Modeling Work Group Discussion Points

1. Modeling Work GroupDiscussion Points MWG Meeting August 29, 2011 Web Meeting

2. Proposed Agenda • Welcome & MWG Business Tom Miller • Review of Hurdle Rates • Promod / Gridview Comparison • Dispatch of Alberta Coal • California AB132 GHG • Next Meeting

3. Hurdle Rates • In PROMOD the hurdle rates represent a financial obstacle that must be overcome to allow economic interchange to occur. • If the marginal price in SR A is $30 and the marginal price in SR B is $25 and the hurdle rate from B to A is $7, there would be no interchange. • In Gridview the hurdle rates are applied more as a wheeling rate on the transmission lines between sub-regions.

4. TEPPC Hurdle Rates for 2020

5. Review of Hurdle Rates • Plan was to use 2010 Backcast to evaluate the hurdle rates based on path flows, and make any applicable changes to the 2022 dataset. • Timing of datasets may not work • MWG needs to decide if the 2020 results point out any problems with the hurdle rates

6. Result Comparison – Promod vs Gridview • Current thought is that thermal dispatch is one of the primary differences between the two programs. • Higher coal dispatch in Northwest by Promod leads to higher flows on COI. • Marginal cost of coal is much less than that of combined cycle plants

7. Result Comparison Comparison to new GV run by Sherman with loads reduced by 3.4% to back out transmission losses. Note large difference in coal generation.

8. Annual Energy Difference by Area In general, the trade-off is between coal and combined cycle generation, and appears to be caused by differences in the commitment and dispatch logic. Since the hurdle rates and tie limits effectively separate Alberta from other areas, initial analysis can focus there.

9. Difference in Alberta (MWh)

10. Sample AESO Load/Gen

11. Alberta Coal Dispatch - Promod

12. Alberta Coal – PM vs GV Next step is to compare planned and forced outage results. Something is causing Gridview to reduce coal generation much more frequently than Promod.

13. California AB-32 Background • AB 32 requires the California Air Resources Board (CARB) to develop regulations and market mechanisms to reduce California's greenhouse gas emissions to 1990 levels by 2020, representing a 25% reduction statewide, with mandatory caps beginning in 2012 for significant emissions sources. • Rules apply to both in-state generation and imported generation.

14. Problems implementing rules for imports • GHG rules “pending” in other states • CA intends to monitor and enforce rules on imports • Difficult to identify imported generation by type • Hurdle rates apply to all generation • CO2 adder not applicable for non-CA load • May lead to redistribution/washing effect

15. Wrap-up and Next meeting • Wrap-up • Next meeting • Monday October 3, 2011

16. Questions?

17. CO2 Reduction SensitivityDraft TAS-Modeling Working Group August 29, 2011

18. Carbon Policy • Western Climate Initiative: is a group of Western States with common goal of CO2 reduction • WECC Region: Arizona, British Columbia, California, Montana, New Mexico, Oregon, Utah, Washington • CA Assembly Bill 32 (Global Warming Solutions Act): Establishes first program of regulatory and market mechanisms to achieve reductions of greenhouse gases (GHG). • Implementation: CARB Expectation: $10/ton auction reserve price starting in 2012 at 5% real +CPI. • This implies a change in dispatch between coal and gas units in about 25 years, assuming 2% cpi and current fuel prices and heat rates. • In 2022, the CO2 tax would be ~20$/ton ( the tipping point is ~50$/ton which would happen in 2038 ). Economic effects are same as consumption tax so prices don’t change just the quantity consumed

19. Impact of California Cap and Trade • CA is an island in the WECC Ocean so generators located there will be subject to a fuel cost adder appropriate to its fuel and imports across interties (WOR, P59, COI, PDCI) • CO2 Cost Adder for CA Imports: • Unspecified Resource: .435 metric tons/MWh about 8215 mmbtu/MWh on NG • E.g. LADWP Intermountain Coal: .95 metric tons/MWh • SB 1368 Coal Imports (2020): 1100lbs/MWh higher Base Load (contract term no longer than 5-years at 50% capacity factor) • Estimating both coal and gas tax rates / MWh for these applications to be done using appropriate data in the TEPPC 2020 base case. • Renewable Imports: renewables are “must-take” in the simulations. So, renewables designated to CA as imports will be used to post-process estimate/adjust CA imports

20. 2022 Carbon Reduction Sensitivity CO2 Price $16/ton & $45/ton (2011 Dollars) CO2 Dispatch Cost Adder: Native Fossil Fuel Generation (NG-Oil) Firm Imports: designated CA Resources Non-Designated Imports: California “Unspecified” Imports:“CO2 Hurdle” rate .435 metric tons/MWh CA a GHG “Island” WECC-Wide • CO2 Price $16/ton & $45/ton (2011 Dollars) • CO2 Dispatch Cost Adder • All fossil fuel plants NG and Coal fired Generators • No Import “CO2 Hurdle” rate Needed

21. Illustrative Example: Impacts to Economic Dispatch

22. CO2 Costs to $MWh • Carbon coefficient for natural gas: 117 pounds of CO2 per million BTU. • Carbon coefficient for Coal: 205 pounds of CO2 per million BTU • 1 Pound = 0.00045 Metric Tons • Natural Gas Plant: • 117 lbs/kWh X 7000 MMBtu X .00045=.369 metric tons/MWh • 369 metric tons/MWh X $10/metric ton = $3.69/MWh • Coal Plant • 205 lbs/kWh X 10000 MMBtu X .00045=.923 metric tons/MWh • 923 metric tons/MWh X $10/metric ton = $9.23/MWh Source: U.S. EPA, Inventory of U.S. Greenhouse Gas Emissions and Sinks: 1990-2004, Annex 2, Table A-30