Draft Avoided Cost Forecast and Marginal CO 2 Offset Value of Conservation Regional Technical Forum Maury Galbraith Northwest Power and Conservation Council April 29, 2008

2 Agenda Interim Wholesale Power Price Forecast –Revised AURORA xmp Inputs –Capacity Expansion Results –Base and Sensitivity Case Price Forecasts –Thoughts on Avoided Cost –Avoided Resources –RPS Mandate –Blended Avoided Costs Marginal CO2 Offset Value of Conservation –WECC and PNW Annual CO 2 Production Forecasts –Selecting the Region’s Marginal Resource –Average Marginal CO 2 Production Rates

3April 29, 2008 Interim Wholesale Power Price Forecast

4April 29, Revised AURORA xmp Inputs: 1.Converted CO 2 Footprint paper setup to 2006 dollars 2.Revised coal and natural gas prices 3.Revised CO 2 emission prices 4.Revised new resource capital costs 5.Added IGCC with CO 2 sequestration as a resource option 6.Restricted addition of coal-fired resources without CO 2 sequestration 7.Added resources to achieve current state RPS targets 8.Implemented capacity reserve margin modeling

5April 29, 2008 Revised Natural Gas Prices PNW West

6April 29, 2008 Revised CO 2 Emission Prices

7April 29, 2008 Summary of RPS Modeling Summary of StandardAssumed allocation of new acquisitions (Energy basis) AZ IOU sales: Annual increments to 15% by % min distributed resources. 31% load-side; 7% biomass; 27% solar; 34% wind BC Renewables will continue to account for 90% of generation 20% biomass; 40% hydro; 40% wind CA IOU sales: 1% min/yr to 20% by 2011 COUs: “recognize legislative intent” 10% biomass; 15% geothermal; 25% solar; 50% wind CO IOU sales: Scheduled increments to 20% by 2020 COU sales: Scheduled increments to 10% by % solar; 95% wind MT IOU sales: Scheduled increments to 15% by % biomass; 75% wind NM IOU sales: Scheduled increments to 20% by 2020 COU sales: Scheduled increments to 10% by % biomass; 15% geothermal; 20% solar; 50% wind NV IOU sales: Scheduled increments to 20% by % min solar; 105% credit for conservation to limit 27% conservation; 36% geothermal; 18% solar; 18% wind OR Large utility sales: Scheduled increments to 25% by (Medium utilities 10%; small 5% by 2025) 20% biomass; 10% geothermal; 5% solar; 65% wind WA Sales of large utilities (17/~ 84% load): Scheduled increments to 20% by % biomass; 5% hydro; 75% wind

8April 29, Interim Base Case WECC Resource Expansion

9April 29, Interim Base Case PNW Resource Expansion

10April 29, Interim High Capital Cost Case WECC Resource Expansion

11April 29, Interim High Capital Cost Case PNW Resource Expansion (No change!)

12April 29, Interim High Capital Cost Case WECC Resource Mix

13April 29, Interim High Capital Cost Case PNW Resource Mix

14April 29, 2008 Base Case Price Comparisons Mid-C Annual Average Prices $30 $35 $40 $45 $50 $55 $60 $ $/MWh 5th Plan Final Biennial Assessment Draft Interim Base Case Final Interim Base Case Interim High Capital Cost Case

15April 29, 2008 Sensitivity Case Price Comparisons Mid-C Annual Average Prices $30 $35 $40 $45 $50 $55 $60 $ $/MWh Interim Base Case Interim High Capital Cost Case Interim High CO2 Price Case High Capital Cost/High CO2 Price Case Interim High Fuel Price Case Interim No Incremental RPS Case

16April 29, 2008 Interim High Capital Cost Case Annual Average Prices by Load Segment Seg 1: M-F Hr Seg 2: M-F Hr 5 - 8; ; Sa & Su Seg 3: M-F Hrs 1 -4; 23 & 24 Seg 4: Sa & Su Hrs 1 - 4; 23 & 24

17April 29, 2008 Interim High Capital Cost Case Annual Average Prices by Load Segment Seg 1: M-F Hr Seg 2: M-F Hr 5 - 8; ; Sa & Su Seg 3: M-F Hrs 1 -4; 23 & 24 Seg 4: Sa & Su Hrs 1 - 4; 23 & 24

18April 29, Thoughts on Avoided Costs Avoided costs are associated with avoidable (or planned) resources: Logically come after a resource plan Guide resource decisions between plans Long-term concept Depend on load-resource balance If “short” resources then plan to acquire resources If “long” resources then plan for wholesale sales

19April 29, More Thoughts on Avoided Costs Are RPS Resources Avoidable? 1)RPS MWh = RPS Target % * Sales MWh 2)RPS MWh = RPS Target % * (Sales MWh – EE MWh ) 3)RPS MWh = (RPS Target % * Sales MWh ) – (RPS Target % * EE MWh ) In general, every MWh of EE avoids a fraction of a utility’s required RPS resource development; even though EE is typically a zero GHG emission resource.

20April 29, 2008 Blended Avoided Cost Methodology Seg 1: M-F Hr Seg 2: M-F Hr 5 - 8; ; Sa & Su Seg 3: M-F Hrs 1 -4; 23 & 24 Seg 4: Sa & Su Hrs 1 - 4; 23 & 24

21April 29, 2008 Upcoming AURORA xmp Input Revisions Demand forecast for Pacific Northwest Demand forecasts for other WECC areas Revised hydro inputs (i.e., use 70 years of stream flow) Revised wind modeling (i.e., improved hourly shape) AURORA Version 9.1 (i.e., improved capacity reserve margin logic) + Others yet to be identified

22April 29, 2008 Marginal CO 2 Offset Value of Conservation

23April 29, 2008 Sensitivity Case CO 2 Production WECC Annual Emissions

24April 29, 2008 Sensitivity Case CO 2 Production NW Annual Emissions

25April 29, 2008 Marginal CO 2 Production Rates The CO 2 emissions rate of the last resource (or marginal resource) brought on-line to supply power during a given hour. Measured in pounds of CO 2 per kilowatt-hour (lbs. per kWh). Power system results are averages of the CO 2 production rate of the marginal resources in each hour of the period (e.g., 8,760 marginal resources per year).

26April 29, 2008 Use AURORA xmp Hourly Output to Identify the Marginal Resource in Each Hour (e.g., Interim Base Case: Jan. 15, 2020 HE 7:00 P.M.) ,00010,00015,00020,00025,00030,00035,00040,00045,000 Cumulative Capability (MW) Dispatch Cost (nominal $/MWh) Hydro Nuclear Wind Coal/Biomass NG CCCT/Biogas NG SCCT/Fuel Oil/Demand Response Demand

27April 29, 2008 Interim High Capital Cost Case PNW Marginal Resource Mix

28April 29, 2008 Interim High Capital Cost Case Marginal CO 2 Rates Greater Than Average CO 2 Rates

29April 29, 2008 Interim High Capital Cost Case Marginal CO 2 Production Rates by Load Segment Seg 1: M-F Hr Seg 2: M-F Hr 5 - 8; ; Sa & Su Seg 3: M-F Hrs 1 -4; 23 & 24 Seg 4: Sa & Su Hrs 1 - 4; 23 & 24

30April 29, 2008 Use AURORA xmp Hourly Output to Identify the Marginal Resource in Each Hour (e.g., Interim High Capital Cost Case: Jan. 15, 2020 HE 7:00 P.M.)

31April 29, 2008 High Capital Cost/High CO 2 Price Case PNW Marginal Resource Mix

32April 29, 2008 High Capital Cost/High CO 2 Price Case Higher Marginal CO 2 Production Rates

33April 29, 2008 High Capital Cost/High CO 2 Price Case Higher Marginal CO 2 Rates But Lower Annual CO 2 Emissions Higher CO 2 emissions prices increase the dispatch costs of coal-fired (and to a lesser extent natural gas-fired) resources. Results in coal-fired resources being the marginal resource during more hours of the year. This increases marginal CO 2 emission rates. Also results in less overall reliance on coal-fired resources (and more reliance on natural gas). This reduces annual CO 2 emissions.

34April 29, 2008 Final Thoughts on CO 2 Offset Value Under Interim High Capital Cost Case assumptions, the average marginal CO 2 production rate of the Northwest power system is expected to range between lbs. of CO 2 per kWh. Marginal CO 2 production rates vary significantly by hourly load segment (-9% to +33% of all hour average). The CO 2 offset value of (flat output) conservation ranges between $0 and $5 per MWh under base case CO 2 emission price assumptions (in constant 2006 dollars).

35April 29,

36April 29, Why Do RPS Resource Additions Dampen Wholesale Power Market Prices? PNW Peak Demand Hour in 2020

37April 29, 2008 Revised Natural Gas Price Forecast

38April 29, 2008 Base Case Price Comparisons Mid-C Annual Average Prices

39April 29, 2008 Base Case Price Comparisons Mid-C Annual Average Prices

40April 29, 2008 Sensitivity Case Price Comparisons Mid-C Annual Average Prices

41April 29, 2008 Sensitivity Case Price Comparisons Mid-C Annual Average Prices

42April 29, High Capital Cost/High CO 2 Price Case WECC Resource Expansion

43April 29, High Capital Cost/High CO 2 Price Case PNW Resource Expansion