1. Energy and Environmental Economics 1 Avoided Cost and E3 Calculator Workshops Energy and Environmental Economics, Inc. October 3, 2005

2. Energy and Environmental Economics2 Existing Summer Peak TOU Period Definitions Summer Season Summer Peak Period Hours

3. Energy and Environmental Economics3 Costs by TOU Period (NP-15, 2008) Average Gen + Emission cost for NP-15 ($/MWh) Avg Gen + Emission using SCE TOU Periods A June through September program would be valued higher under SCE’s definition

4. Energy and Environmental Economics4 Variation of Avoided Gen + Env Costs within PG&E’s Summer Peak Period

5. Energy and Environmental Economics5 Costs by TOU Period (SP-15) SCE ($/MWh 2008) SDG&E ($/MWh 2008)

6. Energy and Environmental Economics6 Review of Available End Use Information

7. Energy and Environmental Economics7 PG&E Hourly Shapes

8. Energy and Environmental Economics8 Shape Cautions PG&E’s hourly shapes reflect the average usage of an end use, not necessarily the savings profile for a measure. TOU shapes are generally old and difficult to reproduce.

9. Energy and Environmental Economics9 Deer Shapes

10. Energy and Environmental Economics 10 Review of E3 calculator’s use of avoided costs and end use information Pre-processing

11. Energy and Environmental Economics11 Calculators Make use of Pre- Processed End Use Shapes Pre-processing allows for the detail from the hourly avoided costs and the hourly end use shapes to be captured, while streamlining program design and evaluation. Pre-processing basically takes a normalized end use load shape and multiples it against the hourly avoided costs. The resulting hourly benefits are then summed into four quarters for each year of the 20 year forecast period. For each year, 8760 hourly values are condensed to four values. Because the load shape information and the cost information are multiplied at the hourly level BEFORE summation into quarters, there is NO loss of precision. The quarterly benefits by end use (and by climate zone) are the building blocks for the cost effectiveness evaluation in the Calculators. For those cases where hourly load shapes do not exist, TOU values were used. TOU will be less precise.

12. Energy and Environmental Economics12 Pre-processing – Hourly Loads Hourly Shapes (by sector, measure, CZ)  Multiply against 8760hr x 30yr x 10Climate zones (if shapes applies to all CZs)  Calculate avoided costs by quarter for each shape Generation (energy and capacity combined) and emissions T&D capacity allocated to hours

13. Energy and Environmental Economics13 Pre-processing example Hourly Avoided Costs ($/kWh) Hourly Shape (kWh/hr) Hourly Benefits ($/hr) X = Qtr 1Qtr 2Qtr 3Qtr 4

14. Energy and Environmental Economics14 Pre-processing – Hourly Loads Hourly Shapes (by sector, measure, CZ) Average Monthly Peak and Non-coincident peaks for 12 months  Average monthly peak is the average demand reduction during the five highest system hours for each month.  Non-coincident[month] peak is the highest demand reduction during the month. Annual values  Avg July-Sept Peak: Average monthly peak reduction for the three months.  Avg Dec-Feb Peak: Average monthly peak reduction for the three months  Non-coincident[year] peak is the highest Non- Coincident[month] value. Note that DEER kW numbers are NOT used

15. Energy and Environmental Economics15 Pre-processing: TOU Factors TOU Costing Period Factors  Average hourly avoided energy costs across TOU periods  Sum hourly capacity costs (T&D) across TOU periods.  Calculate avoided costs by quarter for each shape Generation energy and emission costs * TOU kWh shape T&D Capacity by TOU * TOU kW shape  Calculate Monthly Average and Non-coincident Peaks Concident = Summer on-peak TOU factor Non-coincident: Use highest of seasonal TOU factors

16. Energy and Environmental Economics16 TOU kW and DEER kW Calculated kW and DEER kW will not match for these shapes. SDG&E has a workaround that uses the DEER values for reporting

17. Energy and Environmental Economics17 TOU example TOU Avoided Costs ($/kWh) TOU Shape (kWh/hr) TOU Benefits ($/hr) X = Qtr 1Qtr 2Qtr 3Qtr 4 SummerWinter On Ptl Off

18. Energy and Environmental Economics 18 The E3 Calculator

19. Energy and Environmental Economics19 Purpose of the Calculators Provide a tool that allows users to input program information and select from pre-determined end- use shapes to calculate program cost effectiveness.  Preprocess hourly data to a more manageable form Allow easy calculation of measure benefits by climate zone  Recognizes both the shape and cost differences by climate zone.

20. Energy and Environmental Economics20 Calculator Tabs Input: All user inputs describing program and measures Output: Program overall impacts, and by sector and quarter Output-Measure: Impacts for each measure Calculations: The calculations CostG: Avoided costs for Gas CostE: Pre-processed data for electric PolicyManual: Inputs for NTG Ratio and measure life. Users will only interact with these three tabs The remaining tabs are used for the calculations, and may be locked or hidden in the final version

21. Energy and Environmental Economics21 Review of the Calculator Operations How pre-processed shapes are used in the Calculator Use of annual kWh to scale impacts Secondary role of kW for  kW-factor TOU shapes  T&D capacity costs Use of whole year End Use Life

22. Energy and Environmental Economics22 Review of Issues – Types of kW  Coincident  Avg July-Sept  Monthly  Avg Dec-Feb  Noncoincident (annual and monthly)  “CEC kW” 0.217 Factor  Average daily peak

23. Energy and Environmental Economics23 Review of Issues – Counting Period Annual kW achievements  Achievements based on incremental installations Peak based on when unit is committed Peak based on year unit is installed (e.g., Annual Net kWh) Peak based on whether unit is in place prior to the summer period Achievements based on units in place at a snapshot in time  Peak based on units installed by the snapshot time  Peak based on units installed AND still working at the time of the snapshot Include installations past 2008?

24. Energy and Environmental Economics24 Utility Differences

25. Energy and Environmental Economics25 Standard Practice Manual TechMarket asserts that PAC (BC Ratio?) should always be > TRC since TRC includes “all costs”  It is E3’s understanding that TRC excludes transfer payments (incentives). So large incentives could increase PAC costs above TRC levels. There is an issue with load building programs.  The calculator treats load increases as a negative benefit, rather than reclassifying it as a positive cost. This is inconsistent with the SPM, and would affect the BC ratios (but not the net benefits).  However, whether it is a negative benefit or positive cost will never change the B/C ratio being greater than or less than 1.0

26. Energy and Environmental Economics26 The B/C unity relationship does not change Assume b is the negative benefit (cost increase) of a load increase. The total benefit is (a-b) and the cost is c. If the program is cost effective, the B/C ratio is: (a-b)/c > 1 This can be re-expressed as follows:  (a-b) > c  a > c+b  a/(c+b) > 1 The last equation is the case where b is reclassified as a cost and included in the denominator. The algebra shows that the “>1” relationship remains the same, regardless of the classification of b.

27. Energy and Environmental Economics27 Identification of Issues around Peak Demand Definition Overall Commission direction Parameters by which utilities’ portfolio performance in terms of peak load reductions will be evaluated. Adequate capture of the value of critical peak reduction Update our peak savings for 2009 based on studies of peak savings potential, rather than historical program performance

28. Energy and Environmental Economics28 Existing Demand Definitions and Requirements Coincident demand  Hourly data needed. TOU data must be assigned an assumed relationship to peak. TOU demand  TOU already exists, and hourly could conform. Avg daily demand  Hourly data is best. TOU data would need to be apportioned to new period. DEER demand  Relationship to a “peak” period is unclear (timing of load reductions at that level)

29. Energy and Environmental Economics29 Issues Related to Demand Definition Uniform definition needed across proceedings?