Efficiency Smart: Reaching the Small Utility
Originally published March 13, 2013
Efficiency Smart, the carefully conceived program launched by American Municipal Power, Inc. (AMP) in early 2011, is off to a fast start, one marked by professional execution, measurable results and clear evidence of staying power. In its first two years of operation, Efficiency Smart exceeded its targets and, by the end of 2013, the 49 member utilities subscribing to the program are expected to show cumulative savings of more than 79,000 MWh. Efficiency Smart received early recognition of its promise when it became a finalist at the 2011 Platts Global Energy Awards, competing for the Energy Efficiency Program of the Year. Platts is one of the premier forums for international recognition in the energy industry.
Efficiency Smart was not an easy undertaking. AMP had to overcome the obstacles of a lingering recession, customer skepticism, tight municipal budgets, and the logistical challenges of serving a geographically dispersed membership spread across seven states.
“We’re exceedingly proud of our program,” said AMP President & CEO Marc Gerken. “Efficiency Smart offers a service for our members that saves their customers money, creates jobs in their communities, stimulates economic growth, and reduces the impact of electric service on the environment. I hope that the program structure we helped pioneer with VEIC [Vermont Energy Investment Corp.] will serve as a model for other wholesale power suppliers and joint action agencies that want to deliver energy efficiency services to small utilities.”
The driving forces coalescing behind the creation of Efficiency Smart included market dynamics and various competitive, regulatory and environmental pressures. “We have been in the wholesale market for power for many years, but by the late 1990s, the market was getting more volatile and more complex,” said Jolene Thompson, AMP’s senior vice president of member services and external affairs. Thompson, who leads the Efficiency Smart program, said AMP members in the late ‘90s “decided they didn't want so much exposure to the marketplace, but instead wanted the opportunity to invest in generation. The vast majority at the time owned no generation assets and were not long on power supply. So we started down the path of pursuing a diverse portfolio of generating assets.”
AMP is now the largest owner in a new coal plant in Illinois. The agency owns a large natural-gas-fired combined-cycle facility in northern Ohio and is looking at additional gas options. And it is constructing four run-of-the-river hydro projects on the Ohio River.
Energy efficiency has emerged as a natural addition to AMP’s portfolio development. “It was the position of our board and CEO that we look at energy efficiency as we would any other power supply resource,” Thompson said. “ In fact, when we first marketed this program to our members we called it the ‘efficiency smart power plant.’ We wanted the opportunity to layer energy efficiency into the portfolio. Not only does it shave growth, it has the lowest cost and the lowest risk of any power supply option out there. We don't have the regulatory risk, we don't have the fuel risk, and the cost is below market.”
Competition was another reason AMP embraced energy efficiency.. “The IOUs in our part of the country were being mandated to do energy efficiency by state legislatures,” said Thompson. “Businesses sitting in a neighboring town, some of whom had ties to our own communities, were getting these attractive program offerings. As a result, we felt it was important to make available similar opportunities for our own businesses to make sure they remained competitive.”
Ironically, another catalyst arose related to one of AMP’s generation investments. The Richard H. Gorsuch Generating Station — a 213-MW, four-unit coal-fired power plant located adjacent to the Ohio River, near Marietta, Ohio — was built in the early 1950s. In the late 1980s, as part of AMP’s purchase of majority interest in the plant, AMP undertook some significant refurbishments to the plant. AMP consulted the Ohio Environmental Protection Agency, environmental legal counsel, and engineering consultants who said the upgrades in question would not trigger a new source review action under the federal Clean Air Act. However, on April 1, 2009, AMP received a Notice and Finding of Violation from the EPA pertaining to that refurbishment. The plant ceased operation in November 2010. AMP negotiated a consent decree with the EPA that required those members participating in the Gorsuch investment to undertake an environmental mitigation project focused on energy efficiency.
“In our view, that was taking lemons and making lemonade,” said Thompson. “Instead of sending fines to the U.S. Treasury, we had an opportunity to take those penalties and put them back into investments in our communities to conserve energy. It was a win-win for all parties.”
“The EPA has been happy with our program,” said Randy Corbin, AMP’s assistant vice president of energy policy and sustainability. The program has become a model for environmental compliance for municipal and cooperative electric utilities around the country that have small, aging coal-fired power plants, he said. “We report to the EPA twice a year, and they continually want us to add anecdotes, case studies, and attributes of the program so they can showcase the results.”
Building the structure
By 2007, AMP began an active search for a program structure that made sense for a dispersed membership of municipalities. AMP has a few large members, such as Cleveland with about 75,000 meters, but on average its municipal utilities serve between 3,000 and 4,000 meters.
“We had lengthy discussion with our board over various options of how to structure a unique program to serve our membership—which today encompasses 130 utilities with non-contiguous territories, stretching across seven states,” said Thompson. “How could we deploy programs, given this disparate geographic mix of members? We went through a long information gathering process with our board and ourselves about what the various forms of the program offerings could look like, what they would cost, and how they would work. The upshot was that the board adopted an internal measure in 2008 that would require us to develop an energy efficiency program that would achieve 1 percent annual energy savings by 2015.”
One key decision was whether AMP would develop and operate a program on its own, or bring in outside expertise. “We decided to do it turnkey, using an experienced contractor, and setting serious performance standards for their work,” said Thompson. AMP signed a three-year, $24.6 million contract with the Vermont Energy Investment Corp. VEIC is a nonprofit organization, founded in 1986, dedicated to advancing energy efficiency and renewable energy. In 2000, VEIC won a competitive contract to operate Efficiency Vermont, the first statewide energy efficiency utility in the nation. Building upon its success, VEIC branched out into consulting services and program launches, first with AMP, and more recently, a similar program in Washington, D.C.
Under the performance-based contract, VEIC is required to set performance guarantees with the subscribing members. Each full-participation member is guaranteed to achieve at least 70 percent of the projected savings, or it will get a refund.
After two years of full-scale operation, Thompson remains positive. “VEIC has certainly been a good partner for us through this program,” she said. “Without their expertise and guidance, I’m not sure we would have gotten this off the ground. It certainly wouldn't have been the program we have today. They have 30 staff members here in our Columbus headquarters and we work together.”
To ensure the integrity of the program, AMP hired an independent third party to measure and verify energy savings. “We brought in a firm from Cincinnati, Integral Analytics, to ensure members they were getting the savings promised,” said Corbin. “Quantification, we believe, is the linchpin to instill confidence in our members and their customers. We are pleased that Integral Analytics measured our overall realization rate—the achievement of promised savings—at 96 percent in 2011, one of the highest in the nation. Building on this, we were able to ramp up the program dramatically in the second year. We’ve just started evaluating the claimed savings for 2012. We were seeking 28,000 MWh for the year, and we actually hit 42,000 MWh.”
After savings are measured and verified, the results are aggregated from bottom to top using a multifaceted central tracking system with data on the more than 200,000 end-use customers served by the program. When an end-use customer submits an approved energy efficiency measure, the savings are calculated, recorded and attributed to the community where the installation took place. Efficiency Smart reports savings by product and service, sector, program, and utility. During 2011, 47,341 efficiency measures were installed by 7,315 end-use customers across the municipal utilities enrolled in the program.
Quantification also brings reassurance to outside observers. Becky McCleary, an Ohio public utility customer advocate from Cuyahoga Falls, values the professionalism it brings. “Now that we are able to provide measurable outcomes, we have reached a new level in energy efficiency.”
Strong start with C&I customers
The commercial and industrial (C&I) customers have proven to be the earliest participants, greatest beneficiaries and strongest proponents of the Efficiency Smart program. This is not unexpected. C&I efforts require the ivolvement of fewer people than in the residential sector and businesses by nature are more attuned to economic opportunity and investment. Efficiency Smart offers C&I customers technical assistance, account management services, and customized financial incentives for more than 90 energy-efficient products and services.
“Many of our members have been surprised by the depth of interest from their customers, particularly their C&I customers,” said Thompson. “In fact, we have some industrial customers that are on their third project, using the savings from the first project to cover the next one. It’s been a really good economic development tool in our communities. We hear that universally.”
“Many municipalities are under significant rate pressure,” said Corbin, “and they can only do so much with their C&I customers in terms of adjusting rates. One of the biggest things they can do for them is energy efficiency. Their customers are now coming to us with stories. ‘You cut 20 percent off my annual bill, allowing me to bid on work more effectively.’”
Rick Pyles of APO Pumps and Compressors, Inc., in Hudson, Ohio, agreed. “AMP makes it very easy for us to get energy-efficiency rebates for our customers, and they help us find other opportunities we may not see. Our customers are very happy,” he said.
An extremely valuable aspect of the program is the depth of technical expertise Efficiency Smart makes available to its C&I customers. Robert Macali, president of Macali’s Giant Eagle food store in Niles, Ohio, likes to tell other local businesses, “You’re crazy not to take advantage of their knowledge. We were in the slow process of replacing conventional fluorescent with LED lighting—a wonderful source of light that uses 75 percent less electricity—when we found out about the Efficiency Smart program through our local electric supplier.” What began with rebates grew into broader technical consultation. “This became a partnership,” Macali said. “Nobody can do it themselves. You need to rely upon other people.”
Depending on a company’s annual energy usage, Efficiency Smart offers two options—a prescriptive business program and a custom business program. Efficiency Smart’s prescriptive program is intended for businesses that use between 20,000 and 500,000 kWh of electricity annually. The program offers these smaller businesses fixed financial rebates for the implementation of common energy efficiency measures. Incentives were available in 2011 for more than 80 types of improvements and technologies that reduce energy usage, including lighting and light controls, electric HVAC systems, refrigeration, food service equipment, compressed air, and motors.
Efficiency Smart’s custom program provides a tailored approach to meet the unique needs of businesses with facilities that use more than 500,000 kWh of electricity annually. During 2011, Efficiency Smart added several strategically located key account managers to its staff, as well as engineering consultants, to work directly with these larger companies and identify opportunities to save them money and energy.
Overall, industrial businesses completed 39 projects and saved 10,694 MWh of energy during 2011, exceeding Efficiency Smart’s aggregate first-year goal for industrial projects by nearly 73 percent. Commercial businesses also fared well in 2011, completing 102 projects and saving 5,780 MWh, exceeding Efficiency Smart’s first-year target for the commercial sector by 26 percent.
Residential customer outreach
Efficiency Smart services for residential customers include rebates for energy-efficient appliances and lighting, and free removal of old, inefficient refrigerators and freezers. Nevertheless, the residential program has proven to be a much harder sell. Low electricity rates are an obstacle to greater acceptance. “Residential rates are not as high as in New England and California, where they have had greater residential penetration,” said Corbin. “Where energy bills are a relatively small fraction of disposable income, as they are here in the Midwest, the incentives for energy efficiency are not as compelling.”
Corbin sees this as an educational challenge because, “with many residential customers it comes down to a pure economic decision. We’re offering incentives for a variety of appliances—ceiling fans, air conditioning, refrigerators, washers, you name it—but many people won’t replace those until the actual appliance fails. Investment payback is a tough hurdle to get over when the homeowner has a refrigerator that is 20 years old and still working fine.”
Lighting has proved to be the best point of entry. The upfront investment is less, the consumer benefits clear, the distribution contacts more personal, and the avenues of approach more flexible. “The best way to reach customers is direct contact,” said Corbin. “One of the reasons our residential program has started to ramp up in the last year is that we elevated our outreach efforts. This is where we go into these small communities and do a lot of public events—school events and bill paying events, for example, where we show up at the local utility office and talk to their customers. It is still common practice in many of our communities for people to come in and pay their bills. We provide them the educational materials, and hand out CFLs. In some of the very small communities, with just a few thousand people, we actually go door to door, handing out these materials and CFLs.”
Another avenue has been to ally with small retailers, such as hardware stores.
“We’ve helped the small, local retailers by providing discounts that make the products less expensive than elsewhere,” said Corbin. “Now they don't see us as a threat. They view us as trying to drive business to their stores, and they in turn help to promote our program.”
The Ohio Energy Project (OEP), an energy educational program designed by teachers for teachers, is another natural ally in the effort to spread the word about the benefits of energy efficiency, especially in small towns.
“We reach the students and they reach their families,” said Shauni Nix, educational coordinator for OEP. “The partnership with Efficiency Smart serves our needs because it allows us to get out to small communities we wouldn't normally reach. And there is always someone on their staff who can address our concerns and give us answers immediately.”
Expanding the program
The contract with VEIC expires at the end of 2013 and contract negotiation is underway. The partnership has been solid, the launch successful, and the benefits clear. Further, it might help AMP with efforts to renew participation in Efficiency Smart.
“We will be out resubscribing Efficiency Smart to each of the communities through their legislative process,” Corbin said. “Our goal is to expand the membership in the program. We would like to see at least half of AMP’s members involved with Efficiency Smart in the next contract.” This means retaining the 49 now in the program and recruiting an additional 15 or so.
If Efficiency Smart continues to prosper, AMP can extend the benefits of energy efficiency to all parts of its sprawling membership. John Bisher, city manager of Napoleon, Ohio, described the ease of entry: “AMP just helps you walk right into the program.”
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