LATE EO TOTES LEMINE Sa hE EE EEE SES Ie EERIE ONE edhe) ee REE Me OI a ee
PLANNING CONSERVATION PROGRAMS
DECISION SUPPORT WITH THE CONSERVATION POLICY ANALYSIS MODEL
Patrick Barton
Bonneville Power Administration
Mike Bull
Bonneville Power Administration
ABSTRACT
System Dynamics has proven to be a useful paradigm
for the construction of a policy analysis model in
support of energy conservation decisions in the
United States Pacific Northwest. This paper
outlines the most important complexities faced by
the Bonneville Power Administration planners, how
system dynamics has provided a framework for
analysis and how the integrated model currently
used by staff members (the Conservation Policy
Analysis Model) has been applied successfully to a
wide range of problems.
662 THE 1986 INTERNATIONAL CONFERENCE OF THE SYSTEM DINAMICS SOCIETY. SEVILLA, OCTOBER, 1986
0. Introduction
The purpose of this paper is to present modeling professionals with an
overview of the context and application of two large system dynamics models
developed at the Bonneville Power Administration, a federal utility
responsible for sales and distribution of electricity in the United States
Pacific Northwest. These models, collectively known as the Conservation
Policy Analysis Models, give analytical staff a tool for evaluating the
effects of proposed electric utility energy conservation program packages.
The models are currently used on a continuous basis for conducting ad hoc
analysis and annually as part of a regional resource planning process.
The paper is presented in five parts. The first section presents a brief
discussion of the electric energy conservation history of the United States
Pacific Northwest. The second discusses the usefulness of system dynamics in
framing the analysis of conservation. The third section examines the features
of the models which are made possible by the system dynamics approach. The
fourth section provides "some specific results along with their application in
the planning arena. Finally, the fifth provides a conclusion.
1. Complexities of the Pacific Northwest planning environment.
The Pacific Northwest region of the United States presents a complex challenge
to regional energy analysts. Large amounts of precipitation, great rivers and
mountainous terrain combine to provide ample hydro-electric potential. (1)
Development of this potential, beginning in 1933, provided the region with one
of the world's largest hydro-electric systems and, historically, some of the
lowest electric power rates. (2)
The extremely low electric rates enjoyed by the region suffered a blow in the
1970's when events combined to increase spending on capacity expansion. Like
many utilities, those in the Pacific Northwest looked to nuclear energy to
meet anticipated growth in demand. Armed with forecasts derived primarily
from “sum of the utilities" techniques, which added up the independently
projected demands of al] the regional utilities, planners advocated the
development of five large nuclear power stations. These projects fell on hard
times as double digit inflation escalated capital costs while technology
changes and unanticipated overruns increased construction costs. Conditions
worsened as high energy costs sparked significant reductions in demand growth
and decreased the need for these plants. In the decade 1970-1980, these
conditions caused electricity costs to soar region-wide and rates to increase
substantially. These troubles precipitated the passage of the Pacific
Northwest Electric Planning and Conservation Act of 1980 (3) and, indirectly,
the modeling effort which is the focus of this paper.
The Pacific Northwest Electric Planning and Conservation Act (the Regional
Power Act) delivered a mandate to the Bonneville Power Administration
(Bonneville) to take a central role in regional energy planning. Several
provisions of the Act are critical to the strategic analysis performed by the
THE 1986 INTERNATIONAL CONFERENCE OF THE SYSTEM DINAMICS SOCIETY. SEVILLA, OCTOBER, 1986 609
Office of Conservation. First, Bonneville became obligated to provide for any
future need for electric power in the region. Second, the Act gave Bonneville
the authority and responsiblity to acquire resources to meet load placed on
it. Bonneville was directed to include both the costs and power associated
with the new plants with those of the existing hydro-electric system. Last,
and perhaps most important, the Act mandated Bonneville to consider
conservation talong with renewables and cogeneration) preferentially when
determining what resources to acquire to meet future load growth.
Prior to the passage of the Act, Bonneville had done little large scale
research or development of the conservation resource. Hence, planners had
little experience in fulfilling their new responsibilities. Many questions
arose from early discussions, Many of these proved difficult to answer
because of large differences between the traditional generating resources such
as coal plants and newly-available conservation options such as residential
weatherization programs (4). Some of the most challenging included these:
1. How much conservation is available to the system?
2. How quickly is it available?
"3. How much would it cost?
4. Should it come from commercial buildings, industrial facilities or from
residences? if
5. Should programs concentrate on existing or yet-to-be-built stock?
6. On what criteria should the various options be judged?
7. How will exogenous phenomena affect the outcome of the decision?
Prior to 1983, Bonneville had access to traditional utility planning tools to
examine these questions. These t»0ls included econometric analyses which
could predict future levels of price induced conservation, linear programming
routines which could chose mathematically optimal mixes of conservation
packages, load forecasting programs which could treat conservation as a load
reduction for sensitivity testing, etc.
2. System Dynamics has proven useful in framing the problems faced in the
analysis of conservation as a resource.
After the passage of the Regional Power Act, some of the various traditional
analytical tools were used to examine conservation. These tools proved
inadequate to answer the important questions outlined above. As a result, in
1983 Bonneville's Office of Conservation began the evaluation of a system
dynamics approach to modeling conservation issues. The eventual decision to
move forward along this path was critical to the development of a used and
useful tool for policy analysis (5).
664 THE 1986 INTERNATIONAL CONFERENCE OF THE SYSTEM DINAMICS SOCIETY. SEVILLA, OCTOBER, 1986
This decision was important for two primary reasons. First, choosing this
methodology implied construction of a fully integrated model. Second, the
model would be driven by causal mechanisms subject to endogenously controlled
feedback structures. Although these features are common to all system
dynamics models, they were lacking in the previously available corporate
models at Bonneville. The reason they are important relates back to the
nature of the conservation resource.
3. Due to the system dynamics framework, CPAM has many desirable features.
The fact that the Conservation Policy Analysis Model (CPAM) is integrated
gives it particular strength when it is used for conservation volicy
questions. Conservation is a multi-faceted resource. It affects utility
costs since the utility may provide financial assistance, research, program
evaluation, advertising, etc. It also affects rates, depending on the amount
of utility contribution to the total costs indicated by the specific program.
It impacts the demand in incremental steps as each structure “comes on line".
Without inclusion of al] the elements of a utility system, models have
difficulty characterizing the different impacts of different programs. Figure
1 illustrates the components of CPAM (6).
CONSERVATION POLICY ANALYSIS MODEL
Sah, | 7 \ Pe
Cee)
a
Ss a, 7 [seeeees
eae
The fact that CPAM is controlled by endogenous causal loop and feedback
structures enables planners to get a realistic look at how continuously
changing conditions will affect proposed policies. Perhaps the most important
difference the modeling approach made is the ability to separate price induced
(market) responses from program induced (policy) responses. Planners at
Bonneville continually deal with questions related to how cost effective
various proposed conservation strategies will be.
A quick examination of some of the key questions posed earlier reveals the
utility of an approach which utilizes feedback. How much conservation is
TRE 1900 INTERNATIONAL CONFERENCE UF TRE oY OTEM DINAMIG OUUIETT. SEVILLA, UUIUBEn, 1400) =6U0N
available to a program and how quick? It depends on when the program is
initiated and the effectiveness of the market in inducing private investment
prior to program initiation. How much will it cost? It depends on how many
of the least expensive measures were purchased as a result of the market
inducements. What sector should Bonneville begin with, and should it be new
or existing structures? It depends, again, on how sensitive each of the
sectors has been to prices (a function of their discount rates, propensity to
change fuels, behavior changes, and how price changes have differentially
affected their rates over time) and the proposed timing of the policy. The
Conservation Policy Analysis Model, through its use of feedback and causal
mechanisms, allows Bonneville analysts to make meaningful policy studies which
would otherwise be impossible. Some recent policy studies are outlined in the
next section. ,
4, CPAM is proving to be used and useful.
In 1985 Bonneville used CPAM to analyze a variety of conservation strategies
in order to select a diverse set of strategies for use in its annual resource
planning process (7). When used in this way, the CPAM becomes a screening
tool to select the most promising conservation strategies for analysis in the
larger corporate models. In 1985 CPAM was used to generate savings targets by
sector, given different combinations of conservation policies for different
time periods through the 20 year planning period.
In considering alternative strategies for resource acquisition planning
Bonneville uses multiple criteria to judge which is best (8, 9). The first
criterion, Minimizing Energy Service Cost, evaluates whether the region is
investing its money in those resources that will provide energy services,
e.g., heat, light, and machine operation, for the least economic cost. The
second goal, Minimizing Cost to the Utility, examines the financial burden on
the utility given different programs. Finally, the goal of Minimizing
Bonneville Rates addresses the concern of assuring Bonneville customers the
best value for their energy dollar and providing equitable treatment for those
not participating in conservation programs.
Sometimes desirable goals come into conflict. For example, we found that when
conservation is acquired, progress is made toward the goal of minimizing
utility costs. However, conservation may work simultaneously against the goal
of rate minimization in the short term. At current rates a decrease in
utility revenues may result in a rate increase to cover expenses. The
magnitude of the rate increase will be a function of the value of displaced
generating resources or increased sales. Because the Pacific Northwest is
currently in surplus, conservation programs tend to raise rates modestly in
the near term. These goals also can come into conflict on ratepayer equity
issues. For instance, many programs prove beneficial to the region as a whole
since relatively expensive generation is displaced. However, some individual
ratepayers can be worse off if they cannot or do not participate in utility
programs .
666 THE 1986 INTERNATIONAL CONFERENCE OF THE SYSTEM DINAMICS SOCIETY. SEVILLA, OCTOBER, 1986
Table 1 shows representative model results from the CPAM screening process.
Results are based on Bonneville's medium load forecast. The strategies
included span the range of activity from minimum (strategy (G)) and
conservation in new structures only (strategy (F)} to cost sharing incentive
levels of 90% in all sectors (strategy (A)). Strategy (A) has the worst
one-year rate penalty, but it provides the largest benefits to the region and
to the utility over the forecast period. Strategy (F) generates a higher rate
impact than either of strategies (C) or (E) while providing less benefits.
This phenomena occurs because conservation resources are available at lower
unit cost than generating resources. Higher strategies tap
relativel,’ more of this potential during the planning period.
Table I, Impacts of Alternative Conservation Strategies
Strategies (A) (8) (C) (0) (E) (FG)
Utility Incentives
Regigentiot jential
908 75% 75% 75k 75% 75% ~
0%
Existin 90% 75K 75% 75% Si - -
‘ Commercia
New 90% 758 75% 75% 75% 75% -
air 90% 75% 50% = 50h =e
Industria’
"906 75% 50% = SOR s
Eristing 908 75% 50K = (SOR =
Results
vEthity eer
Years $4.2 $2.7 $2.0 $1.8 $1.6 $1.3. $0.8
(es'5, 105) He HS
Utility Spending per
Niet Ave. KW Saved $3.3 $2.7 $2.5 $3.1 $2.3 $3.6 -
(85 $, 103) Bune &
Average Rate Penalty 0.2 0.0 0.0 0.1 0.0 0.0 -
(mills /kwh, 85$)
Worst Year Rate Penalty 0.9 0.5 0.3 0.2 0.2 0.1 =
(mills/kwh, 85$)
Regione Rowtit (NPV) $1.2 $0.8 $0.6 $0.3 $0.4 $0.1 =
One of the issues raised for the analysis is whether to do conservation in a
surplus. Our analysis indicated that Bonneville may do well to begin
programs in a surplus. Conservation in a surplus period makes sense because
it allows the region to accumulate enough savings to defer construction of
the more expensive generating plants (required when the system goes
deficit), and reduce current operating costs or increase power exports in
the near term. Some benefits accrue from starting any of the strategies
imediately. Other model runs indicate that if program implementation were
delayed for 5 years, followed by the most aggressive strategy, additional
benefits would be minimal and utility cost would be high. Further, the
prospect of shutting off programs and then turning them back on aggressively
THE 1986 INTERNATIONAL CONFERENCE OF THE SYSTEM DINAMICS SOCIETY. SEVILLA, OCTOBER, 1986 667
5 years later was deemed unrealistic from a program delivery standpoint.
The ultimate policy decision was to proceed to implement conservation pro-
grams at the Medium to Medium-High levels, trading off the regional benefits
against the rate penalties.
CPAM can also be used to examine program design issues as they relate to
broad impacts on the system. Late in 1985 a question came up about how much
of a program financial incentive Bonneville should pay in utility service
territories who do not place load requirements on Bonneville. Due to the
unique ratemaking structure for Bonneville wholesale power, we needed to
determine the financial benefit received by current Bonneville customers
from conservation resources acquired by potential Bonneville customers.
During 1985, CPAM was disaggregated to portray the three major customer
groups individually, i.e., the public utilities, the private, investor-owned
utilities (10Us) and the direct service customers (mainly aluminum smelters)
which purchase their power directly from Bonneville.
Bonneville has a different relationship with each of these customer groups,
both historically and due to changes embodied in the Regional Power Act.
Three factors are important: (1) all Northwest utilities can rely on
Bonneville for their load growth requirements by giving seven years notice
before placing a load on the system; (2) all the residential and rural cus-
tomers of every Northwest utility have rights to the cheapest firm power
pool rate through the residential and rural exchange provisions of the
Regional Power Act (Bonneville exchanges power at the utility's average
system cost); and (3) I0U's must pay a melded new resources rate for non-
~ residential loads put on Bonneville. The situation is further complicated
by the fact that Bonneville does not know how much load will be placed on
the system beyond seven years, or whether or not utilities will exchange
loads. This complex ratemaking situation makes it difficult to assess the
relative benefit to the Bonneville system of conservation on I0U loads.
Therefore, a disaggregated system-level model was needed. An analysis
conducted in the Spring of 1986 using the Subregional Model considered the
financial impacts on Bonneville relative to those on the investor owned
utiltttes of early conservation savings on IOU Toads. We used CPAM to
simulate the financial impacts of an advancement of new home efficiency
improvements to 1986 rather than 1989. The 1985 Bonneville medium load
forecast was used as the basis for the analysis. The period of study was
set to 1986-2005. The savings achieved were modeled as a 100% effective
code within the IOU service territory. No utility cost was associated with
the savings since the goal was to calculate only the relative financial
benefit to Bonneville and the I0Us. The I0Us were represented as a single
entity, and no geographical or climate area breakdowns are represented.
Sensitivity analysis was performed on the assumption of I0U load placement
on Bonneville in the long term: (1) no Toad placement (0%); (2) Bonneville
provides 50% of the new resources to serve I0U deficits; and (3) 100%
reliance on Bonneville to meet IOU new resource requirements.
668 THE 1986 INTERNATIONAL CONFERENCE OF THE SYSTEM DINAMICS SOCIETY. SEVILLA, OCTOBER, 1986
The model was run twice for each load placement assumption. The base case
run assumed the code for the I0U service territory began in 1989. The test -
case then assumed the code began in 1986. The difference in I0U loads and
the net present value of future Bonneville and IOU revenue requirements were
_ used as the primary indicators of impacts. Table IJ presents the results.
Table I1. Benefits of Conservation on I0U Exchange Loads
TOU Deficits Placement 0% sox Yoox
f PV of
Regusnevilte Reve Req. $43M © $83.M $135 M
Reduction of PV of
TOU Rev. Req. 154m $136 S12.
Bonneville % of Total 22% 30% 53%
As the I0Us place load on Bonneville, Bonneville benefits from the early
conservation in two ways. First, less residential load is exchanged, so
Bonneville saves the difference between the average system cost of the I0Us
and its priority firm, power rate on each kilowatt-hour saved. Second, since
the I0Us are not building their own new, expensive resources, their average
system cost and the cost of each unit exchanged is lower over the long
term. The I0Us benefit because they build less capacity and avoid the costs
and risks of large, capital-intensive construction ventures.
The magnitude of the benefits of advancing construction standards varies
with the. extent to which I0Us place load on BPA. The shift in relative
benefits toward Bonneville from higher I0U load placement is due to (1) the
reduced cost of the exchange due to lower average system costs for the 10Us,
and (2) higher avoided costs for Bonneville from the additional generating
resources needed to serve the larger system load. The opposite is true for
the I0U customer group. The ultimate policy decision was to make the con-
servative judgment that 25% of the benefits would accrue to the Bonneville
system. and a program cost sharing offer was extended to the I0Us on that
asis.
5. Conclusion.
System dynamics has proven useful in studying conservation policy questions
at the Bonneville Power Administration. Because the technique necessarily
entails the use of complete system representation, causal relationships
among the components and feedback mechanisms, it is particularly well suited
to problems related to conservation planning.
Conservation policy analysis, particularly in the Pacific Northwest, takes
place within an enormously complex, and ever-changing environment. The
«TRE 1960 INTERNA TONAL CONFERENCE UF TRE STOTEM DINAMILS SULIETY, SEVILLA, ULIUBEN, 1yo0 OOD
endogenous representation of system changes over time, a feature not found
with traditionally available planning tools, is a key to the success of the
Conservation Policy Analysis Models. The utility of the technique is
exemplified by the models' ability to track the effect of prices on the
impact of conservation programs, as well as the impact of timing on their
relative costs and benefits.
The models are used by staff analysts on both an ad hoc basis and as part of
the annual corporate resource planning cycle. Recent uses of the model
include the testing of significantly different conservation policy
strategies to determine their impact on the total system costs over the
twenty year planning horizon and determining the impact of timing of a
particular program on different customer groups in the region. .
670 THE 1986 INTERNATIONAL CONFERENCE OF THE SYSTEM DINAMICS SOCIETY. SEVILLA, OCTOBER, 1986
END NOTES
The Columbia River, the fourth largest in North America, drains
approximately 259,000 square miles with an annual discharge rate of 180
million acre-feet. The Columbia's drop is approximately 2 feet per
mile, four times as steep as the Mississippi. A detailed description of
the resources in the region is found in Bonneville (1980) pg. 6-7.
2. The Grand Coulee and Bonneville Dams were initiated in 1933. For a more
thorough treatment, please see Bonneville (1980) pg. 29.
3. For an annotated description and text of the Regional Power Act, please
see Bonneville (1981).
For a more complete discussion of the ways in which conservation differs
from generating resources and the reasons that these questions are
critical see Bull and Barton (1986).
5. Ford and Naill (1985) Chapter 4 provides a description of the Regional
Conservation Policy Analysis Model and an overview of electricity supply
and demand in the region.
6. Bull, et. al (1985).
Bonneville (1986).
Bonneville (1985).
Ford and Geinzer (1986).
wo on
THE 1986 INTERNATIONAL CONFERENCE OF THE SYSTEM DINAMICS SOCIETY. SEVILLA, OCTOBER, 1986 671
REFERENCES
Bull, O.M and Barton, P.J. (1986). Bonneville's Conservation
Policy Analysis Model. Santa Cruz, California.
Bonneville Power Administration (1980). Columbia River Power for the
People: A History of Policies of the Bonneville Power Administration.
Bonneville Power Administration (1981). Pacific Northwest Electric Power
Planning and Conservation Act with Index. DOE/BP-7.
Ford, A. and Naill, R. (1985). Technical Report: Conservation
Policy in the Pacific Northwest. DOE/BP-271-1.
Bull, O.M., Ford, A. and Naill, R. (1985), The Importance of
Feedback in the Pacific Northwest Electric Conservation Planning
Model. Keystone, Colorado.
Bonneville Power Administration. (1986). 1986 Resource Strategy.
Volumes 1 and 2. DOE/BP-629.
Bonneville Power Administration. (1985). Scoping document for the 1986
Long Range Conservation Projection. DOE/BP-04,
Ford, A. and Geinzer, J. (1986). Findings from Recent Studies with
BPA's Conservation Policy Analysis Models. Santa Cruz, California.
