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Energy Planning and Recent Regulatory Developments Northwest Energy Systems Symposium (NWESS)

Nicolas Garcia. Energy Planning and Recent Regulatory Developments Northwest Energy Systems Symposium (NWESS) University of Washington. February 22, 2008. Discussion Topics . Energy Independence Act – a.k.a I-937 Conservation Renewable Other Recent Regulatory Requirements S.6001

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Energy Planning and Recent Regulatory Developments Northwest Energy Systems Symposium (NWESS)

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  1. Nicolas Garcia Energy Planning and Recent Regulatory Developments Northwest Energy Systems Symposium (NWESS) University of Washington February 22, 2008

  2. Discussion Topics • Energy Independence Act – a.k.a I-937 • Conservation • Renewable • Other Recent Regulatory Requirements • S.6001 • Integrated Resource Planning • Background • IRP Goals and Key Objectives • Load and Resource Balance • Preferred Resource Portfolio

  3. I-937 Conservation Requirement • Law Requires Washington Utilities to: • Acquire All “Cost-Effective” Conservation (starting in 2010) • Develop a ten-year conservation potential using methods that are consistent with those used by the Northwest Power and Conservation Council (NWPCC) • Pro-rate the ten-year conservation goals into biennial conservation targets • The Law specifies administrative penalties to be • assessed for shortfalls - $50 per megawatt hour • (2006 dollars subject to inflation)

  4. Annual Targets ≈ 5 to 6 aMW I-937 Conservation Requirement • January 2007 Assessment for Tacoma Power using methodologies consistent with NWPCC • Technical potential: about 159 aMW (across all customer sectors) • Economic potential: about 102 aMW (cost effective) • Achievable potential: about 54 aMW in first 10 years

  5. Tacoma Power’s Load and Resource Balance I-937 Compliance -- Conservation aMW

  6. I-937 Renewables Requirement • Compliance required regardless of utility need. • Amount of Renewables based on annual retail load: • 3% by 2012 • 9% by 2015 • 15% by 2020 • Utilities must acquire: • Renewable Energy Credits (REC), and/or • Eligible Renewable Resources (MWh)

  7. Estimated Renewable Acquisition Required Under I-937

  8. 4% Renewables Cost Cap and Penalties The law includes an incremental cost cap equal to4% of a utility's annual revenue requirement. • Presently, Tacoma Power’s revenue requirement is approximately $300 million which would set theincremental cost cap at about $12 million. • Assuming that RECs cost $30 per certificate, the $12 million price cap will be reached at 400,000 RECs – well less than the 500,000 RECs indicated by retail load in 2016.

  9. What is The Best Way to Comply with the Renewable Requirements? • Should one acquire renewable assets, renewable energy credits, or some combination of both? • Will renewable energy credits be available? If so, at what cost? • How much in the way of renewables or RECs should one acquire given the 4% renewable cost cap? • If one decides to comply by acquiring assets: • when should the acquisition be made? • what types of renewable technologies make the most sense?

  10. Compliance using new Renewable Resources aMW • Average Water = Annual average of 72 years of system flows • Critical Water = Annual system worst year on record (72 years) • Note: Planned conservation acquisitions not included in graphic

  11. Compliance using Renewable Energy Credits • No central market clearinghouse. • Renewable Portfolio Standards becoming commonplace. Competition for RECs is likely to be vigorous. • Many sellers do not have track records. • Who bears the risk if intermittent resources generate less than expected? • No one has significant experience in this field.

  12. How to Comply with the Renewable Energy Mandate?

  13. Discussion Topics • Energy Independence Act – a.k.a I-937 • Conservation • Renewable • Other Recent Requirements • S.6001 • Integrated Resource Planning • Background • IRP Goals and Key Objectives • Load and Resource Balance • Preferred Resource Portfolio

  14. S.6001 Requirements • Emission limit of 1,100 lbs of greenhouse gases per MWh for new baseload generation • Covers plant that operate more than 60% of the time. • Emission limit of 1,100 lbs of greenhouse gases per MWh for new long-term contracts • Contracts lasting 5 years or more. • Questions regarding unspecified sources. • Implementing rules must consider effects on system reliability and cost to utility customers. • Greenhouse gas emissions performance standard

  15. Discussion Topics • Energy Independence Act – a.k.a I-937 • Conservation • Renewable • Other Recent Requirements • S.6001 • Integrated Resource Planning • Background • IRP Goals and Key Objectives • Load and Resource Balance • Preferred Resource Portfolio

  16. What Is Integrated Resource Planning? • Creates long-term structured comprehensive analysis framework for choosing least cost and least risk resources to meet future customer demand • Considers combinations of supply side (e.g. power projects) and demand side (e.g. conservation) resources • Considers future uncertainty • Takes environmental and societal considerations into account • Is transparent and inclusive - entails public participation • Provides action plan for resource acquisition - types, amount and timing of new resources

  17. Utility Risks, Opportunities and Mitigation Tools • Risk Management / Mitigation • Critical Water Adequacy Planning • Resource Diversity • Short Term Operations Planning/Analysis • Integrated Resource Planning • Scenario Planning / Strategic Planning • Wholesale Market Participation • Trading Guidelines / Controls • Credit Risk Management Program • Regional BPA Dialogue Participation • Resource Adequacy Regional Dialogue • Debt Coverage Ratios, Bond Covenants • Participation in Regulatory Processes • Compliance with Emergency Action Plans • Comprehensive Infrastructure Maintenance Low Market Prices High Market Prices Market Volatility Transmission Access High Debt Costs Out of state demand Counterparty Risk Load Increases Load Decreases Regional Infrastructure Overbuild Generation Carbon Regulation Other Regs (e.g. Fed RPS) I-937 Compliance Natural Disasters Dry Regional Hydro Wet Regional Hydro Labor Attraction/Retention Ageing Infrastructure

  18. The Basic IRP Process • Identify / Evaluate Goals and Objectives • Identify Resource Need (Gap) • Forecast future supply capability • Forecast future customer demand • Calculate Load and Resource Balance (Load vs. Supply) • Stochastic Modeling • Identify and Evaluate Candidate Resources • Identify and characterize generic supply side resources • Identify and characterize demand side resources (e.g., conservation) • Create candidate “portfolios” of resources for analysis • Conduct Computer Model Simulation of Resource Portfolios • Utilize methods to consider risk and uncertainty • Rank resource portfolios on the basis of least cost and least risk • Identify Preferred Resource Portfolio

  19. Long-Term Power Planning Goals • Overall goal is to Develop a Long Term Resource Acquisition Strategy that: • Minimizes Resource Portfolio Cost(Keep Rates Low) • Maintains / Enhances Reliability • Minimizes Environmental / Societal Impacts • Minimizes / Manages Risk

  20. The Basic IRP Process • Identify / Evaluate Goals and Objectives • Identify Resource Need (Gap) • Forecast future supply capability • Forecast future customer demand • Calculate Load and Resource Balance (Load vs. Supply) • Stochastic Modeling • Identify and Evaluate Candidate Resources • Identify and characterize generic supply side resources • Identify and characterize demand side resources (e.g., conservation) • Create candidate “portfolios” of resources for analysis • Conduct Computer Model Simulation of Resource Portfolios • Utilize methods to consider risk and uncertainty • Rank resource portfolios on the basis of least cost and least risk • Identify Preferred Resource Portfolio

  21. Identify Resources GCPHA Misc. Other Priest Rapids Wynochee Nisqually BonnevillePowerAdministration Cowlitz Cushman

  22. aMW Average Water Surplus/Deficit Identify Load and Resource Gap aMW

  23. The Basic IRP Process • Identify / Evaluate Goals and Objectives • Identify Resource Need (Gap) • Forecast future supply capability • Forecast future customer demand • Calculate Load and Resource Balance (Load vs. Supply) • Stochastic Modeling • Identify and Evaluate Candidate Resources • Identify and characterize generic supply side resources • Identify and characterize demand side resources (e.g., conservation) • Create candidate “portfolios” of resources for analysis • Conduct Computer Model Simulation of Resource Portfolios • Utilize methods to consider risk and uncertainty • Rank resource portfolios on the basis of least cost and least risk • Identify Preferred Resource Portfolio

  24. Alternative Resources

  25. The Basic IRP Process • Identify / Evaluate Goals and Objectives • Identify Resource Need (Gap) • Forecast future supply capability • Forecast future customer demand • Calculate Load and Resource Balance (Load vs. Supply) • Stochastic Modeling • Identify and Evaluate Candidate Resources • Identify and characterize generic supply side resources • Identify and characterize demand side resources (e.g., conservation) • Create candidate “portfolios” of resources for analysis • Conduct Computer Model Simulation of Resource Portfolios • Utilize methods to consider risk and uncertainty • Rank resource portfolios on the basis of least cost and least risk • Identify Preferred Resource Portfolio

  26. Final Thoughts • Integrated resource planning is becoming both easier and more difficult. • Easier in that regulations are limiting resource choices • More difficult in that regulations continue to evolve requiring planners to factor in political/regulatory risk along with more traditional risks: • fuel cost, counter party risk, electric price volatility, hydro variability, transmission availability, forced outages, etc.

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