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State Energy Efficiency Policy Database

Colorado

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Summary

Colorado’s utilities administer a growing portfolio of energy efficiency programs with oversight by the Public Utilities Commission (PUC). The state enacted legislation in 2007 requiring the PUC to establish energy savings goals for gas and electric utilities (thereby creating an EERS) and to give investor-owned utilities a financial incentive for implementing cost-effective efficiency programs. Both Xcel Energy, which is the largest investor-owned utility (IOU) in the state and operates as the Public Service Company of Colorado (PSCo), and Black Hills Energy, the other IOU, have expanded their demand-side management (DSM) programs in recent years.  The utilities file DSM plans annually, and are working toward the most recent EERS targets which ramp up to 1.35% in 2015 and reach 1.68% in 2020. Colorado implemented natural gas in 2008. There is no decoupling for electric utilities, however PSCo may earn a form of lost revenue adjustment. The PUC has also created incentives to reward utilities that create efficiency programs for electricity and/or natural gas and that meet or exceed energy savings goals.  In 2013, the Colorado PUC began a process to revisit certain aspects of the goals and incentive mechanisms for PSCo in Docket 13A-0686EG.

The most recent budgets for energy efficiency programs and electricity and natural gas savings can be found in the State Spending and Savings Tables on the left.

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November 8, 2013


Customer Energy Efficiency Programs

Funding for energy efficiency has increased substantially in Colorado in recent years since the state adopted an EERS in 2007. Xcel Energy (operating as Public Service of Colorado (PSCo)) is the major investor-owned utility (IOU) in Colorado and administers its programs after they have been approved by the Colorado Public Utilities Commission. Xcel Energy’s programs are funded by a demand-side management Cost Adjustment Mechanism rate rider. Black Hills Energy is the other IOU that serves electricity to customers in the state and generally follows Xcel Energy’s energy efficiency savings targets. Holy Cross Energy, a rural electric cooperative utility, approved a portfolio of energy efficiency programs for 2012-2016 that will achieve savings equal about 0.5% of retail sales per year. 

Natural gas programs are also available in Colorado. The 2007 state legislation required that the Colorado Public Utilities Commission set energy savings goals for natural gas, which are commensurate with spending targets of at least 0.5% of prior year’s revenues.

The most recent budgets for energy efficiency programs and electricity and natural gas savings can be found in the State Spending and Savings Tables on the left.

PSCo offers a self-direct program option to large customers with average demand greater than 2MWand annual consumption greater than 10 GWh. Companies can aggregate to meet the minimum thresholds.  Self-direct customers continue to pay their assigned cost-recovery mechanism (CRM) fees and self-direct projects are reimbursed through a rebate of up to 50% of the incremental project costs.  Self-direct customers provide their own engineering analysis and must meet the same total resource cost test as all the other industrial and commercial offerings.  More information on large customer self-direct programs can be found in the ACEEE report, Follow the Leaders: Improving Large Customer Self-Direct Programs.

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November 8, 2013


Alternative Business Models

On June 18, 2007, the Public Utilities Commission approved a partial revenue decoupling adjustment for residential gas customers as part of a three-year pilot program. The proposed mechanism is implemented through a rider applied to the company’s base rate gas service revenues to compensate for the prior year’s changes in weather-normalized use per customer. This is a three-year pilot program, initially set to run from October 1, 2008 to September 30, 2011. If revenue per residential customer declines more than 1.3% per year, the rate adjustment is updated to recover reduced weather-normalized revenues due to reduced usage per customer. This value (1.3%) was chosen because it equals 1/2 of the historic rate of decline referenced in PSCo’s testimony (Docket Nos: 06S-655G and 08L-413G).

The 2009/10 Demand Side Management (DSM) Plan was intended to remove disincentives to efficiency, offset revenue and earnings erosion and reward utility performance, among other things for the Public Service Company of Colorado. The PUC indicated that it is not appropriate and likely not feasible to define in a docket the lost margins resulting from DSM.  Instead it addressed the financial disincentives of DSM with a fixed payment of $2 million after taxes (approximately 3.2. million gross) for each year that 80% of the annual energy savings goal for an approved DSM plan is achieved. This amount is recovered over the 12 month period following the year in which the DSM plan is implemented. The PUC specifically notes that this “disincentive offset” should not be considered lost margin recovery, but is an annual bonus for meeting approved DSM goals. The $2 million disincentive offset can be adjusted downward in future years if the 80% target is not met although it was reported that the 80% target is so easily achieved as to make the payment almost automatic upon DSM program implementation. Incentives are also included in the mechanism and utilities achieving efficiency targets can earn a percentage of the net economic benefits generated by those savings. Combined total incentive payments are capped at 20% of PSCo’s annual DSM expenditures.

In 2011, the Colorado Public Utilities Commission issued Decision No. C11-0442 into Docket No. 10A-554EG to change some aspects of the incentives package for PSCo. The Commission agreed to increase the pre-tax disincentive offset from $3.2 million to $5 million if the utility meets or exceeds 100% of its electric energy savings goals. PSCo will continue to receive a pre-tax disincentive offset of $3.2 million for performance relative to its electric energy savings goals in the range from 80-99%.


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August 9, 2013


Reward Structures for Successful Energy Efficiency Programs

The 2009/10 Demand Side Management (DSM) Plan, approved in 2008, included a three-part incentive package that included a $2 million “disincentive offset” for each year that Public Service Colorado implement an approved DSM plan, a performance incentive and cost recovery via a rider on a prospective basis. A similar three-part package was approved for Black Hills. In each case the performance incentives are available for achieving efficiency targets. The incentive (including the disincentive offset) was capped at 20% of PSCo’s annual DSM expenditures. In 2011, the performance incentive was modified to be 1% of net economic benefits for achieved savings at 80% of the savings goals, 2% at 85% of the savings goal, 3% at 90% of the savings goal, and 4% at 95% of the savings goal. At 100% of the goal, Public Service becomes eligible for a 5% share of net economic benefits. Each 5% increase of savings above the goal results in a 1% addition to the share of net economic benefits, up to a maximum of 15% at 150% of goal. There is a $30 million cap including the pre-tax disincentive offset and the performance incentive. The payment is now made in a single installment, rather than from two consecutive annual installments.

For natural gas utilities, the incentive bonus is capped at 25% of the expenditures or 20% of the net economic benefits of the DSM programs, whichever amount is lower.


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August 9, 2013


Energy Efficiency as a Resource

Energy efficiency is not included within the commission’s definition of a supply-side resource in the Rules Regulating Electric Utilities. However, in one of Public Service Company’s Electric Resource Plan filings, it appears that the commission required the company to modify its plan to include modeling for approved DSM programs (Docket No. 07A-447E, Decision No. C08-0929). House Bill 1164 requires the PUC to include the possible impacts of future greenhouse gas regulation on electricity prices when evaluating utility resource plans.


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August 7, 2013


Evaluation, Measurement & Verification
  • Cost-effectiveness test(s) used: TRC
  • Uses a deemed savings database: no

The evaluation of ratepayer-funded energy efficiency programs in Colorado relies on regulatory orders. Evaluations are administered by the utilities. Colorado has established formal rules and procedures for evaluation. The utilities submit a set of technical assumptions as part of their respective plan filings, which are approved by the Commission; see Stipulation and Settlement Agreement in Public Service Company Docket No. 08A-366EG. Statewide evaluations are conducted. Colorado relies on the Total Resource Cost (TRC) test and considers it to be its primary cost-effectiveness test. The rules for benefit-cost tests are stated in PUC HB 07-1037. These benefit-cost tests are required for overall portfolio and total program level screening.


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August 9, 2013


Energy Efficiency Resource Standards

Summary: Electric: PSCo savings targets of 0.8% of sales in 2011, increasing to 1.35% of sales in 2015, 1.66% of sales in 2019, and 1.6% in 2020. Black Hills follows these same targets. Natural Gas: Savings targets commensurate with spending targets (at least 0.5% of prior year’s revenue).

The Colorado legislature passed HB-07-1037 in April 2007, which amended Colorado statutes C.R.S. 40-1-102 and 40-3.2-101-105 by requiring the Colorado Public Utilities Commission (COPUC) to establish energy savings goals for investor-owned electric and gas utilities.  The EERS statute does not set a fixed schedule of statewide percentages of energy savings to be achieved by particular years, nor does it require the acquisition of all cost-effective energy efficiency resources. Instead, it sets an overall multi-year statewide goal for investor-owned electric utilities of at least five percent of the utility's retail sales in the base year (2006) to be met by the end of 2018, counting savings in 2018 and including savings from DSM measures installed starting in 2006.  The statute includes a similar goal for reduction of peak demand of 5% the retail system peak in 2006. For gas utilities, the statute required the PUC to open a new proceeding to develop gas savings targets and spending levels. The law empowers the PUC to set interim goals for utilities and to modify goals.

COPUC has modified targets several times since 2008 (see Docket No. 07A-420E, Decision C08-0560, Docket No. 08A-518E, Decision No. R09-0542). In May 2011, COPUC approved new goals for Public Service Company of Colorado (PSCo) for the 2012-2020 period. The goals begin at 1.14% of sales in 2012, ramping up to 1.35% in 2015, and reaching 1.68% in 2020. The goals set out to achieve 3,984 GWh in the nine-year period (see Docket No. 10A-554EG, Decision No. C11-0442). Black Hills Energy’s adopted efficiency plan follows PSCo targets. In 2013, the Colorado PUC began a process to revisit certain aspects of the goals and incentive mechanisms for PSCo in Docket 13A-0686EG.

For investor-owned natural gas utilities, the EERS legislation structured the requirement in two parts. First, the natural gas IOU’s must set DSM spending targets of more than 0.5% of revenues from customers in the prior year. Energy savings targets are then established by COPUC commensurate with spending and stated in terms of quantity of gas saved per dollar of efficiency program spending.


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August 21, 2013