Need to talk about retail rate caps in Bingaman (4% per annum over state requirements). No rate caps in W-M.States have different rate caps and mechanisms – Refer to Wiser Study
Financial Impacts of Renewable Energy Policies in the Pacific Northwest Fred Wellington and Mark Cira Navigant Consulting, Inc. Renewable Energy in the Pacific Northwest Law Seminars International Conference August 5, 2010 Navigant Consulting, Inc. One Market Street, Spear St. Tower, 12 Floor San Francisco, CA 94114 415.356.7132 www.navigantconsulting.com
Basic RPS Compliance Options Given the wind resource situation, utilities in Oregon and Washington have three basic RPS compliance options. Option Comments Build / Buy Incrementally Using Either In-State or Out of State Resources
This strategy could mean that lower quality / higher cost resources would be used for compliance as some PNW wind resources are exported to CA.
Higher quality resources could be imported from Montana or Wyoming, although this would include transmission costs.
This strategy could mean that better resources are developed at a lower cost per MWh, although it could result in excess power over load, leading to higher overall costs in the near term. However it could result in lower costs over the longer term.
Build / Buy Using In-State Resources In Advance of RPS Targets
Geothermal resources are relatively abundant in Oregon and biomass is relatively abundant in Washington.
There are limitations on RECs for compliance in Oregon.
REC supply from the broader WECC region could be constrained, especially if California allows TREC trading.
Structure of Analysis Navigant’s analysis compares RPS compliance costs1 of a theoretical utility with a generation portfolio that differs by the average quality and location of the wind contribution in the energy mix over time. Description of Theoretical Utilities in Analysis
Navigant Consulting constructed a theoretical generation portfolio of a utility with a peak load of 1,500 MW and annual energy requirements of approximately 7,200 MWh. We varied the fuel mix of the portfolios to isolate the impact that the quality and location of the wind resource has on revenue requirements over time.
We constructed three portfolios that envision different compliance scenarios:
Conclusion » Potential Shareholder Risks Imprudent decisions regarding renewable energy compliance can present shareholder or ratepayer risks for utilities. Potential Shareholder Risk From Poor RPS Compliance Decisions
RPS compliance costs can increase revenue requirements over a BAU scenario – the degree to which is dependant on decision regarding the quality and location of resources in the energy mix.
Utilities that are aggressively procuring renewablesearly are less likely to see significant increases in revenue requirements later.
Public utility commissions and public power utility boards will increasingly scrutinize renewable energy procurement decisions to determine whether compliance strategies are conducted in a cost effective manner.
If utilities commissions decide that renewable energy compliance decisions are imprudent (i.e. not cost effective), this can lead to potential disallowance of cost recovery.
This can lead to financial risks insofar as shareholders (in the case of IOUs) are required to bear compliance costs and not ratepayers.
For POUs, this can impact credit quality insofar as rating agencies believe there is risk to cost recovery.
Conclusion » Cost Effective RPS Compliance Decisions This necessitates a more strategic view of renewable energy procurement – with a focus on cost effective compliance options. Examples of Options to Increase Cost Effectiveness of RPS Compliance
Utilities will need increasingly require sophisticated decision-making tools to benchmark and justify the costs of their renewable energy strategies.
There is no uniform strategy to increase the cost effectiveness of RPS compliance. Although at a minimum this would likely include:
Viewing RPS compliance in a more holistic manner alongside energy efficiency, distributed generation and carbon reduction.
Closer assessments of buy versus build decisions, especially as rating agencies more closely scrutinize long-term liabilities of power purchase agreements.
More competitive procurements of renewable PPAs to drive down costs.
More sophisticated benchmarking of REC prices – either to ensure best available prices for REC-only contracts or in evaluating lower cost options between REC-only or direct renewable energy purchases.
Pursuing new business models associated with distributed (i.e. rooftop) solar photovoltaics.
Fred Wellington, CFA Managing Consultant San Francisco, CA 94105 phone: 415.356.7132 email@example.com Mark Cira Senior Consultant Chicago, IL 60606 phone: 312-583-2722 firstname.lastname@example.org Questions?