1. Avoided Cost and E3 Calculator Workshops Energy and Environmental Economics, Inc. October 4, 2005

2. Total Electric Avoided Costs Shape is Based on PG&E’s San Jose Planning Division

3. Refinements in Avoided Cost Background Overview of Title 24 DR Progress Focus on demand response measures  Programmable Communicating Thermostat example Capacity and Energy Value Refinement  Existing CPUC and CEC TDV Values are based on 1998 and 1999 PX market data  Proposed new method modifies the PX market shape based on a ‘CT Backstop’ approach  Creates a ‘peakier’ value curve

4. Background 2005 Title 24 Building Standards adopted ‘Time- dependent Valuation’ methodology Analysis was completed in 2003, and much information was used in the CPUC Avoided Cost proceeding started in 2004 2008 Title 24 Building Standards are evaluating a new TDV curve for demand response  Refinement in energy and capacity valuation

5. Overview of Title 24 DR Progress 3 Public Meetings Completed Methodology Components  Energy, reliability, and capacity most difficult  T&D, environment, other pieces adopted from prior CEC Title 24 TDV and CPUC Avoided Costs Attempt at party consensus of approach  CEC, SCE, PG&E, SDG&E  Public comment also requested Proposal for complete methodology has been developed – remainder of presentation

6. Title 24 2008 Energy and Capacity Value Method and results in this slide are preliminary.

7. Value of Energy, Capacity, Reliability Resource PlanningOperations Class Average VOS $25/kWh -Productivity -$5/kW Net Reliability $20/kWh  kW of Equivalent Capacity in Each Hour Additional  kW of Equivalent Capacity Achieved During Stage 3 + +

8. CT Backstop Method Modifies the historical market price shape to reflect avoiding the need to add capacity Assumes that the backstop technology to add capacity in the State is a CT Observed market prices will pay for part, but not the total costs of a new CT  Differe

9. CEC Price Shape – 2004 IEPR Note these shapes are from 2004 IEPR.

10. Forecast Market Price - 2008 Price Duration Curve CEC Shape Scaled to All-in Combined Cycle Cost

11. Calculation of Residual Capacity Value Uses $72/kW-year Fixed Cost of a CT Assumption (levelized real)  $85/kW-year (levelized nominal) approx. the same value. Result is approximately $20/kW-yr High number of operating hours Similar analyses for other cases / utilities show approximately 700- 900 hours operation Few hours results in a larger residual capacity value

12. Allocation of Residual Capacity Control Area Load 1999 Example Resulting Allocators

13. Energy and Capacity Curve (Example from 2008) Residual Capacity – 100 Hours Residual Capacity – 250 Hours