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Report Of the Conservation, Renewable Resources and Public Purposes Work Group

The Conservation, Renewable Resources and Public Purposes Work Group was asked to address three primary tasks. These were to:

  1. Identify and evaluate alternative means of securing cost-effective conservation that are consistent with increasingly competitive electricity markets.
  2. Identify the barriers to preservation of renewable resource options and renewables development; identify strategies to overcome barriers, including research, development, demonstration and commercialization; and identify the means of financing and administering those strategies; and,
  3. Identify and estimate the costs of public purposes, obligations and cost transfers including rural development, low density discount, residential exchange, irrigation, flood control, low-income energy assistance, recreation, navigation, and public preference.

The Work Group subsequently agreed that the issue of low-income weatherization and energy assistance should be addressed in a manner comparable to conservation and renewable resources. The group then established by consensus a set of goals and objectives for public purposes. The overall goal for public purposes is as follows:

To assure that the Power Supply System of the Pacific Northwest Reflects the Values and Meets the Needs of Its Citizens.


This system should provide energy services that are:
These services should be provided in a manner which:

The Work Group then proceeded to adopt by consensus more specific goals and objectives for conservation and renewable resources. The goals and objectives for conservation and renewable resources, while very similar, do contain specific differences that the Work Group believed were important to maintain. The Work Group then divided into three sub-committees to carry out the Steering Committees specific assignments. The results of these sub-committee's were submitted to the full Work Group for review and comment. The Work Group accepted the sub-committee reports that follow.


CONSERVATION

Summary: There are a wide diversity of views on the future of conservation in an increasingly competitive electricity industry. There was consensus on the need for a voluntary coordinated regional effort to sustain conservation through market transformation strategies. There was not agreement on whether some mechanism needs to be established now that would ensure ongoing financial and institutional support for such activities should competitive pressures make continued voluntary support untenable for Bonneville and the region's utilities. There was also no agreement on the need for alternative mechanisms (beyond market forces and utility activities) for ensuring that cost-effective conservation that is best captured at the local level will indeed be developed when all consumers have open access to power providers.

Problem Statement: What actions, by whom, are required to achieve electricity conservation that satisfies the goals and objectives identified below? Footnote1 This problem was divided into two areas for action: market transformation, and local conservation. "Market transformation" denotes those activities designed to permanently change the market for energy efficient technologies or techniques so that, at some point, no further market intervention is required. "Local conservation," by contrast, covers those actions designed to influence on-site consumer choices. A range of alternatives were discussed for accomplishing each of these broad categories of conservation. Actions which commanded a consensus among the group, and the competing alternatives, and their rationale, where no consensus was reached are described below.

Goals and Objectives: The following goals and objectives were agreed to by the entire Conservation, Renewables and Public Purposes Work Group. They were used as overall guidance to develop actions for furthering conservation resources in a competitive market.

  1. Minimize the total cost of energy services to individuals.
  2. Rely, where possible, on market forces to accomplish cost-effective conservation.
  3. Facilitate the action of market forces. Among the means of doing so are:
    • getting the price signals right;
    • maintaining a viable energy efficiency industry;
    • providing consumers with education and information on efficiency options.
  4. Identify areas where market outcomes deviate from socially desired outcomes.
  5. Market intervention, where appropriate, should be done in a manner which:
    • is as competitively neutral as possible;
    • is targeted, simple and efficient;
    • has the flexibility to adapt to changing circumstances;
    • maintains the benefits of local decision-making and action, while encouraging regional cooperation;
    • links costs and benefits (or damages) as closely as possible.


CONSENSUS RECOMMENDATIONS

Market Transformation: Agreement was reached on the following propositions (if we define "agreement" to include acquiescence; some members were unenthused about the actions identified below, unless they were implemented on a purely "voluntary" basis):

1. Regional utilities should (or should be allowed to) mount a coordinated effort to transform markets for efficient technologies.
2. A non-profit entity should be created to manage such market transformation ventures on behalf of the funders and the region.
3. A funding level of approximately $30 million per year for these ventures is reasonable and appropriate.
4. The entity should have a planned life of at least ten years in recognition of the time required to permanently transform markets, and the range of markets or end-uses to be targeted.
5. Funding for the entity should, initially, come from approximately equal contributions by BPA and the region's investor-owned utilities.


NON-CONSENSUS PROPOSALS

The group did not reach agreement on what should be done if, as a result of competitive pressures, Bonneville and/or Investor-owned utilities can no longer provide the necessary funding for market transformation. There was also no agreement on the need for a new mechanism to ensure that local conservation opportunities are developed.

Market Transformation: With respect to the need for a contingency plan for assuring that market transformation activities continue three viewpoints on the topic were expressed. Some believed that the question should be deferred and dealt with if and when such an event occurs. These parties, more generally, believe that if programs cannot get voluntary participation in a free market, they should be discontinued unless state legislatures fund such programs from general revenues.

The second approach to the issue of sustaining market transformation funding was to specifically task the board of the entity with reporting to the governors of the four states, within three years of the founding of the entity, on whether existing funding is sustainable and, if not, recommending what action should be taken to replace it.

A third group argued that a "fallback" mechanism should be created now to assure funding for at least ten years. These parties argued that, in an increasingly competitive environment, it was somewhere between possible and likely that voluntary BPA/IOU funding would not be sustainable for ten years; provision needed to be made up front to deal with that eventuality. The mechanism favored by these parties was a non-bypassable "public benefits charge." No clear consensus emerged on where and how such a charge should be collected. Much of the uncertainty around these issues related to questions of legal or political "doability."

Local Conservation: Two distinctly different views were expressed on the need for some new mechanism to ensure that local conservation opportunities are developed. Some parties asserted that given the existence of a regional market transformation effort, little, if anything, remains to be done at the regional level to ensure that local conservation opportunities are developed. These parties were persuaded that market forces in a competitive environment will deliver most or all of the conservation that makes sense. They argued that local utilities and energy suppliers, in response to consumer demand, will be strongly motivated to offer efficiency services to customers as part of their competitive strategy. These parties also expect that, in addition to energy suppliers and distributors, third-party providers of energy management services (e.g., ESCOs) will flourish in a competitive environment.

Others, while not doubting that some efficiency services will be provided in response to market forces, believe that much conservation will still be left on the table. These parties argued that competitive efficiency services are likely to be offered primarily to larger customers and, even there, will capture only conservation with fairly short paybacks. They also suggested that market-driven conservation will pay little attention to that increment of conservation justified by its combination of economic and environmental value.

Three alternative mechanisms for achieving local conservation were discussed. The first alternative discussed was a "Market-Based" model. Its proponents suggested that the funds from BPA's conservation "flex contracts" and existing IOU regulatory requirements will provide sufficient time and momentum for a successful transition to a market-driven approach. These parties expect that local utilities will be motivated to provide tailored energy efficiency services to customers in order to add value in the increasingly competitive energy market. This model would support that market for efficiency by creating a state-funded conservation revolving loan fund, and by giving non-utility ESCOs comparable access to utility customer lists, billing data and collection systems. Elected officials would determine, after considerable experience (15 years was suggested as an appropriate period for market-driven conservation to be given a chance to succeed) whether the market is failing to produce results and, if so, what to do to correct the situation (if anything; these parties suggest that the cost of correcting many market failures may be greater than the benefits of doing so).

The second alternative examined was a "Service Standards" approach. In this model, the four states, and/or individual utilities, would adopt similar/identical enforceable minimum standards for conservation programs. A complying program would be mandatory for all local distribution utilities. The Power Planning Council's "generic" Model Conservation Standard for conservation programs (MCS 6.0; 1996 Draft Plan) was discussed as one model for such a minimum program standard. The parties who originally put this concept on the table outlined the following set of possible service standards for utility conservation programs:

The largest perceived difficulty with this model (and the next) lay in its application, or lack of application, to those customers not served through a local distribution utility. It was suggested that, for purposes of the standard, those customers could themselves be covered by the mandate in regard to their own facilities.

The third model discussed was dubbed the "Commons Model." Its proponents, while hoping that local utilities will offer credible conservation programs, were not prepared to rely solely on that hope. They feared that in a price-driven, short-term oriented competitive market, conservation was likely to take a back seat. The model they proposed would give local utilities the opportunity to offer conservation programs meeting minimum criteria (including a minimum level of investment). Utilities choosing to operate programs would be required to report regularly on their conservation activities and results. Utilities which were unable or unwilling to offer complying programs would pay a public benefits charge to a third party which would, by a competitive bidding process, use the funds to provide conservation programs in that utility's service territory. (A related alternative would have a public benefits charge-based fund available to match expenditures by utilities offering complying programs). The previous discussion on the location and structure of a charge applied here, as well.

Given this diversity of views, no consensus emerged in favor of any of these alternatives.

Level of Funding: The final open question on conservation was the appropriate level of non-participant funding. As one possible baseline, we looked at the Planning Council's annual cost estimates. The Council estimates that the total regional cost of acquiring all cost-effective conservation begins in 1997 at over $200 million annually and slowly declines thereafter, averaging about $180 million/year from 2000-2005 and about $165 million/year from 2006-2011.

Proponents of a market-based approach argued that (if we are talking about mandatory funding) the answer to the question of the appropriate level of local conservation funding is zero; the market will spend on efficiency what makes sense to participants in the market. Other answers to this question ranged up to $185 million (an estimated utility cost of regionally cost-effective conservation minus $30 million for market transformation). A figure of 1% for conservation (1% of total customer expenditures for energy) was also frequently discussed. Such a percentage would yield roughly $80 million per year regionwide, if applied to all end-use loads (all of these figures exclude most low-income weatherization costs).


RENEWABLE RESOURCES

Summary: Consensus was reached on continuation of research, development and demonstration (excluding actual project development), information dissemination on the value of distributed renewable resources, completion of current renewable projects by current sponsors, priority retail access for "Green power" marketing, non-discriminatory transmission system access and flexibility of use, and siting and permitting of renewables. No consensus was achieved on the source of funding for developing additional renewable resources.

Problem Statement: Renewable resources can offer unique social and energy system benefits. These benefits include environmental value, resource diversity and local economic benefits which might not be reflected in the resource's price. Renewable resources may not be elected due to economic constraints in an increasingly competitive energy market. Actions to address this problem appear below in two categories: 1) those for which a consensus was formed; and 2) those for which no consensus among the parties was reached.

Goals and Objectives: The following goals and objectives were agreed to by the entire Conservation, Renewables and Public Purposes Work Group. They were used as overall guidance to develop actions for furthering renewable resources in a competitive market.

1. Minimize the total cost, including risk and adverse impacts, of energy services to individuals.
2. Preserve renewable resources as long-term options and encourage their development.
3. Honor the region's contractual and quasi-contractual Footnote2 commitments to renewable projects entered into pursuant to the Council's "Renewable Resource Confirmation Agenda."
4. Maintain and enhance the capability to develop renewables by:

5. Rely, where possible, on market forces to accomplish cost-effective renewable resource development.
6. Facilitate the action of market forces. Among the means of doing so are:
7. Identify areas where market outcomes deviate from socially desired outcomes.
8. Market intervention, where appropriate, should be done in a manner which:


CONSENSUS PROPOSALS

Although some parties believe that the effective implementation of the following five activities will require additional funding, there is consensus that they should be undertaken if they can be accomplished within existing budgets.

Research, development, demonstration and information dissemination: Conduct research, development and demonstration, as generally described in Appendix K of the Council's draft Fourth Northwest Power Plan, except for the activities that require construction of pilot or demonstration projects. Develop and disseminate information on the cost and value of distributed applications of renewable resources and contribute to national research to further renewables in the Northwest. Footnote3 The total cost of these activities is estimated to be about $1 million.

Current renewable projects: The parties involved in current projects to commercialize renewable resources should follow through with their commitments. No additional regional funding is required.

Green power marketing: End use customers should have the option to purchase renewable energy even if the market has not evolved to full customer choice. Distribution utilities should cooperate with marketers of green power to provide access to end-use consumers. Because any abovemarket cost of the renewable energy is borne voluntarily by the customer, additional regional funding would not be required.

Transmission System Access and Use: The restructured regional system should provide for non-discriminatory access to transmission for renewables. In addition, the terms and conditions for transmission access and use should be as flexible as possible to accommodate renewable resources. For example, flexible terms and conditions on the resale of transmission rights should be available so renewables developers can market transmission rights during periods when their resources are not producing power. No additional regional funding is required.

Siting and Permitting of Renewables: Encourage federal and state resource and land management agencies to consider the energy potential of promising renewable resource areas and to preserve options for future energy development when making land and resource management decisions. In addition, streamline federal, state and local project permitting processes to avoid duplication of effort. These objectives can be accomplished by existing agencies if given such a charge.


NON-CONSENSUS PROPOSALS

The Work Group discussed additional renewable activities that some participants believe would help address the problem statement and that would adhere to the goals and objectives above. Supporters of these activities believe that continued, deliberate actions are needed to promote renewable investment in the Northwest to: 1) balance the economic benefits of electric industry restructuring with environmental benefits; 2) provide insurance against uncertain fuel and environmental futures; 3) gain capability and experience with the unique characteristics of Northwest renewable resources; 4) help develop a sustainable energy future; and 5) be responsive to the values of the citizens of the Northwest. Supporters include representatives of some investor-owned and public utilities, developers, public interest groups, state agencies and cities. This group proposed the following activities:

Sustained Renewable Resource Development: Develop renewable resource projects in addition to those that are already committed to by BPA and utilities in the region. A range of renewable resource development goals up to 420 average megawatts over 10 years was discussed. The specific pace of development and resulting funding requirement was not defined. However, the net cost of this action is estimated to be about $10 to $14 million per year over the financial life of the project Footnote4 for each 30 average megawatts of new development. Resources would need to be competitively procured. The development schedule should be adaptable to changing circumstances and should be reviewed periodically.

Demonstration and Commercialization of Distributed Renewables: Develop programs and provide capital to overcome technical and market barriers to the development of distributed renewable resources, including those that generate electricity (e.g. photovoltaics) and direct applications (e.g. solar water heaters). The estimated funding requirement for this activity is approximately $5 million per year.

Regional Funding of Renewable Resource Development: Supporters of sustained renewable resource development and the demonstration and commercialization of distributed renewables recommended the following mechanisms for implementing these additional activities. These mechanisms are intended to be non-bypassable and competitively neutral among electricity suppliers.

Public Benefits Charge:Two alternative structures for a public benefits charge were considered. One would be an energy or capacity-based fee collected from distribution companies and others selling to end users. The fee would be based on periodically updated, historic in-region energy consumption or capacity requirements as measured at end-use meters. Distribution companies could pass the cost on to its customers however it chooses. Alternatively, the public benefits charge could be an access charge collected at the transmission level. An annual access charge would be assessed on all distribution utilities and direct end-users of the transmission grid. This charge would be based on the periodically updated historic in-region end use load of the distribution companies and direct users. Wholesale transfers of energy through the region, for example, from British Columbia to California would not be charged. The number of transactions on the transmission system would also not change the fee. Some entity would need to be charged with collecting and distributing these funds.

Renewable Portfolio Standard: Each supplier of electricity in the region would be required to purchase renewable energy credits up to a certain percentage (to be determined) of its in-region annual sales to end-use consumers. Renewable energy credits are created when power is generated by new renewable resource projects (including projects not on line by this date). The purchase and sale of renewable energy credits is separate from the sale of energy provided by the resource, and would be available in their own open market, similar to sulfur dioxide trading allowances. Some entity would need to certify renewable resource production, award credits, and ensure compliance with the percentage requirement.

Opposition To Any Mandatory Financial Support for Renewables: Several work group members believe strongly that no mandatory contribution to renewable resource development is warranted at this time. The current generation of renewables cost substantially more than conventional resources and are projected to do so for the foreseeable future. This cost disadvantage substantially exceeds any reasonable estimate of the additional benefits that renewables have been claimed to enjoy over conventional resources. The western United States has a substantial surplus of generating capacity, and it is likely that, by the time the Pacific Northwest needs seriously to consider new project development to assure resource adequacy, more technologically advanced and more cost effective renewable options will be available. Finally, the level of renewable development proposed for the Pacific Northwest will not contribute materially to the advancement of renewable technologies or to the viability of renewable resource companies. Thus, use of renewable resources is seen as a matter of personal taste that does not warrant mandatory support by the Region's energy consumers. The members that hold this view include all the representatives of any substantial end-users of electricity and several of the utilities represented.


LOW INCOME ENERGY ASSISTANCE

Summary: It was generally agreed that electricity services - not just space heating -- are a necessity, a key to being to be a productive member of society, and, therefore, a suitable public purpose. The group agreed that there is a significant problem for low-income people under the present system; that traditional and current supports, such as federally-funded programs or utility-sponsored conservation, are jeopardized, if not in outright decline and that "the market" is not likely to solve the problem on its own. There was also agreement on the range of funding required to meet energy assistance needs. There was no agreement on who should bear the primary responsibility for ensuring that low-income households are adequately and fairly served. There was also no agreement on whether the anticipated price reductions resulting from a more competitive electricity market would significantly reduce the need for energy assistance to low-income households.

Problem Statement: This issue breaks down into four parts:

Goals and Objectives: Ensure that the quality and type of services provided to low-income households are fair and adequate, both during the transition to a new electric industry structure and subsequently. The basic level of service for low-income consumers should be guaranteed to equal the same basic level of service provided to other residential consumers in general.


CONSENSUS RECOMMENDATIONS

Need: The group agreed that there is a significant problem for low-income people under the present system; that traditional and current supports, such as federally-funded programs or utility-sponsored conservation, are jeopardized, if not in outright decline and that "the market" is not likely to solve the problem on its own.

Level of Funding: The group agreed that the need for low-income weatherization and energy assistance is larger than the levels currently budgeted. In 1993 state and federal support for low income weatherization and energy assistance was double that provided in 1995.

In 1995 about $19 million was provided in the region for low-income weatherization, of which about 40 percent was provided by Bonneville and the region's utilities. Also in 1995 approximately $34 million was spent for bill payment assistance, of which about 50 percent was provided by the region's utilities. The Work Group's estimate of the additional need is between $50,000,000 and $100,000,000 per year. This represents a guideline, rather than a cap or floor, that may well need to be adjusted (both up or down) with time and experience. This estimate is based on the assumption that roughly one-half of the region's low-income (defined as incomes less than 150% of federal poverty guidelines) households would receive an average of $200 in bill payment assistance and that between 115,000 and 230,000 electrically heated homes remain to be weatherized over the next 20 years.


NON-CONSENSUS PROPOSALS

Responsibility: There are two views of who is responsible for accomplishing this public purpose. Some parties assert that government is solely or primarily responsible and the appropriate bearer of this responsibility, not the electric power system. Others argue that the electric power system bears substantial, if not the majority of the responsibility to ensure low-income households are served. These parties also believe that vesting the electric power system with this responsibility is not only legitimate, but is probably a more practical way to ensure this societal goal is met.

Program Components: Programs to ensure that low-income consumers are adequately and fairly served should provide a combination of 1) energy efficiency services, 2) energy assistance, and 3) customer service practices. Energy efficiency services includes traditional weatherization, creative efficiency programs, and consumer education. Energy assistance includes emergency assistance, rate discounts, percentage of income payment plans, fuel funds, traditional payment assistance programs such as LIHEAP and integration of services with other social service agencies. The group did not assumed that all of the foregoing would necessarily be included, but some combination of them that meets the low-income need. In regard to customer service practices, we recognize the need for ongoing, and perhaps additional, consumer protections. Some members express great concern over various abuses, such as redlining, use of service limiters (e.g., prepayment meters), substandard electrical service, unfair deposit/credit requirements, etc. in a "wide open" market. Despite general agreement that such protections are essential, we are unable to determine whether or not existing protections suffice, how they are to be applied, or who will enforce them.

Mechanisms: Two general options for providing low income energy assistance were proposed. There was no agreement on which mechanism is preferable. Parties who assert that general purpose government bears primary responsibility for low income energy assistance believe these services should be provided through continuation of existing programs, including federal and state grants, voluntary efforts (e.g., fuel funds), and various service standards set by legislatures, regulatory commissions, public utility commissions, and consumer-owned utility boards/commissions. These parties acknowledged that existing government programs are not sufficient. They advocate that voluntary efforts or, failing that, federal and/or state legislative action should make up the difference between the existing programs and the level of need. Advocates of this approach believe state or federal revenues should reimburse the cost of mandatory standards or assistance requirements placed on the utility system.

Parties who argue that the energy system bears primary responsibility advocate establishing a uniform standard of service and/or a system benefits charge to support the cost of serving low-income households. All suppliers who want to sell power in the region would be required to meet this standard of service for low-income, including energy efficiency services, energy assistance, and customer service practices The system benefits charge would be levied if standards alone are not sufficient.

The use of "minimum standards" was an element under both of the options discussed for provision of low-income energy assistance. No agreement was reached as to who will set and/or enforce the standards. A combination of peers and stakeholders was suggested to determine appropriate standards and it is expected that legislative action will be necessary. Some parties argued that however established, the standards should be uniform across the region as a simple way to level the playing field between suppliers. Other parties expressed concern that a uniform standard would restrict the local utility's ability to customize according to local need.


Public Purpose Costs, Obligations, and Cost Transfers

The following table shows the costs, obligations and cost transfers for the specific public purposes on which such data was requested by the Steering Committee. This data reported in this table does not represent the consensus of the Work Group. Furthermore, the Work Group made no attempts to assess or verify the accuracy of the data reported herein. The reader is strongly encouraged to consult both the detailed report from which this table was drawn and the original citations used in its preparation.


Transfer Source Type Footnote5 Annual Cost Estimate References Restructuring Risk
Public Purpose: Rural Development
Postage Stamp T & D Rates R>R No Estimate Available
Market based prices
Average Cost Pricing R>R No Estimate Available
Market based prices
Low-Density Discount R>R > $17 million/year BPA, 1996 Supplemental Rate Proposal Market based prices
Also see Irrigation for other transfers in support of Rural Development
Public Purpose: Residential Exchange
Residential Exchange R>R $158 million in FY97, Avg. $80 million/yr FY98 - FY01. BPA, 1996 Supplemental Rate Proposal Market based prices
Public Purpose: Irrigation
Irrigation Rate Discount R>R > $14 million/yr. Ends FY96. BPA, 1996 Supplemental Rate Proposal Market based prices
Reserve Power for Irrigation R>OU $15 -$24 million/year Staff Est.from BPA,1995 Annual Report of USBR use Req. Change in Fed. Leg.
Irrigation Water Withdrawals R>OU Avg. $95 million/year, est. range $57 - $137 million/year BPA, Hydropower Impacts Req. Change in Fed. Leg.
Payment of Irrigation Project Costs R>OU Avg. $16 million/year, range $0 - $70 million/year. D. Olsen presentation citing USBR USBR reassessment of "ability-to-pay"
Interest Rate on Federal Irrigation Projects Tx>OU No estimate available

Public Purpose: Flood Control
Flood Control Operations Tx>Tx No estimate available
Unaffected
Public Purpose: Recreation
Reservoir Levels Constraints R>OU > $ 5 million/year D. Olsen presentation Unaffected
Recreation Facilities @ Federal Projects Tx>OU No estimate available
Unaffected
Public Purpose: Navigation
Lock Operation R>OU >$2 million/year BPA, Hydrosystem Costs Unaffected/possible user fee increase
Navigation at Federal Projects Tx>OU $12 million FY96 (Shallow Draft O & M) PNWA presentation Unaffected
Public Purpose: Public Preference
Public Preference to Federal Hydropower R>R No Estimate Available
Privatized Federal. System & market based prices

Footnote1

Although the group briefly discussed the conservation of other fuels, it is fair to say that the question was never really engaged.

Footnote2

Quasi-contractual committments refer to agreements where memorandum of understanding are signed and contracts are pending until completion of environmental reviews.

Footnote3

One of the uses of this information is to correct the price signals for service to distributed locations to ensure that the avoided cost of upgrades or reinforcement of existing transmission and distribution lines are included in the estimated value of distributed resources.

Footnote4

In general, if 30 AMW of new renewable projects were developed each year over a five year period, the average cost would be approximately $20 to $40 million per year for the first five years.

Footnote5

R>R - Transfers between ratepayers, R>OU - Transfer from ratepayers to other uses, Tx>OU - Transfers from taxpayers to other uses, Tx>R - transfers from taxpayers to ratepayers, Tx>Tx - transfers between taxpayers._

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