811 1st Ave. #305, Seattle, WA 98104 • (206) 621-0094 • (206) 621-0097 fax www.nwenergy.org • nwec@nwenergy.org

November 16, 2016 Glenn Blackmon Washington State Energy Office 1011 Plum Street SE Olympia, WA 98504 VIA email: eia@commerce.wa.gov RE: Energy Independence Act rulemaking Dear Mr. Blackmon: The NW Energy Coalition appreciates the opportunity to submit comments in the current Energy Independence Act (EIA) rulemaking process that updates the rules establishing requirements for setting energy conservation targets to ensure consistency with the most recently adopted regional power planning council plan (in this case, the 7th Plan). The calculation of cost-effective conservation is a complex topic and we congratulate the Department of Commerce on successfully navigating this complicated rulemaking subject. The proposed rules as written generally reflect the methodology provided in the Northwest Power and Conservation Council’s (Council) 7th Plan, with one exception. Our comments provide one suggested change where we find the current rules as drafted to be inconsistent with the 7th Plan methodology. We also provide support for a couple of key provisions of the new language that have been questioned by other entities during the rulemaking process. Discount Rate The proposed changes to WAC 194-37-070 (5) (d) (xiii) are inconsistent to the 7th Plan methodology and should not be adopted. The proposed WAC 194-37-070 (5) (d) (xiii) currently reads: “Discount future costs and benefits at a discount rate equal to the discount rate used by the utility in evaluating nonconservation resources;” This proposed rule language is inconsistent with methodology used the 7th Plan.

Advocates for the West Affiliated Tribes of Northwest Indians AirWorks, Inc. Alaska Housing Finance Corporation Alliance to Save Energy Alternative Energy Resources Organization American Rivers A World Institute for a Sustainable Humanity Beneficial State Bank BlueGreen Alliance Bonneville Environmental Foundation Centerstone Citizens’ Utility Board of Oregon City of Ashland City of Seattle Office of Sustainability & Environment Climate Solutions Community Action Center Community Action Partnership Assoc. of Idaho Community Action Partnership of Oregon David Suzuki Foundation Drive Oregon Earth and Spirit Council Earth Ministry Ecova eFormative Options Emerald People’s Utility District EnergySavvy Energy Trust of Oregon Enhabit Environment Oregon Environment Washington HEAT Oregon Home Performance Guild of Oregon Home Performance Washington Housing and Comm. Services Agency of Lane Co. Human Resources Council, District XI Idaho Clean Energy Association Idaho Conservation League Idaho Rivers United Interfaith Network for Earth Concerns League of Women Voters Idaho League of Women Voters Oregon League of Women Voters Washington Montana Audubon Montana Environmental Information Center Montana Renewable Energy Association Montana River Action National Center for Appropriate Technology Natural Resources Defense Council New Buildings Institute Northern Plains Resource Council Northwest Energy Efficiency Council NW Natural NW SEED OneEnergy Renewables Opower Opportunities Industrialization Center of WA Opportunity Council Oregon Environmental Council Oregon Solar Energy Industries Association Oregonians for Renewable Energy Progress Pacific Energy Innovation Association Pacific NW Regional Council of Carpenters Physicians for Social Responsibility Oregon Chapter Physicians for Social Responsibility Washington Chapter Portland General Electric Puget Sound Advocates for Retired Action Puget Sound Cooperative Credit Union Puget Sound Energy Renewable Northwest Project Save Our Wild Salmon Sea Breeze Power Corp. Seattle City Light Seinergy Sierra Club Sierra Club, Idaho Chapter Sierra Club, Montana Chapter Sierra Club, Washington Chapter Smart Grid Northwest Snake River Alliance Solar Installers of Washington Solar Oregon Solar Washington South Central Community Action Partnership Southeast Idaho Community Action Agency Spokane Neighborhood Action Partners Sustainable Connections The Climate Trust The Energy Project Union Of Concerned Scientists United Steelworkers of America, District 12 US Green Building Council, Idaho Chapter Washington Environmental Council Washington Local Energy Alliance Washington State Department of Commerce Washington State University Energy Program YMCA Earth Service Corps

NW Energy Coalition EIA Rulemaking Comments 11.16.2016

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The 7th Plan used a combination of utility cost of capital and consumer cost of capital to develop a discount rate of 4%. A detailed description of the 7th Plan discount rate methodology can be found in Appendix A of the 7th Plan. Most importantly, the Council uses a blended utility and consumer rate based on the rationale that both utilities and consumers contribute to the financing of energy efficiency resources – this is true for all utilities across the region. Nowhere in Appendix A does it suggest that using a utility only cost of capital is an accepted methodology. Consequently, to maintain consistency with the 7th Plan methodology regarding discount rate calculations, the Coalition recommends revising this section to revert back to the previous language used under the rule: “Discount future costs and benefits at a discount rate based on a weighted, after-tax, cost of capital for utilities and their customers for the measure lifetime;” This previous language is consistent with the methodology used in the 7th Plan. Risk Mitigation Credit The Coalition supports the current proposed rule language regarding the use and description of the risk mitigation credit. As currently drafted the rules correctly characterize the risk mitigation credit used in the 7th Plan methodology: in WAC 194-37-070 (5) (d) (ix): “include a risk mitigation credit to reflect the additional value of conservation, not otherwise accounted for in other inputs, in reducing risk associated with costs of avoided nonconservation resources;” During the rulemaking workshops and in some written comments, there appears to be confusion over the risk mitigation credit and what this factor is intended to measure. Other commenters have suggested that the definition of the risk mitigation credit is broader, including the risk of conservation savings not occurring in the future. This is an incorrect value to assign to the risk mitigation credit for several reasons. First, it is not included in the scope of the risk mitigation credit as outlined in Appendix G of the 7th Plan. Additionally, the risk of savings from conservation activities not occurring, or occurring at lower rates, is already factored into other calculations, specifically, the deemed measure calculations utilized in the development of supply curves. To assign that value here would be inconsistent with the methodology of the 7th Plan, and would be duplicative of other elements of cost effectiveness calculations. Proposals to include this factor in the risk mitigation credit should be rejected and the current proposed rule wording upheld in the final rule. Social Cost of Carbon Finally, the Coalition supports the proposed rule language in WAC 194-37-070 (5) (d) (viii) “Include the social cost of carbon emissions from avoided nonconservation resources;” The social cost of carbon is the correct value to use in this section of the rule because this section of the rule determines the value to be utilized in calculating the total resource cost (TRC) of conservation resources. The total resource cost is based on the calculation of all costs and benefits regardless of who pays. Consequently, the social cost is the correct carbon cost to use in this application. Some commenters throughout the rulemaking process have objected to use of the social cost of carbon asserting that the utilities should use emissions cost to the utility and its ratepayers. This would be correct if

NW Energy Coalition EIA Rulemaking Comments 11.16.2016

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the value were measuring the resource cost borne solely by the utility instead of the total resource cost. However, based on the use of the TRC, the social cost of carbon is a more accurate accounting of total costs of carbon emissions. Consequently, we support the current rule language as proposed in this section. Thank you for the opportunity to provide comments on the proposed Energy Independence Act rulemaking. Please do not hesitate to contact me if you have questions or require clarification of these comments. Regards, /s/ Wendy Gerlitz Wendy Gerlitz Policy Director

Archived: Thursday, November 17, 2016 12:43:02 PMFrom: Stu SimpsonSent: Wednesday, November 16, 2016 3:00:00 PMTo: COM DL Energy Independence ActCc: Scott LockeSubject: Comments for the EIA Importance: NormalAttachments:CHP&District Energy.doc ;

The NWPCC 7th Plan doesn’t adequately recognize the value of Combined Heat and Power (CHP) with Hot Water District Energy and Thermal Storage as aviable strategy to provide valuable “Capacity” to the system. This value must be recognized in the revision of the EIA rules to create a clear pathway for CHPto contribute and the added value when Thermal Storage is incorporated into the system. Attached is a white paper which lays some background and describes how CHP with Hot Water District Energy and Thermal Storage can play a role in the EIA inthe quest to reduce CO2. Please contact me for any follow-up to clarify my comments. Thank you, Stu Stuart Simpson | Senior Developer, Energy Services11611 49th Place West, Mukilteo, WA 98275Main Direct: (206) 364-9900 | Mobile: (360) 481-0929www.umci.com | Twitter | LinkedIn

District Energy and CHP – Part of a Strategy to Reach Climate Change Goals while

Creating Utility Resiliency and Jobs in the Local Economy

By Stuart Simpson, University Mechanical Contractors, Mukilteo, WA

November 16, 2016

Currently, in Washington, Where Do We Get Our Electricity?

A big part of the story of reaching our climate change goals points toward the generation of the

electricity we all use.

Even though Washington is fortunate to have 60% of the electricity generated by hydro power,

the top tier of the power generated comes from natural gas generation in remote power

facilities where the heat is wasted to the atmosphere (30-40% efficient).

During certain times of the year we can be very short on hydro power (late summer and early

fall) or very flush with hydro and wind where we spill the excess over the dams and we stop the

turbines from spinning because we have too much power (spring).

Even in PSE territory, over 30% of the electricity comes from a coal burning plant in Montana

over 1,000 miles away. Long dedicated transmission lines bring the power to all the way to

Western Washington.

Overall in the US, power generation is the highest source of CO2 emissions of all the sectors.

That is why the Obama Administration targeted the electricity sector with the Clean Power Plan

as the main US response to the Paris Climate Agreement in April of 2016.

Each State is required to establish a plan to meet the overall goals of the Federal Clean Power

Plan.

With many more homes and buildings using heat pumps (more electricity) and transportation

shifting to more electric cars and electric light rail, the demand for electricity will continue to

increase.

Where will we get electricity in the future for Washington?

NW Power and Conservation Council 7th Plan shows most new energy coming from

conservation.

What about CHP and District Energy? How do they fit into this projection? The 7th Plan shows

as a very negligible amount.

What are Combined Heat and Power, and District Energy?

CHP is the generation of electricity locally using natural gas, biomass (wood, wood waste, slash,

crop waste, etc.) gasification or other fuel in a reciprocating engine or turbine, or steam turbine.

Waste heat from that generator would be used to heat buildings or processes, and/or to cool

buildings using adsorption or absorption cooling.

This way of generating electricity uses the waste heat for process and/or space heating, an

overall efficiency of 90+%.

The heat is best transported by hot water through well insulated pipes in tunnels, utilidors or

buried in the ground in engineered trenches. The water is delivered to buildings or processes to

transfer the heat to that building or process. Heat can also be captured from industry, when

available, to help make that industry more profitable. This reduces CO2 emissions even more.

The cooled water leaving the buildings and processes is returned to the central plant to be

reheated and the cycle repeats. This is District Heating. The medium could be steam, but that

approach is less efficient and currently does not allow for Thermal Storage.

What is Thermal Storage and How is it Effectively Used in a CHP Application?

Thermal Storage is primarily available in two varieties. Phase change, using refrigerants (liquid

and gaseous phases), eutectic salts (solid and liquid phases) or water (liquid and ice or slushy

ice,), and water in liquid form only. Water in liquid form only, with its ability to store large

amounts of energy, is a simple and effective medium for Thermal Storage.

Waste heat from the CHP electrical generation process is stored as hot water in very large

insulated tanks.

In the summer electricity could be generated in the afternoon when cooling loads are high and

electricity use is peaking, then the heat in the T-Store could be used the next day for morning

warm-up in the buildings. With adsorption or absorption cooling, the CHP unit could be run

even more hours and the cooling provided to the buildings connected to the loop would take

additional load off the over taxed electric grid.

In the winter, when there are also electric use spikes, electricity can be generated making excess

heat that can be stored for night time and weekend use in buildings. This is the plan for the WA

Capitol Campus, when buildings are mostly vacant during those periods.

Can’t Renewable Energy Like Wind and Solar Provide the Electricity We Need in Washington?

Wind and solar are great technologies and we should continue to build and support the

expansion of these technologies, however, utilities must have “Capacity” to back up these

resources. These resources must be power generating equipment that can be activated when

needed. This is because the sun doesn’t always shine and the wind doesn’t always blow when

needed, therefore, hydro Capacity and other generation Capacity that can be made available

when needed, must be set in reserve to cover these renewable technologies when not available.

As we have seen in late Summer and early Fall, hydro isn’t always available (drought years).

Large utility scale batteries are needed, and are being developed, to help even out the peaks

and valleys of these renewable technologies, but this typically only provides hours to a day or

two of electrical storage.

How Can CHP and District Energy Help Make the Electric Grid More Resilient?

CHP with T-Store and District Energy can provide the “Capacity” that is needed in a very efficient

way (90+% efficient). Within reason, CHP can provide Capacity to the Electric Grid and could be

operated, on a daily basis, in a way that could support the overall Electrical Grid. In addition,

when the CHP is bio-based or hydrogen based then the emissions are carbon neutral or zero.

CHP could be a very important Capacity source in the Summer and early Fall if it is a drought

year when the hydro system cannot produce much power. Then if the wind power is not

available too, the Electric Grid could be vulnerable.

Summer and early Fall is also a time when wildfires are a concern. They can and have taken out

transmission lines. In 2014 Seattle City Light had a wildfire under the main transmission lines

coming from Ross Dam. The smoke was so heavy, there was arcing to the ground and the

transmission lines were damaged. SCL had to shut down the use of those transmission lines

losing over 700 MW of Capacity to their system.

Where have CHP and District Energy Been Employed on a Large Scale?

Denmark is the leader with many other European countries following suit.

Denmark used CHP and District Energy as a large part of their strategy to get off fossil fuels as a

result of the 1973 OPEC oil embargo. After being 98% reliant on imported oil, they are now an

exporter of energy to Europe (electricity). Wind power also was a large part of their strategy.

They are now targeting 2050 to be carbon free for their non-transportation sectors and they are

on track to meet those goals.

What is the Potential for CHP and District Energy in Washington?

Many District Energy systems already exist in colleges, universities, prisons, DSHS institutions,

DVA facilities, military bases, hospitals, and some cities.

Even though most all of these facilities have back up generation capacity, they don’t use it in a

CHP configuration, and none have thermal storage. The generators are only used when the

power goes out and for regularly scheduled testing purposes.

Many of these district heating systems are steam based, which is not conducive to Thermal

Storage, but could work with CHP.

The potential Capacity at State facilities alone with District Energy systems is 100 to 150 MW.

When considering Federal, and private sector campuses, hospitals, airports, port districts with

industries, other industry/processing complexes, city and county building complexes, cities, etc.

the potential is tremendous. Likely hundreds to a few thousand MWs.

A Summary of the Benefits of CHP and District Energy Follows

It makes the local area served by the District Energy system more resilient to power outages and

supports local jobs.

It makes the Electric Grid more resilient. Local production serving local loads. Transmission

losses and the risk of losing power locally are reduced.

It creates jobs in the local economy. Designing, building, operating and maintaining the system.

Also in the capture and processing of woody biomass, if that is used as a fuel (wood gasification

or clean burning technologies could be employed).

It keeps more of the energy dollars in the local Washington economy. The WA Dept. of

Commerce estimated we spend $26 Billion per year on energy in Washington alone.

It reduces CO2 substantially. Studies for the Capitol Campus show a 54% reduction in CO2 over

the current system.

It can make industries that sell heat to the District Energy system more profitable.

Seeing all these advantages, how can we make Washington a model for the rest of the country?

How can We Make CHP and District Energy Happen in WA

Utilities must recognize the benefit provided and pay the appropriate initial incentive that will

help get the project constructed and ongoing benefit to help the owner with operations and

maintenance of the system(s).

o Helps utilities meet renewable energy mandates.

o Provides for expedited permitting and construction to meet power demand needs of a

growing economy.

o No new transmission lines with associated permitting, land acquisition, environmental

disruption (electromagnetic corona), construction, maintenance and risks (wild fires,

floods, terrorism, etc.).

o Ongoing operations and maintenance is provided by the owner.

State Legislature should recognize the benefits to WA and provide additional incentives

o No sales tax on the CHP units and associated controls, thermal storage and piping

associated with hot water District Energy systems.

o 20 year low interest loans from the State Treasurer and/or Dept. of Commerce for all

components of a CHP and District Energy system to Public Entities.

o Require regulated utilities to pay the true appropriate incentives (initial and ongoing)

that reflect the full benefits provided by the CHP system, to include the recognized

benefit of systems that also have thermal storage (more flexible with the schedule of

power production).

o Grants for feasibility studies and construction to public entities and private companies

serving the public for district energy systems that incorporate CHP.

o No B&O taxes for privately operated District Energy developers for the first 10 years of

operations.

City, County, Port, State and Other Public Entity Facility Administrators

o Consider CHP and District Energy with T-Stor if you have large co-located facilities or

very large stand alone facilities, especially hospitals, jails, prisons, large office buildings,

colleges, universities, other institutions, data centers, etc.

o Utilize the Dept. of Enterprise Services, Energy Savings Performance Contracting

program to initiate discussion on potential.

o Consider partnering with a private District Energy developer to share costs and utilize

Federal and State tax incentives.

NW Conservation and Power Planning Council

o Recognize CHP with T-Stor and HW District Energy as a viable resource and strategy for

Resource Response, Renewable Energy, and Thermal Generation.

State Dept. of Commerce

o Recognize CHP and the value added T-Stor with District Energy in the revision of the EIA

rules.

o Show it as an option for satisfying renewable energy requirements and recognize its

value as “Capacity” that can provide a level of back-up to renewable energy as described

earlier.