November 11, 2007
Mrs. Susan M. Hudson, Clerk
Chittenden Bank Building
Vermont Public Service Board
112 State Street - Drawer 20
Montpelier, VT 05620-2701
Re: Update to EEU Avoided Costs
Dear Mrs. Hudson:
In its September 11, 2006 filing regarding avoided costs, the Department noted it
was working with DSM providers in other New England states to update the avoided
costs on a biannual basis. With this letter, the Department is recommending that the
Board adopt for use by the Energy Efficiency Utility, pursuant to paragraph 11 of the
Memorandum of Understanding approved by the Board in Docket No. 5980, the avoided
costs as presented in the recently completed Avoided Energy Supply Costs in New
England (“AESC”) final report dated August 10, 2007 for all fuels contained in the
report. 1
At this time, the Department is not proposing any changes to the environmental
adder, the avoided T&D component or the loss multipliers presently in use for efficiency
screening.
For avoided electric prices, the Department is proposing to adopt the values listed
in appendix “E-1 Vt C$” of the report in the five columns titled “Avoided Costs Before
Adders” for the four energy costing periods and the annual capacity values. Those values
are excerpted and attached to this letter.
The Department recommends that the EEU continue to use the costing period
definitions listed in the notes for Appendix E on page E-1 of the August 2007 report, and
1
An electronic version of the report is available at the DPS web site:
http://www.publicservice.vermont.gov/pub/aescstudy.html.
Attached to this letter are excerpts from the electric avoided costs section containing the values
recommended for adoption.
1
attached to this letter. This page also defines capacity cost and value assumptions.
During the “transition period” in the capacity market through 2009, all capacity will be
paid the defined market rate and none will be avoidable. Therefore, the avoided capacity
cost presented in the report for those years is zero. From 2010 onward, the report
contains market based capacity costs which the Department is recommending for
adoption which are shown in Appendix E-1 as referenced above.
End use avoided costs for natural gas are located on page 2-39, 2-40 and in
Appendix B-14 of the AESC report. Costs for other fossil fuels are contained on page 4-8
and in Exhibit F-2. No changes to the externality values or the risk adjustment are
proposed.
The Department recommends the Board not adopt the DRIPE component of the
report. Vermont self supplies much of its capacity needs so price changes will only effect
marginal purchases. The price effects associated with DRIPE represent transfer
payments, and should not be included as savings in the screening tool under accepted
economic tests. Finally, the Department has some reservations about the methodology
developed by the AESC to calculate the actual DRIPE value. We will, however, keep
working with our New England colleagues to refine this concept and its appropriate use.
The costs as presented in the 2007 AESC report represent an internally consistent
set of prices that are appropriate today. This set of prices is an update to the 2005 AESC
report. The Department recommends adopting these avoided costs for use in planning
and implementation of EEU services and initiatives effective January 1, 2008. While the
Department recognizes that this is an aggressive timeline for adoption, changing the
avoided costs on a calendar year basis will greatly simplify those changes required of the
EEU.
Prices for other fuels are important for evaluating fuel switching applications.
The Department reiterates its concern that, due to volatility and high current prices in the
fossil fuel markets, DSM practitioners should limit measures involving fuel switching.
Regarding other purposes for which these costs can or might be used, the
Department is proposing them for use in DSM screening only, consistent with the MOU
in Docket 5980. To the extent that they become a benchmark or reference in other
matters, it will be incumbent on the proponents in those matters to justify their use.
Sincerely,
Riley Allen
Director for Regulated Planning
2
Wholesale Power Price, Constant Dollars
Avoided Costs before Adders
Winter
Summer Annual
Winter
Summer
OffOffMarket
Peak
Peak
Peak
Peak
Capacity
Energy
Energy
Energy
Energy
Value
Units:
Period:
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
2037
2038
2039
2040
$/kWh
$/kWh
$/kWh
$/kWh
$/kW-yr
0.086
0.094
0.088
0.088
0.083
0.084
0.080
0.082
0.081
0.082
0.086
0.084
0.083
0.085
0.088
0.090
0.091
0.092
0.094
0.095
0.096
0.098
0.099
0.101
0.102
0.104
0.105
0.107
0.108
0.110
0.111
0.113
0.114
0.116
0.063
0.071
0.068
0.065
0.061
0.062
0.057
0.058
0.058
0.060
0.062
0.061
0.059
0.062
0.062
0.063
0.064
0.065
0.066
0.067
0.068
0.069
0.070
0.071
0.072
0.073
0.074
0.075
0.077
0.078
0.079
0.080
0.081
0.082
0.087
0.088
0.089
0.087
0.086
0.087
0.086
0.086
0.087
0.089
0.091
0.090
0.091
0.094
0.097
0.098
0.100
0.101
0.103
0.104
0.105
0.107
0.109
0.110
0.112
0.113
0.115
0.117
0.118
0.120
0.122
0.124
0.125
0.127
0.065
0.067
0.062
0.061
0.058
0.060
0.058
0.058
0.058
0.061
0.061
0.062
0.062
0.062
0.062
0.064
0.064
0.065
0.066
0.067
0.068
0.069
0.070
0.071
0.072
0.073
0.074
0.076
0.077
0.078
0.079
0.080
0.081
0.082
67
114
114
114
114
114
114
114
114
114
114
114
114
114
114
114
114
114
114
114
114
114
114
114
114
114
114
114
114
114
114
3