MID 2007 Energy Efficiency Potential Study Update
In June 2007 the Board approved a preliminary energy efficiency target for submittal to the California Energy Commission (CEC) in compliance with Assembly Bill 2021 (AB 2021). This new law requires electric utilities to invest in energy efficiency as their resource of first choice. Utilities must demonstrate that they have acquired all ”reliable, cost-effective and achievable” energy efficiency savings before the CEC will issue permits to build new power plants.
MID’s preliminary target calls for significantly increasing energy efficiency programs over the next 10 years. Efficiency measures should be “cost effective” – that is, the economic benefit provided by the efficiency measure should be equal to or greater than the cost of the measure.
In today’s workshop, Senior Energy Services Engineer Peter Govea reported that a CEC draft report issued on Sept. 7 recommends setting targets at 80 percent of economic potential. This level is considerably higher than MID’s preliminary targets, which were based on 50% of economic potential.
Historically, investor-owned utilities have fallen short of their energy savings goals with 50 percent economic potential measures. It is possible that with either a 50 percent or an 80 percent economic potential requirement, MID will have to spend money on the efficiency measures plus make up the shortfall in energy savings with additional purchased power.
At this point the best staff estimates of expenses for these new mandatory programs are:
- 50 percent economic potential - $46 million over 10 years
- 80 percent economic potential - $72 million over 10 years.
Because each additional $2.5 million in expenses is equivalent to a one percent increase in electric rates, mandatory AB 2021 requirements will push MID electric rates dramatically higher in coming years.
MID Risk Management and Hedging Program Update
- Pricing and Risk Management Administrator Scott Van Vuren reviewed the
- Goals and benefits of natural gas hedging
- Portfolio management policies adopted by the Board, and
- Historical results of the gas hedging program.
This workshop also considered these points:
- Good water years result in lower purchased power and fuel costs.
- Bad water years result in higher purchased power and fuel costs.
However, it is not financially prudent for MID to rely on the lower energy costs enjoyed in good water years to offset the higher energy costs incurred during bad water years. If the District does so on a long-term basis, financial reserves will steadily be drained over time. MID’s financial strength will decline as a result.
The last point has important implications for budgeting and setting electric rates It underscores the need to achieve the financial targets adopted by the MID Board in 2001.
