Reading the Tea Leaves: Reading the Tea Leaves: How Utilities in - PowerPoint PPT Presentation

Reading the Tea Leaves: Reading the Tea Leaves: How Utilities in the West Are Managing Carbon How Utilities in the West Are Managing Carbon Regulatory Risk in their Resource Plans Regulatory Risk in their Resource Plans Galen Barbose, Ryan Wiser, Amol Phadke, and Charles Goldman Lawrence Berkeley National Laboratory March 2008 Energy Analysis Department

Project Overview Project Overview Motivation: Uncertainty about the nature and timing of future carbon dioxide regulations poses substantial financial risks for utility shareholders and ratepayers, but these risks can be managed through effective long-term resource planning Scope: A comparative analysis of the most recent resource plans issued by utilities in the Western U.S., focusing on issues related to carbon regulatory risk Two components 1. Analysis of carbon regulatory risk: Comparison of utilities’ methods and assumptions used to assess carbon regulatory risk and risk management options 2. Preferred resource portfolios: Comparison of preferred resource portfolios selected by utilities and their carbon intensities Energy Analysis Department

Our Sample of Resource Plans Our Sample of Resource Plans Utility IRP Year � The most recent Avista 2007 resource plans issued Idaho Power 2006 by 15 Western U.S. LADWP 2006 utilities Nevada Power 2006 NorthWestern Energy 2007 � Represents ~60% of PacifiCorp 2007 Western utility sales PG&E 2006 PGE 2007 � Focus on largest utilities PSCo 2007 � No utilities from Arizona PSE 2007 SCE 2006 (no formal IRP) or New SDG&E 2006 Mexico (IRP just getting Seattle City Light 2006 started) Sierra Pacific 2007 Tri-State G&T 2007 Energy Analysis Department

Presentation Outline Presentation Outline � The significance of carbon regulatory risk for utility resource planning � Analysis of carbon regulatory risk in Western utilities’ resource plans 1. Assumptions about future carbon emission costs 2. The type and quantity of low-carbon resources evaluated 3. Assumptions about indirect impacts of carbon regulations on utility planning environment (e.g., natural gas prices, load growth) 4. The manner in which uncertainty in candidate portfolio costs is considered in the process of selecting the preferred portfolio � The composition and carbon intensity of Western utilities’ preferred resource portfolios � Summary and recommendations Energy Analysis Department

Future Carbon Regulations Could Have Far- - Future Carbon Regulations Could Have Far Reaching Impacts for the Electricity Industry Reaching Impacts for the Electricity Industry EIA’s Analysis of: EIA Projection of U.S. Percent of Economy-Wide Electric Sector Carbon Greenhouse Gas Emission Dioxide Emissions under Reductions Obtained from Proposed Legislation the Electricity Sector McCain-Lieberman 2003 76% decline 68% (S.139) from 2010 to 2025 McCain-Lieberman 2007 48% decline 73% (S.280) from 2010 to 2030 Bingaman/NCEP 2006 11% increase 30% draft legislation from 2010 to 2030 (compared to a 31% increase in reference case) Energy Analysis Department

The Potential Impact on the Relative Economics The Potential Impact on the Relative Economics of Electric Resources is Highly Uncertain of Electric Resources is Highly Uncertain EIA Projections of 2010-2030 Levelized Allowance Prices (2007$): Incremental Operating Cost S.139 Bingaman/NCEP S.280 $60 Pulverized Coal IGCC w/o CCS $50 $40 ($/MWh) $30 CCGT $20 $10 IGCC w/ CCS $0 EE, RE, Nuclear $0 $10 $20 $30 $40 $50 Carbon Emission Price ($/short ton CO2) � Uncertainty in the relative impact on different resource options creates significant financial risk for utilities and their ratepayers � Low-carbon resources offer a hedge against these risks Energy Analysis Department

Presentation Outline Presentation Outline � The significance of carbon regulatory risk for utility resource planning � Analysis of carbon regulatory risk in Western utilities’ resource plans 1. Assumptions about future carbon emission costs 2. The type and quantity of low-carbon resources evaluated 3. Assumptions about indirect impacts of carbon regulations on utility planning environment (e.g., natural gas prices, load growth) 4. The manner in which uncertainty in candidate portfolio costs is considered in the process of selecting the preferred portfolio � The composition and carbon intensity of Western utilities’ preferred resource portfolios � Summary and recommendations Energy Analysis Department

Incorporating Carbon Costs into Resource Incorporating Carbon Costs into Resource Planning Analyses is Common Practice Planning Analyses is Common Practice � All utilities except LADWP modeled candidate portfolio costs subject to carbon regulations (beyond existing state laws) - Ten utilities assumed future carbon regulations in their base case - Eight utilities evaluated multiple future carbon regulations � Mandatory carbon reductions generally modeled by utilities as a carbon tax or cap-and-trade - No utilities specifically modeled a state or regional cap-and-trade programs � Specific carbon price projections based on: - PUC rules (OR, CA, NM) - Federal policy proposals (e.g., NCEP recommendations) � Limited consideration of other types of carbon regulations - PacifiCorp considered a multi-state generator emission performance standard - PGE assumed that existing Oregon carbon mitigation law would be expanded to cover coal Energy Analysis Department

Utilities’ Base- -Case and Alternate Carbon Case and Alternate Carbon Utilities’ Base Emission Price Projections Emission Price Projections Levelized Carbon Emission Price Projections (2010-2030) 2010-2030 levelized price (2007$/short ton CO 2 ) 2010-2030 levelized price (2007$/short ton CO 2 ) Scenario Range (Min & Max) Scenario Range (Min & Max) $60 $60 Base-Case Assumption Base-Case Assumption $50 $50 McCain-Lieberman McCain-Lieberman 2003 (S.139) 2003 (S.139) $40 $40 Synapse (High) Synapse (High) $30 $30 Synapse (Mid) Synapse (Mid) $20 $20 McCain-Lieberman McCain-Lieberman 2007 (S.280) 2007 (S.280) $10 $10 Synapse (Low) Synapse (Low) Bingaman/NCEP 2006 Bingaman/NCEP 2006 $0 $0 Avista Avista Idaho Power Idaho Power LADWP LADWP Nevada Power Nevada Power NorthWestern NorthWestern PacifiCorp PacifiCorp PG&E PG&E PGE PGE PSCo PSCo PSE PSE SCE SCE SDG&E SDG&E Seattle City Light Seattle City Light Sierra Pacific Sierra Pacific Tri-State G&T Tri-State G&T Energy Analysis Department

Presentation Outline Presentation Outline � The significance of carbon regulatory risk for utility resource planning � Analysis of carbon regulatory risk in Western utilities’ resource plans 1. Assumptions about future carbon emission costs 2. The type and quantity of low-carbon resources evaluated 3. Assumptions about indirect impacts of carbon regulations on utility planning environment (e.g., natural gas prices, load growth) 4. The manner in which uncertainty in candidate portfolio costs is considered in the process of selecting the preferred portfolio � The composition and carbon intensity of Western utilities’ preferred resource portfolios � Summary and recommendations Energy Analysis Department

Most Utilities Considered Aggressive Long- - Most Utilities Considered Aggressive Long Term EE Targets in their Resource Plans Term EE Targets in their Resource Plans Maximum Quantity of EE Evaluated in Candidate Portfolios (utility-funded programs over the planning period) Cumulative Savings (% of Load Growth) Cumulative Savings (% of Load Growth) Avg. Annual Savings (% of Load) Avg. Annual Savings (% of Load) 2.0% 2.0% 100% 100% Cumulative Savings as Percent of Load Growth (right axis) Cumulative Savings as Percent of Load Growth (right axis) Average Annual Savings as Percent of Load (left axis) Average Annual Savings as Percent of Load (left axis) 1.5% 1.5% 75% 75% 1.0% 1.0% 50% 50% 0.5% 0.5% 25% 25% 0.0% 0.0% 0% 0% Nevada Nevada Idaho Power Idaho Power Avista Avista NorthWestern NorthWestern Seattle City Seattle City Tri-State G&T Tri-State G&T SDG&E SDG&E SCE SCE PG&E PG&E PGE PGE PSE PSE PSCo PSCo Sierra Pacific Sierra Pacific LADWP LADWP PacifiCorp PacifiCorp Power Power Light Light Maximum Achievable Potential Maximum Achievable Potential Energy Analysis Department

Most Utilities Evaluated Candidate Portfolios Most Utilities Evaluated Candidate Portfolios with Aggressive Levels of Renewables with Aggressive Levels of Renewables Maximum Quantity of New Renewables Evaluated in Candidate Portfolios (excludes already-planned resources and contract renewals) Percent of Retail Load (right axis) Percent of Cand. Portfolio Supply Percent of Candidate Portfolio Supply Resources (left axis) Percent of Retail Load 100% 40% 75% 30% 50% 20% 25% 10% 0% 0% Nevada Avista Seattle City NorthWestern Idaho Power Sierra Pacific Tri-State G&T PacifiCorp PGE LADWP SDG&E PG&E PSE PSCo SCE Power Light RPS No RPS Energy Analysis Department