CONSERVATION RESOURCE PLANNING--A TOOLFOR LINKING UTILITY CONSERVATION PROGRAMS~

LOAD FORECASTING, AND RESOURCE ACQUISITIONS

Frederick M. GordonBonneville Power Administration

ABSTRACT

The Bonneville Power Administration (BPA) has developed a corporateplanning and modeling system for selecting the least-cost mix of conservationand generating resources to meet the long-range need for electric power in thePacific Northwesto This paper briefly reviews the overall modeling system,and then discusses in some detail the planning process and program mix modelused to translate the conservation resource acquisition targets that come fromthe corporate models into 2.....year budgets and 20-year plans for acquisition ofconservation from specific programs.

overall corporate modeling system and the conservation planningprocess feature an explicit method for handling uncertainty about future loadgro\\fth, and, hence, about the need for resources to meet load~ The pl ngsystem also for a careful integration of the knowledge and experienceof on experts program managers \iIi thi n outside ofBPA wi

analytic capabilities of computer models@

model; issues in s are:

on

oo

o

Dealing with nty about resource nee~s~

Modeli consumer-initi versus lity-subsidizedactivi

CONSERVATION RESOURCE PLANNING--A TOOLFOR LINKING UTILITY CONSERVATION PROGRAMS,

LOAD FORECASTING, AND RESOURCE ACQUISITIONS

Frederick M~ GordonBonneville Power Administration

SECTION l--CONTEXT

BPA shares with most electric utilities the problem of planning a scheduleof electric energy resource acquisitions to meet future loads over an extendedperiod of time$ Because of the long lead time to develop new energyresources, decisions must be made well in advance of the need for power$Because future loads are hi ghly uncertai n, long-term resource comm; tmentsstand a considerable risk of providing too much or too little power, at greatcost to the utilitYe

In on toresolJ rce avai 1 1i ty ,Admin; on (BPA)the loads in

ems nty about load levels,cost; Bonneville Power

uncertainties about the proportion ofwill be aced on over the next

""I'VJ"II~OIV*'U~:.tl""" on resources whi ch 11 benty ts from

ly mandatedlity in the region

uti 1 i es may pl ace assubj ect a 7....year

us power in the Pacificsurplus will , s aces

wi th regard to

from that of manyimplemented a policy

resource for meet; ngrecei ved from Congress

on

both model the value conservationother resources and make dec; ons

n load growth@

modeling system and then focuses on thefai rly abstract, aggregate resource acqui s1 ti on

produces into concrete deci s1 ons about the pac; n9 ofrnl~e~l~\I;~T'on programs$ Section two of this paper provides a diagram

model ing system@ Section three focuses on the programincluding the program mix model@ Section four reviews some

the system could be improved and describes BPAls plans

as a resource inaresource i

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Throughout the course of this paper, attention is drawn to areas where themodeling system requires data from conservation program evaluations and othersources. Also throughout the paper, the contnercial retrofit sector will beused to provide some examples of how the modeling system makes decisions8

SECTION 2--BPA 1S CORPORATE RESOURCE MODELING AND PLANNING SYSTEM

Fi gure 1 shows a simpl i fi ed di agram of the process used by BPA to pl anresource acquisitions for meeting electric loade Since the resourceassessments, supply curves, load forecasts, least-cost mix model, and ratesmodels have been described extensively elsewhere,l! they will be describedin this paper only to the extent necessary to explain the process used forplanning the level of conservation expenditures within specific sectors. Eachof these preliminary modeling steps is summarized below@

FIGURE 1

BPA'S RESOURCE DECISION PROCESS

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Resource Assessment

BPA produces estimates of the amount of energy (Average Megawatts) andpeak: say; ngs (Megawatts) whi ch coul d be acqui red from conservati on programsfor various types of consumers, and from renewable and thermal resources. Forconservation, the following types of consumers are assessed: new homes,existing homes, new commercial, existing commercial, irrigation, industriesserved directly by BPA, and industries served by BPA through other utilities.These estimates of the total amount of conservation technically achievable arebased on the best available information about conservation opportunities inthe region's building stock, appliances, farms, and industrial plants, andinfo ation about t number consumers who have ready utilized each type

conservation measure@

, from surveysto create 20 lding

existing ldings@ Eachsmall offices) within the

representati ve of theIt into the "base level u

on, ngety of possi

typisavings costs

each bui 1diestimate of

how the ngsng conservation programs

curve (percent of total,...nll"ilC!OI~\I~~T'''on0 Data from specific

modify these generic

es of ldings which are used to forecastin region are used in combination th rate and

economic i cators to drive the price responseload forecasting modelse These models forecast total loadconsumer types described under the heading Resource

so indi amount of conservation whi

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expected even if BPA has no conservation programs. This gives BPA oneestimate of what share of the conservation which BPA pays for in a programwould have likely occured whether BPA pays for it or not. Alternate estimatesof consumer initiated conservation versus program conservation can bedeveloped by performing program evaluations in which billing records and otherdata are coll ected and analyzed from both program participants andnonparticipants with control populations. Market surveys can provide yetanother source for estimates of consumer initiative.

SupJ?ly Curves

These data fi 1es are used by BPA to summar; ze estimates of conservationpotential by sector~ Consumer-initiated conservation is not included in thesesupply curves, because it is already accounted for in load forecast$Estimates of peak savings, distribution of savings over the year, andmaximum rate at which savings could be acquired are so included~

Mix Model

estimate the mix of resource onsear, etc @) whi h d meet BPA I S needs forat least cost to the Paei c Northwest

a 1inear programmi () model selectssion system simulation model to

operating the x of resources chosen@ resources that the sel ects are fed

rate forecasting models back into the load forecasting models, whicht1ieTor:ecasted load to "account the impacts of the rate increase~

loa result in a reduc need for resources which results in acheaper least-cost mix of resources@ This modeling cycle, or

is repeated until results become relatively stable from cyclethe is run a nal time to p'roduce a seri es of resource

megawatts of each type of resource lnc ethe planning

System___,.;s;".

re set of models was run for three scenariose Thethe hi ghest 1i kely rate of economic and demographic

region, resul ng in a high load forecast@ The maximum amountonls conservation potential which utilities are likely to make

BPA thrall participation in our conservation programs is alsocase represents the median, or most likely set of

about economic and demographic growth, loads, resources available

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to BPA, and conservation available to BPA. The low case represents the lowest1ikely set of assumptions about each of these factors. The two extremes foreach variable are run through the modeling system to produce a high and lowset of resource targets for each targete likewise, the median set ofassumpti ons are used to develop a base set of resource targets. These threesets of resource targets represent the two extremes of the range ofuncertainty about the need for resources from BPA and the most probable caseeIn order for BPA to meet its obligation to serve the region s loads in acost-effective and reliable fashion, BPA must develop the flexibility torespond to any of the three scenarios@ This is the function of the planningprocess which is described in the next chaptere

SECTION 3--CONSERVATION PLANNING

Through the conservati on pl ng process, on resource targetseach sector for each of the hi gh, base 9 scenari os are converted

into budget and megawatt savings projections for the 20-year period for BPAconservati on acqu; si ti on programs in more spec; c subsectorse For exampl e 9

the commerci retrofit resource targets, ans are developed forand t buil ng retrofi for vate commercial

_oiJl>"U'lb_+>"lclt, lighting@ e reason sector is dividedlows a di program desi , incentive design,

strategy each subsectors n order gain thethe consumers in con on programs*

0,tested show

early years

an developed through thi s processeach sector closely enough to

forecasted resource needse At theof acqui tion in the plan can

ism conformity th the resourcesimulation of the program mix, and a

agai the real-world experience of programother conservation experts. The simulation

are described in turn below@

u~~,n~:~~ Mix Model

spreadsheet mul on model ; s used to show thecosts resul ti ng from runni n9 a group of conservati on

for subsectors at any feas; e combi nati on of penetrati on ratesover a 20-year periorl~

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For example, for BPA's Commercial Retrofit sector, the modelsimulates a combination of the Street and Area Lighting Program, theInstitutional Buildings Program, and the Private Commercial Building Auditand Incentives Programse This additional detailed modeling step isnecessitated in part by the limited number of inputs feasible for any1i near programmi ng model such as the one used to develop the least-CostMix of resources. The way in which the program mix model is operated alsoallows SPA's conservation planners to balance the cost minimization goalsof the LP aga i nst the need to prav; de the fl ex; bi 1i ty to meet unexpectedload growth. This is achieved by starting programs at a low level earlyin the planning period in as many sectors as possible& By starting manyprograms slowly, BPA develops the capability to rapidly tap a large poolof conservation resources in later years, if that proves necessarYe

Program Inputs& The model requires the following inputs$ This inputlist is somewhat simpl; ed for brevityls sake$ For illustrativenuv~~n~a~, an example of each input is provided from BPA's May 1984 Draftnnc~o~\J~,r"on Projecti on analysi S$i The exampl es are input ues

vate Commerci Audit I yes ~rnln~=am

( e8$ 7 11

n 11 s/kWhthe totaloperating

ua ons» thosewhere program

ted based on BPA1s as~;essmE~nt

Generally, consumera for that type consumer and

eve nst retail rates@es it was estimated that the

woul ~ yen adequate' information,consumer share was

ngs&

ngs, ong with all additional costs, wasas an incentive for the consumer to call

~~~~~~'~~~veness investment in conservation@

18Expressed as a percentage of simple cost (e$g0,

estimated from program pl ans and from program

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Financing Costs@ Expressed as a percentage of simple cost plusadministrative cost "(e$g~, 21&5 percent). For most BPA programs, costsare levelized at a real interest rate of 3 percent per year rea10 Forsome programs, where BPA obtains capital through third parties, such asutility bonds or shared savings or leasing transactions, the financingcosts may be higher$

Average Measure fee For the mix of measures installed under eachprogram (e.g@, 15 a~ At the end of the measure life some measuresmust be replaced at a cost. Others may s1 y sappear i a structure isdemoli on the use changes~ ill others are 1 e to replaced atno cost B The conservative assumption currently 0 ng used by BPAis that, at end f measure life, the savings disappear~ Estimates ofeligible measures from resource assessments are crosschecked agaiprogram on to provide estimates measure life@

abl from Each Program~. Both inSt~w --a-n-d~f"'or subregrons represe by

the reg; on (e. @, 231 $ 7 averagerepresent various assumptions about

_QA""I"rt~~"'!'IoWlllll!"'> Total on is

(E e 9*, 85e mi nus the portion

cipate in BPA 'sconst i {e.g~,

t)e This fraction is

program (e$ ,of t totalforecasted in

cipant andof consumer

penet ti on curves for each programurn, a slow rampSe They represent,

, and low estimates of how fast a particularover that peri od on an annual basi So The ramps are

ons of t estima market penetration rates usedcurves, as describ in c ter two~ However, the

program mix models allows a much more detailny in developing ramps~ Thus, the program mix inputs can

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be developed based on specific knowledge of the factors relating to energysavings marketing in a particular sector. This more specific knowledge allowsBPA to develop realistic assumptions defining a range of possible rates ofprogram growth for each program. Ramps are defi ned as annual percentages of(the total conservation technically available x the maximum percentpenetration)~

FIGURE 2MEDIUM RAMP FOR AUDIT AND FINANCIAL INCENTIVES

Year 1 2 3 4 5 6 7 8 9 10Penetration .008 @O21 .045 .071 .099 @ 129 •161 $195 $232 ~270

11 12 13 14 15 16 17 18 19on 1 .353 .397 @422 @488 .535 .582 ~628 0 6

1 sor lows.

a wayn~r'U'1!W'82mC.? It is

and program runs

s factor can beof and actual

programs. How long thi seach progra.m~ In

on is assumed~

l8~5 million dollars.)ich conservation program

n a or rate case~ For earliercommi tted in the pri or rate case is

some programs, BPA has a commitment to run aof additional years to meet contractual or

these programs, the budget is. entered intood of the commi tment. For exampl e, BPA hases e Paci fic Northwest to run thegram through 1987 0 Accordi ngly, a ucommi tted U

model for that program for that period~

This is Total

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Resource Targets. (E.g., for entire commercial sector through 1990:43.4 average megawatts.) These describe the lIoptimal path'· for megawattacquisitions in the entire sector, as explained in section 2. These areexpressed in average megawatts of reduction in the load forecast.

Most of the inputs described above are designed to mimic, at a moredetailed level, the conservation supply curves, which are inputs to theLinear Programming Model. There are exceptions. The finer level ofdetail in the program mix model allows more detailed estimates ofadmi n1 strative costs. Penetration rates are chosen annually from those onthe three ramps, whereas the lP is constrained to maintain one ramp once ar~source acquisition is initiated. One major difference is that the lPma.kes decisions based on Regional Cost (BPA's and the consumerls costs),where the program mix model uses costs to BPA only. This allows the lP tomake overall deci 51 ons about el ectric resource acqui sitions in a mannerwhich benefits the region's economy as a whole, while the Program MixModel can be used to plan SPA budgets in a way which minimizes rateimpacts on BPA~

~rQ~ram Outeuts. The outputs from the program mix model aredescribe~ 6elowe The commercial private building incentives program isonce more used to provide examples@

Forecast Total Acuisitions. By year, in average megawatts, for eachprogram (e.g., thrug average megawatts in the low case).

Forecast Price-Induced Conservation by YeareAcqui 10ns x Price- n uce Share.

Forecast Net Savings ar$ This is (Total AcquisitionsPrice-Induced onservation)@ ---rhf$1s the critical "feedback" which theanalyst uses select the rate program growth in· the model. Sinceresource targets are expressed in megawatts of load reduction, thisvariable must resource targets as osely as possible if theprogram x is meet BPA 3 s resource needs (ettg., through 1987--6~9average megawatts in the low case)@

For years in ien there is a budget commitment,

= ANNUAL BUDGET * (MIllS/KWH cost)!(MEASURE lIFE)@ In laterthe acquisi on level is established yearly by moving up one of theramps~ The analyst can move a program from one ramp to another,

with switches occuring at the same penetration level on each ramp.Such a sw1 would represent a presumed change in marketing or incentive1 s offered by BPA at a certain point in time$

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Total Costs ~ Year ~ Program. Al ternate cost outputs arecalculated with ancrwithout aaiiiinistra.tive and financing costs, based onthe Total Acquisiti.ons mul tipl1ed by the various cost inputs (e.g., in1987: 13 million in the low case).

Use. of the Program Mix Model

The objective of a s.e.ries of simul at; ons wi th the program mi x modelis to choose the budget and net load reduction levels for the early yearsof a program wh.ich provide the most flexibility for meeting the low, high i

and base .resource targets throughout the 20-year peri ods In thi sway, BPAcan provide the ability to deal with uncertainty about future loadresources and service territory@

First, a program mix is developed which comes close to meeting eachof the high, base, and low resource targets at the least cost. Each mixis also designed to maximize the number of subsectors 1n which programsare started without seriously increasing costs~ In some cases. there isno major divergence between base, hi.gh, and low acquisition paths for anumber of years@ This 1s due in part to SPA pr am comm1 nts in. theearly years but al so resul ts from the fact that three ramps assume aslow start-up period for most programs@ This assumed slow startrepresents e fact that it ta.kes a few years to work initial programdesign, manement, and mark.eting problems out. Before any program can berun at a rapid pace, it must be pushed through this initial period at afairly modest, but steady, rate@

Where there are divergences between the optimum paths for the high,base. a.nd low cases, . sensiti ty analysis is perfonned to see if the highsce.nario targets can be met in later years by staying on the base or lowpath in early years j then accelerating. For example, figure 2 shows theoptimum acquisition paths for B ·s connercial retrofit programs under thethree scenarios used to plan budgets for fiscal years 1986 and 1987e Itshows that, ; f one wi shes to optimi ze expenditures, the three casesdiverge significan y@ However 9 the base/high path in figure 2 also showsthat the base budget levels for 1986 and 1987 allow for the flexibility tomeet high targets in later years by adjusting acquisition levels after1 The slow must be made up by increasing marketing efforts andincentives, thus increasing program costs. This allows an acceleration of

program to catch up with the high case.

HIGHSCENAR10

BASESCEM.ARIO

LOWSCENARIO

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FIGURE 3. PROJECTED COMMERCIAL SECTOR ACQUISITIONSFOR FOUR SCENARIOS. THE BASE/HIGH 10 IS CONSTRAINED

TO TCH THE BASE SCENARIO GH 1987.THEN RUNS All PR RAMS ON THE FAST THROUGH THE YEAR 20 •

AVSWI.2m

21

II

•176

151

i25

1.M

50

a

@

III .. 1& 1111 .. 18 1IH 111 iID 1114 1& is 87 18 .. 2000

As explained in chapter two, the three scenarios were developed torepresent the range of likely demands placed on BPA for electric energy.Thus j a short tenn sion which allows BPA to meet any of the threescenarios 1n the long run places BPA in a strategic position to meet mostfuture uncertai

Verif Reasonableness

comes au 0 the planning process is a series of annual bUdgetsand forecasted megawatt savings for each existing and proposedconservation program. based on an aggregate data set, and a set of fairlyabstract objectiveSe These bUdgets must then be translated into a program

K-41

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structure for working with consumers, utilities, units of government, andother entities to install conservation measures. It should bese1f-evi dent that the wi 111 ngness and abi 1i ty of the peop1e actuallyoperating the conservation programs within and outside of BPA to makeprograms run at the prescribed pace is highly dependent on both theprogram imp1ementors • agreement wi th the assumptions that went into themodel a.nd hi s j ud nt that e resul ts that came out are reasonab1e.Thus, BPA's planning staff goes to great lengths to reach consensus withprogram managers and eval uators on major inputs to the model1n9 process@Additional .1 real ity checks·· are perfonned at various steps through themodeling process and after the results are planned$ BPA es conservationprogram managers and evaluators answer questions like:

this program growing fast enough 1incentive structures or delivery mechanisms?

us ternative

Is the program growing so fast that it mayi ty control?

difficult to maintain

Wi 11 market be f W'JI"IP~~~a.~"lil""Jf'181~

moves at the Drt~DO~$ea

in partie; ng in a program which

While assumptionscrC)SS'-CBileClltea duri theprogram manager cangrowth enme(JaWa~1~Ss which he or

issues were developed andthe experience A has been that a

~.oA."".A'&IQ on the reasonableness asees budget~ in dollars and

provi ded through review of the pland Ae The methods and res ts of

vely reviewed and di scussed with e staff ofCouncil on a routine 5, for example.

by State governors in thewith the responsibility for producin.g

demand forecasts and general resource

from SPA's program management and evaluation staff and fromparties outside of BPA is used both to adjust the propos bu et levels,and to modify the modeling constraints for the next round of planning inthe following yearo

1(-42

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SECTION 4--AREAS NEEDING IMPROVEMENT

It should be clear that BPA's modeling system is both software-intensj,veand data-intensi vee Two areas where improvements to data and model s woul d bemost useful are described below.

Consumer-Initiated Conservation

Any means of estimating or simulating consumer-initiated conservation isconfounded by the complexity of the phenomenon and the difficulty of measuringit. Currently, BPA' s model s assume that a constant fract; on of programsavings over time would have happened without the program. Actually, thenumber of consumers who pursue conservation on their own is likely to increaseover time as people respond gradually to recent rate increases and asunderstanding of conservation technology increases&! Thus, some utilityprograms merely increase the speed at which conservation occurs, while othersresult in savings which consumers would not have pursued without assistance@Any improved means of estimating consumer-i tfated conservation must be basedon a better set of data than now existse Because conservation is, in reality,as much a result of information as a direct result of economics, econometricmodels are lim; lity in indicating what conservation actions peoplewill take on t ir own@ For short run analyses, the best picture of

ated conservation is deriv from caref ly controlledquanti ve ons program ngs vs$ what people do in areas whereno ograms are offered~ There may not be a good means of forecastingprice-induced impa.cts over long ods time, other than to wait and seewhat happens$

Incenti

is reasonable in they are based on the~n~~~~i~\B~?~ve@ However, BPA's knowledge of how quickly

at what incentive level could be greatlys through a combination of model

1 programs des; gned to test response topresented by Mi ke Bull at thi s conference

heading in in modeling the relation betweenana)

ng planning system lows a high degree of coordinationact processes of load and conservation forecasting, concrete

programs, and the evaluation of theprograms@

nAn Assessment of Achievable Residential Sectorin the Pacific Northwest,U Portland, Oregon, BPA,

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A pivotal link between abstract modeling and program design and budgetingis provided by a simple spreadsheet program mix model that links individualprogram savi ngs and budgets to conservati on resource targets pravi ded by aleast-Cost Mix Model 0

By n9 this modeling framework with a variety of load forecasts andresulting resource targe BPA can make shor em budge·t decisions whichdeal explicitly with the uncertainties surrounding future load growth,resource availability and resource performancee

By subjecting this modeling system to a constant, directed series ofII reality checks" and building the feedback back into the modeling system, SPAcan achieve a useful integration of global optimization modeling and realworld program experience@

t, tep enConservati on Un+·~l1i\"!!"'1

1982; so,Hickey, Sue@ , IIAn Analysis of SPA Conservation Program levels for

seal Years 1984 and 1985 and Their Relationship a Least-Cost ResourceMix,GG Port1 , Oregon, BPA, 1983@

Commerciences a.nd ti

, and Sloane,

and Conservati on InvestmentLiterature Revi ew, em lex i ngton,

",...t'\~r"IHl"'\~:::JI1'"t::.t1I, 1984@