benefits from Four Regions

4. Overall Organization of the Guide

5. Definitions of Energy Efficiency Potential

6. Typical Components of Avoided Costs Avoided Component • Electricity Energy (with losses) • Electricity Capacity (with losses) • Natural Gas Commodity (with losses) • Natural Gas Capacity (with storage, and compression) Other Components • Ancillary Services • Transmission and Distribution Capacity • Air Emissions (including greenhouse gas emissions) • Hedge of Fossil Fuel Prices • Price Effect of Demand Reduction • Savings in water, fuel oil, or other value streams

7. Standard Practice Manual Cost Tests • Utility Cost Test (Program Administrator Cost) • Change in Revenue Requirement • Ratepayer Impact Measure • Impact on rates and non-participants • Total Resource Cost • Total monetized community costs • Societal Cost Test • Total monetized and non-monetized costs • Participant Cost Test • Participant finanical picture

8. Allocating Budgets • Common barrier to EE is developing a budget to fund programs. • Action Plan Recommendation: • Provide sufficient, timely, and stable program funding to deliver EE where cost-effective. • Two common approaches for funding EE: • Resource planning processes • If EE is a resource, the EE funding will be allocated through planning process based on cost-effectiveness, portfolio risk, energy and capacity benefits, etc. • Cost recovery mechanism should be included to ensure recover EE spending. • Public goods-funded charges • Collected in rates. • Separates the EE budget from the planning process.

9. Tracking Energy Efficiency Resources in Load Forecasts Note: Energy Efficiency in Western Utility Resource Plans: Impacts on Regional Resource Assessment and Support for WGA Policies can be downloaded at http:eetd.lbl.gov/ea/EMS/rplan-pubs.html

10. Potential Roles of Third-Party Contractors in Providing Energy Efficiency Services and Savings

11. Evaluation, Measurement and Verification (EM&V) • Evaluation, measurement, and verification (EM&V) is the process of determining and documenting the results, benefits, and lessons learned from an energy-efficiency program. • A rough rule of thumb is to spend 2-5% of the energy efficiency budget on EM&V activities. The specific funding level is a function of the scope and purpose of EM&V and the scale of the efficiency program. It also depends on whether EM&V is conducted at the level of the individual utility or statewide.

12. Resources and Next Steps • National Action Plan for Energy Efficiency: The Report • Covers key barriers and policy options for EE in resource planning, utility revenue requirements, rate design and program implementation. • Chapter 3: Energy Resource Planning Processes. • Guidebook on Energy Resource Planning and Procurement Processes: Integrating Energy Efficiency(Forthcoming – Spring 07) • A ‘How-to-Guide’ that walks through important methodology and data input assumptions for incorporating EE in the resource planning process. • Will list important sources of data that are commonly used to develop the necessary data and information. • Clean Energy-Environment Guide to Action • A resource document for state air, energy and utility officials and other stakeholders that details 16 policies and strategies that are delivering economic and environmental results for states • Chapter 6.1: Portfolio Management Strategies. • www.epa.gov/cleanenergy/stateandlocal/guidetoaction.htm

13. For More Information Katrina Pielli Pielli.Katrina@epa.gov (202) 343-9610 Larry Mansueti Lawrence.Mansueti@hq.doe.gov (202) 586-2588 www.epa.gov/eeactionplan Speaker’s contact information Snuller Price snuller@ethree.com (415)391-5100