Coalition comments on BPA's Capital Investment Review process
Claudia Andrews, Chief Financial Officer
Bonneville Power Administration
PO Box 14428
Portland, OR 97293
Via electronic submission at www.bpa.gov/publiccomments
Dear Ms. Andrews:
The NW Energy Coalition writes to submit our comments on BPA’s draft asset strategies and potential investments in Federal Columbia River power and transmission assets. We first offer some general comments and then specifically focus attention on the investment levels outlined in the Asset Management Strategy for Energy Efficiency.
We appreciate the significant opportunities BPA is providing for stakeholders to engage in discussion and comment on the Capital Investment Review process. Through these discussions we have gained an appreciation for the difficult funding situation – in particular the capital borrowing limitations – currently facing the agency.
We appreciate BPA’s efforts to assess financing needs, sources and constraints across its program areas, and the orderly categorizing and review of “Sustain” and “Expand” projects.
We support continuing the prioritization of capital projects according to the assessed needs of the different program areas, and not to play them against each other. This is particularly important to maintain consistent progress on meeting all of BPA’s statutory and policy obligations.
In that regard, we commend BPA’s efforts to address the backlog for the hydro system, transmission and information technology (IT), which have been lagging behind appropriate maintenance and replacement cycles for many years.
We also support BPA’s general approach to market finance, including third party leasing, to the extent appropriate while protecting BPA’s credit ranking in the capital markets. This will help extend and focus Treasury and revenue financing on the most-needed projects, especially those precluded from access to market finance.
We turn now to energy efficiency. Current budget challenges notwithstanding, the Coalition strongly supports BPA’s continued involvement in coordinating EE programming for public power. BPA contributes substantially to regional progress on energy efficiency by committing to coordinating and helping achieve public power’s share of the Council targets for each planning period. Savings achieved keep power bills affordable for customers throughout the Pacific Northwest and help BPA customers stay in Tier I as long as possible. As the agency faces short-term budget challenges, we urge you to maintain focus on the long-term benefits provided by energy efficiency assets.
The capital expenditures for BPA’s Energy Efficiency program outlined in Section 9 of the 2012 Capital Investment Review Initial Publication (“CIR Publication”) are insufficient to achieve BPA’s asset management objectives and the overarching commitments established under the Long-Term Regional Dialogue Policy to meet public power’s share of cost-effective conservation under the Northwest Power and Conservation Council’s 6th Power Plan. We believe the current CIR strategies in the area of Energy Efficiency underestimate the near and long-term investment needs in this area, undercut the capacity of the energy efficiency supply chain to deliver anticipated savings, and do not maximize the long-term financial benefits available from energy efficiency assets.
Budget adjustments finalized in the 2012 Update to the Action Plan for Energy Efficiency changed associated projections for meeting the 6th Plan targets. Specifically, for years 2010 and 2011, BPA overspent its capital budget by 119% but only exceeded total annual savings targets by 11%. The average cost of savings was actually lower than projected (for which we applaud BPA and the utilities); the target achievement gap is largely explained by the utilities self-funding a significantly lower level than planned (2% vs. 25%). Consequently, BPA needs to achieve 93% of the original aMW targets for 2012 – 2014 with 72% of the money originally budgeted for this time period.
In reallocating funding and reconfiguring associated savings target projections for the 5-year budget period 2010-2014, BPA made two major revisions. First, BPA decided to count 34aMW of carryover from the 5th Power Plan. Second, BPA significantly reduced the planned cost per aMW expected for energy efficiency resources in the revised action plan.
We disagree with the short-term approach in years 2012, 2013 and 2014 to count “carryover” savings from the 5th Plan. Our understanding of the modeling approach used by the Council to derive savings targets over the 5-year planning period is that it already takes into account the 34 aMW BPA is planning to carryover; any calculation for achieving public power’s share of the 6th plan target that includes this carryover amount is double counting over the longer-term planning period. Consequently, we strongly disagree that this carryover should count toward the 6th plan targets.
The CIR Publication provides a good overview of the risks to achieving its energy efficiency strategic objective of meeting public power’s share of the regional savings target. These risks include:
- The costs of acquiring energy efficiency end up being more than the agency has planned.
- Utility customers do not adequately self-fund.
- The timing of BPA’s energy efficiency target setting does not align with the Council’s timing for regional target setting.
We believe these risks contribute to a high enough level of uncertainty to justify a change in both short term CIR asset allocation and longer-term BPA policy for how it budgets within the energy efficiency program to meet public power’s share of the Power Plan savings targets.
The Coalition recommends the following actions to address the short and long-term capital budget issues identified above. Each recommendation is described in more detail below.
- Revise BPA’s proposal to utilize carryover from the 5th plan savings and increase 2014 budget levels to capture the 34 aMW of savings in new measures as intended under the 6th plan.
- Beginning in 2014-15 and into future years, we recommend that BPA plan to the middle case projections for energy efficiency potential and budget to the Council Plan’s high case for energy efficiency.
Revise Carryover Plans
The proposed plans to count 34aMW of carryover savings from the 5th Plan period in 2012-2014 will effectively double count those savings. If BPA decides to continue on this path, we ask that the agency provide a detailed analysis demonstrating that these megawatt hours are not already accounted for under the modeling analysis in the 6th Plan.
Budget to the High Case for Energy Efficiency
Energy efficiency is considered a priority resource under NW Power Act, which requires that BPA capture all cost effective conservation in order to keep future rates low for its customers. It makes sense for Bonneville to commit to conservative savings targets, while budgeting to the high case savings target. This is the same approach used by the IOU’s participating in the Energy Trust of Oregon. Under ETO policy, utilities use conservative targets for planning purposes in their Integrated Resources Plans and budget to the ETO’s stretch (high case) goals. Budgeting to the high case for energy efficiency ensures that the money is there to capture all cost effective savings in the event that those savings are obtainable. If the cost-effective savings do not materialize, the money will not be spent and the budget can be carried over to future years or credited back to customers. Under this budgeting strategy nothing is lost – be it opportunity or money.
For the 2010-2014 period covered by the 6th Power Plan, the high case for energy efficiency was 1400 aMW for the region. Public power’s share would be 588 aMW (42%). We recommend that BPA budget to acquire this additional 74 aMW of cost-effective savings in 2014. Further, we recommend recalculating capital budgets for 2015 through the end of the 10-year period covered in the CIR process utilizing the high case for energy efficiency savings from the 6th Plan. Finally, we recommend formally establishing BPA policy to budget to the high case for energy efficiency identified in each future Power Plan.
Senior Policy Associate