Refrigerator Recycling UES Measure Subcommittee Adam Hadley Subcommittee of the RTF September 1, 2015

Subcommittee Questions At its June meeting, the RTF assigned to subcommittees the following, with the provision that the subcommittees do not change the logic model: – A small sub-group of the RTF to answer: RUL on costs Risk mitigation credit for early retirement – The refrigerator recycling subcommittee to answer: Review Measure Costs 1.Should participant incentives be included in the Regional Cost- effectiveness test? 2.Review of early replacement cost methodology 3.Review cost (and benefits) of induced replacement Our job today 2

Review: Small Sub-group of the RTF’s Recommendations Group answered their questions July 2nd – RUL on Costs Answer: – The staff proposal was appropriate. – The measure’s initial capital cost value should be preserved in RTF analysis and reporting. – Risk mitigation credit for early retirement Answer: The risk mitigation credit should be set to $0 for savings that do not persist through the planning horizon. Also note: The Grocery SP-to-EC Motors and Display Case LED’s measures that used both of these methods were adopted at the July RTF meeting 3

Question 1: Include incentive in B/C test? Question, in detail: – The refrigerator recycling program typically offers an incentive (~$20-$40) to the owner of the refrigerator/freezer to encourage program participation. Should this be included as a cost within the Regional Cost-effectiveness Test? Argument used in favor of including it as a cost – This is a cost of running the program; it’s like marketing – It represents the loss of utility of refrigeration Argument used against including it as a cost – This is a transfer payment within the Region. Including it as a cost would represent a change in the way the RTF does its economics – If it’s loss of utility of refrigeration, this measure violates the definition of conservation Staff recommendation: Do not include the incentive as a cost in the Regional Cost-effectiveness Test (Or, deactivate the measure if we think it’s a curtailment) Discussion and Subcommittee Recommendation? 4

Question 2: Are early replacement costs appropriate? Question, in detail: – Is the early replacement cost estimation method (shown on next slide) appropriate? Argument used in favor of the method – The sub-group of the RTF agreed with this method – Same method used in RTF/ProCost for years for truncated costs and benefits – Same method is used for other recently adopted measures Argument used against the method – There should be more review of this by more economists – (subcommittee to fill in blank) – Alternative proposal is (subcommittee to fill in blank) Staff recommendation: Use proposed method (next slide) Discussion and Subcommittee Recommendation? 5

Early Replacement Cost Methodology Mimics calculations ProCost uses where costs or benefits are truncated by program life 6 Notes: This example is for refrigerators, the same methodology is used for freezers. All costs are in 2006$’s. PV of Cost of Purchasing New: $942 Real Discount Rate: 5% EUL (new unit): 15.2 years Annualized Constant Payment for life of new equipment: $90 RUL (replaced unit): 6.4 years Early Replacement Cost = $942 – Sum(Red Bubble)

Question 3: Are induced replacement costs and benefits appropriate? Question, in detail: – Should the induced replacement paths include a benefit? For example, the utility of the refrigerator? Or the fact that there’s now another new refrigerator in the region? Staff recommendation: Modify the June proposal for induced replacement costs to include a benefit for the utility of refrigeration – See next slide for logic and proposal details – This proposal, unlike the previous 2 questions, has not yet been reviewed by the RTF 7

Induced Replacement Cost Proposal (2006$’s) Net Cost of Induced Replacement = PV of new unit – Other Value Potential sources of “Other Value” – Utility of a Newer unit? No way to quantify the benefit of having a new unit (independent of energy savings), except for using the cost of the new unit itself. But this negates the purpose of the Regional Cost-effectiveness Test; by this logic, anything someone in the Region buys would be cost-effective. – Utility of Refrigeration This could argue for setting the “other value” at the cost of a new refrigerator (Net cost = $0), or the cost or value of a used refrigerator – But the participant already had a refrigerator that worked Set the utility of refrigeration at the value of the incentive? We could use the cost of running the unit as a proxy for the value of the refrigeration – Cost to run the new unit could be considered the minimum value, because the owner is willing to pay at least this much to run the unit. This mimics the method used to estimate the cooling benefit for the DHP measure. » New Unit Retail Electricity Cost Refrigerator: 433 $0.081/kWh = $35/yr NPV of $35/yr for % real discount rate = $369 Net Cost of Induced Replacement = $942 – $369 = $573 Freezer: 288 $0.081/kWh = $23/yr NPV of $52/yr for % real discount rate = $298 Net cost of Induced Replacement = $516 – $298 = $218 Discussion and Subcommittee Recommendation? 8

Extra Slides 9

Proposal: Add cost of Replacement Units – Induced Replacement – Where the program caused purchase of a unit that otherwise wouldn’t have been purchased – Early Replacement – Where the program caused early replacement of an existing unit – The induced replacement cost or the early replacement cost is used, depending on the circumstances, as shown on upcoming slides (“logic maps”) – Cost only incurred where replacement unit is new because purchase of a used unit represents a transfer payment within Region: How many are new units? Same values as used in energy savings calculations Refrigerators – “Brother-in-Law” (R2): 59% » ADM CA Statewide survey – Participant (R1): 78% » Source: JACO Program Data Freezers: 100% Measure Cost: Changes (continued) 10 This slide from June RTF Presentation

11 Refrigerator Replacement Cost Logic Map This slide from June RTF Presentation

Support Materials RTF June Refrigerator Recycling Presentation The Uniform Methods Project: Chapter 7: Refrigerator Recycling Evaluation Protocol The Uniform Methods Project: Chapter 7: Refrigerator Recycling Evaluation Protocol Reports where RTF gets its percent “induced replacement” value – Rocky Mt Power ID Rocky Mt Power ID – Pacific Power WA Pacific Power WA