Turbo-Charging Energy Efficiency in Massachusetts: A DPU Perspective

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Turbo-Charging Energy Efficiency in
MassachusettsA DPU Perspective
Tim Woolf, CommissionerMassachusetts Department
of Public UtilitiesThe Restructuring
RoundtableApril 11, 2008
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The Energy Efficiency is a Top Priority for the
DPU

• DPU key goals to ensure that utilities provide
  safe, reliable, low-cost electricity and gas
  services.
• Energy efficiency (and demand resources in
  general) offer the greatest opportunity for the
  DPU to achieve all of these goals.
• Since electricity restructuring, the DPU
  regulates only the distribution portion of
  electric and gas rates.
• The commodity costs are the most significant
  portion of electric and gas bills, and these
  costs
• are highly volatile,
• have increased dramatically in recent years,
• are highly dependent upon gas costs, and
• are likely to continue to increase in future
  years.

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Components of a Typical Residential Bill
24 of total
41 of total
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ISO-NE Scenario AnalysisNatural gas is the
primary determinant of electricity prices.
Source ISO-NE
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What Options Does DPU Have to Reduce Electric and
Gas Costs?

• DPU oversight of the distribution costs (rate
  cases).
• DPU oversight of Basic Service procurement.
• DPU advocacy at ISO and FERC to address wholesale
  market costs (e.g., energy and capacity markets)
  and regional costs (e.g., transmission).
• DPU promotion of demand resources
• Energy efficiency.
• Demand response.
• Distributed renewables.
• Combined heat and power.
• Demand resources allow customers to reduce their
  entire bill distribution, transmission, and
  commodity costs.

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Energy Efficiency Reduces Electricity Costs

• Generation costs on the order of 8-12 /kWh,
  while energy efficiency costs on the order of 3-4
  /kWh.
• Massachusetts Program Administrators and
  customers spent 156 million in 2007.
• These programs will save 619 million over time
  from those efforts.
• Net Benefits of 463 million.
• Benefit cost ratio of 3.9.

Net Benefits
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Electricity Expenditures in Massachusetts

• Electric energy efficiency budgets in MA are
  currently capped at roughly 125 million per
  year.
• Meanwhile, we are spending roughly 4.5 billion
  per year on generation, and nearly 2 billion
  per year on transmission and distribution.

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Energy Efficiency Reduces Customer Bills

• Typical electric customer savings from
  comprehensive efficiency
• 10, 20, 30, potentially more in some cases.
• Participating customers will reduce their entire
  bill.
• Electricity rate in Massachusetts range from 14
  /kWh to 21 /kWh.
• For efficiency that costs roughly 3-4 /kWh, the
  benefit-cost ratio from the customers
  perspective is on the order of 4 to 7.
• These customer savings result in
• increased disposable income for residential
  customers,
• reduced business expenses for commercial
  customers,
• both of which contribute to the local economy.

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Energy Efficiency Can Reduce Wholesale
Electricity Costs

• Wholesale energy prices in New England
• Recent study for the Massachusetts Technology
  CollaborativeEliminating electricity load
  growth through energy efficiency and Combined
  Heat and Power could reduce wholesale electricity
  prices by as much as 5.
• These benefits accrue to everyone participating
  in the wholesale energy market.
• Wholesale capacity prices in the Forward Capacity
  Market
• Demand Resources represented 64 of resources
  that cleared the first auction
• This clearly helps to dampen the price for
  capacity.
• These benefits will accrue to all electric
  customers in New England.
• Even customers that do not participate in the
  efficiency programs will experience reductions in
  electricity commodity costs.

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Energy Efficiency Will be Essential in Addressing
Climate Change

• Goal set by scientists reduce CO2 emissions by
  80 by 2050.
• Addressing climate change will require a
  fundamental transformation of the way that
  electricity and gas is produced and consumed.
• Nobody knows exactly what that transformation
  will look like.
• Energy efficiency will have to be a central part
  of the transformation.
• All industry actors will need to have the
  technologies, infrastructure, price signals, and
  incentives to operate in a radically more
  efficient way.
• Government policies should allow for and promote
  this transformation to low-carbon industries.
• Addressing climate change is not just a matter
  for environmental regulators.
• Economic regulators need to properly guide the
  transformation.

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Decoupling

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Achieving All Cost-Effective Energy Efficiency

• Both Senate and House energy bills require
  efficiency program administrators to achieve all
  cost-effective efficiency.
• This is likely to raise new regulatory and policy
  issues.
• Specific definitions of cost-effective.
• How quickly to ramp up activities.
• Contents of the first three-year plans.
• Modifications to the three-year plans mid-stream.
• Research, demonstration and commercialization
  activities.
• The DPU intends to work actively with efficiency
  stakeholders.
• Our starting principle will be to utilize
  existing policies as much as possible, in order
  to make for a smooth and efficient transition.
• The DPU will coordinate closely with DOER on
  these issues.
• Monitoring and verification will continue to be a
  priority for the DPU.

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Comprehensive Perspective on Bills and Prices

• Will require a balancing of interests
  particularly the balancing of reduced costs
  versus price increases.
• The DPU is concerned about electric and gas
  prices, and will attempt to mitigate price
  impacts.
• Price impacts should be considered
  comprehensively. For example, by considering
• The benefits of reducing the number of
  non-participants as the amount of efficiency
  investments increases.
• The benefits of total bill reductions versus the
  price impacts on the distribution portion of the
  bill.
• The reductions in wholesale energy costs that
  every customer experiences.
• The reductions in wholesale capacity costs that
  every customer experiences.
• The reductions in costs to comply with RGGI and
  RPS requirements.
• The price impacts of alternative options for
  addressing climate change.

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Regional Implications

• Massachusetts can achieve (and eventually exceed)
  the goal of eliminating electricity load growth.
• Vermont has succeeded in eliminating electricity
  load growth from 2006 to 2007 through energy
  efficiency.
• Connecticut plans to triple electric efficiency
  budgets over the next five years.
• Rhode Island is now pursuing all cost-effective
  energy efficiency.
• New Hampshire and Maine are investigating ways to
  increase efficiency activities.
• These efficiency savings taken together will
  have dramatic implications for the New England
  electricity industry.