In developing the resource strategy for the power plan, the Northwest Power Act requires the Council compare the estimated incremental system costs of new generating and conservation resources and give priority to those resources that the Council determines to be cost-effective1. In estimating the incremental system cost of a particular resource, pursuant to Section 3(4)(B) of Act, the Council must include quantifiable environmental costs and benefits directly attributable to that resource over its effective life. Moreover, Section 4(e)(3)(C) requires that the Council’s power plan include as an element of the power plan “a methodology for determining quantifiable environmental costs and benefits” under Section 3(4), which is the section of the Act that defines what it means for a resource to be considered cost-effective. Thus, this methodology is a primary component of the Council’s work to estimate and compare the system costs of each new resource to determine those resources that are the most cost-effective for consideration in development of the power plan’s new resource strategy.

While the 2021 Power Plan included many firsts, incorporating climate change risk at every input level and including the social cost of carbon as a portfolio cost in the regional portfolio model as just two examples of the distinctive analysis in this plan, the Council must still include as an element of the power plan a methodology for determining quantifiable environmental costs and benefits of new resources, and, in this instance, the methodology remains largely unchanged from previous plans. Specifically, the Council has identified the same four primary components for the methodology to determine quantifiable environmental costs and benefits:

  1. compliance with existing regulations;
  2. environmental effects beyond regulatory controls, including both residual and unregulated;
  3. compliance with proposed environmental regulations; and
  4. environmental benefits.

While these components have been identified and considered in previous plans as components to the methodology, each component must be considered anew in this plan. Therefore, this section walks through each component identified above, describing the Council’s methodology to determine quantifiable environmental costs and benefits.

Implementation – or rather application – of the methodology as described herein is then reflected in the supporting materials addressing new resources, conservation and generating, available to meet energy and capacity needs during the 2021 plan period. In addition, staff developed a quantifiable resource cost framework that summarizes and reflects how different costs and benefits are incorporated into the analysis.   

While not applicable for the methodology, which applies to new resources, existing generating resources, including a discussion of their environmental effects is described in the existing system supporting materials, which also provides an overview of the existing state renewable portfolio standards and clean energy policies, both of which were incorporated into the plan’s analysis and influence the regional resource builds as reflected in the resource development plan.

Methodology

The Act does not prescribe a particular procedure or method that the Council must use in developing its methodology for determining quantifiable environmental costs and benefits of new resources; however, the methodology provisions of the Act are specific in that the methodology is to consider costs and benefits to the environment, not to any other type or category of costs and benefits, and that those environmental costs and benefits must be quantifiable and directly attributable to the new resource, not incidental or indirect. These terms, “environmental,” “directly attributable” and “quantifiable,” are not defined in the Act; therefore, the Council has used a common sense understanding of the terms, as guided by the context in the Act and discussions included in the legislative history, and, at times, exercises its judgment in making these determinations on a reasoned basis.

Recognizing these parameters for the methodology, it is important to note that the Council’s consideration of environmental effects does not end with the methodology; per Section 4(e)(2) of the Act, as the Council develops its resource strategy, the Council must give due consideration to “(A) environmental quality, (B) compatibility with the existing system, (C) protection, mitigation, and enhancement of fish and wildlife and related spawning grounds and habitat, including sufficient quantities and qualities of flows for successful migration, survival, and propagation of anadromous fish, and (D) other criteria which may be set forth in the plan.” Each of these vehicles interact with the other, ultimately informing the final resource strategy. For example, as noted above in the 2021 plan, the Council applied a multi-layered approach to incorporate the state clean energy policies as well as utility and local clean energy goals into its analysis. These clean policies, goals, and targets were taken into consideration in the existing system dispatch, the generating resource reference plant development, and ultimately included in the Council’s models as obligations on the system, which affected the region resource builds. Thus, while not accounted for in the methodology, consideration of these clean energy policies and goals informed the resource analysis, as well as provided significant information to the region regarding the influence of those policies on transforming the resource mix and system. Further, in part due to these policies and goals, a primary takeaway from the modeling was a larger renewable build, and with that finding the Council was required to analyze the effects of a build of that size giving due consideration to environmental quality.

As noted above, for the 2021 Power Plan, the Council has identified four primary components to the methodology to determine and quantify environmental costs and benefits directly attributable to new resources: 1.) compliance with existing regulations; 2.) environmental effects beyond regulatory controls, including both residual and unregulated; 3.) compliance with proposed environmental regulations; and, 4.) environmental benefits. Within each of these four components there are decisions to be made; however, these four components serve as the base of the Council’s methodology, and each is discussed in detail below. Before diving into each component, the process envisioned under the Act for development and application of the methodology needs to be addressed. Read strictly, Section 3(4)(B) of the Act requires a back and forth between the Council and Bonneville Power Administration’s administrator to develop and then apply the methodology that in practice is not workable for development of the power plan. Under the precise language of the Act, as part of the final plan, the Council must develop a methodology for determining quantifiable environmental costs and benefits, then on the basis of that methodology, Bonneville’s administrator is to determine such quantifiable environmental costs and benefits directly attributable to each measure or resource, and then the Council is to incorporate the administrator’s determinations into the estimated system cost of each new measure or resource necessary for the comparison of resources in development of a cost-effective resource strategy. To go back and forth in such a way does not work in practice as the Council cannot issue a power plan that includes the cost-effective resource strategy without first estimating and comparing the resource system costs, which necessarily requires consideration of such quantifiable environmental costs and benefits. Therefore, to make these provisions work, the Council has provided Bonneville (along with all others) the opportunity to examine and weigh-in regarding the Council’s methodology and the environmental costs and benefits attributed to each measure or resource per that methodology in review and comment on the draft plan as well as in development of the plan. Specifically, staff solicited feedback and input on the proposed methodology during development of the draft plan with presentations to both the Generating Resources Advisory Committee and the Conservation Resources Advisory Committee. Staff also presented a proposed methodology for the Council’s preliminary consideration during the Council’s September 2019 and October 2019 monthly meetings. 

Cost of Compliance with Existing Regulations

The Council’s planning assumes that all new generating and conservation resource options will comply with existing federal, state, tribal, and local environmental regulations. Therefore, the estimated costs of compliance—when quantifiable—are included as part of the system cost of a new resource, and the cost of compliance is the primary method the Council has used to capture and quantify environmental costs in past plans. The cost of compliance includes, for example, the cost to comply with existing environmental regulations governing air and water emissions, siting regulations, waste disposal, fuel use (extraction and production), and fish and wildlife protection and mitigation costs when quantifiable and directly attributable to the new resource. Compliance with existing regulations is usually achieved via equipment or technology selections. Therefore, the costs of compliance with existing environmental regulations are generally factored in or accounted for within the resources’ capital costs. While perhaps the cost of compliance seems most obvious for generating resources, the cost of compliance with existing environmental regulations are also factored into the total system cost of new conservation measures to the extent there are applicable environmental compliance costs that are quantifiable and directly attributable to the resource.

Including the costs of compliance with existing environmental regulations as a component of the Council’s methodology has been without issue in the Council’s previous seven plans, which is likely due to the fact this component simply reflects the regulatory decisions that have already been made by the applicable regulatory bodies and, thus, it is a fairly noncontroversial decision to then incorporate those costs into the Council’s resource analysis to the extent able. Additionally, even as there has been a great deal of turbulence around environmental regulations in the last few years at the federal level, determining the cost of compliance remained a relatively straightforward consideration for the 2021 Power Plan. For example, in 2015 the Environmental Protection Agency (EPA) issued final standards of performance limiting emissions of greenhouse gas emissions from new, modified or reconstructed power plants under Section 111(b) of the Clean Air Act. As issued, the 2015 rule determined the best system of emission reductions (BSER) for natural gas facilities was the most efficient, demonstrated combustion technology and the best system of emissions reductions for coal facilities as the efficient new supercritical pulverized coal utility boiler implementing partial carbon capture and storage, with the final emissions standards for new coal and gas facilities based on these BSERs. In 2018, the EPA issued a proposed rule proposing to revise the standards for coal-fired facilities based on a revised BSER, but the 2018 proposed rule did not propose revisions to the BSER or the emission standards for natural gas facilities. Consequently, as in the Seventh Plan, natural gas plants that demonstrate the ability to meet or exceed EPA’s 2015 Section 111(b) regulations were selected for consideration in the 2021 power plan resource analysis, with the cost of compliance accounted for in the equipment/technology costs and captured in the capital costs of a new gas facility in our analysis. Additionally, in consideration of the state clean energy or carbon neutral regulations, including no new coal and coal retirement requirements in Oregon and Washington as well as the corporate goals in Idaho to transition to clean resources, new coal plants were not included as a new resource option for the 2021 Power Plan. Thus, the uncertainty with the 2018 proposed rule did not ultimately impact the new resource cost analysis.  

New generating resource options are discussed and addressed in the new generating resources section of the supporting materials, which includes a discussion of the total estimated capital and operating costs resources. The general EE resource methodology includes a discussion of costs and benefits of EE resources as well as the supply curve workbooks. And, a summary of select existing federal environmental regulations are discussed in the Existing Federal Regulations section of the supporting materials.

Cost of Compliance with Proposed Regulations

Quantifying compliance costs for existing regulations is a primary piece of the Council’s methodology, however, an additional consideration is compliance with proposed environmental regulations. The Council has typically dealt with proposed regulations on a case by case basis depending on the proposal, the effects the proposal addresses, and the quantitative data available. The Council is again deciding to address and consider costs of compliance with proposed regulations on a case-by-case basis in the 2021 Power Plan. However, there were no new or more stringent environmental regulations proposed at the time the Council was determining and freezing inputs (spring 2020) that set stricter standards than those previously issued and finalized for new resources. In fact, there were a number of proposed rules issued to change existing regulations in ways that would have made the requirements less strict. Even so, most of those proposed regulations affected existing resources, not new resources. Consequently, there were no costs of compliance with proposed regulations added to any new resource system costs. The existing system resources are addressed in more detail in the supporting materials. 

Environmental Effects Beyond Regulatory Controls

Existing regulations control or mitigate for some amount of the targeted environmental effects from generating or conservation resources, but existing regulations do not control or mitigate for all environmental effects of resources and these remaining effects represent environmental effects beyond regulatory control—residual as well as unregulated effects. Residual effects refer to those environmental effects predicted to remain after compliance with current regulations. For example, not all bird kills from wind turbine operations are prevented under current regulation, nor are all discharges from an electric generating facility, whether it be to the air or water, controlled or prevented by the standards established pursuant to the Clean Water Act or the Clean Air Act. These effects that remain after regulation are residual effects. In addition to residual effects there are also unregulated effects, which are environmental effects not yet regulated or not currently under regulation. While identifying residual and unregulated effects is fairly straightforward, for purposes of the methodology, the Council must also determine whether these environmental effects can be quantified into costs and found to be directly attributable to the new resource, both of which can prove more difficult.

The Council has recognized and acknowledged residual and unregulated effects in previous plans, including in the Seventh Power Plan; however, because of the challenges presented with quantification, the Council did not attempt to determine quantitative costs for residual and unregulated effects. Accordingly, the Council evaluated these effects qualitatively in the assessment of each resource option and in development of the resource strategy. For the 2021 Plan, while continuing to recognize that residual and unregulated environmental effects exist, the Council has determined that qualitatively assessing these effects is most appropriate because it remains infeasible to develop quantitative costs for these effects, especially in any systematic or consistent way, and add them to the new resource cost estimates.

The challenges that remain around quantifying residual and unregulated environmental effects deserves further explanation. The primary reason residual and unregulated effects remain a challenge, if not impossible, to quantify as a resource cost is the persistent lack of adequate data to estimate costs for these effects. Moreover, while sufficient information and data may exist for a few effects information and data remains largely deficient. To consider residual and unregulated effects inconsistently, meaning to add the determined costs of some effects to some resource costs but not the costs of all known effects to all resources due to an inability to determine reasonable quantitative costs, would likely lead to an inappropriately skewed resource cost comparison. Additionally, for the Council to develop the necessary information and data to quantify the effects would require a substantial amount of additional analysis by staff, requiring not only staff resources but staff time that staff does not currently have the capacity to provide. Further, when estimating and comparing resource system costs, it is most useful for the Council to consider costs borne by the power system, and considering social or damage costs in the direct cost of some resources could lead to potentially applying costs to some resources that are extraneous to the power system leading to an apples and oranges resource cost comparison. Therefore, because quantification and consistent treatment remains challenging, the Council continues to consider these effects qualitatively in the new resource analysis and development of the resource strategy.

Further, as noted above, there are many vehicles for the Council to consider environmental effects in its planning, with Section 4(e)(2) of the Act requiring the Council give due consideration to, among other criteria, environmental quality in developing its resource strategy. For example, as the Council developed its resource strategy, the Council considered the environmental effects of a significant renewable build on environmental and cultural resources, including fish and wildlife habitat. This is one example of the Council giving due consideration to environmental quality, while also qualitatively considering the environmental cost of resources beyond regulatory and siting control. Another example of this due consideration in application is the continued implementation of “protected areas.” Protected areas were first adopted by the Council in 1988 as an element of the Council’s fish and wildlife program and represent river reaches where the Council believes new hydroelectric facilities would have unacceptable risks of loss to fish and wildlife species of concern or their habitat. Thus, their continued protection and enforcement is a direct reflection of the Council’s due consideration of the effects of new resources on environmental quality and costs that fall outside regulation. A final example is the inclusion of the cost of carbon emissions as a portfolio cost in the Council’s Regional Portfolio Model. The 2021 Power Plan is the first plan to allow for resource strategies that are responsive to the cost of carbon as a portfolio cost, which also accounts for upstream methane emissions. As detailed in the resource development plan analysis, including the cost of carbon in the portfolio cost impacted the resource dispatch and builds coming out of the model, which ultimately informed the Council’s development of the 2021 Power Plan resource strategy. See the global assumptions in the power plan supporting materials for additional information.  

Quantifiable Environmental Benefits

In addition to quantifiable environmental costs, the Act also requires the methodology to address quantifiable environmental benefits in new resource costs. When considering environmental benefits, a key issue for the Council to grapple with is whether and how to factor into the costs of a new resource the benefit of being able to reduce an existing activity that has an environmental cost. As with the residual and unregulated effects above, the Council acknowledges that environmental benefits should be recognized and considered within the resource analysis in some capacity, but the question that is presented here is whether these environmental benefits are appropriate for inclusion as a new resource system cost. Specifically, can these environmental benefits be quantified, that is, monetized and, if so, are these environmental benefits directly attributable to the resource? As explained in detail below, due to the outstanding issues around determining whether the benefits can be said to be directly attributable to the new resources and reasonably quantified, the Council is again deciding to not include environmental benefits in new resource costs, beyond a few historic examples. The Council continues to recognize and acknowledge these environmental benefits through other vehicles, however, including emphasizing in the resource strategy the value of certain resource choices in helping to mitigate harmful environmental effects, which may result in very real public health benefits as well.

Capturing environmental benefits in the methodology presents a number of hurdles. Generally, information and data on environmental benefits has not always been available, sufficient, or well understood, and quantification of the financial aspects of the reduction in environmental harm is often missing or quite speculative in the data that is available for a new resource. Moreover, it is often difficult to determine whether the reduction in the environmental harm is directly attributable to the installation of the new resource or otherwise incidental. Additionally, as with residual and unregulated effects, the Council must ensure that these benefits can be accounted for in a systematic way across resources to avoid inappropriately skewing the resource cost comparison by applying quantified benefits to a few resources with quantified data available, but not for others—potentially putting a thumb on the scale for some resources. Further, there is a risk of applying a cost and a benefit to the same environmental effect, which would lead to double counting in the resource cost comparison. For example, if the Council were to include the cost of compliance via pollution controls in one resources’ cost estimate and the environmental benefit of fewer or zero emissions in another resources’ cost estimate, we could be inappropriately double counting the environmental effect as both a cost and a benefit. For all of these reasons, the Council continues to use discretion in applying these benefits to the costs of new resources.

Walking through a couple examples of environmental benefits will expound on each of these hurdlers and provide helpful context for the Council’s reasoning. A basic example of an environmental benefit that has been factored into the resource cost estimates by the Council involves the installation of an efficient washing machine. Installation of an efficient washing machine not only saves energy, but also reduces the amount of water used, which is an environmental benefit. To determine quantitative estimates of this benefit (water saved), the Council is able to use the reduced water and wastewater bills paid by consumers to quantify the benefit and reflect this benefit in the resource cost estimate for the conservation measure. While this quantification captures the benefit as it applies to the consumer (water and money saved), it does not capture the broader environmental benefits of reduced water use, which would be nearly impossible to reasonably quantify. Another example, which the Council grappled with in the Seventh Plan and that is discussed in more detail below, is the installation of a conservation measure, a ductless heat pump, and wood smoke. Installation of a ductless heat pump in the main living area may result in less wood burned. With less wood burned, particulate emissions are reduced, which is a benefit to the environment (air quality) and human health. In this instance, however, the Council ultimately concluded that it could not quantify in dollars the environmental and health benefit (reductions in air emissions) and add them to the resource cost. The Council could quantify the consumer savings in reduced wood purchases, but the environmental and health benefits that result from burning less wood and reducing air emissions are more complex than water saved as it is challenging to say whether these benefits are directly attributable to the installation of the ductless heat pump and not incidental or a result of a behavior choice. Further, there were continuing concerns about engaging in piecemeal quantification of benefits to add to a few resource costs, but not others, which would potentially skew the analysis. This example is useful for demonstrating the primary issues the Council continues to contend with in terms of whether and how to factor into the costs of a new resource a quantitative estimate of the environmental benefit of being able to reduce an existing activity that has an environmental cost.  

Two publications were issued in 2019 that further examined quantifying environmental benefits and warrant consideration by the Council. The first analyzed how to monetize the benefits of reduced wood smoke from ductless heat pumps and the second addressed reduced emissions and public health benefits associated with conservation and renewable resources: 1.) studies from Washington investor owned utilities to quantify and monetize the health benefit of displaced wood heat emissions from the installation of ductless heat pumps, and 2.)  the U.S. Environmental Protection Agency’s July 2019 report, “Public Health Benefits per kWh of Energy Efficiency and Renewable Energy in the United States.”

Beginning first with the Washington investor-owned utility studies: Puget Sound Energy, Avista, and PacifiCorp were directed by the Washington Utilities and Transportation Commission staff to conduct studies in their service territories to quantify and monetize the health benefits of wood smoke emissions displaced by the installation of ductless heat pumps. These studies followed the same methodology and relied on much of the same data and tools as the 2014 report from the Council’s Regional Technical Forum, which explored the relationship between changes in wood smoke emissions and health impacts and informed the Council’s conclusions in the Seventh Plan. To summarize just briefly here, the RTF report concluded that while health benefits from reductions in wood smoke could be quantified and monetized, there was a lack of appropriate data and tools for quantifying the environmental and health benefits at that time.

While, as noted above, the Washington IOU studies followed the 2014 RTF report methodology and relied on much of the same data, these studies did provide two minor adjustments for utility specific assumptions. First, the studies modified the emissions estimate to account for only those counties within each utility’s service territory, and, second, the average savings per home were applied to the number of applicable homes for the utility’s service territory, rather than the region. The Council diligently reviewed these new studies and continues to agree and expressly acknowledge that particulate emissions from wood burning are a well-documented environmental and health concern and the installation of new electrical efficiency measures may correlate to reductions in the burning of wood, and thus particulate emissions. However, while these studies provide new location-specific information for the quantification of these benefits, they do not provide new data sufficient to address limitations noted by the RTF in its 2014 analysis. Importantly, the Council’s primary concerns remain in that it continues to be difficult to say to what extent reductions in particulate emissions are directly attributable to the installation of the efficiency measure; it continues to be difficult to quantify the benefits in a way that apply to a specific measure or measures across the region when the benefits may be location-specific; and, applying benefits to the cost of some measures but not others may lead to a skewed resource cost comparison. Consequently, the Council does not attempt to add the environmental benefit of displaced wood smoke to conservation measure costs in the 2021 Power Plan. Further, as noted with regard to residual and unregulated effects, when estimating and comparing resource system costs, it is most useful for the Council to consider costs and benefits that are appropriately borne by the power system, and considering public health benefits in the direct cost of some resources could lead to potentially applying costs to some resources that are extraneous to the power system leading to an inconsistent resource cost comparison. State, governments, and utilities are more than justified in pursuing these measures when making resource and program decisions based on the societal and health benefits. However, before doing so, it may still be appropriate to first consider if these benefits should be borne by the power system, or to what extent, before using ratepayer dollars to incentivize these resources.

Turning to the EPA July 2019 study, “Public Health Benefits per kWh of Energy Efficiency and Renewable Energy in the United States,” EPA developed a set of values to help state and local policymakers estimate the monetized public health benefits per kilowatt-hour of energy efficiency and renewable energy resources. The basis of the EPA report recognized that energy efficiency and renewable energy resources reduce emissions from the electric power sector through decreasing the demand for electricity or displacing fossil fuel-based generating resources with zero-emitting resources, and that while avoided emissions may lead to public health benefits there is currently an inability to quantify or fully reflect these health benefits when making decisions about existing/planned projects, programs and policies. Seeking to address that gap, the report outlines EPA’s approach to quantify and monetize near-term benefits from reduced emissions (sulfur dioxide, nitrogen dioxides and particulate matter) as a result of changes in fossil-fuel based generation due to energy efficiency and renewable resources. EPA’s report provided single benefit per kilowatt hour values, based on the 2017 electricity dispatch and emissions estimates, advising, however, that the values should not be used to estimate benefits beyond 2022 given the emission rates underpinning the values. Thus, while the EPA’s report provides additional data, in order for the Council to capture these benefits in new resource system costs for the 2021 Power Plan, it would still have required significant analysis by staff to extend the $/kWh values through the 20-year planning period2. More importantly, as discussed in detail in the resource strategy recommendations, and reflected throughout this plan and supporting materials, there is a significant transformation occurring in the mix of technologies relied on for electricity generation in the western electric grid, with a substantial amount of renewable resources being added in the region as well as WECC-wide, which is being spurred by lower resource costs, coal retirements, and clean energy policies. Thus, emission levels will be changing over the next five to ten years and beyond, and with an increased reliance on zero-emitting resources, the avoided emissions rate for the region will also be changing, leading to an even lower $/kWh health benefit in future years. Consequently, with no new coal plants being developed in the region, and existing units planned for retirement, the amount of coal displaced by new energy efficiency and renewables will be declining, and, the health benefit monetary value will be less significant. Further, the EPA report does not address or resolve the Council’s concern that applying these benefits piecemeal risks skewing the resource comparison.

While it is important to recognize that additional sources of information and data addressing quantification of environmental benefits have become available since the last power plan, and provide useful analytical points, the data remains insufficient to alter the Council’s approach for the environmental methodology. However, as discussed above, there are other vehicles provided under the Act for the Council to consider the environmental effects of resources, and one of those is through its due consideration of environmental quality. In development of this power plan, the Council considered greenhouse gas emissions as well as climate change and integrated each of these considerations into its analysis. Climate change impacts on temperature and precipitation, which effect loads, river flows, and generation, were integrated throughout our quantitative analysis and modeling, and the Council included the cost of carbon as a portfolio cost on emissions, with upstream methane emissions factored into that calculation as well. Thus, while the environmental effects of carbon were not added as a direct cost or benefit of a new resource via the methodology, its effects were considered and integrated into the Council’s planning, and the impact of that consideration is reflected in the Council’s resource decisions. Section 11 of the plan describes in more detail how the Council gave due consideration to environmental quality, including climate change and carbon emissions.

[1] Section 3(4)(B) of the Act defines system cost as “an estimate of all direct costs of a measure or resource over its effective life, including, if applicable, the cost of distribution and transmission to the consumer and, among other factors, waste disposal costs, end-of-cycle costs, and fuel costs (including projected increases), and such quantifiable environmental costs and benefits as the Administrator determines, on the basis of a methodology developed by the Council as part of the plan, or in the absence of the plan by the Administrator, are directly attributable to such measure or resource.” Thus, system cost includes costs beyond environmental costs and benefits.

[2] EPA issued an updated report in May 2021; however, this updated report was issued after the Council froze its inputs for the 2021 power plan, and, moreover, the May 2021 update recommends its values not be used beyond 2024.

 

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