Demand-Side Management Bruce Folsom, Regulatory Compliance Manager before the DSM Subcommittee of the Interim Energy Committee August 23, 2006

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

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Why Avista Does DSM

• Fulfilling Avistas 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

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How Avista Does DSMNorthwest Electric DSM Basics

• Electric DSM history
• The Regional Review of the 1990s 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

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How Avista Does DSMNatural Gas DSM Basics

• 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
• Doesnt 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

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How Avista Does DSMRegulatory Political
History

• 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 arent 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

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How Avista Does DSMRegulatory Political
History

• 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

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External Energy Efficiency (Triple-E) Board

• 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 (ME), resource
  acquisition, disclosure
• Used as a basis for DSM regulatory and
  informational requests
• Summarizes selected managerial accounting and
  analysis findings

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Our Tariffs and Programs

• 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 kWhs 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)

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DSM Role in Resource Planning Electric

• 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

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DSM Role in Resource Planning Electric

• Request For Proposals process
• Two previous DSM experiences
• Early 1990s process resulted in one short-listed
  project
• 2000 All-Resource RFP
• Recd 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)

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DSM Role in Resource Planning Electric

• 2005 / 2006 RFPs
• In addition to Avistas standard DSM programs
• Power Supply Department is fielding a renewable
  (predominantly wind) RFP
• Current DSM direction is to pursue a series of
  targeted RFPs plus a general solicitation for
  cost-effective DSM resources

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Demand Response

• 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

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Summary of Cost-Effectiveness Tests

• 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

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Cost-Effectiveness Tests Used by Avista

• 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 lt UCT since customer cost gt 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

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2002-2005 DSM Business Plan

• 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

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2002-2005 DSM Business Plan

• 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

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2002-2005 DSM Business Plan

• Four individual tariff riders
• Hit zero in August 05

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2002-2005 DSM Business Plan

• Management of aggregate vs. individual tariff
  rider levels

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2002-2005 DSM Business Plan

• Substantially exceeded our overall mmbtu goal

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2002-2005 DSM Business Plan

• Exceeded tariffed gas goal

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2002-2005 DSM Business Plan
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2006 DSM Business Plan

• 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

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2006 DSM Business Plan

• 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

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2006 DSM Business Plan

• 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

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Commercial / Industrial DSM

• 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

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Residential DSM

• 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

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Limited Income DSM

• 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

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BPA Conservation Renewables Discount

• BPAs 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
• Avistas use
• 2001 CFLs
• Conservation Voltage Reduction
• Limited income
• Reporting and audit requirements
• 2006-2011 program
• Generally similar

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Regional DSMNorthwest Energy Efficiency Alliance
(NEEA)

• 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 ?

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Recommendations

• Energy Codes
• Appliance Codes
• Updated tax credits
• State LIHEAP