TCLP poised to become an energy efficiency leader

TCLP's energy efficiency spending 2009-2012 (click for larger size)

The city commission will take a second shot at approving the TCLP budget Monday night. This is a very important vote, for two reasons. One is is the resident dividend concept described a couple entries below on this site.  The other is a ramp up of energy efficiency spending.

The energy efficiency proposal has the potential to be game-changing. Passage of this budget would enable TCLP to save us money, keep more money in the community that we now export for power supply, and position us once again as the green energy leader in Michigan.

TCLP has been spending about what it is required to spend on energy efficiency by Public Act 295 of 2008 – the Michigan Clean Energy law.  The law refers to Energy Optimization, or EO, which is a combination of energy efficiency incentives, conservation measures, and activities to manage peak demand on the utility’s system (also called load management).

In FY 08/09, the utility spent $170,000 on its EO program which was about 0.6% of its revenues, and exceeded the 0.3% energy savings target mandated by the new law by a fair margin.  EO program spending went up to $275,000, or 1.0% of revenues, in FY 09/10 to meet a higher target of 0.5% energy saved under the new law, and again TCLP exceeded the target. In FY 10/11, TCLP spent about $391,000, or 1.3% of revenues, on its EO program to again meet a higher target under the law.

This year, TCLP proposes to spend $526,000 to meet this year’s energy savings target under the law, plus another $500,00 for Increased Energy Optimization Efforts, for a total of $1,026,000 in energy efficiency spending, which would be 3.1% of the utility’s revenues and would be an unprecedented commitment for a utility in Michigan.  This proposed budget would, on a pro rata basis, make TCLP the state’s leader in committing its resources to saving energy. 

What are they proposing to spend the money on?  A whole bunch of things. 

A lot more engineering goes into a good EO program than you might think.  Basically, the program consists of three elements – energy savings measures, determinations of what to spend on each measure to ensure that it gets installed and used, and a determination of how much energy is saved by each measure.

The measures are listed in a database kept and updated through an industry collaborative process at the MI Public Service Commission.  The database is called the MI Energy Measures Database, and you can find it here: http://www.michigan.gov/mpsc/0,1607,7-159-52495_55129—,00.html. (Click on 2011 MEMD master database)

The data base is a spreadsheet that lists categories of users (residential, commercial, industrial), measures that save energy, the amount to be spent on them (usually as an incentive to purchase), and the “deemed energy savings” that is projected to occur if they are in use. 

To use the simplest example, consider a residential CFL light bulb as the measure. The cost to the utility is the cost of the incentive for the light bulb. So if for example TCLP needed to provide a $1 coupon for each bulb to incentivize the customer to purchase it, the cost of the incentive is $1. The deemed savings is determined by taking the energy used by the “base efficiency level” (an incandescent light bulb) minus the energy used by a CFL bulb, over the lifetime of the CFL bulb.

That number is then adjusted by some value to account for the people who would have purchased the bulb without the incentive, for the fraction of the bulbs purchased but not installed, etc. The energy that could be saved by all the bulbs purchased with the coupon is the gross energy savings. The energy savings represented by the bulbs that are actually installed by people who would not have done so without the coupon is the net energy savings. The “net-to-gross” ratio is applied to the total savings of the measure to determine actual savings.   

In order to make the EO program work, the cost of the actual energy savings achieved by the measures must be less than the cost of generating, transmitting, and distributing the energy saved by the measures during their lifetime.  This is called the Utility Cost Test, or UCT.  The UCT is what people are referring to when they say studies show that energy efficiency investments pay for themselves at a rate of $3 in savings for every $1 invested. They are saying that the cost of generating, transmitting, and distributing the energy saved by the measure is three times the cost of the measure.

These calculations are reported as dollars spent per kilowatt hour or Megawatt hour saved ($ per kWh or MWh).  It is not a coincidence that this is the same way a utility measures the cost of generating and selling the electricity to a customer. The UCT test results show that if done right, energy efficiency is a very economic way to spend utility dollars.

The law states that the spending and the energy savings should be roughly proportional to the revenue from each customer class – residential, commercial, and industrial.  That means the biggest savings actually comes in the industrial class, because that’s where the energy is (and where the revenues are too).  This will be even more the case soon, because the federal Energy Independence and Security Act is going to begin phasing out most kinds of incandescent light bulbs next year, meaning that utilities will no longer be able to use CFLs to meet their savings requirements.  As mentioned earlier, an EO measure doesn’t “count” if the energy savings would have occurred anyway, which is always the case with government-mandated measures. 

The concept of paying in your utility rates the cost of providing yourself and others with incentives to install energy savings measures is surprising to many people when they first hear about it.  However, a good EO program gets you a few things in return. 

First and most obviously, it saves the money necessary to generate, transmit, and distribute the energy. If a utility was going to spend $100 to provide a given amount of energy, and the utility could save an extra 1% of that energy with an EO program that had a UCT number of 3:1, that means the utility would spend $99.33 to meet its requirements instead of $100. That’s because the cost of saving $1 worth of the total energy requirement was 33 cents.

It doesn’t sound like much but if you think about a municipal utility with a $30 million budget it adds up fast.  At the rate at which power supply costs are increasing, it will add up faster in the future than it does now. It also has other positive benefits.

One of those other benefits is saving capacity.  Capacity refers to the utility’s need to be able to supply its peak load (usually the peak occurs on a hot summer day due to air conditioners).  Utilities meet their capacity requirements either by owning the generating units to supply peak energy, by having a power purchase agreement with a generating plant that gives “dibs” on an agreed amount of the plant’s capacity, or by buying capacity like a commodity on the market. 

To participate in the energy grid, each utility needs to show the operator of the grid (Midwest Independent System Operator, or MISO) that it has enough capacity to meet its projected summer peak plus a “reserve margin” of perhaps another 10%.  While capacity is cheap now, it is not going to stay cheap. Detroit Edison for example projects the cost of capacity in a few years to be over 300 times what it is now (not going up 300%, going up over 300 times its present cost).  An EO program that saves an additional 1% of energy per year will reduce the utility’s capacity requirement by an additional 10% in 10 years. 

Finally, there is a local vs. out of state component that favors increasing EO spending.  TCLP currently spends about $21 million in power supply costs. These are pass-through costs, most of which represent the cost of coal mined in Wyoming and Appalachia, hauled by train to Michigan, and burned at power plants near Holland, Lansing, and St. Clair. 

If we increase EO spending, and thereby reduce our requirement for power supply, we are keeping more of our money here – by spending it on more energy efficient lighting, appliances, and commercial and industrial equipment, instead of on coal mines and railroad freight tariffs. 

Oh – and we also cut the emissions of carbon, mercury, sulfur dioxide, nitrogen oxides, ozone, particulates, and other pollution we are responsible for generating.

All of this happens only if the city commission stands with TCLP and supports this kind of innovative, green, and cost-conscious thinking.  The TCLP board has made some adjustments based on some good points offered by city commissioners and the public at the last meeting, but now it’s time for all of us to support this positive and bold new step.

We had a great turnout for the first TCLP budget discussion, but would appreciate hearing from you before or at the meeting if you believe in what our public utility is trying to do. You can also follow other TCLP happenings at Mike Coco’s blog, http://ourtclp.com/. These are great new developments, and we hope the community will embrace them.