Northwest Power Planning Council Model Conservation Standards DRAFT Economic Analysis for for New...

Northwest PowerPlanning Council

Model Conservation Model Conservation StandardsStandards

DRAFT DRAFT

Economic AnalysisEconomic Analysis

for for

New Residential ConstructionNew Residential Construction

Northwest PowerPlanning Councilslide 2

Model Conservation Model Conservation Standards and Surcharge Standards and Surcharge

Policy - Why??Policy - Why??

The Northwest Power Act directs the The Northwest Power Act directs the Council to include in its Regional Council to include in its Regional Conservation and Power Plan:Conservation and Power Plan:– Model Conservation Standards (MCS)Model Conservation Standards (MCS)

– Recommended Surcharge PolicyRecommended Surcharge Policy

– Methodology for Computing SurchargesMethodology for Computing Surcharges


Model Conservation Model Conservation Standards – What??Standards – What??

Act requires that Council’s Plan set Act requires that Council’s Plan set forth model conservation standards for:forth model conservation standards for:– New and existing buildingsNew and existing buildings

– Utility and government conservation Utility and government conservation programsprograms

– Other consumer actionsOther consumer actions


Model Conservation Model Conservation Standards – CriteriaStandards – Criteria

The Act requires that the Model The Act requires that the Model Conservation Standards be set at levels that:Conservation Standards be set at levels that:– achieve achieve all regionally cost-effective power savingsall regionally cost-effective power savings

(i.e., cost less than new generation ); and,(i.e., cost less than new generation ); and,– that are that are economically feasible for consumerseconomically feasible for consumers, ,

taking into account financial assistance that may be taking into account financial assistance that may be made available through Bonnevillemade available through Bonneville


The MCS – A Short History: The MCS – A Short History: Chapter 1Chapter 1

Council adopted first MCS April 27, 1983Council adopted first MCS April 27, 1983– Established space heating performance targets for Established space heating performance targets for

new electrically heated residences for three new electrically heated residences for three Northwest ClimatesNorthwest Climates

– MCS requirements were 40% better than MCS requirements were 40% better than toughest existing energy codes in regiontoughest existing energy codes in region

– Recommended that MCS be adopted by January Recommended that MCS be adopted by January 1, 1986 or BPA impose 10% surcharge on 1, 1986 or BPA impose 10% surcharge on utilities serving non-complying areasutilities serving non-complying areas



1983 – 19911983 – 1991– Council sued by Seattle Master BuildersCouncil sued by Seattle Master Builders

» Conclusion - Council WonConclusion - Council Won

– Bonneville sponsors “R&D” project (RSPD) to test Bonneville sponsors “R&D” project (RSPD) to test “cost-effectiveness” of MCS“cost-effectiveness” of MCS

» Conclusion – “Yes” Conclusion – “Yes”

– Bonneville, following Council’s Plan, sponsors “early Bonneville, following Council’s Plan, sponsors “early code” adoption and “energy efficient” new homes code” adoption and “energy efficient” new homes marketing program (Super Good Cents)marketing program (Super Good Cents)

» Conclusion – Tacoma adopts MCS, the Region follows . . .Conclusion – Tacoma adopts MCS, the Region follows . . .



A Decade LaterA Decade Later– Oregon and Washington adopt energy codes Oregon and Washington adopt energy codes

equivalent to MCSequivalent to MCS– Montana adopts energy code that is within 15% Montana adopts energy code that is within 15%

of MCSof MCS– Idaho, well, is IdahoIdaho, well, is Idaho



It’s Time for Another Cost-Effectiveness It’s Time for Another Cost-Effectiveness ReviewReview

Issues:Issues:– Are there additional thermal shell measures that Are there additional thermal shell measures that

are “regionally cost-effective” and are “regionally cost-effective” and “economically feasible”?“economically feasible”?

– Are there non-thermal shell measures that Are there non-thermal shell measures that should be considered for inclusion?should be considered for inclusion?


Where Are We?Where Are We?(Thermal Shell Only)(Thermal Shell Only)

0%10%20%30%40%50%60%70%80%90%

100%

Rela

tive U

se

Zone 1 Zone 2 Zone 3

1983 1986 1989 1992 MCS


Proposed Analytical Proposed Analytical ApproachApproach

Regional cost-effectivenessRegional cost-effectiveness– Use forecast of future market prices and load shape of Use forecast of future market prices and load shape of

savings to establish “energy value”savings to establish “energy value”– Include T&D Benefits to establish “capacity value”Include T&D Benefits to establish “capacity value”

Economic feasibilityEconomic feasibility– Use range of values for major financial assumptions, Use range of values for major financial assumptions,

e.g. mortgage rates, retail electric rates, etc. for “life-e.g. mortgage rates, retail electric rates, etc. for “life-cycle” cost analysiscycle” cost analysis

– Use region’s most stringent energy code as “base case”Use region’s most stringent energy code as “base case”


Regional Cost Effectiveness: Regional Cost Effectiveness: Preliminary ResultsPreliminary Results

Some measures in the existing MCS are not Some measures in the existing MCS are not “Regionally Cost-Effective” based on “Regionally Cost-Effective” based on currentcurrent market price forecasts (updated market price forecasts (updated market price forecasts are higher)market price forecasts are higher)

Measures which may not be “cost-Measures which may not be “cost-effective” may be “economically feasible” effective” may be “economically feasible” due to lower mortgage rates and higher due to lower mortgage rates and higher retail electric pricesretail electric prices

Zone 1: Cost-Effective Zone 1: Cost-Effective Reference Path Comparison*Reference Path Comparison*

ComponentComponent MCSMCS WSEC (Base Case)WSEC (Base Case)Wall –Above GradeWall –Above Grade R21ADVR21ADV R21 STDR21 STD

Wall – Int. Below GradeWall – Int. Below Grade R21R21 R19R19

AtticAttic R38 ADVR38 ADV R38 STDR38 STD

VaultVault R38R38 R30R30

FloorFloor R30R30 R30R30

WindowWindow Class 35Class 35 Class 40Class 40

DoorDoor R5R5 R5R5

SlabSlab R15R15 R10R10

Wall – Ext. Below grade Wall – Ext. Below grade R10R10 R10R10

*Zonal Electric Heat


ComponentComponent MCSMCS WSEC (Base Case)WSEC (Base Case)Wall –Above GradeWall –Above Grade R21ADVR21ADV R19 STD + R5 FoamR19 STD + R5 Foam






DoorDoor R5R5 R5R5





Whad’eh Jest Say?Whad’eh Jest Say?The ImplicationsThe Implications

For the first time, more measures may be For the first time, more measures may be economically feasible for consumers than economically feasible for consumers than are “cost-effective” for the power systemare “cost-effective” for the power system– Current retail rates in the PNW are above long Current retail rates in the PNW are above long

run market pricesrun market prices– Current mortgage rates (after tax) are now Current mortgage rates (after tax) are now

“roughly” equivalent to (or below) the “roughly” equivalent to (or below) the Council’s assume societal discount rateCouncil’s assume societal discount rate


POLICY ISSUESPOLICY ISSUES

Should MCS be set at:Should MCS be set at: – Regionally cost-effective efficiency level (if it’s Regionally cost-effective efficiency level (if it’s

less efficient than “economically feasible”)less efficient than “economically feasible”)– Minimum “Life-cycle” cost efficiency level (if Minimum “Life-cycle” cost efficiency level (if

it exceeds “regionally cost-effective” efficiency it exceeds “regionally cost-effective” efficiency level)level)

– Lower than “current” life cycle cost efficiency Lower than “current” life cycle cost efficiency level (if lower efficiency would return greater level (if lower efficiency would return greater “individual” economic benefits)“individual” economic benefits)


Life Cycle Cost – Life Cycle Cost – Input AssumptionsInput Assumptions

Mortgage Rate and TermMortgage Rate and Term Consumer Discount RateConsumer Discount Rate Downpayment Downpayment Private Mortgage Insurance (for less than 20% down)Private Mortgage Insurance (for less than 20% down) Retail Electricity Price and Escalation RateRetail Electricity Price and Escalation Rate State and Federal Income Tax RateState and Federal Income Tax Rate Property Tax RateProperty Tax Rate Homeowner’s Insurance RateHomeowner’s Insurance Rate Measure Incremental CostMeasure Incremental Cost Measure Incremental SavingsMeasure Incremental Savings


Life Cycle Cost –Life Cycle Cost – “Probability” Model “Probability” Model

ProblemsProblems– All of the major input assumptions are known All of the major input assumptions are known

to vary over a rangeto vary over a range– ““Point estimates” for each assumption result in Point estimates” for each assumption result in

“Yes/No” answers, when the real conclusion is “Yes/No” answers, when the real conclusion is “sometimes OK, sometimes not so OK”“sometimes OK, sometimes not so OK”

Proposed Solution Proposed Solution – Use “range” of input assumptions to generate a Use “range” of input assumptions to generate a

“probability” distribution of life-cycle cost “probability” distribution of life-cycle cost resultsresults


Average New HomeAverage New Home Sales Price Sales Price

$0

$50,000

$100,000

$150,000

$200,000

$250,000

Montana Idaho Oregon Washington Housing StartWeightedAverage

Ave

rag

e N

ew H

om

e P

rice

0%

20%

40%

60%

80%

100%

Sh

are

of

To

tal

New

Ho

me

Sal

es

Price Share of PNW Households


Historical Mortgage RatesHistorical Mortgage Rates

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

ID MT OR WA PNW

An

nu

al N

om

inal R

ate

(A

PR

)

1995 1996 1997 1998 1999 2000 2001


State Income Tax RatesState Income Tax Rates

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

Marg

inal Tax R

ate

ID MT OR WA WeightedAverage


Federal Income Tax RatesFederal Income Tax Rates

0%

5%

10%

15%

20%

25%

30%

35%

40%

$25,000 to$34,999

$35,000 to$49,999

$50,000 to$74,999

$75,000 to$99,999

$150,000 to$199,999

$100,000 to$149,999

$200,000 ormore

IncomeWeightedAverage

Fed

eral

In

com

e T

ax R

ate

0%

5%

10%

15%

20%

25%

30%

35%

40%

Sh

are

of

Ho

use

ho

lds

Marginal Federal Tax Rate Share of PNW Households


Retail Electricity PricesRetail Electricity Prices

$0.00

$0.01

$0.02

$0.03

$0.04

$0.05

$0.06

$0.07

$0.08

Reta

il E

lect

ric

Rate

(2000$/kW

h)

ID MT OR WA WeightedAverage

Zone 1 Zone 2 Zone 3


Retail Rates – Zone 1Retail Rates – Zone 1

0%

5%

10%

15%

20%

25%

Sh

are

of

Cu

stom

ers

$0.03 $0.05 $0.06 $0.07 $0.07

Retail Rate (2000$/ kWh)


Retail Rates – Zone 2Retail Rates – Zone 2

0%

5%

10%

15%

20%

25%

30%

35%

40%

Sh

are

of

Cu

sto

mers

$0.03 $0.05 $0.06 $0.07 $0.09



Retail Rate – Zone 3Retail Rate – Zone 3

0%5%

10%15%20%25%30%35%40%45%50%

Sh

are

of

Cu

sto

mers

$0.05 $0.06 $0.08



And Now For Something And Now For Something Completely Different . . .Completely Different . . .

MCSLCCModelMCSLCCModel.XLS.XLS

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