CHAPTER 13. UTILITY IMPACT ANALYSIS

TABLE OF CONTENTS

13.1 INTRODUCTION

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13-iCHAPTER 13. UTILITY IMPACT ANALYSIS

13.1 INTRODUCTION
The Department of Energy (DOE) will analyze specific effects of its proposed standard levels on the electric and 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 1 (AEO) . NEMS produces a widely recognized baseline energy forecast for the United States, andthis energy forecast is available in the public domain. DOE will use a variant known as NEMSBT 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 transparent and have received wide exposure and commentary. NEMS-BT allows an estimate of the interactions between the various energy supply and demand sectors and the economy as a whole. 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 natural 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 assumptions. For example, the operating characteristics (e.g., energy conversion efficiency, 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 explore deviations from some of the reference case assumptions, to represent alternative futures. Two alternative 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 predicted inflation and interest rates relative to the reference case and higher overall aggregate economic growth. The opposite is true for the low growth case. As part of varying supply-side growth determinants in these cases, AEO2008 also varies the forecasted energy prices for all three economic growth cases. Different economic growth scenarios will affect the rate of growth of energy demand.

a For more information on NEMS, please refer to the U.S. Department of Energy, Energy Information Administration documentation. A useful summary is National Energy Modeling System: An Overview 2003

, DOE/EIA-0581(2003), March 2003. 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 refers to the model by the name NEMS-BT (BT is DOE’s Building Technologies Program, under whose aegis this work has been performed). NEMS-BT was previously called NEMS-BRS. 13-113.2 METHODOLOGY
The electric utility impact analysis will consist of NEMS-BT forecasts for generation, installed capacity, sales, and prices. The gas utility impact analysis will consist of NEMS-BT forecasts for sales. NEMS provides reference case 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 reference 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 (Chapter 8) and the forecast of shipments developed for the national impact analysis (Chapter 9).

The predicted reduction in electric 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 2043 or 2045. DOE conducts an extrapolation to be consistent with the analysis period being used by DOE in the national impact analysis (NIA). 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 many outputs beyond 2030. While it might seem reasonable in general to make simple linear extrapolations 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 outputs 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 deal of uncertainty. Therefore, for all extrapolations beyond 2030, DOE intends to use simple replications of year 2030 results; in this way results are guaranteed to be consistent. 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 introduction are included in NEMS-BT.

For petroleum products, EIA uses the average growth rate for the world oil price over the years 2010 to 2030, in combination with the refinery and distribution markups from the year 2030, to determine the regional price forecasts. Similarly, EIA derives natural gas prices from an average growth rate figure over the years 2020 to 2030 in combination with regional price margins.

Results of the analysis will include changes in residential electricity sales, installed capacity and generation by fuel type, and residential natural gas sales for each trial standard level, in five-year increments extrapolated to the year 2043 or 2045.

13-2REFERENCES

1. U.S. Department of Energy - Energy Information Administration, Annual Energy Outlook 2008 (Revised Early Release) with Projections to 2030, 2008. Washington, DC.

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