EEI Energy Efficiency EEI Energy Efficiency InitiativeInitiative

Eric Ackerman Eric Ackerman ((eackerman@eei.org)Senior Manager, Regulatory Policy Senior Manager, Regulatory Policy

April 23, 2007April 23, 2007

Overview

Why – Do we need to aggressively increase energy efficiency in the electric sector?

What – Does the EEI Energy Efficiency Initiative aim to do?

How – Do we aim to do it, what are our strategies?

EEI Efficiency Initiative – The Case for Action

Rates Are Increasing: Our Customers Need Help

Evolving Customer Requirements: We Can Be Ready Wholesale/Retail Competition: Reduce Risks Through Demand

Response and Innovative Rate Design

Environmental Issues: An Opportunity To Reduce Emissions

Evolving Technology: New Developments Will Change the Business

EPAct and PURPA Requirements: An Opportunity for State Action

EEI Energy Efficiency Initiative (Con’t)

Approved by EEI Board, September 2006

Five component strategies, five teams:1. Innovative Rate Designs & Regulation2. Advanced Metering and Infrastructure3. Smart and Efficient Buildings4. Smart and Efficiency Appliances5. Plug In Hybrid Electric Vehicles

Innovative Rate Designs & Regulation Goal

• Implement innovative rate designs and regulatory structures that support energy efficiency as a viable business compatible with and attractive to the electric industry and its customers

Strategy• Develop innovative rate designs, regulatory and business models to support

energy efficiency and demand response programs

• Outreach to state regulatory commissions and other stakeholder groups to gain acceptance of EEI’s innovative rate designs, regulatory and business models that support energy efficiency and demand response programs

Advanced Metering and Infrastructure Goal

• Increase the penetration of cost-effective AMI with effective communications capability that will support innovative rate designs, energy efficiency and demand response programs

• Secure legislative and regulatory policies that will reduce investment risk associated with investments in advanced metering

Strategy• Develop proposed regulatory and legislative policies that will reduce metering

investment risk

• Outreach to state regulators to gain acceptance and implementation of required regulatory changes

• Advocate federal & state incentives to support financial viability of metering investment

• Coordinate with vendors to guide the development of cost-effective AMI

Advanced Metering and Infrastructure

Goal• Increase the penetration of cost-effective Advanced Metering and Infrastructure

(AMI) with effective communications capability that will support innovative rate designs, energy efficiency and demand response programs

• Secure legislative and regulatory policies that will reduce investment risk associated with investments in advanced metering

Strategy• Develop proposed regulatory and legislative policies that will reduce metering

investment risk• Outreach to state regulators to gain acceptance and implementation of required

regulatory changes• Advocate federal & state incentives to support financial viability of metering

investment• Coordinate with vendors to guide the development of cost-effective AMI

Smart and Efficient Buildings Goal

• Improve the efficiency and responsiveness of new and existing buildings by working with end-use customers, trade allies, and government agencies

Strategy • Have states adopt 2006/2007 building efficiency codes

• Extend, expand, and simplify federal (and state) tax incentives

• Raise public awareness of EEI member company programs that help improve the efficiency of residential and commercial customer buildings

Smart and Efficient Appliances Goal

• Increase the market share of smart, efficient, and cost-effective appliances that are accessible and affordable for customers

Strategy • Build coalitions to support consensus-based national appliance efficiency

standards

• Extend and expand federal (and state) appliance efficiency tax incentives

• Raise public awareness of EEI member company programs that help improve the efficiency and responsiveness of residential and commercial equipment

Plug In Hybrid Electric Vehicles Goal

• Increase awareness, visibility and viability of Plug In Hybrid Electric Vehicles (PHEV) in advance of a successful launch of a vehicle by 2010

Strategy • Implement incentives (Legislative and Regulatory)

• Outreach to key stakeholders (auto manufactures, environmental advocacy groups)

• Initiate communications initiative (PR, Education)

Rate Designs We need to move toward more efficient rate designs:

• Greater use of time-differentiated designs to reflect the true cost of generation (e.g., time-of-use, critical peak pricing)

• Greater choice among options that let customers trade off stability vs. cost minimization

Price vs. Risk Profile

Risk to Buyer

ExpectedPrice

toBuyer

RTP-DA

FPA & RTP w/ Adjustable CBL

RTP w/ PPP

RTP-HA

PLL Rates

TOU Rates

Variability

Source: Jon Kubler, GA Power Co.

Advanced Metering Infrastructure Critical support to demand-response:

• Sends time-differentiated price signals• Records time-differentiated consumption (interval metering)

Many other operational cost savings and reliability improvements that benefit customers

The issue is careful business case development to ensure that benefits justify costs• Treatment of legacy meters can tip the decision• Accelerated depreciation of new meters also is appropriate and will improve

business case

Possible Business Models Conventional regulatory incentives

• Rate basing• Shared savings

Performance-based models• Revenue caps

Market-based models• Customer infrastructure models• Fee-for-service models

Green power models• Rate basing• Fee for services• Renewable / carbon credits models

Enabling Regulatory Policies DSM cost trackers

Decoupling mechanisms

Measuring and sharing benefits

Rate basing

Performance based regulatory authority, plan designs

Premium services policy

Cost/revenue separations mechanisms

Affiliate codes of conduct

Conclusions1. The need for increased efficiency is urgent.

2. Multiple policies are needed:

a. Efficient ratesb. Advanced metering infrastructure (where cost-effective)c. New business modelsd. Enabling regulatory policies.

3. No one model will work for every utility / service territory.

4. Criteria for sustainable businesses:

a. Timely recovery of DSM program costsb. Keeping whole for fixed costsc. Ability to make a margin.