Rhode Island February 16, 2006 Steve Fine ICF Consulting

1. Overview of RGGI Electricity Sector Modeling Results Rhode Island February 16, 2006 Steve Fine ICF Consulting

2. Outline • Introduction to RGGI Modeling Process and IPM® • RGGI Assumptions Overview • Key Regional Results • Reference Case • Package Scenario • High Emissions Scenarios • Low Emissions Scenarios • Package Scenario with 2x Efficiency • Appendix

3. Introduction

4. The Challenge of Forecasting • Forecasting is extremely useful in determining directionality and cause and effect. • Forecasting serves the need to address inherently uncertain issues that have definitive impacts on the future operation of the power system • No one forecast is going to be “right” because no one has a crystal ball regarding many of the key underlying issues • Policy analysis requires two things: • a Reference Case on which to base comparisons; and • scenarios that examine the impact of changing policy, technical and market parameters. • The purpose of a Reference Case is twofold: • to understand system operations and under existing, or expected, regulations; and • to establish points of comparison for policy analysis – in the end, it’s the deltas that matter. • Through sensitivity analysis, key points of uncertainty can be examined to bound the analysis.

5. IPM® North America

6. RGGI Analysis – Overview • RGGI process involves 9 states that have formed a State Working Group (SWG). • Goal was to produce a model rule that individual states could adopt to implement a CO2 reduction target – allowances would be tradable with other states. Remaining Eastern Interconnect 9-State Region

7. IPM® Analytic Framework

8. RGGI Analysis Run Years

9. AssumptionsOverview

10. RGGI Assumptions and Scenario Development • The analysis that was produced was driven by two key components: the Assumptions used and Scenarios examined • Given the public nature of this analysis, the RGGI SWG carefully considered the choice of assumptions used. Once approved, the assumptions used in the analysis became the sole responsibility of the RGGI SWG. • ICF has worked hard to maintain an ‘honest broker’ position in the regulatory debate. Part of how we do this is by performing analysis, but not taking specific positions regarding results or assumptions. • By having the RGGI SWG adopt a set of assumptions as their own, the analysis belonged to the SWG and ICF was able to objectively analyze the results given this set of assumptions. • For an analysis of this type, both regulatory policies and technical/market assumptions were defined.

11. Market, Technical and Policy Assumptions Status of Assumptions Development

12. New England Demand Forecasts by IPM® Region Source: ISO-NE Forecast Report of Capacity, Energy, Loads and Transmission (CELT) 2004 - 2013 EIA growth rate provided as point of reference only

13. The State Working Group adopted a gas price trajectory phasing from a 3-year moving trend of EEA’s trajectory in the near-term to a long-term EIA trajectory. To be consistent with the proposed oil price trajectory, the EEA trend phases into an average of EIA’s natural gas projections under its AEO 2004 Reference and High Oil cases. These commodity prices are converted into delivered prices based on EPA seasonal and regional transportation adders. The adders are not assumed to change over time. Reference Case Natural Gas Price Forecast Henry Hub Gas Price (2003$/MMBtu)

14. RGGI Reference Case

15. Reference Case Generation Forecast

16. CO2 EmissionsReference Case

17. RGGI Net ImportsReference Case Note: Net imports have been adjusted to account for losses and now represent the actual energy served by imports.

18. RGGI Package Scenariocompared to Reference Case

19. Package Scenario • The Package Scenario presented here is based on the new RGGI Reference Case and includes the following: • CO2 Policy – Phased-in cap to 2020 • Offsets – Combined RGGI and CDM Offset Curves, Limited to 50% of Required Reductions • End Use Efficiency – Technology costs, load shapes, load factors, and potential supply by sector are based on data provided by ACEEE. Program costs to implement measures are based on average of RGGI states’ actual expenditures through 2004 to implement public benefit programs. The Package Scenario assumes that current levels of annual state expenditures for public benefit programs continue through 2025.

20. RGGI Generation Mix in 2024

21. CO2 Emissions Trajectories

22. CO2 Allowance Prices

23. Change in RGGI Average Annual Energy Prices NOTE: Energy prices represent wholesale market prices and include annualized capacity prices. Note that the RGGI Package Scenario assumes that current levels of annual state expenditures for public benefit programs continue through 2025. While these types of programs cause lower wholesale prices by reducing electricity demand, they are paid for by consumers through a line item charge at the retail level, and are therefore not reflected in the wholesale price changes shown above. Current retail electricity prices already include the annual costs of these programs. While the modeling assumes that end-use energy efficiency is implemented entirely by public benefit programs, it is recognized that energy efficiency could also be implemented by actions such as appliance standards and building codes that do not require state funding and could possibly be done at lower costs.

24. RGGI Net Imports Note: Net imports have been adjusted to account for losses and now represent the actual energy served by imports.

25. Package Scenario Cumulative CO2 ReductionsRGGI and Eastern Interconnect/Canada

26. RGGI High Emissions Package Scenarios

27. High Emissions Scenario • $7.00/mmBtu Henry Hub gas price over analysis period • Unlimited coal builds allowed in RGGI region except for coastal corridor

28. RGGI Cumulative Capacity Additions by 2024

29. RGGI Generation Mix in 2024

30. CO2 Emissions Trajectories

31. CO2 Allowance Prices

32. Change in RGGI Average Annual Energy Prices NOTE: Energy prices represent wholesale market prices and include annualized capacity prices. Note that the RGGI Package Scenario assumes that current levels of annual state expenditures for public benefit programs continue through 2025. While these types of programs cause lower wholesale prices by reducing electricity demand, they are paid for by consumers through a line item charge at the retail level, and are therefore not reflected in the wholesale price changes shown above. Current retail electricity prices already include the annual costs of these programs. While the modeling assumes that end-use energy efficiency is implemented entirely by public benefit programs, it is recognized that energy efficiency could also be implemented by actions such as appliance standards and building codes that do not require state funding and could possibly be done at lower costs.

33. RGGI Net Imports

34. Cumulative CO2 Reductions by 2015RGGI and Eastern Interconnect/Canada

35. Cumulative CO2 Reductions by 2021RGGI and Eastern Interconnect/Canada

36. RGGI Low Emissions Scenarios

37. Low Emission Scenarios • Package Scenario includes 1x efficiency spending assumption • 2X Efficiency Scenario doubles the amount of efficiency spending • All Economic Efficiency Scenario allowed full build-out of energy efficiency options deemed economic by ACEEE.

38. RGGI Load Growth Comparison

39. RGGI Cumulative Capacity Additions

40. CO2 Emissions

41. RGGI Net Imports

42. Package Scenario with 2x Efficiency Assumption

43. CO2 Allowance Prices

44. CO2 Emissions

45. RGGI Net Imports

46. Change in RGGI Average Annual Energy Prices NOTE: Energy prices represent wholesale market prices and include annualized capacity prices. Note that the RGGI Package Scenario assumes that current levels of annual state expenditures for public benefit programs continue through 2025. While these types of programs cause lower wholesale prices by reducing electricity demand, they are paid for by consumers through a line item charge at the retail level, and are therefore not reflected in the wholesale price changes shown above. Current retail electricity prices already include the annual costs of these programs. While the modeling assumes that end-use energy efficiency is implemented entirely by public benefit programs, it is recognized that energy efficiency could also be implemented by actions such as appliance standards and building codes that do not require state funding and could possibly be done at lower costs.

47. Cumulative CO2 Reductions by 2015RGGI and Eastern Interconnect/Canada

48. Cumulative CO2 Reductions by 2021RGGI and Eastern Interconnect/Canada

49. Appendix

50. Firm Build and Retirement Assumptions for RGGI Region