Northwest Power and Conservation Council 6 th Plan Conservation Resource Supply Curve Workshop on Data & Assumption Overview of Council Resource Analysis Methodology and Modeling System February 20, 2008

Northwest Power and Conservation Council slide 2 Council Goals for These Workshops Review the key inputs, assumptions, data sources and methodologies that will be used to construct the 6th Plan’s conservation resource supply curves. Review the key inputs, assumptions, data sources and methodologies that will be used to construct the 6th Plan’s conservation resource supply curves. Compare the key data and assumptions used by the Council with those used by others in the region. Compare the key data and assumptions used by the Council with those used by others in the region. Identify and prioritize areas for cooperative research and/or data sharing that would improve inputs used to develop supply curves across the region. Identify and prioritize areas for cooperative research and/or data sharing that would improve inputs used to develop supply curves across the region.

Northwest Power and Conservation Council slide 3 What We Will Not Being Discussing Technical, Economic or Achievable Potential beyond the “unit level” Technical, Economic or Achievable Potential beyond the “unit level” Current or future BPA programs or requirements Current or future BPA programs or requirements I-937 Rules or Requirements I-937 Rules or Requirements (Charles – feel free to add others) (Charles – feel free to add others)

Northwest Power and Conservation Council slide 4 The Plan’s Definition of Resource Cost- Effectiveness Comes From the Regional Act "Cost-effective,” means that a measure or resource must be forecast: "Cost-effective,” means that a measure or resource must be forecast: –to be reliable and available within the time it is needed –to meet or reduce the electric power demand of the consumers at an estimated incremental system cost no greater than that of the least- cost similarly reliable and available alternative measure or resource, or any combination thereof.

Northwest Power and Conservation Council slide 5 Under the Act the term "system cost" means: An estimate of all direct costs of a measure or resource over its effective life, including: An estimate of all direct costs of a measure or resource over its effective life, including: –the cost of distribution and transmission to the consumer –waste disposal costs –end-of-cycle costs –fuel costs (including projected increases) –and such quantifiable environmental costs and benefits as are directly attributable to such measure or resource

Northwest Power and Conservation Council slide 6 The Act’s Definition of Cost- Effectiveness Seeks to minimize the total cost of meeting the region’s need for the services provided by electricity, i.e., its goal is economic efficiency. Seeks to minimize the total cost of meeting the region’s need for the services provided by electricity, i.e., its goal is economic efficiency. Does not address the distribution of these costs among parties in the region Does not address the distribution of these costs among parties in the region

Northwest Power and Conservation Council slide 7 Council Process for Estimating Cost-Effective Conservation Resource Potential & Setting Acquisition Targets Measure Cost Cost Measure Savings and Load Shape and Load Shape MeasureLifetime Program Data Contractor Bids Contractor Bids Retail Price Surveys Retail Price Surveys End Use Load Research Engineering Models Engineering Models Billing History Analysis Billing History Analysis Independent Testing Labs Independent Testing Labs Evaluations Census Data Census Data Manufacturers Data Manufacturers Data Engineering Estimates Engineering Estimates MarketModel Provides 20-year Forecast of Hourly Wholesale Market Prices & CO2 Emission/kWh Under Average Water Conditions, Medium Gas Price Forecast for Medium Load Growth Scenario Cost-Effectiveness Model Determines measure and program level “cost- effectiveness” using: Measure costs, savings & load shape Measure costs, savings & load shape Aurora Market prices Aurora Market prices T&D savings (losses & deferred $)T&D savings (losses & deferred $) 10% Act Credit10% Act Credit Quantifiable non-energy costs & benefitsQuantifiable non-energy costs & benefits Council Financial Assumptions (e.g. Discount Rate, Administrative costs, etc.)Council Financial Assumptions (e.g. Discount Rate, Administrative costs, etc.) PortfolioModel Determines NPV of Portfolios with Alternative Levels of Conservation vs Other Resources Under Wide Range for Future Conditions Plan’s Conservation Target

Northwest Power and Conservation Council slide 8 Conservation Measure Cost-Effectiveness “Inputs and Outputs” Aurora West Coast Market Price Forecast ECM Costs, Savings, Load Shapes & Coincidence Factors PNW Avoided Cost by Transmission Control Area ProCost BulkPowerSystemValue Carbon Emissions Benefits Local Distribution System T&D Benefits System T&D Benefits BulkTransmissionSystem Benefits Benefits LocalDistributionSystemValue TotalSocietal Value Value Non-EnergyBenefits

Northwest Power and Conservation Council slide 9

Northwest Power and Conservation Council slide 10 Backup Slides

Northwest Power and Conservation Council slide 11 Council 5 th Plan Forecast of Future Average Monthly Market Prices (Mid C-Trading Hub)

Northwest Power and Conservation Council slide 12 Typical “On-Peak” Load Profiles

Northwest Power and Conservation Council slide 13 Forecast On-Peak Market Power Prices by Month and Year

Northwest Power and Conservation Council slide 14 Typical Off-Peak Load Profiles

Northwest Power and Conservation Council slide 15 Forecast Off-Peak Market Power Prices by Month and Year

Northwest Power and Conservation Council slide 16 The Council’s Conservation’s Cost-Effectiveness Analysis Compares Savings with Forecast Market Prices at the time the savings occur Four “Load Segments” are used to compute the value of savings: Four “Load Segments” are used to compute the value of savings: –Weekday “Peak” Load Hours –Weekday “Ramp Up/Ramp Down” hours and “Weekend Peak” Load Hours –Weekday and “Weekend Off-Peak” hours –Weekend and Holiday “Very-Low”

Northwest Power and Conservation Council slide 18 Each Conservation Measure Has a Different “Cost-Effectiveness” Limit Based on When It’s Savings Occur Weighted Average Value of Space Heating Savings = $41/MWh Weighted Average Value of Space CoolingSavings = $78/MWh

Northwest Power and Conservation Council slide 19 Local Transmission and Distribution Benefits There is value in delaying utility investments in local distribution networks (and sub-High Voltage Transmission) that is caused by load growth There is value in delaying utility investments in local distribution networks (and sub-High Voltage Transmission) that is caused by load growth Not all load growth results in the immediate need to increase local distribution system network capacity Not all load growth results in the immediate need to increase local distribution system network capacity Other “Demand Side Management” (e.g. load control) programs may be better suited to deferring network expansion Other “Demand Side Management” (e.g. load control) programs may be better suited to deferring network expansion The value of reducing load growth defer distribution capacity expansions: The value of reducing load growth defer distribution capacity expansions: Capital expansion cost/KW-yr * Probability expansion will be deferred by conservation measure’s impact on distribution system peak

Northwest Power and Conservation Council slide 20 Illustrative Local Distribution System T & D Benefits

Northwest Power and Conservation Council slide 21 Environmental Externalities Value Based on Carbon Dioxide Emissions from West Coast Power System Based on Carbon Dioxide Emissions from West Coast Power System Consensus that $0 is wrong Consensus that $0 is wrong Used $5- $40/ton of CO2 emitted Used $5- $40/ton of CO2 emitted Varied amount and future date of carbon control implementation Varied amount and future date of carbon control implementation Adds about $3/MWh to Present Value Benefit of Savings (also varies by shape of savings) Adds about $3/MWh to Present Value Benefit of Savings (also varies by shape of savings)

Northwest Power and Conservation Council slide 22 Expected Value of CO2 Control Cost by Year