- Email: [email protected]
Gas cooling as DSM
adopted, they may not result in greater repayment to the Treasury. Had the straight-line proposal been implemenkd during the first year of operation of the Colorado River StoragePmject(themainpmjectintheIntegmted Projeck), about $300 million in principal would have been repaid to date. Because of high water and high generation conditions in the early 198os, our present method has xesultedinmorethan!$!5OOmillionin principal repayment to date - over one and one-half times the straightline amount. There is no expectation that Westem’s repayment will fall short and requim congressional relief. Costs associated with power investmenk and repayment aid to irrigation at Bureau of Reclamation projects am forecast to be repaid within the time limik pmscribedbytheCongmss. Duringthe past four years, all of our customers have faced hefty rate increases due to drought, environmen tal constraink, replacing and adding to our aging transmission system, and increasing operation and maintenance cask. As a result, our rates continue to increase to meet our repayment obligations. Our repayment strategy represenk a successfulbalancebetweenmeeting increasing operating expenses, repayment needs, and congressional direction to keep our rates as low as possible consistent with sound business principles. Kenneth G. Maxey, Assistant Administmtor@r Pozcer Management, Operations, and Maintenance, Western Area PozuerAdministration
GasCooling
as DSM
A
lthough it might surprise some electric utility executives, one of the most effective demand-side man-
Augz&/S+mber
1993
agement techniques for electric utilitiesisactuallyafriendlyaUiancewith natural gas cooling. When developing DSM strategies, many electric companies have already found that natural gas cooling canvirtuaUyguaranteeeliminationof a load that is coincident with their annual peak for the 2s to 3&year life of the cooling equipment. Resistance to DSM credik for gas cooling, then+ fore, seem only to be a short-sighted attempt to protectmarketsham, ratherthananeffortonbehalfofall ratepayers. Many myths regarding natural gas cooling for DSM were included in
Ri&TempchinandDeanWhite’s “The Slippery Slope of Fuel Substitution” (TEJ, July ‘93 at 27). Tempchin&Whitesay: 1. “[Tlhe basic justificationfir DSM is to correcti~ions in theelectrk efficiencymarketplace*” This is a faulty premise. DSMPi= gramscanbejustifiedonthebasisof at least three regulatory objectivesz reducing resource costs, avoiding electricity rate maeases that would result from construction of expensive new generating plank, and reducing aU risk to ratepayers and stockholders.
DSM is inhemntly an attempt to distort the marketplace: utilities use it to convince customers to make choices they would have rejected without the DSMprogram. unfortunately, some utilities further distort the marketplace by promulgating load-building programs under the guise of DSM. The real question is whether electric utilities should be allowed to discriminate against one DSMopkm-gascooling-when it quite possibly is the most effective peak reduction option available. Is a kilowatt saved by adding a high efficiency motor to an air conditioner somehow more valuable than a kilo watt saved by converting that unit to gas? 2. “Thereis no cr&znce that art$cial mechanisms or ‘managed competition’ is needed in thefuel choice mark-etor that mandatedfuel substitutio?lwill impwve ewnomiceJ?cbKy,~~or envinmmfzntalquality in the long run.” f there is no evidence that “manI aged competition” works in the fuel substitution market, why would it work in the electric efficiency market? Regulators are certainly swam of the evidence that exisk, as is demonstrated by the commissions that have mandated co&effective fuel substitution as a component of a utiIity’s DSM portfolio. Offering DSM credik for gas cooling does not require customem to convert to gas cooling. Rather it eliminates an unjustified restriction It does not force electric utilities to pmmote gas cooling or force customers toinstallit. Some assume that integrated plans @RF%)should be single fuel - ie, electric only or gas only. However, the only way to ensure that maximum benefit is obtained for ratepayem is to do joint IRPs. This avoids the situation of having a program that
75
beneiits electric (or gas) customers, but that hurts gas (or electric) customeIstoanevengreaterextent 3. “1EJectric utilities have a legal duty tosemallelectricen&usecustomers.... Significantly natural gas utilities have a my di&mt service obligation.” nae a customer is connected, the gas utility is obligated to serveunderthetermsofitstariff. However, gas utilities can refuse to hook up a customer if the cost of adding that customer exceeds the potential benefits - i.e., if existing customers would be forced to subsidize that customer. Electric utilities can avoid this problem by forcing the new customer to pay high hookup fees to ensum that existing customers do not subsidize the new one. It appears, however, that these fees are some times waived in the heat of competitive pressures. 4. “Thewnsequences&iwing customersbadadvicebasedonemmeous ?laturalgaspriczprojedionsorpoorend-
0
use product performan=& e=qlG should not be borne by electric utilities.” We are not asking electric utilities to promote gas cooling, but rather to stop discriminating against it as a valuable DSM option All customers take risks when they make a decision Customers could just as easily suffer financial loss if they select electric equipment and the electric utility is unable to keep up with load growth, leading to brownouts, blackouts and unreliable service - or much higher rates. Caution should always be used when forecasting escalation rates, but this does not constitute any theoretical or policy basis for rejecting D!SM credits for gas cooling or any other “fuel substitution” measure. 5. “[Tlheelectricutility will be &$ with all loads that have low value to the
76
gas utility, which will likzly increase rates toelectrkcust~..” Will deferring the need for new, expensive generating capacity-which gas cooling can do most effectively benefitelectriccustomers? Again,the gas industry is not looking for steps that hurt electric customers, but for acceptance of the fact that using gas cooling can be a highly effective way to keep all electric customexs’energy costsdown. The arguments here clearly show that competitive pressures are the main driver behind resistance to
Blankand ‘AIZWinners’ in Qt.dbec ricBlanks
article, “MimnGng E Non-Participant DSM Bate Impacts-without Harming Program Participation” (TEI, May ‘93, at 32), notesthatanenergyserviceisan energy service, whether its origin lies in a turbine or in added insulation Building on this fundamental understanding, Blank demonstrates that byaskingpotentialparticipantsto pay the capital costs of new DSM measures, utilities are not, despite all they may say, providing a level playing field for DSM and electricity sales. If utilities pay full capital costs of new production equipment, Blank suggests, why treat DSM diffemntly? Having compared the utili~s cost of capital with that of the consumer’s, it becomes evident that in transferring the burden of capital investment to potential participants, a discount rate “transfer loss” occurs. To further Blank’s argument, I would like to present some macrolevel results of a prehminary application of very similar approach. The “All Winners” Approach
DSM incentives for gas cooling -not concerns over the appropriateness of fuel switching. Air conditioning has becomeahighmarginloadinmany amasandsomeelectricutilitiesseem willingtotakewhateverstepsaIenecessary to protect it. There appears to belittleconcernoverthelongterm implications of this approach namelythatitwillincmasetheneed for expensive generating capacity in the future, to the detriment of all ratePaYe= Dennis Moran, AmericanGasAwciatk
The “All Winners” approach was developed in January 1993 and sub =luently proposed to the Quebec government (Hydro-Qu~s only regulatory body) one month later. The All Winners approach addressesallenergyservices,mgaIdless of origin It is assumed that non-participants should neither benefit from nor pay for the gains of DSM program participants. Finally, for DSM tobetreatedinthesamemanneras electricity, up-front capital costs must bepaidinfullbytheutility,andrepaid by participants over time.
The Electricity Journal
GasCooling
as DSM
A
lthough it might surprise some electric utility executives, one of the most effective demand-side man-
Augz&/S+mber
1993
agement techniques for electric utilitiesisactuallyafriendlyaUiancewith natural gas cooling. When developing DSM strategies, many electric companies have already found that natural gas cooling canvirtuaUyguaranteeeliminationof a load that is coincident with their annual peak for the 2s to 3&year life of the cooling equipment. Resistance to DSM credik for gas cooling, then+ fore, seem only to be a short-sighted attempt to protectmarketsham, ratherthananeffortonbehalfofall ratepayers. Many myths regarding natural gas cooling for DSM were included in
Ri&TempchinandDeanWhite’s “The Slippery Slope of Fuel Substitution” (TEJ, July ‘93 at 27). Tempchin&Whitesay: 1. “[Tlhe basic justificationfir DSM is to correcti~ions in theelectrk efficiencymarketplace*” This is a faulty premise. DSMPi= gramscanbejustifiedonthebasisof at least three regulatory objectivesz reducing resource costs, avoiding electricity rate maeases that would result from construction of expensive new generating plank, and reducing aU risk to ratepayers and stockholders.
DSM is inhemntly an attempt to distort the marketplace: utilities use it to convince customers to make choices they would have rejected without the DSMprogram. unfortunately, some utilities further distort the marketplace by promulgating load-building programs under the guise of DSM. The real question is whether electric utilities should be allowed to discriminate against one DSMopkm-gascooling-when it quite possibly is the most effective peak reduction option available. Is a kilowatt saved by adding a high efficiency motor to an air conditioner somehow more valuable than a kilo watt saved by converting that unit to gas? 2. “Thereis no cr&znce that art$cial mechanisms or ‘managed competition’ is needed in thefuel choice mark-etor that mandatedfuel substitutio?lwill impwve ewnomiceJ?cbKy,~~or envinmmfzntalquality in the long run.” f there is no evidence that “manI aged competition” works in the fuel substitution market, why would it work in the electric efficiency market? Regulators are certainly swam of the evidence that exisk, as is demonstrated by the commissions that have mandated co&effective fuel substitution as a component of a utiIity’s DSM portfolio. Offering DSM credik for gas cooling does not require customem to convert to gas cooling. Rather it eliminates an unjustified restriction It does not force electric utilities to pmmote gas cooling or force customers toinstallit. Some assume that integrated plans @RF%)should be single fuel - ie, electric only or gas only. However, the only way to ensure that maximum benefit is obtained for ratepayem is to do joint IRPs. This avoids the situation of having a program that
75
beneiits electric (or gas) customers, but that hurts gas (or electric) customeIstoanevengreaterextent 3. “1EJectric utilities have a legal duty tosemallelectricen&usecustomers.... Significantly natural gas utilities have a my di&mt service obligation.” nae a customer is connected, the gas utility is obligated to serveunderthetermsofitstariff. However, gas utilities can refuse to hook up a customer if the cost of adding that customer exceeds the potential benefits - i.e., if existing customers would be forced to subsidize that customer. Electric utilities can avoid this problem by forcing the new customer to pay high hookup fees to ensum that existing customers do not subsidize the new one. It appears, however, that these fees are some times waived in the heat of competitive pressures. 4. “Thewnsequences&iwing customersbadadvicebasedonemmeous ?laturalgaspriczprojedionsorpoorend-
0
use product performan=& e=qlG should not be borne by electric utilities.” We are not asking electric utilities to promote gas cooling, but rather to stop discriminating against it as a valuable DSM option All customers take risks when they make a decision Customers could just as easily suffer financial loss if they select electric equipment and the electric utility is unable to keep up with load growth, leading to brownouts, blackouts and unreliable service - or much higher rates. Caution should always be used when forecasting escalation rates, but this does not constitute any theoretical or policy basis for rejecting D!SM credits for gas cooling or any other “fuel substitution” measure. 5. “[Tlheelectricutility will be &$ with all loads that have low value to the
76
gas utility, which will likzly increase rates toelectrkcust~..” Will deferring the need for new, expensive generating capacity-which gas cooling can do most effectively benefitelectriccustomers? Again,the gas industry is not looking for steps that hurt electric customers, but for acceptance of the fact that using gas cooling can be a highly effective way to keep all electric customexs’energy costsdown. The arguments here clearly show that competitive pressures are the main driver behind resistance to
Blankand ‘AIZWinners’ in Qt.dbec ricBlanks
article, “MimnGng E Non-Participant DSM Bate Impacts-without Harming Program Participation” (TEI, May ‘93, at 32), notesthatanenergyserviceisan energy service, whether its origin lies in a turbine or in added insulation Building on this fundamental understanding, Blank demonstrates that byaskingpotentialparticipantsto pay the capital costs of new DSM measures, utilities are not, despite all they may say, providing a level playing field for DSM and electricity sales. If utilities pay full capital costs of new production equipment, Blank suggests, why treat DSM diffemntly? Having compared the utili~s cost of capital with that of the consumer’s, it becomes evident that in transferring the burden of capital investment to potential participants, a discount rate “transfer loss” occurs. To further Blank’s argument, I would like to present some macrolevel results of a prehminary application of very similar approach. The “All Winners” Approach
DSM incentives for gas cooling -not concerns over the appropriateness of fuel switching. Air conditioning has becomeahighmarginloadinmany amasandsomeelectricutilitiesseem willingtotakewhateverstepsaIenecessary to protect it. There appears to belittleconcernoverthelongterm implications of this approach namelythatitwillincmasetheneed for expensive generating capacity in the future, to the detriment of all ratePaYe= Dennis Moran, AmericanGasAwciatk
The “All Winners” approach was developed in January 1993 and sub =luently proposed to the Quebec government (Hydro-Qu~s only regulatory body) one month later. The All Winners approach addressesallenergyservices,mgaIdless of origin It is assumed that non-participants should neither benefit from nor pay for the gains of DSM program participants. Finally, for DSM tobetreatedinthesamemanneras electricity, up-front capital costs must bepaidinfullbytheutility,andrepaid by participants over time.
The Electricity Journal