Amended Supplemental Testimony of Southern California Edison Company Regarding Forecast GHG Reductions and Cost Savings Resulting from Default TOU

Transcription

1 Application No.: Exhibit No.: Witnesses: et al. SCE-0-A Y. Liang (U -E) Amended Supplemental Testimony of Southern California Edison Company Regarding Forecast GHG Reductions and Cost Savings Resulting from Default TOU Before the Public Utilities Commission of the State of California Rosemead, California October, 01

2 I. INTRODUCTION In Decision (D.) , the California Public Utilities Commission (Commission) directed Southern California Edison Company (SCE), Pacific Gas & Electric Company (PG&E), and San Diego Gas & Electric Company (SDG&E) (collectively, the IOUs) to prepare, as part of their 01 residential rate design window applications, studies of the potential cost savings and greenhouse gas (GHG) reductions as a result of default residential time-of-use (TOU) rates. 1 On December 1, 01, SCE served testimony (Exhibit SCE-01) which, among other things, addressed the economic benefits and GHG reductions of default residential TOU rates. On August 1, 01, Administrative Law Judge (ALJ) Sophia J. Park issued a ruling (the Ruling) directing the IOUs (1) to consult with Energy Division and interested parties concerning the accuracy of the Itron model used in the IOUs GHG calculations and the development of a consistent set of values and assumptions to be used in their calculations, and () to each serve supplemental testimony to address the appropriateness of Energy Division staff s methodological variant to the Itron model (if proposed) and to present the IOU s revised calculation of cost estimates and GHG reductions based on the consistent set of values and assumptions. SCE serves this supplemental testimony in accordance 1 D , at p. 1-. Ex. SCE-01, Chapter VII, at p. -. On July, 01, SCE served amended testimony to correct errors in Exhibit SCE-01. This amended testimony, Exhibit SCE-01-AM, supplanted the December testimony it its entirety. The amended testimony addresses the economic benefits and GHG reductions of TOU rates at Exhibit SCE-01-AM, Chapter VII, p. -. 1

3 with this Ruling. This supplemental testimony is meant to amend and supersede SCE s previouslyserved testimony regarding the potential cost savings and GHG reductions of TOU rates. After consultation with the Energy Division and parties, SCE calculated cost savings and GHG reductions using four sets of inputs and assumptions: (1) the Itron scenario; () the Modified Itron scenario; () the Unmodified Avoided Cost Calculator (ACC) scenario; and () the High Spread scenario. These scenarios which each use different heat rate assumptions demonstrate how different sets of inputs and assumptions can impact the estimated GHG reduction and cost savings. SCE believes the High Spread scenario which uses a low-efficiency threshold of 1,00 BTU / kwh and no highefficiency threshold is the most accurate because, as explained below, its inputs and assumptions better reflect real world data. II. GHG ANALYSIS INPUTS AND ASSUMPTIONS The three IOUs and Energy Division agreed upon a consistent set of inputs and assumptions to be used in the updated GHG reduction analyses. The basic framework for calculating GHG reduction remained the same as described in SCE s original December 01 testimony. For the Implied Market Heat Rates (IMHR) calculation, SCE updated the electric market prices to the recorded 01 day-ahead hourly SCE Default Load Aggregation Prices (DLAP), and updated the gas prices to recorded 01 daily natural gas prices for SoCal CityGate. SCE also updated the carbon dioxide costs to the recorded 01 daily GHG prices from the California Independent System Operator (CAISO) Open Access Same- The purpose of this exhibit, preliminarily marked as SCE-0-A, is to correct errors in the Supplemental Testimony of Southern California Edison Company Regarding Forecast GHG Reductions and Cost Savings Resulting from Default TOU, served September, 01. This exhibit supplants that testimony in its entirety, with changes thereto shown in redline. Namely, this exhibit incorporates a new Chapter V on marginal cost savings and eliminates footnote language that had stated that the supplemental testimony was not meant to amend or supersede SCE s previous testimony on such marginal cost savings. Note, however, that this testimony is not meant to amend or supersede SCE s previous testimony concerning its estimated marginal generation and distribution costs impact for its proposed TOU rates. See Ex. SCE-01- AM, at p. (Table VII-). With this testimony, SCE has served four Excel spreadsheet work papers providing the GHG reduction and cost savings analysis results based on these different scenarios.

4 time Information System (OASIS). All other inputs and assumptions are consistent among the three IOUs, with the exception of any difference in actual values used due to variances in the IOUs geographic and customer population characteristics. Other inputs have also been updated to be consistent with the latest 01 ACC as of September 1, 01, available on the Commission s website. Input updates are shown in Table II-1. Table II-1 GHG Calculation Assumptions and Inputs Comparisons Original Testimony Supplemental Testimony Itron Modified Itron High Spread Unmodified ACC Hourly Prices SCE 01 DLAP SCE 01 DLAP SCE 01 DLAP SCE 01 DLAP 01 SP-1 Gas Prices 01 SoCal Citygate 01 SoCal Citygate 01 SoCal Citygate 01 SoCal Citygate 01 SoCal Border Variable O&M ($/MWh) $0. $0. $0. $0. $0. 01 CO Cost ($/Tonne) 01 Daily GHG Index 01 Daily GHG Index 01 Daily GHG Index 01 Daily GHG Index $ / tonne each day Price Elasticity Emission Factor (kg CO / MMBtu) Opt-Out Rate 0% 0% 0% 0% 0% 01 Price of Carbon ($ / ton) $1. $1. $1. $1. $1. IMHR High-Efficiency Threshold,00,00 0 0,00 IMHR Low-Efficiency Threshold,000,000,000 1,00 1, III. EXPLANATION OF THE FOUR SCENARIOS USED AND WHY SCE BELIEVES THE HIGH SPREAD SCENARIO IS MORE ACCURATE Under each of the four scenarios, marginal GHG emissions rates are calculated from 0 hourly IMHRs based on day-ahead energy prices in the CAISO market. The IMHRs are then adjusted based on different sets of high- and low-efficiency thresholds in order to conform calculated IMHRs to current real-world natural gas generator operation characteristics. Marginal GHG emission rates are then calculated from the set of 0 hours adjusted IMHR, and coupled with other inputs such as price elasticity, opt-out rate, price of carbon, and the estimated residential default TOU rate loads, to arrive at the updated GHG cost and emission reduction estimates. See SCE believes elasticity of substitution, which estimates residential load shifts between TOU periods based on the relative TOU price differential within a single day, is the right concept to determine residential load shift due to TOU rates differential. This is the elasticity concept SCE used in its original testimony. During discussion with the IOUs, however, SCE realized that price elasticity of demand, which estimates

5 The high- and low-efficiency rates used in each of the scenarios to adjust the calculated hourly IMHRs are as follows. The Itron scenario uses high- and low-efficiency thresholds of,00 and,000 BTU / kwh, respectively; the Modified Itron scenario does not have a high-efficiency threshold and uses a low-efficiency threshold of,000 BTU / kwh; the High Spread scenario also does not have a high-efficiency threshold, but uses a low-efficiency threshold of 1,00 BTU / kwh; and the Unmodified ACC scenario uses high- and low-efficiency thresholds of,00 and 1,00 BTU / kwh, respectively. Energy Division staff proposed the Modified Itron scenario thresholds as more accurate than the Itron scenario thresholds used in the IOUs original testimony. The Modified Itron scenario eliminates the Itron scenario s high-efficiency threshold, allowing all calculated hourly IMHR between 0 and,00 BTU / kwh to remain as calculated instead of being adjusted to,00 BTU / kwh. The rationale for this proposal was the fact that IMHRs are calculated by the hour, and the highefficiency threshold used in the Itron scenario would indicate that fossil-fuel generators are on the margin for the whole hour, while disregarding the real-world fact that multiple other generation sources, with lower heat rates, might also be on the margin during said hour. In addition to the Modified Itron scenario, Energy Division staff also requested that the three IOUs provide GHG cost savings and emission reduction analysis based upon the latest ACC model, to ensure compliance with Ordering Paragraph 1(h) of D : A single avoided cost model should apply to all distributed energy resource proceedings (including but not limited to the proceedings listed in footnote of this decision, and their successors). residential load change within a TOU period based on the relative price differential between each TOU period to the flat residential rate (after which load is normalized), is more appropriate to determine the effect on residential loads caused by shifting from flat rates to TOU rates. Thus, SCE s calculations for this supplemental testimony use this price elasticity of demand concept rather than elasticity of substitution. See ED Staff New Proposal circulated to the service list as a Word document by Masoud Foudeh on August 1, 01. This proposal was subsequently revised in the ED Staff Revised GHG Estimation Proposal (Updated -1-1) circulated to the service list as a Word document by Robert Levin on September 1, 01. Id.

6 After receiving this guidance from Energy Division staff, the IOUs discussed the pros and cons of the various scenarios among themselves. The IOUs found that they agreed with Energy Division staff that the high-efficiency threshold of zero used in the Modified Itron scenario is more representative of the real world than the high-efficiency thresholds used in either the Itron or Unmodified ACC scenarios. Additionally, the IOUs examined research from PG&E which indicates that the lowefficiency threshold of 1,00 BTU / kwh used in the Unmodified ACC scenario is more appropriate than the,000 BTU / kwh threshold used in the two Itron scenarios. This is because the larger lowefficiency threshold appears to better reflects real world data from CAISO. As such, the IOUs requested and received permission from Energy Division staff to calculate GHG reduction and cost savings using a fourth approach the High Spread scenario which uses the preferred 1,00 BTU / kwh lowefficiency threshold from the Unmodified ACC scenario in conjunction with the preferred highefficiency threshold of zero proposed by Energy Division staff. SCE believes that this High Spread scenario has the most appropriate IMHR adjustment assumptions of the four offered in this testimony. IV. GHG REDUCTION AND COST SAVINGS RESULTS As part of this supplemental testimony, SCE provides the following four sets of GHG reduction and cost savings estimates resulting from four different sets of inputs and assumptions as agreed upon among the IOUs and Energy Division staff. These four sets of results, from the Itron, Modified Itron, High Spread, and Unmodified ACC scenarios, demonstrate the effects of different input assumptions on the result. See PG&E Supplemental Testimony, Attachment 1. See ED Staff Revised GHG Estimation Proposal (Updated -1-1) circulated to the service list as a Word document by Robert Levin on September 1, 01.

7 Table IV- CO Emission Results Comparisons Using the Four Methodologies 1 Itron Modified Itron High Spread Unmodified ACC Tonnes of CO Emitted Under Current Rates,1,,,,00,,0, Cost of CO Emitted Under Current Rates $ 0,1,1 $ 1,, $ 1,0, $,,0 Tonnes of CO Emitted Under Proposed TOU,,,,0,,0,,1 Cost of CO Emitted Under $ 0,1, Propsed TOU $ 1,,1 $ 1,,1 $,0,0 Reduction in Tonnes CO Emitted (,1) (,0) (,) (,) Reduction in CO Cost ($,) ($1,0,1) ($1,1,) ($,) 1 V. GENERATION AND DISTRIBUTION MARGINAL COST SAVINGS RESULTS Due to the change in the elasticity factor and the switch from elasticity of substitution to price elasticity of demand, SCE s estimate of the effect TOU rates will have on residential load changed slightly when compared to before. This in turn slightly changed the resulting total residential marginal cost savings. The updated estimated marginal cost savings is shown in Table V- which follows. 1 Table V- Estimated Marginal Generation & Distribution Costs Impact for Proposed Default Residential TOU Rates ($Millions) Current Tiered Rates Proposed TOU Rates Difference Cost Savings Shown in July 01 Amended Testimony Residential Marginal Generation Costs $1,1 $1,1 ($) ($1) Residential Marginal Distribution Costs $ $ ($1) ($1) 1 Note that this analysis is based on SCE s proposed TOU-D--PM rate. 1 This chart updates and replaces Table VII- from SCE s July 01 Amended Testimony (SCE-01-AM).