A Successful Statewide Clean Energy Utility Model

David G. Hill Managing Consultant

Organizational Overview VEIC •  501(c)(3), private, nonprofit corporation founded in

1986 •  Mission: Reduce the economic and environmental

costs of energy use •  Provides energy efficiency and renewable energy

consulting and implementation services at the national and international levels •  ~260 employees •  $74 million annual revenue •  Locations in Vermont, Massachusetts, District of Columbia,

New Jersey, and Ohio

VEIC Consulting and Implementation Areas of Expertise •  Policy development & regulatory support •  Program delivery structure •  Market research & analysis •  Program design & implementation •  Project feasibility & technology support •  Transportation research & policy

Range of Clients •  Regulators •  Government agencies •  Advocates •  Utilities – IOUs, munis, co-ops •  Foundations

Range of Jurisdictions •  28 states, 6 Canadian provinces •  China, Vietnam, Mexico, Ireland, United

Kingdom, others

VEIC work in the United States 1995 – 2011

Supporting Clean Energy Development: What Does It Look Like ?

•  Political Framework Policy: This is WHAT we are going to do

•  Structure: This is HOW we are going to do it •  Money: This is how we will PAY for it

•  Continuity: This is us, NOT CHANGING OUR MINDS EVERY TWO YEARS

The Principles Can Apply Everywhere

1. Goals: Clear and Specific

• Policy stated

• Objectives specified

2.  Mission Alignment:

• Remove disincentives

• Strengthen incentives

The Principles Can Apply Everywhere 3. Motivation

Well-designed, performance-based compensation

4. Accountability for results Focus on success, not on compliance with pre-approved programs; Reward for taking risks

5. Flexibility Once focus is on results, implementer must have full flexibility to change programs based on what works and doesn’t, and to respond to changing markets

6. Stability and sustained effort Long-term goals and budgets;

Good performance = longevity

The Principles Can Apply Everywhere 7. Robust information technology systems

•  Database of all energy efficiency measures installed •  Central database of all electric ratepayer info and usage •  Tracking results by market •  Customer contact database •  Business linkage – corporate and divisions •  Supply chain relationships •  Customer complaint tracking •  Activity reminder for users (deadlines etc.) •  Accurate and timely reporting

Concerns about Multiple-Utility Implementation

•  Lack of capability in small utilities

•  Wide variation in spending and program offerings among 22 different utilities

•  Confusing to customers •  Confusing to equipment vendors,

design and engineering professionals

•  Conflicting signals to the market •  Relatively high program design

and administrative costs •  Lack of systematic, coordinated

approach to statewide markets •  High regulatory cost

Overcoming Utility Dis-incentives and Other Benefits •  Historic focus on sales volume •  Financial penalty for reducing sales (real and

perceived) •  Energy efficiency is a different product •  Market focus and innovation are not rewarded in

regulated monopoly context •  Customers increasingly want “full-service” energy

efficiency / renewable energy / all fuels •  Synergies across “programs” •  Lower cost

Efficiency Vermont •  Efficiency Vermont is based on broad state policy,

strong regulation, and a very market-focused consumer approach

•  The nation’s leading efficiency program •  State of Vermont contract held by VEIC since 2000 to

deliver statewide energy efficiency services, won through competitive bid process

•  Scope includes both (primarily) electric and (limited) thermal efficiency •  Partially funded through participation in New England’s

Forward Capacity Market and Regional Greenhouse Gas Initiative

•  The nation’s first official Efficiency Utility – 2011

The Nation’s Leading Efficiency Program •  Efficiency Vermont implements innovative research,

development, and demonstration, including: •  Cutting-edge efficiency resource technologies

•  Innovative program strategies and delivery mechanisms •  Transmission-level, trans-utility, and T&D targeted

demand side issues •  Financing mechanisms at community level •  Innovative research on “Smart Grid” and customer

interface •  Innovation in upstream marketing and large-account

management

Efficiency Vermont The Nation’s Leading DSM Program

•  First DSM program to “turn load growth negative,” with efficiency savings exceeding projected load growth every year since 2007

•  Savings for measures installed in 2010 provided 2% of Vermont’s electric supply requirements

•  “Buying” efficiency for just 4.1 cents per kWh

•  718,000 tons of CO2 emissions avoided

Where Does the Money Come from?

•  System Benefits Charge •  Primary source •  Protected from Legislature •  Clearly identified as ratepayer funds

•  Forward Capacity Market •  Legislatively directed: Offset system benefits

charge, some heating fuels

•  Regional Greenhouse Gas funds •  Legislatively directed; heating fuels

Efficiency Vermont Structure – under the Contract Model

Efficiency Vermont

Contractor

Vermont Public Service Board

Contract Administrator

Efficiency Vermont Partners: Energy Product and Service

Providers Business and Residential

Customers

Dept. of Public

Service

EEU Fiscal Agent

EEU Advisory Committee

CONTRACT CONTRACT

SAVINGS VERIFICATION

$

$ C

ON

TRA

CT

But Even So, the Model Had its Shortcomings !  Contractor to Public Service Board

•  No ability to intervene as a peer with distribution utilities and other parties

!  3-year contract •  lack of alignment with long-term state planning

goals •  lack of alignment with long-term customer goals

!  Limited ability to engage in R & D

Order of Appointment— A Franchise Model

" Efficiency Vermont is now a regulated utility

" Can intervene in dockets, advocate with policy-makers

" 12-year appointment allows participation in long-term transmission planning, customer planning, utility IRP

"  Includes Non-Resource Acquisition category

What Is the Basic Mechanism? An order of appointment to supply energy efficiency resources •  Model is similar to a power supply contract

•  KWh and peak KW are “purchased” from the Efficiency Vermont implementer

•  Efficiency Vermont operates on a revolving 12-year appointment

•  Minimum performance requirements •  Measurable performance indicators •  A significant financial holdback to assure

contactor performance

Efficiency Vermont Structure – under the Franchise Model

Efficiency Vermont

Implementer

Vermont Public Service Board (quasi-judicial, answers to the Legislature)

Efficiency Vermont Partners: Energy Product and Service

Providers Business and Residential

Customers

Dept. of Public Service

(Consumer Advocate,

answers to the Governor)

EEU Fiscal Agent

Savings Verification

$

$

The EEU and Planning " Includes 20-year demand resources plan

for DSM spending and savings, including unconstrained "  Demand resources plan was based on a 3%

savings scenario

“!we found that better alignment between the EEU's role in long-term planning and forecasting

by Vermont utilities is one of the benefits provided by the new EEU structure.”

Vermont Public Service Board – August 2011

Demand Resources Plan 2012 – 2031

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031

Energy Savings (MWh), % of Statewide Sales

Net Savings, Gross Savings, and Costs—by Year (2011 $)

Results Drive Everything

• 2009-2011 contract was for $100 million of energy efficiency resources •  360,000 MWh of incremental annual energy

savings •  50 MW of incremental summer and winter peak

reduction •  $342 million in net economic benefits •  and other measurable indicators

Review of Capacity in Vermont Top Ten FCM Capacity Providers (as of FCA#2)

0

10

20

30

40

50

60

70

MW

Cap

acity

620 MW

VT Yankee(nuclear)

Efficiency Vermont

McNeil(wood)

Other generators

In Which Markets Does Efficiency Vermont Work?

Existing Businesses Equipment

Replacement Business New Construction

New Homes

Efficient Products

Existing Homes

Low-Income

Target Sub-Markets •  Colleges and Universities •  Municipal Waste and Water •  K-12 Schools •  Industrial Process •  State Buildings •  Farms •  Hospitals •  Ski Areas

Account Management

•  Custom technical and financial assistance for large-business energy users

•  Expanded Account Management services to 300+ businesses during 2008 – 2009

•  In Geographic Targeting areas, 190 large business accounts are responsible for 88% of business sector electricity use

Commercial Project Financing •  Vermont Economic Development Authority

•  Vermont Business Energy Conservation Loan Program •  projects that improve energy efficiency and conserve

energy •  a joint program with Efficiency Vermont: EEU certifies

viability and cost-effectiveness; lender doesn’t have to •  loans from $5,000 to $150,000 •  maximum loan term of 5 years •  loan may fund up to 75% of the cost of a project •  variable rate, WSJ Prime minus 3%, with a floor of

2%. Rate applies for first 3 years of the loan.

Codes and Standards “Obvious” choice—Customers who benefit fully fund

energy efficiency measures But:

•  limited political will for standards •  for codes, poor enforcement; real savings not there

New role for energy efficiency programs •  Savings attributed to Code / Standard support and

development •  Training •  Programs designed to leverage and exceeded code •  Create higher “current practice” that makes code

adoption possible •  “Stretch” Codes and Standards

A Possible Field Shift

Vermont’s System Benefits Charge for energy efficiency is now approaching 8 mills / kWh.

Programs are reaching deep into markets and Efficiency Vermont has high name recognition

“This is the part of your bill that helps you lower your bill”

If you are not using it, you are missing your chance to save

If the charge is regarded as your opportunity for investment in savings, a simple concern about rates is mitigated by perception of opportunity

Programs have to work well and be marketed effectively

Non-Resource Acquisition " Education and training

" Applied R&D (including grid modernization / Smart Grid, could include electric car impacts)

" Planning and reporting (systems planning, demand resources planning)

" Evaluation (includes FCM evaluation)

" Policy and public affairs

"  Information technology

" General administration

EEU – Allowing Efficiency Full Standing as a Resource •  A voice in regulatory proceedings •  A voice in the political arena •  Direct involvement in the planning of the

electric grid •  Funding for non-resource acquisition •  The ability to integrate with thermal,

renewable, and transportation •  Least-cost rule still pertains – acquiring the

best energy solution available – that’s efficiency

Yeah, but that’s Vermont

Exporting the Model Building on the success of Efficiency Vermont, VEIC

is exporting the performance-based model and “Customer Service” approach for efficiency savings in new settings

•  Efficiency Smart •  Launched January 2011 •  Serves customers in 47 municipal utilities, mostly in

Ohio •  District of Columbia Sustainable Energy Utility

•  Launched April 2011 •  Integrated electric and thermal efficiency and renewables scope

•  Program design and consulting support for Efficiency New Brunswick, Efficiency Nova Scotia, others

Subscription Energy Efficiency Program in the Midwest •  Joint action agency – American Municipal Power -

serving 137 municipalities in 7 states •  Members choose to subscribe to comprehensive set of

services; City Council passes an ordinance to join •  AMP created performance contract with VEIC •  Critical mass formed with 48 communities; $26 million, 3-

year funding •  Target of 75,000 MWh savings at the end of 2013

(18,000 MWh savings achieved in 2011) •  VEIC guarantees savings for municipalities; targets set

for each municipality

Overview Mere Value

Low-Income spending 30% minimum Green jobs 33 FTE (68,640 hours), Year

1; 66 FTE, Year 2; 77 FTE, Year 3; 88 FTE thereafter

CBE spending 35% Year 1 minimum; 50% minimum thereafter

District resident jobs 51% minimum Quick-Start plans 30, 60, & 90 days Quick-Start implementation 60, 90, & 120 days

Energy savings 1% per year after start-up

Thank You!

Vermont Energy Investment Corporation 128 Lakeside Avenue, Suite 401

Burlington, VT 05401 USA

David G Hill PhD Dhill@veic.org (802) 540-7734