GHG Emission and Allowance Allocation Model

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Cap-and-Trade Allocation ModelingCalifornia and
Beyond
NWPPA Government Relations Committee Boise, Idaho
Scott Tomashefsky Northern California Power
Agency March 6, 2008
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Agenda

• Discuss purpose of NCPA cap-and-trade model
• Provide overview of model
• Review assumptions and key toggles
• Address key observations to date
• Consider next steps

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Why Is Modeling Important?Climate Change Policy
Has Too Many Moving Parts
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Purpose of NCPA Model Development

• Build GHG policy consensus within Californias
  public power community
• Evaluate impacts of GHG policy within electricity
  sector
• Advise NCPA membership
• Inform modeling efforts of energy agencies
  responsible for implementing AB32
• CARB responsible for implementing
• CPUC/CEC offer guidance to the process
• Ensure that impacts of policies for smaller
  utilities are clearly understood
• Educate policymakers

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NCPA Model Overview

• Model development provided by RW Beck
• Covers 10 LSEs or groups -- plus each NCPA
  member individually
• User defines assumed resource scenario
• Calculates for each Utility (or Group)
• Annual emissions based on existing resource
  portfolio
• Amount of allowances needed and expected
  allocation
• 13 different approaches modeled, including
  Lieberman-Warner
• Based on allocation, model shows which utilities
  need more allowances versus those that have
  excess allowances to sell
• Cost of buying/selling allowances and change in
  cost of generation portfolio

Numerous scenarios can be easily constructed.
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NCPA Model OverviewResource Assumption Driving
Analysis

• Utility resource mix reflect current portfolio
  plus resource plan going forward
• Remaining resource assumptions follow
  Californias Loading Order
• Energy efficiency
• Renewables
• Clean fossil-fired generation (Natural gas)

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Key Model Feature Ability to Change Allocation
Assumptions

• Free Distribution of Allowances
• Base year for load or emissions
• Transition year for moving from emissions to load
• Dynamic emissions or load lag time
• Split between load and emissions
• Five Lieberman-Warner options (user defined
  inputs)
• Start year and end year for reporting
• Ability to model carbon cap or allocate all
  emissions
• Auction scenarios can be run

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Key Model Feature Ability to Quickly Change
Policy Assumptions

• Carbon targets
• RPS and load reduction targets for each utility
• Resource costs
• Emission rates by resource
• Mix of unspecified imports
• Retirement date for existing out-of-state
  resources
• Known new resource additions

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Key Assumptions Driving Base Case

• CEC Electricity Demand Forecast used (Oct 2007)
• Existing coal contracts not renewed upon
  expiration
• All LSEs meet or exceed 20 RPS by 2010
• CA resources assigned to LSEs based on ownership
• Out-of-state resources assigned where appropriate
• Mix of unassigned out-of-state resources
• PNW generation sold to California
• 60 to Northern CA and 40 to Southern CA
• Unspecified Southwest generation sold to Southern
  CA
• Reduction target is 90 million tons by 2020 per
  CARB staff Inventory
• Utility sector responsibility equal to sectors
  GHG emission contribution

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Initial Observations

• 1990 emission reduction targets could be met in
  California without a cap-and-trade programby
  ignoring uncertainties
• Potential delays in citing transmission and
  generation facilities
• Overly aggressive energy efficiency and demand
  reduction programs
• Emission reduction battle is between those with
  less carbon-intensive portfolios (PGE) versus
  those with more (LADWP)
• Any reduction in carbon intensity increases
  costs relationship is relatively constant across
  utilities (i.e., same slope)

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Carbon Content Comparison 2004(California Avg
611 Pounds CO2 per MWH)
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NCPA Actual and Expected Carbon Intensity
2004-2020
(Pounds of CO2 per MWH)

• NCPA members vary in terms of carbon intensity.
• Carbon intensity declines through 2020.
• Wet year in 2006 had positive impact on carbon
  intensity.
• Additional investment in renewables and energy
  efficiency will increase the rate of decline over
  time.

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AB32 Compliance Cost without Cap-and-Trade
California
AB32 compliance without a cap-and-trade program
could cost California 11.1 billion. Cost of
generation could increase by 1.0 cents per
kilowatt hour.
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AB32 Compliance Cost without Cap-and-Trade PGE
AB32 compliance without a cap-and-trade program
could cost PGE 4.4 billion. Cost of generation
could increase by 1.1 cents per kilowatt hour.
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AB32 Compliance Cost without Cap-and-Trade LADWP
AB32 compliance without a cap-and-trade program
could cost LADWP 1.4 billion. Cost of generation
could increase by 1.2 cents per kilowatt hour.
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AB32 Compliance Cost without Cap-and-Trade NCPA
AB32 compliance without a cap-and-trade program
could cost NCPA 227 million through 2020. Cost
of generation could increase by 0.8 cents per
kilowatt hour in 2020.
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Cost of Meeting GHG Reductions California
Including Cap-and-Trade Component
Increase statewide RPS to 33 by 2020 3 Energy
Efficiency Savings by 2020
Dollars in Thousands
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Cost of Meeting GHG Reductions PGE Including
Cap-and-Trade Component
Increase statewide RPS to 33 by 2020 3 Energy
Efficiency Savings by 2020
Dollars in Thousands
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Cost of Meeting GHG Reductions LADWP Including
Cap-and-Trade Component
Increase statewide RPS to 33 by 2020 3 Energy
Efficiency Savings by 2020
Dollars in Thousands
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Cost of Meeting GHG Reductions NCPA Including
Cap-and-Trade Component
Increase statewide RPS to 33 by 2020 3 Energy
Efficiency Savings by 2020
Dollars in Thousands
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NCPA Exposure With 100 Auction (2012-2020)
Exposure (Billions )
Auction Price
10 per Ton
0.248
25 per Ton
0.621
65 per Ton
1.613
250 per Ton
6.206
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Impact of 100 Auction on NCPA Member Electricity
Rates in 2020
Increase (cents per kwh)
Auction Price
10 per Ton
0.23
25 per Ton
0.57
65 per Ton
1.49
250 per Ton
5.85
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Model Provides Insight for Evaluating Federal
LegislationImpacts of Leiberman-Warner on NCPA
Allocations Sold () and Bought
Allocations Received
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Conclusions and Next Steps

• This stuff is complicated AND EXPENSIVE!
• Knowledge is the key to understanding impacts
• NCPA intends to keep using model in California
  AB32 process
• Model has Implications to use among NWPPA
  membership
• Inform WCI process
• Educate policymakers
• Build consensus where possible