Considerations regarding a Renewable Portfolio Standard (RPS) Framework for the State of Oregon

1. Considerations regarding a Renewable Portfolio Standard (RPS) Frameworkfor the State of Oregon Governor’s Renewable Energy Working Group July 11, 2006

2. Our Goal Today…. • To provide the Governor’s Renewable Energy Working Group (REWG) a look into the issues of an RPS from the point of view from operating utilities as presented by members of PNUCC.

3. Is this what its all about? Oregon needs to make sure it doesn’t just follow the crowd….

4. Utilities in Oregon: One Size Doesn’t Fit All

5. Most Oregon COUs purchase all or the majority of their power from BPA • New federal contracts will begin in 2011 • The existing output of the federal system will be “allocated” to publics as Tier One • The Tier One resource is approximately 90% hydro and 10% nuclear and is virtually greenhouse gas free • Load growth can be covered through a BPA Tier Two product or a non-BPA resource • Some COUs have requested BPA provide a Tier Two renewable product

6. What generating resources are there in Oregon?In the US? US Resource Mix (capacity): Natural Gas 39%; Coal 32%; Hydro 10%; Nuclear 10%; Fuel Oil 5%; Renewables and other 1%

7. What is important to our customers? • Safe power system • Reliability of supply • Reasonably priced energy • Price stability • A preference for cost effective renewable resources • Choice

8. Generation Fuel Transportation (if applicable) Fuel Extraction (if applicable) Demand Response Energy Efficiency Transmission & Distribution End use How do utilities plan for customers requirements? Through “Integrated Resource Planning”….

9. What is Integrated Resource Planning? • Technology • Shaft risk (size) • Location • Fuel supply / source • Resource life • Fuel supply term • Fixed vs. variable (cost structure) • Fuel price volatility Price Stability P Reliability Portfolio Value& Risk Mix Environment Cost • Greenhouse gasses • Sulphur dioxide, mercury, nitrogen oxide • Habitat, water quality • Contract vs. owned • Capital Cost • Fuel type • Transmission and transport Its managing value, risk and resource choices through a balanced portfolio approach…

10. Existing Governance and Regulatory Structure • IOUs • Integrated Resource Plans • PUC must approve rate recovery for resource decisions • COUs • Locally elected boards responsible for resource decisions • Local boards and councils directly accountable to their customers • Muni/PUD Boards or City Councils subject to initiative, referendum, recall • Muni/PUD Board subject to open meetings and public records laws • Co-op boards elected by members – meetings and decisions open to all members

11. Existing Regional Resource Planning • The NW is unique in how it plans its energy future • The Northwest Power Act established the Northwest Power and Conservation Council • Council required to develop a 20 year power plan • to assure adequate, efficient, economical and reliable power system • The Plan addresses future uncertainties; identifies realistic resource alternatives; analyzes the costs and risks that arise from resource alternatives and the interactions of resource choices and uncertain futures; and lays out a flexible strategy for managing those costs and risks • BPA resource acquisitions guided by the Council’s Plan

12. How much new generation is needed in the region? Source: Northwest Power Planning and Conservation Council

13. Would a 25% RPS strand investments? Source: Northwest Power Planning and Conservation Council

14. What would a 25% standard would mean to a theoretical Oregon COU at 1.25% annual Load Growth? • 2004 load: 150 aMW • 2012 load: 166 aMW Tier1 Allocation • 2025 load: 195 aMW • 2025 25% Renewable obligation = 49aMW • Tier 1 Power displaced = 20 aMW 195 aMW - 49 aMW = 146 aMW 166 aMW - 146 aMW = 20 aMW

15. What wind development is already occurring?

16. Existing Wind Projects

17. Pending and Potential Projects Potential by 12/ 2007 2500 MW

18. One Utility’s Experience with an RFP for Renewable Resources Excluding hydro, wind is currently 93% of installed renewable capacity nationwide, and 85% of energy.

19. Why is the Predominance of Wind Important? Firming Resources Required for Average Energy or an Alternative Planning Metric

20. Why is the Predominance of Wind Important? • Characteristics of the Wind Resource • Appears to be most cost effective renewable option • Emission and fuel free • Relatively mature technology • Cannot be dispatched • Challenges in Forecasting – even hour-ahead • Highly Variable and Volatile – within the hour • Reactive Power Consuming • Must be Firmed by Another Resource

21. Wind Integration - Transmission Issues? • Wind requires Firm Transmission Capacity at approximately 3x the average energy delivered • Location of the Firming Resource is critical • We must Understand the OATT implications • The influence of the Integration of Wind on a large scale must be modeled for NW transmission • Several Groups are beginning to address these issues: WECC; NWPP (NTAC); BPA-Council • Study results likely not available to inform pending RPS development for Washington and Oregon

22. Transmission: Is there enough?

23. Wind Integration - Regional Capability? • Tapping out FCRPS capability • “It is likely that by the middle of next year, BPA will have to either allocate more capacity to regulation or enter the market for regulating reserves.” - BPA • Paradigms of Operation – Inexpensive Energy or Ancillary Services for integrating Wind Energy? • The discussion is both about physical capability, cost and who pays • Hydro operations for fish are interrelated • BPA will need the active cooperation and collaboration of other regional utilities, developers and policy makers to help manage the variability of the resource.

24. How close to the “operating edge” are we? • The best indicators of how close the system is being operated to the edge fall into the following categories: • Amount of time the system is congested • The difficulty of taking maintenance outages • The degree of special protection schemes such as direct generation tripping that is required for more common contingencies • Increasing vulnerability to system disturbances • Operating limits constrained below path ratings • Increased difficulty of maintaining voltage schedules and reactive margin • Safe operating limits sensitive to modeling assumptions

25. How close to the “operating edge” are we?

26. What are some challenges with a mandate? • Availability of high potential sites in Diverse Basins • Impact of Nationwide development of RPSs on cost & availability of Wind Machines • Acquisition of Resources Ahead of Need • Conflict with Integrated Resource Plans • Consistency with the Council’s Five-Year Plan

27. What utility concerns need to be addressed in order to assess the feasibility of a mandate for Oregon?

28. Utility ConcernWhat would be the primary objective of a renewable policy? • Reduce green house gas emissions • Increase power supply fuel diversity focusing on load growth • Stimulate economic development ¹ source: Oregon Renewable Action Plan, Goals and Initiatives page 5

29. Utility ConcernWould there be a percentage “target”? • To effectively manage the cost to customers of implementing a renewable policy -- Resource additions should be based on need not want • Acquisition of resource beyond planning requirements voids the Integrated Planning Process tenet of “Least Cost Plan” • Acquisition of resources beyond need causes displacement of resources and leads to “stranded costs”

30. Utility ConcernWould there be constraints on timing of implementation? • Longer lead-times can lead to better cost management in today's market for renewable resources • Longer lead-times would promote long-term investment in regional renewable energy generation • Shorter term planning may result in higher cost burdens to consumer • Need for flexibility and coordination with least cost planning and regional power planning, including BPA contracts

31. Utility ConcernWhat would count as a “renewable” resource? • Hydro • Solar energy • Wind energy • Geothermal energy • Wave energy (ocean or tidal) • Biofuels, Biomass, Biowaste, Landfill gas • Fuel cells using eligible renewable fuel sources Resources must meet specific requirements that limit potential environmental impact (e.g. emission standards)

32. Utility ConcernTo what would the target be applied? • Retail Load Growth Demand? • Net out existing hydro and apply percentage to remaining load? • Other? • If applied to total load, would displace existing resources, including hydro.

33. Utility ConcernFlexibility in meeting renewable development targets? • Compliance flexibility is necessary due to inherent fluctuations in renewable energy production and development risk • Overproduction: • Green Tag banking • Credit for early compliance • Under-compliance: • Forgiveness for failure to comply due to uncontrollable circumstances • Allowed average compliance over a specified time • Utility diversity • Small distribution utilities lack the resources and therefore have a low tolerance for risk associated with project development

34. Utility ConcernWould there be a cap on the cost of renewable development? Mandated resource portfolio standards can create increased resource acquisition and operating costs above least cost alternatives Investor owned utilities need the ability to recover prudent costs Oregon currently has a cost cap on the acquisition cost of renewable resources via the SB1149 Systems Benefit Charge Oregon’s COUs are not-for-profit pass-through organizations. All costs are incurred by electric consumers.

35. Utility ConcernWould there be a cost effectiveness standard? • Impact on customer rates, • Utility system reliability and stability, • Costs and availability of eligible renewable resources and technologies, permitting approvals, • Impacts on the economy, culture, community, environment, land and water, demographics, and • The need to provide firming for intermittent resources • The need for new transmission capacity

36. Utility ConcernWho would govern the process? • Must respect the historic and existing governance and regulatory structure: • PUC for IOUs • Local boards for COUs

37. Utility ConcernWould “green tags” count toward achieving renewable targets? • Green tags help utilities to better manage costs and more efficiently shape the timing and size of renewable resource acquisitions

38. Summary / Concluding thoughts • Cost-effective renewable resources will be a key component of the resources needed to serve Oregon’s load growth • Establishing an RPS isn’t necessary in Oregon at this time given the current renewable base and pace of renewable resource development • Adequate regulatory and planning processes already exist for evaluation of long term resource additions • We need “a flexible resource strategy that can perform well under the expanded and intensified range of future uncertainties” (5th Power Plan)