Recommendations to the Bonneville Power Administration regarding
conservation acquisition 2002-2006
May 4, 2000 | document 2000-3
[Council letterhead]
Mr. Terry Esvelt
Vice-President, Energy Efficiency
Bonneville Power Administration
P.O. Box 3621
Portland, OR 97208-3621
Dear Mr. Esvelt,
On Wednesday, February 23, the Council approved the attached
recommendations for Bonneville's conservation acquisition activities as
part of its power augmentation effort. These recommendations are based on
the issue paper (99-18) released
last December, public comment on that issue paper, and consultations
between our staff and others, including your staff. The recommendations
are complete with the exception of a conservation target for the Direct
Service Industries (DSIs). Staff will be working with the industry and
your staff to develop a recommendation for the DSIs.
The Council appreciates the cooperation demonstrated by you and your
staff and Bonneville's commitment to achieve at least the target
conservation levels. The Council looks forward to working with you, the
region's utilities and other stakeholders to achieve this goal.
Sincerely,
Steve Crow
Executive Director
Background
The Bonneville Power Administration intends to augment its power
supplies by 800 to 1,000 average megawatts (aMW) to meet expected loads
during the 2002 ? 2006 rate period. It intends to accomplish this
primarily through market purchases of power but recognizes that the
acquisition of cost-effective conservation must also be part of the mix.
The key question is how Bonneville can acquire cost-effective conservation
during this period in ways that are compatible with the circumstances it
faces?
To explore this question, in December the Council released an issue
paper (99-18) entitled Bonneville Conservation Acquisition 2002 ?
2006. The paper reviewed the reasons for the conservation mandates of
the Northwest Power Act and the experience of the last almost 20 years in
implementing conservation, leading to the current situation. It also
estimated the amount of conservation that is cost-effective for Bonneville
to acquire on a long-term basis. These estimates take into account the
changes in expected value of power since the 1998 plan's estimates were
developed. The analysis indicates that the approximate development
schedule of the cost-effective conservation potential for loads expected
to be served by Bonneville would amount to approximately 30 aMW per year
at a total cost of approximately $60 million per year. However, the
cost to Bonneville should be significantly less because of customer and
end-user contributions.
The paper went on to describe three possible approaches to acquiring
conservation for the 2002 ? 2006 period. One is the traditional,
long-term approach in which conservation investments are valued over their
useful life. This approach has proven effective in the past but exposes
Bonneville to the risk that it will not receive the full benefit of its
investments if customers take load off at the end of the contract period.
A second approach is intended to have effects for Bonneville that are as
much as possible like a relatively short-term purchase of power on the
market. This approach removes most risk from Bonneville but seems unlikely
to produce additional conservation that would not have occurred in
response to market forces. Finally, a "middle ground" approach
was described in which Bonneville is willing to pay for conservation
savings as long as and to the extent that a customer keeps load on
Bonneville. Bonneville would endeavor to limit what it pays to have
minimal impact on its net revenue requirement. This approach limits
Bonneville's risk while permitting development of longer payback, but
still cost-effective conservation.
Finally, the paper made some draft recommendations, proposing to
endorse the "middle ground" approach and the overall
conservation target and making some specific implementation
recommendations.
The Council heard from a panel at the January meeting responding to the
Issue Paper and took extensive written public comment. The recommendations
that follow are based on the analysis in the issue paper, public comment
on that paper and consultations that staff has held with Bonneville and
other interests. These recommendations are intended to guide Bonneville in
conservation acquisition as part of their power augmentation effort.
Recommendations
Overall Approach
It is recommended that Bonneville use the "Middle Ground"
approach described in the Issue Paper. The pertinent features of this
approach are as follows.
- Bonneville should strive to acquire conservation for as little as it
can while still meeting its goal. It should not employ an explicit
rate-impact test. Doing so could, in some circumstances, disadvantage
Bonneville in negotiating what it will pay for conservation and, in
other circumstances, could result in very cost-effective conservation
going undeveloped.
- What it is willing to pay for conservation savings should be based
on the market value of the saving produced. Because market prices
exhibit much more seasonal and daily variation that in the past, the
time at which savings are produced should be reflected in the value.
Similarly, where there are variations in value due to geographic
location, those values should also be taken into account and captured
by the Power Business Line if possible.
- Bonneville's should be willing to acquire conservation that would
produce savings beyond the 2002-2006 period. However, if customers
choose not to contract with Bonneville beyond that period, they accept
the responsibility for any costs not yet recovered or savings yet to
be delivered to Bonneville.
- The conservation acquisition is intended to reduce the necessity for
market purchases of power. Therefore, it will be necessary for
customers that purchase other than load-based products from Bonneville
(e.g. a block purchase) to commit to reducing their purchase from
Bonneville in the amount of the saving to be produced by
Bonneville-funded conservation.
Conservation Target
The conservation target proposed in the issue paper was determined by
allocating the regional resource potential on the basis of the percentage
of loads estimated to be served by Bonneville in the 2002 ? 2006 period.
Comment was received to the effect that the allocation overlooked the
pre-subscription loads served by Bonneville and did not include the full
responsibility for IOU residential and small farm loads. Inclusion of
these factors would tend to increase the amount allocated to Bonneville.
At the same time, Direct Service Industry loads were inappropriately
included in determining the allocation when the regional conservation
potential does not include an estimate of conservation potential in the
DSIs. These recommendations reallocate the regional target to Bonneville
according to the revised load estimates and estimating a separate target
for the DSIs.
The issue paper also recommended that the savings produced as a result
of the Conservation and Renewables Discount, Bonneville's
"share" of the savings produced by the activities of the
Northwest Energy Efficiency Alliance (NEEA) and the savings produced by
Bonneville-funded low-income weatherization be counted toward the regional
target. The Council believes this is appropriate. However, the Council
also believes it is important to provide a clear, unambiguous target for
power augmentation and to avoid pressures that might distort the missions
of these other activities. Consequently, these recommendations provide
estimates of the amount of savings that will be produced by these
activities a priori and reduce the augmentation target levels by those
amounts. The targets are as presented in Table 1. These targets are based
on current estimates of Bonneville's subscription loads. The targets will
be revised as necessary when subscription is complete.
Table 1
Bonneville "Share" of regional Non-DSI potential 2002
? 2006 |
166 average megawatts |
Target for savings produced by activities under Conservation and
Renewables Discount; Northwest Energy Efficiency Alliance, and
low-income weatherization 2002 ? 2006 |
80 average megawatts |
Bonneville Non-DSI augmentation target 2002 ? 2006 |
86 average megawatts |
Bonneville DSI augmentation target 2002 ? 2006 |
Under development |
Bonneville total augmentation target 2002 ? 2006 |
86 average megawatts plus DSI target |
The Council recommends that the target be considered a minimum, not a
maximum. Staff has identified conservation that could be cost-effective to
implement earlier than was specified in the Power Plan. Bonneville should
acquire that conservation it can identify that is cost-effective
Modification of the Conservation and Renewables Discount
The issue paper proposed considering modifications to the Conservation
and Renewable Discount (C&R D) so that it could serve as the basis of
the augmentation effort. Information being produced by the Regional
Technical Forum for the C&R D will be helpful in the augmentation
effort. However, the Council recommends that the C&R D not be
modified. It was designed with a different purpose in mind and would
require extensive modification to be the basis for the acquisition
activity. Since it is part of the rate case, significant changes would
delay the rate case.
Implementation
The issue paper proposed that a competitive bid process that includes
the possible participation of third parties be used for the augmentation
process. The paper was not, however, clear about what that meant. The
Council recognizes that for some more or less standard conservation
measures or programs, primarily affecting the residential and small
commercial sectors, a "standard offer" approach (i.e., "If
you do X we will pay you Y") may be more efficient. The Council
recommends that the standard offer approach be used where appropriate. The
Council continues to believe that for industrial and large commercial,
where the bulk of the potential lies, a more flexible approach is
required. The Council recommends that Bonneville solicit interest from
customers and third parties and work with those parties to negotiate
mutually acceptable terms (quantity, price, timing, etc.). Bonneville's
utility customers should have first right of refusal but should not have
the ability to block access of consumers to Bonneville-supported
conservation services.
Monitoring Progress
While not addressed explicitly by the issue paper, comments were
received to the effect that progress toward achieving the conservation
target should be carefully monitored so that corrective action can be
taken on a timely basis if necessary. The Council requests that Bonneville
report to the Council regarding the progress made in acquiring
conservation as part of the power augmentation effort on at least a
bi-annual basis. Reporting should include documented savings from the
Conservation & Renewables Rate discount the Northwest Energy
Efficiency Alliance and low-income weatherization. For the C&R
Discount, only those savings documented through use of Regional Technical
Forum evaluation protocols and/or deemed measure savings should be
counted. To the extent the overall conservation target is not achieved,
the Council expects that Bonneville will undertake additional efforts to
meet the overall target.
Transmission Business Line
The issue paper proposed that the Transmission Business Lined cooperate
in funding conservation activities where transmission system saving would
result. The Council encourages the Transmission Business Line to invest in
conservation and demand management where such investment can reduce
transmission investment requirements. However, to preserve the separation
of Bonneville's transmission and power marketing functions, PBLs and TBLs
conservation/demand management activities should not be combined.
Renewable Resources
Renewable resources were not addressed in the issue paper. The Act
requires that resources being acquired by Bonneville be cost-effective.
The Council's current plan does not identify any cost-effective renewables.
If a developer or sponsor offers to sell power from renewable resources to
Bonneville at a competitive rate, Bonneville can and should acquire that
power. The Council supports renewables demonstration and
"green-power" marketing efforts to stimulate renewables
development. The C&R Discount is a vehicle that is appropriate for
funding such activities.
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