Will CO2 Change What We Do? Tom Eckman Manager, Conservation Resources Northwest Power and Conservation Council Presented May 2, 2007 Utility Energy Forum

Assertion: Carbon Control Is In Our Future Problem: We don’t know when We don’t know “how much” So: How should we position energy efficiency programs to address a “carbon controlled” future? slide 2

Let’s Start With The Answer Do It Sooner! Do More!

How Much Sooner? How Much More?

PNW Portfolio Planning – Scenario Analysis on Steroids Portfolio Analysis Model slide 5

Distribution of Cost for a Plan Analysis Test 1,000s of “Resource Plans” Against 750 Difference “Futures” Avg Cost Distribution of Cost for a Plan Number of Observations Cost for Future 2 Cost for Future 1 10000 12500 15000 17500 20000 22500 25000 27500 30000 32500 Power Cost (NPV 2004 $M)-> slide 6

Risk and Expected Cost Associated With A Plan Avg Cost Risk = average of costs> 90% threshold Likelihood (Probability) 10000 12500 15000 17500 20000 22500 25000 27500 30000 32500 Power Cost (NPV 2004 $M)-> slide 7

Plans Along the Efficient Frontier Permit Trade-Offs of Costs Against Risk Least Cost Least Risk slide 8

Efficient Frontier A B C D Background Typically, plans along the efficient frontier proceed from “relying on the market” at the low-cost, high risk end, to “building reserves” at the high-cost, low-risk end. Beware over building, however. The over-built plans are well off the efficient frontier. Resources closer to the least-risk end of the trade-off curve typically do not pay for themselves on an expected value basis. We are paying a premium for these resources most of them do not cover their costs. It shouldn't be surprising that this is true for conservation as well. The key take away is that conservation can play this role less expensively than alternatives, like SCCTs. A major factor in that conclusion is the nature of electricity prices at the low risk and of the trade-off curve. At the end of the curve we have lower average costs and less volatility. slide 9 Background

5th Plan Relies on Conservation and Renewable Resources to Meet Load Growth* *Actual future conditions (gas prices, CO2 control, conservation accomplishments) will change resource development schedule and amounts

(and reduced carbon emissions)? Should We Do It Sooner? Would Higher Carbon Control Cost Assumptions Significantly Increase the Pace of Cost-Effective PNW Electricity Conservation Potential (and reduced carbon emissions)? slide 11

Timing Matters – Three Conservation Deployment Schedules Tested slide 12

The Plan Calls for Accelerating Conservation Development Because it Reduces Cost & Risk slide 13

Uncertainties Impact Supply Curves The whiskers represent min and max cost given the cost range of key input variables like fuel price, CO2 tax, resource availability and cost of capital. Note lots of overlap among coal, gas, and RR Also skewed high-side uncertainty RR in this graph is wind & geothermal mostly slide 14

The Plan Calls for Accelerating Conservation Development Because Reduces Carbon Dioxide Emissions slide 15

Meeting 5th Plan’s Conservation Targets Reduces Forecast PNW Power System CO2 Emissions in 2025 by Nearly 20% slide 16

(and reduced carbon emissions)? Should We Do More? Would Higher Carbon Control Cost Assumptions Significantly Increase the Amount of Cost-Effective PNW Electricity Conservation Potential (and reduced carbon emissions)? slide 17

There’s Remaining Electric Energy Efficiency Potential 450 MWa Remaining Technically Achievable Potential < $100/MWh slide 18 *Without “Certain” Carbon Control

The 5th Plan Already Includes Expected Value of CO2 Control “Risk” Levelized Cost = ~ $3/ton slide 19

Would Higher “Carbon Cost” Matter? Both Amount & Value of CO2 avoided depends on when it is avoided Hence, the “carbon control” value of energy savings should incorporate their time-based value (as it does for electricity savings) Shape of Savings (kWh daily & seasonally) Physical production (pounds per kWh daily and seasonally) slide 20

Marginal System CO2 Production Factor The amount of carbon dioxide (lbCO2/kWh) produced by the marginal resource required to meet load. Typically assessed as an average over some period, e.g., a year, and therefore an average of the CO2 production of many different resources that may be on the margin during the period. slide 21

The Marginal Resource* Establishes Market Price and Carbon Content/kWh Step 1 - Identify hourly marginal (highest-cost dispatched) Northwest resource Step 2 - Calculate marginal CO2 factor for hour *This resource (and its effects, such as CO2 production) will (generally) be the resource displaced for that hour by new resource additions.

Northwest Resources “on the margin” 5th Plan Resource Portfolio slide 23

Estimated Annual Average Marginal PNW Power System CO2 Emissions Factors slide 24

Pace of Conservation Acquisition Does Not Significantly Change the “Marginal CO2 Production Factor” slide 25

High Fuel Prices Not Significantly Change the “Marginal CO2 Production Factor” slide 26

Forecast of Physical CO2 Avoided* Based on Modeling PNW System dispatch using Aurora™ Model slide 27

Marginal Carbon Savings by Load Shape Segment 1: 0800 – 1800 M-F Segment 2: 0400 - 0800/1800-2200 M-F; 0400 – 2200 S&S Segment 3: 2200 - 0400 M-F Segment 4: 2200 - 0400 S&S

$ Timing-Based Value CO2 Shape of Savings (kWh) * * = Physical CO2 Avoided (lbs/kWh) * Value of CO2 Avoided ($/ton) = $ Value of CO2 Avoided slide 29

Typical “On-Peak” Load Profiles slide 30

Typical “Off-Peak” Load Profiles slide 31

Impact of $15/ton Carbon Control Cost of “Avoided Cost” for Selected Conservation Savings Shapes* slide 32

Impact of Alternative CO2 Control Costs on Marginal Value of Conservation Savings

Impact of Higher Assumed CO2 “Control” Cost Assuming PNW CO2 Emissions Factor of ~ 1 lb/kWh A $10/ton CO2 change in emissions “control” cost increases forecasted market prices by approximately $4/MWh A $40/ton CO2 change in emissions “control” cost increases forecasted market prices by approximately $16/MWh slide 34

Carbon Control Might Make 4% to 15% More Conservation “Cost-Effective” Additional 100 - 400 MWa Cost-Effective @ $10 - $40 Ton slide 35 *Without “Certain” Carbon Control

Summary The Northwest Power and Conservation Council’s 5th Plan relies on “non-carbon” producing resources to meet 85-90% of anticipated load growth The 5th Plan considered “carbon control” risk Higher and more certain carbon control costs assumptions could make 4-15% more conservation cost-effective There are probably cheaper near-term options for carbon control than the PNW Power System slide 36

Questions slide 37