Utility Demand-Side Management and Pricing Policies Option 1: Adopt Energy Savings Standards or Targets for Electric Utility Demand-Side Management Programs – savings standards or targe
Introduction
Energy efficiency is a high priority resource for Utah Governor Jon Huntsman announced on April 26, 2006 a goal of increasing energy efficiency in the state of Utah
The state set a 20 percent target by 2015, established in Executive Order 2006-0004 issued by Governor Huntsman on May 30, 2006 The goal applies to all forms of energy use in the state, including electricity, natural gas, gasoline, and other petroleum products.
Utah aims to become one of the nation’s most energy-efficient states This plan would lower consumer energy bills, strengthen energy security and reliability, boost business profitability and competitiveness, and reduce air pollutants and greenhouse gas emissions.
Following the announcement of the goal, an ad hoc group of state officials and other stakeholders formed to develop metrics for measuring progress toward the target The Working Group evaluated Utah’s energy efficiency status and proposed additional initiatives to advance energy efficiency across the state Fueled by Governor Huntsman’s leadership, energy efficiency has drawn strong support from the Governor’s Office, state government, and Utah’s major electric and gas utilities over the past year.
To help examine options for meeting the state's energy efficiency target, the Governor’s Office invited the Southwest Energy Efficiency Project (SWEEP) and Utah Clean Energy (UCE) to prepare a state energy efficiency strategy The strategy’s primary objectives are to identify practical steps to reach the Governor’s goal, assess the feasibility of achieving the target across different energy types, and estimate the economic and environmental impacts of achieving or approaching the goal.
Utah's Energy Efficiency Strategy outlines 23 major policies, programs, and initiatives intended to accelerate energy efficiency improvements across the state and to achieve the goal where feasible These policies are designed to save electricity, natural gas, motor vehicle fuels, and other petroleum products—energy sources that represent a large share of Utah's total energy use (excluding energy used as an industrial feedstock) The plan does not include options to improve efficiency for jet fuel, liquefied petroleum gas (LPG), or coal used directly by industry.
For each option in the strategy, we start with a background discussion that reviews precedents for the policy in Utah and in other states We then present the specific policy proposal, followed by estimates of the energy savings expected by 2015 and by 2020 if implemented The analysis also covers costs and cost-effectiveness, and concludes with estimated reductions in energy use, emissions, and other related metrics to support informed decision-making.
2 Governor’s Executive Order 2006-0004: Improving Energy Efficiency www.rules.utah.gov/execdocs/2006/ExecDoc113478.htm
Energy efficiency is Utah’s high-priority resource in the EPA report “3 Energy Efficiency: Utah’s High-Priority Resource” (EPA 430-F-07-003), produced under the U.S Environmental Protection Agency’s Clean Energy-Environment State Partnership Program (2007) The analysis assesses how energy efficiency measures influence criteria pollutants and carbon dioxide emissions, reviews additional environmental and social impacts, and evaluates political feasibility It also assigns a recommended priority—high, medium, or low—for each option to support policy decisions and resource planning.
Understanding how energy is currently used in Utah requires looking at 2005 data compiled by the State Energy Program from the U.S Energy Information Administration Figure 1 shows the breakdown of primary energy consumption by energy type, noting that electricity is counted as fuel input for electricity production (source Btus) and that energy used for electricity generation is excluded from the coal, natural gas, and other fuels categories On this basis, electricity accounts for more than 44% of total primary energy consumption, petroleum products 34%, and natural gas 19%, a total that includes fuel feedstocks, fuels used to produce electricity that is exported, and true in-state energy use Regarding electricity production, coal-fired power plants account for over 95% of Utah’s electricity generation.
Figure 1 – Utah Primary Energy Use in 2005
Total primary energy use - 818.9 trillion Btus
Natural gas Gasoline and diesel
Other petroleum products Coal and other
Figure 2 shows secondary energy consumption by sector In this case, electricity is counted in terms of its direct energy content (site Btus) On this basis the transportation sector is most significant, followed by the industrial, residential, and commercial sectors The main energy sources of concern in this study—electricity, natural gas, gasoline, and diesel fuel—account for 85 percent of total energy consumption in the state on a primary basis and 76 percent of total energy consumption on a secondary (site) basis
Figure 2 – Utah Site Energy Use in 2005
Total site energy use - 539.6 trillion Btus
The methodology begins with our definition of a 20 percent improvement in energy efficiency by 2015 An increase in energy efficiency of 20 percent by 2015 is equivalent to a 16.7 percent (1 – 1/1.20) reduction in projected baseline energy use that year A 20 percent increase in energy efficiency does not translate to a 20 percent reduction in energy use, in the same manner that a 100 increase in energy efficiency does not translate to a 100 percent reduction in energy use (a doubling of energy efficiency represents a 50 percent reduction in energy use)
Under the baseline scenario, future energy use is projected to rise with expected population and economic growth, assuming no new energy efficiency measures or initiatives are implemented The baseline relies on forecasts from utilities and other sources and predicts annual growth rates of 3.2% for electricity consumption, 1.5% for natural gas, and 2.0% for gasoline and diesel combined during 2006–2020.
We evaluate the potential of each option in the strategy and their combinations to reduce the baseline energy demand projection Energy efficiency programs initiated in 2006 are included in the policy scenario because the governor announced an energy efficiency goal that year The strategy shows that our policies significantly dampen the projected growth in Utah’s energy demand, though they do not produce an absolute reduction in current energy use, except in the case of natural gas.
Our analysis accounts for the impact of current policies and programs—such as utility demand-side management programs and building energy codes—when estimating energy savings potential, ensuring credit is given for ongoing energy efficiency initiatives We count savings from efficiency measures installed in 2006 and later, reflecting the Governor's efficiency goal adopted that year We also project energy use under the baseline scenario and quantify the energy savings from each option through 2020 In some cases, savings are modest by 2015 but grow substantially between 2015 and 2020.
To avoid double counting energy savings across different options, we reduce the savings attributed to measures that overlap with others after the overlaps have been assessed For example, savings linked to building energy codes and to education and training are decreased because these options overlap with utility demand-side management (DSM) programs In the transportation sector, we apply similar adjustments when summing energy savings to prevent overstating the overall energy savings potential.
In the economic analysis, all values are expressed in 2006 dollars, with costs and benefits after 2006 discounted at a 5% annual rate Energy prices are assumed to remain at their 2006 levels in real terms, rising only with inflation This conservative assumption reflects the tendency for energy costs to rise due to higher fuel and construction costs and tighter environmental standards Net economic benefits are evaluated over the lifetime of energy efficiency measures installed during 2006–2015, incorporating the full energy savings of measures installed later in this period but discounting future savings.
For the environmental impacts analysis, we use the average emissions rates of
Option 1: Adopt Energy Savings Standards or Targets for Electric
Utility Demand-Side Management Programs
Rocky Mountain Power (RMP), a PacifiCorp subsidiary formerly known as Utah Power, is responsible for about 80 percent of Utah's electricity sales and is the state's only investor-owned utility For more than 20 years, RMP has operated demand-side management (DSM) programs for residential and business customers, though these programs waned in the late 1990s Their revival stemmed from a stakeholder advisory group formed during the 1999 general rate case, which delivered a 2001 report to the Utah Public Service Commission showing substantial potential for cost-effective electricity savings That report spurred DSM expansion, with budgets rising from roughly $5 million in 2001 to $12 million in 2003 and about $25 million in 2006 By 2006, DSM spending was about 2.1 percent of RMP’s Utah retail sales revenue, and Utah ranked 18th in the nation for per-capita energy efficiency program spending.
In Utah, utility demand-side management (DSM) programs are developed in conjunction with the preparation of Integrated Resource Plans (IRPs) that evaluate energy efficiency resources within those plans Legislation enacted in 2002 authorized a tariff rider on customers’ bills to fund utility DSM programs A 2003 settlement agreement establishing a tariff rider mechanism for Rocky Mountain Power’s DSM programs was approved by the Public Service Commission (PSC), enabling DSM cost recovery and supporting the ramp-up of Rocky Mountain Power’s DSM initiatives in recent years.
RMP’s DSM programs have been relatively successful in providing cost-effective electricity savings and peak load reductions The programs in 2006 alone provided about
That year, efficiency measures installed achieved 29 MW of peak-demand reduction and 120 GWh per year in electricity savings RMP also had 86 MW of peak-load reduction capability as of 2006 through air-conditioner cycling controls The electricity savings from DSM programs and efficiency measures installed in 2006 were about 0.58% of the company’s total retail electricity sales.
Regarding the cost effectiveness of RMP’s DSM programs, RMP estimates that its primary commercial and industrial DSM programs (FinAnswer and FinAnswer Express)
D Nichols and D von Hippel's An Economic Analysis of Achievable New Demand-Side Management Opportunities in Utah assesses the economic potential of new DSM opportunities in Utah The report was prepared for the Systems Benefits Charge Stakeholder Advisory Group to the Utah Public Service Commission and published by the Tellus Institute in Boston, Massachusetts, in March 2001.
U.S energy efficiency programs represent a $2.6 billion industry, according to the Consortium for Energy Efficiency (2007) From a total resource cost (TRC) perspective, these programs show a benefit-cost ratio of roughly 2.1 to 3.0, with the range reflecting different assumptions about future avoided energy supply costs From the perspective of utility cost and rate impact tests, the programs are even more cost-effective In the residential sector, recent analyses indicate that the Cool Cash program for high-efficiency air conditioning and evaporative cooling yields a benefit-cost ratio of about 3.4 to 3.8; the refrigerator recycling program yields a benefit-cost ratio of 2.3 to 3.2; and the home energy savings retrofit measures program yields a benefit-cost ratio of about 1.2 to 1.5 under the TRC test.
RMP is ramping up its demand-side management (DSM) programs in Utah and says there is room for further growth by expanding current efforts and launching new ones A new program offering rebates for popular residential energy-saving measures began in the second half of 2006 Overall, RMP plans to spend about $33 million, roughly 2.5 percent of revenues, on DSM programs in 2007 Additionally, Utah's municipal utilities acknowledge they could do much more to promote more efficient electricity use.
RMP’s parent company PacifiCorp completed a system-wide demand-side management (DSM) potential study in July 2007 The report estimates that it is technically and economically feasible to reduce projected electricity use in 2027 by about 13 percent, but only about 7 percent savings are achievable through DSM programs The analysis relies on conservative assumptions that limit the achievable potential, and the report does not explicitly address savings potential beyond 2027, such as at the ten- or fifteen-year horizon.
According to the Energy Efficiency Task Force convened by the Western
According to the Governors’ Association, leading electric utilities in the country are investing about 2-3 percent of their revenues in DSM programs, which in turn save roughly 0.8-1.0 percent of electricity sales each year For example, investor-owned utilities in California and Connecticut, as well as Austin, Texas’ municipal utility, are achieving this level of energy savings In practical terms, DSM reduces electricity use by about 4-5 percent after five years and 8-10 percent after ten years More recently, Sierra Pacific Power Co in Nevada proposed additional DSM initiatives.
An internal February 2, 2007 memorandum from Brian Hedman of Quantec LLC to Don Jones, Jr., of PacifiCorp outlines the TRC test as a method for evaluating energy-efficiency investments It states that the TRC test compares the full cost of the efficiency measures against the utility’s avoided energy supply costs resulting from their adoption, with all figures assessed on a net present value basis.
8 Presentation of Jeff Bumgarner, PacifiCorp to the Demand-Side Management Advisory Group, Feb 6,
9 Assessment of Long-Term, System-Wide Potential for Demand-Side and Other Supplemental Resources Report prepared by Quantec, Summit Blue Consulting, and Nexant, Inc for PacifiCorp, Portland, OR, July
10 Energy Efficiency Task Force Report, Western Governors’ Association, Denver, CO, p 55 http://www.westgov.org/wga/initiatives/cdeac/Energy%20Efficiency-full.pdf
11 National Action Plan on Energy Efficiency Washington, DC: U.S Department of Energy and the
According to the Environmental Protection Agency's July 2006 report (pp 6-8 to 6-9), expanding demand-side management (DSM) programs is aimed at saving 1.0 percent of retail electricity sales per year during 2008–2010 The report, available at http://www.epa.gov/cleanrgy/pdf/napee/napee_report.pdf, emphasizes scaling DSM initiatives to deliver consistent annual energy savings across the period This approach highlights the EPA's plan to strengthen energy efficiency programs as a key strategy for reducing electricity demand.
Electric utility demand-side management (DSM) programs typically save electricity at a total cost of about $0.02–$0.03 per kWh (covering both utility and participant costs), showing that improving end-use efficiency is the least-cost electricity resource Moreover, many DSM programs reduce peak power demand more than they reduce overall electricity consumption, thereby improving the utility system’s load factor.
Adopting energy savings standards that require a minimum level of energy savings is a proven way to spur the growth of DSM programs This policy has been implemented across many states either as standalone efficiency standards or as part of combined energy efficiency and renewable energy standards For example, Texas passed legislation in 2002 that requires investor-owned utilities to operate energy efficiency programs capable of delivering measurable energy savings.
Texas utilities targeted 10 percent of forecasted energy demand growth through demand-side management (DSM) programs, which spurred DSM funding to about $85 million per year as of 2004 and achieved annual electricity savings of roughly 370 GWh In 2007, the legislation was amended to require utilities to save 20 percent of forecasted load growth through DSM efforts.
Nevada has integrated energy savings from demand-side management (DSM) programs into its renewable energy standards, which are now called clean energy standards Utilities can count DSM-derived savings toward up to 25 percent of their annual clean energy requirements, reinforcing efficiency as a core part of meeting the state’s goals Consequently, Nevada Power Co., the main utility, has more than doubled its DSM expenditures and associated energy savings, signaling a stronger emphasis on energy efficiency alongside generation in Nevada’s clean energy strategy.
This policy sets energy savings targets and standards for the demand-side management (DSM) programs implemented by RMP, and it also establishes energy savings targets or standards for the state’s larger municipal utilities and rural electric co-ops The standards can be expressed purely in terms of energy savings or can also include peak demand reductions, providing flexibility to address both energy use and grid demand.
We suggest that the targets or standards ramp up over a four-year period (2008-