1

CPUC Avoided Cost Workshop

Introduction and Overview

2

Efficiency Avoided Cost Background

The draft avoided costs were developed by a stakeholder group (August to December 2003)

Developed with an open and transparent methodology Participants in five working meetings included

CPUC, CEC, four CA IOUs, NRDC, ORA Spreadsheet tools available on internet Only public data sources were used

Focus for avoided costs was strictly EE Draft report was released on January 8, 2004

3

Goals of this Workshop

The CPUC staff will produce a report on the outcomes of the workshop Document the positions of the parties Include comments previously filed

Workshop is an opportunity to clarify existing comments, and add new comments

To aid the report, each comment should be as specific as possible, including; Avoided cost issue being addressed Relevant proceedings to which the comment applies Specific comment

4

Structure of the Workshop

Summary of Results Presentation Provide a high level introduction or refresher on

the efficiency avoided cost project Methodology Discussions in the Three-day

Workshop Summarize methodology to answer as many

questions and comments submitted as possible Discussion of appropriateness of avoided costs

to particular applications

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Some of the issues to be addressed during this workshop… Generation

Thin markets Hedge value Capacity and energy separation Market referents and generation cost shape

Emission Costs Double counting? Treatment of unpriced emissions

T&D Reliability of load reductions affect the value Is time and location worth the effort?

Market Price Effect Does it exist, and should it be recognized?

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Summary of Energy Efficiency Avoided Cost Values

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Avoided Cost Principles

Use a flexible and transparent method that can be updated or modified for other applications

Use publicly available data Use forward-looking market data whenever possible

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Dimensions of the AnalysisAvoided Cost Stream Time Dimension Area Dimension

Avoided Electricity Generation

Hourly Utility specific

Avoided Electric Transmission and

Distribution

Hourly Utility, planning area and climate zone specific

Avoided Natural Gas Procurement

Monthly Utility specific

Avoided Natural Gas Transportation and

Delivery

Monthly Utility specific

Environmental Externality Adder

Annual value, applied by hour according to implied heat rate

System-wide (uniform across state)

Reliability Adder Annual value System-wide (uniform across state)

Price Elasticity of Demand Adder

TOU period (on- vs. off-peak) by month

System-wide(uniform across state)

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Hourly Electric Cost Structure

EnvironmentalExternality

En

erg

y V

alu

e

T&D

Monday Tuesday Wednesday Thursday Friday

Hot afternoon

Market Prices

Avoided Generation

Costs

ReliabilityExternality

Price Elasticity of Demand Externality

EnvironmentalExternality

En

erg

y V

alu

e

T&D

Cost

Monday Tuesday Wednesday Thursday Friday

Hot afternoonHot afternoon

Avoided Cost

Avoided Generation

Costs

ReliabilityExternality

Price Elasticity of Demand Externality

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Formulation of Avoided CostElectric

Period 1 (2004-2008)Platt’s / NYMEX

Period 2Transition

Period 3 (2008-2023)LRMC

1 + Ancillary Services (A/S)

Period 1 (2004-2008)NYMEXPeriod 2

TransitionPeriod 3 (2008-2023)

Long-run Forecast

1 + LUAF + Compression

Commodity

Natural Gas

Commodity

Market Multiplier

1 + Energy Losses

T&D Costs (1 + Peak Losses )

Environment (1+ Energy Losses)

T&D Costs

Environment

+

+

+

+

• “NYMEX” = “New York Mercantile Exchange”• “LRMC “ = “Long-run marginal cost” = all-in cost of a combined cycle gas turbine (CCGT)• “LUAF “ = “Loss and unaccounted for”

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Generation Marginal Cost Forecast Working Group Framework

2004 2006 2008 2023

Electric Forward data

Gas Futures data

Long Run Marginal Cost (CCGT)

Market Data(Short Term)

Long Run Proxy(Long Term)

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Ancillary Services (A/S) Costs

Average of A/S costs as percent of total energy costs, during non-crisis period (8/99-5/00, 8/01-7/03): 2.84%

Apply 2.84% to shaped hourly energy price 2004: 2.84% * $45.57/MWh = $1.29/MWh of load 2005: 2.84% * $46.65/MWh = $1.32/MWh of load 2013: 2.84% * $60.00/MWh = $1.70/MWh of load

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Market Elasticity Estimates

On-Peak Off-PeakJanuary 100% 100%February 100% 100%March 100% 100%April 100% 100%May 108% 100%June 109% 100%July 107% 100%August 107% 100%September 109% 100%October 105% 100%November 100% 100%December 100% 100%

•On-Peak: 8 am to 6 pm, Working Weekdays, May to October•Off-Peak: All Other Hours•“RNS” = “Residual net short”, as % of retail sales, transacted at market

Market Multiplier(On Peak RNS = 5%)

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T&D Avoided Costs by Planning Division

SDG&E

$77.76

SCE

$36.00

$21.00

$5.00

PG&E

$70.00

$38.00

$5.00

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Allocation of T&D Based on Temperature by Climate Zone

Temperature Loads T&D Capacity Cost

Drives Drives

Load Information Missing or Difficult to Obtain in Many Areas

Temperature

Use temperature as a proxy for load, and as the basis for allocating costs to

hours of the year.

T&D Capacity Cost

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Summer PeakLoad vs. Temperature

Fresno

Yellow8am to 10pm

Similar analysis done on 33 PG&E areas as part of CEC Title 24 development

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$/MWh Emissions Costs & Plant Heat Rate

02000400060008000

10000120001400016000

$- $2.00 $4.00 $6.00 $8.00 $10.00

$/MWh

He

at

Ra

te

Emission Prices & Plant Heat Rates

• Includes NOx, PM-10, and CO2 emission credit prices• Heat rate assumption

• Lower bound: 6,240 Btu/kWh• Upper bound: 14,000 Btu/kWh

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3 Day Snapshot of Electric Avoided Costs

Total Avoided Costs

$-

$50

$100

$150

$200

$2501 8

15

22 5

12

19 2 9

16

23

Hour of Day

$/M

Wh

Distribution

Transmission

CO2

PM10

NOX

Multiplier

AS

Generation

14-Jul 15-Jul 16-Jul

2004

Avoided Cost is Based on PG&E’s San Jose Planning Division

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14

710

1316

1922

14

710

$0

$50

$100

$150

$200

$250

Hour

Month

San Jose: Levelized Avoided Cost by Month and Hour ($/MWh)

$200.00 - $250.00

$150.00 - $200.00

$100.00 - $150.00

$50.00 - $100.00

$- - $50.00

T&D Costs

Disaggregated Electric Avoided Costs

Shape is Based on PG&E’s San Jose Planning Division

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Comparison of the Results

Existing Efficiency Avoided Costs Impact on EE Program Evaluation by Type MPR in Renewable Portfolio Standard SCE QF Prices

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Comparison of Annual Avoided Cost

New Total is Shown for PG&E, CZ 13, Secondary Voltage

Comparison of Existing and New Average Annual Electric Avoided Costs

$-

$20.00

$40.00

$60.00

$80.00

$100.00

$120.00

$140.0020

02

2004

2006

2008

2010

2012

2014

2016

2018

2020

2022A

nn

ual

Ave

rag

e A

void

ed C

ost

(N

om

inal

$/M

Wh

)

0

20

40

60

80

100

120

140

Gen T&D Environment New Total

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Comparison for Efficiency Programs

• Levelized Avoided Cost ($/MWh) over 16 Year Life for All Devices• AC Load Shape Based on SEER 12 to SEER 13 Change in Fresno• New Avoided Costs are based on PG&E, Climate Zone 13, Secondary

$-

$20.00

$40.00

$60.00

$80.00

$100.00

$120.00

$140.00

$160.00

Air Conditioning Outdoor Lighting Refrigeration

Wei

gh

ted

Ave

rag

e A

void

ed C

ost

($/

MW

h)

New Avoided Cost Existing Avoided Cost

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Comparison of MPR in RPS

Gas Price Comparison

Comparison of Gas Price Forecasts at Burner Tip

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10

2004

2007

2010

2013

2016

2019

2022

2025

Year

Gas

Pri

ce (

No

min

al

$/M

MB

tu) RPS - Burnertip

EE - PG&E

EE - SDG&E

EE - SoCal Gas

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Comparison of Market Price in RPS

Comparison of All-In Market Price Forecast

010

2030

4050

6070

8090

2004

2007

2010

2013

2016

2019

2022

Year

Mar

ket

Pri

ce (

$/M

Wh

)

RPS All-InForecast (20-year)

RPS Model withEE Gas Forecast

Annual AveragePrices for PG&E

Annual AveragePrices for SDG&E

Annual AveragePrices for SCE

Replacing gas forecast eliminates the difference in the MPR results between EE model and RPS model

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Comparison of Price Shape

Price shapes are extremely similar

1 4 7

10 13 16 19 22

Month

Aug020406080

100120140160180

160-180

140-160

120-140

100-120

80-100

60-80

40-60

20-40

0-20

1 4 7

10 13 16 19 22

Month

Aug020406080

100120140160180

160-180

140-160

120-140

100-120

80-100

60-80

40-60

20-40

0-20

SCE Revenue Calculatorfrom Renewable RFP

Efficiency Avoided CostAveraged by Hour for Each Month