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CPUC DEER, Cost-Effectiveness Calculators and Avoided Costs

Peter Lai, Energy Division

Jeff Hirsch, JJ Hirsch & Associates

June 24, 2009

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What is DEER, and how it’s being used

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What is DEER?Database for Energy Efficient Resources (DEER)• Estimates of “typical” or “expected” impacts

that would result from EE measures installations

• Includes residential and non- residential energy efficient measures

• Can be used for forecasting, planning, and analyzing EE activities

• http://www.deeresources.com/

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What is DEER? (CONT.)• Contains mostly measures for buildings;

new construction and retrofit– DEER Building types

• 3 residential (SFR, MFR, DwMH)• 23 commercial (Edu – Pri, Sec, RelocCL, CC, UC;

Grocery; health - Hosp, NHome; Log - Hot/Mot; Manuf – Light/Bio; Off – Lg/Sm; Rest – Fast/SD; Retail – Lg MF/SF, Sm; Storage Cond/Uncond/Refrig)

– Vintage – several old and new– Location – 16 CEC T24 climates

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What is DEER? (CONT.)

• Measures (buildings examples)– Lighting (CFL, Linear Fl., MH, Exit)– HVAC

• High Eff. DX a/c and hp (split/packaged) and furnaces • Chillers, Boilers, ChW/HW dist., Air dist• Maintenance – refrig. Charge correction, duct sealing and

insulation

– Water Heating (Lg/Sm Storage, Instant)– Residential Appliances (Refrig, Washer, Dryer, Dish)– Envelope (Windows, Insul.)

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What is DEER? (CONT.)

• Contains limited industrial and agricultural measures– planned for expansion

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What is DEER? (CONT.)• Contains measure parameters needed to perform cost-

effectiveness analysis, including estimates of typical:

– Electric and natural gas energy impacts (unit energy savings – kWh, kW, Therms per unit – and load shape – 8760 electric, monthly gas)

– Attribution (net-to-gross – NTG – by delivery method, up/down/midstream, direct install, etc)

– Measure full/remaining life (EUL/RUL)

– Full and incremental cost (new/retrofit, location, up/down delivery)

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Estimates based on…• RASS Conditional demand analysis (CDA)

of billing data (for calibrating residential baseline heat/cool energy use)

• Measurement studies (to establish measure performance parameters)

• Engineering calculations and simulation models (to project results into typical building types, vintages and locations)

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How does M&V feed the DEER update?

• EM&V work can provide the data required to update DEER– Update parameters that determine energy usage

• Use profiles (operation schedules, thermostat settings), equipment field performance (actual rather than rated values of parameters),

– Installation rates or quality• Separate from gross savings “potential”

– Attribution– Life

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When is DEER adjusted?• Baseline change

– new Codes & Standards – Tile 24/20, EPAct, etc– Existing stock inventory shifts

• Measure performance change– improved quality or new data available

• New products/technology improvements– Windows, HVAC, equipment

• Usage patterns change• Correct anomalies or errors

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Time line of DEER updates

• Current version of DEER is the 2008 DEER mid-December release for IOUs’ 09-11 EE Planning.

• Next update is scheduled for late 2010 for IOUs’ 2012-14 EE Planning.

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Cost Effectiveness

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Cost Effectiveness Background• CPUC adopted Standard Practice Manual

• Total Resource Cost (TRC) test:

– Measures the net costs of EE portfolio as a resource option based on the total costs of the portfolio, including both the participants' and the utility's costs.

• TRC ratio = TRC Benefits/TRC Costs, where

– TRC Benefits = supply-side resource avoided or deferred IOU costs

– TRC Costs = all non-freerider non-reimbursed costs incurred to install measures plus all costs incurred by the portfolio administrator

• Cost effectiveness from perspective of ratepayers and utility

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Cost Effectiveness Calculation

TRC COSTS

Measurefull or incremental non-reimbursed

Total Costs

= Net-To-GrossNet of freeriders

+ Portfolio Costs All expenses

Net-To-GrossMeasure Avoided

Costs

TRC BENEFITS

Measure UESUnit Annual Energy Savings kWh and Therms

Total Benefits =

Number of Installations

Measure

Avoided Costswhere =

Measure Load

Shapes8760 electric &

monthly gas

IOU Avoided Costs8760 electric & monthly gas

per IOU and CTZquarterly

EUL

Installationsactually installed

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E3 CE Calculator – TRC/PACInput:

• Utility administrative and measure incentive costs

• Participants’ non-reimbursed or “gross” measure costs

• Measure UES, NTG, EUL/RUL data

Output:• Calculated costs and net benefits values• TRC• PAC (like TRC but excludes participants’ costs)

Embedded:• CPUC adopted avoided costs and emissions rates

combined with typical measure electric and gas load shapes

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CPUC Avoided Costs

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Avoided Cost Background• CPUC adopted avoided costs provide the

methodology and data used to estimate the dollar benefit resulting from a change in energy use and demand supplied by each IOU– avoided IOU investments and expenses that result in

reduced revenue requirements

• The current adopted avoided costs for use by EE programs were first adopted in 2004 (D.05-04-024) and updated during the first half of 2006 (D.06-06-063)– Update options are being considered for 09-11 EE use

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Electric Avoided Costs

• The electric AC values include:– Generation (CCGT O&M cost based)

– Transmission & distribution (IOU T&D O&M costs)

– Environmental cost components (NOx, PM10, CO2)

• Values are annual datasets of 8760 hours for each IOU, including 43 climate zone and sub-climate zone divisions across IOU service areas, spanning twenty three years

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Gas Avoided Costs• Gas avoided costs is the sum of:

– the forecasted commodity price for natural gas

– the avoided transmission and distribution costs

– Environmental cost components (NOx, CO2)

• Values are annual datasets of 12 monthly values for each IOU, including residential and non-residential values, spanning twenty three years

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Avoided Cost Methodology DimensionsAvoided Cost Time Dimension Area Dimension

Avoided Electricity Generation

Hourly Utility specific

Avoided Electric Transmission and

DistributionHourly

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 Adders for Electric & Gas

Annual value, applied by hour according to implied

heat rate

System-wide(uniform across state)

Reliability Adder Annual valueSystem-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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Electric

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 GasCommodity

Market Multiplier

1 + Energy Losses

T&D Costs (1 + Peak Losses )

Environment (1+ Energy Losses)

T&D Costs

+

+

+

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

Formulation of Avoided Costs

Emissions Costs

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Electric Cost Components• Generation energy and capacity cost

• CCGT O&M with a historical hourly price shape multiplier• x Ancillary Services (CASIO costs) multiplier• x Market Elasticity multiplier (load change impact on

market clearing prices)• x Losses (end user to bulk power grid hub)

• Transmission and distribution capacity cost• T&D capacity avoidable delivery costs, allocation shape by

climate region, peak hour losses multiplier

• Emissions cost• NOX, PM10, CO2; depends on generation heat rate and

losses (and thus also measure load shape)

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Appropriate Measures• Reduce load or produce energy for hundreds of hours

per year in a predictable pattern, because reductions over hundreds of hours reduce the importance of knowing the exact shape of the electric generation market hourly shape during just the peak hours

• Relatively small (such that they can be installed behind the customer meter), because the smaller the resource relative to the local T&D system, the less the utility needs to plan for the contingency case of the resource failing to provide reductions

• Expected to be installed in large numbers, because the more resources that are installed, the more one can rely upon the expected level of reductions.

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Total Avoided Cost - 8760 hours by 20 years

{Utility, Climate Zone, Voltage Level, Hour, Year}

Commodity{Utility, Voltage

Level, Hour, Year}

Transmission andDistribution

{Utility, ClimateZone, Voltage

Level, Hour, Year}

Emissions{Voltage Level,

Hour, Year}

Putting the Components Together - Electric:

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Putting the Components Together - Gas:

Total Avoided Cost - 12 Months by 20 years

{Utility, Service Class, Combustion Type, Month,Year}

Commodity{Utility, Month,

Year}

Transmission andDistribution

{Utility, ServiceClass, Month,

Year}

Emissions{Combustion Type,

Month, Year}

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Currently…• D.06-06-063 (OP 10 and Attachment 3) adopted

electric and gas avoided cost for use in planning and evaluation of the 2006-2008 energy efficiency IOU portfolios.

• These interim values were not adopted for other uses or future EE cycles.

• April 21, 2008 AC/ALJ Ruling directed IOUs to use in the 09-11 application:– the updated 2007 generation cost (CCGT) values as

adopted in Resolution E-4118 (the updated 2007 Renewable Portfolio Standard [RPS] market price referent [MPR] values)

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More info available at…

Spreadsheets and reports can be downloaded from the E3 website:

http://www.ethree.com

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Questions