BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF COLORADO * * * * *

Transcription

1 BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF COLORADO * * * * * IN THE MATTER OF THE APPLICATION OF PUBLIC SERVICE COMPANY OF COLORADO FOR APPROVAL OF ITS 0 ELECTRIC RESOURCE PLAN ) ) ) ) DOCKET NO. A-E REBUTTAL TESTIMONY OF DEBRA L. SUNDIN ON BEHALF OF PUBLIC SERVICE COMPANY OF COLORADO July, 0

2 BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF COLORADO * * * * * IN THE MATTER OF THE APPLICATION OF PUBLIC SERVICE COMPANY OF COLORADO FOR APPROVAL OF ITS 0 ELECTRIC RESOURCE PLAN ) ) ) ) DOCKET NO. A-E REBUTTAL TESTIMONY OF DEBRA L. SUNDIN INDEX SECTION PAGE I. INTRODUCTION AND QUALIFICATIONS... II. PURPOSE OF TESTIMONY... COMPETITIVE SOLICITATION OF DSM (WRA & OCC)... ADEQUACY OF THE FILED DEMAND RESPONSE STUDY... REASONABLENESS OF ENERGY SAVINGS ASSUMPTIONS USED FOR PURPOSES OF THE ERP... ATTAINABILITY OF 0A-EG GOALS... COST OF ATTAINING ENERGY SAVINGS APPROVED IN DOCKET NO. 0A- EG... REVISITING GOALS IN UPCOMING FILINGS...

3 BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF COLORADO * * * * * IN THE MATTER OF THE APPLICATION OF PUBLIC SERVICE COMPANY OF COLORADO FOR APPROVAL OF ITS 0 ELECTRIC RESOURCE PLAN ) ) ) ) DOCKET NO. A-E REBUTTAL TESTIMONY OF DEBRA L. SUNDIN I. INTRODUCTION AND QUALIFICATIONS Q. PLEASE STATE YOUR NAME AND BUSINESS ADDRESS. A. My name is Debra L. Sundin. My business address is Nicollet Mall, Minneapolis, Minnesota, 0. Q. BY WHOM ARE YOU EMPLOYED AND IN WHAT CAPACITY? A. I am employed by Xcel Energy Service Inc., the service company subsidiary of Xcel Energy Inc., the registered public utility holding company parent of Public Service Company of Colorado ( Public Service or Company ). My 0 title is Director, DSM and Renewable Strategy and Planning. qualifications are included as Attachment A. Q. DID YOU FILE DIRECT TESTIMONY IN THIS CASE? A. No, I did not. My II. PURPOSE OF TESTIMONY Q. WHAT IS THE PURPOSE OF YOUR REBUTTAL TESTIMONY IN THIS PROCEEDING?

4 0 0 A. The purpose of my Rebuttal Testimony is to respond to the recommendations of WRA and OCC that the Company should solicit demand-side resources as well as supply-side resources as part of the all-source solicitation growing out of this docket. I also respond to Staff witness, Mr. Hay s recommendation that the Company be required to perform a new or expanded study of demand response potential. Lastly, I address the criticisms raised by Staff witness, Mr. Hay and RUC witness, Ms. Hardin, regarding the energy savings and demand reduction levels assumed for purposes of the ERP relative to the energy savings goals approved by the Commission in Docket No. 0A- EG. COMPETITIVE SOLICITATION OF DSM (WRA & OCC) Q. WHAT DOES WRA (GWENDOLYN FARNSWORTH) RECOMMEND TO THE COMMISSION REGARDING DSM COMPETITIVE SOLICITATION? A. WRA recommends that Public Service should accept bids for demand response resources in the All-Source Solicitation and to the extent that bidders demand response proposals include associated energy efficiency savings, the bids should also be permitted to include those savings Q. WHAT DOES OCC (PB SCHECHTER) RECOMMEND TO THE COMMISSION REGARDING DSM COMPETITIVE SOLICITATION? A. The OCC recommends that Public Service accept bids for demand side as well as supply side resources in its all-source solicitation. However, OCC does not single out demand response resources from their recommendation. It appears that their recommendation includes both Demand Response and

5 0 0 Energy Efficiency resources under the umbrella term of DSM. I will address competitive solicitation of energy efficiency separately from demand response resources since there are different assumptions to be taken into consideration for each. Q. WHAT IS THE COMPANY S POSITION ON INCLUDING DEMAND RESPONSE BIDS IN ITS ALL-SOURCE SOLICITATION? A. The Company believes it would be possible to solicit demand reduction in an all-source RFP. However, I agree with Mr. Haeger s recommendation that it would be more appropriate to wait until the 0 resource planning process to include bidding for more DR resources due to the logistic issues of contracting with demand response aggregators or beginning a dynamic pricing program long before the capacity is needed. In addition, the Company will be providing analysis and proposed long-term demand response goals in its next DSM Strategic Issues filing in 0. The Commission s consideration of demand response goals in that docket should advance the consideration of these issues as we approach our next ERP. Q. DOES PUBLIC SERVICE SUPPORT OCC S RECOMMENDATION TO THE COMMISSION TO INCLUDE ENERGY EFFICIENCY, IN AN ALL-SOURCE SOLICITATION? A. No. Public Service does not support this recommendation for energy efficiency. Implicit in the OCC s recommendation that the Company be required to solicit both demand side and supply side resources as part of the all-source solicitation is the assumption that such a solicitation would yield

6 0 0 DSM resources beyond those that the Company is acquiring through its own Commission approved electric DSM plan. As the Company has explained previously in both the Commission s recent rulemaking concerning the Electric Resource Planning Rules (Docket No. 0R-E) and in the recent DSM strategic issues Docket No. 0A-EG, rather than increasing the level of demand side resources and reducing the Company s resource need, we believe the more likely result of such a competitive solicitation would be to duplicate our already robust and successful energy efficiency programs. Q. WHY DOES PUBLIC SERVICE BELIEVE THAT SOLICITING ENERGY EFFICIENCY IN AN ALL-SOURCE RFP WOULD RESULT IN DUPLICATION RATHER THAN INCREASING THE LEVEL OF DEMAND SIDE RESOURCES AVAILABLE TO MEET THE COMPANY S RESOURCE NEED DURING THE RESOURCE ACQUISITION PERIOD? A. In Docket No. 0A-EG, the recent DSM Strategic Issues docket, the Commission approved a comprehensive DSM plan together with aggressive energy efficiency goals through 00. The specific electric DSM portfolio approved as part of our 0-0 DSM Plan in Docket No. A-EG consists of residential products and services and commercial products and services, and includes almost every cost-effective efficiency measure identified in the most recent DSM market potential study that was evaluated in Docket No. 0A-EG as well as uniquely designed programs targeting markets that may be resistant to the installation of energy efficiency or are difficult to contact. These more targeted programs include, Computer

7 0 0 Efficiency which offers incentives to desktop PC and low-end server manufacturers, a Data Centers Product, which helps commercial data centers address energy efficiency opportunities specific to this customer segment, and our Self-Direct Product, which provides higher rebates to large commercial and industrial customers who are capable of self-funding much of the administration and measurement & verification of their own energy efficiency projects. In addition, where we do not have specific prescriptive products, commercial and industrial customers may receive rebates for unique efficiency measures through our Custom product. We thus offer a comprehensive DSM portfolio that has both breadth and depth extending to virtually every DSM market segment and it would be almost certain that any bids received in response to an all-source solicitation would duplicate products that Public Service already has in the market. Indeed, as we discussed in the context of the recent ERP rulemaking and again in the 00 DSM Strategic Issues docket, even in 00, when our Company sponsored DSM portfolio was much smaller and less comprehensive than it is today, the DSM bids received in response to the allsource solicitation we issued then were duplicative of many of the programs we were then offering. Q. HAS THE COMPANY TAKEN ANY STEPS RECENTLY TO ENSURE THAT ALL POTENTIAL ENERGY EFFICIENCY MARKETS ARE BEING SERVED UNDER ITS CURRENT DSM PLAN?

8 0 0 A. Yes. As part of the Settlement Agreement we entered into in Docket No. A-EG we agreed to issue a Request for Proposals (RFP) during the first quarter of 0 intended to solicit program proposals for achieving electric energy savings during 0 by means of innovative program ideas for niche markets or markets where the company is under serving a customer segment. In accordance with this commitment the Company issued an RFP in June 0 soliciting expanded proposals from twelve entities that had earlier responded to our Request for Information (RFI). We are now in the process of evaluating these proposals We believe that such targeted solicitations as agreed to in the recent 0-0 DSM Biennial Plan Settlement Agreement are a much better use of ratepayer funds to complete our already broad portfolio of DSM products than an all-source RFP that would, as we experienced in 00, result in programs and measures that would directly compete with programs we are already offering. In addition, by targeting RFPs in this manner, we are better able to incorporate evaluation criteria that are more specific to energy efficiency programs and the vendors that service this market, which can be monitored over time for performance. As I will discuss below, a problem we have experienced with including energy efficiency in ERP all-source solicitation is that the evaluation criteria includes performance assurances and penalties that make it difficult to contract successfully for energy efficiency.

9 0 0 Q. DOES THE COMPANY HAVE OTHER CONCERNS REGARDING OCC S RECOMMENDATION THAT IT BE REQUIRED TO INCLUDE AN ENERGY EFFICIENCY SOLICITATION IN THE ALL-SOURCE RFP GROWING OUT OF THIS PROCEEDING? A. Yes. First, our prior experience soliciting energy efficiency as part of an allsource solicitation suggests that it can be very difficult to negotiate the necessary performance assurances when dealing with energy efficiency. Second, we are concerned about the impact that such a solicitation may have on our ongoing relationships with other vendors and DSM service providers with whom we are already working. Q. PLEASE DESCRIBE PUBLIC SERVICE S PAST EXPERIENCE WITH COMPETITIVE BIDDING. A. In 00, Public Service solicited DSM resources in its All-Source RFP as contemplated in the Comprehensive Settlement Agreement entered into and approved by the Commission in Docket No. 0A-E et seq., the Company s 00 resource planning proceeding. The DSM responders to this RFP were all for-profit vendors and contractors. We selected three winning DSM bids and attempted to negotiate final contracts to acquire the DSM resources they proposed. However, after two years of negotiations with each of three bidders we were unable to reach final agreement with any of them. One of the bidders withdrew their bid part way through the negotiations when the bidder realized that it would not be the exclusive provider of energy efficient lighting in our service territory. The two remaining bidders were unwilling or

10 0 0 unable to provide the required legal and insurance assurances necessary to secure their performance and dropped out of the negotiations. This experience with soliciting competitive DSM bids in the context of all-source solicitation shows that these types of resources do not compete well head to head against other technologies in an all-source bidding process. Q. PLEASE ELABORATE ON THE CONCERN YOU RAISED REGARDING THE IMPACT OF INCLUDING ENERGY EFFICIENCY IN AN ALL-SOURCE SOLICITIATION ON THE VENDORS AND DSM SERVICE PROVIDERS WITH WHOM YOU ARE ALREADY WORKING. A. We have heard loudly and strongly from our vendor and contractor community that they want us to ensure there are opportunities for many of them to participate in providing DSM products and services. These vendors and DSM service providers are concerned that awarding exclusive contracts to single vendors, as would likely occur in the context of an all-source solicitation, may jeopardize their businesses. Our current policy given the comprehensive DSM program that has already been approved by this Commission is to allow practically all third-party vendors to participate in offering products under our program. While there are circumstances when we issue RFPs relating to specific aspects of our overall DSM program, we only do so in those circumstances where it will lower cost, increase efficiency, and/or increase value for our retail customers.

11 0 0 ADEQUACY OF THE FILED DEMAND RESPONSE STUDY Q. PLEASE SUMMARIZE STAFF WITNESS, KEITH HAY S POSITION REGARDING THE RECENT DEMAND RESPONSE STUDY FILED BY PUBLIC SERVICE. A. Staff witness Mr. Hay recommends that the Commission consider requiring Public Service to complete a quantified study that assesses the potential for different demand response programs, including expansion of third-party aggregation of DR resources. He also asks that a new study be similar to the energy efficiency potential study filed in Docket No. 0A-EG including quantifying savings by program and doing cost-benefit calculations. In support of this recommendation, witness Hay points out several limitations in the Demand Response Study that was filed. Q. DOES PUBLIC SERVICE AGREE WITH THIS RECOMMENDATION? A. While Public Service would be willing to contract for another DR potential study, we are not convinced that the time and money required would provide results that could be relied upon for setting long range DR goals. Mr. Hay believes that it is possible to conduct a potential study for DR that is similar to energy efficiency potential study. However, because adoption of demand response is based on customer s response to price signals which occurs over several years and energy efficiency adoption is based on an immediate reduction in the purchase price (through a rebate) of an efficient piece of equipment as well as long-term bill savings, the methodology to determine the potential for DR is much more complex than determining EE potential.

12 Because of the complexity of assessing DR potential, the FERC National Assessment of Demand Response (NADR) model, which was used as the basis for the DR study we filed here, and which includes assumptions regarding customer response to various DR initiatives, has been used as the basis for many other DR studies throughout the United States. Some examples of studies using this model include a recent assessment of DR for the states in the Western Electricity Coordinating Council (WECC), and the DR portion of a state-wide New Mexico DSM Potential Study. In addition, 0 0 the model has been used for projects for the California Energy Commission and for utilities in a variety of states including Kansas, Indiana, Maryland, and Oregon. Q. DOES PUBLIC SERVICE AGREE WITH THE LIMITATIONS OF THE CURRENT STUDY WHICH MR. HAY POINTED OUT? A. We agree that the KEMA DR study has limitations as specifically identified in the study. However, we believe that the KEMA DR Study was also valuable in providing comparative information needed to asses the relative success of the DR programs that we currently have in place. Indeed, we would characterize the study as more of a benchmark of our current programs against national DR programs. In comparing our current set of DR programs to the expanded business as usual scenario described in the study which assumes participation rates equal to the th percentile of ranked participation rates of existing programs in the country, Public Service current Interruptible 0

13 0 0 Service Option Credit ( ISOC ) and Saver s Switch programs are currently equal to this level. The high penetration rate for the Company s ISOC program is likely a result of program changes the Company sought and the Commission approved in Docket No. 0S-E. In late 00 and early 00, we used the results of customer focus groups and surveys to redesign our ISOC program to increase customer options and lower the minimum customer size for participation. The result has been a significant growth in the level of demand reduction achieved through ISOC from around 0 MW to over MW. Most of the Company s large customers and many mid-size customers now participate in this program. As a result, the potential to grow this program further may be limited as indicated in the DR benchmarking study prepared by KEMA. Q. WHAT ADDITIONAL VALUE HAS THE COMPANY OBTAINED FROM THE KEMA DR STUDY? A. Even though there are admittedly limitations to the DR Study, we believe that it is correct in showing a directional growth potential in DR programs employing price signals with and without enabling technologies. Our on-going Boulder Pricing Pilot should provide us with a better idea of the potential for these types of pricing strategies. However, one of the very real barriers to employing large-scale pricing programs is the requirement for Automated Meter Infrastructure ( AMI ) installations. As is well known, the long time to

14 0 0 deploy and the cost of these systems is extremely high and may be difficult to justify. Q. HAS THE COMPANY EXPLORED STEPS THAT COULD BE TAKEN TO EXPAND THE EXISTING DR STUDY OR PRODUCE A NEW DR POTENTIAL STUDY? A. We have asked KEMA (the author of the DR study commissioned by Public Service and filed in this proceeding) as well as another national expert on Demand Response for ideas on how they would conduct a potential study that takes into account more of Public Service s actual service territory s customers acceptance and willingness to adopt DR as well as incorporating more accurate Public Service costs and benefits. We received one estimate for a mid-level approach that would develop costs and possibly benefit estimates using a model called igrid and reviewing feedback and results from our residential pricing pilot currently operating in Boulder for customer acceptance. This proposal also assumed that the Company may have other feedback already in our possession regarding customer acceptance of our ISOC and Saver s Switch programs, work previously done with focus groups and customer interviews with a focus on DR, however, we are not confident that all of the required information is available. This type of study would take about three months and cost around $,000. In addition, the consultant said a full-blown market research type study would cost about three times that amount. We assume that it would also take at least three times as long to complete. From our other consultant, we received a rough estimate for a

15 0 0 more expanded study that involves conducting participant and non-participant surveys to try to gauge the levels of price incentives that would be adequate for customers to adopt. This study would cost about $,000. No time estimate was provided. However, if the extent of the work required is similar to what is required to complete an energy efficiency study, we would estimate that performing a more expansive study could take nine months to a year to complete. Q. WHAT IS THE COMPANY S POSITION REGARDING WHETHER THE COMMISSION SHOULD REQUIRE A MORE EXPANSIVE DR POTENTIAL STUDY AS MR. HAY HAS RECOMMENDED? A. Since we believe that the KEMA DR study correctly identified that most of the potential for growth in DR will come from dynamic pricing options, we believe the more prudent course would be for the Commission to defer consideration of this question until we have completed and evaluated the results of our Boulder pricing pilot and have been able to review the results of similar; pricing pilots being conducted across the country.. If the results of these pilots show sufficient potential for savings and customer acceptance of these strategies, we believe it would then be appropriate for the Commission to consider how best to further analyze the costs and benefits of expanding dynamic pricing programs including broad installation of AMI. As stated earlier, we need to know whether it would be feasible and justified to propose a significantly expanded AMI infrastructure. Since our need for additional

16 0 resources doesn t occur until 0, there is time to wait for more Companyspecific information from the Pricing Pilot. Q. IF WE ACQUIRED MORE DEMAND RESPONSE, WOULD THAT REDUCE OUR RESOURCE NEED IN 0-? A. Yes. However, our traditional DR programs, (ISOC and direct load control) have already achieved most of the demand reduction that we believe is possible at this time. In addition, we have committed to extend or replace the approximately Gen of demand that will expire after 0 related to a third party DR contract. However, any additional DR that could be obtained (likely through expanding our rd party aggregation programs and implementing dynamic pricing options on a more expanded scale) would further reduce the need for supply-side capacity resources. Because of the cost of obtaining additional DR, we believe that the timing of obtaining those resources should be closer to the time when the additional resources are needed. Mr. Haeger discusses this timing issue further. 0 REASONABLENESS OF ENERGY SAVINGS ASSUMPTIONS USED FOR PURPOSES OF THE ERP Q. HOW DO THE DSM ASSUMPTIONS USED IN THE ERP COMPARE TO THE ENERGY EFFICIENCY AND DEMAND REDUCTION GOALS ESTABLISHED BY THE COMMISSION IN DOCKET NOS. 0A-EG AND A-EG? A. The table below shows the energy and demand reduction projections from DSM that Public Service included in the ERP as compared to the energy efficiency goals approved in Docket No. 0A-EG, along with the

17 anticipated demand reductions that would occur in meeting the energy goals. The values for both scenarios for 0 and 0 match the goals filed in the Public Service 0/0 Demand Side Management Plan (Docket No. A- EG). Table ERP DSM Projections EG DSM Goals GWh MW GWh MW Q. HOW MANY MW DO THE DSM ASSUMPTIONS USED IN THE ERP FALL SHORT OF THE DEMAND REDUCTION GOALS ESTABLISHED BY THE COMMISSION IN DOCKET NOS. 0A-EG AND A-EG? A. The table below shows the annual and cumulative demand reduction impacts from DSM that Public Service included in the ERP as compared to the demand reductions that would occur in meeting the energy efficiency goals approved in Docket No. 0A- EG. This table shows that by 0, the end of the RAP for purposes of this resource plan, even if the Company were able to achieve the additional energy efficiency, meeting the energy efficiency goals approved in Docket No. 0A-EG would provide only MW of additional demand reduction.

18 0 Table EG over ERP DSM Projections EG DSM Goals ERP Projections Cum. Cum. MW MW MW MW Cum. MW Q. WHY DID THE COMPANY USE LOWER DSM PROJECTIONS FOR PURPOSES OF THIS PROCEEDING THAN GOALS APPROVED IN DOCKET NO. 0A-EG? A. Public Service included impacts short of the Docket No. 0A-EG approved energy goals and associated anticipated demand reductions, for the years 0-00, for three reasons: ) The Company has serious reservations whether the energy savings goals established in Docket No. 0A- EG after 0 are attainable. This is due in large part to upcoming code changes that will reduce the potential of DSM. ) Even if the energy savings goals established in Docket No. 0A- EG are attainable, the anticipated costs of attaining the approved goals escalate significantly, to the point that beyond 0 the associated increase in retail customer s rates through the DSMCA rider may be substantial.

19 0 ) The energy efficiency goals after 0 will be revisited in the upcoming strategic issue filing to be made in early to mid 0. Most recent information on the effect of upcoming code changes, and the lack of significant emerging technologies, suggest that the goals previously approved in Docket No. 0A-EG may need to be revised downward in the next strategic issues docket. The following testimony provides more detail on each of these reasons. ATTAINABILITY OF 0A-EG GOALS Q. DOES PUBLIC SERVICE BELIEVE THAT THE ENERGY GOALS ORDERED FROM 0A-EG ARE ATTAINABLE? A. Public Service does not believe that the energy goals ordered in Docket No. 0A-EG are attainable given current information. The KEMA DSM Potential study that the Company submitted with the Direct Testimony of Debra L. Sundin (Exhibit No. DLS-) in Docket No. 0A-EG estimated the achievable potential under different scenarios, for each year over the time period The energy saving goals ultimately approved by the Commission in that docket represent achievements well beyond the achievable potential identified in this study for years after 0. The table 0 below shows the achievable energy savings potential over the 0-00 time period as compared to the energy savings assumed by Public Service for purposes of the ERP and to the energy savings goals ordered by the Commission in Docket No. 0A-EG:

20 0 EG DSM Goals Table Potential Study (0% Incentive) Potential Study (% Incentive) Potential Study (00% Incentive) ERP DSM Projections GWh GWh GWh GWh GWh Q. WHAT DO THE DIFFERENT POTENTIAL STUDY SCENARIOS REPRESENT? A. The DSM Potential Study identified the potential at various incentive levels to participants. The incentive levels are the fraction of the incremental cost of the high-efficiency option over the baseline efficiency option that must be paid by the Company to achieve the indicated energy savings. The 00% incentive scenario rebates the full cost difference between the high-efficiency and baseline efficiency, making the high-efficiency option virtually as inexpensive as the baseline efficiency option from the customer s perspective. This removes the largest barrier to implementation of energy-efficient equipment the cost difference over of standard efficiency equipment. The 00% incentive level also includes cost estimates of aggressive marketing efforts necessary to achieve the increased potential. The potential reflected at the 00% incentive level is what the Company believes to be the maximum achievable level of energy savings. I address the cost impact of the maximum

21 0 0 achievable later. The above Table shows that the energy savings goals approved by the Commission in Docket No. 0A-EG quickly begin to approach this maximum achievable level, surpassing the level as soon as 0. Q. GIVEN THESE POTENTIAL ESTIMATES, HOW DID THE COMPANY DETERMINE THE ASSUMED ENERGY SAVINGS IT WOULD USE FOR PURPOSES OF THE ERP? A. The assumed energy savings used by the Company for purposes of the ERP were based on the maximum achievable potential over the period 0 to 00 as identified in the recent KEMA DSM potential study. The sum of maximum achievable potentials from the chart above from 0-00 ( GWh, GWh, GWh, 0 GWh, GWh and GWh) equals, GWh which is very close to the total energy savings assumed for this same period for purposes of the ERP ( GWh x years =, GWh). Q. THE TIMING OF THE POTENTIALS IS VERY SPECIFIC. IS IT POSSIBLE TO DEFER POTENTIAL SAVINGS AVAILABLE IN ONE YEAR TO LATER YEARS WHEN THE COMPANY HAS GREATER RESOURCE NEEDS? A. No. Only a small fraction of the potential identified in one year can be deferred to later years. The majority of achievements in DSM result from our customers replacement of energy consuming devices have failed, or replace-on-burnout. This is the point at which it makes most economic sense for our customers to consider installation of the high-efficiency equipment, as the incremental cost is above the standard efficiency

22 0 0 equipment. The DSM potential identified in the study accounts for this expected rate of replace-on-burnout in the timing of the potentials. There are some limited cases where working equipment will be replaced, or early retirement measures. In these cases, the DSM potential may be available at any time. These early retirement measures, however, make up only a small fraction of the DSM potential. Because of these effects, the majority of the achievement cannot be deferred to later years. Q. THE POTENTIALS IN ALL SCENARIOS IN THE DSM POTENTIAL STUDY SHOW A STEADILY DECLINE IN FUTURE YEARS. WHAT EXPLAINS THIS DECLINE? A. There are several reasons for the drop in potentials. Two of the most significant are recent changes in lighting standards which will reduce the potential from what has been achieved historically. For example, as a result of upcoming changes in federal lighting standards for screw-in bulbs there will be dramatic decline in the potential to obtain energy savings in residential lighting for years 0-00 versus the potential from Additionally, in July 00 the Department of Energy issued new efficiency standards for commercial general-service fluorescent lamps, effective July 0. This standard change effectively shifts the standard efficiency to a T bulb, whereas a T bulb represented the standard efficiency to date. Q. GIVEN THE LIGHTING STANDARD CHANGES IN BOTH SCREW-IN AND GENERAL-SERVICE LIGHTING TECHNOLOGIES, CAN YOU QUANTIFY 0

23 0 HOW MUCH THE PAST ELECTRIC DSM PORTFOLIO RELIED ON THESE TECHNOLOGIES FOR ACHIEVEMENT? A. Based on our achievements during 0 as reflected in the PSCo 0 Status Report, Business Lighting using T bulbs as the standard efficiency option - constituted % ( GWh) of the 0 Electric DSM portfolio GWh achievements, with Residential Lighting coming in at % (0 GWh). This leaves only % of the total portfolio achievements, or GWh, as unaffected by the lighting standard changes. COST OF ATTAINING ENERGY SAVINGS APPROVED IN DOCKET NO. 0A-EG Q. ASSUMING THAT THE COMMISSION-APPROVED ENERGY SAVINGS GOALS ARE ACHIEVABLE, WHAT ARE THE POTENTIAL COSTS OF ACHIEVING THE GOALS ORDERED IN DOCKET NO. 0A- EG? A. The best data available to estimate the costs of achieving the Commission approved goals is the DSM potential study. Using the potential identified in this study, including the Emerging Technologies, the Company s estimates of these costs are listed below: Table EG Goal (GWh) Est. MW Budget $/kwh 0 0 $,00, $0. 0 $,00, $0. 0 $,, $0. 0 $,, $ $,, $ $0,, $ $,, $0. 0 $0,,0 $0. 00 $,, $0.

24 0 0 Q. THE HISTORICAL COSTS OF DSM HAVE BEEN FAIRLY STABLE IN TERMS OF $/kwh. WHY DO THE COST PROJECTIONS AFTER 0 ESCALATE BY SO MUCH? A. The costs in terms of $/kwh escalate due to two main factors: ) The incentive costs increase. To capture larger acceptance of the DSM technologies, a larger fraction of the measure costs must be covered by the incentive offered by the utility. As shown in Table above the EG goals quickly exceed the achievable potential at 0% and % incentives, approaching and surpassing the achievable potential even when the Company provides incentives equal to 00% the incremental cost of the high-efficiency option.. While the 0-0 incentive levels are around 0% incentive, the incentive level for years 0 and beyond are assumed to be 00% incentive. This effect translates into an increase in $/kwh cost of greater than 0% between 0 and 0. ) The marketing costs increase. To capture larger acceptance of the DSM technologies, the marketing costs must also increase. This is reflected in the results in the potential study. For instance, in the 00% Incentives scenario, the KEMA study assumes administration and marketing costs of $ million and $ million, respectively, to achieve GWh of energy savings, for a total of $0./kWh in 00 In contrast in 0, administration and market costs are expected to total $ million to achieve GWh, for a cost of only $0./kWh.

25 0 The combination of the increase in the levels of incentive that the Company will have to pay and the increase in administration and marketing costs per kwh of savings leads to the near tripling of the estimated costs in $/kwh from 0 to 00. Q. ARE THE IMPACTS FROM EMERGING TECHNOLOGIES INCLUDED IN THESE COSTS? A. Yes. However, even with the inclusion of Emerging Technologies identified in the potential study, the 00% scenario is necessary to achieve the goals after 0. The costs and potential savings from Emerging Technologies at the 00% scenario are included in these cost estimates. Q. WHAT ARE THE ESTIMATED FUTURE RIDER RECOVERIES NECESSARY TO FUND THE DSM PROGRAMS, AT THE COSTS ESTIMATED HERE OF ACHIEVING THE EG GOALS? A. The table below estimates the rider rates of achieving the EG goals, based on cost estimates made by the company and the sales forecast used in the ERP: Table DSM Program Budget (EG Goals) Anticipated Sales (MWh) DSM Program Rider Recovery ($/MWh) 0 $,00,,, $. 0 $,00,,, $. 0 $,,,0, $.0 0 $,,,,0 $. 0 $,,,,0 $. 0 $0,,,, $.0 0 $,,,, $.0 0 $0,,0 0,,0 $0. 00 $,, 0,, $.00

26 0 0 This table shows that the anticipated rider recovery to fund the DSM programs will multiply four-fold from current levels, and will exceed more than $0.0/kWh by 0. Q. SHOULD THE INCREASING IMPACT ON RATES BE A CONCERN IF IT SUPPORTS COST EFFECTIVE ENERGY EFFICIENCY ACHIEVEMENT? A. The Company has a strong focus on keeping customers' rates reasonable. In that context the Company continues to monitor the rate impact test results of its energy efficiency portfolio. As we considered our energy efficiency goals beyond 0, both our ability to achieve such stretch targets, and the relative economics of doing so, should avoided costs continue to remain lower than in previous periods, caused the Company to cap our savings at 0 for the final three years of the RAP. We plan to continue our review of this issue further in preparation for the next Strategic Issues filing we expect to make in 0. By the time we file our next electric resource plan in 0, we should have the benefit of the Commission s consideration of these issues in the Strategic Issues docket. REVISITING GOALS IN UPCOMING FILINGS Q. DID THE COMMISSION QUALIFY ITS DECISION IN ANY WAY WHEN IT ESTABLISHED THE COMPANY S ENERGY SAVINGS GOALS IN DOCKET NO. 0A-EG? A. Yes. In paragraph of Decision C-0, the Commission acknowledge[s] that the savings goals established for the later years of this period [00-00] are the most general in nature and the most subject to

27 0 0 change with additional experience. We therefore expect that these savings goals will be revisited in a future proceeding to account for variability in market potential, new technologies, avoided costs, and other factors. Q. SOME PARTIES BELIEVE THAT EMERGING TECHNOLOGIES WILL MAKE UP FOR ANY LOSS IN DSM POTENTIAL FROM CODES AND STANDARDS AND WILL SUPPORT STEADILY INCREASING DSM GOALS. IS THERE ANY EVIDENCE OF SIGNIFICANT DEVELOPMENTS IN EMERGING TECHNOLOGIES NOT IDENTIFIED IN THE MOST RECENT KEMA ENERGY EFFICIENCY POTENTIAL STUDY? A. No. The market has not produced any significant (> GWh/yr) emerging technologies, beyond what was identified in the potential study performed in 00. Q. DOES THE COMPANY PLAN ON ADDRESSING DSM GOALS IN THE UPCOMING DSM STRATEGIC ISSUES FILING? A. Yes. As ordered in Decision C-0, Ordering Paragraph, the Company is required to file an application opening a DSM strategic issues docket to examine potential adjustments to the Company s savings goals on or before September, 0. In fact the Company expects to file this application in 0. Q. DOES THIS CONCLUDE YOUR TESTIMONY AT THIS TIME? A. Yes

28 Attachment A Statement of Qualifications Debra L. Sundin I graduated from Bemidji State University with a BS degree in Business Administration and an MBA degree from the University of St. Thomas. I have been with Xcel Energy for years involved in DSM through Product Management, Market Research and Regulatory Management. I am Director, DSM & Renewable Strategy and Planning for Xcel Energy Inc. I am currently responsible for the development of strategies to meet the long-term goals and business requirements for Xcel Energy s energy efficiency, demand response and customer renewable programs in Minnesota, Colorado, North Dakota, South Dakota, New Mexico and Texas. From to, I provided market research support to Northern States Power and was involved in conservation program design and evaluation work. I became the manager of Residential Marketing in implementing programs such as Saver s Switch, Appliance Rebates, Appliance Recycling and Lighting. In I transitioned to Manager, Energy Management where I was responsible for strategic market planning for business products as well as DSM regulatory strategy and filings. Since the merger that created Xcel Energy in 000 through 00, I was responsible for the management of energy efficiency programs system wide. In 00 my job responsibilities changed to strategy and planning focusing on the growth of the DSM and renewable portfolios.