States Using the NSPM: New Developments

(Continued from NESP Quarterly June, 2022)

Connecticut

As part of its Determination on the C&LM Plan, CT DEEP reevaluated the primary test used to assess the CL&M programs by applying the NSPM BCA framework, building on its previous efforts to review cost-effectiveness testing practice including review of applicable energy policies. CT DEEP’s review and update to its current cost-effectiveness testing practice led it to adopt a new Connecticut Efficiency Test (CTET), described in Attachment B of the Determination, and summarized below.

Historically, the Connecticut utilities have used three cost-effectiveness tests to compare the net present value of program benefits with the cost to achieve those benefits.

  • The Utility Cost Test (UCT), which includes the benefits and costs experienced by the utility system, is the primary test.
  • A Modified Utility Cost Test (MUCT), which is similar to the UCT but also captures oil and propane savings and the costs associated with achieving those savings.
  • And a third test, the Total Resource Cost (TRC) test, to inform efficiency program design (but passing the TRC is not required for a program to proceed, except for income eligible programs). The TRC incorporates the UCT and MUCT as well as several additional costs and benefits important from the perspective of program participants, including water savings, non-embedded emissions, and environmental attributes. For the income eligible program, the TRC includes non-energy impacts such as participant comfort, appliance noise, and home value, appearance, and safety.

In its determination, CT DEEP set forth:

  • Recommendation 1. Create a new Connecticut Efficiency Test (CTET) that applies the principles of the MUCT to all programs and continue the use of the TRC as a supplemental test for income eligible programs.
  • Recommendation 2. Modify the primary CTET to capture avoided greenhouse gas emissions.
  • Recommendation 3. Modify the CTET to capture the utility system benefit of reduced arrearages, collection costs, debt write-offs, or administrative costs.

DEEP’s recommendations reflect alignment with the NSPM principles by ensuring the new primary test – the CTET – aligns with the state’s policies, including accounting for GHG emission reductions and other fuels, and to account for certain utility system impacts that previously were not accounted for.

The Determination was informed by a comprehensive public participation process to gather input including public meetings, open comment periods, and a request for information. All materials associated with the Determination can be found here.

Colorado

The PSCO is required by Commission rules (Proceeding No. 20R-0516E) to file a DSP every two years, including consideration of NWAs for major distribution grid projects. Public Service submitted its DSP on May 2, including a separate appendix (ZDP-5) on its proposed benefit-cost methodology for NWAs developed by ICF.

In its existing cost-effectiveness framework for the evaluation of its DSM programs, PSCO uses a Modified Total Resource Cost (MTRC) test, which is broader than a TRC as it includes GHG impacts as a societal value stream. Its proposed CBA further incorporates considerations based on NSPM guidance that build on the foundation of the MTRC – specifically by incorporating additional value streams to reflect localized and customer benefits that may be realized by NWAs. PSCO’s proposal aligns with the NSPM symmetry principle as demonstrated by its proposed treatment of the costs and benefits of host customer impacts, where the utility proposes a 10% non-energy impact (NEI) adder for natural gas programs,10% NEI adder for electric programs, and 25% NEI adder for low-income natural gas and electric programs.

PSCO refers to its proposed jurisdiction specific test (JST) as the “Expanded, Modified TRC” (EMTRC). In alignment with the principles of the NSPM, the EMTRC accounts for applicable policy goals including, but not limited to, clean energy and equity goals.

BCA vs Rate Impacts. PSCO considered, in addition to using a primary EMTRC and secondary Utility Cost Test, the use of a Rate Impact Measure (RIM) test. While the NSPM advises not using the RIM test on the basis that a rate impact analysis should be separate from BCA, PSCO recognizes that “rate impacts should not be included in a [primary] JST, and therefore are not included in the EMTRC.” The utility indicates that an NWA can “pass” the EMTRC and still raise customer rates as demonstrated through a RIM test. This provides an additional viewpoint from which the merit of the NWA can be evaluated by both PSCO and the Commission.

NESP plans to develop an illustrative case study using the EMTRC later this year and will share this resource in the NESP Quarterly.

Minnesota

The MN Department of Commerce (DOC or “Department”) process to explore energy efficiency cost-effectiveness testing practices includes convening a Cost-effectiveness Advisory Committee (CAC) and establishing a technical workshop series to apply the NSPM BCA framework, as set forth in a Department 2/11/2020 Cost-Effectiveness Decision. The stakeholder process, supported by technical assistance provided by LBNL via the National Energy Screening Project, builds on earlier work conducted for the DOC in 2018 by Synapse Energy Economics on Updating the EE Cost-Effectiveness Framework in Minnesota. While a stakeholder process began in 2020, it was paused with the passage of the Eco Act in 2021, and restarted in spring of 2022.

In an April kick-off meeting, Department staff reviewed the roles of the Department and the CAC in updating the state’s cost-effectiveness test for its efficiency programs, and reviewed historical testing practices. The DOC addressed key provisions of the Eco Act pertaining to efficient fuel-switching and load management and the need for BCA guidance. Technical advisors Synapse Energy Economics explained the NSPM 5-step process and subsequent workshop topics.

Three workshops covered the following topics:

  • Workshop 1 (May 4) presented the NSPM core principles, reviewed applicable policy goals, and presented an assignment for stakeholders. Utilities identified what current utility system impacts are accounted for in their test and stakeholders indicated which non-utility systems should be included in the test.  
  • Workshop 2 (May 18) reviewed responses from the utilities and stakeholders from the previous workshop on utility and non-utility system impacts, reviewed a Draft Policy Inventory prepared by DOC, and discussed the mapping of DER impacts to policies. Discussion outcomes and supporting materials were then used by Synapse to develop an initial straw proposal.
  • Workshop 3 (June 15) focused on the Straw Proposal, which presented a “MN Test,” addressed the implications of including participant impacts (or not) in a primary test, the order of magnitude of different non-energy impacts, and various societal impacts. Next steps were also reviewed, including comments on the straw proposal and a full report to be shared prior to the next workshop on July 20.

Washington

At its first UE-210804 Workshop on May 10, the docket’s purpose was reviewed, focusing on: how Clean Energy Transformation Act (CETA) changes the standard practice of using the modified TRC test and UCT as primary and secondary tests; ensuring consistent evaluation of DERs; and following the process and principles described in the NSPM. An overview of the NSPM BCA framework was provided, followed by discussion of the state’s applicable energy policy goals compiled by the UTC staff. The policy review focused on the CETA goals and clean energy rule requirements, including the following provisions:

  • SB 5116 and HB 1257 incorporate social cost of carbon into cost-effectiveness for electric and gas utilities
    • An electric utility must, consistent with the requirements of RCW 19.280.030 and 19.405.140, ensure that all customers are benefiting from the transition to clean energy through:
      • the equitable distribution of energy and non-energy benefits and reduction of burdens to vulnerable populations and highly impacted communities;
      • long-term and short-term public health and environmental benefits; 
      • reduction of costs and risks; and
      • energy security and resiliency (RCW 19.405.040(8))

UTC staff summarized the following policy goals based on its review of the statutes and rules:

  • Provide safe, adequate, and efficient services
  • Support fair, just, reasonable, and sufficient rates
  • Reduce energy burden of low-income households
  • Avoiding increased burdens to highly impacted communities
  • Ensure all customers benefit from the transition to clean energy through the equitable distribution of energy and non-energy benefits and reduction of burdens to vulnerable populations and highly impacted communities
  • Ensure all customers benefit from the transition to clean energy through long-term and short-term public health and environmental benefits and reductions of costs and risks
  • Ensure all customers benefit from the transition to clean energy through energy security and resiliency
  • Maintain system reliability
  • Develop lowest reasonable cost resources
  • Enable significant and swift reductions in greenhouse gas emissions

With this first key step of articulating applicable policy goals, the next workshop scheduled for early August will involve utilities reviewing current cost-effectiveness testing practice, and stakeholders identifying what non-utility impacts should be included in a primary test based on the articulated goals.