10/31/ Economic Value of Stabilizing Regional Conservation Investments Changes to Analytical Approach and Updated Results

10/31/ Goal of the Analysis l Determine whether there is a net economic value to the region’s power system that could result from stabilizing the annual level of conservation resource acquisition l Identify and evaluate conservation deployment strategies that provide the best net economic value to the regional power system considering practical limitations on program ramp rates and market volatility

10/31/ Analytical Approach Selected l Use ConSOD model to simulate two responses to variations in future market prices: “Sustained Orderly Development” (SOD) - Conservation acquisitions are deployed in uniform annual increments based on long- run avoided costs “Market Price Response” (MPR) - Conservation acquisitions are deployed based on rolling average of short-term market prices

10/31/ Analytical Issues – Required Data and Assumptions l Major Assumptions –Relationship between “rolling average” Market Prices and Annual Level of conservation acquisition –Relationship between Ramp Rate and Total Resource Cost of conservation acquisitions –Rate at which conservation acquisitions can be Ramped Up and Down –Amplitude and Frequency and Duration of wholesale market price spikes

10/31/ What’s Changed? l Prior l Prior analysis based on “Regional” historical relationships between: –Annual Expenditures and Total Acquisitions –Level of Annual acquisitions and Cost/aMW –Changes in Acquisition Levels and Changes in Cost/aMW –Acquisition Levels and Market Prices l Updated l Updated analysis based on historical experience of 10 individual PNW utilities

10/31/ Is There A Relationship Between Market Prices and Annual Level of Conservation Acquisition? – Regional Data

10/31/ Is There A Relationship Between Market Prices and the Annual Level Conservation Acquisitions? – Utility Data

10/31/ Negatively Annual Conservation Acquisitions are Negatively Correlated to “Same-Year’s” Market Prices – Regional Data

10/31/ Annual Conservation Acquisitions Appear To Be Very Weakly but Positively Correlated to “Current Year’s” Market Prices – Utility Data

10/31/ Annual Conservation Acquisitions are Strongly and Positively Correlated to “Last-Year’s” Market Prices – Regional Data

10/31/ Annual Conservation Acquisitions Appear To Be Weakly and Positively Correlated to “Last- Year’s” Market Prices – Utility Data

10/31/ However - If we exclude They’re NOT

10/31/ Changes in Annual Conservation Acquisition Are Strongly Correlated to Changes in Prior Year’s Market Prices – Regional Data

10/31/ Excluding , Changes in Annual Conservation Acquisition Are Weakly Correlated to Changes in Prior Year’s Market Prices – Regional Data

10/31/ Changes in Annual Conservation Acquisition Are Not Correlated to Changes in Prior Year’s Market Prices – Utility Data

10/31/ Relationship Between Market Prices and Changes in the Annual Level of Conservation Acquisition l Conclusion – Historical evidence does not indicate a statistically significant relationship between Conservation Acquisitions and Market Prices l However, changes in acquisition levels appear to lag market prices due to the inertia intrinsic in »Budget cycles »Infrastructure response »Project/Program lead times –Assumption – Ramp ups in conservation acquisitions lag the “rolling average” monthly market price changes by 0 – 18 months, with a “expected value” lag of 6 months

10/31/ Is There A Relationship Between Ramp Rate and Total Resource Cost of Conservation Acquisitions? STILL NO DATA on TRC Used Utility Cost (Again)

10/31/ Regional Utility Annual Conservation Acquisition Levels Have Varied Significantly Average – 6.7 aMW/yr Standard Deviation – 6.2 aMW/yr

10/31/ Regional Conservation Acquisition Costs Have Varied Significantly Average - $2.22 million/aMW Standard Deviation - $1.13 million/aMW

10/31/ Utility Conservation Acquisition Levels Have Varied Significantly Over Time

10/31/ Utility Conservation Acquisition Costs Have Varied Significantly Over Time

10/31/ Strongly Total Utility Conservation Expenditures Are Strongly Correlated to Annual Acquisition Levels

10/31/ Strongly Correlated Changes in Utility Conservation Expenditures are Strongly Correlated to Changes in Conservation Acquisitions

10/31/ Cost/aMW and Magnitude of Annual Conservation Acquisitions Are Weakly Correlated – Regional Data

10/31/ Not Utility Cost/aMW Are Not Correlated to Annual Acquisition Levels

10/31/ Changes in Conservation Acquisitions Are Weakly Correlated and Inversely Related to Utility Acquisition Costs

10/31/ Relationship between Ramp Rate and Utility Cost of conservation acquisitions l Conclusion - There is only a weak relationship between ramp rates (up or down) and utility conservation acquisition costs. l Utility conservation acquisition costs ($/aMW) are lower when ramping up than when ramping down. l Assumption – –Assume 10% higher cost/aMW during ramp down than ramp up.

10/31/ Utility Conservation Acquisition “Ramp Rates” Vary Over A Wide Range Average -.2 aMW Standard Deviation – 4.3 aMW

10/31/ Rate at which conservation acquisitions can be Ramped Up and Ramped Down l Conclusion - Conservation has been ramped up and down within a range of +/- 10 aMW l Assumption – Constrain ramp rate to “monthly” availability” of each conservation cost block (e.g. maximum annual change = 12x monthly availability).

10/31/ Amplitude, Duration and Frequency of wholesale market price spikes l Wholesale market prices will fluctuate as a result of: –Over/Under building –Extreme weather events (hot or cold) –Hydro-system availability –Short-run economic/business cycles Assumption:“Randomize” the forecast of future “price spikes” in response to hydro-system availability, ignore “short-run” weather & business cycles