Jenny Edwards explains how Demand Side Management programs benefit ratepayers by keeping costs down overall, allowing customers to save on the energy they do use as well as the energy they don’t.

1. Counting the Capacity
that Didn’t Hatch:
The Rate Mitigation Effects of DSM Programs
December 12, 2013
Jenny Edwards| Program Manager • CEE Innovation Exchange

2. Requires a better understanding of the system
wide revenue benefits of DSM programs
Page 2

3. Counting the Capacity
that Didn’t Hatch:
The Rate Mitigation Effects of DSM Programs
December 12, 2013
Jenny Edwards| Program Manager

4. Energy Efficiency as a System Resource…
Requires a better understanding of the system
wide revenue benefits of DSM programs
Page 4

5. Energy Efficiency Context
• Efficiency Costs recovered through rates and
“trued up” regularly
• Utilities are incentivized to meet and exceed
targets
• Costs are often more transparent to customers
than traditional capacity additions & incentives
• Savings from avoided costs are less visible

6. Minnesota DSM Case Study
• Analyzed 20-year program data from Xcel Energy
• Conducted a backward-looking scenario analysis
to compare capacity options
• Focused on additional revenue requirements for
two scenarios: DSM and No DSM
• Revenue requirements are distinct from rates

7. The Resource Wedge
Additional Revenue Requirements =
Σ Annual Additional Costs ÷ Total Sales
Page 7

8. Example Utility Bill
Customer Charge
$8/mo
Energy Charge
$0.08/kWh
Demand Charge
$15/kW
Riders
$0.003/kWh
What is cost of itemized
power plant capacity?

9. DSM Scenario
Power Plant Scenario
0.24 ¢/kWh
0.66 ¢/kWh
• Lower Resource Costs
• Fewer Sales
• Higher Resource Costs
• More Sales
Additional Revenue Requirements =
Σ Annual Additional Costs ÷ Total Sales
Page 9

10. Cost Considerations
DSM Scenario
Power Plant Scenario
• Conservation and Load
Management Program Costs
• Indirect Impact Program
Costs
• Incentives & Lost Revenues
•
•
•
•
•
Capital & Financing Costs
Shareholder Returns
Fuel Costs
O&M
T&D maintenance

11. Power Plant Offsets from DSM
2,000
1,750
Cumulative Offset Capacity
Capacity (MW)
1,500
1,250
1,000
750
500
250
Page 11
Incremental Demand Savings

12. Power Plant Offsets from DSM
2,000
1,750
Capacity (MW)
1,500
1,250
Cumulative Offset Capacity
250 MW
Assumed Combined Cycle
Power Plants
250 MW
250 MW
1,000
250 MW
750
250 MW
500
250 MW
250
250 MW
Page 12

13. Combined Cycle Overnight Capital Costs
$1,200
Nominal $/kW
$1,000
$800
Years when plants came online
$600
$400
$200
$-
Page 13
Source: AEO Assumptions

14. Capital Revenue Requirement Calculations
Page 14

15. Historical Natural Gas Fuel Costs
10.00
9.00
$2011/MMBtu
8.00
7.00
6.00
5.00
4.00
3.00
2.00
1.00
0.00
Page 15
Source: EIA Electric Power Producer Price

16. Results
Natural Gas Power Plants
DSM Programs
Incentives
23%
Program Costs
77%
Page 16
$1.14 Billion
580,855 GWh
0.24 ¢/kWh
Total Cost
Total Sales
Addl Revenue
$4.16 Billion
629,212 GWh
0.66 ¢/kWh

17. Scenario: Coal Plant Displacement
Page 17

18. Power Plant Offsets from DSM
2,000
1,750
Capacity (MW)
1,500
250 MW
Add one 500-MW Coal Plant
250 MW
1,250
250 MW
1,000
250 MW
750
250 MW
500
250
-
Page 18
500 MW

19. Scenario: Coal Plant Displacement
Gas
Operatio
n
19%
Coal
Capital
42%
Gas
Capital
18%
Coal
Operatio
n
19%
$4.89 billion
Page 19
Revenue Requirements
(¢/kWh)
Transmiss
ion
2%
0.90
0.80
0.70
0.60
0.50
0.40
0.30
0.20
0.10
0.00
DSM
Resource
Gas Only
0.78 ¢/kWh
Coal + Gas

20. Scenario: Avoided Transmission Lines
Page 20

21. Scenario: Avoided Transmission Lines
O&M
8%
Capital
Costs
33%
Fuel
54%
$4.30 billion
Page 21
Revenue Requirements (¢/kWh)
Transmis
sion
5%
0.90
0.80
0.70
0.60
0.50
0.40
0.30
0.20
0.10
0.00
0.68 ¢/kWh

22. Scenario: Average Measure Life
Page 22

23. 10-Year Measure Life
9%
Capital
Costs
30%
Fuel
58%
Revenue Requirements (¢/kWh)
Transmiss
O&M ion
3%
0.90
0.80
0.70
0.60
0.50
0.40
0.30
0.20
0.10
0.00
DSM Resource
$3.26 billion
Page 23
Gas Only
10-yr Measure
Life
0.53 ¢/kWh

24. 20-Year Measure Life
Transmissi
on
2%
0.90
O&M
9%
Capital
Costs
31%
Fuel
58%
$4.50 billion
Page 24
Revenue Requirements (¢/kWh)
0.80
0.70
0.60
0.50
0.40
0.30
0.20
0.10
0.00
DSM
Resource
Gas Only
10-yr
20-yr
Measure Life Measure Life
0.71 ¢/kWh

25. Summary of Scenario Results
Revenue Requirements (¢/kWh)
0.90
0.78
0.80
0.66
0.70
0.71
0.68
0.60
0.53
0.50
0.40
0.30
0.24
0.20
0.10
0.00
DSM Resource
Page 25
Gas Only
Coal + Gas
New
Transmission
Lines
10-yr Measure 20-yr Measure
Life
Life

26. Summary
• System wide avoided revenue requirements are 34 times higher than DSM program costs
• DSM programs allow customers to save on the
energy they do use, as well as the energy they
don’t
• Includes total DSM costs, but only power plant
costs recovered during the 20-yr time frame
• One specific example, but relevant for other DSM
programs, especially those just beginning.
• Conditions going forward will be different

27. Jennifer Edwards | Program Manager
jedwards@mncee.org
(612) 335-5873
Megan Hoye | Engagement Coordinator
mhoye@mncee.org
(612) 244-2417
www.mncee.org/Innovation-Exchange/Resource-Center

28. Questions?
www.mncee.org/Innovation-Exchange/Resource-Center