1 ACT 61 INCREASED INVESTMENT AND SAVINGS SCENARIOS Summary Of Methods Used To Develop Inputs For Analysis of Cost-Effectiveness and Rate Impact John Plunkett Blair Hamilton Vermont Public Service Board Workshop - Act 61 Scenarios Montpelier, Vermont March 3, 2006

2 OVERVIEW Scenario Definitions Approach to Developing Scenarios #1 and #2 Approach to Developing Scenarios #4 and #5 Basis of EEU Cost Totals Development of MWh Savings Allocation of MWh Savings Development of MW Savings Participant and Third Party Costs Fuel and Water Costs Measure Life

3 Scenario Definitions Scenario 1 is a moderate ramp-up in current contract strategies and services without current budget constraints. This is a gradual increase in spending and savings over three years to a 30% increase in spending and 33% increase in savings in Scenario 2 is a more aggressive ramp-up within current policy guidance. This is a steeper increase in spending and savings over three years to twice the current budget and approximately twice current savings in Scenario 4 assumes the current funding base plus as much additional cost- effective investment as possible over the next three years without policy constraints, to a “maximum achievable” savings level consistent with the DPS 2002 potential study. The result is a five-fold increase in investment and tripling in current savings in Scenario 5 has a ramp-up to three times current EEU investment in 2008, 2/3 of which would be under existing policy guidance and 1/3 would maximize annual incremental electricity savings, unconstrained by equity or any other current statutory or regulatory policy objectives. Under this scenario, spending is three times current spending and savings is 2½ times current savings in 2008.

4 Approach To Developing Scenarios #1 and #2 Both scenarios are considered extensions of Efficiency Vermont experience Using EVT historical data to project timing of savings Savings profile by costing period for installed measures Savings decay over time based on life expectancy of measures actually installed Using projected results underlying Efficiency Vermont contract Annualized savings by market Efficiency Vermont costs by market

5 Approach To Developing Scenarios #4 and #5 After 2006, both scenarios are much more aggressive than Efficiency Vermont experience Achieving these higher savings will require much more aggressive market strategies Projected costs and savings make use of estimates in DPS 2002 updated Power to Save study of maximum achievable potential Actual results are used to characterize timing of savings by costing period and by year as in Scenarios #1 and #2

6 Basis of EEU Cost Totals Scenario #1: Estimate developed by EVT staff based on definition of scenario (moderate increase in response to market demand, unconstrained by budget) Scenario #2: Estimate developed by EVT staff based on definition of scenario (more aggressive ramp-up within current policy guidance) Scenario #4: Investment defined by scenario (maximum savings, with current policy guidance for portion equal to current plans) A base cost equal to current EEU plans for is assumed, with corresponding savings at the cost per MWh and with the same sectoral split as in the current EVT contract. The cost of acquiring savings between this base and the maximum achievable savings from the 2002 potential study is assumed to be acquired at a sectoral cost per MWh, and with a sector split from the 2002 potential study (adjusted for inflation), which yields the total cost of this scenario. Scenario #5: Defined by scenario (invest twice current plans under current policy guidance and total three times current by 2008) A base cost equal to Scenario #2 (ramp-up to twice current spending in 2008) is assumed, with the corresponding sector split. Additional investment is added in 2007 and 2008 to ramp up to three times the currently planned level of investment in 2008, with a sector split of the increment to maximize MWh per dollar invested.

7 Development of MWh Savings Scenarios #1 and #2 Market-by-market, subjective estimates by EVT managers of changes in yield ratios ($/MWh) from recent experience and trends that would be expected for proposed increments, based on the increased level of activity proposed under the scenario, and considering markets where growth would be expected to be the greatest (e.g., retrofit for existing buildings). Scenario #4 A base savings equal to current EEU plans for is assumed at the cost per MWh and with the same sector split as in the current EVT contract. The difference between this level of savings and the maximum potential savings from the 2002 potential study is assumed to be provided at the cost per MWh from the potential study, adjusted for inflation. The sector split of savings for this increment is from the 2002 potential study, with adjustments for accounting for multifamily in the business sector. Scenario 5: A base savings equal to Scenario #2 is assumed, with the corresponding sector split. Additional savings are estimated to result from the investment added in 2007 and 2008 to ramp up to three times the currently planned level of investment, using a 50/50 blend of yield rates from the maximum achievable potential study and the current business retrofit yield rates plus 25%. In all scenarios, the MWh savings values are calculated by applying yield ratios to investment levels.

8 Allocation of MWh Savings Allocation By Sector For all scenarios, 2005 EVT historical data was used to determine the breakdown of MWh savings in Business Energy Services (BES) and Residential Energy Services (RES) and to distribute the annual MWh savings by existing costing periods for all of the scenarios. It is assumed that this same distribution of savings continues for the life of the savings. Allocation By Costing Period MWh savings were distributed into the current costing periods based on EVT historical data. These were adjusted for the expected distribution of annual MWh savings in the new avoided costing periods. This adjustment is based on the increase in total annual hours for similar periods of the existing and new costing periods. For example, the winter peak period is 22% of the annual hours for the existing costing period, but 32% of hours for the new costing period. Therefore, 10% of the annual savings are shifted to the new winter peak period savings.

9 Development of MW Savings (for all scenarios) 2005 historical EVT data is used to determine the ratio of peak seasonal MW savings to annual MWh savings and to project Winter, Summer and Shoulder peak MW savings for all of the scenarios, differentiated between the business and residential sector. The Winter and Summer peak MW savings are the same for both the existing and new costing periods. The Shoulder peak MW is not relevant under the new avoided costs.

10 Participant and Third-Party Costs In Scenarios #1 and #2 they are based on the EVT 2005 ratio of cost per MWh applied to the MWh savings numbers in these two scenarios In Scenario #4, for the portion of MWh savings corresponding to the Current EEU contract, participant costs are based on the same ratio of costs per MWh saved used for Scenarios #1 and #2. For the MWh savings beyond current EEU, the participant costs are based on the Power to Save study participant cost per MWh. In Scenario #5, for the portion of MWh savings equal to Scenario #2, participant costs are based on the same costs per MWh saved used for Scenario #2. For the MWh savings beyond Scenario #2, the participant costs are based on the Power to Save study participant cost per MWh. Participant and third-party costs are based on the present value of lifetime costs, differentiated between the Business and Residential sectors, and include both capital investment and net participant operation and maintenance costs.

11 Fuel and Water Costs (for all scenarios) Fuel costs are based on a the EVT 2005 ratio of MMBTU per MWh saved applied to the MWh savings numbers in each scenario. These savings are present valued usiing current fossil fuel avoided costs and typical lifetimes for measures with fuel impacts. Net fuel savings are shown as negative fuel costs. Water costs are based on the the EVT 2005 ratio of CCF per MWh saved applied to the MWh savings numbers in each scenario. These savings are present valued using the current water avoided costs and typical lifetimes for measures with water impacts. Net water savings are shown as negative. Fuel and water costs (or savings) are based on the present value of lifetime costs, differentiated between the Business and Residential sectors, based on EVT’s mix of measures installed in 2005.

12 Measure Life (for all scenarios) In the year-by-year savings tables, the decay in savings from installed measures is accounted for based on the weighted mix of measure lives, using EVT historical data. Average measure lives are also provided, differentiated by the business and residential sectors, for use in screening that may require average lifetime instead of the year-by-year values. The average values provided are based on the weighted average measure lives of measures installed by EVT from , weighted by MWh savings.