1. 1 CPUC DEER, Cost-Effectiveness Calculators and Avoided Costs Peter Lai, Energy Division Jeff Hirsch, JJ Hirsch & Associates June 24, 2009

2. 2 What is DEER, and how it’s being used

3. 3 What is DEER? Database for Energy Efficient Resources (DEER) Estimates of “typical” or “expected” impacts that would result from EE measures installations Includes residential and non- residential energy efficient measures Can be used for forecasting, planning, and analyzing EE activities http://www.deeresources.com/

4. 4 What is DEER? (CONT.) Contains mostly measures for buildings; new construction and retrofit –DEER Building types 3 residential (SFR, MFR, DwMH) 23 commercial (Edu – Pri, Sec, RelocCL, CC, UC; Grocery; health - Hosp, NHome; Log - Hot/Mot; Manuf – Light/Bio; Off – Lg/Sm; Rest – Fast/SD; Retail – Lg MF/SF, Sm; Storage Cond/Uncond/Refrig) –Vintage – several old and new –Location – 16 CEC T24 climates

5. 5 What is DEER? (CONT.) Measures (buildings examples) –Lighting (CFL, Linear Fl., MH, Exit) –HVAC High Eff. DX a/c and hp (split/packaged) and furnaces Chillers, Boilers, ChW/HW dist., Air dist Maintenance – refrig. Charge correction, duct sealing and insulation –Water Heating (Lg/Sm Storage, Instant) –Residential Appliances (Refrig, Washer, Dryer, Dish) –Envelope (Windows, Insul.)

6. 6 What is DEER? (CONT.) Contains limited industrial and agricultural measures –planned for expansion

7. 7 What is DEER? (CONT.) Contains measure parameters needed to perform cost- effectiveness analysis, including estimates of typical: –Electric and natural gas energy impacts (unit energy savings – kWh, kW, Therms per unit – and load shape – 8760 electric, monthly gas) –Attribution (net-to-gross – NTG – by delivery method, up/down/midstream, direct install, etc) –Measure full/remaining life (EUL/RUL) –Full and incremental cost (new/retrofit, location, up/down delivery)

8. 8 Estimates based on… RASS Conditional demand analysis (CDA) of billing data (for calibrating residential baseline heat/cool energy use) Measurement studies (to establish measure performance parameters) Engineering calculations and simulation models (to project results into typical building types, vintages and locations)

9. 9 How does M&V feed the DEER update? EM&V work can provide the data required to update DEER –Update parameters that determine energy usage Use profiles (operation schedules, thermostat settings), equipment field performance (actual rather than rated values of parameters), –Installation rates or quality Separate from gross savings “potential” –Attribution –Life

10. 10 When is DEER adjusted? Baseline change –new Codes & Standards – Tile 24/20, EPAct, etc –Existing stock inventory shifts Measure performance change –improved quality or new data available New products/technology improvements –Windows, HVAC, equipment Usage patterns change Correct anomalies or errors

11. 11 Time line of DEER updates Current version of DEER is the 2008 DEER mid-December release for IOUs’ 09-11 EE Planning. Next update is scheduled for late 2010 for IOUs’ 2012-14 EE Planning.

12. 12 Cost Effectiveness

13. 13 Cost Effectiveness Background CPUC adopted Standard Practice Manual Total Resource Cost (TRC) test: –Measures the net costs of EE portfolio as a resource option based on the total costs of the portfolio, including both the participants' and the utility's costs. TRC ratio = TRC Benefits/TRC Costs, where –TRC Benefits = supply-side resource avoided or deferred IOU costs –TRC Costs = all non-freerider non-reimbursed costs incurred to install measures plus all costs incurred by the portfolio administrator Cost effectiveness from perspective of ratepayers and utility

14. 14 Cost Effectiveness Calculation TRC COSTS Measure full or incremental non-reimbursed Total Costs =  Net-To-Gross Net of freeriders + Portfolio Costs All expenses Net-To-Gross Measure Avoided Costs TRC BENEFITS Measure UES Unit Annual Energy Savings kWh and Therms Total Benefits = Number of Installations   Measure Avoided Costs where = Measure Load Shapes 8760 electric & monthly gas  IOU Avoided Costs 8760 electric & monthly gas per IOU and CTZ quarterly EUL  Installations actually installed

15. 15 E3 CE Calculator – TRC/PAC Input: Utility administrative and measure incentive costs Participants’ non-reimbursed or “gross” measure costs Measure UES, NTG, EUL/RUL data Output: Calculated costs and net benefits values TRC PAC (like TRC but excludes participants’ costs) Embedded: CPUC adopted avoided costs and emissions rates combined with typical measure electric and gas load shapes

16. 16 CPUC Avoided Costs

17. 17 Avoided Cost Background CPUC adopted avoided costs provide the methodology and data used to estimate the dollar benefit resulting from a change in energy use and demand supplied by each IOU –avoided IOU investments and expenses that result in reduced revenue requirements The current adopted avoided costs for use by EE programs were first adopted in 2004 (D.05-04-024) and updated during the first half of 2006 (D.06-06- 063) –Update options are being considered for 09-11 EE use

18. 18 Electric Avoided Costs The electric AC values include: –Generation (CCGT O&M cost based) –Transmission & distribution (IOU T&D O&M costs) –Environmental cost components (NOx, PM10, CO2) Values are annual datasets of 8760 hours for each IOU, including 43 climate zone and sub- climate zone divisions across IOU service areas, spanning twenty three years

19. 19 Gas Avoided Costs Gas avoided costs is the sum of: –the forecasted commodity price for natural gas –the avoided transmission and distribution costs –Environmental cost components (NOx, CO2) Values are annual datasets of 12 monthly values for each IOU, including residential and non-residential values, spanning twenty three years

20. 20 Avoided Cost Methodology Dimensions Avoided CostTime DimensionArea Dimension Avoided Electricity Generation HourlyUtility specific Avoided Electric Transmission and Distribution Hourly Utility, planning area and climate zone specific Avoided Natural Gas Procurement MonthlyUtility specific Avoided Natural Gas Transportation and Delivery MonthlyUtility specific Environmental Externality Adders for Electric & Gas Annual value, applied by hour according to implied heat rate System-wide (uniform across state) Reliability AdderAnnual value System-wide (uniform across state) Price Elasticity of Demand Adder TOU period (on-vs. off-peak) by month System-wide (uniform across state)

21. 21 Electric Period 1 (2004-2008) Platt’s / NYMEX Period 2 Transition Period 3 (2008-2023) LRMC 1 + Ancillary Services (A/S) Period 1 (2004-2008) NYMEX Period 2 Transition Period 3 (2008-2023) Long-run Forecast 1 + LUAF + Compression Commodity Natural Gas Commodity Market Multiplier 1 + Energy Losses T&D Costs  (1 + Peak Losses ) Environment  (1+ Energy Losses) T&D Costs    + + + “NYMEX” = “New York Mercantile Exchange” “LRMC “ = “Long-run marginal cost” all-in cost of combined cycle gas turbine (CCGT) “LUAF “ = “Loss and unaccounted for” Formulation of Avoided Costs Emissions Costs

22. 22 Electric Cost Components Generation energy and capacity cost CCGT O&M with a historical hourly price shape multiplier x Ancillary Services (CASIO costs) multiplier x Market Elasticity multiplier (load change impact on market clearing prices) x Losses (end user to bulk power grid hub) Transmission and distribution capacity cost T&D capacity avoidable delivery costs, allocation shape by climate region, peak hour losses multiplier Emissions cost NOX, PM10, CO2; depends on generation heat rate and losses (and thus also measure load shape)

23. 23 Appropriate Measures Reduce load or produce energy for hundreds of hours per year in a predictable pattern, because reductions over hundreds of hours reduce the importance of knowing the exact shape of the electric generation market hourly shape during just the peak hours Relatively small (such that they can be installed behind the customer meter), because the smaller the resource relative to the local T&D system, the less the utility needs to plan for the contingency case of the resource failing to provide reductions Expected to be installed in large numbers, because the more resources that are installed, the more one can rely upon the expected level of reductions.

24. 24 Putting the Components Together - Electric:

25. 25 Putting the Components Together - Gas:

26. 26 Currently… D.06-06-063 (OP 10 and Attachment 3) adopted electric and gas avoided cost for use in planning and evaluation of the 2006-2008 energy efficiency IOU portfolios. These interim values were not adopted for other uses or future EE cycles. April 21, 2008 AC/ALJ Ruling directed IOUs to use in the 09-11 application: –the updated 2007 generation cost (CCGT) values as adopted in Resolution E-4118 (the updated 2007 Renewable Portfolio Standard [RPS] market price referent [MPR] values)

27. 27 More info available at… Spreadsheets and reports can be downloaded from the E3 website: http://www.ethree.com

28. 28 Questions