by

Martin Kushler, Ph.D.

Senior Fellow

American Council for an Energy-Efficient Economy

INSPIRING MUNICIPAL UTILITIES TO MAXIMIZE ENERGY EFFICIENCY…

AS A SYSTEM RESOURCE,AND LOCAL ECONOMIC DEVELOPMENT

STRATEGY

2

TOPICS

1. Energy Efficiency as a utility system resource

Rationale BPA as top national example Burlington, VT as excellent municipal EE

example

2. Energy Efficiency as economic development:

Understanding the economic problem Why Energy Efficiency should be the

cornerstone solution for municipal utilities

3

PART 1

RATIONALE FOR ENERGY EFFICIENCY AS A UTILITY SYSTEM RESOURCE

SIMPLY STATED:

• Utility systems need to have adequate supply resources to meet customer demand

• To keep the system in balance, you can add supply resources, reduce customer demand, or a combination of the two

• In virtually all cases today, it is much cheaper to reduce customer demand than to acquire new supply resources

[True for electricity and natural gas]

4

KEY POINT #1

It is much cheaper to save energy

than it is to produce it.

[We can save electricity for about one-third the cost of producing it through a new power plant

…. With no carbon (CO2) emissions]

Cost of New Electricity Resources

Source: Lazard 2008 for NARUC (midpoint of range)

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2

4

6

8

10

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EnergyEfficiency

(a)

Wind Biomass Nat. GasCombined

Cycle

PulverizedCoal

Thin FilmPV

Nuclear SolarThermal

Coal IGCC

Lev

eliz

ed C

ost

(ce

nts

/kW

h)

w/o Carbon W/ $20/Ton Carbon

WHAT IS AN “ENERGY EFFICIENCY PROGRAM” ?

An organized and comprehensive effort to try to encourage customers (residential and business) to implement energy efficiency improvements

Key elements• Public information, education and persuasion• Information, training, and incentives to “trade allies”

(retailers, contractors, etc.)• Economic incentives for customers (e.g., rebates)• Quality control, monitoring, and evaluation

[Customers can often save 10-30% on utility bills]

UTILITY ENERGY EFFICIENCY PROGRAMS HAVE BEEN SHOWN TO BE VERY COST-EFFECTIVE

In ACEEE’s latest analysis*, we reviewed the reported results from 14 states with large-scale utility funded energy efficiency programs.

The average cost per kWh saved was 2.5 cents.

___________ Saving Energy Cost-Effectively: A National Review of the Cost of

Energy Saved through Utility-Sector Energy Efficiency Programs, ACEEE, Sept. 2009

http://www.aceee.org/research-report/u092

ENERGY EFFICIENCY ON A “POWER PLANT” SCALE

• Some leading state examplesMinnesota has saved over 2,300 MW since 1990The Pacific Northwest has saved over 2,200 MW

over a similar timeframeCalifornia has saved over 1,500 MW in the last 5

years

• At least a dozen states have EE programs on a scale large enough to displace power plants (i.e., save 0.4% to over 1.0% of load each year)• CA, CT, IA, IL, MA, MI, MN, NY, OR, RI, VT, WA, WI

THE PACIFIC NORTHWEST (ID, MT, OR, WA)

• Best electric resource planning process in the U.S.• 25 years of energy efficiency program experience• Last plan was to meet all new electricity resource

needs through 2013, and two-thirds of new needs thru 2025, with energy efficiency

….And all at a levelized cost of 2.4 cents/kWh

The Fifth Northwest Electric Power and Conservation PlanNorthwest Power and Conservation Council, May 2005. [http://www.nwcouncil.org/energy/powerplan/plan/]

5th NW Plan Relied on Conservation and Renewable Resources to Meet All Load Growth Thru 2016

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500

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2004 2008 2012 2016 2020 2024

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Inst

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d C

ap

aci

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aM

W)

Conservation (aMW) Wind (MW) DR (MW)SCGTurbine (MW) CCGTurbine (MW) Coal (ICG) (MW)

The Region Has Exceeded the 5th Plan’s Energy Efficiency Targets Every Year

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Annual

Sav

ings

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a)

5th Plan GoalsHistorical Savings

Utility Acquired Energy Efficiency Has Been A

BARGAIN!

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Whole

sale

Ele

ctri

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2006$/M

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)

Levelized Cost of Utility Efficiency AcquisitionsMonthly Average Wholesale Market Price @ Mid-C Trading Hub

Avoided Costs Are Now Forecast to Be Significantly Higher

$0

$10

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2007 2010 2013 2016 2019 2022 2025 2028

Who

lesa

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arke

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ice

(200

6$/M

Wh)

5th Plan

Preliminary Draft 6th Plan

Draft 6th Plan Goal: Meet 85% of Load Growth with Conservation

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PNW Load w/o Conservation

PNW Loads w/Conservation

Pacific NW 6th Plan Resource Portfolio (2010)

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2010 2015 2020 2025

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ourc

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awat

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SCCT

CCCT

Geothermal

New Wind

RPS Wind

Conservation

The Pacific Northwest provides a great example of what is possible….

Michigan needs to chart an energy course that is fundamentally based on energy efficiency and local Michigan renewable resources

Actually, Michigan has done some similar integrated resource planning analyses ….

In the Michigan 21st Century Plan (produced by the MPSC in 2007)

Coal:10 cents/kWh +carbon

nat gas8-9 cents/kWh or8-9 cents/for purch.power

From Michigan 21st Century Plan: Central Station Generation Scenario

Energy Efficiency 3 cents/kWh (no carbon)

Wind7-8 cents/kWh (no carbon)

A little gas or purch.power

From Michigan 21st Century Plan: Energy Efficiency & Renewable Energy Scenario

MI 21ST CENTURY PLAN CONCLUSIONS

“modeling for the Plan showed that, in the absence of any energy efficiency programming, Michigan would need no fewer than four new 500 MW baseload units by 2015 to meet forecasted demand. With energy efficiency programming, the model decreased the forecasted need to two new baseload units on a staggered basis; and with the addition of the RPS, this projection has been decreased further to one new unit by 2015.”

“By displacing traditional fossil fuel energy, the energy efficiency program alone could save Michigan $3 billion in electricity costs over the next 20 years. These results compare favorably to other statewide energy efficiency programs.”

IF THE MPSC 21ST CENTURY PLAN ANALYSIS WAS REPEATED NOW:

• Coal plants wouldn’t be selected at allLoad growth is virtually flatCoal costs now are over 10 cents/kWh

(vs. 6 cents in original study)

• Energy Efficiency still by far the first priority• Renewables and gas would fill in the remaining

need

[Result would look extremely similar to the Pacific NW plans seen earlier]

NEW COAL PLANTS ARE VERY COSTLY TO RATEPAYERS

• Coal plant construction costs have doubled over the past decade, and coal fuel costs have soared

• 10 Michigan counties in the UP faced a 33% rate increase in 2010 from WE Energies new coal plant going into rates

• The Illinois Municipal Electric Agency (IMEA) is facing an over 30% rate increase from its 15% share of a new coal plant whose costs have doubled

• The MPSC staff estimated the proposed Wolverine coal plant in Rogers City would raise rates by nearly 60%

[And Michigan has to import 100% of the coal we burn]

ENERGY EFFICIENCY vs. RENEWABLE ENERGY: POLICY IMPACTS ON ELECTRIC SYSTEM COSTS

[Source: Next Energy & EOS study for MDEQ, 2007]

-8%

-7%

-6%

-5%

-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Dif

fere

nce

fro

m B

ase

Cas

e

EE1

EE2

RPS1

RPS2

RPS1-EE1

RPS2-EE2

Michigan has made some good initial steps (e.g., PA 295 of 2008) toward this lower-cost energy efficiency path….

• Our first RPS• Our first EERS

But stronger action is needed!

HOW DOES MICHIGAN COMPARE TO OTHER STATES?

A BIT OF HISTORY:

MICHIGAN WAS ONCE A LEADER IN ENERGY EFFICIENCY

• In the early 1990’s, Michigan was among the national leaders in utility efficiency programs.

• Our top utilities were spending 1 to 2% of revenues on energy efficiency

• Independent evaluations documented that the energy efficiency programs were very cost-effective (1.5 to 2.6 cents per kWh saved)…less than half the cost of new electric supply.

• The programs were very popular with the public

MICHIGAN’S “LOST DECADE”

• Michigan’s utility energy efficiency programs were terminated in 1996, in the rush to utility deregulation

• [Many other states maintained their energy efficiency programs, and have realized hundreds of millions of dollars in utility cost savings.]

• The situation was finally corrected in 2008 when PA 295 was signed into law, requiring utility energy efficiency programs and setting annual energy savings requirements for electric and natural gas utilities.

Energy Efficiency Resource Standards

HI: 4,300 GWh by 2030

20% of load growth by 2010

11.5% by 2020

10% of 2005 sales by 2020

1.5% annual by 2010

>2%%annual by 2015

VT: 2.0% annual now

MA: 2.4% annually by 2012

CT: 1.5%/yr now

22 States –February 2010

DC: 20% by 2020DE: 15% by 2015

~10% by 2025

VA: 10% by 2020

2% annualby 2015

1.5% annual(post-2010)

>1% annualby 2012

1% annual. By 2011

4%by 2020

0.6% annually

2% annualby 2019

1.0% annualby2012

Standard

Voluntary Goal

Pending Standard or Goal

Combined RES/EERS

MD: 15% by 2015 (relative to 2007 sales)

20% of 2005 sales by 2020

2%

annual

by 2019

30

Cumulative Electricity Savings of State EERS Policies Extrapolated to 2020

State Cumulative 2020 Target

State Cumulative 2020 Target

Vermont* 27.00% Wisconsin* 13.50%

Maryland* 26.70% Maine* 13.40%

New York* 26.50% Connecticut* 13.14%

Massachusetts 26.10% California 12.94%

Rhode Island* 25.26% Ohio 12.13%

Arizona 22.00% Michigan 10.55%

Illinois 18.00% Oregon* 10.40%

Hawaii* 18.00% Pennsylvania* 9.98%

Washington 17.24% New Mexico 8.06%

Minnesota 16.50% Arkansas* 6.75%

Iowa* 16.10% Texas 4.60%

Delaware 15.00% Florida 4.06%

Colorado 14.93% Nevada 3.76%

Indiana 13.81% North Carolina 2.92%

*Savings beginning in 2009 extrapolated out to 2020 based on final year of annual savings required

Note: Assumptions and methodology detailed in full report

31

Results of ACEEE EERS “Progress Report”

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AN EXCELLENT MUNICIPAL UTILITY EXAMPLE

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BURLINGTON ELECTRIC DEPARTMENTBURLINGTON, VERMONT

~ 20,000 customers16 square miles70 MW peak demand360,000 MWh annual sales[36% from owned generation]Average residential rate: 14 cents/kWh

BED web site: https://www.burlingtonelectric.com see 2010 Energy Efficiency Annual Report See 2008 Integrated Resource Plan

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ENERGY EFFICIENCY AT BURLINGTON ELECTRIC

• Started major energy efficiency programs in 1990• Operating under comprehensive IRP since 2002• Big EE investment…Big EE savings

2010 Energy Efficiency Funding EE spending: 3.4% of revenues EE charge to customers:

Residential: 7 mills/kWh ($ .007 per kWh) Commercial: 6 mills/kWh Industrial: 4.5 mills/kWh

35

ENERGY EFFICIENCY RESULTS AT BURLINGTON ELECTRIC

2010 Energy Efficiency Program Savings 1.8% of annual kWh sales 1.5% of peak demand

2010 Energy Efficiency Cost-Effectiveness EE savings at 2.8 cents/kWh

36

ENERGY EFFICIENCY AS A RESOURCEAT BURLINGTON ELECTRIC

• Energy Efficiency has essentially met all growth in electric service needs since 1989

(Electric consumption has remained virtually flat for over 20 years)

• Cumulative savings since 1989: 29%

(& still saving 1.8% per year….and going up)

California has nothing on Burlington!

.                                              

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PART 2

THE CASE FOR ENERGY EFFICIENCY AS ECONOMIC DEVELOPMENT

WHY DOES ALL THIS MATTER????

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UNDERSTANDING THE ECONOMIC PROBLEM

KEY POINT #2: ENERGY COSTS ARE A HUGE DOLLAR DRAIN

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THE MICHIGAN EXAMPLE

• Michigan is almost totally dependent on fuels imported from other states and countries (~ $24 billion per year)We import:

– 100% of the coal and uranium we use– 99% of oil & petroleum products– 75% of the natural gas

[Most municipalities import 100% of all fuels]

Total Michigan Taxes vs. Michigan Energy Costs2000 vs. 2008

$22.4$26.1

$22.5

$37.0

$0.0

$5.0

$10.0

$15.0

$20.0

$25.0

$30.0

$35.0

$40.0

$45.0

2000 2008

Year

Billio

ns o

f D

ollars

Total MI Taxes

Total MI Energy Costs

COST OF MICHIGAN’S ENERGY IMPORTS

• Before the new ‘high energy cost’ era (circa 2000), roughly $12 billion per year was leaving Michigan to pay for fuel imports

• At 2008 market prices, this dollar outflow was over $24 billion per year

THIS IS A HUGE ECONOMIC DRAIN ON OUR STATE ECONOMY!

Economic Burden on Michigan Homes and Businesses:Taxes vs. Energy Costs (2008)

$26.1

$24.8 billion drain for imported fuels

$37.0

$0.0

$5.0

$10.0

$15.0

$20.0

$25.0

$30.0

$35.0

$40.0

Total MI Taxes (2008) Total MI Energy Costs (2008)

Billio

ns o

f D

ollars

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SOME ROUGH DATA FOR HOLLAND

• Total Holland city budget (excluding the utilities)

~ $50 million• Total energy costs for Holland ~ $135 million

[Fuel imports likely well over $50 million]

One example:

Imported coal costs nearly 2.5 cents/kWh (natl. ave.) A billion kWh/year would be $25 million/yr. leaving

the community just to import coal Plus natural gas, gasoline, & other fuels

EFFECTS ON HOUSEHOLDS

• In 2002, the average household nationally spent about $3,000 on energy

[half for transportation, half for home uses]

• Before the end of the decade, that amount was up to $4,600 per year … an increase of over 50%,

….or $1,600 taken out of every household’s annual disposable income

EFFECTS ON THE STATE ECONOMY

This additional $12 billion annual drain on Michigan’s economy is roughly equivalent to the lost payroll from closing 120 major manufacturing plants.

Even the Wall Street Journal has written about the unprecedented transfer of wealth, calling it a “bonanza” and “windfall” for the handful of big energy producing states (i.e., AK, NM, ND, WY and TX) and countries (e.g., OPEC).

KEY POINT #3:

MICHIGAN’S FUTURE IS NOT IN FOSSIL FUELS

MICHIGAN’S RECOVERABLE RESERVES AS A SHARE OF U.S. RECOVERABLE RESERVES (Source: U.S. EIA)

• Coal: 0%• Uranium: 0%• Oil: 0.3%• Natural Gas: 1.3%

For a municipality like Holland, these are all 0%

Why would Michigan policymakers support policies that encourage greater consumption of these resources?

(At the local, state OR federal level !)

MICHIGAN (and Holland) SHOULD EMPHASIZE:

• Energy Efficiency

• Locally-based Renewable Energy

State (and local) policy should be trying to maximize the amount of energy efficiency resources we can acquire,

… and minimize the amount of additional fuel imports we need

This includes minimizing the amount of new power plants that are dependent upon fuel imports

(This is in fact now the declared policy of a number of leading states….

…..Including Michigan !!!!

“The overall goal of an energy optimization plan shall be to reduce the future costs of provider service to customers. In particular, an EO plan shall be designed to delay the need for constructing new electric generating facilities and thereby protect consumers from incurring the costs of such construction.”

(PA 295, Section71)

KEY POINT #4

At the state and local level,

ENERGY EFFICIENCY is

Michigan’s best opportunityFor economic development

THE ECONOMIC “TRIPLE PLAY”

Energy Efficiency is the only resource that boosts the economy and provides jobs in 3 key ways:

1. Direct employment in delivering the EE

2. Local re-spending of saved energy dollars

3. Reduced energy costs for all ratepayers Cheapest resource for the utility system Downward pressure on market energy prices

HOW LOCAL COMMUNITIES BENEFIT FROM UTILITY SECTOR ENERGY EFFICIENCY PROGRAMS

• Direct local employment (installers, electricians, skilled trades, service occupations and retail)

• Direct savings on utility bills for customers participating in the energy efficiency programs (10-30% savings is possible)

• Indirect benefit from reduced dollar drain from the community (i.e., re-spending of the $ savings by customers)

• Reduced air emissions from fossil fuel combustion (& urban areas tend to have the most serious air quality problems …NOx, ozone, smog, mercury, particulates)

55

As a matter of economic policy, cities should be trying to maximize the amount of energy efficiency resources they can acquire,

… and minimize the amount of additional fuel imports needed

56

FROM THE BURLINGTON 2010 EE ANNUAL REPORT:

Energy efficiency expenditures are made almost entirely locally, typically in the form of professional services, skilled trades employment, and equipment purchases. Not only is the value of the City’s building and energy-using equipment improved, but locally-retained dollars are “multiplied” many times over by subsequent consumer spending. Absent these energy efficiency expenditures, these funds would have gone towards the purchase of electricity and enhanced infrastructure to satisfy increased demands on the City’s electrical system. Most of these dollars would have been exported out of state, and many out of the country.

Energy Efficiency is a win-win situation for the city of Burlington through increased local economic activity, and through the avoidance of increasingly costly electricity purchases, their associated infrastructure growth and capital expenses, and their environmental impacts.

CONCLUSIONS• Most municipalities are 100% dependent upon imported

fuels….this creates a huge “dollar drain” from the community• Energy Efficiency is the cheapest, fastest, and cleanest new

energy resource….one third to one fourth the cost of new electricity supply

• Michigan has huge reserves of ‘untapped’ energy efficiency potential (we have a relatively old and inefficient building and equipment stock)

• Energy Efficiency is a completely “Michigan-based” resource. Every bit of efficiency must be “mined” from Michigan homes, businesses, and public facilities….and energy efficiency jobs cannot be “outsourced”.

• Municipal energy policy should be: ENERGY EFFICIENCY FIRST, followed by cost-effective LOCAL RENEWABLES

• That policy would be entirely justified by the economics…. The environmental benefits are a bonus!

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SOME SOURCES FOR EXCELLENT EE PROGRAMS FROM AROUND THE U.S.

Compendium of Champions: Chronicling Exemplary Energy Efficiency Programs from Across the U.S. York, Kushler & Witte, ACEEE, 2008 http://www.aceee.org/research-report/u081

[Presents the results of a national search for exemplary utility-sector energy efficiency programs. A detailed appendix includes summary profiles of a total of 90 programs across 20 different program categories.]

Energy Efficiency and Electric System Reliability: A Look at Reliability-Focused Energy Efficiency Programs Used to Help Address the Electricity Crisis of 2001 Kushler, Vine and York, ACEEE, 2002. http://aceee.org/research-report/u021

[22 “case studies” of successful examples of “reliability-focused energy efficiency programs”]