13-i CHAPTER 13. UTILITY IMPACT ANALYSIS

TABLE OF CONTENTS

13.1 INTRODUCTION ......................................................................................................... 13-1

13.2 METHODOLOGY ........................................................................................................ 13-2

13.3 RESULTS ................................................................................................................... ... 13-213-1 CHAPTER 13. UTILITY IMPACT ANALYSIS

13.1 INTRODUCTION

The U.S. Department of Energy (DOE) will analyze specific eff ects of its proposed

standard levels on the electric a nd natural gas utility industry as part of the notice of proposed rulemaking analyses, using a variant of the U.S. DOE/Energy Information Administration (EIA)’s National Energy Modeling System (NEMS). The NEMS is a large, multi-sectoral, partial equilibrium model of the U.S. energy sector. EIA uses NEMS to produce the Annual Energy Outlook ( AEO ). 1 NEMS produces a widely recognized baseline energy forecast for the United States, and this energy forecast is available in the public domain. DOE will use a variant known as NEMS-BT to provide key inputs to the analysis. a

The utility impact analysis will consist of a comparison between model results for the base case and for policy cases in which proposed standards are in place. The use of NEMS-BT for the utility analysis offers several advantages . As the official DOE energy forecasting model, NEMS relies on a set of assumptions that are tr ansparent and have received wide exposure and commentary. NEMS-BT allows an estimate of the interactions betw een the various energy supply and demand sectors and the economy as a w hole. The utility impact analysis will report the changes in installed capacity and generation, by fuel type, that result for each trial standard level, as well as changes in electricity and na tural gas sales to the residential and commercial

sectors.

DOE will conduct the utility impact analysis as a policy deviation from the 2008 version

of the AEO ( AEO2008 ), applying the same basic set of a ssumptions. For example, the operating characteristics (e.g., energy conversion efficienc y, emissions rates) of future electricity generating plants are as specified in the AEO2008 reference case, as are the prospects for natural gas supply. DOE also will explor e deviations from some of the reference case assumptions, to represent alternative futures. Two alternativ e scenarios use the high and low economic growth

cases of AEO2008. (The reference case corresponds to medium growth.) The high economic growth case assumes higher projected growth rates for population, labor force, and labor productivity, resulting in lower pred icted inflation and interest rate s relative to the reference case and higher overall aggregate economic growth. Th e opposite is true for the low growth case. Starting in 2015, the high growth case predicts growth in per capita gr oss domestic product of 2.9 percent per year, compared with 2.4 percent per year in the re ference case and 1.8 percent per year in the low growth case. As part of varyi ng supply-side growth determinants in these cases,

a For more information on NEMS, please refer to th e U.S. Department of Energy, Energy Information Administration documentation. A useful summary is National Energy Modeling System: An Overview 2000

, DOE/EIA-0581(2000), March 2000. See http://tonto.eia.doe.gov/bookshelf/SearchResults.asp?title=modeling . EIA approves use of the name NEMS to describe only an official version of the model without any modification to code or data. Because this analysis entails some minor code modifications and the model is run under various policy scenarios that are variations on EIA assumptions, DOE re fers to the model by the name NEMS-BT (BT is DOE’s Building Technologies Program, under whose aegis this work has been performed).13-2 AEO 2008 also varies the forecasted energy prices for all three economic growth cases. Different economic growth scenarios will aff ect the rate of growth of energy demand.

13.2 METHODOLOGY

The electric utility impact analysis will consist of NEMS -BT forecasts for generation, installed capacity, sales, and pric es. NEMS provides reference cas e load shapes for several end uses. The model uses predicted growth in demand for each end use to build up a projection of the total electric system load growth for each region, which it uses in turn to predict the necessary additions to capacity. NEMS-BT accounts for the implementation of efficiency standards by decrementing the appropriate refere nce case load shape. DOE will determine the size of the decrement using data for the per-unit energy savings developed in the life-cycle cost and payback period analysis (see preliminary Techical Support Document (TSD) chapter 8) and the forecast of shipments developed for the na tional impact analysis (see preliminary TSD chapter 9).

The predicted reduction in capacity additions is sensitive to the peak load impacts of the standard. DOE will investigate the need to adjust the hourly load profiles that include this end

use in NEMS-BT.

Since the AEO2008 version of NEMS forecasts only to the year 2030, DOE must extrapolate results to 2045. DOE conducts an ex trapolation to 2045 to be consistent with the analysis period being used by DOE in the national im pact analysis. It will not be feasible to extend the forecast period of NEMS-BT for the purposes of this analysis, nor does EIA have an approved method for extrapolation of ma ny outputs beyond 2030. While it might seem reasonable in general to make simple linear extra polations of results, in practice this is not advisable because outputs could be contradictory. For example, changes in the fuel mix implied by extrapolations of those output s could be inconsistent with the extrapolation of marginal emissions factors. An analysis of various trends sufficiently detailed to guarantee consistency is beyond the scope of this work and, in any case, would involve a great d eal of uncertainty. Therefore, for all extrapolations beyond 2030, DOE intends to use simple replications of year 2030 results; in this way results are guaran teed to be consiste nt. As with the AEO reference case in general, the implicit assumption is that the regulatory environment does not deviate from the current known situation during the extrapolation period. Only changes that have been announced

with date-certain introducti on are included in NEMS-BT.

13.3 RESULTS

Results of the analysis will include changes in residential, comme rcial, and industrial electricity sales, and installed capacity and generation by fuel type for each trial standard level, in five-year increments extr apolated to the year 2045.13-3 DOE will also use NEMS-BT to estimate the size of the impact that energy conservation standards may have on electricity and energy prices in general. DOE will examine general energy price impacts by evaluating forecasts with different levels of electricity demand to determine if there are utility sector costs that ar e not reflected in consumer electricity prices.13-4 REFERENCES

1 U.S. Department of Energy- Energy Information Administration. Annual Energy Outlook 2008 with Projections to 2030 , June, 2008. Washington, DC. DOE/EIA-0383(2008).