163 ACORN LANE ∎ COLCHESTER,VT 05446 ∎VOICE (802)655-8462 ∎FAX (802)655-8550 ∎EMAIL brown@gmpvt.com
July 27, 2016
VIA
EMAIL
Mrs. Susan Hudson, Clerk of the Board
Vermont Public Service Board
112 State Street
Drawer 20
Montpelier, VT 05620-2701
Re: GMP Response to HO Questions on Avoided Costs
Dear: Mrs. Hudson
Thank you for the opportunity to provide information to the Board concerning the
adoption of the avoided costs prepared by the DPS. Our comments are attached to this
letter.
Please do not hesitate to contact me if you need additional information.
Sincerely,
James W. Brown
Manager of Energy Resource Planning
Green Mountain Power Corporation
Comments on DPS Avoided Cost Study
September 22, 2006
On September 7, 2006 the Public Service asked interested parties to comment on the DPS
request for approval of avoided costs based on their recent study. We respond to the
Hearing Officer’s questions below. GMP does not believe that additional workshops are
needed if these comments are incorporated in the avoided costs the PSB adopts.
1.
What specific avoided costs are we adopting?
GMP1 We recommend adoption of the energy and generation capacity costs because
they are adequately developed. The T&D costs need additional analysis and
potentially additional data pertaining to the situation at Vermont utilities and
perhaps subgroups of Vermont utilities. For example, there is likely to be a
significant difference between utilities providing predominantly rural versus
urban service due to building density and prevalence of underground lines. The
DRIPE concept is inappropriate in the context of resource cost analysis because it
is based on economic transfer costs. Transfer costs generally represent a double
counting of costs and therefore are inconsistent with the societal methodology of
analyzing resource costs. In the case of DRIPE, the change in marginal price and
resulting shift between consumer and producer surplus is taken as an additional
cost burden even though all incremental costs have been included in the direct
accounting of resource costs. The logic for including DRIPE as a resource cost is
flawed so DRIPE should be excluded.
2.
To the extent that these avoided costs are being used for energy efficiency, should
we be concerned about the potential range of unpredictability inherent in the
forecast? I.e., would altering some of the assumptions, such as the timing of LNG
facilities, be likely to have an effect upon measure screening.
GMP2 Including uncertainty, as a range of possible results or in the form of scenarios,
would provide extremely useful information for valuing alternatives to generation
and transmission. Altering any of the major variables, such as the timing of
expanded LNG availability, would have a measurable impact on the outcome and
that would provide valuable information for decision makers. An assessment of
variability could be designed to provide a clear link to the scenario based IRPs
that have become the de facto standard in Vermont.
3.
Which costing period methodology should we adopt, that contained in the ICF
report or the periods set out in the newer ISO market rules?
GMP3 Although the ICF periods were carefully fitted to the study data, we believe that
the ISO-NE costing periods will become the industry standard. That means that
they will form the basis for system measurement and reporting. It also means that
they will be used to define traded products developed for the markets and
compensation for administered products. Having two standards would be
confusing and unnecessary and inhibit the formation of fluid markets. Because
the ISO periods are reasonable and their use will not create significant problems,
we believe they should be adopted over the ICF periods.
4.
How quickly do we need to adopt the avoided costs, particularly for EEU
purposes?
GMP4 Once adopted these costs have a history of remaining in force for a number of
years, making it important to determine that the estimates are robust before
implementing them. However, the avoided costs used for EEU purposes were put
into service when the EEU was established. They predate the formation of the
current ISO-NE market designs. The sooner the updated avoided costs can be
adopted for use by the EEU the better.
5.
To what degree, if any, should the avoided costs be used for other purposes? Are
there other uses that would be appropriate or that should be considered in the
Board's decision of whether to adopt them?
GMP5 These costs were defined around the concept of valuing fixed decrements in
demand on the power grid. While there are similarities to the concepts involved
in valuing supplemental power provided by distributed generation or
transmission, the dynamic nature of generation creates additional attributes that
must be considered, making a one-size solution difficult at best. There is a close
link between avoided costs used for these purposes that should always be evident
in consistent treatment of underlying factors and assumptions. Absent an analysis
to show that these issues have been satisfactorily addressed, the avoided costs
presented by the DPS should apply only to analysis related to the EEU.