1 What Benefit/Cost Test For Kansas? Bruce Snead State Extension Specialist – Energy and IAQ Engineering Extension – Kansas State University Mayor – Manhattan, Kansas August 9, 2006

2 Where Does Kansas Rank on EE? ACEEE studies and other assessments show KS at the bottom in: Energy efficiency expenditures as a percentage of utility revenues; Energy efficiency expenditures per capita Electricity savings as a percentage of electricity sales And lacking in most all EE policy categories No significant utility programs to speak of except for Midwest Energy, some RECs and some Municipals Kansas had not contributed any state funds to weatherization until this year KCC accepted plan for KCPL has some measures contemplated – subject to KCC approval

3 Lessons Learned from States There is significant cost-effective potential for energy efficiency to help meet electricity and natural gas demand; Significant savings are being achieved through well-designed programs and policies; Energy efficiency can be cost-competitive with new supply to meet growing electricity demand, often delivering savings at a cost of 2 to 4 cents per kilowatt-hour; Energy efficiency can be targeted to reduce peak demand, leading to significant cost savings and natural gas savings at a time when supply is constrained; and Energy efficiency can reduce electricity demand in transmission-constrained areas, deferring investments for transmission upgrades.

4 Goals Capture the potential of efficiency investments to limit the costs, risks, and environmental impact of supply sources Use efficiency programs to reduce customer bills and enhance competitiveness Limit the impact of efficiency expenditures on non-participating customers rates Ensure that efficiency programs promote, and do not compromise, equity

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6 Bottom Line Impact on Rates It is virtually impossible to implement cost effective efficiency programs and incur ZERO rate impact On the other hand, it is easy to implement cost effective efficiency programs and incur only a small rate impact, e.g., <$1/MWh per year Demanding zero rate impact will forego many cost-effective efficiency investments, causing a net increase in average customer bills A more prudent approach: limit rate impact of efficiency programs to a small, non-zero value

7 Recommendations for Kansas - Iowa (1) Cost-effectiveness tests. The utility shall analyze for cost-effectiveness proposed programs, using the societal, utility, ratepayer impact and participant tests. The utilitys analyses shall use inputs or factors realistically expected to influence cost-effective implementation of programs, including the avoided costs filed pursuant to rules 35.9(476) and 35.10(476) or avoided costs determined by the utilitys alternative method. If the utility uses a test other than the societal test as the criterion for determining the cost effectiveness of utility implementation of energy efficiency programs and plans, the utility shall describe and justify its use of the alternative test or combination of tests and compare the resulting impacts with the impacts resulting from the societal test.

8 Recommendations for Kansas - Iowa (2) Cost-effectiveness threshold(s). The utility shall describe and justify the level or levels of cost- effectiveness, if greater or less than a benefit/cost ratio of 1.0, to be used as a threshold for cost- effective utility implementation of programs. The utilitys threshold of cost- effectiveness for its plan as a whole shall be a benefit/cost ratio of 1.0 or greater.

9 References/Resources RMI - Economic Criteria for Efficiency Programs – ppt 2006 RAP – Energy Efficiency Policy Toolkit EE Report for KEC – June 2006 CEC - Funding and Energy Savings From Investor-Owned Utility Energy Efficiency Programs In California for Program Years 2000 Through 2004 (Staff Paper) August 2005 TecMarket Works - The California Evaluation Framework, Ch. 14, June 2004