?                     Model Conservation Standards ? What? (The Act requires that Council's Plan set forth model conservation standards for new and existing buildings, utility and government conservation programs, and other consumer actions).

?                     Model Conservation Standards ? Criteria. (The Act requires that the Model Conservation Standards be set at levels that achieve all regionally cost-effective power savings [i.e.: those that cost less than new generation] and that are economically feasible for consumers, taking into account financial assistance that may be available from Bonneville).

?                     The MCS ? A Short History (Chapters 1, 2, 3 and 4)

?                     Where are we? ? thermal shell only (graph comparing relative use in Zones 1, 2 and 3 in 1983, 1986, 1989, 1992 and MCS)

?                     Proposed analytical approach ? regional cost-effectiveness and economic feasibility.

?                     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 expected to be higher and may change this]; measures which may not be ?cost-effective? may be ?economically feasible? due to lower mortgage rates and higher retail electric prices.

?                     Zones 1, 2 and 3: cost-effective reference path comparison (tables comparing the current standards for various measures under MCS and the WSEC base case).

?                     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; 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 assumed societal discount rate).

?                     Policy Issues ?Should the MCS be set to reflect a standard of ?economically feasible for the consumer? if it is more efficient than the ?regionally cost-effective? standard? If so, should ?minimum life-cycle cost? or ?greatest economic benefit to the consumer? set the standard? Given that long run market prices are expected to be lower than those experienced in the recent past, what is the correct retail price to use?

?                     Life Cycle Cost ? Input Assumptions.

?                     Life Cycle Cost ?Probability? Model (problems, proposed solution)

?                     Average new home sales price (graph)

?                     Historical mortgage rates (graph)

?                     State income tax rates (graph)

?                     Federal income tax rates (graph)

?                     Retail electricity prices (graph)

?                     Retail rates ? Zones 1, 2 and 3 (graphs)

            The group devoted a few minutes of discussion to Eckman's presentation, offering a variety of clarifying questions and comments. Eckman summarized the outcome of this discussion by saying there is obviously a wide range of opinions within the CRAC about how the issue of Model Conservation Standards should be addressed in the new Regional Conservation and Power Plan. He said a new power sales price forecast will be made available soon; once that information is received, said Eckman, the CRAC can revisit this topic at its September meeting. Eckman asked the other CRAC participants to discuss Model Conservation Standards with others in their organization, given the fact that the Council will soon be developing an issue paper on this subject.

3. Draft Council Principals for Delegation of Bonneville's Responsibilities for Conservation and Renewable Resource Development.

            Charlie Grist led this presentation, noting that there are a variety of circumstances that put this issue on the table now; the Joint Customer proposal for BPA's role post-2006, the settlement of the residential exchange lawsuits and the subscription agreements in place now. The proposal from the joint customers is, beginning 2006, to slice up both the costs and the output of the federal system, in proportion to 2002 net requirements. What this means is a fundamental shift in several areas, said Grist ? it means no more Bonneville resource acquisitions for slice customers, no more augmentation of the FCRPS, and no more rolling in of incremental costs ? three fundamental changes to the way BPA markets its power.

            Eugene Rosolie took issue with the concept that BPA can no longer acquire resources; the agreement doesn't necessarily say that BPA cannot or will not acquire resources, it says BPA will no longer have that responsibility, particularly for the SLICE-ers, unless they want BPA to have that responsibility. The same is true for full requirements customers, Rosolie said ? there are no more obligations, unless requested. The main point is that one of the intents of this exercise is to get all parties to face incremental costs in terms of resource development, Grist said.

            Using the overhead projector, Grist went through the draft Council Principals For Delegation of Bonneville's Responsibilities For Conservation and Renewable Resources point by point:

1.                  The goal is to develop all cost-effective conservation and cost-effective renewables needed to ensure an adequate, efficient, economic and reliable power system for the region. Proposals should be consistent with this goal.

2.                  Conservation and renewable targets for the region should be established through periodic integrated resource planning. The approach must accommodate the need to adapt targets over the 20-year period of the agreement, taking into account factors like changing technology performance and costs, changing loads and load shapes, changing values of energy and capacity and their seasonal and daily variations, costs of alternatives, value of risk mitigation, environmental costs and benefits, adoption of codes and standards, market-induced resource development, and so on. The planning should provide for the participation of important stakeholders (e.g. utilities, states, tribes, consumers and so on).

3.                  Funding should be adequate to accomplish the targets, sufficiently stable to ensure efficient implementation, and sufficiently flexible to adapt to changing circumstances. The commitment to such funding must be consistent with the duration of the ?deal.?

4.                  The entire spectrum of activities required for effective development of conservation and renewables should be adequately supported (e.g. RD&D, market research, consumer education, program design, program delivery, market transformation, codes and standards, program oversight, measurement and evaluation.

5.                  Approaches used should be adaptable over time to incorporate new information and changes in best practices.

6.                  Conservation and renewable resource activities should be carried out at the level appropriate for the activity. Some activities are most effectively carried out at the local level (e.g. where local knowledge and consumer contact are essential). Others are more effectively carried out at a state or regional level where economies of scale, market scope or jurisdictional factors are important.

7.                  Accountability for results must be assured at whatever level implementation takes place. This requires adequate attention to and support for objective and unbiased measurement and evaluation and a workable system for dispute resolution. Accountability includes fiscal accountability to ensure that funds are spent appropriately, and performance accountability to ensure that the region learns from its efforts so as to be able to refine and improve future activities.

8.                  The mechanism must incorporate an adequate ?backstop? provision. BPA must be able to undertake action to ensure that regional conservation and renewables targets are met if it is found that other entities are unable or unwilling to carry out the necessary activities.

9.                  To the extent that mechanisms like the current Conservation and Renewables Discount are used to support and encourage conservation and renewable resource efforts at the local level, they should be structured to reward effective and efficient planning and implementation while at the same time ensuring that there is a net value to the power system (i.e. the cost of the conservation to the power system is less than the cost of a conventional alternative).

10.              The mechanism should achieve approximate competitive neutrality, i.e. funding for utility-supported conservation and renewables activities should be approximately equivalent among the region's utilities, including mechanisms like the Oregon and Montana systems benefit charges.

11.              Conservation and renewable programs should be accessible to all sectors of the regional economy and all areas of the region consistent with the goal of cost-effectiveness.

            The committee devoted a few minutes of discussion to each of these principals, offering a variety of clarifying questions, comments and concerns. Eckman said the intent of this presentation was not to use CRAC to negotiate these principals; it was to seek CRAC?s input on whether or not these are adequate principals to meet Goal 1.

4. Update on Value to the Region of Stabilizing Annual Conservation Acquisitions/Investments.

            Eckman led this presentation, noting that the results have changed from the last time this information was presented to the CRAC, based on input received at the last meeting. Using a series of overheads, Eckman touched on the following major topic areas:

?                     The goal of the analysis (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; 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).

?                     The analytical approach selected

?                     Analytical issues ? required data and assumptions

?                     what's changed? (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; the updated analysis is based on historical experience of 10 individual PNW utilities)

?                     Is there a relationship between market prices and annual level of conservation acquisitions? ? regional data (graph)

?                     Is there a relationship between market prices and the annual level of conservation acquisitions? ? utility data (graph)

?                     Annual conservation acquisitions are negatively correlated to ?same-year?s? market prices ? regional data (graph)

?                     Annual conservation acquisitions appear to be very weakly but positively correlated to ?current year?s? market prices ? utility data (graph)

?                     Annual conservation acquisitions are strongly and positively correlated to ?last-year?s? market prices ? regional data (graph)

?                     Annual conservation acquisitions appear to be weakly and positively correlated to ?last-year?s? market prices ? utility data (graph)

?                     However, if we include 2000-2001, they're not (graph)

?                     Changes in annual conservation acquisition are strongly correlated to changes in prior year?s market prices ? regional data (graph)

?                     Excluding 2000-2001, changes in annual conservation acquisition are weakly correlated to changes in prior year?s market prices -- regional data (graph)

?                     Changes in annual conservation acquisition are not correlated to changes in prior year?s market prices ? utility data (graph)

?                     Relationship between market prices and changes in the annual level of conservation acquisition (conclusion: historical evidence does not indicate a statistically significant relationship between conservation acquisitions and market prices. However, changes in acquisition levels appear to lag market prices due to inertia intrinsic in budget cycles, infrastructure response and project/program lead times. Assumption: ramp-ups in conservation acquisitions lag the ?rolling average? monthly market price changes by 0-18 months, with an ?expected value? lag of 6 months.)

?                     Is there a relationship between ramp rate and the total resource cost of conservation acquisitions? (There is still no data on TRC, so used utility costs data again)

?                     Regional utility annual conservation acquisition levels have varied significantly (graph)

?                     Regional conservation acquisition costs have varied significantly (graph)

?                     Utility conservation acquisition levels have varied significantly over time (graph)

?                     Utility conservation acquisition costs have varied significantly over time (graph)

?                     Total utility conservation expenditures are strongly correlated to annual acquisition levels (graph)

?                     Changes in utility conservation expenditures are strongly correlated to changes in conservation acquisitions (graph)

?                     Cost/aMW and magnitude of annual conservation acquisitions are weakly correlated ? regional data (graph)

?                     Utility cost/aMW are not correlated to annual acquisition levels (graph)

?                     Changes in conservation acquisitions are weakly correlated and inversely related to utility acquisition costs (graph)

?                     The relationship between ramp rate and utility cost of conservation acquisitions (Conclusion: there is only a weak relationship between ramp rates ? up or down ? and utility conservation acquisition costs; utility conservation acquisition costs -- $/aMW ? are lower when ramping up than when ramping down. Assumption ? assume 10% higher cost/aMW during ramp-down than ramp-up)

?                     Utility conservation acquisition ramp rates vary over a wide range (graph)

?                     The rate at which conservation acquisitions can be ramped up and ramped down (Conclusion: conservation has been ramped up and down within a range of +/- 10 aMW; Assumption: constrain ramp rate to ?monthly? availability of each conservation cost block ? e.g. maximum annual change = 12x monthly availability)

?                     Amplitude, duration and frequency of wholesale market price spikes (Wholesale market prices will fluctuate as a result of over/under-building, extreme weather events, hydrosystem availability and short-run economic/business cycles. Assumption: randomize the forecast of future price spikes in response to hydrosystem availability, ignore short-run weather and business cycles).

 

            The group devoted a detailed discussion to the assumptions used in and the conclusions drawn from this analysis. Eckman said the next step in this process will be to factor the final draft of the Council's power price forecast into the average price scenario. In response to a request, Eckman said he will re-run this analysis using the best possible assumptions, essentially representing the most nimble possible utility response to changes in the conservation and renewables market. He said he will also re-run the analysis using 60 random water years from the historic record. 

5. Update on Commercial Building Sector Assessment.

            Grist led this presentation, again working from a series of overheads. He touched on the following major discussion points:

?                     An examination of the 1995 commercial forecast revealed significant differences between forecast use and floorspace and survey estimates.  Hypothesis: this might have been a result of the model's fuel choice logic; fuel choice logic is driven by relative cost, both capital and fuel, and of end-use system; so, test sensitivity to fuel cost

?                     Test: increase relative gas and oil cost (graph)

?                     Space heating choice is sensitive to price (graph)

?                     Next steps: Get CRAC reaction, take to Demand Forecast Advisory, review survey data for fuel trends, review fuel prices forecasts, review FW Dodge data on new floor additions.

?                     Adjustment forecast model's estimate of use for code and standards - Impact of code and standard changes (back-of-the-envelope estimates in 2015 ? Idaho 3-5 aMW, Washington 15-20 aMW, Seattle 5-7 aMW, Federal Ballast Standard 15 aMW, total 38-47 aMW. 2015 commercial load: 5870 aMW. For comparison the 2015 estimate of new/renovation potential in 1995 Plan was 310 aMW at 30 mills/kWh).

?                     Commercial Building Stock Assessment (CBSA) research is now underway. The goal of this work is to update building characteristics data. Xenergy has been selected as the contractor. A kick-off meeting was held last week where the issue of the appropriate sample frame arose. The current sample frame requires a 75% response rate to get a decent sample from revisit of PNNonRES buildings; we are considering Dun & Bradstreet sample frame instead of PNNonRES).

            Grist asked the group how sensitive, in their opinion, the analysis should be to the price of fuels in its fuel choice logic. The CRAC devoted a few minutes of discussion to this question, but ultimately reached no definitive conclusions. Another participant noted that, with respect to the Commercial Building Stock Assessment, a 75% response rate is probably an unrealistic expectation, given the number of firms that are no longer in business. It was suggested that using the Dun & Bradstreet sample frame would probably be a better approach.

6. Next CRAC Meeting Date.

            The next meeting of the Conservation Resources Advisory Committee was set for the latter part of September; Eckman said he will send out a notice once the date is set. Meeting summary prepared by Jeff Kuechle, NWPPC contractor.

 

 CONSERVATION RESOURCES ADVISORY COMMITTEE MEETING
ATTENDANCE LIST ? JULY 24, 2002