Worth watching at the CO PUC – upcoming hearing on DSM Docket 13A-0686EG

This case was originally filed June 17, 2013 and is a strategic demand side management issues matter. Demand Side Management (“DSM”) refers generally to policies that aim to reduce energy consumption overall (through energy efficiency and other programs) and moving certain loads from peak to off peak periods.

Value of Demand Side Management

Although taking the same consumption and moving it to a different time might not seem like it will make a huge difference in energy use and consumption, it’s a very important resource. Certain generating units called “peaking plants” (or “peakers” burning methane) operate only when there is a larger than usual demand for energy, such as a really hot day when everybody is running their air conditioners at the same time. In those instances, the peaking plant kicks on and saves the day. Peaking plants are more expensive to operate and are typically much less efficient than fossil baseload resources (if those resources are operating properly, but that’s another chapter). If there’s a large manufacturing plant that can temporarily suspend their operations or reduce their consumption in other ways to a large enough degree, Xcel won’t have to turn that peaker on at all. Peaking plants generally operate about 100 hours or less per year. By moving a large load from the middle of the day to the middle of the night when loads are lighter, we’re still using the same amount of energy, but it won’t come from that inefficient peaking plant. Energy efficiency and demand response are great programs that change the picture of energy consumption and can make a huge difference in reducing emissions stemming from fossil generation.

DSM Mandate

Xcel’s DSM program is in response to legislation passed in 2007. The Legislature declared in HB 07-1037 that “cost-effective natural gas and electricity demand-side management programs will save money for consumers and utilities and protect Colorado’s environment.” Through this legislation the PUC was “encouraged” to “reduce emissions or air pollutants and to increase energy efficiency.” The goal is for electric utilities to reduce peak generation by 5% from the 2006 levels by 2018. The bill allowed for utilities to recoup their investments in DSM programs at a higher rate of return than other generation investments.

Xcel’s Current DSM Requested Revisions

In this filing, a strategic goal setting session for 2015-2020, Xcel has fired an opening salvo that “increases to energy efficiency standards and building codes are significantly increasing our customers’ energy savings, but not as a result of the Company’s DSM initiatives.” (DSM Application initial filing paragraph 10) Xcel is saying that the world has gotten more efficient in the last few years and their programs aren’t as useful as they used to be in terms of reducing demand. Xcel states that it’s gotten “more difficult for the Company to meet aggressive DSM goals.”

Xcel’s proposed energy efficiency programs will save an estimated 1,842 GWh at a cost of $399 million as estimated by the company. The intervenors in this matter have proposals of their own that will save anywhere from 2,914 GWh at a cost of $960 million (Colorado Public Utilities staff recommendation) to 760 GWh at a cost of $124 million (Office of Consumer Council recommendation).

(Under)Valuing Efficiency

One of the factors in determining the value of the program are the estimates of fuel costs going forward. Natural gas price volatility is significantly under emphasized, and that causes the return on efficiency investments to appear less valuable to the company. If natural gas prices continue to be as volatile as they have been recently, the avoided costs may be significantly higher and the resulting benefit of investing in energy efficiency would create a far greater return and savings to the ratepayers.

The company has also been exceedingly conservative in estimating what is achievable in efficiency offsets. Xcel is proposing to spend 40% less on DSM programs from 2015 – 2020 than they have in the previous 5 year plans.

What’s Coming Next?

Despite the dour outlook for the DSM program as proposed currently, there is a bright spot. The Energy Information Administration estimates that the annual electricity and distribution losses are about 7%.  Xcel is proposing a program called Distributed Voltage Optimization that will address these losses. The program will optimize the voltage that is delivered to customers to reduce waste. What typically happens is that a utility will pump out power that is at the higher end of what’s required – up to 127 volts. Most energy used is best used at 117-126 volts and any excess voltage is wasted as heat, typically. This program will monitor and more closely regulate the voltage that goes through the system and to the end user, generating savings in energy. Xcel estimates that the DVO program will produce energy savings of approximately 1.8%.

The DSM program has been hugely successful and Xcel is proposing to drastically cut the funding for the programs over the next five year period. The DVO program with an estimated 1.8% savings is nice, but there’s no reason to discontinue offering programs that have had such a great impact. True, houses have gotten more efficient over time, but that doesn’t mean there is no more room for efficiency upgrades. The fact that they are determining the value of investing in these programs on the basis of today’s low gas prices is additionally skewing the value of efficiency investments. This is a highly valuable program, and one that should continue with robust funding and innovation.

The hearing on this matter is scheduled to take place the week of April 21 and an update will post after the case has been heard. 

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