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# Recommendations to the Bonneville Power Administration regarding conservation acquisition 2002-2006

## 

        -  May 4, 2000 
        - 2000-3

Mr. Terry EsveltVice-President, Energy EfficiencyBonneville Power AdministrationP.O. Box 3621Portland, OR 97208-3621

Dear Mr. Esvelt,

On Wednesday, February 23, the Council approved the attached recommendations for Bonneville's conservation acquisition activities as part of its power augmentation effort. These recommendations are based on the issue paper (99-18) released last December, public comment on that issue paper, and consultations between our staff and others, including your staff. The recommendations are complete with the exception of a conservation target for the Direct Service Industries (DSIs). Staff will be working with the industry and your staff to develop a recommendation for the DSIs.

The Council appreciates the cooperation demonstrated by you and your staff and Bonneville's commitment to achieve at least the target conservation levels. The Council looks forward to working with you, the region's utilities and other stakeholders to achieve this goal.

Sincerely,

Steve CrowExecutive Director

**Background**

The Bonneville Power Administration intends to augment its power supplies by 800 to 1,000 average megawatts (aMW) to meet expected loads during the 2002 ? 2006 rate period. It intends to accomplish this primarily through market purchases of power but recognizes that the acquisition of cost-effective conservation must also be part of the mix. The key question is how Bonneville can acquire cost-effective conservation during this period in ways that are compatible with the circumstances it faces?

To explore this question, in December the Council released an issue paper (99-18) entitled Bonneville Conservation Acquisition 2002 ? 2006. The paper reviewed the reasons for the conservation mandates of the Northwest Power Act and the experience of the last almost 20 years in implementing conservation, leading to the current situation. It also estimated the amount of conservation that is cost-effective for Bonneville to acquire on a long-term basis. These estimates take into account the changes in expected value of power since the 1998 plan's estimates were developed. The analysis indicates that the approximate development schedule of the cost-effective conservation potential for loads expected to be served by Bonneville would amount to approximately 30 aMW per year at atotal cost of approximately $60 million per year. However, the cost to Bonneville should be significantly less because of customer and end-user contributions.

The paper went on to describe three possible approaches to acquiring conservation for the 2002 ? 2006 period. One is the traditional, long-term approach in which conservation investments are valued over their useful life. This approach has proven effective in the past but exposes Bonneville to the risk that it will not receive the full benefit of its investments if customers take load off at the end of the contract period. A second approach is intended to have effects for Bonneville that are as much as possible like a relatively short-term purchase of power on the market. This approach removes most risk from Bonneville but seems unlikely to produce additional conservation that would not have occurred in response to market forces. Finally, a "middle ground" approach was described in which Bonneville is willing to pay for conservation savings as long as and to the extent that a customer keeps load on Bonneville. Bonneville would endeavor to limit what it pays to have minimal impact on its net revenue requirement. This approach limits Bonneville's risk while permitting development of longer payback, but still cost-effective conservation.

Finally, the paper made some draft recommendations, proposing to endorse the "middle ground" approach and the overall conservation target and making some specific implementation recommendations.

The Council heard from a panel at the January meeting responding to the Issue Paper and took extensive written public comment. The recommendations that follow are based on the analysis in the issue paper, public comment on that paper and consultations that staff has held with Bonneville and other interests. These recommendations are intended to guide Bonneville in conservation acquisition as part of their power augmentation effort.

**Recommendations**

Overall Approach

It is recommended that Bonneville use the "Middle Ground" approach described in the Issue Paper. The pertinent features of this approach are as follows.
          - Bonneville should strive to acquire conservation for as little as it can while still meeting its goal. It should not employ an explicit rate-impact test. Doing so could, in some circumstances, disadvantage Bonneville in negotiating what it will pay for conservation and, in other circumstances, could result in very cost-effective conservation going undeveloped.
          - What it is willing to pay for conservation savings should be based on the market value of the saving produced. Because market prices exhibit much more seasonal and daily variation that in the past, the time at which savings are produced should be reflected in the value. Similarly, where there are variations in value due to geographic location, those values should also be taken into account and captured by the Power Business Line if possible.
          - Bonneville's should be willing to acquire conservation that would produce savings beyond the 2002-2006 period. However, if customers choose not to contract with Bonneville beyond that period, they accept the responsibility for any costs not yet recovered or savings yet to be delivered to Bonneville.
          - The conservation acquisition is intended to reduce the necessity for market purchases of power. Therefore, it will be necessary for customers that purchase other than load-based products from Bonneville (e.g. a block purchase) to commit to reducing their purchase from Bonneville in the amount of the saving to be produced by Bonneville-funded conservation.

Conservation Target

The conservation target proposed in the issue paper was determined by allocating the regional resource potential on the basis of the percentage of loads estimated to be served by Bonneville in the 2002 ? 2006 period. Comment was received to the effect that the allocation overlooked the pre-subscription loads served by Bonneville and did not include the full responsibility for IOU residential and small farm loads. Inclusion of these factors would tend to increase the amount allocated to Bonneville. At the same time, Direct Service Industry loads were inappropriately included in determining the allocation when the regional conservation potential does not include an estimate of conservation potential in the DSIs. These recommendations reallocate the regional target to Bonneville according to the revised load estimates and estimating a separate target for the DSIs.

The issue paper also recommended that the savings produced as a result of the Conservation and Renewables Discount, Bonneville's "share" of the savings produced by the activities of the Northwest Energy Efficiency Alliance (NEEA) and the savings produced by Bonneville-funded low-income weatherization be counted toward the regional target. The Council believes this is appropriate. However, the Council also believes it is important to provide a clear, unambiguous target for power augmentation and to avoid pressures that might distort the missions of these other activities. Consequently, these recommendations provide estimates of the amount of savings that will be produced by these activities a priori and reduce the augmentation target levels by those amounts. The targets are as presented in Table 1. These targets are based on current estimates of Bonneville's subscription loads. The targets will be revised as necessary when subscription is complete.

Table 1

The Council recommends that the target be considered a minimum, not a maximum. Staff has identified conservation that could be cost-effective to implement earlier than was specified in the Power Plan. Bonneville should acquire that conservation it can identify that is cost-effective

Modification of the Conservation and Renewables Discount

The issue paper proposed considering modifications to the Conservation and Renewable Discount (C&R D) so that it could serve as the basis of the augmentation effort. Information being produced by the Regional Technical Forum for the C&R D will be helpful in the augmentation effort. However, the Council recommends that the C&R D not be modified. It was designed with a different purpose in mind and would require extensive modification to be the basis for the acquisition activity. Since it is part of the rate case, significant changes would delay the rate case.

Implementation

The issue paper proposed that a competitive bid process that includes the possible participation of third parties be used for the augmentation process. The paper was not, however, clear about what that meant. The Council recognizes that for some more or less standard conservation measures or programs, primarily affecting the residential and small commercial sectors, a "standard offer" approach (i.e., "If you do X we will pay you Y") may be more efficient. The Council recommends that the standard offer approach be used where appropriate. The Council continues to believe that for industrial and large commercial, where the bulk of the potential lies, a more flexible approach is required. The Council recommends that Bonneville solicit interest from customers and third parties and work with those parties to negotiate mutually acceptable terms (quantity, price, timing, etc.). Bonneville's utility customers should have first right of refusal but should not have the ability to block access of consumers to Bonneville-supported conservation services.

Monitoring Progress

While not addressed explicitly by the issue paper, comments were received to the effect that progress toward achieving the conservation target should be carefully monitored so that corrective action can be taken on a timely basis if necessary. The Council requests that Bonneville report to the Council regarding the progress made in acquiring conservation as part of the power augmentation effort on at least a bi-annual basis. Reporting should include documented savings from the Conservation & Renewables Rate discount the Northwest Energy Efficiency Alliance and low-income weatherization. For the C&R Discount, only those savings documented through use of Regional Technical Forum evaluation protocols and/or deemed measure savings should be counted. To the extent the overall conservation target is not achieved, the Council expects that Bonneville will undertake additional efforts to meet the overall target.

Transmission Business Line

The issue paper proposed that the Transmission Business Lined cooperate in funding conservation activities where transmission system saving would result. The Council encourages the Transmission Business Line to invest in conservation and demand management where such investment can reduce transmission investment requirements. However, to preserve the separation of Bonneville's transmission and power marketing functions, PBLs and TBLs conservation/demand management activities should not be combined.

Renewable Resources

Renewable resources were not addressed in the issue paper. The Act requires that resources being acquired by Bonneville be cost-effective. The Council's current plan does not identify any cost-effective renewables. If a developer or sponsor offers to sell power from renewable resources to Bonneville at a competitive rate, Bonneville can and should acquire that power. The Council supports renewables demonstration and "green-power" marketing efforts to stimulate renewables development. The C&R Discount is a vehicle that is appropriate for funding such activities.

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