review of 7th plan inputs by rtf august 11, 2014

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Review of 7th Plan Inputs by RTF August 11, 2014

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Page 1: Review of 7th Plan Inputs by RTF August 11, 2014

Review of 7th Plan Inputs by RTF

August 11, 2014

Page 2: Review of 7th Plan Inputs by RTF August 11, 2014

RTF Input for Seventh Power Plan

• Council seeks RTF review of some plan inputs– For conservation supply curve development– Technical aspects of EE measures such as baseline,

costs, savings, applicability– Methodology

• Staff will be bringing a suite of items for RTF review next six months

• Seeking RTF “decisions”• RTF decisions are advisory to the Council

Page 3: Review of 7th Plan Inputs by RTF August 11, 2014

Next Meeting: Financing Terms for EE

• Total Resource Cost approach (TRC)• Who pays what part of costs and how paid?• Measure costs borne by multiple sponsors

– Customer– Wholesale power supplier (BPA)– Utility (retail electric utility)– Utility (retail gas utility or other sponsor)

• Different financing parameters for each

Page 4: Review of 7th Plan Inputs by RTF August 11, 2014

Analysis & Impact

• All analysis in “real” terms (net of inflation)• Base year 2012 dollars for 7P• All analysis in present value terms

– Council selects discount rate (4% recommended)• Financial parameters differ by sector

– Residential, Commercial, Industrial, Utility• Impact of financial parameters

– Subtle change on TRC of supply curves

Page 5: Review of 7th Plan Inputs by RTF August 11, 2014

The EE Financing Parameters

Four cost categories Term of finance period

If financed, what is cost of capital? Interest rate on borrowed money

Sponsor Parameters Customer Wholesale Electric

Retail Electric

Natural Gas

Real After-Tax Cost of Capital        

Financial Life (years)        

Sponsor Share of Initial Capital Cost        

Sponsor Share of Annual O&M        

Sponsor Share of Periodic Replacement Cost        

Sponsor Share of Administrative Cost        

Last Year of Non-Customer O&M & Period Replacement

 

Page 6: Review of 7th Plan Inputs by RTF August 11, 2014

Proposed Approach for Inputs(Cost of Capital)

Use after tax cost of capital developed by Council for discount rate analysis. Final numbers TBD.

Sponsor Parameters Customer Wholesale Electric

Retail Electric

Natural Gas

Real After-Tax Cost of Capital        

Financial Life (years)        

Sponsor Share of Initial Capital Cost        

Sponsor Share of Annual O&M        

Sponsor Share of Periodic Replacement Cost        

Sponsor Share of Administrative Cost        

Last Year of Non-Customer O&M & Period Replacement

 

Page 7: Review of 7th Plan Inputs by RTF August 11, 2014

Methods EE Finance RatesPurchaser Method Proposed Tax Treatment

Residential Consumer

DOE method. Weighted mix of 12 types of debt and equity in the average U.S. household using data from the Federal Reserve Board’s Survey of Consumer Finances (SCF) for 1989, 1992, 1995, 1998, 2001, 2004, and 2007.

Individual tax rate adjustment 27%

Business Consumer

DOE Method: Capital Asset Pricing Model. Over 4000 businesses surveyed. Mix of debt & equity financing costs. Weighted by ownership class & debt/equity ratios.

Corporate tax rate adjustment 35%

Bonneville 30-year Treasury bonds plus 90 basis points No tax adjustment

Investor-Owned Utility

Weighted average cost of debt & equity. Debt based on AAA/Baa corporate bonds. Equity 10%. Debt ratio 50%.

Corporate tax rate adjustment 35%

Municipal Utility

AAA Municipal bonds No tax adjustment

Cooperative Weighted average cost of debt & equity. Debt based on 30-Year Treasury bonds plus 100 basis points. Equity 7%. Debt ratio 50%.

No tax adjustment

Page 8: Review of 7th Plan Inputs by RTF August 11, 2014

Proposed Approach for Inputs(How Much is Financed?)

Assume remainder utility costs are expensed. Term=1 equivalent to expense EE

Assume BPA portion of EE costs are financed Assume customer

portion of costs are financed

Sponsor Parameters Customer Wholesale Electric

Retail Electric

Natural Gas

Real After-Tax Cost of CapitalTBD TBD TBD TBD

Financial Life (years) 20 20 1 1

Sponsor Share of Initial Capital Cost

Sponsor Share of Annual O&M        

Sponsor Share of Periodic Replacement Cost

       

Sponsor Share of Administrative Cost        

Last Year of Non-Customer O&M & Period Replacement

 

Page 9: Review of 7th Plan Inputs by RTF August 11, 2014

Sponsor Parameters Customer Wholesale Electric

Retail Electric

Natural Gas

Real After-Tax Cost of CapitalTBD TBD TBD TBD

Financial Life (years) 20 20 1 1

Sponsor Share of Initial Capital Cost 40% 18% 42% 0%

Sponsor Share of Annual O&M

Sponsor Share of Periodic Replacement Cost

Sponsor Share of Administrative Cost

Last Year of Non-Customer O&M & Period Replacement

20

Proposed Approach for Inputs(Share of Capital Cost)

Remainder split based on last five years RCP data: BPA Direct 30% / Total Utility

Get input from CRAC. •Use 40% Res, Com, Ind, Ag meas•Use 0% for Dist Eff measures

Page 10: Review of 7th Plan Inputs by RTF August 11, 2014

Sponsor Parameters Customer Wholesale Electric

Retail Electric

Natural Gas

Real After-Tax Cost of CapitalTBD TBD TBD TBD

Financial Life (years) 20 20 1 1

Sponsor Share of Initial Capital Cost 40% 18% 42% 0%

Sponsor Share of Annual O&M 100% 0% 0% 0%

Sponsor Share of Periodic Replacement Cost 100% 0% 0% 0%

Sponsor Share of Administrative Cost 0% 30% 70% 0%

Last Year of Non-Customer O&M & Period Replacement

20

Proposed Approach for Inputs(Share of Other Costs)

Annual and Periodic O&M costs all paid by customer

Split Admin costs paid by utility system based on BPA/Non-BPA cost shares