Energy Efficiency and Demand Response: Separate Efforts or Two Ends of a Continuum? A Presentation to: Association of Edison Illuminating Companies Reno, Nevada September 12, 2006 Susie E. Sides, San Diego Gas & Electric Craig Williamson, Energy Insights

September 12, What are we talking about? Energy Efficiency Demand Response Peak Load Management

September 12, What are they? Energy Efficiency Permanent load reduction many hours no reduction or shift in customer value, comfort, or output Demand Response (critical peak management Temporary load reduction Very few hours May involve a reduction in customer value, comfort, or output. Peak Load Management peak shift or reduction on many days change in customer load profile shift or transfer of customer value or output

September 12, The problem with the separate view Regulatory context and pricing  Different proceedings for EE and DR  Funding is applied discretely to customer programs  Savings targets may compete  Appropriate price signals must support customer investment Utility Implementation  A silo effect of efforts at the utility  Determining program value can be difficult - Customers respond with a mix of strategies across the continuum Customer perspective  Confusion from multiple messages and programs  “If I do one program, I can’t contribute to the other”  “I already did my part with that other program”

September 12, How can integration be applied? Energy Efficiency Peak Load Management Demand Response

September 12, It’s a continuum Energy Efficiency Demand Response Peak Load Management

September 12, Why a Continuum? CUSTOMER SYSTEMSOCIETY SWEET SPOT

September 12, Whole can be greater than the sum of the parts Diversity of benefits  Don’t penalize a program or a customer for providing multiple benefits  Awareness and benefits increase with participation in multiple programs California SPP, considered primarily demand response,  EE: Conservation effect (daily reduction) of 3.24%  PLM: Non-critical peak day reduction of 4.25% during peak periods with an increase of 1.80% during off-peak periods  DR: Critical peak day peak period reduction of 11.96% Pricing impacts results across the continuum Interrelationship of effects can change over time

September 12, An hypothetical example of the interaction Scenario 1: Residential Customer Customer is billed on a TOU rate tariff with CPP option Differential between daily on-peak charges and non-peak charges Larger differential between non-critical and critical peak days Customer is new to the program Receives communicating thermostat from utility Starting out, customer doesn’t take time to learn to program it

September 12, Example – first year – only DR impact

September 12, DR Savings

September 12, Over time, the customer learns First, the customer learns to program the thermostat, adjusting it on all weekdays. This adds a PLM effect May reduce DR effect a bit (setting increase from higher set point) After a year, because of the program, the customer decides to replace their 15-year-old Central AC unit with a new high-efficiency unit Customer saves much more across all hours that the AC is on Customer reduces load more during critical peak hours, compared with original baseline – but most of that is really EE. Actual load reduction during critical peak is less Second Year: Less DR, much more EE

September 12, Example – ultimate savings – all types

September 12, Savings – second year Note: Some of EE could be considered PLM

September 12, A balancing act Energy Efficiency Demand response

September 12, Effects in this example Customer invests in EE, Peak Load and DR technologies, all in response to a DR program EE: High-efficiency air conditioner Reduces overall energy consumption (kWh) when operating PLM: Programmable thermostat Adjusts temperature during on-peak periods DR: Communications device within the thermostat Controlled by utility during critical peak events Trying to measure separate impacts can also be a challenge, because of the interaction

September 12, DR customers will do EE and PLM Percentage of online customers Totals add up to more than 100% because respondents could check all that apply Source: Energy Insights Customer Strategies 2006 Residential Market Survey Customer actions taken in an effort to use less energy 86% of online customers reported taking at least one of these actions in the last year in an effort to use less energy

September 12, So…Why Should We Care? Benefits can be significantly increased through integration  Long-term energy (kWh) savings through Energy Efficiency  Long-term system (kWh/kW) savings through Peak Load Management  Long-term capacity (kW) savings through Demand Response Customer benefits are realized sooner  Incremental investments results in larger savings Utility cost savings  Save on program costs, number of interactions  Long-term capital investment savings Increase customer satisfaction  Decrease customer annoyance  Provide comprehensive solution

September 12, Not everyone is in the same regulatory environment Utility profitability can be an issue  Under traditional regulation, DR has more appeal, since it does not result in much revenue erosion.  But if DR programs result in EE, that can hurt profitability (especially under rate freezes)  Careful incentive regulation and rate base rules help

September 12, What impact does this have on load researchers? Measuring impacts with interactions and cross- effects can be a real challenge  Working with the right baseline is critical  Consider all effects when modeling impact More generally, be an advocate for the concept of comprehensive approach, especially as you are asked to estimate impacts

September 12, Contact information Susie E. Sides Market Planning & Analysis Manager San Diego Gas & Electric Southern California Gas Company (858) Craig Williamson Program Director, Energy End Use Research Energy Insights (303)