Energy Planning and Recent Regulatory Developments

Northwest Energy Systems Symposium (NWESS)

University of Washington

February 22, 2008

Nicolas Garcia

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Discussion TopicsDiscussion Topics

Energy Independence Act – a.k.a I-937 Conservation

Renewable

Other Recent Regulatory Requirements S.6001

Integrated Resource Planning Background

IRP Goals and Key Objectives

Load and Resource Balance

Preferred Resource Portfolio

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I-937 Conservation RequirementI-937 Conservation Requirement

Law Requires Washington Utilities to:

1. Acquire All “Cost-Effective” Conservation (starting in 2010)

Develop a ten-year conservation potential using methods that are consistent with those used by the Northwest Power and Conservation Council (NWPCC)

Pro-rate the ten-year conservation goals into biennial conservation targets

The Law specifies administrative penalties to be

assessed for shortfalls - $50 per megawatt hour (2006 dollars subject to inflation)

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Annual Targets ≈ 5 to 6 aMW

I-937 Conservation RequirementI-937 Conservation Requirement

January 2007 Assessment for Tacoma Power using methodologies consistent with NWPCC

Technical potential: about 159 aMW (across all customer sectors)

Economic potential: about 102 aMW (cost effective)

Achievable potential: about 54 aMW in first 10 years

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Tacoma Power’s Load and Resource Balance I-937 Compliance -- ConservationTacoma Power’s Load and Resource Balance I-937 Compliance -- Conservation

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Owned Hydro Resources: Critical WaterOther Contracts (Priest & SCBID)BPAForecasted Load after Conservation AcquisitionsForecasted Load

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Compliance required regardless of utility need.

Amount of Renewables based on annual retail load: 3% by 2012 9% by 2015 15% by 2020

Utilities must acquire: Renewable Energy Credits (REC),

and/or Eligible Renewable Resources (MWh)

Eligible Renewable Resources

Wind Solar Geothermal Incremental Hydro Biomass Landfill Gas Ocean (wave, tidal) Bio Diesel

I-937 Renewables RequirementI-937 Renewables Requirement

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Estimated Renewable Acquisition Required Under I-937Estimated Renewable Acquisition Required Under I-937

Renewable Renewable RequirementRequirement

Tacoma Power’s Requirement Tacoma Power’s Requirement based on Load Projectionsbased on Load Projections

aMWaMW MWh or RECsMWh or RECs

20122012 3% 18 160,000

20132013 3% 19 160,000

20142014 3% 19 160,000

20152015 3% 19 160,000

20162016 9% 56 500,000

20172017 9% 57 500,000

20182018 9% 57 500,000

20192019 9% 57 500,000

20202020 15% 95 850,000

After 2020After 2020 15% 95+ 850,000

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Renewables Cost Cap and PenaltiesRenewables Cost Cap and Penalties

The law includes an incremental cost cap equal to4% of a utility's annual revenue requirement.

Presently, Tacoma Power’s revenue requirement is approximately $300 million which would set theincremental cost cap at about $12 million.

Assuming that RECs cost $30 per certificate, the $12 million price cap will be reached at 400,000 RECs – well less than the 500,000 RECs indicated by retail load in 2016.

4%

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1. Should one acquire renewable assets, renewable energy credits, or some combination of both?

2. Will renewable energy credits be available? If so, at what cost?

3. How much in the way of renewables or RECs should one acquire given the 4% renewable cost cap?

4. If one decides to comply by acquiring assets:

1. when should the acquisition be made?

2. what types of renewable technologies make the most sense?

What is The Best Way to Comply with the Renewable Requirements?What is The Best Way to Comply with the Renewable Requirements?

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Compliance using new Renewable ResourcesCompliance using new Renewable Resources

Average Water = Annual average of 72 years of system flowsCritical Water = Annual system worst year on record (72 years)Note: Planned conservation acquisitions not included in graphic

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1. No central market clearinghouse.

2. Renewable Portfolio Standards becoming commonplace. Competition for RECs is likely to be vigorous.

3. Many sellers do not have track records.

4. Who bears the risk if intermittent resources generate less than expected?

5. No one has significant experience in this field.

Compliance using Renewable Energy CreditsCompliance using Renewable Energy Credits

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How to Comply with the Renewable Energy Mandate?How to Comply with the Renewable Energy Mandate?

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Discussion TopicsDiscussion Topics

Energy Independence Act – a.k.a I-937 Conservation

Renewable

Other Recent Requirements S.6001

Integrated Resource Planning Background

IRP Goals and Key Objectives

Load and Resource Balance

Preferred Resource Portfolio

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S.6001 RequirementsS.6001 Requirements

Emission limit of 1,100 lbs of greenhouse gases per MWh for new baseload generation

Covers plant that operate more than 60% of the time.

Emission limit of 1,100 lbs of greenhouse gases per MWh for new long-term contracts

Contracts lasting 5 years or more.

Questions regarding unspecified sources.

Implementing rules must consider effects on system reliability and cost to utility customers.

Greenhouse gas emissions performance standard

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Discussion TopicsDiscussion Topics

Energy Independence Act – a.k.a I-937 Conservation

Renewable

Other Recent Requirements S.6001

Integrated Resource Planning Background

IRP Goals and Key Objectives

Load and Resource Balance

Preferred Resource Portfolio

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What Is Integrated Resource Planning?What Is Integrated Resource Planning?

Creates long-term structured comprehensive analysis framework for choosing least cost and least risk resources to meet future customer demand

Considers combinations of supply side (e.g. power projects) and demand side (e.g. conservation) resources

Considers future uncertainty

Takes environmental and societal considerations into account

Is transparent and inclusive - entails public participation

Provides action plan for resource acquisition - types, amount and timing of new resources

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Risk Management / Mitigation

Critical Water Adequacy Planning

Resource Diversity

Short Term Operations Planning/Analysis

Integrated Resource Planning

Scenario Planning / Strategic Planning

Wholesale Market Participation

Trading Guidelines / Controls

Credit Risk Management Program

Regional BPA Dialogue Participation

Resource Adequacy Regional Dialogue

Debt Coverage Ratios, Bond Covenants

Participation in Regulatory Processes

Compliance with Emergency Action Plans

Comprehensive Infrastructure Maintenance

Utility Risks, Opportunities and Mitigation ToolsUtility Risks, Opportunities and Mitigation Tools

RiskOpportunityLow Market PricesLow Market Prices

High Market PricesHigh Market Prices

Market VolatilityMarket Volatility

Transmission AccessTransmission Access

High Debt CostsHigh Debt Costs

Out of state demandOut of state demand

Counterparty RiskCounterparty Risk

Load IncreasesLoad Increases

Load DecreasesLoad Decreases

Regional InfrastructureRegional Infrastructure

Overbuild GenerationOverbuild Generation

Carbon RegulationCarbon Regulation

Other Regs (e.g. Fed RPS)Other Regs (e.g. Fed RPS)

Labor Attraction/RetentionLabor Attraction/Retention

Ageing InfrastructureAgeing Infrastructure

I-937 ComplianceI-937 Compliance

Natural DisastersNatural Disasters

Dry Regional HydroDry Regional Hydro

Wet Regional HydroWet Regional Hydro

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The Basic IRP ProcessThe Basic IRP Process

1. Identify / Evaluate Goals and Objectives

2. Identify Resource Need (Gap) Forecast future supply capability Forecast future customer demand Calculate Load and Resource Balance (Load vs. Supply)

– Stochastic Modeling

3. Identify and Evaluate Candidate Resources Identify and characterize generic supply side resources Identify and characterize demand side resources (e.g.,

conservation) Create candidate “portfolios” of resources for analysis

4. Conduct Computer Model Simulation of Resource Portfolios Utilize methods to consider risk and uncertainty Rank resource portfolios on the basis of least cost and least risk Identify Preferred Resource Portfolio

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Long-Term Power Planning GoalsLong-Term Power Planning Goals

Overall goal is to Develop a Long Term Resource Acquisition Strategy that:

Minimizes Resource Portfolio Cost(Keep Rates Low)

Maintains / Enhances Reliability

Minimizes Environmental / Societal Impacts

Minimizes / Manages Risk

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The Basic IRP ProcessThe Basic IRP Process

1. Identify / Evaluate Goals and Objectives

2. Identify Resource Need (Gap) Forecast future supply capability Forecast future customer demand Calculate Load and Resource Balance (Load vs. Supply)

– Stochastic Modeling

3. Identify and Evaluate Candidate Resources Identify and characterize generic supply side resources Identify and characterize demand side resources (e.g.,

conservation) Create candidate “portfolios” of resources for analysis

4. Conduct Computer Model Simulation of Resource Portfolios Utilize methods to consider risk and uncertainty Rank resource portfolios on the basis of least cost and least risk Identify Preferred Resource Portfolio

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Cushman

BonnevillePower

Administration

Priest RapidsGCPHAMisc. Other

Wynochee

Nisqually

Cowlitz

Identify ResourcesIdentify Resources

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Identify Load and Resource GapIdentify Load and Resource Gap

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Owned Hydro Resources: Critical Water

Other Contracts (Priest & SCBID)

BPA

Forecasted Load

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Owned Hydro Resources: Critical WaterOther Contracts (Priest & SCBID)BPAForecasted Load after Conservation AcquisitionsForecasted Load

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(100)

(50)

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2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027

Critical Water Surplus/Deficit

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Average Water Surplus/Deficit

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The Basic IRP ProcessThe Basic IRP Process

1. Identify / Evaluate Goals and Objectives

2. Identify Resource Need (Gap) Forecast future supply capability Forecast future customer demand Calculate Load and Resource Balance (Load vs. Supply)

– Stochastic Modeling

3. Identify and Evaluate Candidate Resources Identify and characterize generic supply side resources Identify and characterize demand side resources (e.g.,

conservation) Create candidate “portfolios” of resources for analysis

4. Conduct Computer Model Simulation of Resource Portfolios Utilize methods to consider risk and uncertainty Rank resource portfolios on the basis of least cost and least risk Identify Preferred Resource Portfolio

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Alternative ResourcesAlternative Resources

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The Basic IRP ProcessThe Basic IRP Process

1. Identify / Evaluate Goals and Objectives

2. Identify Resource Need (Gap) Forecast future supply capability Forecast future customer demand Calculate Load and Resource Balance (Load vs. Supply)

Stochastic Modeling

3. Identify and Evaluate Candidate Resources Identify and characterize generic supply side resources Identify and characterize demand side resources (e.g., conservation) Create candidate “portfolios” of resources for analysis

4. Conduct Computer Model Simulation of Resource Portfolios Utilize methods to consider risk and uncertainty Rank resource portfolios on the basis of least cost and least risk Identify Preferred Resource Portfolio

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Final ThoughtsFinal Thoughts

Integrated resource planning is becoming both easier and more difficult. Easier in that regulations are limiting resource choices

More difficult in that regulations continue to evolve requiring planners to factor in political/regulatory risk along with more traditional risks:

fuel cost, counter party risk, electric price volatility, hydro variability, transmission availability, forced outages, etc.

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