Tearing Down BarriersTo Energy Efficiency

Kansas Wind & Renewable EnergyConference, 2008September 24, 2008Michael Volker

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Agenda

• Midwest Energy, Inc.

• What is How$martSM

?

• How the Program Works.

• The Conservation Plan (Products).

• Results to Date.

• Pictures, Challenges, Thanks.

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Can a Small Utility Provide High-Quality Energy Efficiency Services?

• Vertically integrated, customer-owned utility.

• 89,000 gas and elec. customers, 41 counties.

• Average age of home: 34 years old.

• Only RESNET certified Energy Raters in western Kansas.

• Provide wide variety of EE Services

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Energy Efficiency Programs

• Air infiltration tests (blower door - $50).

• Infrared scans (heat loss/gain - $75).

• Duct leakage tests (duct blaster - $50).

• HVAC sizing ($0)

• Walk-thru audits ($0).

• Many more Res and C&I services.

How$martSM and Efficiency

Objective:

Stop market failure.1. Landlord/Tenant split incentives.

2. First-Cost barrier.

3. Builder/Buyer education.

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What is How$martSM ?

“A program that ties investments in energy efficiency to basic utility service.”

1. No upfront capital required by building owner.

2. Efficiency improvements paid for through a surcharge on the utility bill.

3. The surcharge is less than the amount of savings.

4. The surcharge is tied (by tariff) to the location, not to the customer.

How$martSM is patterned after the PAYSTM (Pay-As-You-SaveTM) concept marketed by PAYS America. See www.PAYSAmerica.org.

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1. Efficiency With No Upfront Capital

• MWE pays for efficiency improvements. • Building Owners can buy down cost of

efficiency improvements.• Partnership with KHRC (KEEP program) –

lowers cost of capital.

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2. Efficiency Paid for on Utility Bill

• Fixed surcharge on monthly bill.• Surcharge covers Company investment, cost

of capital, and program costs.• Maximum term: 180 months or 75% of the

expected life of the measure.

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3. Surcharge is LESS than 90% of Savings

• MWE performs audit.• MWE models energy and cost savings.• MWE determines required surcharge (based on

the cost of completing measures).• Surcharge can be no more than 90% of

savings.

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4. Surcharge is Tied to a Location

• Energy savings are tied to a physical structure – surcharge is as well.

• Surcharge continues at premise – even if occupant changes.

• Requires disclosure.• Disconnection for non-payment – subject to

same terms and conditions of utility service.

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Products

• Thermal Shell – Insulation, Caulking, Sealing, etc. (half of participants + those that install on their own)

• HVAC Equipment – High Efficiency Furnaces, AC, etc. (Avg. AFUE = 92.4%, SEER= 14.3)

• Others? Must be a “permanent” part of structure – not “portable” (No CFLs, Washer/Dryers, etc.)

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Midwest Energy Efficiency Analysis

• Heat loss/gain calculations• Air leakage test• IR scan (optional)• Furnace combustion check• Duct leakage test (optional)• Establish and validate a baseline (using

sales history)

04/10/2313

Example: Preliminary Conservation Plan

Base House: 2400 sq ft, R-7 Attic, 0 Wall Insulation, High Air Leakage, 64% Furnace, 6 SEER A/C

Option 1: New 92% Furnace/14 SEER AC at $7,200 Option 4: All Measures at $11,000

Option 2: R-38 Attic Insulation at $1,700 Option 5: Option 1 with $1k contribution from owner

Option 3: R-38 Attic, Air Sealing at $2,700 Term: 15 years at 4.0% + 5% program fee

Base Option #1 Option #2 Option #3 Option #4 Option #5

Monthly Savings $0 $65 $19 $33 $84 $65

Monthly Surcharge $0 $55 $13 $21 $76 $45

$0

$65

$19

$33

$84

$65

$0

$55

$13

$21

$76

$45

$0

$10

$20

$30

$40

$50

$60

$70

$80

$90

Dol

lars

How$mart - Base House #3 Investment Options

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Results of Pilot Programas of 9-22-2008

290 Conservation Plans. 60 completed How$martSM projects. 130 pending projects. Invested $268,000 in efficiency improvements,

average = $4,546. Average How$martSM charge = $39.41/mo. Average estimated savings = $49.12/mo.

(24.6% more than How$martSM charge).

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Results of Pilot ProgramEnergy Savings Results

Eight How$martSM projects with two winters of comparative data. The average gas consumption change: -17% despite 17% more Heating Degree Days in 2008 vs. 2007.

Average SEER of installed AC’s: 14.3. Average AFUE of installed furnaces: 92.4%. Half the projects include thermal shell

improvements through the program.

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Additional Benefits: SafetyWhat were they thinking?

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Efficiency – Feeling Disconnected

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Comfort – Another Benefit

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Challenges

Shortage of contractors. Projects in the pipeline for 5 months. “Premium” contractor program?

Free riders (audits are expensive). Screen customers better. $200 audit fee for non-participants.

41 Counties: A lot of miles to cover. Energy Analysts located in Great Bend, Hays, and Colby. Spread the workload.

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Industry Attention

KCC, Staff, and CURB intervention made the program better.

How$martSM is the first voluntary PAYS® type program.

Chartwell’s Best Practice Award (April 2008). AESP Annual Meeting white paper selection. ACEEE Summer Program on Energy

Efficiency Programs white paper selection.

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Questions, Comments, Concerns?

?The End

Michael VolkerMidwest Energy, Inc.785-625-1476

mvolker@mwenergy.com

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Program Steps

1. Customer requests How$martSM audit. (NOTE: Almost no marketing effort to date)

2. Customer pre-screened, audit scheduled.

3. Audit completed, Preliminary Conservation Plan Developed – measures identified.

4. Contractors bid to complete efficiency measures.

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Program Steps (cont.)

5. All forms signed.

6. Contractor(s) complete work.

7. Upon completion, contractor is paid.

8. How$martSM charges added to monthly bill.

9. Evaluations.

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Backup InformationParticipant Requirements

Customer in good standing. Owner must sign a How$martSM Owned-

Property Agreement or Landlord and Tenant must sign a How$martSM Rented/Leased Property Agreement.

Sign the Conservation Plan.

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What is How$martSM (besides a best practice award winner*)?

“A program that ties investments in energy efficiency to basic utility service.”

1. No upfront capital required by building owner.

2. Efficiency improvements paid for through a surcharge on the utility bill.

3. The surcharge is less than the amount of savings.

4. The surcharge is tied (by tariff) to the location, not to the customer.

How$martSM is patterned after the PAYSTM (Pay-As-You-SaveTM) concept marketed by PAYS America. See www.PAYSAmerica.org.

* Chartwell’s Best Practices for Utilities and Energy CompaniesTM, April 2008.

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Why Do This?

√ Market failure in energy efficiency.√ Emphasis on energy efficiency by policymakers.√ Lower bills for program participants.√ Helps minimize expensive capacity additions.√ May help reach market that has been unable to

invest in energy efficiency.√ Customers have asked for something like this.

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Midwest Energy and the Kansas Housing Resource Corporation

Kansas Energy Efficiency Program (KEEP)• Strategic partnership.• KHRC loans 50% at 0%.• Lowers effective interest rate to 4%.• Expanding reach of KEEP.• How$martSM/KEEP partnership overcomes

market barriers better.