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Transactions Nov10
1. Volume 210
November 2010
Part I: Laying a Good Foundation
I N T HIS I SSUE
for Demand Side Management
Why now?
Part I: Laying a Good Foundation for Demand
Funding for Demand Side Management (DSM) research, projects, and
Side Management Pages 1-2
Amber Roberts, CEM - Project Manager - GDS
other activities has increased greatly, over the past two years. Many
Energy Efficiency and Renewables Department -
states and government agencies have secured
Marietta, GA funding through pipelines such as the
American Recovery and Reinvestment Act
DSM program design, implementation and
of 2009, and are now trying to sort out the
evaluation requires a good understanding of
best use of those funds in order to lay
the service territory and present issues. To
groundwork for the future.
gain this knowledge, multiple DSM studies
and analyses are required in order to move According to Recovery.gov, the three
forward with confidence. This issue contains immediate goals of the Act are to:
Part I of the discussion on what first steps to
• Create new jobs and save existing ones
take that will move you down a well planned
path. • Spur economic activity and invest in long-term
growth
Creating Diversity in an Uncertain Future • Foster unprecedented levels of accountability and transparency in
Pages 3-5 government spending
Chris Dawson - Principal - GDS - Marietta, GA
Over the past 40 years in the electrical The Recovery Act intends to achieve those goals by:
industry, there have been constantly changing • Providing $288 billion in tax cuts and benefits for millions of working
regulatory and legislative requirements, families and businesses
extreme volatility in fuel prices, fluctuating • Increasing federal funds for education and health care as well as
load growth, and structural market entitlement programs (such as extending unemployment benefits) by
transformations. This uncertainty and volatility $224 billion
continues today. Read this article to find the
answer to minimizing your exposure to the
• Making $275 billion available for federal contracts, grants and loans
unknown. • Requiring recipients of Recovery funds to report quarterly on how they are
using the money. All of the data is posted on Recovery.gov so the public
can track the Recovery funds.
T RANS ACTIONS is a service of
GDS Associates, Inc., Although many of the ARRA projects are focused on immediate ways
a multi-service consulting and to jumpstart the economy, sometimes that isn’t the best use of funds.
engineering firm formed in 1986.
Really researching and getting to know the consumer you are targeting
For more information about GDS, is the most
our services, staff, and capabilities, i m p o r t a n t Although many of the ARRA projects are focused
please visit our website @ first step to on immediate ways to jumpstart the economy,
www.gdsassociates.com lay down a
or call us @ 770-425-8100 . good ground sometimes that isn’t the best use of funds.
work for the
future. DSM programs, especially those involving a wide array of
infrastructure improvements (such as Smart Grid projects) are intended
to continuously contribute to economic growth for years to come.
What first?
IDEAS WANTED! If funding for DSM isn’t something that is available in your organization,
We want to hear your ideas, feedback, and take a look at grants.gov for opportunities that fit all areas of demand
suggestions for this newsletter. side resources. Although many utilities, cooperatives, states, cities and
Email us at:
other agencies already have DSM activities in place, there are a number
info@gdsassociates.com
continued on Page 2
2. TRANSACTIONS Vol. 210
continued from Page 1 evaluating benefits of the programs and measures for
of things that can be done in order to supplement the implementation. The methodology used in calculating
existing programs or lay a foundation for new ones. these costs differ among utilities, but documenting the
The most important thing to do before trying to put a resulting numbers in a study helps keep evaluations
program in place is conducting research, followed by across programs uniform, and is much easier to
a solid program design and good implementation and update when updating the costs when needed. One
evaluation strategy. well known avoided
Typically, organiza- In order to develop a good baseline and expand the existing data cost study is done
tions will contract that an organization has, and to plan and design well founded DSM for the New England
DSM activities out states annually by
to third-party com- efforts, a number of studies should be considered. the Avoided Energy
panies who have Supply Component
experience in the industry and have already acquired (AESC) Study Group. These avoided costs are used in
or built instruments, models and data tracking & multiple studies, analyses and other research done on
reporting systems. the demand side.
In order to develop a good baseline and expand the End-Use Metering and Load Shape Studies are useful for
existing data that an organization has, and to plan and quantifying the benefits of efficient measures installed
design well founded DSM efforts, a number of studies in homes, commercial and industrial facilities. They are
should be considered to: representative of the distribution of energy requirements
over time. Load shapes are most useful when presented
• Set attainable energy savings targets by setting baselines in hourly increments by end-use. However, if an end
• Help quantify energy efficiency resources for system planning use load shape study proves to be too time consuming
• Determine funding levels for programs or pricey, load shape studies can be done on multiple
• Detail energy and demand avoided costs in order to monetize building types in each sector. For example, residential
savings can be split into single family, multi-family and
manufactured homes. When applying savings to a
There are several types of studies that can help with
building load shape, the benefits are not specific to an
DSM planning, implementation and evaluation, including,
end use, rather to a user. Typically these studies are
but not limited to:
not public data when completed.
Technical Potential Studies (also referred to as Baseline/Saturation Studies are done in order to set a
Conservation Potential Assessments or CPA’s) are a
baseline for a particular sector or territory and to
quantitative analysis of the amount of energy and
assess the saturation of certain energy consuming
demand savings that either exists, is cost-effective,
technologies. Typically these studies are conducted
or could be realized through the
using sampling techniques in order to identify
implementation of DSM programs.
strata by type of business, consumption category
Demand Side Management potential
or structure. Surveying can be done by mail,
studies are an effective tool for building
phone or on-site, although on-site surveys are
the policy case for energy efficiency
more costly, they tend to yield the highest quality
and demand response, evaluating
data. These types of studies usually recur at 3 to
DSM as an alternative to supply side
5 year intervals in order to detect differences in
resources, and formulating detailed
the market.
program design plans. They are
typically the first step taken by entities There are other types of studies that are useful
interested in initiating or expanding a when ramping up the demand side resources,
portfolio of efficiency programs, and and having a study completed in all of the
serve as the analytic basis for efforts to treat energy categories above would be ideal, but organizations
efficiency as a high-priority resource equivalent with tend to go for one or two that will benefit them the most
supply-side options. The EPA has published “Guide to in their DSM efforts.
Conducting Energy Efficiency Potential Studies”
(available online) for a nationally accepted overview of What’s next?
the methodology and results. After completing an array of studies up front in order to
get a clear picture of what a typical consumer in your
Avoided Cost Studies help determine the monetary territory looks like, the next steps are designing a well
benefits to apply to generation, transmission and thought out program or project, successfully implementing
distribution of a KW or kWh. Applying avoided costs to that plan and evaluating it at regular intervals in order
energy or demand saving technologies would assist in to assess performance. There are many methods to
2
3. TRANSACTIONS A Publication of GDS Associates, Inc.
creating diversity in
an uncertain future
Over the past several years, electric utilities in the United some form of carbon tax under the Clean Air Act, but is
States have experienced a number of challenges and also promulgating new Utility MACT rules that could
opportunities in serving their customers with competitive have enormous consequences for coal plant owners
and reliable power supply as soon as 2015. Building
resources. We have seen In this environment of chaos and uncertainty new generation of any type
NERC declarations that there how does an electric utility effectively plan requires years of pre-devel-
would be capacity shortages for new power supply resources to reliably opment activities, ability to
by 2013 and then experienced and competitively serve its retail customers? satisfy concerns of multiple
a nationwide recession resulting stakeholders (everyone from
in negative load growth. Natural gas prices have regulators, to customers, to environmentalist groups),
fluctuated dramatically and have been as high as and procurement of long-term financing. Have things
$12/mmBtu and as low as $3/mmBtu. Congress has always been this crazy? In this environment of chaos
been considering environmental legislation that among and uncertainty how does an electric utility effectively
other things would increase the cost of power from plan for new power supply resources to reliably and
fossil fuel generation and the EPA is still considering competitively serve its retail customers?
continued from Page 2
It may be easier to appreciate today’s environment by
looking back over the past 40 years to see how the
designing and implementing DSM programs, but there electric industry dealt with the tremendous
are some rules of thumb for best practices:
changes and new regulations they
• Conduct a market assessment faced while managing their power
• Listen to customer and trade ally needs supply planning activities. To indulge
• Use utility channels and brands you for just a few moments, let’s take
• Promote both energy and non-energy (e.g., improved a stroll down the electric industry’s
comfort, improved air quality) benefits of energy efficient memory lane:
products and practices to customers
1. In the ‘70s, the infamous oil embargo
• Coordinate with other utilities and third-party program
began and there was a sharp
administrators
increase in fuel cost and the electric
• Leverage the national ENERGY STAR program industry experienced Federal laws
• Keep participation simple eliminating natural gas as a new generation fuel
• Keep funding (and other program characteristics) as source, the dawn of conservation/energy efficiency
consistent as possible programs, and PURPA. Utilities responded by
• Invest in education, training, and outreach switching from gas-fired generation to new coal and
• Leverage customer contact to sell additional efficiency nuclear generation, pursuing renewable energy
and conservation. resources, and developing energy efficiency and
conservation programs.
Part II in the next issue of TransActions will discuss
guidelines that are helpful when determining what the 2. In the ‘80s, the Three Mile Island incident and high
program goals are and what areas need the most attention. financing cost brought about the end of new
A good program design and implementation plan construction of nuclear generation, retail electric
minimizes issues and headaches down the line since sales declined for the first time since the ‘40s,
all parts of the program were thought regulatory regimes and consumer interest groups
through and intentionally addressed. did not allow utilities to fully recover their investments
in new generation, interstate natural gas pipeline
For more information or to comment on this transportation was deregulated, and new NUG/QF
article, contact Amber Roberts at 770.425.8100 capacity appeared on every street corner. Utilities
or email: amber.roberts@gdsassociates.com responded by generating more energy from natural
gas resources, entering into long-term (and expensive)
3
4. TRANSACTIONS November 2010
continued from Page 3 With all of the uncertainty that exists today and will
exist in the future, how does an electric utility maintain
agreements with NUGs/QFs based on avoided cost a generation resource portfolio that minimizes its
pricing, and factoring in ‘regulatory risk’ for any new exposure to the unknown, yet continue to serve their
capital investments. native retail/wholesale load in a reliable and
3. In the ‘90s, we had the first serious environmental cost-effective manner? The answer is diversification.
legislation in almost 25 years (amendments to the Much like financial advisors tell their clients
1970 CAA), deregulation of wholesale markets, low to diversify their long-term retirement accounts with
natural gas prices, and the creation of open access a combination of stocks, bonds, and cash to
transmission tariffs. Utilities responded by acquiring maximize their return over the long-term, electric
utility firms overseas, constructing combined-cycle utilities must diversify their resource portfolio to
generation, terminating NUG/QF agreements, and provide their customers with the most reliable and
competing aggressively for wholesale customers competitive electric service. In order to effectively
using market-based contracts and by wheeling manage reliability and cost over the long-term it is
power across neighboring utility transmission systems. important to pursue a well-diversified portfolio that
4. In the 2000s, there was substantial transformation in includes a mix of base, intermediate, and peaking
market structures with the development of RTOs and capacity and related energy that is procured and
ISOs, bankruptcies of multiple power marketing managed in the context of several important diversity
companies (with Enron being the most infamous), factors. The basic diversity factors are: (1) resource
new environmental restrictions (2005 CAIR), increasing diversity, (2) term diversity, and (3) fuel diversity.
mandates for renewable power, and volatile pricing of 1. Resource diversity is essential in a well-balanced
coal and natural gas. Utilities responded by selling resource portfolio. It is important to spread the
the overseas assets acquired in the ‘90s, zealously participation level in generation ownership
maintaining financial creditworthiness standards, among multiple resources to reduce dependency
acquiring renewable resources (particularly wind upon any single resource contingency. Too much
generation), and utilizing financial and dependence on a single resource coupled with
physical hedges for power, fuel, and an unexpected plant outage, transmission
congestion. curtailment, or any number of other potential
So, uncertainty and chaos are nothing occurrences could result in large cost increases
new to the electrical utility industry and and/or unreliable service. Another way to
electric utilities have had to manage mitigate the single resource risk is to obtain a mix
their generation assets to maximize their of firm purchased power contracts, which
value under these extenuating circum- typically carries a premium, and unit contingent
stances and continue to reliably serve agreements. Utilities that are under full-require-
their retail customers. Managing an ments agreements do not need to assume the
electric utility’s generation resources in responsibility of building a diverse resource
the present and for the future is an inherent part of a portfolio if their current supplier, and future power
utility’s risk management program. Risk management is, suppliers, maintain a fairly well diversified portfolio;
as generally defined by various organizations, the however, having one supplier still results in some
process of identifying, evaluating, and mitigating risks significant power supply exposure.
that threaten the strategic and financial goals of your 2. Term diversity provides protection from single
business. To the extent that a utility’s resource portfolio point price exposure, supplier risk, and load
has significant risk exposure, whether based on a financial management issues. By structuring power
metric (e.g. congestion cost, increase in fuel prices, supply contracts or generation resources with
environmental emissions compliance) or physical metric varying term lengths, utilities can reduce the
(e.g. loss of a generating resource, limitations of fuel exposure of replacing 100% of its resources at
supply, transmission outage), then it may impair the one specific time, thereby avoiding unfavorable
utility’s ability to reliably and competitively serve its pricing terms and conditions due to unfortunate
customers and meet its financial objectives. As we market timing. Multiple contracts with various
have seen over the past 40 years, uncertainty will come suppliers or the ability to rely on short-term spot
in many forms, such as, a constantly changing market purchases reduces potential exposure to
regulatory and legislative environment, extreme volatility supplier default. Lastly, multiple contracts with
in fuel prices, fluctuating load growth, and structural varying terms would also allow a utility to
transformation of the market.
continued on Page 5
4
5. TRANSACTIONS November 2010
creating diversity in an uncertain future - continued...
continued from Page 4
manage its load growth more efficiently and (3) provide financial stability by reducing the volatility
accommodate new large loads or loss of load in the utility’s power cost and stabilizing revenues
without being exposed to onerous contract and cash flow. The stability in power cost can help
conditions for long-term periods. utilities avoid a
3. Fuel diversity is also important The good news is that it is never too late to initiate situation where
due to the historical price there are retail
and implement a resource diversification strategy.
volatility of various types of rate increases
fuels resulting from natural due to volatility in
supply/demand imbalances, increases in trans- fuel prices, congestion, market purchases.
portation costs, or regulatory/legislative changes. So, what type of changes will the electric industry
Since it is not possible to hedge 100% of any experience over the next 40 years? It’s tough business
specific fuel exposure, the most effective mitigation predicting the future but we do know that there will
technique is to diversify fuel by having different always be volatility and uncertainty that will impact a
generation resource technologies that use different utility’s financial situation. The good news is that it is
fuels (i.e. coal, nuclear, natural-gas, renewables) never too late to initiate and implement a resource
and/or purchased power agreements with power diversification strategy. Start the process now and
suppliers who also have a generation portfolio your utility will accrue the benefits of diversification
with fuel diversity. tomorrow.
These diversity factors, in conjunction with a utility’s
strategic plan, will guide a utility’s decision on
acquiring new generation resources to meet the For more information or to comment on
utility’s long-term goals. This general philosophy can this article, contact Chris Dawson at
be applied to utilities that are currently full 770.425.8100 or email:
requirements customers, partial requirements chris.dawson@gdsassociates.com
customers with some generation, or utilities that own
all generation necessary to serve their entire load.
The primary benefits of diversification are:
(1) to reduce exposure to contingencies, whether it is
internal to the utility (e.g. the loss of a generating
resource) or external (e.g. volatile generation fuel
prices, new environmental emissions regulations),
(2) maintain a high degree of reliability in providing
service to customers and minimizing service
disruptions, and
We welcome your comments and suggestions about our newsletter. Please forward any comments to:
info@gdsassociates.com
We hope you find our newsletter informative, if you know a colleague that would like to receive a
free subscription, just email us their information to
info@gdsassociates.com
and we’ll make sure they start receiving the next issue.
5
6. GDS Associates, Inc. Mission Statement:
Corporate Headquarters:
1850 Parkway Place To help our clients succeed by anticipating and understanding
Suite 800
Marietta, GA 30067 their needs, and by efficiently delivering quality services with
770-425-8100 confidence and integrity.
Fax: 770-426-0303
www.gdsassociates.com
Texas:
919 Congress Avenue GDS Associates, Inc. is a multi-service consulting and engineering firm formed in 1986 and now employs a staff of over
Suite 800
Austin, TX 78701
100 in five locations across the U.S. Our broad range of expertise focuses on clients associated with, or affected by,
512-494-0369 electric, gas, and water utilities. In addition, we offer information technology, market research, and statistical
Fax: 512-494-0205 services to a diverse client base. The size and depth of our firm permits us to offer clients multiple sources of
New Hampshire:
assistance, ensuring complete, competent, and timely service. Some of the consulting areas in which GDS has
1181 Elm Street specialized skills are:
Suite 205
1. Power Supply Planning Services 10. Electric Planning and Design Services (Hi-Line Engineering)
Manchester, NH 03101
603-656-0336 2. Financial Analysis and Rate Services 11. Environmental Management Services (GreenLine Environmental)
Fax: 603-656-0301 3. Generation Services 12. Deregulation and Retail Energy Procurement Services
Wisconsin: 4. Environmental Services and Permitting Assistance 13. Utility Privatization Services
437 S. Yellowstone Drive 5. Regulatory and Restructuring Services 14. Water and Wastewater Utility Consulting Services
Suite 212 6. Transmission Services 15. Natural Gas Consulting Services
Madison, WI 53719
608-273-0182 7. Renewable Energy Resources, Dist. Generation, & CHP 16. Statistics and Market Research Services
Fax: 608-273-0312 8. Energy Efficiency and Demand-Side Mgmt. Services 17. Information Technology Services
9. NERC/ERO Compliance Services 18. Carbon Compliance Services
Maine:
323 State Street GDS consultants are recognized leaders in their respective fields, dedicated to their clients, innovative in their
Suite 2 approach to meeting unique challenges, and known for consistently being available when needed. GDS strives to
Augusta, ME 04330
develop long-term client relationships. Our goal is to be a wise investment in consulting services for our clients.
207-622-6888
Fax: 800-334-7033
Hi-Line Engineering, a GDS Company, specializes in providing safe, reliable, and efficient planning and design for
Hi-Line Engineering and electric cooperatives, investor owned utilities, municipal electric systems, and the military in all types of terrain and
GreenLine Environmental all three NESC loading districts. Hi-Line's areas of expertise include:
1. Overhead Distribution Line Design and Staking 6. Right-of-Way Vegetation Management
Georgia:
1850 Parkway Place 2. Underground Distribution System Design 7. GIS/GPS Mapping and Inventory
Suite 800 3. Inspection and Inventory 8. Training Services
Marietta, GA 30067
770-425-8100
4. Contract Administration 9. Specialized Design Services
Fax: 770-426-0303 5. System Planning and Analysis
www.hi-line-engineering.com
Hi-Line uses the latest technology to increase efficiency and accuracy. Our commitment to client satisfaction and
Indiana: diversity of expertise ensures that we provide the highest quality of service.
5530 East US Hwy 36
Suite 220 GreenLine Environmental, a GDS Company, provides environmental services specially geared to the electric utility
Avon, IN 46123 industry. GreenLine's staff is composed of registered foresters and ISA certified arborists. Our experience in both
317-718-4132
Fax: 317-718-4134 power line design and operation complement our expertise in vegetation management on
right-of-ways. GreenLine offers the following services to utilities, municipals, developers, industry, and the military:
Alabama:
1826 Opelika Road
1. Right-of-Way Vegetation Management
Auburn, AL 36830 2. GIS/GPS Mapping and Inventory
334-887-3297 3. Environmental Assessments
Fax: 334-887-3298
www.green-line-environmental.com 4. Urban Forestry Consulting
Our goal is to use our technology and experience to provide efficient long-term control of trees and brush in
harmony with the biological ecosystem.
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Suite 800
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