Experience you can trust. Practical Approaches to Benefit- Cost Challenges in Energy Efficiency Programs Kansas Corporation Commission Mitchell Rosenberg, Vice President Topeka, Kansas March 26, 2008

2 Overview Practical Approaches and Results – Formulating cost-effectiveness tests to address a jurisdictions policy objectives: Expanding the Total Resources Test (TRC) – Estimating benefits not included in the TRC – Selection of appropriate analysis periods and discount rates to reflect policy objectives and specification of benefits References – KEMA work in Wisconsin

3 Policy Drives the Test Total Resource Test – Meet energy needs at lowest social cost, including environmental externalities Wisconsin Goals for Energy Efficiency Programs – Reduce energy used per unit of production – Improve energy reliability – Enhance economic development & competitiveness of WI businesses – Reduce environmental impacts of energy use – Expand ability of market to deliver energy-efficient goods & services – Deliver return on public investment

4 Wisconsin Approach: Test Structure

5 Wisconsin Approach: Other Elements Analysis Period: 25 years, beginning 2001 – Needed to capture economic benefits Program Period: 10 years, beginning 2001 – Need to assume levels of program activity from 2007 – 2011 Two funding scenarios – Low-funding: continues first 5 years – High-funding: spending increase per current legislation. More market effects reflected in benefits Net Present Value: All benefit and cost streams discounted to $2007, then netted.

6 Wisconsin: Overview of Benefit-Cost Analysis Results In $2007 millions

7 Benefits under the Simple Test

8 Non-Energy Benefits Estimates developed from combination of surveys to assess incidence and secondary sources to assess unit values.

9 Indirect Economic Impacts Modeling Direct Program Effects Economic Benefit Drivers Benefits Counted

10 Estimates of Economic Development Impacts Note: Benefits not discounted in Sum columns. Import substitution and increased business competitiveness are the primary drivers of economic benefits generated.

11 Putting it together: Simple Test Residential Programs: High Funding Scenario

12 Putting it together: Expanded Test Residential Programs: High Funding Scenario

13 Key elements of uncertainty

14 Lessons Learned Extended cost-effectiveness framework is analytically manageable, with significant areas of uncertainty remaining Extended cost-effectiveness creates considerable program headroom. Incremental cost data a major weakness. – Need to build cost data collection into program operations and evaluation Must ensure that assumptions used in b-c calculations are incorporated into program planning – Example of Californias E3 calculator