2. Northwest Power Planning Council Model Conservation Standards DRAFT Economic Analysis for for New Residential Construction

3. Northwest Power Planning Council slide 2 Model Conservation Standards and Surcharge Policy - Why?? The Northwest Power Act directs the Council to include in its Regional Conservation and Power Plan: The Northwest Power Act directs the Council to include in its Regional Conservation and Power Plan: – Model Conservation Standards (MCS) – Recommended Surcharge Policy – Methodology for Computing Surcharges

4. Northwest Power Planning Council slide 3 Model Conservation Standards – What?? Act requires that Council’s Plan set forth model conservation standards for: Act requires that Council’s Plan set forth model conservation standards for: – New and existing buildings – Utility and government conservation programs – Other consumer actions

5. Northwest Power Planning Council slide 4 Model Conservation Standards – Criteria The Act requires that the Model Conservation Standards be set at levels that: The Act requires that the Model Conservation Standards be set at levels that: – achieve all regionally cost-effective power savings (i.e., cost less than new generation ); and, – that are economically feasible for consumers, taking into account financial assistance that may be made available through Bonneville

6. Northwest Power Planning Council slide 5 The MCS – A Short History: Chapter 1 Council adopted first MCS April 27, 1983 Council adopted first MCS April 27, 1983 – Established space heating performance targets for new electrically heated residences for three Northwest Climates – MCS requirements were 40% better than toughest existing energy codes in region – Recommended that MCS be adopted by January 1, 1986 or BPA impose 10% surcharge on utilities serving non-complying areas

7. Northwest Power Planning Council slide 6 The MCS – A Short History: Chapter 2 1983 – 1991 1983 – 1991 – Council sued by Seattle Master Builders » Conclusion - Council Won – Bonneville sponsors “R&D” project (RSPD) to test “cost-effectiveness” of MCS » Conclusion – “Yes” – Bonneville, following Council’s Plan, sponsors “early code” adoption and “energy efficient” new homes marketing program (Super Good Cents) » Conclusion – Tacoma adopts MCS, the Region follows...

8. Northwest Power Planning Council slide 7 The MCS – A Short History: Chapter 3 A Decade Later A Decade Later – Oregon and Washington adopt energy codes equivalent to MCS – Montana adopts energy code that is within 15% of MCS – Idaho, well, is Idaho

9. Northwest Power Planning Council slide 8 The MCS – A Short History: Chapter 4 It’s Time for Another Cost-Effectiveness Review It’s Time for Another Cost-Effectiveness Review Issues: Issues: – Are there additional thermal shell measures that are “regionally cost-effective” and “economically feasible”? – Are there non-thermal shell measures that should be considered for inclusion?

10. Northwest Power Planning Council Where Are We? (Thermal Shell Only)

11. Northwest Power Planning Council slide 9 Proposed Analytical Approach Regional cost-effectiveness Regional cost-effectiveness – Use forecast of future market prices and load shape of savings to establish “energy value” – Include T&D Benefits to establish “capacity value” Economic feasibility Economic feasibility – Use range of values for major financial assumptions, e.g. mortgage rates, retail electric rates, etc. for “life- cycle” cost analysis – Use region’s most stringent energy code as “base case”

12. Northwest Power Planning Council Regional Cost Effectiveness: Preliminary Results Some measures in the existing MCS are not “Regionally Cost-Effective” based on current market price forecasts (updated market price forecasts are higher) Some measures in the existing MCS are not “Regionally Cost-Effective” based on current market price forecasts (updated market price forecasts are higher) Measures which may not be “cost-effective” may be “economically feasible” due to lower mortgage rates and higher retail electric prices Measures which may not be “cost-effective” may be “economically feasible” due to lower mortgage rates and higher retail electric prices

13. Zone 1: Cost-Effective Reference Path Comparison* ComponentMCS WSEC (Base Case) Wall –Above Grade R21ADV R21 STD Wall – Int. Below Grade R21R19 Attic R38 ADV R38 STD VaultR38R30 FloorR30R30 Window Class 35 Class 40 DoorR5R5 SlabR15R10 Wall – Ext. Below grade R10R10 *Zonal Electric Heat

14. Zone 2: Cost-Effective Reference Path Comparison* ComponentMCS WSEC (Base Case) Wall –Above Grade R21ADV R19 STD + R5 Foam Wall – Int. Below Grade R21R21 Attic R38 ADV R38 STD VaultR38R30 FloorR30R30 Window Class 35 Class 40 DoorR5R5 SlabR15R10 Wall – Ext. Below grade R10R12 *Zonal Electric Heat

15. Zone 3: Cost-Effective Reference Path Comparison* ComponentMCS WSEC (Base Case) Wall –Above Grade R21ADV R19 STD + R5 Foam Wall – Int. Below Grade R21R19 Attic R38 ADV R38 STD VaultR38R30 FloorR38R30 Window Class 35 Class 40 DoorR5R5 SlabR15R10 Wall – Ext. Below grade R10R12 *Zonal Electric Heat

16. Northwest Power Planning Council Whad’eh Jest Say? The Implications For the first time, more measures may be economically feasible for consumers than are “cost-effective” for the power system For the first time, more measures may be economically feasible for consumers than are “cost-effective” for the power system –Current retail rates in the PNW are above long run market prices –Current mortgage rates (after tax) are now “roughly” equivalent to (or below) the Council’s assume societal discount rate

17. Northwest Power Planning Council POLICY ISSUES Should MCS be set at: Should MCS be set at: –Regionally cost-effective efficiency level (if it’s less efficient than “economically feasible”) –Minimum “Life-cycle” cost efficiency level (if it exceeds “regionally cost-effective” efficiency level) –Lower than “current” life cycle cost efficiency level (if lower efficiency would return greater “individual” economic benefits)

18. Northwest Power Planning Council slide 10 Life Cycle Cost – Input Assumptions Mortgage Rate and Term Mortgage Rate and Term Consumer Discount Rate Consumer Discount Rate Downpayment Downpayment Private Mortgage Insurance (for less than 20% down) Private Mortgage Insurance (for less than 20% down) Retail Electricity Price and Escalation Rate Retail Electricity Price and Escalation Rate State and Federal Income Tax Rate State and Federal Income Tax Rate Property Tax Rate Property Tax Rate Homeowner’s Insurance Rate Homeowner’s Insurance Rate Measure Incremental Cost Measure Incremental Cost Measure Incremental Savings Measure Incremental Savings

19. Northwest Power Planning Council slide 11 Life Cycle Cost – “Probability” Model Problems Problems – All of the major input assumptions are known to vary over a range – “Point estimates” for each assumption result in “Yes/No” answers, when the real conclusion is “sometimes OK, sometimes not so OK” Proposed Solution Proposed Solution – Use “range” of input assumptions to generate a “probability” distribution of life-cycle cost results

20. Northwest Power Planning Council slide 12 Average New Home Sales Price

21. Northwest Power Planning Council slide 13 Historical Mortgage Rates

22. Northwest Power Planning Council slide 14 State Income Tax Rates

23. Northwest Power Planning Council slide 15 Federal Income Tax Rates

24. Northwest Power Planning Council slide 16 Retail Electricity Prices

25. Northwest Power Planning Council slide 17 Retail Rates – Zone 1

26. Northwest Power Planning Council slide 18 Retail Rates – Zone 2

27. Northwest Power Planning Council slide 19 Retail Rate – Zone 3

28. Northwest Power Planning Council And Now For Something Completely Different... MCSLCCModel.XLS