Comments on Colorado Senate Bill 272 Encouraging Greater Use of Renewable Thermal Technologies in DSM Programs

On April 18, the Colorado Senate Agricultural, Natural Resources and Energy Committee took up SB13-272 which encourages greater use of renewable thermal technologies in utility DSM programs.  I have been advocating such treatment, especially with respect to ground source heat pumps, for several years.  The hearing room was packed with both proponents and opponents and, unfortunately, time constraints did not allow me to testify in favor of the bill.  Below are the prepared remarks that I would have delivered if given the opportunity.

Comments on SB13-272

Richard P. Mignogna, Ph.D., P.E.

Madam Chairperson and members of the committee, thank you for this opportunity to testify in favor of SB13-272.  I am presently the principal in a small consulting firm, Renewable & Alternative Energy Management, LLC in Golden.  Prior to founding my business, I served for more than 6 years on the Staff of the Colorado Public Utilities Commission as a Professional Engineer and Senior Authority on Renewable Energy.  I was, essentially, the fiscal note attached to the legislation implementing Amendment 37.  I am testifying before you today not on behalf of any trade, industry, or advocacy group, but only as an independent, knowledgeable individual to help you evaluate this proposed legislation and act in the public interest.

While at the PUC, I spoke on numerous occasions about the potential for ground source heat pumps, in particular as part of DSM programs.  Hence, it is encouraging to see some of those concepts coming to fruition in this bill.  It has not been a surprise to me that what are termed highly energy efficient renewable thermal technologies have been underrepresented in utility DSM & energy efficiency programs.  Today, you may hear about the low price of natural gas as a contributing factor, but this was true even when natural gas prices were three times what they are now. 

The reasons for this are complex and have more to do with the difficulty in evaluating the benefit/cost ratio of renewable thermal technologies such as solar thermal and ground source (aka geothermal) heat pumps.  On the electric side, determining the energy savings of a new dishwasher or refrigerator, or even CFLs and LEDs is a relatively simple matter.  But, evaluating the energy savings and environmental benefits of thermal technologies used for space conditioning and water heating is more difficult.  No less real, just more difficult.

For example, one must consider whether the installation will be in a heating dominated climate or a cooling dominated climate.  On the heating side, what fuel is being displaced? Propane? Electricity? Natural gas?   On the cooling side, ground source heat pumps displace electricity used to power air conditioning, and naturally the environmental benefits will depend on what fuel would have been used to generate that electricity.  So they perform double duty.  But, while they are extraordinarily efficient, they do have a high first cost and retrofits can be especially challenging, which is why support through DSM programs is especially important.

I understand that the introduced version of SB13-272 has been significantly modified by a strike-below amendment which is presently under consideration.  Nonetheless, I still believe that even the current version of SB13-272 is a positive and welcome step forward in energy efficiency and in fostering consumer applications of renewable thermal energy technologies.

The introduced version of the bill did contain a few notable deficiencies, some of which have been remedied in the current amended version.  The first and most critical was removal of the apparent requirement for cost recovery of a portion of utility DSM expenditures in base rates where they could have been hidden from scrutiny by the ratepayers who are paying for these programs.  This has been one of the principal difficulties with RES funding, much of which is hidden in the Electric Commodity Adjustment (ECA) rider.  Also, present statute §40-3.2-103(2)(c)(I), created by HB07-1037, specifically anticipates cost recovery for DSM without the need to file a rate case, hence the present DSMCA.  With that said, current statute §40-3.2-103(2)(c)(II) and PUC rules already provide utilities with an option to file for base rate recovery of DSM expenditures, so it is not clear that this provision was needed in this bill.

Next, the cap on DSM expenditures of 4 percent of revenues is probably excessive.  Consider that the RESA for the RES is presently set at only 2 percent.  Current gas DSM rules require expenditures of the greater of 2 percent of base rate revenues or ½ percent of total revenues.

A useful provision in the introduced bill, which has been stricken in the amended version, called for utilities to devote 30 percent of their DSM expenditures to renewable thermal energy technologies such as ground source heat pumps and solar thermal systems.  Replacing the 30 percent provision is language that merely instructs the PUC to “give [its] fullest consideration to DSM plans that incorporate a diversity of DSM measures.” The deletion is unfortunate because I don’t believe that the remaining provisions of the bill (i.e., replacing the total resource cost test with a utility resource cost test) will provide sufficient support for these technologies to move the needle. 

The only problem with the 30 percent clause in the original bill was that it called for the PUC to direct utilities to “allocate at least thirty percent of [their] DSM program funding to the development of renewable thermal technologies.” This should merely have been reworded to deployment of renewable thermal technologies since we’re not talking about an R&D program but incentives to encourage consumers to adopt these technologies.  With present DSM programs, ratepayers are already making a substantial investment in energy efficiency.  This bill is needed to help direct that investment more effectively.

Both the introduced and amended versions of the bill instruct the PUC to direct such expenditures by 01 July 2013, but they do not require a rule making identifying the eligible technologies until 30 September 2013.  In my experience, the rule making needs to come first.

With these few, simple fixes, I believe that SB13-272 will be worthy of your support and I encourage its adoption.

A Controversial Bill to Expand Colorado's Renewable Energy Standard

An editorial in the 10 April 2013 issue of The Denver Post discusses a proposal recently introduced in the Colorado Senate to extend and expand Colorado's Renewable Energy Standard.  You can read the Post's editorial here.

Those who are interested can track the progress of Senate Bill 13-252 on the Colorado General Assembly website.  In expressing its concern with this bill, the Post states "A 2007 law requires the co-ops and their utility supplier, Tri-State Generation and Transmission Association, to meet a 10 percent renewable standard by 2020."  This is only partly true.  Co-ops are held to a 10-percent by 2020 standard in the RES, but Tri-State G&T, the wholesale supplier to 18 of them, has no compliance obligation at all.  SB13-252 would put Tri-State under a 25-percent standard.

While The Post argues that the legislature may be moving too fast on this bill -- and they may be right -- we have long held that it is fundamentally inequitable for approximately half the state's electricity consumers (the 55 percent who are served by Xcel or Black Hills) to fund the RES obligation while muni and co-op customers enjoy a free pass, or nearly so.  With that said, the 2-percent rate impact limitation crafted in this bill is even more byzantine than the so-called rate impact limitation in the RES for investor-owned utilities (Xcel and Black Hills) which has been treated as merely an inconvenience to be circumvented at every opportunity.  A totally different approach to rate protection and renewable energy funding is called for than what we now have.  If you don't believe that, ask why Xcel's RESA deferred account is tens of millions of dollars in the red -- and upon which you're paying interest.

One of the more beneficial aspects of SB-252, however, is the addition of electricity generation using vented coal mine methane to the list of eligible RES resources.  That provision is clearly worthy of support.

Last, SB-252 also eliminates in-state preferences such as the 1.25 REC multiplier for Colorado-based projects.  This provision, many feel, is an acknowledgement that the suit against Colorado's RES, at least on that point as a violation of the Interstate Commerce Act, is likely to be successful.  But, rather than simply removing the multiplier, the bill's proponents apply the multiplier to all projects regardless of location without limitation, at least through 2014.  That is hard to justify as there are other mechanisms for implementing various preferences that would not violate the Commerce Act.

As I write this piece, SB-252 was recently passed out of the Senate State, Veterans, and Military Affairs Committee (a questionable committee assignment) and on to the Senate floor.  It will be interesting to see what happens to it from there.