10/31/2015 1 1 economic value of stabilizing regional conservation investments changes to analytical...

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Economic Value of Economic Value of Stabilizing RegionalStabilizing Regional

Conservation Investments Conservation Investments

Changes to Analytical Changes to Analytical Approach and Updated Approach and Updated

ResultsResults

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Goal of the Analysis

Determine whether there is a net economic Determine whether there is a net economic value to the region’s power system that could value to the region’s power system that could result from stabilizing the annual level of result from stabilizing the annual level of conservation resource acquisitionconservation resource acquisition

Identify and evaluate conservation Identify and evaluate conservation deployment strategies that provide the best deployment strategies that provide the best net economic value to the regional power net economic value to the regional power system considering practical limitations on system considering practical limitations on program ramp rates and market volatilityprogram ramp rates and market volatility

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Analytical Approach SelectedAnalytical Approach Selected

Use Use ConSODConSOD model to simulate two model to simulate two responses to variations in future market responses to variations in future market prices:prices:

““Sustained Orderly Development” (SOD)Sustained Orderly Development” (SOD) - - Conservation acquisitions are deployed in Conservation acquisitions are deployed in uniform annual increments based on long-uniform annual increments based on long-run avoided costsrun avoided costs

““Market Price Response” (MPR)Market Price Response” (MPR) - - Conservation acquisitions are deployed Conservation acquisitions are deployed based on rolling average of short-term based on rolling average of short-term market pricesmarket prices

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Analytical Issues – Required Data and Assumptions

Major AssumptionsMajor Assumptions– Relationship between “rolling average” Relationship between “rolling average”

Market PricesMarket Prices and and AnnualAnnual Level Level of of conservation acquisitionconservation acquisition

– Relationship between Relationship between Ramp RateRamp Rate and and Total Total Resource Cost Resource Cost of conservation of conservation acquisitionsacquisitions

– Rate at which conservation acquisitions Rate at which conservation acquisitions can be can be Ramped Ramped Up Up and and DownDown

– AmplitudeAmplitude and and FrequencyFrequency andand DurationDuration of of wholesale market price spikeswholesale market price spikes

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What’s Changed?

PriorPrior analysis based on “Regional” historical relationships between:–Annual Expenditures and Total

Acquisitions– Level of Annual acquisitions and

Cost/aMW–Changes in Acquisition Levels and

Changes in Cost/aMW–Acquisition Levels and Market Prices

UpdatedUpdated analysis based on historical experience of 10 individual PNW utilities

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Is There A Relationship Between Is There A Relationship Between Market Market PricesPrices and and AnnualAnnual Level Level of Conservation of Conservation Acquisition? – Regional DataAcquisition? – Regional Data

0

20

40

60

80

100

120

140

1996 1997 1998 1999 2000 2001 2002(Proj.)

Ave

rag

e P

rice

($/

MW

h)

0

40

80

120

160

200

Uti

lity

In

vest

men

ts (

Mil

lio

ns$

)

Average Mid-C Market Price ($/MWh)

Utility Investments (Millions$)

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Is There A Relationship Between Is There A Relationship Between Market Market PricesPrices and the and the AnnualAnnual Level Level Conservation Conservation Acquisitions? – Utility DataAcquisitions? – Utility Data

$0

$20

$40

$60

$80

$100

$120

$140

1996 1997 1998 1999 2000 2001 2002(Proj.)

An

nu

al A

ve

rag

e M

ark

et

Pri

ce

(Millio

n 2

00

0$

/aM

W)

0

3

6

9

12

15

18

21

An

nu

al A

cq

uis

itio

ns

(a

MW

)

Avg. Market Price (2000$/MWh) EWEB IPCNWEnergy PACorp PGE

PSE SCL SnPUDTP Avista

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Annual Conservation Acquisitions are NegativelyNegatively Correlated to “Same-Year’s” Market Prices – Regional Data

R2 = 0.26

$0

$50

$100

$150

$200

$250

30 40 50 60 70 80Conservation Acquisitions (aMW)

Ave

rag

e A

nn

ual

Mar

ket

Pri

ce (

2000

$/aM

W)

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Annual Conservation Acquisitions Annual Conservation Acquisitions Appear Appear To To Be Be Very WeaklyVery Weakly but but Positively Positively CorrelatedCorrelated to to “Current Year’s” Market Prices – Utility Data“Current Year’s” Market Prices – Utility Data

R2 = 0.14

$0

$20

$40

$60

$80

$100

$120

$140

0 5 10 15 20 25Conservation Acquisitions (aMW/yr)

Ave

rag

e M

arke

t P

rice

(M

illio

n 2

000$

/aM

W)

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Annual Conservation Acquisitions are Strongly and Positively Correlated to “Last-Year’s” Market Prices – Regional Data

R2 = 0.66

$0

$25$50

$75$100

$125$150

$175$200

$225

25 35 45 55 65 75

Current Year's Conservation Acquisitions (aMW)

Pri

or

Ye

ars

Av

era

ge

Ma

rke

t P

ric

es

(2

00

0$

/aM

W0

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Annual Conservation Acquisitions Annual Conservation Acquisitions Appear Appear To To Be Be WeaklyWeakly and and Positively Positively CorrelatedCorrelated to “Last- to “Last-Year’s” Market Prices – Utility DataYear’s” Market Prices – Utility Data

R2 = 0.24

$0

$20

$40

$60

$80

$100

$120

$140

0 5 10 15 20 25Conservation Acquisitions (aMW/yr)

Ave

rag

e M

arke

t P

rice

(M

illio

n 2

000$

/aM

W)

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However - If we exclude 2000-01 However - If we exclude 2000-01 They’re They’re NOTNOT

R2 = 0.00

$0

$10

$20

$30

0 2 4 6 8 10

Current Year's Conservation Acquisitions (aMW)

Pri

or

Yea

rs A

vera

ge

Mar

ket

Pri

ces

(200

0$/a

MW

0

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Changes in Annual Conservation Acquisition Are Strongly Correlated to Changes in Prior Year’s Market Prices – Regional Data

R2 = 0.99

-100%

0%

100%

200%

300%

400%

500%

600%

700%

-20 0 20 40 60Change in Acquisitions (aMW)

Pri

or

Yea

rs C

han

ge

in

Mar

ket

Pri

ce (

Mil

lio

ns-

2000

$/aM

W)

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Excluding 2000-01, Changes in Annual Conservation Acquisition Are Weakly Correlated to Changes in Prior Year’s Market Prices – Regional Data

R2 = 0.27

0%5%

10%15%20%25%30%35%40%45%50%

-15 -10 -5 0Change in Acquisitions (aMW)

Pri

or

Yea

rs C

han

ge

in

Mar

ket

Pri

ce (

Mil

lio

ns-

2000

$/aM

W)

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Changes in Annual Conservation Acquisition Are Not Correlated to Changes in Prior Year’s Market Prices – Utility Data

R2 = 0.02

-200%

-100%

0%

100%

200%

300%

400%

500%

-20 -10 0 10 20

Change in Acquisitions (aMW)

Ch

ang

e in

Mar

ket

Pri

ce (

%)

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Relationship Between Relationship Between Market PricesMarket Prices and and Changes in theChanges in the AnnualAnnual Level Level of of Conservation AcquisitionConservation Acquisition

Conclusion – Historical evidence Conclusion – Historical evidence does notdoes not indicate a indicate a statistically significantstatistically significant relationship between relationship between Conservation Acquisitions and Market PricesConservation Acquisitions and Market Prices

However, changes in acquisition levels appear to lag However, changes in acquisition levels appear to lag market prices due to the inertia intrinsic inmarket prices due to the inertia intrinsic in

» Budget cyclesBudget cycles

» Infrastructure responseInfrastructure response

» Project/Program lead timesProject/Program lead times

– Assumption – Ramp ups in conservation Assumption – Ramp ups in conservation acquisitions lag the “rolling average” monthly acquisitions lag the “rolling average” monthly market price changes by market price changes by 0 – 18 months0 – 18 months, with a , with a “expected value” lag of“expected value” lag of 6 months6 months

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Is There A Relationship Between Is There A Relationship Between Ramp RateRamp Rate and and Total Resource Cost Total Resource Cost of Conservation Acquisitions?of Conservation Acquisitions?

STILL NO DATA on STILL NO DATA on TRCTRC

Used Utility Cost Used Utility Cost (Again)(Again)

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Regional Utility Annual Regional Utility Annual Conservation Acquisition Levels Conservation Acquisition Levels Have Varied SignificantlyHave Varied Significantly

0

5

10

15

20

25

30

2 4 6 8 10 12 14 16 18 20 22 24 26 28

Annual Conservation Acquisitions (aMW)

Fre

qu

en

cy

of

Ob

se

rva

tio

ns

0%

20%

40%

60%

80%

100%

120%

Cu

mu

lati

ve

Pe

rce

nt

of

Ob

se

rva

tio

ns

Average – 6.7 aMW/yrAverage – 6.7 aMW/yr

Standard Deviation – 6.2 aMW/yrStandard Deviation – 6.2 aMW/yr

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Regional Conservation Acquisition Regional Conservation Acquisition Costs Have Varied SignificantlyCosts Have Varied Significantly

0

5

10

15

20

25

$0.5 $1.0 $1.5 $2.0 $2.5 $3.0 $3.5 $4.0 $4.5 $5.0 $5.5 $6.0

Cost/aMW (Million 2000$)

Fre

qu

en

cy

0%

20%

40%

60%

80%

100%

Cu

mu

lati

ve

Pe

rce

nt

of

Ob

se

rva

tio

ns

Average - $2.22 Average - $2.22 million/aMWmillion/aMW

Standard Deviation - $1.13 Standard Deviation - $1.13 million/aMWmillion/aMW

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Utility Conservation Acquisition Utility Conservation Acquisition Levels Have Varied Significantly Levels Have Varied Significantly Over TimeOver Time

0

5

10

15

20

25

30

1990 1992 1994 1996 1998 2000 2002

An

nu

al A

cq

usit

ion

s (

aM

W)

EWEB IPC NrthWE PAC PGE PSE SCL SnPUD TP Avista

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Utility Conservation Acquisition Utility Conservation Acquisition Costs Have Varied Significantly Costs Have Varied Significantly Over TimeOver Time

$0

$2

$4

$6

$8

$10

$12

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

Acq

usi

tio

n C

ost

(M

illio

n 2

000$

/aM

W)

BPA EWEB IPC NrthWE PaCorp PGE

PSE SCL SnPUD TP Avista Average

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Total Utility Conservation Expenditures Are StronglyStrongly Correlated to Annual Acquisition Levels

R2 = 0.61

$0

$10

$20

$30

$40

$50

$60

0 10 20 30 40

Total Annual Acquisitions (aMW)

To

tal

Exp

en

dit

ure

s

(M

illi

on

2000$)

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Changes in Utility Conservation Expenditures are Strongly CorrelatedStrongly Correlated to Changes in Conservation Acquisitions

R2 = 0.58

($40)

($30)

($20)

($10)

$0

$10

$20

$30

-20 -15 -10 -5 0 5 10 15 20Change in Conservation Acquisitions (aMW)

Ch

ang

e in

Co

nse

rvat

ion

E

xpen

dit

ure

s (

Mill

ion

200

0$)

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Cost/aMW and Magnitude of Annual Conservation Acquisitions Are Weakly Correlated – Regional Data

R2 = 0.36

$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

$3.50

0 50 100 150

Annual Conservation Acquisitions (aMW)

Co

st/

aM

W (

2000$)

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Utility Cost/aMW Are NotNot Correlated to Annual Acquisition Levels

R2 = 0.09

$0

$2

$4

$6

$8

$10

0 10 20 30 40

Total Annual Acquisitions (aMW)

Co

st/

aM

W (

Mil

lio

n 2

000$)

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Changes in Conservation Acquisitions Are Weakly Correlated and Inversely Related to Utility Acquisition Costs

R2 = 0.14

-$8.00-$6.00-$4.00-$2.00$0.00$2.00$4.00$6.00$8.00

$10.00

-20 -10 0 10 20Change in Aquisitions (aMW)

Ch

an

ge

in

Co

st

(Mil

lio

n 2

00

0$

/aM

W)

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Relationship between Relationship between Ramp RateRamp Rate and and Utility Cost Utility Cost of conservation of conservation acquisitionsacquisitions

Conclusion - There is only a weak Conclusion - There is only a weak relationship between ramp rates (up or down) relationship between ramp rates (up or down) and utility conservationand utility conservation acquisition costs.acquisition costs.

Utility conservation acquisition costs ($/aMW) Utility conservation acquisition costs ($/aMW) are are lowerlower when ramping up than when when ramping up than when ramping down.ramping down.

Assumption –Assumption –

– Assume 10% higher cost/aMW during ramp Assume 10% higher cost/aMW during ramp down than ramp up.down than ramp up.

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Utility Conservation Acquisition “Ramp Rates” Vary Over A Wide Range

0

5

10

15

20

Change in Acquisitions (aMW)

Fre

qu

en

cy

of

Ob

se

rva

tio

ns Average - .2 aMWAverage - .2 aMW

Standard Deviation – 4.3 aMWStandard Deviation – 4.3 aMW

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Rate at which conservation Rate at which conservation acquisitions can be acquisitions can be RampedRamped Up Up and and RampedRamped DownDown

Conclusion - Conservation has been ramped up and down within a range of +/- 10 aMW

Assumption – Constrain ramp rate to Assumption – Constrain ramp rate to “monthly” availability” of each conservation “monthly” availability” of each conservation cost block (e.g. maximum annual change = cost block (e.g. maximum annual change = 12x monthly availability).12x monthly availability).

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AmplitudeAmplitude, , DurationDuration and and FrequencyFrequency of wholesale market of wholesale market price spikesprice spikes

Wholesale market prices will fluctuate as a result of:–Over/Under building–Extreme weather events (hot or cold)–Hydro-system availability–Short-run economic/business cycles

Assumption:“Randomize” the forecast of future Assumption:“Randomize” the forecast of future “price spikes” in response to hydro-system “price spikes” in response to hydro-system availability, ignore “short-run” weather & availability, ignore “short-run” weather & business cyclesbusiness cycles