Risks And Opportunities For PacifiCorp

Transcription

1 Risks And Opportunities For PacifiCorp in a Carbon Constrained Economy Author: Ezra D. Hausman, Ph.D.

2 ABSTRACT PacifiCorp, its shareholders, and its ratepayers face increasing costs and risks with continued investment in coal-fired generators. What is the nature of these risks, and what are the options for switching to cleaner energy sources to meet the region s energy needs?

3 Table of contents Executive Summary... 1 Introduction... 3 What is PacifiCorp?... 5 Resource Planing Basics... 9 Clean Energy Options Employment Impacts Conclusions... 15

4 field of windmills in Oregon Executive Summary The resource planning environment for the U.S. electric energy sector is experiencing a period of rapid evolution. The energy sources once seen as low cost in particular, coal-fired electricity generation are now understood to carry high long-term costs in damage to human health, the environment, and the Earth s climate. As a result, companies that own and operate coal plants face unprecedented financial risks that affect both their ratepayers and their shareholders. This report focuses on one such company: PacifiCorp, one of the largest utilities 1 and largest owners of coal-fired generation in the United States, which serves customers in six states in the western U.S. PacifiCorp s ratepayers face the risk of high costs for environmental upgrades at the company s plants; increasing fuel costs; remediation costs to undo the environmental harm, such as groundwater contamination, created by mining coal and the waste from coal plants; and the risk of higher electric bills once the cost of CO2 emissions is internalized in rates. All utility shareholders, including PacifiCorp s, face the risk that utilities will not be allowed to recover these and other costs from ratepayers. If state utility regulators in any of the PacifiCorp states find that the utility acted imprudently in using customer dollars to maintain and upgrade coal plants, the company may be left with the bill for investments that it had expected to fund through rates. This recently occurred in Oregon, for example, where the Public Utility Commission disallowed $17 million in costs associated with PacifiCorp s coal power plant retrofits that the commission found were imprudently incurred. 2 Within the electric utility industry, PacifiCorp is particularly well-positioned to take a leadership role in the transition to a cleaner electric sector: PacifiCorp has a resource mix with a heavy reliance on coal, but also with important contributions from renewables and hydropower. PacifiCorp s service territory includes areas with high quality, diverse renewable energy resources, including wind, solar, and geothermal. 1 Risks and Opportunities for PacifiCorp in a Carbon Constrained Economy

5 PacifiCorp is owned by Warren Buffett s Berkshire Hathaway, and has access to abundant capital resources for forward-thinking investments in a clean-energy future. Berkshire Hathaway declares itself to be committed to clean energy, declaring on its website that It s the investment in and development of sustainable energy solutions that will be essential to our vision for Berkshire Hathaway Energy s future. 3 PacifiCorp itself faces numerous important near-term investment decisions whether to continue to spend billions of dollars in maintaining and upgrading its coal fleet, or to pursue a different, lower-emissions path. Increasing the use of clean energy resources is good for the environment, and it is prudent business practice to minimize the cost and risk of continued reliance on coal. This approach also provides economic benefits for states served by PacifiCorp, redirecting funds currently spent on fuel from out of state towards jobs and economic development at home. Table ES-1 summarizes the employment impacts of investments in clean energy resources such as wind, solar, and energy efficiency, based on the U.S. Department of Energy s JEDI model. 4 This report discusses the specific costs and risks PacifiCorp will face if it continues its heavy reliance on coal in a carbon-constrained economy. We also examine the opportunities for an alternative, clean-energy path forward, and the benefits that such a path would yield for ratepayers and the regional economy. The goal is to broaden the discussion beyond the traditional resource planning paradigm, and to encourage PacifiCorp, its regulators, and its ratepayers to give greater weight to the longer term risks and opportunities facing the company and the states and ratepayers it serves. A series of follow-up companion reports will investigate the opportunities for and benefits of investing in clean energy resources in specific states served by PacifiCorp. WIND Solar PV Concentrated Solar GAS COAL Jobs per $Million Spent Construction Period Annual O&M Jobs Jobs per MW Construction Period Annual O&M Jobs Jobs per GWh/yr Construction Period Annual O&M Jobs Table ES-1. Employment impacts by generating resource technology in the PacifiCorp region* *Values shown represent unweighted averages for states served by PacifiCorp. All calculations assume construction begins in 2016, and monetary calculations are in 2012 dollars. Default JEDI inputs were used with the exception of the cost of solar PV, which was updated to $3300/kWDC to reflect more recent U.S. Department of Energy data (LBNL, Tracking the Sun VI, available at Utility-scale solar follows two basic models: Photovoltaic (PV, or solar panels ) and Concentrated Solar Power (CSP). The latter uses mirrors to focus solar energy as a heat source for thermal generation. Construction period jobs are reported in full-time-equivalent (FTE) job-years; i.e., if one individual is employed for two years, that represents two job-years. Jobs or job-years as a function of annual energy production, assuming the following capacity factors: Wind, 38%; Solar PV and CSP, 12%; gas, 60%; coal, 80%. 2 Risks and Opportunities for PacifiCorp in a Carbon Constrained Economy

6 Power Generation at Bonneville Dam in Oregon Introduction Energy system at a crossroads The resource planning environment for the U.S. electric energy sector is experiencing a period of rapid evolution. The energy sources once seen as low cost in particular, coal-fired electricity generation are now understood to carry high long-term costs in damage to human health, the environment, and even the climate of the planet. In June 2014 the U.S. EPA released its plans for regulating carbon emissions from existing power plants, calling for a reduction of 30% from 2005 levels by The implementation details and the impact of this rule are still being worked out; however, it is clear that if the United States is beginning to seriously address this critical risk to our environment and economy, it will ultimately become uneconomic to run coal plants without capturing and permanently sequestering their carbon emissions. The proposed carbon regulations come on top of years of tightening regulations that restrict the ability of power plants to emit harmful pollutants such as sulfur dioxide, nitrogen oxide, mercury, and particulate matter. Existing regulations for these pollutants has already forced and will continue to force utilities across the country to choose between spending hundreds of millions or billions of dollars to modernize aging coal plants, and finding and developing alternative sources of energy. 3 Risks and Opportunities for PacifiCorp in a Carbon Constrained Economy

7 At the same time, improvements in clean energy technologies and reductions in cost have made large-scale replacement of fossil-fired energy not only feasible, but in many cases economically preferable. Around the country, utilities are seeing exponential growth in sources of energy that produce no emissions of air or water pollutants, no environmental damage associated with mining, and no increase in the greenhouse gasses in the atmosphere. Sustaining and expanding this growth will involve the continued development of new technology and operating practices; it will also mean that more of our energy dollars are spent putting people to work. Accelerating the transition from coal to clean energy will require changes to longstanding assumptions, practices, and traditions in the electric utility industry. Many jurisdictions have already begun to require their regulated utilities to factor likely, but not fully known, future costs and operational limitations associated with numerous environmental compliance requirements including greenhouse gas rules. Fully addressing this shift will require a willingness on the part of industry leaders to make bold resource planning decisions, and to defend them to shareholders, regulatory commissions, and legislative bodies. But, as discussed in this report, the current business-as-usual approach is both unpredictable and costly. Time is not on our side. This report focuses on PacifiCorp, a large utility serving customers in six western US states (see Figure 1). PacifiCorp is uniquely positioned to take a leadership role in the transition to a cleaner electric sector, for a number of reasons: PacifiCorp has a resource mix with a heavy reliance on coal, but also with important contributions from renewables and hydropower (Figure 2) PacifiCorp s service territory includes areas with high quality, diverse renewable energy resources, including wind, solar, and geothermal PacifiCorp is owned by Warren Buffett s Berkshire Hathaway, and has access to abundant resources for forward-thinking investments in a clean-energy future. Berkshire Hathaway declares itself to be committed to clean energy, declaring on its website that It s the investment in and development of sustainable energy solutions that will be essential to our vision for Berkshire Hathaway Energy s future. 5 The company itself faces numerous important near-term investment decisions whether to continue to invest billions of dollars in maintaining and upgrading its coal fleet, or to pursue a different, lower-emissions path Every ton of CO2 emitted to the atmosphere will affect global climate for several decades to come. Decisions made now about which energy path to pursue will affect the quality of life for generations even as these decisions affect the bottom line for utility customers and shareholders alike. PacifiCorp can actively seek and pursue opportunities that will improve this triple bottom-line rates, returns, and environment by choosing to direct its investments toward the sustainable, clean energy resources that will help meet the challenges of a carbon-constrained future. 4 Risks and Opportunities for PacifiCorp in a Carbon Constrained Economy

8 WASHINGTON MONTANA OREGON IDAHO WYOMING CALIFORNIA NEVADA Coal facilities (11 total) Natural gas facilities (5 total) Geothermal and other (2 total) Hydro systems (44 total facilities) Wind facilities (13 total) Coal mines (3 total) PacifiCorp service area PacifiCorp-owned primary transmission lines Transmission access (a) UTAH ARIZONA COLORADO NEW MEXICO Figure 1. PacifiCorp service territory, generating plants, and major transmission lines. Source: PacifiCorp 2012 Form 10-k, p.9. What is PacifiCorp? PacifiCorp is the corporate name for the investor-owned utility that provides electric power, transmission, and distribution services to customers in Oregon, Washington, and California as Pacific Power; and in Utah, Wyoming, and Idaho as Rocky Mountain Power. PacifiCorp was purchased by Berkshire Hathaway for $5.1 Billion in 2005, a holding company that also now owns two other U.S. utilities MidAmerican Energy in Iowa and NV Energy in Nevada along with gas, hydropower, transmission, and energy services companies in the U.S. and internationally. 6 PacifiCorp itself owns a diverse portfolio of generating resources, including coal, natural gas, hydropower, and renewables. The company serves its load in all six states from this combined generation portfolio, dividing the cost among all of its ratepayers. The company also owns some of the coal mines that provide fuel to its plants. Figure 1, taken from the company s K filing, shows PacifiCorp s service territory, power plants, coal mines, and primary transmission lines. 7 In 2012, PacifiCorp sold over 55 thousand gigawatt-hours (GWh) to 1.75 million customers in its six-state service territory. On the production side, the company generated a total of about 65 billion kwh. Some of the excess generation was sold to other utilities, 8 and some was lost in transmission. PacifiCorp s energy production was sourced from the range of resources shown in Figure Risks and Opportunities for PacifiCorp in a Carbon Constrained Economy

9 On a kwh basis, more than three quarters of the energy produced by PacifiCorp in 2012 (about 50 billion kwh) came from the combustion of coal. This high level of reliance on coal carries significant risks. On June 2, 2014, EPA proposed rules to regulate emissions of CO2 from existing power plants under Section 111(d) of the Clean Air Act. 10 While EPA s proposal gives states flexibility in how they meet their emissions reduction requirements, the simple fact is that any effective plan for coaldependent states will require significant reductions in the emissions of CO2 from burning coal to make electricity. PacifiCorp s oldest coal units date from the early 1950s; its youngest units have been in operation since 1983 and These coal plants, like most of those in the United States, are facing increasing costs associated with increasingly stringent clean air rules designed to protect human health and the environment. Coal plants produce a number of harmful pollutants, including sulfur, which leads to acid rain; nitrogen compounds, which cause urban smog; particulates, which lead to decreases in air quality and visibility, and harm human and environmental health; toxic metals such as mercury, arsenic, and cadmium that pollute waterways and are hazardous to wildlife and humans; and of course greenhouse gases such as CO2 that are altering the climate of the planet. EPA s existing rules, even without considering upcoming carbon regulations, require billions of dollars of investments in coal plants to control emissions of these pollutants. In addition, coal plants face new regulations on their cooling water intake to protect fish populations and reduce water consumption, and new regulations on ash disposal to protect groundwater. In response to these regulations, PacifiCorp has already spent more than $2 billion on installing pollution controls on its aging coal plants; according to the company s plans, this figure will be well into the billions by Table 1 lists all of the coal-fired generating units owned (or partially owned) by PacifiCorp; in the final three columns of Table 1, I provide my assessment of the degree to which each unit meets the highest standards of pollution control currently or likely to be required by the federal environmental regulations described above, along with a list of planned (or in progress) upgrades, and a rough estimate of what it would cost to reach the standard of full emissions control. This standard would include modern technology for controlling harmful emissions of sulfur, nitrogen, particulates, and toxic metals, to minimize harm to aquatic life and waterways, and to reduce the risk of groundwater contamination through management of waste. 13 Importantly, it does not include any costs to control emissions of CO 2 or other greenhouse gases. CO 2 emissions represent a very 7% HYDRO 5% WIND 11% GAS 0.4% GEOTHERMAL 77% COAL 0.1% COGEN important future cost and viability consideration for all coal plants. While it may be possible to install carbon capture devices on some coal plants in the future, this would require large investments in infrastructure including carbon scrubbing from exhaust gas, transportation, storage, and monitoring. Further, this or any approach to reducing carbon emissions will significantly increase the operating cost, and likely decrease the output, of each plant. Even if all of the costly pollution control upgrades outlined in Table 1 were fully implemented, the prospect of potentially even higher CO2 control costs would still be looming. In reviewing Table 1, it is important to consider the cost of upgrading each unit in the context of its size. While there are some economies of scale, as a general rule the cost of a retrofit increases with unit size. Similarly, it is easier to justify (and recover) the cost of a retrofit for a newer, larger unit. For example, the $250 million-$300 million cost of retrofitting Carbon 1 (75 MW, built in 1954) is clearly uneconomic; hence the company s plans to retire this plant within the next year. Finally, note that in addition to the pollution controls and costs listed in Table 1, the company plans upgrades to all of its coal ash disposal facilities in 2017 in order to comply with the EPA s Coal Combustion Residuals rule Risks and Opportunities for PacifiCorp in a Carbon Constrained Economy

10 Table 1. Characteristics of PacifiCorp coal plants Plant STATE ON-LINE YEAR SIZE % OWNED EMISSIONS CONTROL STATUS PLANNED UPGRADES ESTIMATED "FULL- CONTROL" COSTS ($M) Carbon 1 UT % Low None $250-$300 Carbon 2 UT % Low None $350-$400 Cholla 4 AZ % Medium-High None $250-$300 Colstrip 3 MT % Medium-High None $600-$650 Colstrip 4 MT % Medium-High None $600-$650 Craig 2 CO % Medium-High Coal Oxidizer SCR $250-$300 Dave Johnston 1 WY % Low Sorbent Injection $300-$350 Dave Johnston 2 WY % Low Sorbent Injection $300-$350 Dave Johnston 3 WY % Medium Sorbent Injection $200-$250 Dave Johnston 4 WY % Medium Sorbent Injection $250-$300 Hayden 1 CO % Medium-High Sorbent Injection SCR $150-$200 Hayden 2 CO % Medium-High Sorbent Injection SCR $200-$250 Hunter 1 UT % Medium Low-Nox burners Overfire air Baghouse SCR* $450-$500 Hunter 2 UT % Medium-High SCR* $250-$300 7 Risks and Opportunities for PacifiCorp in a Carbon Constrained Economy

11 Table 1. Characteristics of PacifiCorp coal plants (cont.) Plant STATE ON-LINE YEAR SIZE % OWNED EMISSIONS CONTROL STATUS PLANNED UPGRADES ESTIMATED "FULL- CONTROL" COSTS ($M) Hunter 3 UT % Medium-High SCR* $250-$300 Huntington 1 UT % Medium SCR* $450-$500 Huntington 2 UT % Medium-High SCR* $250-$300 Jim Bridger 1 WY % Medium Sorbent Injection SCR $450-$500 Jim Bridger 2 WY % Medium Sorbent Injection SCR $450-$500 Jim Bridger 3 WY % Medium Sorbent Injection SCR $450-$500 Jim Bridger 4 WY % Medium Sorbent Injection SCR $450-$500 Naughton 1 WY % Low Sorbent Injection $350-$400 Naughton 2 WY % Low Sorbent Injection $450-$500 Naughton 3 WY % Medium Sorbent Injection SCR Baghouse Scrubber Upgrade $350-$400 Wyodak 1 WY % Medium Sorbent Injection SCR* $300-$350 Source of planned upgrade information is Exhibit PAC/501, testimony of Chad A. Teply, Public Utility Commission of Oregon Docket No. UE-246. PacifiCorp plans to retire the Carbon plant in *Upgrades included by PacifiCorp for planning purposes but not committed These upgrades are described as Pond closure, wet-to-dry conversion, new facilities in Exhibit PAC/501 and described individually in greater detail in Exhibit PAC/504 (Oregon PUC Docket No. UE-246). The company has not produced forecasted costs to my knowledge. I would expect this cost to be between $50 Million and $100 Million per unit, assuming coal ash is regulated under subtitle D as nonhazardous waste. 8 Risks and Opportunities for PacifiCorp in a Carbon Constrained Economy

12 Resource Planning Basics Regulated utilities such as PacifiCorp make money by making capital (infrastructure) investments and earning a rate of return on these investments. These investments have to be justified they have to be prudent in the parlance of utility regulators. In principle, capital expenditures are only allowed if they are part of a long-range, least-cost plan to provide electricity. If coal plants are going to continue to incur environmental costs, including greenhouse gas emissions costs, this makes them less economically attractive relative to other resources that do not produce as much pollution, or any at all. Similarly, if future greenhouse gas regulations mean that these plants may not be able to run as long into the future, or at as high a level, then it is harder to justify continuing to spend ratepayers money on them. Another principle of utility regulation is that, even if investments are prudently made, the associated infrastructure must be used and useful if its depreciated costs are to be included in electric rates that is, ratepayers should not have to pay for utility assets that are providing no value to them. If coal plants are forced to cease operations in the future due to greenhouse gas regulations, utilities may not be able to fully recover their investments they would no longer be used and useful. This could be a significant financial blow for utilities that invest heavily in coal infrastructure, possibly even leading to bankruptcies. Despite these risks, utilities have a financial incentive (and an obligation) to invest money and build infrastructure, and to earn a return on these investments. It is the job of the utility commissions, consumer advocates, other interveners, and the public to ensure that the investments also make sense for ratepayers. Shareholders bear the risk that commissions may not allow the utility to recover the costs of investments that are found to be imprudent. For example, the Public Utility Commission of Oregon ordered a 10% ($17 million) disallowance in PacifiCorp s 2012 rate case because the company had made pollution control investments on a number of its coal units, while the commissions found that Pacific Power failed to reasonably examine alternative courses of action and perform adequate analysis to support its investments. 15 In utility finance terms, this is little more than a shot across the bow; however it may well have eliminated all financial benefit to the utility of the Oregonjurisdictional part of the upgrade. It should also serve as a wake-up call that commissions may not provide a blank check for upgrades that may not be useful in the future. As an example of a different approach, Portland General Electric (PGE) announced in 2010 that the utility would close the Boardman coal-fired power plant in 2020, in order to avoid having to invest $470 Million in pollution controls at the plant. The plant had previously been expected to run at least until PGE plans to replace the power provided by the plant, currently about 15% of PGE s generation, with a cleaner portfolio including much more renewable energy and energy efficiency 17 leaving Oregon free of coalfired generation at the end of this decade. Wind turbine under construction and crane 9 Risks and Opportunities for PacifiCorp in a Carbon Constrained Economy

13 Solar and wind energy in Wyoming Clean Energy Options Energy and Capacity: Utilities such as PacifiCorp face two primary requirements in ensuring that they have sufficient resources to meet their customers needs. The first of these is energy the company must produce or purchase enough kwh over the course of each year to meet all of the electricity needs of its customers. The second is capacity the company must have resources available to produce enough electricity to meet its load peak during the hour of highest demand. Most kinds of energy resources fossil, renewable, and energy efficiency help energy providers meet both of these requirements. In this report, I have focused primarily on the energy requirement: what are the clean energy options for producing much or all of the energy that PacifiCorp needs during a year? Ultimately, energy planners would have to ensure that energy is also available when it is needed a challenge that can be addressed through resource diversity, energy storage, and strategic use of dispatchable resources such as demand response, hydropower, geothermal, and natural gas. Renewable Energy Potential: PacifiCorp s service territory coincides with areas of very high renewable energy potential, only a small fraction of which is currently being harnessed. Table 2 shows the technical potential for renewable energy capacity (GW) in each state, based on a 2012 study by the U.S. Department of Energy. 18 The amount of energy that could be produced by each resource type depends not just on the potential capacity shown in Table 2, but on what portion of that capacity can be used over the course of a year. For example, no matter what the capacity of a solar PV resource, it cannot generate in the dark. Table 3 shows the technical potential in terms of potential energy production (GWh), based on the 2012 study. These numbers require some perspective. According to the National Renewable Energy Lab report, as a technical potential, rather than economic or market potential, these estimates do not consider availability of transmission infrastructure, costs, reliability or time-of-dispatch, current or future electricity loads, or relevant policies. 19 On the other hand, PacifiCorp s total sales in 2012 throughout its six-state territory was approximately 55,000 GWh. What Table 3 shows is that there is ample resource potential to meet a large portion of this energy requirement from renewable resources: the solar resource technical potential in Wyoming alone, for example, is over 100 times as large as PacifiCorp s entire six-state requirement, while Oregon s offshore wind potential is almost 20 times larger. In many instances, renewable resources have reached costparity with fossil resources on a levelized cost basis. 20 The 10 Risks and Opportunities for PacifiCorp in a Carbon Constrained Economy

14 Wyoming California Oregon Washington Idaho Utah Utility-Scale PV 2,858 4,122 1,898 1,016 2,057 2,404 Concentrated Solar 1,956 2,726 1, ,267 1,638 Wind (Onshore) Wind (Offshore) NA NA NA Geothermal Biopower Table 2. Renewable energy technical potential in states served by PacifiCorp Capacity (GW). (Source: NREL, 2012) Wyoming California Oregon Washington Idaho Utah Utility-Scale PV 5,734,457 9,101,925 3,766,262 1,771,841 3,960,043 5,215,370 Concentrated Solar 5,406,407 8,490,916 2,812, ,713 3,502,877 5,067,547 Wind (Onshore) 1,653,857 89,862 68,767 47,250 44,320 31,552 Wind (Offshore) NA 2,662, , ,025 NA NA Geothermal 1,071,452 1,475, , ,571 1,010, ,362 Biopower ,919 14,684 13,826 5, Table 3. Renewable energy technical potential in states served by PacifiCorp Energy (GWh). (Source: NREL, 2012) 11 Risks and Opportunities for PacifiCorp in a Carbon Constrained Economy

15 most recent report on the wind market from the Lawrence Berkeley National Laboratory (LBNL), for example, finds that the average power purchase contract price for wind in the U.S. has decreased from a high of $68/MWh in 2009 to $26/MWh in 2013 a 62% decrease. 21 LBNL s most recent report on utility-scale solar shows that power purchase contract prices for this resource have decreased from around $150/MWh in 2009 to just over $50/MWh in 2013 and 2014 a 67% decrease. 22 These prices are below the most recent U.S. Department of Energy s projected levelized costs for new coal, nuclear, or gas-fired resources. 23 Of course, as dependence on renewables reaches high levels much higher than today s share in the U.S. utilities will require new energy storage technology or load management practices to maintain high levels of reliability. But given the abundance of renewable energy in the region, the dramatic reductions in cost, and the numerous environmental, risk-reduction, and employment benefits of this approach, PacifiCorp has an unprecedented opportunity to displace a significant share of its fossil generation with clean, stablypriced and locally-sourced renewable energy resources. Energy Efficiency: Generally the cleanest and least expensive resource for displacing fossil generation, and the one with the lowest barriers to implementation, is energy efficiency. Numerous states have successfully implemented energy efficiency programs to cost-effectively reduce annual energy use by 1% or greater each year, with a cumulative effect that has markedly reduced fuel consumption, prevented pollutant emissions, and avoided the need for costly new fossil generating capacity and transmission lines. Further, energy efficiency investments are strong drivers of economic development a very large share of the cost of this resource supports employment within each participating state, and participating customers and businesses save money on their electric bills that can be put to use promoting additional economic growth. The American Council for and Energy-Efficient Economy (ACEEE) publishes an annual Scorecard of U.S. states ranking each state s performance on developing and promoting energy efficiency. 24 ACEEE reviews state policies and practices in six key areas: Utility and public-benefit programs and policies Transportation policies Building energy codes Combined heat and power State government initiatives Appliance and equipment efficiency standards ACEEE finds that while some states are further along than others, all U.S. states have additional potential to develop energy efficiency resources. States served by PacifiCorp include the second highest-ranking (California) and the second lowest (Wyoming). The rankings of each of the PacifiCorp states are shown in Table Risks and Opportunities for PacifiCorp in a Carbon Constrained Economy

16 Category Possible Points Wyoming California Oregon Washington Idaho Utah Utility and public-benefit programs and policies Transportation policies Building energy codes Combined heat and power State government initiatives Appliance and equipment efficiency standards Table 4. Rankings of states served by PacifiCorp in the ACEEE 2013 Energy Efficiency Scorecard WIND Solar PV Concentrated Solar GAS COAL Jobs per $Million Spent Construction Period Annual O&M Jobs Jobs per MW Construction Period Annual O&M Jobs Jobs per GWh/yr Construction Period Annual O&M Jobs Table 5. Employment impacts by generating resource technology in the PacifiCorp region* *Values shown represent unweighted averages for states served by PacifiCorp. All calculations assume construction begins in 2016, and monetary calculations are in 2012 dollars. Default JEDI inputs were used with the exception of the cost of solar PV, which was updated to $3300/kWDC to reflect more recent U.S. Department of Energy data (LBNL, Tracking the Sun VI, available at Construction period jobs are reported in full-time-equivalent (FTE) job-years; i.e., if one individual is employed for two years, that represents two job-years. Jobs or job-years as a function of annual energy production, assuming the following capacity factors: Wind, 38%; Solar PV and CSP, 12%; gas, 60%; coal, 80%. 13 Risks and Opportunities for PacifiCorp in a Carbon Constrained Economy

17 Employment Impacts Renewable resources and energy efficiency can help to meet the region s energy needs while avoiding pollutants and waste that harm the environment and human health, including millions of tons of greenhouse gas emissions. These resources are also far more effective than fossil fuel technologies in directing ratepayer money towards employment and economic development in the region. Table 5 compares the employment impact of investments in various energy renewable and nonrenewable generation technologies, both during the construction phase and during the operations and maintenance (O&M) lifetime of each resource. This analysis was performed using the Jobs and Economic Development Impacts (JEDI) model developed by the U.S. Department of Energy s National Renewable Energy Laboratory (NREL). worker installs new energy efficient windows Table 5 shows that during construction, solar photovoltaic resources are the most effective at creating jobs, either per dollar, per unit of capacity built, or per unit of energy produced each year. After construction, dollars spent year after year on renewable resources are far more effective than dollars spent on fossil resources for creating jobs. This is largely because renewable resources involve no fuel or emissions costs, so the bulk of operating cost is for more labor-intensive maintenance activities. 14 Risks and Opportunities for PacifiCorp in a Carbon Constrained Economy

18 Conclusions Like other utilities in the United States, PacifiCorp must make investment decisions based on an uncertain future. Over the next few years, the company must make decisions involving billions of dollars on what kind of energy future to pursue. On the one hand, the company s large portfolio of coal plants requires large capital expenditures to keep up with increasingly stringent regulations to protect human health and the environment. These capital expenditures should be viewed in the light of future risks, including the risk of much higher operating costs and/or curtailed operations in response to restrictions on the emission of greenhouse gases. On the other hand, the company s service territory includes abundant sources of pollution-free renewable energy. As shown in Table 3, PacifiCorp states have a technical potential of many hundreds of times the Company s requirements of wind, solar, and geothermal resources. Harnessing this energy for customers benefit will require significant investments in renewable generation technology, transmission, and operational practices to accommodate these resources. Along with avoided cost of upgrades to the company s coal fleet, the benefits of this approach include employment benefits for the region, reduction in future expenditures on fuel, significant progress towards meeting greenhouse gas emissions targets, and the environmental and human health benefits of reduced pollution. As shown in Table 4, all states in the PacifiCorp region have opportunities to increase their reliance on cost-effective energy efficiency as a way of meeting energy demand. In many cases, this approach represents the least-cost option for meeting or reversing load growth, reducing environmental impacts in the electric sector, and creating in-state jobs. PacifiCorp and its parent company, Berkshire Hathaway, have an opportunity to lead the industry by addressing these long-term risks and opportunities as a central part of the company s planning and investment strategies. The result will be more robust and economically beneficial electric resource planning for a carbon-constrained future. 15 Risks and Opportunities for PacifiCorp in a Carbon Constrained Economy

19 endnotes 1 Of 344 utilities for which EIA Form 826 data is reported by the U.S. Energy Information Administration, PacifiCorp ranks 11th nationally, and 3rd in the west behind Southern California Edison and Pacific Gas and Electric, in terms of total retail sales in See 2 Oregon PUC Order No , entered December 20, The Jobs and Economic Development Impacts Model is developed and maintained by the National Renewable Energy Laboratory (NREL), a laboratory of the U.S. Department of Energy Office of Energy Efficiency and Renewable Energy See for details. 7 Some of the resources shown are under shared ownership with other utilities or independent generating companies. 8 Like other utilities, PacifiCorp engages in economy sales and purchases of power with other entities in the region. These numbers suggest that PacifiCorp was a net seller of power in Because electricity is sourced and transported on an interconnected grid, it is impossible to say which kwh of energy come from what source in PacifiCorp s system, or from anywhere in the U.S. Western Interconnection the broad interconnected region that stretches from Western Canada to Baja California, and covers much of the Western U.S. However, PacifiCorp is responsible for maintaining its own resource mix and charges customers based on the cost of procuring and delivering energy from those resources, including any capital investments in its plants, along with the cost of any market purchases of energy and energy-related services. 10 For details, see 11 The most recent is the Colstrip plant unit 3 in Montana, which is co-owned by several other companies. 12 For a detailed discussion see Sierra Club Exhibit 112, Public Utility Commission of Oregon Docket UE 246, PacifiCorp s Emissions Reductions Plan Under current law, not all coal plants are held to the same pollution control standards; for example, ambient air quality standards depend on whether a plant is close to a Class I area such as a national park, and whether or not the state or region is currently a non-attainment area for levels of certain pollutants. The age of the plant is also important, as many older plants have been grandfathered into less stringent emissions standards. However, clean air standards have been generally becoming more stringent, and older coal plants can become subject to the higher standards when they undergo major overhauls. 14 These upgrades are described as Pond closure, wet-to-dry conversion, new facilities in Exhibit PAC/501 and described individually in greater detail in Exhibit PAC/504 (Oregon PUC Docket No. UE-246). The company has not produced forecasted costs to my knowledge. I would expect this cost to be between $50 Million and $100 Million per unit, assuming coal ash is regulated under subtitle D as nonhazardous waste. 15 Public Utility Commission of Oregon, Order No , December 20, 2012, p PGE files to close Boardman coal plant early, rekindles concerns, The Oregonian, April 2, See how_we_generate_energy.aspx for a discussion of PGE s portfolio development and resource planning process. 18 National Renewable Energy Laboratory (NREL), 2012, U.S. Renewable Energy Technical Potentials: A GIS-Based Analysis. Technical potential is defined as the achievable energy generation of a particular technology given system performance, topographic limitations, environmental, and land-use constraints. (p.1) It does not include consideration of economic or market constraints; nor does it consider interactions between different resources that might depend on the same land area. 19 NREL 2012, p Levelized cost refers to the average cost of energy over the expected life of a resource, including capital, operations, and fuel cost. Levelized cost provides a consistent basis for comparison among resources whose cost structures can vary widely. 21 Wiser, Ryan H., and Mark Bolinger, 2013 Wind Technologies Market Report, U.S. Department of Energy, Lawrence Berkeley National Laboratory. Available at 22 Bollinger, Mark and Samantha Weaver, Utility-Scale Solar 2013: An Empirical Analysis of Project Cost, Performance, and Pricing Trends in the United States, U.S. Department of Energy, Lawrence Berkeley National Laboratory U.S. Department of Energy Energy Information Administration, Levelized Cost and Levelized Avoided Cost of New Generation Resources in the Annual Energy Outlook 2014, April Available at 24 ACEEE 2013, The 2013 State Energy Efficiency Scorecard. Available at 16 Risks and Opportunities for PacifiCorp in a Carbon Constrained Economy

20 About the Author Ezra D. Hausman, Ph.D. is an independent consultant on energy and environmental economics based in Auburndale, Massachusetts. In his sixteen years consulting on energy market issues, Ezra has provided expert testimony in over two-dozen cases, delivered numerous reports and presentations, and offered other expert services for clients including federal and state agencies; offices of consumer advocate; legislative bodies; cities and towns; non-governmental organizations; foundations; industry associations; and resource developers. His specific areas of expertise include: Economic analysis, price forecasting, and asset valuation in electricity markets, including dispatch model analysis and review of modeling studies Electricity and generating capacity market design Integrated Resource Planning and portfolio analysis Economic analysis of environmental and other regulations, including regulation of greenhouse gas emissions, in electricity markets Quantification of the economic and environmental benefits of displaced emissions associated with energy efficiency and renewable energy initiatives Mitigation of greenhouse gas emissions from the supply and demand sides of the U.S. electric sector. Ezra holds a Ph.D. in atmospheric science from Harvard University, an S.M. in applied physics from Harvard University, an M.S. in water resource engineering from Tufts University, and a B.A. degree in psychology from Wesleyan University.