1. Northwest Power and Conservation Council Energy Efficiency As A Resource Option 25 Years of PNW Experience E-Source Members Forum September 25, 2007 Tom Eckman Northwest Power and Conservation Council

2. Northwest Power and Conservation Council slide 2 What You’re About To Hear What We’ve Done What We’ve Done –25 years of using energy efficiency as a resource What’s Left to Do? What’s Left to Do? –How to assess the remaining sources of untapped potential Why It’s Worth Doing Why It’s Worth Doing –What it takes to make the business case for utility reliance on energy efficiency as a resource

3. Northwest Power and Conservation Council slide 3 Northwest Speak (Definitions) Average Megawatt (aMW) = 8760 MWH Average Megawatt (aMW) = 8760 MWH Conservation = Any reduction in electric power consumption as a result of increases in the efficiency of energy use, production or distribution. Conservation = Any reduction in electric power consumption as a result of increases in the efficiency of energy use, production or distribution. Curtailment = Sitting in a dark, hot house, drinking warm beer Curtailment = Sitting in a dark, hot house, drinking warm beer

4. Northwest Power and Conservation Council slide 4 “PNW Power Act” Federally Mandated “least cost planning” Federally Mandated “least cost planning” Longest Running “Integrated Resource Plan” in the Country Longest Running “Integrated Resource Plan” in the Country Planner’s Worst Nightmare: Our first plan can now be compared to what really happened! Planner’s Worst Nightmare: Our first plan can now be compared to what really happened!

5. Northwest Power and Conservation Council slide 5 PNW Energy Efficiency Achievements 1980 – 2005 Since 1980 Utility & BPA Programs, Energy Codes & Federal Efficiency Standards Have Produced Over 3100 aMW of Savings. How Has It Worked?

6. Northwest Power and Conservation Council slide 6 Energy Efficiency Resources Met Half of PNW 1980 – 2005 Load Growth

7. Northwest Power and Conservation Council slide 7 Since 1980 PNW Electric Use Per Capita Has Remain Unchanged* *Post 2000-2001 Energy Crisis Demand Destruction – Some Industries “went dark”

8. Northwest Power and Conservation Council slide 8 Utilities Are Now Acquiring More Efficiency Resources Using A Smaller Share of Retail Revenues

9. Northwest Power and Conservation Council slide 9 The Cost of Efficiency Has Fallen to Less Than $15 Per MWH

10. Northwest Power and Conservation Council slide 10 Utility Acquired Energy Efficiency Has Been A BARGAIN!

11. Northwest Power and Conservation Council slide 11 So What’s 3100 aMW? It’s enough electricity to serve the entire state of Idaho and Western Montana It’s enough electricity to serve the entire state of Idaho and Western Montana It saved PNW consumers nearly $1.6 billion in 2005 It saved PNW consumers nearly $1.6 billion in 2005 It lowered 2005 PNW carbon emissions by an estimated 13.5 million tons. It lowered 2005 PNW carbon emissions by an estimated 13.5 million tons.

12. Northwest Power and Conservation Council slide 12 IS THAT AS GOOD AS IT GETS IS THAT AS GOOD AS IT GETS? What’s Left To Do? - OR -

13. Northwest Power and Conservation Council slide 13 5 th Plan Relies on Conservation and Renewable Resources to Meet Load Growth * * Actual future conditions (gas prices, CO2 control, conservation accomplishments) will change resource development schedule and amounts

14. Northwest Power and Conservation Council Advanced Search Preferences Language Tools Advertise with UsAdvertise with Us - Business Solutions - Services & Tools - Jobs, Press, & HelpBusiness SolutionsServices & ToolsJobs, Press, & Help Make Google Your Homepage! ©2003 Google - Searching 3,307,998,701 web pages WebImagesGroupsDirectoryNews PNW Efficiency Potential

15. Northwest Power and Conservation Council slide 15 Search Results: Cost-Effective Savings by Sector

16. Northwest Power and Conservation Council slide 16 Search Results: Major Sources of Cost-Effective Efficiency Potential

17. How Do We Know How Much is Left To Do?

18. Northwest Power and Conservation Council slide 18 It’s Only a Six Step Process Step 1 - Estimate Technical Potential on a per application basis Step 1 - Estimate Technical Potential on a per application basis Step 2 – Estimate Economic Potential on a per application basis Step 2 – Estimate Economic Potential on a per application basis Step 3 - Estimate number of applicable units Step 3 - Estimate number of applicable units Step 4 – Estimate Technical Potential for all applicable units Step 4 – Estimate Technical Potential for all applicable units Step 5 - Estimate Economic Potential for all applicable units Step 5 - Estimate Economic Potential for all applicable units Step 6 – Estimate Realizable Potential for all realistically achievable units Step 6 – Estimate Realizable Potential for all realistically achievable units

19. Northwest Power and Conservation Council slide 19 Before You Start – Decide On A Cost-Effectiveness Metric Participant Cost Test (PTC) Participant Cost Test (PTC) –Costs and benefits to the program participant Total Resource Cost (TRC) Total Resource Cost (TRC) –All Quantifiable costs & benefits regardless of who accrues them. Includes participant and others’ costs Utility Cost Test (UTC) Utility Cost Test (UTC) –Quantifiable costs & benefits that accrue only to the utility system. Specifically excludes participant costs Rate Impact Measure (RIM) Rate Impact Measure (RIM) –Net change in electricity utility revenue requirements. »Attempts to measure rate impact on all utility customers especially those that do not directly participate in the conservation program »Treats “lost revenues” (lower participant bills) as a cost

20. Northwest Power and Conservation Council slide 20 The Basic Formula Achievable Potential = Number of Applicable Units X (Energy Use @ Frozen Efficiency - Energy Use @ Cost Effectiveness Limit) X Expected Market Penetration Where : Frozen Efficiency Use = Current efficiency adjusted for stock turnover and adopted changes in codes and standards. Cost Effectiveness Limit = Cost of next similarly available and reliable generating resource (represented by future wholesale market prices) adjusted for T&D cost deferrals, environmental costs & risks (fuel price, carbon control, etc.)

21. Northwest Power and Conservation Council slide 21 Implementing the Basic Formula Requires REAL DATA and Detailed Analytical Processes (=$$ & Staff) (It Ain’t A Weekend Project) Measure Cost Measure Savings and Load Shape Measure Lifetime Program Data Contractor Bids Retail Price Surveys End Use Load Research Engineering Models Billing History Analysis Independent Testing Labs Evaluations Census Data Manufacturers Data Engineering Estimates Aurora Market Model Provides 20-year Forecast of Hourly Wholesale Market Prices & CO2 Emission/kWh Under Average Water Conditions, Medium Gas Price Forecast for Medium Load Growth Scenario Cost-Effectiveness Model Determines measure and program level “cost- effectiveness” using: Measure costs, savings & load shape Aurora Market prices T&D savings (losses & deferred $) 10% Act Credit Quantifiable non-energy costs & benefits Council Financial Assumptions (e.g. Discount Rate, Administrative costs, etc.) PortfolioModel Determines NPV of Portfolios with Alternative Levels of Conservation vs. Other Resources Under Wide Range for Future Conditions Plan’s Conservation Target

22. Northwest Power and Conservation Council slide 22 Each End Use Has a Different “Cost-Effectiveness” Limit Weighted Average Value of Space Heating Savings = 3.1 cents/kWh Weighted Average Value of Water Heating Savings = 3.7 cents/kWh

23. Steps 1 & 2 Assessment of “Unit Level” Technical and Economic Potential Example: Residential Space Heating for New Manufactured Homes Cost-Effectiveness Limit for Residential Space Heating

24. Northwest Power and Conservation Council slide 24 Steps 3 - Estimate of the Number of Applicable Units Example: New Manufactured Housing Number of New Electrically Heated Units Sited in PNW by 2025 = 186,000 (Forecast model estimate) Number of New Electrically Heated Units Sited in PNW by 2025 = 186,000 (Forecast model estimate) Location (Based on 2001 sales data) Location (Based on 2001 sales data) – Heating Zone 1 = 64 % – Heating Zone 2 = 27 % – Heating Zone 3 = 9 % Frozen Efficiency Use @ 2000 “Current Practice” = 9385 kWh/year (Characteristics based on survey data from manufacturers & use based on simulation model calibrated to end use metering) Frozen Efficiency Use @ 2000 “Current Practice” = 9385 kWh/year (Characteristics based on survey data from manufacturers & use based on simulation model calibrated to end use metering) Technically Achievable unit savings = 3450 kWh/year Technically Achievable unit savings = 3450 kWh/year Economically Achievable (i.e.,Cost-Effective) unit savings = 3100 kWh/year Economically Achievable (i.e.,Cost-Effective) unit savings = 3100 kWh/year

25. Northwest Power and Conservation Council slide 25 Steps 4-6 Derive the Technical, Economical and Realistically Achievable Potential Technically Achievable Potential = 3450 kWh/year X 1.07625 line loss adjustment X 186,000 units => 80 MW Economically Achievable Potential = 3100 kWh/yr X 1.07625 line loss adjustment X 186,000 units => 70 MW Realistically Achievable Potential = 70 MW X 85 % => 60 MW Who Made Up “That Number”?

26. Northwest Power and Conservation Council slide 26 Illustrative New Manufactured Housing Space Heating Resource Potential in 2025

27. Northwest Power and Conservation Council slide 27 Realizable Potential - The amount of conservation you acquire will be constrained by “budgets and infrastructure” – NOT by cost-effectiveness

28. Northwest Power and Conservation Council slide 28 Retrofit Resources and Lost-Opportunity Resources Will Be Deployed At A Different Pace

29. PNW Portfolio Planning – Scenario Analysis on Steroids Portfolio Analysis Model

30. Portfolio Model Calculates Risk and Expected Cost Associated With Each Plan Across 750 “Futures” Likelihood (Probability) Average Net Present Value System Cost 100001250015000175002000022500250002750030000 32500 Net Present Value of Power System Cost (millions) Risk = average of costs> 90% threshold

31. Northwest Power and Conservation Council slide 31 Plans Along the Efficient Frontier Permit Trade-Offs of Costs Against Risk Least Risk Least Cost

32. Northwest Power and Conservation Council slide 32 All Plans Along the “Efficient Frontier” Acquire Virtually the Same Amount of Energy Efficiency Least Cost Portfolios Least Risk Portfolios

33. Portfolio Analysis On One Slide Resource potential for generic coal, gas & wind resources shown for typical unit size. Additional potential is available at comparable costs.

34. Northwest Power and Conservation Council slide 34 Summary Energy Efficiency Reduces NPV System Cost and Risk Energy Efficiency Reduces NPV System Cost and Risk –Efficiency Resources Are A Cheap (avg. 2.4 cents/kWh) Hedge Against Market Price Spikes –They’re Not Subject to Fuel Price Risk –They’re Not Subject to Carbon Control Risk –They Can Be Significant Enough In Size to delay “build decisions” on more expensive and higher risk generation It takes REAL MONEY and ANALYSIS to properly size and acquire efficiency resources It takes REAL MONEY and ANALYSIS to properly size and acquire efficiency resources –We invested about $14 per capita in 2005 acquiring efficiency, VT and CA and several other states are spending more

35. In a region with historically the lowest electric rates, we’ve relied on efficiency to meet half our load growth for 2 ½ decades And, we still find that efficiency can meet half our load growth over the next two decades IF WE CAN DO IT, YOU CAN

36. Northwest Power and Conservation Council slide 36 Any Questions?