Copyright © 2014 The Brattle Group, Inc.
ELECTRIC UTILITY INTEGRATED RESOURCE PLAN (IRP)Demand-Side Resources
THAI ENERGY REGULATORY COMMISSION, OERC, AND UTILITIES DELEGATIONBoston, Massachusetts
ROMKAEW BROEHMMARIKO GERONIMO
Ju ly 16 , 2014
PRESENTED TO
PRESENTED BY
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Agenda Purpose and Process of Integrated Resource Planning (IRP)
Modeling Demand‐Side Resources in IRPs▀ PacifiCorp Case Study▀ Connecticut Case Study
Note: This presentation reflects the thoughts and observations of the authors alone, and does not necessarily represent those of The Brattle Group or its clients.
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Purpose of IRP An IRP is a utility long‐term plan, with a focus on meeting forecasted annual peak and energy demand, plus planning reserve margin through existing and planned mix of resources
▀ Supply‐side resources ▀ Demand‐side resources▀ Transmission
Utility has an obligation to its ratepayers to minimize its system cost
▀ Evaluate and balance the expected cost, risk of candidate portfolios, and long‐run public policy goals to choose the portfolio with the best cost‐risk combination
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IRP Process
Load Forecast
Identify Goals Existing Resources
Need for New Resources
SocialEnvironmental
Factors
Define Suitable Resource Mixes
UncertaintyAnalysis
Public Review/PUC Approval
Monitor Acquire Resources Action Plans
Power PricesPower Prices
Supply Demand T&D Rates Fuel PricesFuel Prices
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Existing IRP Requirements IRP requirements vary by state. But the plan is generally required to:
▀ Identify and evaluate all existing and new resource options to meet policy objectives, including renewable portfolio standards, distributed generation, energy efficiency requirements
▀ Address costs for compliance with current and projected environment regulations and electricity market conditions
▀ Lay out the method and assumptions for assessing potential resources▀ Identify and assess risks of key drivers, such as load forecasts, costs of demand‐side management measures and power supply, and fuel prices
▀ Explain the procedures for soliciting public comments
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IRP Modeling Approach▀ Planners cannot assume a single long‐run equilibrium condition ▀ They must understand key drivers and explore potential turning points for shifts in an outlook that could alter preferred technology so that they could manage expectations
▀ To choose the best portfolio plan, uncertainty in input assumptions must be tested with a range possible high and low cases
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Modeling Demand-Side Resources in IRP For most utilities, demand‐side resources are included only up to the point that statutory goals are met
▀ Two methods have been used by utilities when incorporating demand response and energy efficiency in IRPs
Create supply curves by type of demand‐side resources so that they can be modeled against competing supply alternatives—PacifiCorp IRP
Make adjustments (reductions) to their load forecasts—Connecticut IRP
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PacifiCorp Case Study
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PacifiCorp 2013 IRP Case Study PacifiCorp (PAC) is a utility in Pacific Northwest of the U.S.
▀ It operates across six states—Oregon, Washington, California, Idaho, Utah, and Wyoming
▀ PAC’s 2013 IRP is a 20‐year plan but focuses on a 10‐year outlook▀ PAC projects capacity needs, starting in 2013
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PacifiCorp's 2013 IRP Resource Option PAC assesses a wide variety of resource options, including interruptible load (Class 1), EE (Class 2), and DR (Class 3)
▀ 19 scenarios were applied across five different transmission scenarios, yielding 94 different variations of resource portfolios
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Supply Curves of Demand-Side Resources PAC developed a demand‐side resource supply curve▀ Resource quantity available in each year (MW)
▀ Resource daily and seasonal energy limits (MWh)
▀ Levelized resource costs ($/kW‐year)− Class 2 DSM resource costs were
levelized using utility costs (incentive and non‐incentive program costs) instead of total resource costs
− Classify Class 2 into bundles, using ranges of levelized costs to reduce the number to a more manageable level PAC created 27 cost bundles for its Class 2
DSM
0
10
20
30
40
50
60
70
80
90
100
110
120
130
140
150
0 20 40 60 80 100 120 140
Levelized
Cost ($/kW
‐Year)
Cummulative MW
Illustrative Supply Curve of Demand‐Side Resources
Supply Curve of DSM Resources
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PacifiCorp’s Preferred Portfolio PAC’s IRP outcome is to focus on accelerating acquisition of cost effective DSM measures to mitigate price risks from purchase power
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Connecticut Case Study
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Regulatory and Market Framework Connecticut is a “deregulated” state with dense population centers▀ Relatively strict separation of transmission and
generation; retail customers can choose wholesale power provider (with restrictions)
▀ With Massachusetts, largest load among six New England states
The state is a leader in EE policies▀ Ranked #5 in national study (2013 AAEE
scorecard)
The state is part of a regional marketplace▀ Member of ISO‐NE
− Independent system operator− Administrator of energy, ancillary service, and
capacity markets▀ Regional renewables marketplace▀ Regional Greenhouse Gas Initiative (CO2 cap‐
and‐trade system)▀ Natural gas‐dominated electricity supply, with
the highest gas prices in the countrySource: Federal Energy Regulatory Commission, North American Regional Transmission Organizations, http://www.ferc.gov/market‐oversight/mkt‐electric/overview/elec‐ovr‐rto‐map.pdf, updated February 3, 2014.
Source: U.S. Energy Information Administration, Status of Electricity Restructuring by State, http://www.eia.gov/electricity/policies/restructuring/restructure_elect.html, as of September 2010.
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Regulatory Construct for Evaluating and Implementing New Energy Efficiency
▀ Connecticut’s IRP focuses on “ratepayer‐funded” electric EE− Separately, utilities must submit 3‐year electric Conservation and Load
Management (C&LM) Plans; the regulator (DEEP) has the authority to review, approve, modify, or reject EE must be “cost‐effective” (benefit > cost) DEEP approved the 2013‐2015 Electric and Natural Gas C&LM Plan
• ~$180MM annual electric budget, recovered through up to $0.006/kWh conservation charge on retail rates, outcome of 2012 IRP
• Does not include direct customer costs• Prior C&LM plan was an input to the 2012 IRP’s Base Case
− Periodic EE potential studies identify additional cost‐effective measures to achieve deeper levels of savings Potential study is an input to the IRP’s evaluation of EE resource strategy
▀ Other EE is also important (but not the focus of this case study)− Includes other state and federal programs, building codes and appliance standards− Accounts for a significant share of “total” EE
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Objectives and Process▀ Purpose is to develop resource strategies consistent with policy objectives− 10‐yr Base Case outlook on markets− Identify resource requirements and
needs under different scenarios; analyze a variety of related policy issues
− Evaluate resource solutions
▀ Collaborative effort among DEEP, electric utilities, stakeholders, and Brattle− Brattle is currently working on its 5th
consecutive IRP with the state− Ultimately a DEEP product, providing
policy direction for the state
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Future Projections Considered Base Case Projection of known market trends and regulations, “business as usual”
Market Scenarios Projection of alternative futures given uncontrollable market uncertainties
▀ High gas prices
▀ Low gas prices
▀ Tight supply conditions
▀ Abundant supply conditions
Resource Strategies Projection of controllable but currently unplanned resource development; see impact on Base Case and Market Scenarios
▀ Expanded energy efficiency programs
▀ More renewables development for Renewables Portfolio Standards (RPS)
▀ New “cost of service” conventional gas‐fired generation
Each resource strategy is evaluated within the Base Case and each market scenario▀ Years 3, 5, and 10 are studied in detail (evaluated
years 2015, 2017, and 2022 for the 2012 IRP)▀ Can lead to a large number of cases in the IRP
modeling system: 3 strategies x 5 scenarios (including Base Case) x 3 study years = 45 cases
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1. Develop Base Case10‐year outlook on future market
fundamentals and planned resources
Outlook on: Energy market Capacity market Supply and market for renewables
2. Identify Needsfor new
unplanned resources
3. Evaluate Resource Solutionsto meet needs
Impact on: Generation economics and market prices Customer retail rates Electric Sector emissions
EE Assumptions in Modeling Framework
Projected savings from new EE programs
(MW and MWh)
ISO‐NE forecast of electricity consumption assuming no new EE(MW and MWh)
Analysis of key market risks
Alternative outlooks under
Market Scenarios
Additional achievable
cost‐effective EE
New renewables
New conventional generation
EE potential study
Utility analysis for Conservation &
Load Management Plan
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Modeling DR In the IRP cases, wholesale demand response (DR) is modeled “supply side”
▀ Planned DR, based on capacity market results (3 years forward), then held constant
▀ Modeled DR economic entry and exit in capacity market, based on DR supply curve
− Calibrated to available (but sparse) market data
− DR entry/exit considers fixed + variable cost and expected hours of dispatch, versus expected capacity payments
− DR up to about 10% of peak load expected to be available as low cost supply in the capacity market; delays the need for major new generator builds, stabilizes capacity prices
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Modeling EE In the IRP cases, any assumed energy efficiency (EE) is modeled “demand side”
▀ Planned EE, based on latest approved C&LM plan− Utilities estimate peak hour (MW) and annual energy (GWh) savings “Bottom‐up” analysis of EE measures; $ per MW and MWh that can be extrapolated
− Savings applied as load reductions to hourly load forecast; input to IRP analysis
▀ Proper accounting of EE in demand forecast is crucial− Embedded historical effects of EE in load forecasting models
− Account for future non‐utility programs, capacity market participation and possible attrition, codes and standards
− Consider how to treat expiring measures, diminishing marginal returns, changes in customer behavior due to changes in energy prices or total bills
− In the 2012 IRP, the ISO‐NE demand forecast and accounting of EE cleared in the capacity market was found to already include Base Case levels of EE; no additional adjustments to the ISO‐NE forecast was made
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2012 IRP Base Case Energy Efficiency▀ At the time of the 2012 IRP, utility program funding was about $100MM per year− This was the foundation for developing Base Case energy efficiency− Resulted in about 30 MW & 200 GWh in annual incremental savings from new
programs in each year− Reduces peak and energy load growth by about 0.5%− Cumulative EE savings build up over time, due to 10+ year EE measure lives− Recovered as a fixed $0.003/kWh (“3 mills per kWh”) fee on customer bills
2012 IRP Base Case Energy Efficiency
Source: Connecticut Department of Energy & Environmental Protection, 2012 Integrated Resource Plan for Connecticut, June 14, 2012.
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Resource Adequacy to Meet Peak Load Connecticut was expected to be quite long on supply, through the study horizon
▀ “Passive DR” = EE; 2012 IRP did not “count” levels beyond what was cleared in the Forward Capacity Auction (FCA) due to potential double‐counting in demand forecast discussed previously
2012 IRP Base Case Resource Adequacy Outlook under Connecticut Local Requirement (MW)
Source: Connecticut Department of Energy & Environmental Protection, 2012 Integrated Resource Plan for Connecticut, June 14, 2012.
Planned DRPlanned EE
Modeled DR
CapacitySurplus
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Additional Achievable Cost-Effective EE The IRP analyzed additional achievable cost‐effective EE, based on results from a recent EE Potential Study
▀ Requires about $100MM additional funding, through expanded or new utility programs▀ Accounting issues like expiring measures, diminishing marginal returns for every dollar
spent on EE programs, and rebound/snapback become increasingly important▀ Used as input for EE Resource Strategy
2012 IRP Expanded Energy Efficiency
Source: Connecticut Department of Energy & Environmental Protection, 2012 Integrated Resource Plan for Connecticut, June 14, 2012.
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Impacts of EE Resource Strategy on Market The EE Resource Strategy creates a less constrained system
▀ Lower energy and capacity prices▀ Reduces need for renewables for RPS (since defined as % of MWh consumption)▀ May drive economic retirements or prevent new economic builds
2012 IRP Expanded Energy EfficiencyMarket Impacts
Source: Connecticut Department of Energy & Environmental Protection, 2012 Integrated Resource Plan for Connecticut, June 14, 2012.
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Impacts of EE Resource Strategy on Customer Costs The EE Resource Strategy reduces total cost to customers
▀ Increases cost of utility EE programs, but▀ Decreases generation service costs by even more (positive benefit/cost ratio)▀ May increase average retail rates, since kWh demand is lower (i.e., higher rates per kWh
but lower total bills for customers)
2012 IRP Expanded Energy EfficiencyCustomer Cost Impacts
Source: Connecticut Department of Energy & Environmental Protection, 2012 Integrated Resource Plan for Connecticut, June 14, 2012.
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EE Total Resource Test
Benefits vs. net present value over life of the EE measure
▀ avoided energy costs▀ avoided generation capacity▀ avoided distribution and transmission▀ energy and capacity price suppression benefits− i.e., Demand Reduction Induced Price
Effect (DRIPE)
▀ other: fossil fuel avoided costs, water savings, reduced maintenance costs to the participant, and additional environmental benefits not already internalized
Cost
▀ Utility cost, i.e., program cost− up to $0.006/kWh charge− market revenues (FCM/REC/RGGI)
▀ Customer “out‐of‐pocket” costs
Utilities must demonstrate that benefits of new EE programs are greater than the costs (i.e., Benefit ÷ Cost > 1)
Sources:Connecticut Department of Energy and Environmental Protection, Final Decision 2013‐2015 Electric and Natural Gas Conservation and Load Management Plan, October 31, 2013.Connecticut electric and gas utilities, 2013‐2015 Electric and Natural Gas Conservation and Load Management Plan, November 1, 2012.
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Appendix
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Example of Total Resource Test
Source:Connecticut electric and gas utilities, 2013‐2015 Electric and Natural Gas Conservation and Load Management Plan, Page 29, Table B2, November 1, 2012.
Connecticut Total Resource Costs and Benefits for C&LM Programs2013
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Impacts of EE Resource Strategy The EE Resource Strategy can materially decrease emissions
▀ Depends on type of fossil generation displaced, both for baseload and during high‐demand peak hours
2012 IRP Expanded Energy EfficiencyImpacts on Emissions
Source: Connecticut Department of Energy & Environmental Protection, 2012 Integrated Resource Plan for Connecticut, June 14, 2012.
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Presenter InformationROMKAEW P. BROEHMPrincipal │ [email protected] +1.617.864.7900
Dr. Broehm is an economic expert in the electric utility industry. She specializes in the areas of market competition, impacts of regulatory policies on wholesale power markets and power assets and valuation, price forecasting, demand response programs, and the evaluation of power procurement. She has assisted clients in both litigation and consulting settings.
Dr. Broehm has submitted testimony in a number of market‐based rate (MBR) proceedings before the Federal Energy Regulatory Commission (FERC). She has analyzed potential competitive impacts of M&A transactions on wholesale power markets for both horizontal and vertical market power aspects in various power markets, such as ISO‐NE, NYISO, PJM, SERC, FRCC, SPP, Entergy System, and WECC. She has also led numerous studies related to price forecasting and short‐ and long‐term marginal costs, and advised utilities on how potential demand‐side management and demand response programs could impact both integrated resource planning and economic evaluations of generation and transmission expansions.
Dr. Broehm has experience analyzing and testifying on potential market manipulation allegations. She co‐authored comments submitted to the Commodity Futures Trading Commission (CFTC) that proposed a practical definition of market manipulation. She has also presented on navigating the complexities of the Dodd–Frank Wall Street Reform and Consumer Protection Act, which focuses on how energy companies should address the economic, governance, regulatory, and transaction issues they will face as they begin implementing the requirements of the Act.
In addition, Dr. Broehm provides to her clients analyses and litigation support on the prudence of particular investment decisions and power procurement decisions, as well as the valuation of “provider of last resort” supplies. Her experience in pricing and ratemaking includes designing and evaluating dynamic pricing programs, such as a real‐time pricing programs and block rate designs. She has implemented demand simulation models to analyze changes in net economic benefits due to changes in rate design.
Prior to joining The Brattle Group, Dr. Broehm taught Economics and Statistics at the University of Wisconsin‐Milwaukee and Cardinal StritchCollege.
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Presenter InformationMARIKO GERONIMOSenior Associate │ [email protected] +1.617.864.7900
Ms. Geronimo has over eight years of experience addressing electricity industry topics in the context of litigation, regulatory proceedings, and company‐internal consulting services. Her work has focused on investigating a variety of strategic, regulatory, and environmental issues related to long‐term system resource planning, wholesale market design and performance, and project‐specific resource valuation.
Specific work includes integrated resource planning to meet reliability, environmental, and cost effectiveness goals; evaluation of the effectiveness of RTO market rules and design to address stakeholder concerns and region‐specific issues; valuation of generation projects given market and regulatory uncertainties; estimation and evaluation of the benefits of transmission projects; development of strategic organizational structure of T&D utilities given costs, performance, and potential industry developments; and estimation of actual or potential wholesale market manipulation. Ms. Geronimo has also worked extensively in the area of nuclear spent fuel storage, providing contract damages litigation support and evaluating U.S. spent fuel storage policy and fuel storage program design.
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About Brattle The Brattle Group provides consulting and expert testimony in economics, finance, and regulation to corporations, law firms, and governments around the world. We aim for the highest level of client service and quality in our industry. We are distinguished by our credibility and the clarity of our insights, which arise from the stature of our experts, affiliations with leading international academics and industry specialists, and thoughtful, timely, and transparent work. Our clients value our commitment to providing clear, independent results that withstand critical review.
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