ENERGY 2020 Model Overview

1. ENERGY 2020 Model Overview Massoud Jourabchi & Jeff Amlin (Systematic Solutions Inc.) June 26th 2007

2. Full Model Overview • Model Overview • Demand and Supply Sectors • Economic Feedback • GHG and CAC Emissions • Policy Scenarios • Major Inputs and Outputs

3. ENERGY 2020 Background • Widely used in the Europe, South America, US and Canada • US DOE FOSSIL2/IDEAS [Early E2020]: Used for all National Energy Plans since between 1978 and 1998 • State of Illinois (1986): Assess electric deregulation to avoid rate shock • Cambridge University/Cambridge Econometrics (1995/1995): Dynamics of EU/UK electric deregulation and climate change • New England ISO: Analysis of market-rules, capacity-expansion procedure, and market-dynamics • DOE and US Congress: Overly-accurate, deregulated-market dynamics • Bonneville Power Administration: Electric-market impact dynamics of climate change, load-control, and deregulation uncertainty. • Analyzed deregulation and climate-change policy in all fifty states, all Canadian provinces, and over a dozen countries.

4. Model Overview • Energy Model • Energy Demand (Currently being used by Council) • Energy Supply • Energy Prices • Economic Forecast/Model • Emissions as Outputs

5. ENERGY 2020 Sector Relationships POWERWORLD DEMAND 4 states and region SUPPLY Generation Location POWER FLOWS CONGESTION Electric Demands Capacity Bids Generation Prices ENERGY 2020 SUPPLY Electric Utility/IPPs Gas Supply Oil Supply Coal Supply International Supply International Trade DEMAND Residential Commercial Industrial Transportation Demand Prices Prices Policy Costs Gross Investments Gross Output Utilization Tax Rates, Inflation Interest Rates Tax Rates Inflation Interest Rates Energy Investments MACROECONOMIC MODEL( Global Insight)

6. Energy Demand Methodology

7. Energy Demand Methodology • Major data sources, Inputs and outputs • Fuel Categories • Sector Categories • Approach • Structure • Current status

8. Historical Data Sources • SEDS – State Energy Demands from EIA • SEPER – State Energy Prices from EIA • FERC Form 1 - Electric Company Data from EIA • AP 42 – Emissions Data from EPA • RECS - Residential data from EIA • CECS – Commercial data from EIA • MECS – Manufacturing data from EIA • Council’s existing models (long-term forecast, short-term forecast, conservation potential model Procost)

9. NW Regional Detail • Residential (saturation rates, energy intensity by enduse, regional codes, standards) • Commercial (saturation rates, energy intensity by enduse, regional codes, standards) • Industrial ( Energy use/employee, DSI, large industrial) • Irrigation

10. Demand Sector Major Inputs • Economic Activity • Energy Prices • Technological Efficiency Improvements • Industrial Process Changes • Device Saturations • Weather impact • Policies • Taxes, Standards, etc.

11. Economic Drivers • 2008-2030 forecasting horizon • Initial economic drivers from Global Insight • Modified by state forecasts • Residential income • Commercial output • Industrial output

12. Energy Prices • Fossil fuel prices from Council’s forecast • Wholesale Electricity market clearing prices from Council’s long-term forecast. • Retail electricity prices are calculated in 2020.

13. Technology Efficiency Curves • The technology efficiency curves are developed using Qualitative Choice Theory where the “choice” is between capital cost and efficiency (the higher the capital cost the higher the efficiency). The consumer trades front-end cost (capital cost) for operating cost (efficiency).

14. Enduse Device Saturation rates • Currently device saturation rates are set exogenously. • Saturations as defined in ENERGY 2020 is the percent of customers which have a particular enduse, not the percent of customers which have an electrical device. • ENERGY 2020 saturations are generally a historical trend which asymptotically approaches a maximum value. • ENERGY 2020 market share of a given fuel for an enduse is determined endogenous.

15. Weather inputs • Currently model is producing weather normalized loads for each state. • Model can be provided deviations from normal temperature to simulate impact of climate change on load • Area of future development ( linkage of short-term model and 2020)

16. Policy variables • Tax policies, state or regional and national • Codes • Standards

17. Demand Sector Outputs • Fuel Usage for All Fuels • Enduse • Cogeneration • Feedstock (non-combustion) • Fuel Market Shares • Device and Process Efficiency • Device and Process Investments • Emissions • Number of units (residence, commercial space)

18. Energy Demand Methodology • Major Inputs and Outputs • Fuel Categories • Sector Categories • Approach • Structure • Current status

19. Asphalt Aviation Fuel Biomass Coal Coke Coke Oven Gas Diesel Electric Ethanol Geothermal Heavy Fuel Oil Hydro Hydrogen Kerosene Landfill Gases/Waste Light Fuel Oil LPG Lubricants Motor Gasoline Naphtha specialties Natural Gas Nuclear Other Non-Energy Products Oil, Unspecified Petrochemical Feedstock Petroleum Coke Solar Steam Still Gas Wave Wind Fuel Demands

20. Residential Energy Demands • Economic Categories - Single Family, Multi-family, Manufactured/mobile homes • Enduse – Space Heating, Water Heating, Cooking, Dishwashing, Clothes Washing, Drying, Refrigeration, Freezing, Lighting, Air Conditioning, Entertainment (TV, computers), Other plug loads • Technologies – Electric, Gas, Coal, Oil, Biomass, Solar, LPG, Steam

21. Large Office Medium Office Small Office Big Box-Retail Small Box-Retail High End-Retail Anchor-Retail K-12 University Warehouse Supermarket Mini-Mart Restaurant Lodging Hospital Other-Health Assembly Other Commercial Economic Categories

22. Commercial Demands • Enduse – Space Heating, Water Heating, Cooking, Refrigeration, Lighting, Air Conditioning, Ventilation, Plug-loads • Technologies/fuels – Electric, Gas, Coal, Oil, Biomass, Solar, LPG, Steam

23. Food & Tobacco Textiles Apparel Lumber Furniture Paper Printing Chemicals Petroleum Products Rubber Industrial Economic Categories • Leather • Stone, Clay, etc. • Primary Metals • Primary metals (DSI aluminum) • Fabricated Metals • Machines & Computer • Electric Equipment • Transport Equipment • Other Manufacturing • Mining • Agriculture (Irrigation)

24. Industrial Demands • Enduse – Process Heat, Motors, Other Substitutable, Misc. • Cogeneration • Feedstocks • Technologies/fuels – Electric, Gas, Coal, Oil, Biomass, Solar, LPG, Steam

25. Transportation Demands • Economic Categories • Passenger • Freight • Off Road • Enduse – Transport

26. Light Propane Light CNG Light Electric Light Ethanol Light Gasoline-electric hybrids Light Hybrid Diesel Light Fuel Cell Gasoline Light Fuel Cell CNG Light Fuel Cell Hydrogen Medium Propane Medium CNG Medium Ethanol Medium Hybrid Gasoline Medium Hybrid Diesel Medium Fuel Cell Gasoline Medium Fuel Cell CNG Medium Fuel Cell Hydrogen Heavy Propane Heavy CNG Heavy Ethanol Heavy Hybrid Gasoline Heavy Hybrid Diesel Heavy Fuel Cell Gasoline Heavy Fuel Cell CNG Heavy Fuel Cell Hydrogen Transportation Technologies

27. Energy Demand Methodology • Major Inputs and Outputs • Fuel Categories • Sector Categories • Approach • Structure • Current status

28. Modeling Approach Two conceptual linchpins form the theoretical perspective used in themodel to determine energy demand: • First, a “Stocks and Flow” simulation captures the physical aspects of the process, specifically the physical flow of entitieswithin a system (For example, new investments increase the number of energy using devices, and retirements reduce thenumber of energy using devices). • Second, the qualitative choice theory (QCT) as put forth by the Nobel Laureate Daniel McFadden determines how consumers make their energy decisions (i.e., Accounting of the factors such as tastes and preferences in making decisions to choosing energy devices and processes).

29. Energy Demand Structure

30. Demand Overview

31. Energy Demand Mechanisms

32. Energy Demand Price Effects

33. New Capital Additions (by fuel) Capital Stocks (electric) Investments (gas) (oil) Retirements Technology Mix Through QCT New Energy Requirements (by fuel) Stock Energy Requirements (electric) (gas) Total Energy Cost (oil) Retirements Energy Efficiency Weather Energy Use (by enduse) Fuel Prices O&M Costs Capital Costs Capacity Utilization Socio-demographic Energy Demand Overview

34. Energy Demand Methodology • Major Inputs and Outputs • Fuel Categories • Sector Categories • Approach • Structure • Current status

35. Current Status • Model is currently is being calibrated • Calibration horizon is 1986-2003 • Calibrating to States total sectoral energy from SEDS • Will report on the results in our next meeting

36. Updates • Council’s existing models were used as a starting point for inputs • Residential model (added new end-uses) • Commercial (added new building types) • Industrial models (updated Sector shares) • Sector and end-use load-shapes • Calibration to system load (regional and state)

37. ISSUES OF INTEREST • VINTAGE OF INPUT DATA • COMMERCIAL sector characteristics by state • INDUSTRIAL sector characteristics (drop in loads and recovery post 2001) • LOADSHAPE for new end-uses • Residential ENTERTAINMENT Load (TV,VCR,DVD,COMPUTERS,…) • ELECTRIC VEHICLE penetration rates • Capacity adequacy (summer) • Residential AC penetration rates • Incorporating IMPACT OF CLIMATE CHANGE • Temperature sensitive loads • Economic impact

38. Areas for review • State economic forecasts (medium term) • Residential end-uses energy use • Commercial end-uses energy use • Industrial energy by sector • Natural Gas consumption

39. Preliminary Time-line for the 6th Plan • Complete preparation of the Demand forecasting model by Jan 2008. • Prepare Assumptions for Preliminary forecast Q1- 2008 • Prepare preliminary draft forecast- Q2 2008 • Review of preliminary forecast • Finalize load forecast