Avoided Cost and E3 Calculator Workshops

1. Avoided Cost and E3 Calculator Workshops Energy and Environmental Economics, Inc. October 4, 2005

2. Total Electric Avoided Costs Shape is Based on PG&E’s San Jose Planning Division

3. Refinements in Avoided Cost • Background • Overview of Title 24 DR Progress • Focus on demand response measures • Programmable Communicating Thermostat example • Capacity and Energy Value Refinement • Existing CPUC and CEC TDV Values are based on 1998 and 1999 PX market data • Proposed new method modifies the PX market shape based on a ‘CT Backstop’ approach • Creates a ‘peakier’ value curve

4. Background • 2005 Title 24 Building Standards adopted ‘Time-dependent Valuation’ methodology • Analysis was completed in 2003, and much information was used in the CPUC Avoided Cost proceeding started in 2004 • 2008 Title 24 Building Standards are evaluating a new TDV curve for demand response • Refinement in energy and capacity valuation

5. Overview of Title 24 DR Progress • 3 Public Meetings Completed • Methodology Components • Energy, reliability, and capacity most difficult • T&D, environment, other pieces adopted from prior CEC Title 24 TDV and CPUC Avoided Costs • Attempt at party consensus of approach • CEC, SCE, PG&E, SDG&E • Public comment also requested • Proposal for complete methodology has been developed – remainder of presentation

6. Title 24 2008 Energy and Capacity Value Method and results in this slide are preliminary.

7. Resource Planning Operations • Class Average VOS $25/kWh • -Productivity -$5/kW • Net Reliability $20/kWh Value of Energy, Capacity, Reliability + + DkW of Equivalent Capacity in Each Hour Additional DkW of Equivalent Capacity Achieved During Stage 3

8. CT Backstop Method • Modifies the historical market price shape to reflect avoiding the need to add capacity • Assumes that the backstop technology to add capacity in the State is a CT • Observed market prices will pay for part, but not the total costs of a new CT • Differe

9. CEC Price Shape – 2004 IEPR Note these shapes are from 2004 IEPR.

10. Price Duration Curve CEC Shape Scaled to All-in Combined Cycle Cost Forecast Market Price - 2008

11. Uses $72/kW-year Fixed Cost of a CT Assumption (levelized real) $85/kW-year (levelized nominal) approx. the same value. Result is approximately $20/kW-yr High number of operating hours Similar analyses for other cases / utilities show approximately 700-900 hours operation Few hours results in a larger residual capacity value Calculation of Residual Capacity Value

12. Allocation of Residual Capacity Control Area Load 1999 Example Resulting Allocators

13. Energy and Capacity Curve(Example from 2008) Residual Capacity – 100 Hours Residual Capacity – 250 Hours